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CUSEF Spring Essay Competition Essay: "Multinational Cooperation to Improve Healthcare Supply Chain Resiliency in a Post-Pandemic Context"

2020-07-22
Lillian Claire Appling, one of our 2015 student delegates
Lillian Claire Appling, one of our 2015 student delegates

Recent shockwaves throughout health commodities’ supply chains have hindered the ability of global healthcare providers to deliver the high quality of care required to address the needs of the population during a pandemic. The interdependency of the United States and China are a cause for concern to some where others recognize an opportunity for cooperation to prepare for future global health needs. These nations can foster resilient supply chains for pandemic-critical products through collectively managing consumer demand, balancing industry spread, and empowering micro-supply chains.

Demand Management Following a Pandemic

Images of empty shelves across the world flooding the internet are symbolic of the oscillations in supply that will occur for years to come if collective measures are not explored to address demand. China and the United States can collaborate on the phenomenon that is consumer perception of the supply of products critical to individual healthcare needs to prepare for demand of future pandemics and other globally disruptive events.

1.1 SUPPLY NOT MEETING DEMAND.

Disruptive events lead to supply shortages of products that are critical to addressing the needs of the population. Healthcare facilities are experiencing shortages of ventilators and Personal Protective Equipment (PPE) greatly reducing the quality of healthcare delivery and creating strains on frontline workers (Ranney, Griffeth, & Jha, 2020). Consumer health products and household staples like hand sanitizer, soap, and toilet paper are some of the items in extreme shortage as COVID-19 swept across the globe (Volkin & Goker, 2020). The root of this issue was groupthink on a global scale where perceived shortages have led to panic-induced purchasing and stockpiling.

1.2 THE BULLWHIP EFFECT.

When conventional methods of forecasting demand fail whether by incorrect expectations or events that lead to extreme changes in demand, various supply chain inefficiencies occur. The Bullwhip Effect demonstrates how the reaction to these shortages travel upstream and lead to larger fluctuations in materials as the change in demand reaches the raw material supplier (Forrester, 1961). Retailers and distributers respond to the change in demand by adjusting orders with their upstream partners accordingly. However, delineating between perceived and true demand is difficult without comprehensive coordination.

Hand Sanitizer Example.

When the change in orders reaches the raw material provider and they aim to adjust their levels of production, the difference between perceived and true demand becomes increasingly distorted due to the sheer distance from the consumer. When the materials move downstream and ultimately to the consumer, demand could have already shifted back to a more stable state leading to massive overstocks which demonstrates the ebbs and flows of a bullwhip.

Using hand sanitizer as an example, picture the empty shelves in a grocery store as the ‘valley’ of the bullwhip shape. Retailers react to this with increasing their order, which then travels upstream to the material supplier who ultimately responds with maximum production levels seen in the bullwhip’s ‘peak’. In the months to come, the market will be flooded with large quantities of hand sanitizer which, as a low-cost high-volume product, will come with expensive inventory costs as they sit in overstock. Since ambiguity exists of true demand and the timeframe the pandemic will last, retailers and suppliers face uncertainty for how their inventory costs will suffer due to the Bullwhip Effect on hand sanitizer but also toilet paper, detergent, and other consumer packaged goods.

Communication and Coordination.

Addressing fluctuations in levels of inventory can be managed through a coordinated communication effort throughout all activities in the supply chain. While the best results from these efforts occur during more balanced times, benefits can still be realized when dealing with post-pandemic or other disruptive events. In 2007, Sundrani explored a similar event of operational risks and responses through the context of the Avian flu pandemic. The findings included increased chances of resiliency when faced with catastrophic demand fluctuations through cohesive communication plans and dedicated teams intertwined with supply chain functions of the organization (Sundrani, 2007).

Post-pandemic communication planning can be a coordinated effort between China and the U.S. by collaborating with all members of the supply chain before and during the next global catastrophe. This premise will increase responsiveness and resiliency to market changes. If communication channels remain open with the public and insights flow to the appropriate organizations, the two superpowers can close feedback loops that can help companies respond quicker to the needs of the population.

2. Transitioning Industries Towards Agility

The COVID-19 pandemic is illuminating supply chain inefficiencies which will soon cause large fluctuations in inventory, leading to damaged companies and consumers whose healthcare needs are not met. China and the United States can prepare for the next global catastrophe by evaluating siloed industries within nations retrospectively to determine their efficacy when reacting to supply chain disruptions. Balancing industries’ comparative advantage, especially for those critical to healthcare delivery, would be crucial to responding to future pandemics.

2.1 THEORY OF COMPARATIVE ADVANTAGE.

The theory of comparative advantage explains why a country or entity may choose to import and export products through the lens of whoever can do so at a lower cost (Mill, 1844). The agrarian shift to industrialization presented countries like China and the U.S. with opportunity costs from complete self-sufficiency where benefits to trading partners would occur by focusing on their strengths. This section will explore a few poignant issues in the context of healthcare and addressing supply and demand needs in preparation of a pandemic.

2.2 CURRENT BALANCE OF PANDEMIC-CRITICAL INDUSTRIES.

The author uses “Pandemic-Critical Industries” to describe those providing goods and services in great need during the COVID-19 Pandemic including: Pharmaceutical materials, Pharmaceutical Research, Ventilators, Personal Protective Equipment (PPE), and Consumer Packaged Goods (toilet paper, hand sanitizer, hand soap, and cleaning products). The balance of these industries between China and the United States compared to the spread of the virus highlights some of the bottlenecks experienced in the delivery of pandemic-critical products to the end user.

China.

China started experiencing effects of the pandemic in late 2019 bringing many industries to a halt by early 2020. This meant that many of the goods destined for the world, especially consumer packaged goods and PPE that require short lead times to meet Just in Time (JIT) orders, now had extremely high lead times or production/distribution came to a halt completely. Many raw material manufacturers for pharmaceutical products and machine parts for ventilators are also comparatively cheaper operating out of China leading to dependencies for suppliers and distributors. The bottleneck that occurred due to the early waves of the pandemic affecting China meant that consumers across the planet would not receive the healthcare goods and services that they expected to receive.

United States.

The U.S is a hub for critical research and development and assembly of pandemic-critical products. Pharmaceutical research is based in several clusters throughout the states and ranks top across the globe in investment into this sector (Van Arnum, 2016). Ventilator assembly also has a large presence in the states although there is a wide international spread, all of which depends on the logistics of importing parts (Bell, 2020). From these two examples, the United States has shifted away from manufacturing consumer goods further removing the population from the goods that were in shortest supply.

2.3 REMOVING BARRIERS TO EFFICIENCY.

While a global catastrophe may seem like an uncertain time to execute shifting supply chains to address demand more accurately, it is ideal to identify where shifts need to occur. Decentralizing manufacturing of consumer packaged goods, such as hand sanitizer and face masks, traditionally would be expensive and unnecessary for high-volume low-cost inventory but is ideal when needed to react quickly to change in demand. China and the United States can cooperatively work towards decentralization of pandemic-critical products to ensure high-resiliency supply chains through collaborating on national and international policy. During a 2015 CUSEF experience, the author attended two seminars on policy and economic development that showed China’s willingness to work cooperatively on becoming more agile in how their industries’ respond to disruptive events and improve the lives of global citizens. While policy is often a long-term process, measures can be taken to engage and empower the public to participate and reduce the Bullwhip effect of some of the previously discussed products.

3. Empowering Individuals to Participate

After managing the demand following a pandemic and releasing some of the strongholds to better follow comparative advantage, China and the United States can empower citizens to participate in the supply chains of healthcare products to respond quicker to pandemics and reduce fluctuations. Individual consumers understand their needs and have the power to both communicate these demands with organizations and address them in cases where they’re able.

3.1 PRACTICING GLOCALIZATION.

Glocalization is the concept of conducting operations in a way that considers both global and local contexts as the next generation of conducting business in a context that aims to better fit the needs of local areas. COVID-19 affected areas of the globe differently but the health-related products and services were a universal need. While glocalization often means customization to an area, in the context of planning for the next pandemic it can relate to proactively planning how to shift resources from region to region as opposed to ad hoc distribution of pandemic-critical products.

Whereas traditional supply chains are viewed as mammoth in scale, this can be considered micro-supply chain management where the strategy is focused on specific areas leading to shorter transition periods. Currently, survival is difficult for companies currently operating in micro-supply chains due to competition with large, often more sophisticated, enterprises although their value is widely recognized (Velázquez-Martínez, n.d.).

3.2 CONSUMER-TO-CONSUMER INTERACTION.

Empowering consumers to interact with the supply and value chains that they are traditionally subjected to could pay dividends to the countries, companies, and general population. During a 2015 CUSEF experience, the author experienced the entrepreneurial spirit of Chinese citizens with noticeable customization of each kiosk and shop to meet the individual needs of the local area they were serving. When those needs change, these independent operators have the agility to shift their inventory and operations accordingly. The same spirit can be found in the United States, where a drive for entrepreneurship leads to much of the innovation that was seen during the first half of 2020 to address needs of the pandemic.

It is understood that consumer-to-consumer (C2C) interaction leads to commitment and reciprocity for a common cause, especially across virtual communities (Chan & Li, 2008). Even without a comprehensive message from their governments, Chinese and U.S. citizens started addressing shortages caused by the pandemic such as distilleries shifting operations to create hand sanitizer and online communities making and distributing fabric masks. With more coordination, strides could be made to empower individual consumers to feed into the supply chain where applicable.

Conclusion

This essay reflected briefly on the disturbances and bottlenecks experienced during the COVID-19 pandemic in the context of how China and the United States can cooperate in the future to ensure more resilient supply chains. First, a proactive communication plan between the two nations can ensure that when facing future pandemics that efforts are coordinated and reduce the impacts of consumer panic and hoarding. Second, A multinational strategy on decentralizing, or shifting, manufacturing should take place to review the true opportunity costs of continuing to operate in the current state where adapting to global catastrophes lacks efficiency. Last, the two nations should empower their citizens’ collective entrepreneurial spirits by preparing policies to make consumer-to-consumer trade more open across country lines as well locally.

The value of micro supply chain management can be realized from the consumer level to enterprise scale while empowering those involved at every link. China and the United states can leverage their resources to focus pandemic-critical product’s manufacturing on agility by reviewing bottlenecks to improve future healthcare delivery. Some further topics for discovery include: Using blockchain to monitor C2C and micro-supply chain connectivity, Trade deal effects on C2C interaction, Policy effects on shifting Supply Chains during biological disasters.

References

Bell, J. (2020, March 24). The seven biggest medical ventilator manufacturers across the world by market share. Retrieved May 31, 2020, from https://www.nsmedicaldevices.c...

Chan, K. W., & Li, S. Y. (2008, May 1). Understanding consumer-to-consumer interactions in virtual communities: The salience of reciprocity. Journal of Business Research, 63(9-10), 1033-1040. doi:https://doi.org/10.1016/j.jbus...

Forrester, J. W. (1961). Industrial Dynamics. Cambridge: MIT Press.

Mill, J. (1844). Elements of Political Economy. London: Henry G. Bohn. Retrieved May 30, 2020, from https://www.econlib.org/librar...

Ranney, M., Griffeth, V., & Jha, A. (2020, March 25). Critical Supply Shortages — The Need for Ventilators and Personal Protective Equipment during the Covid-19 Pandemic. New England Journal of Medicine. doi:10.1056/NEJMp2006141

Sundrani, A. (2007). Understanding Social Amplication of Risk: Possible Impact of an Avian Flu Pandemic. Sloan School of Management and the Engineering Systems Division . Cambridge: Massachusetts Institute of Technology. Retrieved May 30, 2020, from https://dspace.mit.edu/bitstre...

Van Arnum, P. (2016, April 16). Biopharmaceutical Innovation: Which Countries Rank the Best? Retrieved May 31, 2020, from https://www.dcatvci.org/250-bi...

Velázquez-Martínez, J. (n.d.). Micro Supply Chains. Retrieved May 31, 2020, from MIT Center for Transportation and Logistics: https://ctl.mit.edu/research/c...

Volkin, S., & Goker, A. (2020, April 6). How has COVID-19 impacted supply chains around the world? Johns Hopkins University, Pages From - To. Retrieved May 31, 2020, from https://hub.jhu.edu/2020/04/06...

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