Did you know that blood has an expiration date? Platelets last 5 days and blood cells 42. Just like the fruits and vegetables you buy at the store, it is all perishable. As we know, we usually need more during a crisis situation but in recent years there has been a drop in the unpredictable demand due to changes in medical practices. Our hospitals aren’t using as much as they used to so this is contributing to a surplus in overall supply. Economics 101 tells us, an increase in supply over demand will result in a price drop of your widget. This is also true with blood. Coupled with the fact that we don’t know what we will need on a regular basis, the overall management of the supply chain becomes challenging.
Supply chain management is not the first thing we would associate with healthcare since we think of places like Tesla, where they are having issues with their current ability to supply the Tesla3 due to overwhelming demand.
The inefficient supply chain management of blood has its own issues. Dr.Anna Nagurney of the Isenberg School of Management at University of Massachusetts in a recent article said, “Our inefficient blood supply chain has resulted in a relatively strong supply and a weak demand for blood at the blood banks, which gives the hospitals the upper hand while negotiating with suppliers.”
Hospitals have begun looking at alternative blood banks for lower prices because the excess supply has created increased competition. Dr. Nagurney explains, “The hospital cost of a unit of red blood cells in the U.S. suffered an almost 10 percent drop from 2011 to 2014. A simultaneous drop in the demand and the price of blood products has tremendously affected the players involved in the blood supply chain, with the blood banking industry revenue dropping to $1.5 billion per year in 2014, down from $5 billion in 2008. Being hit by a such a severe revenue loss over a short period, one of the first actions taken by blood providers was to lower their costs by cutting jobs.” The resulting outcome is a loss of 12,000 jobs over the next few years.
The unrecognized outcome of lower prices and lower demand, is the reduction in investment into research and development for blood products and services. “Such an impact may not only threaten the effectiveness and safety of various activities in the blood supply chain but may also negatively affect the responsiveness at times of crises and disasters,” said Dr. Nagurney.
Dr. Anna Nagurney, Dr. Amir Masoumi and our professor Dr. Min Yu have been studying blood supply chains to in an effort to discover how to minimize costs, risk, waste and optimize the blood supply chain network design. As we have explained in this blog, blood supply chain management is a complicated affair with many outcomes to consider. Dr. Yu and her team’s research led them to the assessment of mergers and acquisitions (M&A). The lessons from the corporate world of M&A can also be applied to the blood supply chain. For example, how different blood supply chains can benefit from sharing facilities, testing practices, as well as delivery methods and transportation assets.
We are proud to announce that Professor Yu and her team have submitted their research paper, Mergers and Acquisitions in Blood Banking System: A Supply Chain Network Approach, to the International Journal of Production Economics and it has been accepted for publication. We congratulate Professor Yu and her team for their achievements in this field.
To learn more about our professor, visit her faculty page, click here!
Go Pilots!
Link to their paper: Mergers and Acquisitions in Blood Banking System: A Supply Chain Network Approach
Source credit: Dr. Anna Nagurney, John F. Smith Memorial Professor of Operations Management, University of Massachusettes Amherst.