How COVID Changed Long-Held Hospital Lab and Supply Chain Assumptions and What We Can Learn

by Walter Valliere, ScD

Vizient Consulting Director

Though there were many national and world events during 2020 that will go down in history, likely all will pale in comparison to the virus that changed the world forever. As we reflect on the one-year anniversary of the declaration of the COVID-19 pandemic, there are some lessons to be learned around every corner for those who are willing to look. Here are three long-held hospital lab and supply chain assumptions that COVID has forever changed, along with lessons learned to create a system more resilient to future demand surges.

Assumption #1: Established laboratory supply chains can weather any crisis

COVID-19 disrupted the balance between demand and capacity and compromised established laboratory supply chains. Anticipated demand for normal test production initially declined as demand for COVID tests increased, which were difficult to access and unavailable through most hospital-based laboratories.

Fearing ongoing supply chain disruptions due to the pandemic, many laboratory supply chain leaders and laboratory directors worked to secure as many essential products as possible, such as tubes, reagents, test kits, needles, personal protective equipment, etc. to protect future production capabilities. Unfortunately, this new demand further impacted the established equilibrium between demand and supply exacerbating product stockouts and shortages.

Vizient’s COVID-19 supply chain disaster response teams assisted hundreds of members in securing supplies to maintain ongoing testing operations although the continued challenges with supply chain interruptions on testing supplies made it difficult for members to keep up.

Many supply chain leaders understand that laboratory testing consumables, reagents, and controls are not amenable to substitution. Laboratories are required to follow rigid scientific and regulatory processes to ensure test reliability. Known regents, consumables, controls, and validated standard processes are the foundation for laboratory testing. Any substitution requires extensive performance verification before the modified test system and its processes can be placed into production. Since unplanned product substitution was not a realistic option, many laboratories were unable to perform certain routine tests.

Assumption #2: Manufacturers can adjust production to meet demand and contractual commitments

Historically, when demand for hospital laboratory supplies increase, manufacturers are able to increase production to meet the demand. During the pandemic, many of the supplies historically contracted from foreign countries were on allocation or scattered at best. Some foreign governments stopped shipments to meet the COVID-19 testing demand within their respective countries. As a result, many U.S. laboratories that had contracted for critical reagents, controls, and testing consumables made in foreign countries had to seek alternative sources for those essential supplies, and options were meager.

Many manufacturers were unable scale production to meet the changing demands of their laboratory customers, which contributed directly to product shortages and stockouts for reagents, controls, tubes, and laboratory personal protective equipment (PPE), to name a few. To better manage demand surges in the future, laboratory leaders should consider purchasing mission-critical reagents, controls, and consumables for testing from USA-based manufacturers.

Most vendor contracts have force majeure clauses that excuses non-performance in those situations and hospitals should negotiate these terms through expert legal guidance wherever possible. The coronavirus has exerted a significant and harmful impact on businesses and their ability to perform under their contracts and have looked for relieve under force majeure. However, whether a claiming party can successfully invoke a force majeure clause, an impossibility/impracticability defense, or a frustration of purpose defense in order to excuse performance due to the coronavirus is a fact that requires intensive inquiry and must be assessed on a case-by-case basis.

Contractual parties must look to the specific language of the contract, including the applicable law, to determine their likelihood of success. In any instance, laboratory leaders should exercise caution, seek legal advice and request additional performance-related information from the vendor should any vendors attempt to invoke a force majeure clause. It is an excuse for non-performance and should be validated and potentially litigated. Unfortunately, litigation may not provide any relief for meeting an unanticipated demand surge.

Assumption #3: Safety stock levels are sufficient to mitigate supply disruption risk

Most bioanalytical laboratories that serve the medical communities have embraced Lean Six Sigma over the last two decades. These tools have assisted laboratory leaders in improving processes, deploying industrial automation, decreasing turnaround times for test results, and reducing costs.

An important component of the Lean Six Sigma toolkit is inventory management, which stresses inventory visualization and high inventory turnover as part of a strategy to reduce waste and lower costs. It also stresses the importance of having adequate safety stock to manage demand surges and to have defined alternative supply sources.

It may be that Lean Six Sigma has been taken one step too far by many laboratory and supply chain leaders as safety stock levels proved inadequate to address the supply chain demand changes brought about by the COVID-19 demand surge. Lean Six Sigma does not mean inadequate safety stock levels and no alternative suppliers, which appears to have happened in many laboratories during the COVID-19 pandemic.

In summary, laboratory directors and supply chain leaders need to update their supply chain processes to be better prepared for future laboratory supply chain disruptions. Addressing the adequacy of safety stock levels, securing alternative sources of materials, holding vendors to their contractual commitments , and buying mission critical reagents, supplies, and other laboratory consumables from domestic suppliers are reasonable areas for review that have the potential to contribute to improved responses to future laboratory service disruptions.