Building resilient health care supply chains has taken on a new urgency in light of the pandemic. The traditional approach to managing the complex web of organizations, people, activities, information, and resources that supply products and services to consumers has fallen short and left many organizations scrambling. We know that lean supply chains can be highly efficient and effective, but they can also be fragile and lack the extra resources needed during unplanned and disruptive events. Organizations that are both prepared to face the unpredictable and recover in solid standing could gain a competitive advantage.With the right insight into what’s behind the supply chain issues they’ve encountered—and where their supply chains remain vulnerable—health care organizations can make informed decisions and target their investments in people, processes, and technology accordingly.
During the COVID-19 pandemic, health care organizations endured severe fluctuations in the supply and demand of medical commodities, equipment, and essential medicines. Furthermore, many health care organizations have been struggling to keep costs down while continuing to provide care. Given their critical role to society, health care organizations should meet the demands of their mission even during supply chain failures and catastrophic events.
The findings from an industry survey of 400 nurses, physicians, service-line leaders, and supply chain administrators demonstrate the strain that this balancing act places on health care organizations.1
COVID-19 exposed how the focus on minimizing costs can reduce supply chain resilience and make it difficult to effectively respond to and recover from crises. During the height of the pandemic, many health care organizations heavily invested in supply chain operations with the support of several temporary funding sources. However, as these funds are phased out, we expect many health care organizations to become cost-conscious again, reverting to prior priorities to reduce operational spending.
To understand how health care organizations are building resilient supply chains, we interviewed more than 50 supply chain leaders in the private and public sector across a range of industries including, life sciences companies, government agencies, health care providers, academic institutions, humanitarian nonprofit organizations, retailers, and technology companies. The Deloitte Center for Health Solutions research finds that organizational commitment and robust and strategic spending are key factors in increasing resilience. Many of the most resilient health care organizations are looking at what’s causing supply chains challenges, so they can use technologies and other solutions more thoughtfully.
One concern is that increased spending during the pandemic hasn’t resulted in a substantially more resilient health care ecosystem. In fact, all the leaders we polled expect supply chain failures to occur when the next crisis arises, whether it’s another pandemic, catastrophic natural disaster, or other crisis. They emphasized the need to build an organization’s flexibility and responsiveness to respond to unexpected supply chain failures and support the industry’s mission to provide care to those in need and enable prevention and wellness.
Health care organizations are making more investments in technology. According to a Gartner study, 63% of health care organizations indicated that they planned to increase their investment in technology in 2021, and 61% indicated that their new technology investments were a direct response to COVID-19.2 A 2021 study conducted by Deloitte and the Scottsdale Institute, a not-for-profit health care membership organization, found that digital transformation leaders were most interested in using digital technology to enhance patient satisfaction and engagement, improve quality of care, and ensure better patient outcomes.3
Our research found that organizations, in particular health care organizations, aren’t achieving supply chain resilience by leading with technology. Instead, many organizations are addressing supply chain challenges with holistic solutions that pair technology with other changes. They’re increasing resilience by fostering an organizationwide commitment from leaders to staff members, and they’re investing the time and resources needed to identify and address the root causes of health supply chain challenges. Although technology is a crucial enabler of resilience through supply chain digitalization, using it as the tip of the spear to address supply chain weaknesses may only partially fix the issue. Comprehensive solutions that position technology as a component alongside people and processes can help make health care supply chains more resilient.
Based on our research, very few health care organizations have the right levels of organizational commitment and spending to be highly resilient when supply chain disruptions occur. Most health care organizations fall into one of four zones (figure 1):
Throughout the COVID-19 pandemic, supply chain vulnerabilities were exposed across all industries. The interviews highlighted the importance of understanding the root causes underlying these vulnerabilities. When organizations fail to spend the resources to conduct a thorough root cause analysis, the implemented solutions likely won’t resolve their supply chain vulnerabilities because the root causes are unknown. One organization we interviewed secured the raw materials needed to manufacture its end product but didn’t identify potential issues with the packaging for the end product. As a result, product shipments were delayed due to shortages in the ink used to print expiration dates on the packaging. The adequate supply of ink for labeling, not raw materials for production, had become the bottleneck in the supply chain.
The same technology could have varying impacts on resilience at discrete organizations because the underlying issues behind supply chain challenges differ across organizations. For example, when building end-to-end supply chain visibility, a medical device manufacturer likely needs a deeper level of visibility than a retailer. A medical device manufacturer likely would need visibility into subtier suppliers to proactively respond to potential upstream supply disruptions of limited sources of raw materials. However, to have the most impact on resilience, a retailer should focus on diversifying its tier 1 supply base instead of increasing visibility into subtier suppliers, given the different value chains between the retail and medical device industries. Technologies that are designed to manage supply chain risk can help organizations diversify their suppliers and map their supplier networks at all tiers to identify where disruptions could occur.
During our interviews, supply chain leaders shared the challenges they encountered during the COVID-19 pandemic. The most prevalent problems included data issues, labor shortages, and a lack of alternate supply chain sources (figure 2). More than two-thirds of all interviewees experienced data-related challenges such as data availability, data quality, and data integration. Across the board, the pandemic exacerbated existing health care organizational vulnerabilities and illustrated the critical need to address these issues to respond to and recover from the pandemic, and to prepare for future supply disruptions.
Resilient supply chains aren’t new, but they aren’t commonplace either. In fact, less than 10% of the supply chain leaders we interviewed rated their organization’s supply chain as highly resilient. Prior to the pandemic, many health care organizations were focused on building efficient supply chains. However, most efficient supply chains aren’t built to be resilient, they’ve been built to minimize costs. According to Harvard Business Review, “The search for supply chain efficiency has come at the cost of resilience, with hospitals and health care providers now dependent on fragile global supply chains vulnerable to disruptions from ‘black swan’ events like COVID-19.”4 While just-in-time supply chains operate effectively when demand is predictable, the lean strategy can result in supply shortages when demand is volatile and unpredictable during disruptions and catastrophic events.
When asked to rate their resilience on a score of 1 to 5, less than 10% of interviewees rated their supply chains as highly resilient (5), including health care organizations.
Resilient supply chains can’t be achieved without robust investments, but not all spending has the same impact. More than half of the interviewees indicated that creating safety stock and maintaining idle production capacity can increase resilience but aren’t always cost-effective solutions. Supply chain investments should address the root cause of concrete issues, rather than perceived concerns with supply chain performance. For example, several leaders we interviewed made costly investments to build safety stock after experiencing what they thought was inadequate inventory at certain points of use. However, there was sufficient inventory in the system. Without visibility into on-hand inventory throughout the supply chain, they couldn’t see that inventory was depleted in some locations and well-stocked elsewhere.
Spending strategically on resilience is critical as innovative solutions, such as artificial intelligence–enabled automation, have implementation costs. Without sufficient spending on resilience, an organization can only implement point solutions to address individual supply chain issues. Our research determined that robust spending is required to layer capabilities with individual solutions to improve enterprise agility and responsiveness and drive overall resilience.
Organizations that target their spending to solve concrete challenges can see greater resilience. These investments should be focused on resolving the root cause of supply chain problems, rather than aligning to perceived concerns with supply chain performance. For instance, we interviewed multiple organizations that were operating in the “inefficient zone” and were experiencing inventory shortages. To address the lack of on-hand inventory, they built new warehouses to store more safety stock. However, supply shortages continued at various front-line points of use because the new warehouses didn’t address the root cause of the supply shortages. There was sufficient inventory in the system, but the organizations lacked visibility into on-hand inventory throughout their supply chain. Inventory was depleted in some locations and well-stocked elsewhere, and data quality issues exposed inaccurate counts of inventory.
Rather than increasing warehouse space, the organizations should have invested in control towers and inventory management solutions. This strategy could increase end-to-end supply chain visibility, enabling the organizations to proactively respond to internal and external disruptions to mitigate supply shortages.
Regardless of their size, all health care organizations have limited resources given the industry’s focus on cost reduction and the perpetual existence of narrow margins among health systems. However, when determining spending priorities, some leaders can leverage their organization’s size to drive resilience. Large organizations we interviewed have more resources to invest and can better withstand lulls in revenue during supply disruptions. Conversely, large organizations experienced roadblocks like greater bureaucracy to gain approvals for investment and implementation. While the smaller organizations we interviewed had limited buying power and less mature supply chains, they had greater agility. Leveraging smaller organizations’ ability to quickly pivot and fulfill short-term requirements during volatile demand periods is key to responding to supply chain disruptions and catastrophic events.
Our research found that the commitment to resilience should start with leadership buy-in and extend to managers and front-line personnel, a more critical lever than technology. In a 2021 survey conducted by Deloitte and the Scottsdale Institute, 80% of participants said that leadership is a key accelerator of digital transformation, more than any other option.5 In fact, an organization’s leadership-driven vision to build a resilient supply chain may falter without buy-in from staff to implement revised policies and operational changes. Having the entire organization’s support is even more important as health care organizations shift their focus away from cost reductions and other supply chain priorities that have been in place for decades.
To build more resilient supply chains and enable short-term agility, leaders should consider empowering and challenging their supply chain teams to think outside the box. For instance, we interviewed an organization in the “point-solution zone” that proved resilient during the pandemic by completely changing its go-to-market strategy from business-to-business (B2B) to business-to-consumer (figure 1). This agility was possible due to leadership support and the organization’s quick realization that maintaining the existing B2B strategy wouldn’t be sufficient to maintain resilience during the pandemic, given drastic reductions in existing client spending.
A common theme among the interviews was the need for supply chain leaders to have a permanent seat at the table to help ensure an organizationwide commitment to resilience. Supply chain leaders should play an integral part in crafting the enterprise strategy as an overall organization can’t be resilient without a differentiated supply chain. Supply chain team members should be integrated into day-to-day operational activities to help ensure that supply chain capabilities meet changing patient and consumer expectations as technology drives changes to health care delivery.
Fifty percent of the leaders we interviewed said strong relationships across the supply network had lessened the impact of the pandemic on their organization.
The leaders we interviewed overwhelmingly cited people—more than digital investments or enhancing traditional supply chain capabilities—as a key factor to increase supply chain resilience (figure 3). Fifty percent of the leaders we interviewed highlighted the importance of strong relationships in lessening the pandemic’s impact on their supply chains. Here’s how to invest in people to help an organization’s supply chain be more agile and responsive:
While investing in technology should increase supply chain resilience, our research found that organizations can’t build a resilient supply chain without considering the impact of people and ensuring that the implemented technologies complement staff capabilities.
Of course, technology can play a critical role in achieving supply chain resilience, but our research found that health care organizations have many factors to consider. One of the biggest changes that organizations are undergoing is the digitization of traditional supply chains. Digital supply networks (DSNs) can both improve efficiency during normal operations and build resilience during supply chain disruptions and catastrophic events. DSNs use new technologies and tools to transform traditional linear supply chains into agile interconnected networks to unlock value across digital nodes. However, building a fully integrated DSN isn’t feasible for many health care organizations, including those in the “resilient zone” because real-world constraints such as fragmented, physical supply chains are embedded in the supply networks.
The long-term evolution from traditional supply chains to DSNs can be critical to developing mature supply chain capabilities (figure 4). As health care organizations mature to DSNs, certain traditional supply chain elements likely will remain for the foreseeable future until we can overcome some of DSNs’ barriers. According to our research, the most prevalent barriers to implementing DSNs were cost, data quality and standardization, and getting stakeholder buy-in.
Top barriers to implementing digital supply networks were cost, data quality and standardization, and getting stakeholder buy-in.
There are numerous DSN solutions including control tower, additive manufacturing, sensor-driven replenishment, and cognitive spend analytics. These solutions can provide benefits to improve efficiencies, synchronization, agility, customer engagement, and reduce costs. We asked the interviewees what DSN technologies would have the most and least impact to supply chain performance. We received a myriad of answers across the spectrum of possible technologies, most likely because, for each node in a DSN, numerous technologies could be employed to build out its capabilities. While these technologies could be additive to each other, they’re often duplicative because they tackle the same supply chain challenge using different tools and approaches. For instance, with intelligent supply, many options exist to reduce supply risk, decrease timelines to receive supplies, and respond to disruptions that occur.
Supply chain resilience is a journey, not a destination. Leading organizations will likely experience the benefits of a resilient health care entity: satisfied clinicians, improved patient outcomes while controlling costs, minimal disruptions to patient care, and a thriving supply chain workforce. However, the leaders we interviewed are split on whether the supply chain will remain a top organizational priority in the long term (figure 5).
The COVID-19 pandemic isn’t the industry’s first major supply chain disruption, nor will it likely be the last. As we saw during the 2021 holiday season, consumers were compelled to purchase gifts significantly earlier than normal because of ongoing supply chain disruptions and delays at congested US ports. Most recently, we saw how government sanctions had an impact on global supply chains. Therefore, we believe that many health care organizations could still be vulnerable in the future and miss an opportunity to make changes now to achieve future resilience. Here are a few recommendations to potentially help health care organizations achieve supply chain resilience and prepare for future disruptions:
Crises, catastrophic events, and other supply chain disruptions will likely continue to occur, and possibly at a more frequent rate in the future. It’s more important than ever for health care organizations to build resilient supply chains that can withstand these disruptions and emerge stronger. Leading organizations should consider identifying what’s behind the supply chain challenges they’re encountering and then investing in the right combination of people, processes, and technology to address them.
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The Deloitte Center for Health Solutions, under the guidance of executive director Jay Bhatt, delves deeper into your top-of-mind issues and provides fresh thinking around complex challenges. Timely, relevant research and thought-provoking analyses deliver insight to help you see solutions through a new lens. To learn more about the Center and our research, please visit