Tariff puzzles in healthcare: Reduce supply chain risks through data and relationships

There are many questions about the impact of tariffs on the supply chain of the health system. And, most supply chain leaders don’t understand the open challenges.

In response, resource-scarce healthcare organizations are in a scramble mode, trying to work with suppliers to identify and mitigate potential impacts with varying degrees of success. While hospitals and other trade groups are lobbying on the national stage to avoid medical supplies and drugs, the industry is working toward supply chain disruptions and potential price increases.

The reality is that this situation may become more complex before getting better, and every healthcare CFO wants supply chain leaders to understand and articulate the risks facing their organizations. Access to the right supply chain data is key to clarity, but health systems in this field are generally lacking and there are no resources to get the information needed from various sources.

With limited access to data, health systems will have to rely on their Group Procurement Organizations (GPOs) and other third-party partners to fill information gaps to ensure resilience. This is another wake-up call after the consequences of the COVID-19-19 pandemic. This time, the improvement outlook begins with a better supply chain model that shifts from a transaction focus to a strategic focus and builds on a collaborative supplier model and more domestic procurement.

The power of deeper supplier partnerships

There are different schools of thought when it comes to how GPOs connect with supplier relationships in healthcare. Contrary to decades of prioritizing quantity over value, the shift in long-term, stable relationships with fewer suppliers has allowed greater collaboration and exploration of quality leverage far beyond the price point.

Of course, the pros and cons do exist, but when there are fewer supplier partnerships, the health system may become more strategic in contracts and negotiations. This is an important consideration when navigating the uncertainty of tariffs.

For example, to understand risks, supply chain leaders need data from various sources—the country of origin of the finished product, the country of origin of the components, and the impact of these components.

The problem is that there is no single source of data and most vendors are reluctant to share this information with their GPOs or health system partners because they are worried about losing their business. A deep relationship with fewer suppliers allows supply chain leaders to negotiate contracts built on trust and transparency, which can better disclose information.

When transparency exists, health systems can make better decisions about purchasing alternatives before potential consequences. They can also determine opportunities for bulk purchases and stocking of supplies before the tariffs take effect.

Furthermore, deep relationships can help health systems overcome the challenges of data visibility. Shared best practice processes, technologies, capabilities, systems and information can all form an ecosystem that supports positive responses to outstanding issues.

For example, a local visualization tool is to make visibility of a large health system to identify potential commodities that have the potential to increase tariff risks. This allows supply chain leaders to predict what potential financial impacts based on future operating rates, thereby mitigating financial impacts or shortages.

Build a stronger domestic alliance

Increased domestic investment is a key strategy to overcome risks associated with tariff uncertainty. Health systems should find ways to balance the location of consumables they buy between offshore suppliers and domestic suppliers.

Strategic deals, such as the opening of Medline’s 2023 deal in West Jefferson, Ohio, are creating new supply routes that are closer to home, more reliable and eliminate the risk of tariff impact. I hope the industry will see more cooperative investment transactions in the future.

While the United States certainly does not have enough capacity to meet 100% of demand, supply chain leaders should work with their GPO partners to raise key questions about procurement alternatives: Which countries are producing specific products? Does the impact of its country of origin have less? Can we buy U.S. national products?

Thanks to lessons learned during Covid-19, many healthcare supply categories today have more domestic capabilities than before the pandemic. Prospective health systems will begin to look for these options.

Overcome fragile supply chains

The pandemic reveals the delicate state of the dependence of the U.S. health system on global supply chains. Now, the waiting tariff agreement poses a new threat to system instability. The best strategy for preparation is to mitigate and eliminate possible risks. Health systems with deeper supply chain supplier relationships and smarter domestic strategies will be better prepared to achieve resilient, stronger supply chains that can survive storms in storms.

Photo: Stockseller_ukr, Getty Images

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