By Gilles Paché
The coronavirus crisis has highlighted main challenges in supply chain management. The European example shows that public hospitals have made effective logistical decisions and learned relevant and applicable business lessons from companies.
Although other parts of the world have been affected, Europe will probably remain the geographical area most affected by COVID-19, with more than 50% of all deaths from the pandemic. Public hospitals in Spain, Italy, France and the UK, in particular, had to manage a huge wave of patients in acute respiratory distress between March and April 2020, whose lives depended on intensive care equipment and specialized health professionals. However, it soon became apparent that some public hospitals lacked the necessary equipment and health professionals, resulting in the risk of high excess mortality, especially for the most vulnerable individuals.
While the number of COVID-19 deaths in Europe is ultimately high (over 180,000 COVID-19 deaths at the beginning of June 2020), it could have been even higher if two radical logistical decisions had not been taken by European governments. Some observers and analysts, specialized in health system management, thus believe that the number of deaths could have been three to five times higher. The lessons to be learned by companies are certainly interesting for demonstrating resilience in crisis situations. The resilience of the European hospital system is indisputable given the policy choices of rationalisation that have been made for several decades in the context of new public management.
The French case is an excellent illustration of the revolution that is underway in terms of the lean management of public hospitals. Until 2004, the method of financing French public hospitals was based on a daily price, updated on an annual basis. A sharp break with activity-based funding, which consists of assigning a price to hospital stays in order to increase efficiency by securing revenues . From now on, each patient belongs to a homogeneous group according to his/her pathology. For each pathology, a price is defined by the authorities, and it is up to the hospital to check that the cost of treating the patient remains within the limits of the price defined by the authorities. The “ideal” situation is for the cost of care to be below the price set in order to generate significant margins and thus have the financial resources to invest in high-tech materials (radiotherapy with MRI scan, heart mapping equipment, etc.).
Gradually, public hospitals are concentrating on a number of profitable specialties, much like companies focus on their core competencies, even if this is detrimental to patients’ health pathways around chronic diseases such as cancer or heart attacks. However, the most serious consequence of the application of new public management is the massive reduction of beds to improve the profitability of public hospitals . In France, 69,000 beds will be eliminated between 2003 and 2017, including 49,000 beds for long hospital stays (more than two weeks). At a time when the COVID-19 pandemic is affecting Europe, French public hospitals have only 5,000 beds for acute respiratory distress patients. The low level of available stock will then lead to two major logistical decisions, which will enable us to cope with the crisis.
The smoothing of demand for care driven by lockdown policy could therefore provide companies with fresh ideas about the relevance of demarketing.
The first logistical decision was to limit the spread of contagion by deciding on – more or less – rigorous lockdown policies, based on the Chinese model . The objective was to reduce the number of social (physical) contacts between individuals, considered as potential propagators of the COVID-19 pandemic. As underlined by M. S. Rao, to counter COVID-19, “the best way is to isolate yourself from others [and] have a short-term quarantine” . Lockdown made it possible to significantly limit the number of new patients admitted to intensive care service, and consequently to manage a demand for care that systematically remained lower than the supply of care. The logistical policy of demand smoothing can therefore be considered a success during the coronavirus crisis.
For companies faced with a major disruption situation, the question of insufficient production or transport facilities may also arise. The European case of public hospitals indicates that one of the solutions could be to slow down consumption to avoid the multiplication of stockouts. The planned slowdown in consumption will of course require an adapted approach, inspired by a demarketing strategy, theorized by P. Kotler and S. Levy in the early 1970s . Demarketing consists of discouraging consumers, or segments of consumers, from buying products on a temporary or permanent basis (for example, photographs of cancerous lungs on cigarette packs). The smoothing of demand for care driven by lockdown policy could therefore provide companies with fresh ideas about the relevance of demarketing.
The second logistical decision was to organize transfers of acute respiratory distress patients from totally over-burdened hospitals to hospitals with under-utilized capacity. Here too, this logistical decision was implemented in China , before being chosen by France, with more than 640 patients transferred in 6 weeks from Great East region and Paris to Brittany, Atlantic Coast and foreign countries (Germany, Austria, Switzerland, Luxembourg). The logistics process was partly improvised, for example by transforming commercial high-speed trains (the famous TGVs) into medical trains with 36 patients by each train, requiring 6 health professionals per patient.
If demand is too high in a specific geographical area, a transfer of products must be organized from a geographical area where demand is low.
For companies, another lesson can be learned. In situation of major disruption, one must analyse with reference to the global supply chain by identifying logistical nodes and facilities. If demand is too high in a specific geographical area, a transfer of products must be organized from a geographical area where demand is low. This type of transfer exists for example in the retailing industry, where lateral transshipments are made at the same echelon between two stores or between two warehouses. However, lateral transshipments are seen as an occasional response to a stock management problem . The way in which the coronavirus crisis was managed on the basis of patient transfers shows that it would be interesting for companies to carry out a complete mapping of the possibilities of lateral transshipments between logistical nodes and to prepare their rigorous optimization in the event of a crisis.
From Companies to Public Hospitals
It says here and there that there will be a world “before” and a world “after” the coronavirus crisis. It is still too early to tell. On the other hand, it is certain that the experience accumulated in Europe in dealing with the flow of patients in acute respiratory distress should not be squandered. Two major logistical decisions have been taken, and they have demonstrated their effectiveness in controlling mortality, when the worst could have been feared. It would be a pity if companies did not reflect on their possible application to the business world. After all, aren’t public hospitals organizations that also pursue performance and profitability objectives? The “ideal” situation is for the cost of care to be below the price set in order to generate significant margins and thus have the financial resources to invest in high-tech materials (radiotherapy with MRI scan, heart mapping equipment, etc.).
New public management is often criticized because it is based on unreliable indicators, which lead to significant biases . The public services subject to the new rules concentrate their efforts on producing the expected statistical data to the detriment of concrete action and real evaluation of results. European hospital systems have been experiencing these excesses for several years, with a focus on compliance with strict profitability criteria. However, the COVID-19 pandemic has highlighted the fact that logistics management approaches, widely applied in companies, have made it possible to overcome a global health crisis, unprecedented since WW II. It would be interesting to draw lessons from this on the replicable nature of certain business tools, avoiding ideological criticism of new public management and its intention to generalise the commoditisation of public services.
About the Author
Gilles Paché is Professor of Marketing and Supply Chain Management at Aix-Marseille University, and Director of the University Press of Aix-Marseille, in France. He has more than 450 publications in the forms of journal papers, books, edited books, edited proceedings, edited special issues, book chapters, conference papers and reports, including the recent two books Images de la logistique: éclairages managériaux et sociétaux (2017) and La distribution: organisation et stratégie (2020). His major interests are network organisation, marketing channels management, supply chain management and strategy. He can be reached at [email protected]
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