After 2020, business leaders should prepare for the next health crisis. Read this article from Harvard Business Review and learn how to be ready for the future!
Robert Handfield, Daniel Joseph Finkenstadt, and Peter Guinto, Harvard Business Review, 15 February 2021
The shortages of personal protective equipment (PPE) and other critical health and safety material and equipment that have persisted throughout the Covid-19 pandemic have made one thing clear: Large organizations of all kinds need to be much better prepared to operate when future devastating emergencies strike. The ultimate remedy is a radically cooperative, proactive approach to securing these supplies.
The strategies we suggest in this article can reduce organizations’ vulnerability across a whole range of threats, from the next pandemic to bioterrorism to cyber or infrastructure attacks. Our advice stems from two sources: our involvement in the U.S. Supply Chain Task Force’s efforts to understand the causes of the nationwide shortages of PPE and other health care supplies in early 2020, and our ongoing work in this domain with federal legislators.
The shortages were a shock to many organizations and the country as a whole and are still a problem. They impacted operations throughout the private and public sector and even affected the power grid: In the spring of 2020, there were electrical blackouts in the midwestern United States because of PPE shortages.
To ensure adequate supplies of PPE and other critical items such as facility safety equipment (e.g., plexiglass sheeting, temporary facilities to quarantine people, air filtration systems), fuel, generators, water, and communications technology when a crisis strikes, organizations should adopt a strategy of shared self-sufficiency. It calls for organizations to look inward and make significant improvements in their ability to anticipate and respond to health emergencies, as well as outward by joining or forming networks of entities that will proactively secure critical supplies.
As a number of HBR articles have pointed out, the pandemic exposed serious flaws in many companies’ supply-chain preparedness and demonstrated the necessity of detecting and responding to “novel” risks, mapping supply networks, and establishing multiple sources. Other articles have showed how to aim mitigation efforts at the most important suppliers and risk areas.
What sets our work apart are two things: 1) Our focus on critical emergency resources for allowing organizations of all kinds to continue running and to keep their people and communities safe in a crisis, and 2) our call for organizations to strive to achieve “immunity,” which is a step beyond conventional continuity planning.
We define four levels of preparedness to maintain continuity in the face of health crises. The first three represent different combinations of degrees of two dimensions: responsiveness and awareness. Responsiveness describes the adequacy of an organization’s plan for a crisis and how quickly the plan can be put into action. Awareness is an organization’s knowledge level about its supply chain and the risks of disruption. Level 4 of preparedness, which we call “immune,” involves a high degree of interconnectedness among organizations, both vertically and horizontally, as well as an ability to sense disruptions in the network through informed intelligence sources.
While it is not reasonable to expect all organizations to be able to rapidly attain an immune state, they should be taking actions to become more resilient (through stockpiling) and more responsive (by being able to more quickly mobilize resources).
Level 1 — Reactive
Organizations at this level lack both responsiveness and awareness. They don’t do advance planning for health emergencies. They don’t think about what supplies they might need or how they might procure them in a crisis. When an emergency occurs, panic ensues, and the procurement staff starts searching the internet or sending out hastily written requests for proposals (RFPs). On the awareness front, they do little tracking or monitoring of market conditions for critical supplies, much less scan for external global events that might lead to shortages. Often, they are hampered by outdated IT infrastructures, inadequate staffing, or a lack of expertise.
Many public-sector organizations are at the reactive level. Unfortunately, these include some of the federal offices on the front lines of the pandemic response. The Strategic National Stockpile’s budgetary limits contributed to its being unable to plan, train people, or make timely decisions, and it was incapable of acquiring dependable, real-time information about disease outbreaks or the status of supplies.
Level 1 also includes many small, rural electric utilities. Most had never considered PPE or social distancing as critical operational needs for business continuity. And in any case, many operate under budget constraints, which left them without access to expertise in virus testing, PPE, and cleaning techniques and contributed to an inability to see deeply into PPE supply chains. A national utility association told the federal task force about at least one instance in the U.S. Midwest where mission-control spaces were contaminated by infected employees, resulting in the shutdown of a critical generation unit. The association cited several other situations in which the continuous supply of power was threatened. A separate association of utilities, also in the Midwest, told members of the task force, “It has become very difficult to source many critical [health] supplies and has already led to several blackouts in the region.”
Similar problems led to widely reported shutdowns in the meat-processing industry during April 2020. Covid-19 broke out among employees who were working in close proximity without proper protective equipment, forcing closures of major facilities in South Dakota, Iowa, and North Carolina. This resulted in shortages of certain cuts of meat at many retail locations.
Given that budgets for preparedness are often an obstacle, organizations at the reactive level need to identify the most cost-effective means for rapidly improving preparedness. The best approach is to focus on responsiveness — that’s where the biggest impact can be had for the least investment.
To improve responsiveness, companies should initiate planning for pandemics and other emergencies. This means taking the following steps:
Establish a cross-functional crisis response team to create and continually update contingency plans. The team should include people from security operations, emergency management, supply chain management, inventory and warehouse management, IT, legal, finance, audit, and quality. To avoid bombarding employees with conflicting messages from different sources, one person should be put in charge of communications.
In consultation with the organization’s top leaders, the team should develop a playbook that clearly defines roles and accountabilities during a crisis. The team should organize scenario planning, simulations, and training. Remember that the most critical employees may not be the most high-ranking: They might include the sanitation, security, and IT staff that everyone must rely on in an emergency. The crisis response team’s playbook should feature deployment plans for the entire workforce, and the plans should be tested and updated periodically.
Give the crisis response team the power it needs to act quickly. It should have a direct line to top management and the autonomy to rapidly enact emergency sourcing procedures as soon as the organization declares an emergency.
Stockpile enough PPE and critical materials to cover the most essential employees for at least two weeks, which should be (barely) enough time to get the organization’s PPE supply chain moving. Some manufacturing companies have acquired six months’ worth of supplies. If you are carrying a lot of inventory, be sure to check expiration dates and rotate stock.
Make funds available for emergency actions. In a crisis, ready cash may be a necessity. In the spring of 2020, many organizations faced a cash-flow crunch when health equipment suppliers started requiring customers to pay for orders in advance. Most state agencies don’t allow pre-payments, so procurement officers had to obtain emergency approval for funds to pay anywhere from 50% to 100% of the cost of the order upfront.
Decide which areas of the business are critical for maintaining operations. In addition, create a clear prioritization of the order in which functions should receive things like PPE, Covid-19 tests, and vaccines. Remember that the people who manage and distribute PPE also need PPE, and that we need to vaccinate the vaccinators.
Level 2 — Responsive
Organizations at this level have robust capabilities for responding to health emergencies. The state of Utah, for example, was able to move quickly and effectively in securing PPE because state officials gave the chief procurement officer autonomy to act in the emergency. This official functioned as the central authority for all purchasing of PPE for the entire state and had a direct line of communication with the governor’s office, which allowed him to quickly obtain approval of funds to make the purchases.
The organizations in this category still have relatively low awareness. Although they may do some risk analysis to identify supply-chain weaknesses, they are unable to truly see what is happening in key supply markets for PPE or determine where problems may arise.
An example of a highly responsive organization is the American Red Cross (ARC), which is the result of changes it made after Hurricane Maria shut down its only supplier of blood bags in Puerto Rico in September 2017. Since then it has had a Supplier Risk Management Council and a set of supplier-risk policies and procedures in place. ARC invested in a risk-monitoring-and-alert platform that informed it of supply disruptions that would impact its operations and global events (e.g., hurricanes, floods) that were shutting down critical suppliers.
Those efforts meant that ARC was better prepared when the Covid-19 pandemic struck. On February 7, 2020, less than three weeks after the Centers for Disease and Control reported the first confirmed case of the novel coronavirus in the United states, ARC’s supply-chain staff received alerts that a PPE shortage was imminent, and ARC bought more than three months’ worth of supplies, including gloves, hand sanitizer, and disinfecting products. As a result, the organization experienced no shortages of PPE during the critical early months of the pandemic in February through June 2020 and has contracts that guarantee distributors will provide it with two years’ worth of supply of PPE.
To improve awareness, companies should take the following steps:
Deploy supply-risk tools to identify, manage, monitor, and mitigate supply risks that could impact operations. Examples include monitoring and alert systems (which third-party services can provide), plans for mitigating and responding to supplier risks, and the formation of a cross-functional senior executive council that is regularly briefed on the likelihood and potential costs of disruptive events and can order the actions needed to address them.
Determine what equipment the organization would need in an emergency. We found that only a small sliver of private firms and public agencies realized how much PPE they truly needed to get them through the early stages of the pandemic.
Ensure that the crisis response team stays current on governmental and regulatory requirements. During 2020, the U.S. Food and Drug Administration (FDA) changed its list of approved N95 masks several times throughout the year. Many states contracted with suppliers of masks and then had to “claw back” their funds once they learned that the FDA had removed certain masks from its list. Separately, when the FDA or the National Institute for Occupational Safety and Health (NIOSH) issues an Emergency Use Authorization edict for something to be used, buyers of those items need to to stay abreast of updates to ensure they are still okay to use.
Seek market intelligence on supply risks from multiple sources. They could include discussions with your organization’s field representatives (e.g., sales reps, supply managers, auditors), news media, social media, state and federal emergency centers, public notification systems (such as the CDC Health Alert Network), and commercial supply-chain risk-monitoring services. The use of multiple sources can help the organization validate the intelligence it receives.
Make sure that the crisis response team is fully aware of funding options for actions that might be deemed necessary in an emergency. This means having up-to-date information on equipment prices, the company’s budgets, and who is authorized to approve funds and new purchase orders so the team can quickly respond to supply opportunities.
Level 3 — Resilient
Organizations in this group have robust levels of awareness but often are large and lumbering and struggle to mobilize resources quickly when a crisis suddenly occurs. To overcome this mobilization problem, companies should take the following actions:
Map your supply chains. The goal is to identify critical suppliers and their capabilities and potential bottlenecks.
Establish redundancies and stockpiles. They will buffer operations from disruptions.
Establish contingency spending plans. In addition, ensure that funds can be accessed quickly.
Train employees to handle crises. They must be equipped to plan for, overcome, and adapt to supply-chain disruptions.
Set up crisis response teams. They should be able to operate remotely, deploy “fire-drill” response exercises, and provide the firm’s leaders with evaluations of these exercises.
Structure purchase contracts to ensure that they can access emergency supplies, often at pre-determined prices. In addition, create expedited review and approval processes for contracts and agreements.
An example of a resilient company that was prepared for the pandemic is General Motors. Its experience with the Japanese tsunami in 2011 taught it an important lesson: Tier 2 and 3 suppliers (your suppliers’ suppliers and their suppliers) can shut down your entire production network. Since that time, GM has had a robust supply-risk-planning function. Through its manufacturing sites in China, the automaker became aware of the early spread of Covid-19. Using its quality-assurance engineers in China, GM quickly vetted a number of PPE suppliers. (For example, one of its criteria for assessing vendors’ ability to deliver N95 masks was their access to the special non-woven fabric needed to produce them.) The company then arranged to have the masks shipped to its manufacturing sites the United States and other countries.
Level 4 — Immunity
To achieve immunity from shortages of critical health and safety material and equipment that could disrupt their operations, organizations must join forces with others to transparently share information on shortages and share supplies of these critical goods. Firms at this level recognize that the entire supply network has to function to preserve the ongoing operations of all of its members. These networks operate both vertically and horizontally:
Vertical. A company should work with its suppliers and distributors to ensure that the entire supply chain is prepared for emergencies by sharing information and securing PPE supplies for key partners in the network. Ideally, a company should contractually require its suppliers and distributors to maintain their own crisis response teams, and companies in the network should conduct joint “war-gaming” exercises to test their readiness to handle a crisis. The after-action report can produce valuable insights that can be applied when a real event occurs.
It is important to recognize that distributors of PPE and other critical health and safety items are not necessarily a dependable source; they are only as good as their relationships with manufacturers. (During the pandemic, many distributors and group purchasing organizations, including the largest ones, proved unable to supply their customers.) Therefore, a company should forge contractual relationships with manufacturers that ensure that it and the members of its supply chain will be able to obtain adequate supplies of health and safety items when a crisis occurs. Immune companies should regularly communicate with these producers during a crisis, monitor them to make sure they are functioning okay, and disburse funds if necessary. When nurtured over time, such relationships can provide preferred access to reliable supplies of PPE and other critical health and safety supplies when a calamity strikes.
Horizontal. Organizations that provide essential supplies like food, medical care, and utilities should form mutual-aid agreements with competitors. The airline industry currently does this on an informal basis: An airline will supply critical aircraft parts from its inventories to help another, knowing that it might need similar help someday.
During surges in the pandemic, hospitals within some states pooled their ventilators (New York mandated it), and hospitals in some states exchanged ventilators with those in other states as the number of new cases subsided in one region and surged in another. The federal government is considering legislation that would create pooled information on the availability of PPE and key medicines, which could help allocate them more efficiently to the areas of the country that need them the most during a crisis like a pandemic.
Corporations and public agencies should make similar arrangements by negotiating contracts for pooling resources — including information on supplies — to support the industry as a whole. The contracts should establish a council of representatives from organizations that consume and distribute PPE to determine how assistance is triggered, requested, and prioritized. Such agreements, including the information transparency that they would mandate, would help prevent panic hoarding.
Once an emergency is declared, every organization in the mutual-aid network must be able to see not only where supplies are located but also what each organization’s priority needs. It may be necessary for state or federal regulations to require this level of transparency. (Pending federal legislation would create a national “control tower” that would share information on state-level allocations of vaccines and PPE.)
Such arrangements could help the public and private sectors work together to address shortages during a crisis. General Motors’ role in helping hospitals obtain PPE during the early months of the pandemic illustrates the value of such collaboration. In March 2020, GM learned that hospitals in Michigan were running out of PPE. Ron Mills, GM’s director of global business solutions, shared his PPE contacts with the state and made calls to ensure that the state procurement office in could contract with the Chinese manufacturers. And when limited flights from the Shanghai airport became a bottleneck, GM coordinated an alternative logistics arrangement: sending the PPE by boat to South Korea, where it was shipped by air to North America and trucked to Michigan.
One company that appears to have achieved “immunity” status is Flex, the global contract manufacturer. When the company heard rumors in January 2020 that the Chinese government might order factories to remain closed after the Chinese New Year holiday, the company, which has manufacturing units in China, acted quickly not only to secure PPE for itself but also to ensure that its suppliers across the value chain were well stocked. (These same suppliers provided services to Flex’s competitors as well, so these actions helped support the entire ecosystem for electronics.)
The manager of Flex’s Suzhou and Shanghai plants provided his immediate suppliers with masks, cleaning supplies, and sanitation training manuals, according to The Washington Post. Several Flex suppliers shared their knowledge of PPE providers that could supply materials to some of Flex’s facilities in the area. Quality engineers from Flex met with key suppliers to create pandemic plans. Production schedules were shifted to avoid bottlenecks at sites that were likely to shut down due to stay-at-home government mandates. This was facilitated by the company’s Flex Pulse systems, which identifies which products can be produced at different facilities and monitors all materials in motion in real time.
A Shift in Thinking
In the pre-pandemic world, the detailed planning and management of PPE and other health and safety goods didn’t seem essential. But in the wake of the disruptions caused by Covid-19, there is now a broad recognition by organizations throughout the economy that such supplies are critical. Organizations should ascertain their current state of preparedness to withstand another shock and take steps to become increasingly more resilient. Their end goal should be to become immune so they can withstand the next crisis.
The positions and opinions of this article are solely those of the authors and do not reflect the official positions of the U.S. Air Force or U.S. Department of Defense.