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Lessons Learned from Blood Supply Chains
February 08, 2017
Supply chains, notes Isenberg operations management professor Anna Nagurney, evoke images of manufacturing inputs, warehouses, and shipping docks. That attribution fits, she says, but like most stereotypes it is overly restrictive. Professor Nagurney walks the talk: For over a decade, her modeling and research have sought to improve the supply chain that sustains America’s human blood supply.
The “industry,” she cautions, is currently at a crossroads. Despite blood’s limited shelf life—red blood cells and platelets keep for a maximum of 42 and five days—demand for the stuff is down—significantly so. Hospitals, in fact, used 1.2 million fewer units of blood in 2011 than in 2009, yielding savings of $274 million. And from 2009 to 2013, transfusion units plummeted by one third. Hospitals and clinics, she says, have driven that sea change through minimally invasive laparoscopic surgeries, recycling a patient’s own blood, and patient-tailored, test-based blood deployment.
For health care providers, those gains have spelled big savings. Suppliers, however, are in crisis, Nagurney insists. Like much of the healthcare industry, consolidation through mergers and acquisitions has ruled the day, with some suppliers falling by the wayside. It’s no surprise, she says, that survival has typically favored the larger players. To that end, the American Red Cross accounts for 40% of the nation’s blood supply. America’s nonprofit Blood Centers, with 600 donor centers, account for 50%. And hospitals, medical centers, and for-profit suppliers collect the remaining 10%.
Rx from Operations Management
Nagurney, often in the company of two of her former PhD students,* models supply chain alternatives that improve efficiency and reduce costs in blood collection, testing, and distribution. That includes reducing waste via the highly perishable supply of blood, which may sit unused and spoil. Fees accompanying blood disposal (a hazardous material) add to the cost of spoilage, she says.
Identifying and nurturing appropriate donors is critical to creating a more flexible, on-demand supply network.Improved efficiency and reduced waste, Nagurney continues, call for nuanced information systems that help match supply with demand. That includes identifying donors with “the right kind of blood.” Geographical and seasonal factors, she adds, can also play a role: Donors and blood supply may prove overabundant in some places and times and scarce in others. Ultimately, she emphasizes, identifying and nurturing appropriate donors is critical to creating a more flexible, on-demand supply network.
“Recently, we’ve been looking at the viability of supply side mergers and acquisitions,” Nagurney remarks. “In evaluating a prospective acquisition, we try to learn whether the merged supply chain makes economic and geographical sense,” she continues. “We’re also interested in the alternative where different suppliers share resources—an option that might preclude an outright merger. We ask, for example, how different blood service organizations might pool testing facilities, procurement arrangements, and delivery vehicles to their mutual advantage.”
More than Efficiency
Lowering costs through greater efficiency alone, though, isn’t the whole story, notes Nagurney. That’s because, she continues, unexpected natural and manmade disasters like epoch storms and terrorism can create sudden, unanticipated spikes in the demand for blood. “To handle that, you need to build resilience into the overall supply system,” says Nagurney. That means, she says, trading off airtight efficiency in parts of that system to give you the leeway to respond flexibly and decisively. That might call, she says, for greater cooperation among suppliers; even at times for incentivizing some at-risk suppliers to stay afloat.
“In any event, our blood supply initiatives demonstrate that the Operations and Information Management discipline is as much about system resilience as efficiency. That’s a challenging perspective for students with a passion for problem solving.”
*Professor Nagurney frequently joins forces in research with two former students, Amir Masoumi ’13 PhD and Min Yu ’12 PhD. Both are operations management professors, Amir at Manhattan College; Min at the University of Portland’s Pamplin School of Business. In 2013, the three scholars coauthored the book, Networks Against Time: Supply Chain Analytics for Perishable Products. Springer.