Session Information:

Manufacturer Production Issues Are Rising, And So Is The Risk To Patient Care

Pick your event.  Hurricane Maria.  Hurricane Michael.  An earthquake in Asia.  An FDA action. Mayo Clinic declared, “Never again will we be caught off guard and run critically low on life-saving medical products.”  But what can we proactively do to prevent future supply disruptions?  Is the hospital at the mercy of the global value chain?  Mayo’s answer is no.  Join us to learn why.

• Learn practical strategies to stratify your medical supplies by criticality
• Learn techniques for gathering supplier location data and proactive assessments of regional risk
• Learn the basics of setting up a supply chain emergency operations center for supply disruption events
• Learn how the use of automated, machine learning and AI techniques can aid in predicting the next disruptive event.

Session Transcript:

By way of introduction my name is Erica Nikki I work at milk clinic at her flagship location in Rochester Minnesota I have but 30 minutes today to present to you a fairly complex and technical topic as well as a solution set that was promised as part of this discussion so I'm going to skip past the rest of the formal introduction and get right into it because I understand that you've got an event tonight I would not want to keep you from that particular event.

So I'm happy to see as many of folks in the seats as I do and I think it's important as we spend time the next thirty minutes talking about supply chain resiliency whether you're in health care not whether you're in supply chain or not this is a topic that impacts all of us because at the end of the day we're all consumers in the healthcare market right we all are patients and customers in this market and the information that I want to share with you today is something that I think is an emerging issue in healthcare and I think it's important that wide bodies of people understand and know about this risk and what Mayo Clinic specifically is doing to to address it does the date September 13th 2017 mean anything to anybody in this room.

Okay it does to me the 13th of September of 2017 was the day that Hurricane Maria hit the island of Puerto Rico and I remember as I was I was actually traveling for Mayo and it was an Asian watching this on the Weather Channel all night long and I remember was pretty young in my my career in business continuity and had no idea the impact that or that hurricane would have on the healthcare industry and actually in my career trajectory the following Monday.

I walked into the office and my boss handed me this map this is a map of the island of Puerto Rico the words on the map aren't as important but the colors and the volume of words are these were all of the manufacturers that we identified on the now dark island of Puerto Rico and this would have a significant ripple effect into the healthcare industry.

This was a game changer for Mayo for healthcare and for me and my career and this sudden demotion several of the actions that you'll hear that this afternoon about what we did to come at this issue unfortunately health care is tends to be behind the curve of some of the for-profit industries and a lot of us sort of looked at each other and went I had no idea did you have any idea no I didn't have any idea and shame on us for not having some visibility into this topic however a lot of people don't understand and a lot of folks in health care don't understand.

The implications that disruptions of manufacturers have to the industry so some statistics suggests to us that every time a manufacturer has a disruption the cost of the industry is north of 3 million dollars per incident now when we did just napkin math as it related to that specific issue in Puerto Rico it was in the seven digits of costs for Mayo Clinic just to Mayo Clinic.

It was about a nine month recovery and we had to take really heroic actions in order to continue to serve patients the primary for those of you who might be curious the primary product that we were out of or ran out of was IV fluids the bags of fluids that you see in every hospital room within any kind of organization so that completely wiped out one of the major players or at least a significant portion of that player in the market with a large large dollar impact to us.

Now this might sound fairly obvious an intuitive but for those of us who are in the risk management business understand that identification is generally. Speaking the most important component of mitigating risk and the further up the chain or the earlier we can identify that risk the better off we all are now in the case of Puerto Rico we realized that when the hurricane hit and a few days later.

When we realized all the manufacturers that were on that island but if we're given time and I think this is true in all industries if we're given enough time we can put into motion some of those mitigation strategies that help us in the longer term and that's what we'll be talking about today.

Unfortunately recovery particularly in health care is difficult anybody work in health care I should have asked that at the top okay so those hands that are raised all know and understand that none of us got into health care because it was going to make us wealthy we aren't going to make millions of dollars at it there's a certain fill tropic pull that most of us in healthcare have understanding.

Fully that it's not the highest-paid job we could have we could go work somewhere else for more the problem however is when we talk about recoveries particularly supply recovery manufacture recovery what that means is a lot of individual heroism so we see a lot of folks well-meaning individuals going out and trying to save the day it's just sort of how health care is and so what that translates into is a disjointed disruptive and delayed.

Process and oftentimes what happens without meaning to as hospitals compete with each other for the same products and sometimes the person who's first in line is the one that wins they're the ones that get the products and so we're going to talk a little bit more about how we might get around that these stats are specific to Mayo Clinic and this was in 2018 so we had 25 about two per month disruptions.

When I was preparing this presentation I said to my team you know 25 is not a number that I expect is going to be a WOW factor to this audience they pointed out to me that a disruption by our term in our definition is where you go sort of pull a fire alarm I mean it's that significant of an issue we're talking about issues that can cancel cases can require doctors to change products sometimes products that they haven't ever had the opportunity to test or be comfortable using so we're not talking about something.

Minor a disruption is a very severe event in our market layer on top of that that we had 400 medical recalls and these are unique recalls in 2018 everywhere from one end of the spectrum which is the manufacturer's saying we may have a problem with this device monitor it all the way to pull the product from the shelf and pull it out of the patient if possible.

So we're having to manage through these types of disruptions on a daily basis to the number of four
hundred last year a little bit about the supply chain and what we've seen in industry as one of the core problems there are several issues that are contributing to what we consider a downhill spiral and candidly I want to be very clear candidly we don't I don't associate the problems a 100 percent
with suppliers I think in a lot of senses and a lot of ways health care has contributed to this problem.

Talk about that in a little bit we know globalization is here it's here to stay and so what that means is something that's produced in Asia and is attached to a disruptive event in Asia can have a ripple effect into our market and it happens very quickly sometimes invisibly we get awarded and we get
applauded for having just-in-time inventory and so a lot of times what happens by virtue of the system we've established.

We get a product or a device a few hours before a patient surgery and that's that's great until there's a disruption in the market and then all of a sudden we're in a scramble trying to figure out what to do and finally I'll talk a couple of these other ones in more detail but we know mergers and acquisitions have have taken place healthcare is no exception in the past few years we've seen a lot of significant manufacturers come together and so when you take ten players in the market and you roll it up into now three players in the market and one of those three manufacturers goes down.

It creates a significant disruption not just to the one but typically the other two is a trickle effect so these are some some themes we're starting to see again our experience this is the last three years worth of data that we've seen with back orders now back orders can be anything from it's not coming today as we thought - there's none left in the market they'll figure it out okay so these are wide varying in terms of severity but in 2018 we saw sixteen thousand six hundred and these are unique items okay these are not unique there's these are not a single item that are repeating over and over that's a double from 2016 when we saw just over 8,000 so this is clearly an emerging topic and it's something that we have to start thinking about in healthcare and as I mentioned before we know this a lot of our manufacturing is starting to take place outside the United States and this is not a political venue for me to speak about.

The good and the bad of whether it's domestic versus international the point here is to understand that global events are now starting to impact local decisions and domestic types of product problems in the supply chain we know also that China is very involved in the manufacturer pharmacy pickles and so if you followed the industry at all in the last five years with drug shortages.

I'm not saying this is a contributor what I'm saying is this has the potential to make it worse and so we have to really start thinking differently in health care about how we manage supply chains according to some of these statistics we've had some aha moments over the years and in healthcare.

We like to get sort of cutesy and so we've added an analogy of animals so we've got here a rhino and a swan and for the in order to sort of lay the context for some of the work that we've started to do I've overlaid these animals with your classic sort of risk stratification model so those of us who
have ever been an auditor or that any kind of risk management we typically look at the probability of something taking place against the severity of it happening okay so if we look at the Rhino for just a quick minute that's a high disruption high probability event so very likely it'll happen and when it
does is going to really hit us hard the swans are looking at either a low probability high disruption or vice versa and if we start to look at solutions we can look at micro and macro strategies.

Okay and so let me give you a quick example of a micro strategy if we have an event that we think is likely but it won't have a great impact to us we could simply add safety stock to our inventory okay it doesn't disrupt the market it's not an event that's burning right this minute it just allows us to build a little bit more buffer inventory in preparing for something that's likely to happen okay a macro strategy is looking at a larger problem and often these really big boulders that we're trying to figure out what to do and a macro strategy could be something like something where we would perhaps build a actual building facility in order to keep buffer stock available.

Which is different than having extra inventory could be vendor managed to etc I'll talk through another example of something we did in that space so this is where my team came into formation this was right before the hurricane of 2017 and my group is at least in health care's of as I understand it a fairly unique group in that our focus and our goal is primarily business continuity supply disruption and our goal is to be able to do these four things so we want to be predictive detective preventive and mitigate any risks I'll talk a little bit about what that means that's really fancy words for not a whole lot until I give you some context and examples.

A couple other problems just to be aware of and I think these are probably true outside of healthcare and not unique just to us how many of you as kids played the game mousetrap okay so if you've played the game mousetrap you understand that it's it's a series of levers and switches and balls all of which have to function correctly for the trap to drop onto the mouse supply chain is exactly the same if any component of that falls apart.

It blows the whole system up and so that's how we often think about how products actually get to our doors oftentimes non supply chain people just assume oh well the truck pulls up and it's here voila it's very simple but it's a it's really not that simple there's a series of very intricate steps that gets to your door here's one of the most difficult issues that we've been dealing with and I suspect this again it's not unique just to healthcare.

So on the far right side of this graphic you'll see an acronym it's om that just simply management means manufacturer okay so let's just take as just a basis of context the manufacturer and doesn't matter what the product is every manufacturer in the world has a series of suppliers that supply it whether it be widgets to go into the device whether it could be someone who does packaging it could be somebody.

Who does logistics work it could be somebody that sterilizes the product dozens of examples okay and so let's call those the first tier supplier a B and X okay what often happens however is that supplier also has a supplier who also has a supplier and when you start really thinking about this in your head you become quickly overwhelmed with the volume of suppliers to just service this one manufacturer now in health care probably not unique to other industries we have pretty good visibility as to where our manufacturers are because we've asked them but if you get further down the chain into their tears and their tears very little if any visibility now there's two reasons for that the first one is.

I think a lot of times manufacturers have so many suppliers and suppliers of suppliers they just simply don't know the other issue is we often hear that there's a cloak of confidentiality and that information can't be shared with us so what that means is when we're trying to identify global events that might impact our supply chain we're already we already have a gigantic blind spot because we don't have access to a lot of this information even though it would be very useful to have I'll give you a live example of something that's happening right now that brings this point forward I won't name names some of you in the industry might be familiar with this this supplier.

So we have a facility a company with a facility in a suburb of Chicago Illinois in the last few weeks the EPA came in and shut the facility down it's a sterilization facility okay so our vendors use this facility to sterilize their products that eventually end up on our dock okay so when we became aware that this fairly significant player had been shut down.

We reached out I reached out to them personally and said tell me the vendors that use your facility you want to guess what their response was I'm not going to tell you that which is what I expected and so we have been trying to stitch together the last four weeks all of the vendors all of our vendors that potentially have products going through the sterilization facility because it's only a matter of time as long as these doors are closed.

It's only a matter of time before this has a ripple effect in the market and we start to see back orders as a result okay and so again just driving home the point that once you start getting into sub tiers of sub tiers the visibility very very quickly becomes foggy and if not impossible okay one more point we in health care have probably made this problem much much worse because we've required a vendor's perfect pricing.

Which is counter-intuitive to resiliency so think about it if we're constantly pressing on pricing is the vendor likely to have the cash flow to be able to do any kind of investing probably not so the the phrase I've heard before is quality quality and price pick one okay and so that's the situation that we're up against is we're actually working against ourselves from a resiliency standpoint by insisting on the cheapest product always okay.

I'm going to skip through this example I want to step through now some of the the corrective actions that we've started to take at Mayo and and kind of walk through what those look like so this graph shows you a little bit about the various players that are involved within our own walls when we become aware of some disruptive event in the market so the sterilization event is one that is front and center right now and we have multiple parties working together to try to fix and figure out what this situation might be.

So going from left to right we have our contracting colleagues who have a direct interaction with a supplier kind of at the sales VP type of level okay so that's a contractual relationship with the vendor procurement so those are our folks that are placing the daily POS and those are the ones that are having the interactions with a different segment of the business that oftentimes triggers a clue that there's a backorder there's something there's some sort of problem with that thing we're trying to purchase so that's one other group business continuity is my group and then look going up into the right operations.

So those are the folks that give us signals both demand signals as well as stock on hand signals to tell us what we have on inventory in our facilities value analysis that's a group unique to healthcare these are just some folks who have her who are RNs who have a understanding of the practice and help us to sort of interpret what a doctor wants versus what a supply chain operations person would be doing and then finally the practice.

So we've established protocols that give us signals and give us signals to signal to the practice to the physicians and nurses of a potentially disruptive event that gives them some time then to make choices and that choice is when there's a burning fire choices ahead of time so for example we're aware of a couple of vendors that we know are impacted by the sterilization shutdown.

We can tell them what products we purchase from them what products are potentially impacted and then start to give them some choices if our shelf goes to zero what will you do and that gives them some time to ponder does that mean we cancel cases does that mean we go to an alternative product does that mean we take a non sterilized product any number of examples.

So that's how we engage our practice as well we also have a set of eight and growing items that are on various stages of maturity that we're working on pretty diligently and again coming back to the micro versus macro you'll see some of each kind of sprinkled throughout so I'm going to step through a few of these that I think are most pertinent first one is business continuity plans or BCPs for short most of you in your efforts and in your organization's more likely than not have a business continuity plan.

Simply put a business continuity plan is an if-then statement if a tornado hits downtown Rochester these are the actions we take if a flood hits down Tundra just er these are the actions we take etc okay and usually they're site-specific or location specific we have these in place for our facilities at Mayo but we think it's important that our suppliers have these in place as well and furthermore we're starting to insist on a few things number one they have a business continuity plan.

Number two they're willing to share their business continuity plan number three they're willing to hear feedback from us once we've reviewed the business continuity plan as to what they're missing and fourth and probably the most prickly is they're willing to let us audit their business continuity plan meaning we will show up at your facility with the document you gave us and audit you against.

It okay because I think a lot of us understand that procedure on paper means nothing unless you're following the procedure correct so that's that's the premise of a BCP the second thing second and third items are the ones that I'm most excited about and I think have the most legs in terms of long term viability so this idea of external risk intelligence some of you probably know that there's this thing called the Internet and the Internet has a lot of really interesting information.

It also has a lot of garbage we've come across a couple of interesting companies that actually do basic web crawling and they look for events that are taking place around the world that could have some sort of a ripple effect on your business it doesn't just have to be supply chain it could be any area and these really AI types of machines just go out and search for keywords on websites and then start kicking reports back to you to give you a sense of what might be going on in the world.

We think this is a really interesting concept and again it's probably been around a long time we've just never had a use necessarily to use it but tunneling you have events is only part of the equation so let me jump forward to data analytics in order for this to be I think impactful we not only have to understand.

The event that's taking place but what it means to us and so this is a real map that we've created as a geo map what we did is we reached out to our top 100 vendors and we said tell us where your facilities are located we'll plot it for you okay and we asked them for manufacturing facilities distribution facilities really any footprint that they have globally.

So that's the US map and this is the interestingly the world map with a large / large footprint there in Europe and what we've done that then is to take the event that we've been made aware of and we bring it back to what's going on with our vendors and so for example if we see that a nor'easter is coming and we see in the Const of the upper the northeast part of the United States that we have a large concentration of suppliers there might.

We reach out proactively and ask them what plans are and that's exactly what we're doing so we would ask vendors things like are you where there's a nor'easter coming sometimes they don't know but more importantly we ask things like what are your redundancy plans what are your business continuity plans if you have a facility in for example New York and we think that that is going to be a hardhead area do you have a backup facility in Nashville or do you have a distribution center maybe in South Dakota and we start to ask those questions so that we can have some sort of predictability as to what the disruption might mean to us okay.

So we've done a little bit of that with data analytics let me back up in addition to that we have to understand our own house and I've been really surprised in talking with others both inside and outside of healthcare that folks don't know what's on their shelves they have no systematic button they can push to say we have this much of product throughout our facilities and Mayo is actually no different we have a pretty good idea of where some of it is but once it goes out into the ORS or out into the facility in some fashion we tend to lose sight and visibility very quickly and so we've used data analytics along with geo-mapping and along with some of the event watch services to really reel in you know.

How much inventory do we have on hand or we add any kind of risk what are the types of things that we need to be worried about tying all of those various aspects of data together the fourth thing is an Emergency Operations Center now most of your organizations probably have some sort of a disaster response type of function.

Ours does as well so if you know Rochester's gotten hit with a couple blizzards this year if a blizzard hits the city what are the types of things that we need to do from kind of an emergency ops perspective so this is a little bit different this is actually a supply chain centralized IOC and there's a series of triggers that would enact or enable the EOC and then it's it's intended to be sort of an agile exercise where we can call a meeting in five minutes and we can get into the into a room those players that I mentioned before contracting procurement my group some of the operations groups
etc.

We can get them in a group a quick huddle figure out what our risk and make decisions timely this is very different than what we've seen in the past which was just sort of oh the Shelf is empty now what do I do we're actually starting to proactively manage this which I think is really important I mentioned buffer stock so I discussed earlier that our largest black eye in Puerto Rico was IV fluids and we made a conscious business decision.

That particular item would never stock out again we would never have that problem time will tell if well if we actually have gotten ourselves to resiliency point but we actually made a business decision to carry a buffer stock of fluids which we consider to be a critical life-saving item.

It's something we have to have for our business and so our main distributor I'm sorry our main manufacturer agreed to carry a whole warehouse full of backup IV fluids and it's not necessarily just for Mayo it's intended to be a health kind of a health care stockpile if you will and it's of course something we pay for it's more or less an insurance policy it's insuring us against catastrophic loss of a significant asset it's something that we would need and so we have a facility in the Midwest I won't tell you aware but somewhere in the Midwest that's safely away from other manufacturing facilities that if and when the time comes.

We can simply issue a purchase order and directly pulled from that buffer stock warehouse so that's an option failure to supply is another thing we've been looking at and this is this is sort of interesting so this is the stick approach with the supplier and this is something that retail has done for years and I know this because I used to work in retail before I came into healthcare this is simply that we contractually obligated.

Suppliers to deliver what they say they're going to deliver and if they don't they write us a check it's that simple now the problem with this of course is when our our shelves are at zero no Chuck is going to help us with patient care at that moment so this is really not the best approach but in approach something that you could consider.

We also score Carter our main suppliers as you can imagine some care and some really don't and frankly and so that's an option from a supplier standpoint and then strategics singing is another I want to bounce forward to something a little bit more broad but something.

I think has a little bit more in terms of legs for a long-term solution so we as a as an industry as I mentioned before we while we collaborate in healthcare and it's sort of a unique experience in that we sit across from the table of really a competitor and have conversations about best practice we often compete.

When it comes to a business disruption such as this and so instead of competing we think that there's a model especially in healthcare for collaboration and being able to openly discuss emerging risks things that concern us and then a mitigation strategy and this goes well beyond the walls of Mayo as you can understand.

We think that probably more importantly is we need to find a way in healthcare to create transparency with suppliers and whereas we have traditionally seen a guarded relationship and one where supplier you know either just choose us not to tell us or can't tell us what's going on with their supply chain and their manufacturing we really think that something of open communication and dialogue and preparing in advance is a lot more logical solution in the healthcare space and so as a result of that we have designed we're in the really the infancy stages of designing a formal infrastructure as to what this would look like in healthcare and there's really kind of two sides to this so the providers which are the hospitals.

What we really want to be able to do is identify which items are critical by the way if you ever asked this question of anybody in your facility to name your critical items what's the most common answer you receive all items are critical so if you ever ask that question just be prepared for the answer everything's critical okay so there there are systematic and mathematical ways that we're looking at to identify critical products we also want to know where they come from and some of the resiliency actions of our suppliers now in exchange for the things that the providers want we expect that there's there's got to be something in it for our suppliers as well and so we fail feel particularly in this market this low margin market that suppliers are likely to come to the table if we incentivize them with being able to say we've got a great story to tell we have a resilient manufacturing operation our distribution channels are working flawlessly.

We have redundancies in our supply chain and we're prepared for disasters and we think that at the end of the day that is potentially a large monetary gain to a supplier and so we're hoping to bring these two communities together and start some really active dialogue again across the healthcare perspective not just us so I'll show you this sort of what this looks like with a mission vision.

Values type of statement and again I've outlined a lot of the things that we hope to gain as a supply chain and what the suppliers what we hope that they'll gain out of this as well so I am at my time but I would be happy to have a conversation with any of you interested in this topic I've provided my information here please do reach out I will unfortunately not be at most of the event as I am speaking on this tomorrow on the other side of the country but I do welcome any dialogue and feedback questions that you might have down the road so please do reach out thanks for your time.