Saturday, August 23, 2014

Challenges in the Blood Industry - Opportunities for Supply Chain Redesign and Operations Research

The article by Matt Wald (who was a  classmate of mine at Brown University), "Blood Industry Hurt by Surplus" in today's The New York Times  was extremely well-researched and timely. It highlighted the new challenges faced by this critical healthcare industry and ended with the quote by Dr. Ferraris of the University of Kentucky: Every surgeon who's ever lived has seen somebody whose life was saved by a blood transfusion.

Changes in medical procedures with innovations have greatly reduced the need for transfusions in the past several years, with last year's demand being about 11 million units, with 15 million being needed five years ago. As a consequence, blood bank revenue is falling, down from a high of $5 billion in 2008 to only about $1.5 billion expected this year. The Red Cross supplies about 40% of the blood to hospitals and other healthcare facilities, such as surgical units. The cost of a unit of blood to hospitals ranges from $225-$240.

Nevertheless, even at reduced demand, the blood banks still require tens of thousands of donors a day. And, of course, and this cannot be emphasized enough, blood is a perishable product and it must undergo rigorous testing and quality control before utilized in patients.

We have written several articles on blood supply chains and also included the topic in our most recent book: "Network Against Time: Supply Chain Analytics for Perishable Products."

The most relevant paper of ours related to the issues brought forth by Matt Wald is: Supply Chain Network Design of a Sustainable Blood Banking System, Anna Nagurney and Amir H. Masoumi, in Sustainable Supply Chains: Models, Methods and Public Policy Implications, T. Boone, V. Jayaraman, and R. Ganeshan, Editors, Springer, London, England (2012) pp 49-72. Here we dealt with demand uncertainty and with penalties associates with shortages or surpluses (as is the real-world industry scenario now) with appropriate weights imposed. We also handled perishability of this life-saving product using a generalized network approach and also included costs associated with wastage.

Given that this industry has not been immune to mergers and acquisitions, The New York Times article  reports that America's Blood Centers, an association of blood banks,  has seen a drop in members from 87 five years ago to 68 today.  Also, at a recent meeting of blood industry experts, it was predicted that most of the blood collections agencies, because they have good relationships with donors would survive,  but that there would be mergers associated with such blood supply chain network activities as testing, stockpiling, and distribution. In the paper, A System-Optimization Perspective for Supply Chain Network Integration: The Horizontal Merger Case, that I wrote and that was published in Transportation Research E 45: (2009) pp 1-15, I proposed synergy measures associated with supply chain network integration under cost minimization, exactly what is needed in this industry. 
We had had a wonderful exchange with Dr. Walter Dzik of Harvard Medical School and Mass General Hospital, who is an expert on hematology and transfusion medicine since he was aware of our blood supply chain research. He told us that, although now Red Blood Cells (RBCs) are considered to have a shelf-life of 42 days, the goal is to have the blood  stored for not longer than 7 days. Interestingly, it has been found that older blood is also of lower quality. This would put additional pressures on the blood supply chains in terms of time-sensitivity.

Thanks to Matt Wald for such a great article from which many additional research ideas are germinating!