Balancing Risk Assessment with the Move Toward Sustainability and Diversity in the Supply Chain | Prodigo Solutions
May 26, 2022

Balancing Risk Assessment with the Move Toward Sustainability and Diversity in the Supply Chain

The goal of building high-reliability supply chains should be coupled with emphasizing responsible and sustainable supply channels. Assessing what is acceptable risk from globalized sourcing and what we consider to be an acceptable environmental footprint – while at the same time considering vendor diversity, the manufacturing source and costs – are all important pieces of the puzzle. 

Risk assessment is an evaluation of your sources of supply that focuses on three areas: source, item, and price. Risks can be financial or clinical, such as the quality of the product you’re getting. Risk is introduced through variation, which results from non-compliant activity or the inability to control decisions at the point of demand.  

In the wake of the COVID-19 pandemic and its disruptions, there has been a need to critically study pre-pandemic supply chain strategies such as obtaining lowest-cost products from offshore, just-in-time inventory planning, inconsistent or incomplete vendor credentialing, and manufacturing accountability

Risk assessment should involve evaluating both vendors and manufacturers based on where supplies are being sourced. The question of risk for the supply chain not only centers around the usability of finished products, but also the raw materials that go into making them. The further the supply chain moves away from the source of manufacturing, the more risk and possibility of disruptions are introduced. 

An area of exploration for the supply chain is assessing what is an acceptable level of risk from globalized sourcing. A globalized supply chain is complex in that health systems will compete for products with every other health system that has access to them around the world. Also, a globalized supply chain introduces extended lead times, which need to be accounted for in demand planning models. To ensure supply is aligned with demand will require improved vendor transparency into inventory status for both finished goods and raw materials. Another consideration is the environmental footprint of moving goods around the world – but one that we’ll tackle a bit later. 

First, there are three goals that should be emphasized when working to build a high-reliability supply chain: being responsive, compliant, and efficient.   

Responsive, Compliant & Efficient 

Time is money, so the modern supply chain should respond in real-time to demand, supply, and financial disruptions and manage them. The supply chain must align its supply with demand, and cost will always be a factor in the equation. Responsiveness refers to where supply meets demand at the lowest cost, both the financial cost as well as other factors such as environmental footprint. One of the lessons learned from the pandemic was that there needs to be a balance between ensuring the supply chain can deliver at the lowest cost while also ensuring products meet acceptable quality standards to deliver the best outcome for care receivers. 

Compliancy refers to satisfying clinical, operational, and financial requirements when matching products with their intended use for patient care. It means delivering the right item from the right source at the right price. Every item used on a care receiver must be evaluated for suitability and approved for use by a health system’s value analysis process. Finding the right source has to do with the supply chain driving practitioners to contracted, approved sources – that reliably deliver the volume of the items being purchased. The right price, naturally, refers to the client paying the contracted amount they expect to pay. 

Finally, being efficient means removing the friction between the source of supply and the point of demand. It involves finding the most efficient manner of moving a product from the point where it’s made to the point where it’s consumed. There are great demands on clinicians’ time, so supply chain efficiency allows them to get back to patient care. Digital supply chains are connected, so transactions between trading partners must be automated from source to pay and powered by accurate data.  

The aim of the supply chain is to provide the perfect order – the right item from the right vendor at the right price. But there are other concerns the supply chain is increasingly factoring into its practices. Responsibility and sustainability must be objectives when building high-reliability supply chains. 

Responsibility  

A responsible supply chain is one that partners with – and is reflective of – the diversity of the communities it serves. The supply chain should source supplies that benefit the diverse elements of its community. It should also practice vendor diversity – or giving equal access to procurement opportunities for suppliers that are, for example, women- or minority-owned. If a supply chain operates in a community that is characterized by a specific segment of population, it should ensure its vendors and workforce are reflective of that community. 

Responsibility also involves the decision to do business with suppliers based on whether corporate social responsibility objectives align – for example, whether they have fair employment practices or products were made under safe working conditions. Increasingly, companies are taking responsibility not only for their employees, but also for those with whom they do business. 

Sustainability 

A focus on sustainability centers around the supply chain’s environmental footprint. Little progress has been made over the years in addressing such issues as waste and packaging, end-of-life care for items – for example, how to handle products that are not easily disposed of – and determining whether chemical compositions of products are high risk. 

Across most areas of the supply chain process, changes can be made to achieve greater sustainability. For shipping, there’s the question of whether packaging is made of recycled materials or if materials used to ship products are biodegradable. For item composition, determine whether masks purchased by a health system can be recycled or surgical gowns can be reused. Group-purchasing organizations (GPOs) can tell you whether suppliers with which you work are considered “eco-friendly.” Considerations of how much pollution results in moving goods from manufacturing to the point of consumption – for example, which types of transportation are being used – should also be considered. 

Once you have evaluated products, packaging, waste streams, and manufacturing sources, you can drive improvement by directing requesters to purchase preferred items from sources that have been vetted, approved, and deemed environmentally friendly. 

A Recent Challenge 

Occasionally, world events intervene and create roadblocks for progress. The pandemic was one of them. Recently, Russia’s war in Ukraine has introduced unique challenges to ESG – environmental, social, and governance – models. These ESG models consider the sustainability and ethical impact of an investment in a business or company, rather than merely focusing on profitability. 

As a result of the war, governments have initiated sanctions and businesses have cut ties with Russia following its attack on Ukraine. While ethics – or the threat of reputational damage – have prompted companies to divest from Russia, it has presented challenges for sustainability. For example, restricting the supply of Russian oil has forced economies to seek alternative sources of energy and, in the short term, roll back energy policies or turn to other fossil fuels to make up for shortages.  

For any company – or supply chain – aiming to move in a more sustainable and equitable direction, the challenge will be to find a balance between cost, the quality of products, and doing the right thing – and prepare for the occasional unforeseen disruption. 

Making the Best Choice 

The healthcare industry has, in recent years, tried to utilize the tenets of the CQO – cost, quality, and outcomes – movement. In building a high-reliability supply chain, there also needs to be a balance that considers responsiveness, compliancy, and efficiency, while at the same time being responsible toward the communities in which the supply chain operates and sustainable in the impact on its environment. 

Striking a balance to check all these boxes might be a challenge for purchasing departments that have conflicting priorities: managing a budget and keeping purchasing costs down, while also seeking to incorporate eco-friendly materials – which could be more expensive – and being socially responsible, all the while retaining the quality of products. 
 
The industry should take a leadership position. As it continues to prioritize objectives relating to the quality of products, it should also work toward longer-term targets pertaining to reducing the overall financial and environmental footprint while being conscientious about the communities it serves regarding diversity, working conditions, and employment practices. 

Additional Reading 

2022 Outlook: Prodigo’s View of Where Healthcare Supply Chain is Headed 

How COVID-19 Exposed the Limits of Just-in-Time Delivery 

Healthcare Manufacturers Can Make a Real Difference by Providing Data to Providers 

Why it’s Time to Get Serious About Sustainable Healthcare Purchasing 

About Prodigo Solutions 

Prodigo Solutions is a healthcare technology company that improves providers’ financial control and reduces supply chain cost. Prodigo Solutions’ technology was purpose-built for healthcare by supply chain experts to deliver tangible results across a continuum of care. Customers who use our systems purchase more than $23 billion annually for the more than 700 hospitals they operate. 

For additional information please contact:

Prodigo Solutions’ Marketing Department
724-741-1900
marketing@prodigosolutions.com
www.prodigosolutions.com