COVID-19 GLOBAL SUPPLY CHAIN PAIN IN “A PERFECT STORM”

As the number of global coronavirus cases exceeded 4 million this week, I would like to give a big shout-out to the many procurements and supply chain professionals around the world, who have been working tirelessly for the past months, across governments, United Nations, or other entities, on sourcing medical equipment and PPE as part of the global COVID-19 responds.

Procurement practitioners on the frontline of the pandemic have essentially been weathering the perfect storm in an acutely constrained global market for life-saving medical equipment and PPE, characterized by restricted supply and production due to nation-wide manufacturing lockdowns and export controls, combined with global flight restrictions impacting cargo movement and price, and fueled by an intense global demand. In a nutshell, the global market situation is the result of a “perfect storm” of events.

To put the scale of the global stock-out in context, the global market demand-to-supply ratio for ventilation and oxygen treatment products has been estimated around 20:1, and for diagnostics tests 30:1. Consequently, with the stock-out the market conditions altered, with massive price increases, demands for advance payment on future production, and validity of offers often limited to 24 hours only. As production gradually re-open, bottlenecks have further emerged at key inspection and logistics centers at production hubs,^[1]Videos show huge medical equipment backlog in China: https://www.aljazeera.com/news/2020/04/exclusive-videos-show-huge-medical-equipment-backlog-china-200430120452426.html as the scarce products are airlifted away.

With prices soaring, a range of new suppliers also emerged, some opportunistic, requiring WHO to issue a Global Medical Product Alert^[2]WHO Medical Product Alerts: https://www.who.int/medicines/regulation/ssffc/medical-products/en/ for falsified medical products related to COVID-19. Procurement practitioners and Quality Assurance (QA) teams started to experience a rise in unethical practices,^[3]Unmasked: the quality dangers in China’s new coronavirus-induced boom industry: … Continue reading including fraudulent certificates, and reports of sub-standard equipment deliveries increased.^[4]Entire UK order of 250 Chinese ventilators ditched over danger to lives: https://www.theguardian.com/uk-news/2020/apr/30/entire-order-of-250-chinese-ventilators-were-useless-despite^[5]Exclusive: PPE brought back from Turkey by the RAF found to be “useless”:  https://www.telegraph.co.uk/news/2020/05/06/exclusive-gowns-delayed-ppe-shipment-turkey-impounded-failing/ The range of new and unknown suppliers highlighted product quality risks and ESG supply chain transparency issues, requiring additional levels of due diligence and product QA reviews, increasing the pressure on already stretched QA teams.

The media has described the global rush for medical equipment and PPE, as the “Wild West”, with buyers and brokers scrambling to secure products on behalf of governments around the world. There have even been reports of shipments of masks being diverting on the tarmac of airports, international trade rules being stretched, factories moving highest-paying customers to the front of the line, and countries outbidding each other in the increasingly constrained global market.^[6]US accused of ‘modern piracy’ after diversion of masks meant for Europe: https://www.theguardian.com/world/2020/apr/03/mask-wars-coronavirus-outbidding-demand?CMP=share_btn_fb As sourcing options failed, access to medical equipment has become increasingly politicized, with heads-of-states intervening to secure access to limited production, and even allegedly deploying national spy agencies to secure equipment,^[7]Mossad officer describes covert global battle to obtain ventilators at all costs: https://www.timesofisrael.com/mossad-officer-describes-covert-global-battle-to-obtain-ventilators-at-all-costs/ further shrinking the procurement space.

This alignment of the planets has likely stress-tested most procurement organizations in the past months and will likely have consequences for how governments prepare for, and manage, public emergency procurement in the future. The COVID-19 crisis has for sure highlighted the strategic role of the public procurement function, and the need to invest in preparedness and robust emergency procurement capacities, including effective procurement risk management.

Despite the almost superhuman efforts of many procurement teams worldwide, it is also evident for many countries, that without the needed influence or spending power, accessing stock can be near impossible under these conditions. The crisis has thereby also highlighted the lack of equity in the market for accessing affordable and quality assured health products, allowing for a potentially disproportional impact of the pandemic across communities.^[8]In Scramble for Coronavirus Supplies, Rich Countries Push Poor Aside: … Continue reading

To bridge the global stock-out situation and the unequal access to global health care, several countries started to explore options for re-purposing national production capacities to temporarily produce medical equipment and PPE at home, to meet immediate and critical local demand. In responds to the COVID-19 crisis new innovative open-source technology solutions have also been made available by research institutions, such as the Emergency Ventilator (E-Vent) Project from MIT/USA, ^[9]MIT-based team works on rapid deployment of open-source, low-cost ventilator: http://news.mit.edu/2020/ventilator-covid-deployment-open-source-low-cost-0326 or the Emergency Pandemic Ventilator from Aalborg University/Denmark.^[10]Emergency Ventilator to Alleviate Severe Shortages of Equipment and Personnel:https://www.news.aau.dk/news/emergency-ventilator-to-alleviate-severe-shortages-of-equipment-and-personnel.cid459836

The latter consists of less than 25 easily accessible industry parts, with operating software available on GitHub for free. These innovative emergency solutions can be produced at scale, and at a marginal cost compared to industry standards. Other examples of open-source solutions include using molecular detection of SARS-CoV-2, as an alternative to the chemical-based kit-shortage, also available for mass production at a fraction of the cost.^[11]An alternative workflow for molecular detection of SARS-CoV-2 – escape from the NA extraction kit-shortage:https://www.medrxiv.org/content/10.1101/2020.03.27.20044495v1While not permanent solutions, open-source technology innovations have opened more affordable alternatives to supplement emergency capacity gaps.

As the COVID-19 crisis has evolved from a pandemic, to likely becoming endemic in many countries, demand for basic medical equipment and PPE will persist. Harnessing technology transfer opportunities and establishing local manufacturing capabilities, may be an important lever to empower countries to ensure access to the protective and live-saving equipment needed. In addition to providing health care security, local production can also provide an important boost to livelihood development initiatives, as countries re-open economies and address the longer-term socio-economic implications of the pandemic.

The global supply chain pain felt by governments during the COVID-19 crisis will likely also have implications for global health supply chain structures in a post-COVID-19 future. The crisis has highlighted the vulnerability of interdependent economies, and subsequent risks to medical and pharmaceutical supply chains. For example, about 97% of antibiotics used in the United States is imported from China^[12]MSCI Podcast – Episode 68: The ESG Weekly: Drug shortages and the coronavirus, from whence your drugs came:https://www.msci.com/esg-now-podcast and 40-50% of generic drugs imported from India, with nearly 70% of its active pharmaceutical ingredients (APIs) imported from China.^[13]Fears of US drug shortages grow as India locks down to curb the coronavirushttps://www.cnbc.com/2020/03/24/us-drug-shortage-fears-grow-as-india-locks-down-due-to-the-coronavirus.htmlIn turn, Chinese manufacturers of ventilators have experienced production delays due to manufacturing lockdowns affecting sub-suppliers in Europe. The vulnerability of supply chains disruption is not exclusively centered on healthcare, and most sectors have recently experienced the flip side of globalization.

In a post-pandemic world, governments alike, big or small, will need to review and mitigate disruption vulnerabilities across critical sectors and establish more resilient, and potentially more equitable supply chains for medical equipment and PPE, whether through measures such as regional diversification or even re-shoring, or through localized manufacturing based on technology transfers and open-source innovation. Supply chain resilience will need to be an integral part of ensuring that lifesaving healthcare equipment reaches those communities that need them the most and make them more resilient to the expected second wave of COVID-19, and to pandemics in the future.

In the meantime, a final loud shout-out to the many procurement and sourcing colleagues who have been braving this storm in the past months – practicing purposeful procurement with a major impact!