Harvard Case - Uncertainty in Surgical Supplies-A Cardinal Error (A): Decision-Making as a Crisis Unfolds
"Uncertainty in Surgical Supplies-A Cardinal Error (A): Decision-Making as a Crisis Unfolds" Harvard business case study is written by G. Paul Matherne. It deals with the challenges in the field of Operations Management. The case study is 4 page(s) long and it was first published on : Feb 17, 2022
At Fern Fort University, we recommend Cardinal Health implement a comprehensive strategy to address the uncertainty in surgical supplies, focusing on a multi-pronged approach encompassing supply chain management, information systems, innovation, and risk management. This strategy aims to ensure a reliable and resilient supply chain, minimize disruptions, and maintain the highest quality of care for patients.
2. Background
Cardinal Health, a leading distributor of medical and surgical supplies, faced a critical situation when a major supplier of surgical gowns unexpectedly ceased operations. This event triggered a cascading effect, causing severe shortages and jeopardizing patient safety. The case highlights the vulnerabilities inherent in complex supply chains and the importance of proactive risk mitigation strategies.
The main protagonists in this case are:
- Cardinal Health: The company facing the immediate challenge of securing surgical gowns for its customers.
- The Supplier: The manufacturer of surgical gowns who abruptly shut down, creating a significant disruption in the supply chain.
- Hospitals and Surgeons: The end users of surgical gowns, directly impacted by the shortage and facing potential delays in procedures.
3. Analysis of the Case Study
This case study can be analyzed through the lens of supply chain management and risk management.
Supply Chain Management:
- Single Sourcing: Cardinal Health's reliance on a single supplier for a critical product like surgical gowns exposed them to significant risk. This lack of diversification created a vulnerability that was exploited by the sudden closure of the supplier.
- Lack of Transparency: The case highlights the importance of transparency and communication within the supply chain. Cardinal Health lacked visibility into the supplier's financial health and operational challenges, which hindered their ability to anticipate the disruption.
- Limited Inventory Management: Cardinal Health's inventory management strategy lacked flexibility and responsiveness. They did not have sufficient safety stock to absorb the sudden demand surge caused by the supplier's closure.
Risk Management:
- Lack of Contingency Plans: Cardinal Health did not have a robust contingency plan in place to address potential supply chain disruptions. This failure to anticipate and prepare for such events exacerbated the crisis.
- Insufficient Risk Assessment: The company did not adequately assess the risks associated with single sourcing and the potential impact of supplier failure. This lack of proactive risk assessment left them unprepared for the crisis.
4. Recommendations
- Diversify Supply Chain: Cardinal Health should diversify its supply chain by establishing relationships with multiple suppliers for critical products like surgical gowns. This diversification will reduce reliance on any single supplier and mitigate the risk of disruptions.
- Implement Robust Inventory Management: Cardinal Health should adopt a more robust inventory management strategy that incorporates safety stock, demand forecasting, and real-time inventory tracking. This will ensure sufficient supply to meet customer needs even during unexpected disruptions.
- Enhance Information Systems: Cardinal Health should invest in advanced information systems that provide real-time visibility into its supply chain. This will enable them to track supplier performance, monitor inventory levels, and identify potential risks early on.
- Develop Contingency Plans: Cardinal Health should develop comprehensive contingency plans for potential disruptions, including supplier failure, natural disasters, and economic downturns. These plans should outline alternative sourcing options, inventory management strategies, and communication protocols.
- Implement Risk Assessment Framework: Cardinal Health should implement a formal risk assessment framework to identify, analyze, and prioritize potential risks across its supply chain. This framework should include regular reviews and updates to reflect changing market conditions and industry trends.
- Invest in Innovation: Cardinal Health should invest in research and development to identify alternative materials and manufacturing processes for critical products. This will reduce reliance on traditional suppliers and enhance the resilience of its supply chain.
- Strengthen Supplier Relationships: Cardinal Health should build strong relationships with its suppliers, fostering open communication and collaboration. This will enable them to better understand supplier capabilities, identify potential risks, and develop mutually beneficial solutions.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Diversifying the supply chain, enhancing information systems, and investing in innovation align with Cardinal Health's mission to provide high-quality products and services to its customers. These initiatives will strengthen its core competencies in supply chain management and risk mitigation.
- External Customers and Internal Clients: These recommendations directly address the needs of Cardinal Health's external customers (hospitals and surgeons) by ensuring a reliable and resilient supply of critical medical supplies. They also benefit internal clients by providing them with the tools and resources necessary to navigate potential disruptions.
- Competitors: By adopting a proactive approach to supply chain management and risk mitigation, Cardinal Health can gain a competitive advantage by demonstrating its ability to provide a reliable and consistent supply of critical products, even during challenging market conditions.
- Attractiveness: The proposed strategy is expected to improve Cardinal Health's financial performance by reducing costs associated with disruptions, enhancing customer satisfaction, and strengthening its market position.
6. Conclusion
Cardinal Health faces a critical challenge in ensuring a reliable and resilient supply chain for surgical supplies. By implementing a comprehensive strategy that encompasses diversification, robust inventory management, advanced information systems, contingency planning, risk assessment, innovation, and strong supplier relationships, Cardinal Health can overcome this challenge and emerge as a leader in the medical supply industry.
7. Discussion
Other alternatives not selected include:
- Short-term solutions: Relying on emergency procurement or sourcing from alternative suppliers on a temporary basis. This approach may provide immediate relief but lacks long-term sustainability and can lead to higher costs and quality issues.
- Outsourcing: Completely outsourcing the procurement and distribution of surgical gowns to a third-party logistics provider. This option may reduce operational complexity but could lead to a loss of control over the supply chain and potential conflicts of interest.
Risks and Key Assumptions:
- Supplier availability: The availability of alternative suppliers and their ability to meet Cardinal Health's quality and volume requirements is a key assumption.
- Cost implications: Implementing the recommended strategy will involve significant investments in information systems, inventory, and risk management.
- Market volatility: The effectiveness of the strategy will depend on the stability of the market and the potential for unforeseen disruptions.
8. Next Steps
- Immediate Action: Implement emergency measures to address the current shortage of surgical gowns, including sourcing from alternative suppliers and negotiating with existing suppliers to increase production.
- Short-Term Plan (3-6 months): Develop a short-term plan to diversify the supply chain, enhance inventory management, and improve information systems.
- Long-Term Plan (12-24 months): Implement a long-term strategy for supply chain resilience, including contingency planning, risk assessment, and investment in innovation.
- Continuous Improvement: Regularly review and update the strategy based on market conditions, industry trends, and lessons learned from past disruptions.
By taking these steps, Cardinal Health can transform its supply chain into a resilient and sustainable system that supports its mission to provide high-quality medical supplies and ensure the safety of patients.
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Case Description
This case set is about the unfolding uncertainty associated with a supply chain issue involving Cardinal Health (Cardinal), the primary supplier of surgical packs to Garfield Health System (GHS). John Jenkins, MD, the newly appointed chief medical officer (CMO) at a medium-size university hospital at GHS, must assess the issue and respond as Cardinal notifies GHS of potential contamination in the manufacture of surgical gowns. Cardinal initially notifies customers of a potential problem, and then over the next several days, releases more information, culminating in the recall of virtually all of its surgical supply packs. Many institutions, including GHS, are thus forced into a dire situation, resulting in some cases in cancelation of surgical procedures. In this A case, Cardinal issues its first warning of a potential contamination problem. In the B and C cases, the crisis unfolds, and in the D case, a new crisis appears. This case set could be utilized in health care courses or courses in business decision-making.
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