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Nicklaus: America needs a more resilient medical supply chain, but self-sufficiency isn't the answer

Nicklaus: America needs a more resilient medical supply chain, but self-sufficiency isn't the answer

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NEW NORMAL: The past year's giant remote-work experiment has taught businesses valuable lessons that will affect the way we work post-pandemic. Among the changes David Nicklaus and Jim Gallagher see: Remote work will be a permanent option for many people, and business travel will be reduced.

While Americans joked about their searches for scarce toilet paper last spring, far more serious shortages became apparent in the health care sector.

Hospitals couldn’t get enough N95 masks and ventilators. Providers ran out of nasal swabs for COVID-19 tests.

The nation’s health care supply chain, in short, proved fragile in a time of great need. The crisis seemed to happen overnight, the result of unprecedented demands on the system, but the fragility was decades in the making.

It started with China’s integration into the world trading system in the early 2000s, said Willy Shih, a professor of management practice at the Harvard Business School. Supply chains became global as manufacturers found low-cost producers for each component.

The system worked well until it didn’t. Once China locked down Hubei province, and cargo carriers began to cancel flights and ocean sailings, the world’s finely tuned trade system began to sputter.

“It was supply shock meets demand shock,” Shih said. “You have this complex interdependent network and in the past year we have basically thrown sand into the works.”

In February, President Joe Biden ordered a comprehensive review of supply chains in six critical industries, including health care. Given his fondness for domestic manufacturing, the president is likely to see reshoring as part of the answer.

Meredith Broadbent, a senior adviser at the Center for Strategic and International Studies, cautions against relying too much on simple solutions. “Congress and Biden should work together to ensure a steady supply of critical medical products for future emergencies,” she said, “but mandated reshoring is really the wrong approach.”

A requirement to produce only in the U.S. would lead to higher prices and more shortages, she said.

Broadbent favors a “trusted partner” approach in which the U.S. would lower trade and regulatory barriers for countries that agree to keep critical supply links open and cooperate during emergencies.

Medical self-sufficiency is an impossible goal, she said: “I don’t think any country is even close. China produces a lot of products but they are dependent on us for certain products as well. There is a mutual dependence.”

With Americans already paying some of the world’s highest health care costs, this is no time to forgo the price advantages of global production. Still, we may need to spend some money to maintain backup capacity that could kick in during emergencies.

“One has to strike a balance between making the supply chain efficient and making it resilient,” said Prakash Mirchandani, director of the University of Pittsburgh’s Center for Supply Chain Management.

Iva Rashkova, assistant professor of operations and manufacturing management at Washington University’s Olin Business School, has studied medical shortages in developing countries. “I never thought I would have to study these issues in the U.S., because it’s supposed to be an efficient system,” she said.

Efficient systems can be fragile, however, and COVID-19 stretched this one to the breaking point. Rashkova would like to see a government agency keep track of which companies can produce medical products in a pinch, like the automakers that delivered 80,000 ventilators last year.

“The way forward is for the government to have a road map to which companies have the resources, if incentivized properly, to step in and fill the gaps that occur during a pandemic,” she said. “That doesn’t necessarily mean controlling and managing what happens outside of a pandemic, but it does mean having an action plan.”

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