Getting More Visibility into Medical Supply Chains

Unprecedented demand shocks for medical products important for treating Covid-19 hit the U.S. market in the spring of 2020, resulting in severe shortages and transportation bottlenecks. Suddenly, there was an expanded awareness of the complex international nature of supply chains for many essential products, which engendered intense concern among policymakers and the public. As a result, there is now great interest in what has been, over time, a steadily growing web of far-flung sourcing and manufacturing relationships based on specialization and production efficiencies. There is a surge of political momentum for government action to ensure that U.S. citizens are safe should another pandemic occur. As policy prescriptions are being debated, building more resilience and security into supply chains is the agreed goal.

Members of Congress have authored over 80 pieces of legislation with differing approaches, including offering investment tax credits against equipment costs associated with manufacturing personal protection equipment (PPE) in the United States; large appropriations to maintain domestic manufacturing facilities for tests, treatments and vaccines; and other proposals to increase domestic stockpiles and reserves. Rather than race to adopt a piecemeal response, leadership on the trade committees in Congress is taking a few months to listen and study. Building an objective record that describes how Covid-19-related medical products are invented, sourced, produced, and distributed is the first step.

Last month, Congress asked the bipartisan International Trade Commission (ITC) to investigate the sectors of U.S. industry producing Covid-19-related goods, including medical devices, pharmaceuticals, PPE, and diagnostic products. The Commission will gather information to describe U.S. employment, trade, and production, including manufacturers of raw materials, intermediate and finished goods, and trade. The research will assess where shortages were reported during the pandemic and gather statistics on where supply chains broke down and the causes of blockages, such as factory shutdowns, reliance on single suppliers for inputs, and logistics tie-ups. The Commission will also consider regulatory requirements that may impact entry and exit from certain markets. In anticipation of possible bottlenecks in the delivery of vaccines, the research may also assess the ability of producers in this market to manufacture and distribute a vaccine or vaccines when available.

During two days of testimony from industry and academic witnesses speaking from around the country, commissioners combed through myriad statistics, company experiences, and business association perspectives. Witnesses described what unfolded in March and April as severe demand shocks rocked their organizations.

The picture that emerged from the hearing put a more reassuring lens on the day-to-day press coverage of painful shortages around the country. Stepping back with the perspective of time may reveal a bigger story of severe shocks to a globally sophisticated medical supply industry that collectively was able to react and right itself in an impressive manner. Patient- and firm-level experiences in this multibillion-dollar sector of the U.S. economy will need to be studied and aggregated. From ventilators to steroids, it is hard not to be impressed by the stories of ingenuity and the get-it-done attitude that has permeated industry, hospitals, and the regulatory agencies since the onset of the pandemic. It is possible the Commission may identify more heroic success stories than chronic shortages, as industry management and workers navigated to make sure patients and caregivers were adequately supplied.

While several witnesses called for the reshoring of medical supply chains to stem risks, others argued the globally competitive pharmaceutical and medical device industries that dominate world markets with their exports would not necessarily be reducing risk by relocating all offshore production to the United States. Actually, witnesses had examples of diversified sourcing options putting companies in a better position to adjust production and distribution to meet demand spikes around the country. 

Optimized supply chains and inventory controls constructed over many years based on specialization, production efficiencies, and cost effectiveness look more worrisome after the pandemic and should be reexamined for fine-tuned risk assessment. But many witnesses made the case that global networks and commercial relationships, which are the hallmark of innovative, cutting-edge industries, have been more of a strength than a liability when put to the test. A witness from the Government of Canada reminded commissioners that Canada, a U.S. free trade agreement partner country, has served as a reliable supplier of $8.8 billion of medical supplies annually, including essential respiratory and protective equipment. CSIS research is focusing on the concept of trusted partners—countries and companies that can be counted on as consistent reliable sources of supply—whose governments will not take action to cut off shipments to the United States.

Depending on the product, the Commission will be faced with untangling a high level of commercial complexity. Many U.S. plants source thousands of parts from first-, second-, and third-tier suppliers, some of whom can themselves be reliant on a single supplier, for a basic input (such as an active pharmaceutical ingredient), injecting a non-transparent element of vulnerability into supply chains. Research may also involve sensitive confidential business information.

In the future, official data collection will need improvement as well. In this highly regulated sector, Congress must decide where relevant data collection functions should be housed. The Federal Drug Administration, the Department of Health and Human Services, and the Commerce Department could all be involved. There are difficult questions for Congress and other agencies surrounding how the emergency stockpile is best maintained and determining which products should be stored over time as technology changes.

The ITC, an independent agency of economists, lawyers, and industry experts, overseen by a set of Senate-confirmed commissioners, remains the best authority in government on the current structure of U.S. industrial production, imports, exports, and foreign supply. Results of this investigation due in mid-December will have much to add to the ongoing debate.

Meredith Broadbent is a senior adviser (non-resident) with the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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