Healthcare Supply Chains Are Facing a Cost Issue

By Logan Wamsley

We have reached a point in the COVID-19 pandemic where we are beginning to understand just what some of the long-term implications might be from the last year. Notably, while shortages for some critical healthcare equipment such as N95 masks, KN95 masks, and isolation gowns have noticeably subsided, raw material shortages have continued to constrain availability of other products such as exam gloves (according to Premier Inc., exam glove demand currently exceeds existing production capacity by about 215 billion units, or nearly 40%). Additionally, with uncertainty surrounding COVID-19 variants cropping up around the world, many experts still question the recovering healthcare supply chain’s ability to handle any kind of additional strain.

Even more concerning, however, is the significant loss of revenue experienced by hospitals and healthcare providers through much of 2020 into 2021. While hospital beds for a long stretch of the pandemic were over capacity, this did not compensate for the mass postponement of many non-surgical and elective procedures. Additionally, as federal aid subsides, the median U.S. hospital operating margins dropped 55.6% for 2021, which will force hospitals to make significant budget cuts, operate with fewer resources, and also delay any investment into new technologies.

This lack of transactions is expected to reverberate all the way down the supply chain, from healthcare OEMs to suppliers. Such an environment is poised to remain until at least 2023, and with less revenue from consumers driving the core business model, OEMs will need to turn to implementing cost-saving measures to minimize fallout.

In our view, the first place OEMs should look to make changes is in their supply chain, or specifically, in ways they can free up working capital typically tied up within their supply chain. For example, Partstat offers customers a variety of Inventory Ownership Solutions designed to maintain access to a healthy stream of capital that can be used maintain operating costs, expand research and development, and hire new talent — anything that the OEM needs to maximize ROI. One way is through last time buys, where Partstat will use its own capital to purchase the customer’s inventory upfront while offering the customer extended payment terms over 10+ years depending on the OEM’s needs.

EMS providers, distributors, and other healthcare supply chain partners also have the ability to adapt an Inventory Ownership Solution for their needs. Partstat, for example, has the ability to purchase stored inventory directly off the balance sheet of an EMS provider or distributor, allowing them to realize instant cash flow with extended payment terms — all while saving on annual carrying costs as Partstat stores the inventory in its secure, industry-leading facilities until it is needed for assembly.

All tiers of the healthcare supply chain should expect slow moving inventory with extremely limited cash flow for the foreseeable future — but that doesn’t mean they have to feel strained. All that is necessary is an examination of where capital is tied up in their supply chain, and a solution to access it.