By Peter Ward
Many failure modes have been attributed to the awful mess that has occurred across the US in supplying frontline healthcare workers and other first responders with sufficient protective equipment (PPE). There is plenty of blame to go around but one of the suspects often cited as a possible causal factor is Just-in-Time inventory practices (for example, this Wall Street Journal article). I would argue for a not guilty verdict.
Just-in-Time (JIT) inventory is a system of replenishing inventory when a signal indicates that more is needed to meet customer demand. For each item, a quantity is determined that will prevent stockouts during the time between orders (including lead time) and allowing for variation in demand. Of course, even a small health care facility stocks hundreds of items; each has its own calculated order quality and signal to reorder.
When life is normal, JIT systems work pretty well—much better than the alternatives in most cases. Most managers have learned that excess inventory results in waste, as items are lost, damaged, or expire. Sometimes in operations with excess inventory, the needed item cannot be located in the sea of excess. Thus, the wide adoption of JIT in healthcare facilities.
But what about when life isn’t normal—when there is a surge in demand?
Sometimes surges occur that outstrip the ability of the supply network to quickly respond. A surge will defeat any inventory plan that is based on continued normal times, whether it is JIT or not. The answer lies in identifying ahead of time those items that are strategic in providing healthcare, and managing those items differently. Mature supply chain risk management programs identify areas where supply risk or demand surges may occur, and plan accordingly. Often, the recommend solutions are strategic inventory or reserve capacity.
Although each health care facility can and should maintain a strategic supply of, for example, PPE, an epidemic will cause a surge that would soon overwhelm even a healthy strategic supply at the facility level. For such a situation, a needed back-up must be provided by a central source—usually the government. Such a back-up can take the form of strategic reserve (inventory) or reserved capacity in manufacturing and distribution that can be called upon immediately when a surge requires it. Both inventory and capacity reserves were insufficient for even a much less widespread emergency than COVID 19. In the presence of such a central source of supply for emergencies, individual hospitals can factor that into their strategic inventory decisions, creating more efficiency during normal times while planning for abnormal times.
Many points of failure can be identified in managing emergency supplies of PPE during this pandemic. Although blame is not helpful at this point, accountability is necessary. Such accountability requires that lessons be learned and that countermeasures that address the causes be put in place so that we never face this problem again. Citizens expect the federal government to prepare for wars. As Bill Gates noted in his 2015 Ted talk, we do so by investing in capabilities for when the time comes; the same approach should be taken towards pandemics.
Meanwhile, I am grateful for all of the brave souls who are saving lives at heightened risk to their own health because they lack sufficient protective gear. Shamefully, supply was governed by a Just-Too-Late system.
About the Author:
Peter Ward is Professor of Operations Management and holds the Richard M. Ross Chair in Management at Ohio State University’s Fisher College of Business. Peter participates frequently in executive education programs in the US and internationally, including developing several successful certificate programs in lean management. He is the founder of the Lean Education Academic Network (LEAN), a global community of university educators dedicated to teaching systems thinking in universities. Peter is founding director of Fisher’s Master of Business Operational Excellence (MBOE) program, an innovative degree program aimed at mid-career professionals involved in transforming their organizations through operational excellence. Peter is Academic Director of the Center for Operational Excellence at Ohio State, a consortium of forty organizations dedicated to excellence and thought leadership in operations. He currently serves on the boards of the Lean Enterprise Institute (board chair), the Center for Lean Engagement and Research in Healthcare (UC Berkley), and Catalysis. Within Ohio State, Peter has served as chair of the Department of Management Sciences (12 years) and, more recently, Senior Associate Dean (4 years). Peter has served as a member of the advisory board of Ford Motor Company’s Lean Resource Center and as a judge for Industry Week’s America’s Best Plants Program. Peter has served as a consultant to a number of leading corporations.