Speaking of Supply Chain...Just

Just in Time or Just in Case? The Once and Future Limits of the Supply Chain Model
By James E. Orlikoff, President, Orlikoff & Associates, Inc.
2020-May-08

American health care is an incredibly complex web of interconnected systems and processes. Through the prism of normal times, these complicated systems appeared robust, reliable, and predictable. But then coronavirus ripped back the veil of normalcy to reveal a frightening level of fragility. The health care infrastructure of the world’s richest nation fell apart. Not just esoteric PPE, but prosaic testing swabs and drugs needed by ventilated patients like sedatives, anesthetics, and paralytics all became either impossible to obtain in needed amounts or unaffordable. Why? Where was the supply chain?

The Supply Chain was there but was designed for a different purpose: A Just in Time emphasis to capture maximum efficiency. It worked in normal times. But when the long-predicted Pandemic came, we saw its limitations: Just in Time means there is no Just in Case. We failed to imagine or fund the scenarios when we would need the Muda of excess inventory, would benefit from the inefficiencies of redundant suppliers, when the need for resilience would clearly exceed the benefit of any past savings gleaned from relentless efficiency.

Now, we face another possible failure of imagination: the failure to imagine a post-pandemic world that does not go back to "normal".

Because hospitals have had to cancel elective and non-urgent surgeries and procedures, they have experienced patient volume declines of about 55% from the beginning of March to mid-April 2020, and corresponding revenue declines of between 45 – 65%. Meantime, their expenses remained flat or increased up to 10%.

For U.S. hospitals to deal with that recipe for financial disaster and recoup that lost revenue they would need to run at 110% of previous capacity for six months straight. And so, many are predicting that once hospitals can re-open to elective procedures that there will be a great release of “pent up demand” where paying patients come out of the woodwork and hospitals go into overdrive. The obvious problem for the Supply Chain will be how to deal with this demand, how to get the stuff and staff to service the hoped-for surge.

But we must remember that Hope is Not a Strategy. That just because we desperately want or need something to happen, does not mean that it will happen. In fact, there are several compelling reasons why volumes may NOT fully rebound and may equilibrate to LOWER levels than before the crisis. I will be speaking about the details of these and other issues in my upcoming program for SMI Presents: Vision 2020. I look forward to sharing more insights with you during that session and my follow-up Q&A scheduled for June 11. I will leave you with a question to ponder before I am with you on May 19: So, what shall it be: Just in Time or Just in Case?

SMI Presents: Vision 2020 started with Jamie Orlikoff’s presentation on May 19 at 5:00 pm ET.

As always, we welcome your comments and suggestions.