Part 1: Considerations for boosting domestic manufacturing and fortifying regional supply chains
Supply chains have been strained by disasters before — from hurricanes and earthquakes to wildfires and nuclear accidents — but the coronavirus pandemic is an entirely different order of magnitude. Closed borders and stay-at-home orders have limited the movement of both people and products, and hard-hit locations can’t look to suppliers in other areas because the global market is completely disrupted.
We’ve already seen how the vulnerability of our current supply chains has created painful shortages of essential supplies like PPE, ventilators, medicines, and even food. New shortages continue to arise — last month, it was swabs and chemicals for diagnostic testing; this month, as antibody testing ramps up, it may be tourniquets.
To prepare for future waves — and future disasters, more broadly — we must quickly learn from issues in the healthcare supply chain and enact sustainable changes to meet demand for food and other essentials. True supply chain resiliency will require redundancy: domestic production and global supply pipelines, strategic reserves in addition to just-in-time manufacturing and fulfillment, local distribution networks as well as seamless international trade.
Supply chains have traditionally been optimized for cost efficiency; now the entire system must be designed for agility so it can “surge and flex” to meet evolving needs for essential goods and services. In the first of a two-part series on building resiliency, we look at three considerations for boosting domestic manufacturing and fortifying regional supply chains — focusing on health as an example that can inform other types of supply chains.
Forecasting needs and risks
Avoiding surprises is a big part of building supply chain resiliency. We will need systems that work together to anticipate demand so we can adapt quickly and get supplies to areas of greatest need. While many of these activities are already happening in individual institutions or smaller systems, preventing future supply chain crises will require states and regions — if not the entire country — to collaborate. This means new ways of working, with an emphasis on bidirectional flows of information that benefit all parties while protecting the bottom line.
Inventory tracking and utilization
Systems will need to accurately track current inventory and calculate the “burn rate” of consumables like PPE, medicines, and reagents. Burn rate calculations aren’t static; they will change as protocols change. In a healthcare system, real-time inventory tracking might account for consumption rate by floor, by department, by facility, or by location. (Other industries have already implemented similar systems; some use sensing technologies to automate tracking.) Of course, data isn’t useful unless it’s shared at the right time and with the right people. And open, centralized databases can be powerful tools for tracking and allocating resources in real time.
Supply chain mapping
In addition to tracking demand, systems will need to map supply chains and pinpoint areas at greatest risk of disruption. More than 900 Fortune 1000 companies have Tier 1 or Tier 2 suppliers affected by the virus. At the start of the pandemic, procurement officers struggled to predict what parts of their supply chain were most at risk, in part due to a lack of data on suppliers, locations, materials, capacity, and other key metrics. Comprehensive supply chain mapping of essential supply chains — down to the raw material suppliers — is a critical risk-mitigation strategy for individual organizations and regions.
Predicting supply needs
The World Health Organization has called for a 40% increase in PPE production to meet the expected worldwide demand. These types of projections are only possible with accurate forecasting models that allow us to prepare for and better anticipate what is needed, where it’s needed, and when to supply it. A hospital or healthcare system, for example, will need to predict the number of expected patients, hospital staff requirements, hospital bed availability, existing and expected inventory, projected spread of disease, and more.
Good models require good data; effective supply forecasting is supported by inventory tracking, burn rate calculations, and supply chain mapping. Making a reasonable projection will require well-informed assumptions, backed by the best available data. The accuracy of forecasting also depends on scale. It is easier to forecast the needs of a single hospital than an entire state or nation. Regional procurement initiatives will only work if hospitals and other organizations openly share information about their supply needs.
Even with the best predictions and preparations, issues such as shortages, price gouging, and unfilled orders will arise. A central command can help detect problems and develop solutions. In some cases, a procurement team can act as a central command; many procurement teams already have an on-the-ground view of current supply and demand. Governments may coordinate an open, centralized database, but central commands at all levels — departments, individual facilities, organizations, and regions — will need to track needs and share data.
Organizations aren’t always eager to share data; for example, a hospital may fear they won’t be able to access supplies if it looks like their inventory is higher than other hospitals. There’s an opportunity to provide clarity on what’s essential to share — for example, data about needs and shortages may be more useful than current inventory — and aggregate that data so states and localities can track and share needs without sharing data about individual hospitals. Membership in a consortium, where organizations or local governments team up for greater purchasing power, might also provide an incentive to share data.
As countries and regions shut down — first in China, then Europe and North America — supply chains experienced rolling shocks.
Responding to shifts in global trade
Countries have been quick to erect trade barriers as they respond to COVID-19. The United Kingdom, France, South Korea, Brazil, India, Turkey, Russia, and dozens of others have restricted foreign sales of medical supplies, pharmaceuticals, and even food; the United States ordered 3M to produce more N95 masks and asked the company to stop selling them to other countries. The World Trade Organization estimates that trade will fall by between 13% and 32% in 2020. (By comparison, trade dropped 12.5% at the height of the financial crisis in 2009.)
Countries are now considering their longer-term options, which include greater redundancy and geographic dispersion of suppliers, as well as regionalized supply chains. Overemphasis on nationalization or regionalization of supply chains risks further reducing diversification of suppliers and limiting opportunities for developing and emerging economies; it could even jeopardize vaccine discovery and development.
There is an opportunity for the United States to both diversify global supply chains and build up local manufacturing capabilities. Figuring out how to efficiently acquire goods or materials from other countries will likely require a combination of trade policies, advance purchase commitments, and smart partnerships.
Consolidating purchasing power
In the U.S., changing dynamics between federal and local governments have resulted in new regional alliances. This week, seven northeast states announced a new multistate agreement: New York, New Jersey, Delaware, Pennsylvania, Connecticut, Rhode Island, and Massachusetts are partnering to “develop a regional supply chain for personal protective equipment, other medical equipment, and testing.” The regional consortium will “work together to identify the entire region’s needs for these products, aggregate demand among the states, reduce costs, and stabilize the supply chain.”
Building local production capacity
U.S. manufacturing has been declining for decades — due to a combination of factors, including foreign competition, automation, and increased efficiency — and at the same time, manufacturing has become increasingly advanced. Over the past 20 years, 80,000 American factories have closed, and it won’t be easy to transition the factories that remain to produce what we need the most during a pandemic.
Sourcing materials and transitioning facilities
Manufacturing medical equipment requires specialized materials and expertise, as well as certifications and adherence to strict standards. As manufacturing has become more complex, we’ve also seen a growing shift toward specialization in which expert manufacturers make individual components. For example, some specialty components in ventilators, such as oxygenation membranes, are made by only a few precision manufacturers around the world. The same is true for medical-grade PPE: Only a few machines can make the material for N95 masks and you can’t simply buy one off the shelf.
Experts tell us that with a few notable exceptions — for instance, a large company like GM producing ventilators — most manufacturers don’t have balance sheets strong enough to pivot to PPE or medical equipment manufacturing without some kind of incentive. Those that are already transitioning are betting their businesses on it; state or federal-level grants, non-recourse loans, or advance purchase commitments would incentivize more companies to transition their workforce and facilities. With the right support and investment, domestic manufacturers could deliver supplies and retain — maybe even create — much-needed jobs.
Training and reskilling workers
Businesses will need workers across the full supply chain. This includes people with expertise in everything from logistics and assembly processes to testing and quality assurance; manufacturing connected devices or medical equipment requires even more specialized expertise. Expansion of domestic manufacturing will also spur an increase in associated roles, from cleaning and sales to regulatory compliance and transportation.
While the high unemployment rate means there will be workers available, the number of people with these skills has been declining; industries experiencing large job losses, such as hospitality and tourism, require vastly different skills than manufacturing. There is an immediate opportunity to reskill job seekers. This training must be practical, affordable, and remotely accessible.
Training might include broad, open-source reskilling and upskilling initiatives as well as more targeted, in-house programs such as apprenticeships. Some countries are incorporating training subsidies and support into unemployment benefits; wage subsidy programs are also being used to support work-based training. Once people are trained, companies will need to make sure they’re safe. The large number of people working in close proximity makes factories inherently risky work environments — as we’ve seen with recent outbreaks at several meat processing plants.
Longer-term, vocational training at the high school level can teach career and technical skills to students and create stronger pathways to in-demand jobs while ensuring a steady pipeline of talent in the years ahead.
Creating new markets and opportunities
Open-source advocates see an opportunity for open hardware and local production to contribute to the global response, but many of the components and products produced by new and distributed manufacturers are considered medical devices when used for diagnostic or clinical care. Manufacturers of all sizes will need to develop processes for following guidelines — and they’ll need clear guidance from regulators and a way to establish relationships with procurement offices.
More than 20 organizations, companies, and philanthropists joined together to form the C19 Coalition, working with governors and other officials to explore public-private partnerships focused specifically on PPE. The group is supporting domestic manufacturers that are producing or retooling to produce new PPE; the coalition provides information about demand, pricing, technical specifications, compliance, and distribution.
There’s an opportunity for the government to play a role in stimulating local industry growth and strengthening domestic supply chains. SynBioBeta’s Built with Biology paper offers policy recommendations for California that could be championed by other states and regions: opportunity zones that spur manufacturing activity, stimulus programs that incentivize procurement, and grants and loans that help businesses launch and expand.
Part 2: Strategic reserves and equitable distribution
This spring, most of the U.S. was rightfully focused on tracking immediate needs, acquiring supplies, and ramping up domestic production to meet projected shortfalls. But now that medical supplies are making their way to hotspot areas — including smaller clinics and care facilities that aren’t big enough to place their own bulk orders — we’ll need to replenish the stockpile and prepare for future waves.
Building a strategic reserve and ensuring equitable distribution both require imagination. How might we better prepare for a diversity of potential scenarios? And how can we mitigate risk? While this particular pandemic is unprecedented in modern history, we can borrow best practices and innovative methods from past events and analogous initiatives.
An agile supply chain — one that can effectively respond to rapidly evolving needs — will require thoughtful investment and the will to maintain it. It will cost more than we are used to spending on ultra-efficient, just-in-time production, but as we now know, underspending carries its own grave costs.
In the second of a two-part series on building supply chain resiliency, we look at balancing imagination and plausibility to build and maintain a stockpile and quickly route supplies to areas in greatest need. As with Part 1, we’re focusing on health as an example that can inform supply chains for other goods and services.
Responding to this pandemic and staying prepared for future emergencies requires significant political and financial commitment. We need to evolve our local, regional, and national strategies to build and maintain a stockpile of essential resources that can be tapped when demand temporarily outstrips production capacity.
Stockpiles: a recent history
During the Cold War, the U.S. maintained an extensive medical stockpile designed for use in the aftermath of a nuclear attack. But support for maintaining the stockpile dwindled as weapons became more powerful and the idea of surviving a nuclear war became less plausible. By the late 1960s, unused supplies were deteriorating in storage; by the mid-1970s, the federal government had disposed of its entire medical stockpile and closed down the program.
In more recent decades, emerging bioterrorism threats prompted the U.S. government to set up the Strategic National Stockpile. Warehouses in multiple locations store antibiotics, vaccines, chemical antidotes, antitoxins, PPE, and other critical medical supplies for a range of emergencies. This stockpile has been used during the pandemic — deploying PPE and ventilators across the country — but as of mid-April, it had distributed 90% of its resources.
On a global level, the United Nations Humanitarian Response Depot stores stockpiles at six hubs located around the world, specifically designed to respond to emergencies. And worldwide initiatives also anticipate other types of needs: The Global Seed Vault stores duplicates of seed samples from the world’s crop collections as a backup to be used in the event of natural or man-made disasters.
While we typically think of strategic reserves as government or international efforts, individual people and organizations also have their own emergency supplies. After 9/11, the newly formed Department of Homeland Security launched Ready.gov, a campaign encouraging families and businesses to create emergency plans and build supply kits.
In response to the coronavirus pandemic, New York State announced it will require hospitals to build a 90-day supply of PPE in preparation for another wave. As the broader economy reopens, expect to see businesses voluntarily build their own stockpiles of masks, hand sanitizer, and other supplies they’ll need to protect customers and employees.
Building a smarter stockpile
Beyond the coronavirus pandemic, how might we build a stockpile that can be used for future, as-yet-unknown crises? We have a sense of which types of emergencies are plausible, but nothing is uncertain. Experts recommend stocking up on supplies with a wide range of potential applications so we can respond to whatever happens. For example, ventilators are only useful for respiratory failure, but masks are useful in many different scenarios. Smart stockpiling will tip the balance toward multifunctional items.
Managing the national stockpile requires more than just acquiring inventory; the stock must be maintained. Different types of supplies have different storage requirements and different levels of perishability; durable goods like PPE are easy to store and last for a long time, but medicines expire, and some types of drugs require cold storage.
To better manage drugs, the Federal Shelf-Life Extension program tests products for stability; once medicines are nearing expiration, those supplies are released back into the commercial market and the government’s reserves are restocked. Similarly, ventilators and other equipment need to be maintained and replaced.
Even the best supplies are useless if they aren’t distributed; stockpiles aren’t effective unless reserved supplies are delivered to the right place at the right time. This spring, existing decision-making frameworks failed, resulting in price competition, private deals, and uncertainty about accessing needed supplies.
Protocols and coordination
As it stands today, states seek permission from federal agencies to use their own state resources, and when those run out, states request additional supplies from the national stockpile. And in New York, the state is requiring public and private hospitals to act as one system that shares both patients and resources. Clear protocols and careful coordination can improve the maintenance and deployment of strategic reserves during future waves.
Of course, the best time to decide on the rules for contributing to and drawing from a stockpile is before a crisis. In the case of the seed vault, samples are tracked in a public online database and managed by an international advisory council; those who deposit inventory must follow published guidelines, and crop collections are governed by an international treaty.
Each entity managing its own stockpile will want to secure supplies for its constituents. But what if one country develops a vaccine and other nations can’t access it? What happens if one state has access to test kits and medications, and another state doesn’t? On a local level, how do hospitals decide which patients receive life-saving treatments or prophylactics?
We will need new ethical frameworks to ensure equitable distribution when critical items are in short supply. A joint MIT-Boston College initiative has proposed an approach to rationing during a pandemic that takes into account multiple ethical values; their triage protocol design can be applied to ventilators, antiviral drugs, and even vaccines. The same team is also proposing a “pay it backward and forward” system to expand access to convalescent plasma therapies: Plasma donors would receive vouchers to give their loved ones priority access to treatment in the future, and recipients would pledge to donate when they recover.