The two topics that recur most often in the government’s daily press briefings are the supply of personal protective equipment (PPE) and Covid-19 tests. This is not going to stop. Rhetoric has failed, and supply chain management – a subject that ministers might previously only have read about as a cure for insomnia – is now an urgent issue.
Supply chain management is different from procurement. It’s the art of getting the right thing in the right place at the right time, and it’s not as easy as it looks – as the government is currently finding out.
A classic experiment in the field is called the Beer Game. Four people are asked to play different roles in the beer supply chain (customer, publican, distributor and brewery). They are told to place orders on each other to fulfill the demand placed on them, but not to keep too much stock. To make things harder – and more realistic – the players are not allowed to talk to each other, and must place their orders silently, so that the others don’t know how much stock is being bought. Still, how hard can it be?
As participants in the Beer Game invariably find out, it turns out to be very hard indeed. The game usually ends in failure, frustration and recrimination. Even the simplest chain is in fact an unstable system, prone to surges of supply followed by shortages. The only constant is that the feast-and-famine effect gets worse the further down the chain you go. This effect was named “the bullwhip effect” by Professor Hau Lee at Stanford University in 1997. It has been a founding component of supply chain education ever since.
The bullwhip effect gets worse the longer the supply chain becomes, as the more links in the chain there are, the less likely it is that there will be timely communication of demand. The message about what the end consumer wants becomes garbled as it’s passed down the line.
Listening to the Health Secretary’s briefing carefully yesterday, all the symptoms of a bad case of bullwhip were revealed: the failure to say accurately what the demand is or how many items are needed, and from there to plan where they will come from, leads to desperate scrabbling for supply. So what’s the cure?
The most important thing is to be upfront about how much PPE we actually need. More than 500,000 healthcare professionals need multiple items every day. Only once the real demand is acknowledged can you start to ask whether sourcing single-use items by air freight is a sensible and sustainable answer to that demand. In the context of real use, reusable equipment that can be locally laundered is a more reliable source of supply, especially as there are UK manufacturers who have volunteered to make these reusable supplies and set up local cleaning and recycling service centres. The unit cost will probably be higher than for single-use items, but the overall cost will be lower – and, crucially, the simpler, closed-loop supply chain will be easier to manage. I trust Paul Deighton will understand this.
To achieve this, we need to get a picture of “true demand” from healthcare professionals, ignoring the distorted demand signals that pass through the many echelons of the NHS, and we must directly transmit this need to the factories that are making the items.
We must also understand the supply side and buy the right level of capacity, not items from the suppliers and logistics providers. The Dutch government, for example, has set up an “air bridge” between China and Amsterdam, providing deliveries three times a week.
Lastly, we need to establish a single point of control – think of it like the air traffic control tower at an airport – where the complete supply and demand picture is constantly updated and decisions are made based on this. This “control tower” needs to direct operations and provide all the players in the supply chain with a single version of the truth.
In the government’s attempts to secure PPE and testing supply there are clearly many people and organisations involved. My sense is that many of these will be unconsciously complicating the situation for each other, just as players do in the Beer Game. The bullwhip effect has been unleashed; it can become destructive.
The government, and particularly the Department of Health and Social Care, has spent a lot of time and money trying to get things right, but they would do well to take the advice of supply chain professionals, who have been solving these problems in industry for years. Lives depend on it.
Jon Bumstead is a supply chain consultant and entrepreneur