New Data: Healthcare Supply Chain Trends, Challenges, & Opportunities
Premier’s new 2024 Supply Chain Resiliency Report shines a light on supply chain woes.
Aug 26, 2024
Key Takeaways:
· Nearly 80% of providers and 84% of suppliers expect supply chain challenges to worsen or remain the same.
· Product backorders and shortages continue to impede organizational operations with direct impacts on employee burden and patient care.
· Digital investments are increasing for both providers and suppliers – with many seeing data and supply chain technology as key to resiliency, competitive advantage, and long-term growth.
Over the past four years, healthcare supply chains have faced an unprecedented number of complex and compounding challenges rarely seen throughout history.
The COVID-19 pandemic forced a shift to de-risk supply chains. And economic challenges spurred by ongoing inflation, geopolitical tensions, natural disasters – and more – compel leaders to focus on long-term transformation, rather than short-term gains.
Hundreds of leaders from both healthcare provider and supplier organizations (NEW for 2024) shared valuable perspective for Premier’s 2024 Supply Chain Resiliency survey and Report.
What follows are 8 key takeaways for the healthcare supply chain in 2024 and beyond, and some insights and advice about how to address.
What follows are 8 key takeaways for the healthcare supply chain in 2024 and beyond, and some insights and advice about how to address.
1. Inflationary pressures.
Ongoing inflation and cost pressures for labor and products are noted as the biggest operational and financial challenge for both provider and supplier organizations over the next year (47% and 45%, respectively).
Sixty-five percent of providers also say costs or financial pressures are the most significant barrier to achieving supply chain resiliency.
2. Anticipation of continued challenges.
Most survey respondents see the supply chain as in a permanent state of flux with issues like persistent product shortages/backorders, geopolitical instability, and raw materials availability expected to persist or worsen over the next year.
Nearly 80% of providers and 84% of suppliers expect supply chain challenges to worsen or remain the same – an increase from the 75% of provider respondents asked this same question in 2023.
3. A climate of unpredictability.
Over half of suppliers have experienced supply chain operations impacts due to geopolitical issues and severe weather events in 2023. And nearly 85% expect regulatory policy changes to affect their 2024 supply chain strategies.
4. Shortages impede operations and disrupt patient care.
Product backorders and shortages continue to impede organizational operations with direct impacts on employee burden and patient care.
Sixty-seven percent of providers said their teams are spending 10+ hours per week mitigating supply chain challenges and shortages. Nearly 40% have had to cancel or reschedule cases at least quarterly in 2023 due to product shortages.
5. Shortages impact an organization’s bottom line.
For a medium-sized health system (5 hospitals/650 beds), Premier data shows supply shortages, on average, increase the cost of providing care by up to $3.5 million and lead to $350,000 in lost revenue per year. In addition, shortages perpetually tie up $1 million in cash in excess inventory.
Shortages can also lead to potential revenue loss for a manufacturer by way of substitutions for a competitor’s product, cancelled orders, lower demand/consumption, and year-over-year change in the manufacturer’s market share.
Premier data shows half of manufacturers lost greater than 2.5% of revenue due to their own shortages while a quarter lost between 2.5% and 6% of revenue from February 2023-February 2024.
6. The rise of the digital supply chain.
Digital investments are increasing for both providers and suppliers – with many seeing data and supply chain technology as key to resiliency, competitive advantage, and long-term growth.
Forty-three percent of providers are leveraging technology and data around supply availability – an 8% jump and the biggest increase from last year’s survey. 37% of suppliers are prioritizing technology investments in 2024, with many respondents saying their organization has been making investments in technology capabilities for a decade.
Notably, artificial intelligence (AI), robotic process automation (RPA) and supply chain mapping technologies all saw an uptick in planned use by providers from Premier’s 2023 Resiliency survey – increasing by 2%, 4% and 7%, respectively.
And nearly three out of four suppliers say technology is supporting increased supply chain visibility, 64% report better collaboration and risk management, and 62% note improved response times to disruptions as well as cost savings.
7. Importance of domestic manufacturing.
More than half of suppliers report moderately or significantly increasing investments in domestic manufacturing. At the same time, nearly 90% of providers say domestic manufacturing is an important component of their organization’s resiliency strategy.
To that end, Premier recently submitted comments in response to the U.S. Trade
Representative (USTR)’s solicitation for input on a new wave of tariffs on $18 billion worth of goods manufactured in China, including medical products and their raw materials.
Premier urged the USTR to modify its proposal as well as consider augmenting supply chain resiliency efforts through additional mechanisms such as tax incentives for domestic manufacturing and the creation of trusted trade partnerships for near shoring.
8. Diverse strategies for resiliency.
Other supplier priorities for resilient operations include improving demand forecasting, cybersecurity enhancements, diversifying Tier 2/3 suppliers and increased collaboration with supply chain stakeholders.
Providers note SKU rationalization, monitoring supplier key performance indicators, multi-sourcing categories for redundancy and enhancing terms and conditions within supplier contracts as important strategies.
Insights From the Survey
Open-ended Questions & Their Responses:
How are you anticipating supply chain challenges in healthcare over the next 12 months?
• “Have seen stabilization post pandemic, but are still constantly fighting manufacturing, raw materials and transportation issues.”
• “Regulation on chemicals of concern used in the manufacturing process. Government officials need to work with industry experts to clearly understand the issues before making sweeping legal decisions.”
• “The U.S. presidential election will have a major impact on the world. Currently with the Red Sea and Panama Canal issues, we are seeing extended lead times for deliveries. As suppliers, this requires increased stock levels that we can manage. However, some companies don’t have the ability to hold larger levels of inventory to reduce risk.”
• “Heightened demand for medical resources, driven by evolving healthcare needs and demographic shifts, may strain existing supply chains. Concurrently, logistical impediments such as transportation disruptions and regulatory complexities could impede the seamless flow of essential supplies. Manufacturing constraints, stemming from workforce shortages, raw material scarcities or operational inefficiencies, further compound these challenges. Additionally, global economic volatility and geopolitical tensions pose inherent risks to supply chain stability, influencing cost dynamics and procurement strategies.
What strategies are you employing to mitigate the impact of inflation on your supply chain operations?
• “Further advancing cost optimization across operations, with focus on lean manufacturing principles and sourcing.”
• “We’ve taken proactive measures such as strengthening our raw material reserves by sourcing and stocking them alongside our manufacturing partners to enhance supply chain resilience. Furthermore, we’ve embraced AI to automate data capture and streamline processes.”
• “We work closely with our quality and R&D teams to approve alternate suppliers and then utilize multiple procurement strategies to minimize cost increases and drive savings. Additionally, we are investing in multiple areas (new forecasting / ERP systems, etc.) to drive efficiency.”
• “Planned purchases to avoid emergency orders.”
• “Automation is the single biggest mitigating factor. We have been investing in technology and automation for over 10 years, so we’re ahead of the curve and have been able to weather the shortages and inflationary concerns better than many.”
What continues to keep you up at night regarding healthcare supply chain resiliency?
• “The backorders you never thought of… especially if there are only one or two vendors in that market space.”
• “Wall Street and investor pressure on suppliers will cause them to take risks, consolidate operations, reduce inventory. The other item that scares me is suppliers’ vulnerability in cyber. Cybersecurity should be our number 1 concern.”
• “Geopolitical issues involving China.”
• “Critical products such as chest drains not being available.”
• “What product SKU/category will be discontinued next with no notice – on top of current worry of consistent daily supply shortages.”
• “Right people, processes and resources in place to be able to meet needs of our system – even if the environment is unstable.”
Source: Premier 2024 Supply Chain Resiliency Survey
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