The world is in crisis because of the COVID-19 pandemic, a major global health and economic threat. Its emergence has severed the supply chains of many industries, however, an expert said that the role of governments can secure these chains, even in trying times. It means governments must prioritize availability, instead of firm profits.
The role of governments in securing critical supply chains during emergencies was explained by a professor at Stanford University, a private research university in the US. They pointed out that the fragility of supply chains amidst the pandemic was a result of numerous designs, often complex ones, which targeted business goals not resilience of involved channels. Thus, vulnerabilities surfaced when the pandemic crippled various commercial and industrial sectors.
Shortage in Medical Supplies: An Effect of Severed Supply Chains
On February 27, 2020, the US Food and Drug Administration, a US federal agency, reported an update of the supply chain of medications and other medical supplies which could be hit by COVID-19. The agency closely monitored the supply chain of over 180 manufacturers of human medications since January 24, 2020. FDA communicated with these manufacturers to determine their entire supply, including the ingredients used in medications.
Furthermore, the FDA revealed that 63 of manufacturers representing 72 facilities in China were contacted. These manufacturers could produce essential medical devices and were prone to any disruption. Since COVID-19 emerged in China, it would likely impair the ability of the manufacturers to support supplies with a limited workforce – a known consequence of strict public quarantine measures. Medications for animals were evaluated as well, and 32 firms that either produce drugs or source materials in China were contacted. At that time, no shortage was reported to the agency.
Historically, the FDA is committed to resolving drug shortages to sustain the supply for patients, especially those who are under maintenance medications. In 2012, a total of 117 shortages were reported in the US. About 37% were correlated to quality manufacturing issues, 27% to raw material problems, 27% to capacity and delays, 5% to increased demand, 2% to the loss of manufacturing sites, and 2% to discontinuation. Resolutions in identified weaknesses reduced the frequency of shortages in later years, such as 44 shortages in 2014 and 35 shortages in 2017.
When it comes to injectable medications, the agency helped resolve 51 shortages in 2017 and 109 shortages in 2018. About 26 shortages in 2017 and 24 shortages in 2018 in injectables were reported to the agency. The reduction in total shortages and resolutions to many shortages showed progress, but more effort is needed between agencies and firms to strengthen supply chains.
Governments Should Monitor Critical Supply Chains
The world may still be in shock even months after COVID-19 emerged in China. Because of it was unexpected, no nation was prepared to deal with the pandemic. Not a single country has the exact weapon to counter the health and economic threat delivered by the novel coronavirus. But to does not mean governments cannot make adjustments to mitigate as much as they can to protect communities. One of their tasks is securing critical supply chains, and according to a professor, the frail designs of firms are a cause of the vulnerabilities.
"This health crisis has really shown how fragile those supply chains are and how much we rely on them. Companies build supply chains based on their own incentives, not the health of the network as a whole, so you can't expect such networks to be optimally resilient. The only way to ensure that would be some kind of government intervention," said Kostas Bimpikis, an associate professor of operations, information, and technology at Stanford Graduate School of Business.
Most companies, including non-manufacturing ones, move their production and operations to other countries for two main reasons. First, the cost of production and labor is lower in certain countries. While it helps the employment rate of a hosting territory, the main office tends to have a lean inventory of items. Second, the profit from moving operations elsewhere is typically greater. Since the overall cost to operate is lower in the hosting territory, the company gets more revenue from their investment.
Although the design of supply chains of companies would not change even in this pandemic, a government could use its powers to increase the durability of these chains. Doing so would secure the supply lines in trying times. Bimpikis revealed that emergency measures and greater transparency could prioritize the availability of supplies and unravel weaknesses.
For example, before the 2011 earthquake in Japan, the government had no exact idea of the weaknesses in its auto-manufacturing industry. Even though data was available, many weak points were obscured to officials. After the disaster, most companies were found dependent on a small group of suppliers within a geographic cluster. The reliance on that small group was a big advantage because once the channel to the group had been cut, the companies could no longer operate optimally.
In the medical world, prescription drugs could be affected by issues in the supply lines. The effect on certain drugs could be higher if clinicians prescribe them for COVID-19 patients. One instance was the prescription of hydroxychloroquine, initially believed to be effective against the disease. According to Statista, a German portal for statistics, the antimalaria drug was prescribed by many doctors worldwide to treat COVID-19. A survey conducted between April 6 and 9, 2020, among 6,200 doctors, showed that 83% in Italy, 75% Spain, 51% in China, 50% in France, 39% in the US, 18% in Germany, and 10% in the UK prescribed hydroxychloroquine to COVID-19 patients. If it had persisted, a shortage in hydroxychloroquine could lead to ill effects in patients with autoimmune disorders and malaria.
To heighten transparency and increase monitoring capabilities, advanced and emerging technologies could be deployed. Digitalization of transactions via blockchain technology would be one scenario to easily spot issues in the supply chains. Blockchain technology could allow governments to sift various parts of the chains and discover which problems might lead to shortages. At the same time, the technology could protect data from being tampered, which would prevent cases of theft and manipulation.
The medical supply chain should be categorized as essential and critical, similar to banking. At the end of the day, healthcare workers are the ones risking their lives to battle an unseen foe. If medical supply lines crumble, the world will lose its frontliners, and money will be the least of our problems.