“The arrival of swine flu in the United States exposed gaps in the supply chain that delivers medication, masks, and even testing swabs to hospitals and doctors’ offices – shortcomings that could prove vastly more worrisome if a deadlier strain returns in the fall, officials say.”

So begins an article published this week in The Boston Globe by Stephen Smith.  Although the U.S. health system responded very well overall to the H1N1 outbreak, some supply chain gaps and challenges were uncovered, particularly at the local level.  The article quotes James Blumenstock, chief program officer for public health practice at the Association of State and Territorial Health Officials, as saying: “We really didn’t have a good handle on how much commercial supplies were out there, who had them, how rapidly were they being drawn down, and how to blend the public and private stockpiles so there would be no disruption of service.”

Translation: there is poor real-time visibility to on-hand inventory and consumption rates of medical supplies at the patient end of the supply chain.

The article highlights how supplies of surgical masks ran out, and how suppliers were not able to replenish supplies in the standard 24-hr timeframe.  A similar situation occurred with cotton swabs.  The shortage led to “departments within the same medical center [racing] to get their orders first.”  According to Dr. Paul Biddinger, associate director of the Harvard School of Public Health Center for Public Health Preparedness, “I definitely would not use the word ‘hoarding,’ but there was aggressive ordering of supplies early on in the outbreak and that caused uneven distribution.”

Translation: knowing supply shortages were likely to occur, doctors and medical centers ordered more than they needed at the onset of the outbreak (classic ‘gaming’ mentality which leads to the bullwhip effect).

The real test of our country’s healthcare system will come this fall, when we’ll have to deal with at least two flu strains: the seasonal variety and the swine strain (which hopefully won’t mutate into a deadlier form).

In somewhat related news, UPS released the results of its second annual “Healthcare Pain in the (Supply) Chain” survey.  The results are based on a telephone survey of supply chain decision-makers primarily at small- to mid-sized companies in the pharmaceutical, biotech and medical device industries, as well as an online survey targeted at supply chain decision-makers at large healthcare companies with $1 billion+ in revenue.

Not surprising, managing costs is the top supply chain concern for healthcare companies of all sizes, and regulatory changes is the top business concern (56 percent of large companies reported they were “highly concerned” about increasing regulations, and 30 percent of the small to mid-sized company respondents ranked increasing regulations as their top business concern).

But the survey also revealed differences between large companies and small and mid-size companies, particularly in their go-to-market and outsourcing strategies.  For example, 56 percent of large companies are planning to alter their distribution models to go direct to hospitals, pharmacies or retailers (compared to only 27 percent of small and mid-size companies), and 52 percent are planning to go direct to patients or physicians (compared to only 18 percent of small and mid-sized companies).  And as highlighted in the press release, “Outsourcing was another key area in which small and mid-sized company strategies differed significantly from those of large companies. Forty-three percent of large companies expect to increase the amount they outsource in the next two to three years. By contrast, among the two-thirds of small- to mid-sized company respondents who do not currently outsource any supply chain functions, no more than 3% expect to outsource in the next one to two years.”

As I wrote back in February (see “Understanding Why Companies Outsource Logistics“), there are several reasons why healthcare companies haven’t outsourced their logistics operations in greater numbers historically, including their logistics costs as a percent of sales are relatively low and very few logistics service providers have the expertise, especially with regards to regulatory compliance, to serve the industry.  But in light of the cost pressures and regulatory changes taking place, my bet is that the healthcare industry is finally reaching the tipping point, and if logistics service providers (3PLs) are looking for a growth opportunity, this is it.

The bottom line: even if we don’t work in the healthcare industry, their supply chains matter to us because we’re all at the tail end of it.  ”Healthcare reform” is a hot topic in Washington these days, and President Obama has been on the road promoting his proposals.  Should healthcare supply chain reform be part of the debate?  How would proposed regulatory changes impact supply chain strategies?

Next Wednesday, ABC News will air a primetime event called “Questions for the President: Prescription for America.”  If you have a good question for the President, especially a supply chain related question, you can submit it online at this ABC News website.