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A Supply Chain Fix for Flu

Influenza causes some 35,000 deaths and 100 million lost working days annually in the United States, yet a vaccine to fight the illness is often in short supply when the flu season is at its peak. Researchers at the Zaragoza Logistics Center (ZLC), Zaragoza, Spain, have discovered a new way to treat the problem by fixing the vaccine supply chain. The U.S. Center for Disease Control (CDC) is embracing practices similar to the team?s recommendations; so future influenza outbreaks should be less deadly.

Even though there has been much debate in the U.S. over the inadequacies of the country?s vaccine supply, mending the network by curing its supply chain ailments has been largely overlooked. "The problem is that people such as policymakers who have studied the problem are not supply chain experts," said Prashant Yadav, ZLC Professor of Supply Chain Management, who is leading the ZLC?s flu vaccine research project.

The influenza season in the northern hemisphere runs from October to March. In the United States about 20% of the population is affected, at a total cost of about $ 12 to $ 15 billion.

At the heart of the vaccine shortage problem are imbalances between supply and demand. On the supply side, manufacturers have opted out of the unpredictable vaccine market causing a chronic shortage of production capacity. The medication is manufactured by infecting chicken eggs with the flu virus, making yields difficult to predict, because the rate at which each egg produces vaccine depends on its genetic makeup. There are only two manufacturers now producing the medication.

Demand-side factors are just as erratic, explains Yadav. The type of vaccine requires changes from year to year depending on the strain of virus that hits populations. And there are market mechanisms that compound the uncertainty. Some buyers, such as hospitals, over-order to cover themselves in case of future shortages, and then cancel when they have a more precise picture of how many doses they need. End users can be just as fickle. There are two types of demand, Yadav said. Elderly people and children are high-priority cases that can be quantified fairly accurately. However, the rest of the population is much more difficult to pin down. These individuals tend to base their decisions on whether or not to get a flu shot on the severity of the previous year?s outbreak and may change their minds as the current season progresses.

An inflexible supply chain also clouds the demand outlook. Transshipping supplies from areas where there are surpluses to areas where there are product deficits is routine in the retail industry - but not among health care facilities that are fighting a flu outbreak. As a result "there is a great deal of gaming and price gouging," Yadav said, as sellers use these supply/demand imbalances to push up prices. Moreover, a distributor that has a small quantity of product available "would fax this information to every doctor to get orders and create a false sense of supply," he adds. These practices are difficult to prevent since no entity has an overall picture of product flows and where vaccine excesses and shortages are developing.

These market ambiguities often lead to mid-season shortages of vaccine and end-of-season excesses, said Yadav. For example, when the U.S. flu outbreak was in full swing in 2004, there was much heated debate over vaccine scarcities, "but at the end of the season there was an excess of about five million doses," he said.

Supply chain issues have not been part of the debate ? until now. A study carried out by Yadav, and David Williams, a 2005 Masters in Logistics & Supply Chain Management student in Zaragoza, has identified a number of ways to make the vaccine supply chain more efficient, and hence smooth out supply and demand fluctuations. Here are some of the findings.

Create a Flu Vaccine E-hub
A clearinghouse for information on vaccine supply and demand would provide a market overview and help to eliminate order gaming and price gouging behavior.  The information hub would improve the supply visibility by tracking doses that are pre-booked, shipped and still outstanding for all vaccine providers, distributors, and manufacturers. The CDC has acted on this recommendation by setting up a Secure Data Network to function as an information hub.

Improve Forecasting and Pre-booking
Caregivers such as hospitals that buy vaccine have no common, reliable method for forecasting how many doses they will need for the coming flu season.  These facilities are close to patients and are in a good position to monitor demand patterns, so providing them with better data and a forecasting methodology would greatly improve demand estimates. CDC has published a guideline that encourages health care providers to forecast fixed demand more accurately.

A more rational system for pre-booking supplies would also remove some of the demand uncertainty. A possible solution is a buyback mechanism, where hospitals and other users are credited for excess inventory at the end of the season. Knowing that they will not be penalized for holding unwanted inventory would encourage providers to place orders more responsibly. Health insurance companies could underwrite the credits. Studies have shown (although more research is needed in this area) that insurance companies lose the most from vaccine shortages, because more people are hospitalized with flu symptoms increasing the number of insurance claims.

Establish systems for redistribution
Setting up a regional vaccine re-distribution pool so that supplies can be shifted from areas where there are surpluses to shortage areas would eliminate many supply problems. The CDC has decided to do this by shifting demand rather than product. For example, a health care facility with an inadequate supply refers patients to healthcare centers where vaccine is plentiful. Such a redistribution system is mentioned in the CDC?s interim guidelines for 2005-06. The agency will act as a central broker for this network.

Reduce lead times
Cutting the time taken to produce and deliver vaccine would also eliminate many supply problems. Using a human cell line to manufacture vaccine, rather than chicken eggs, could cut lead times by more than half, and a Netherlands-based biotechnology company Crucell N.V. is working with Sanofi Pasteur (one of the leading manufacturers of influenza vaccine) to develop such a process. The Federal Drug Administration in the US is working with these companies to evaluate and approve human cell-based production methods. However, there are questions over the use of human cells for this purpose in the US.

The ZLC research team is continuing its research, especially in the area of in-season vaccine redistribution mechanisms. Additionally, the team is beginning to collaborate with researchers at UCLA and other centers around the world that are also looking at this problem. "These supply chain solutions will not cure all flu vaccine supply problems, but by eliminating many of the uncertainties, they will save lives, alleviate much suffering, and reduce the immense cost of flu outbreaks," said Yadav.

For more information on the ZLC flu vaccine research project  contact Prashant Yadav.