Tag: safety stock

Guest Post: Why Does the U.S. Keep Stockpiles?

Prof. Howard Weiss shares his insights with us monthly.

Your Heizer/Render/Munson text inventory chapter (Ch. 12) discusses the use of safety stock. While companies use safety stock, so too does the U.S. maintain safety stock, termed stockpiles, for several different types of products. The most well-known stockpile is that of the Federal Emergency Management Agency (FEMA) which was most recently used due to the damage caused by Hurricane Ian. FEMA stockpiles commodities such as food and water and equipment such as generators across eight distribution centers.

The Strategic National Stockpile (SNS) was created in 1999 for the storage of medical supplies. It has recently been in the news because at the end of 2022, the SNS released flu medication due to the high number of patients with flu across the country. In addition to medication, the SNS contains masks, gloves, gowns, respirators, face shields and other emergency supplies. These supplies are stored at secret locations. Your textbook discusses preventive maintenance in the Maintenance and Reliability chapter, and one other aspect of storing the ventilators is that they each must undergo annual preventive maintenance.

Since 1975, the U.S. has maintained a Strategic Petroleum Reserve (SPR) to be used in the event of a disruption in the flow of oil. The oil is stored in underground tanks in Texas and Louisiana. In November of 2021, oil was released due to the rising cost of gasoline and in March of 2022, oil was released due to the invasion of Ukraine. The reserve is currently at its lowest level since 1983. In addition to the SPR there is a separate stockpile of home heating oil maintained in Boston, New York and Groton, Connecticut for the Northeast section of the country because the Northeast has the majority of homes that use heating oil.

In 1925, the U.S. authorized the creation of the National Helium Reserve in Texas. Helium was used for blimps by the military and has other uses, including medical ones. In 1996, plans were created to move control to the private sector by 2023. In 1977, the government began to purchase the milk that dairy farmers could not sell. It converted the milk into cheese and other products and ultimately stockpiled over 500 million pounds located in 35 states.

Not surprisingly, the U.S. stockpiles weapons and ammo and rare earth materials used for weapons. Currently these stockpiles are low due to release of the stockpiles to the Ukraine.

Classroom discussion questions:
1. What are some of the items that individuals stockpiled at the beginning of COVID?
2. What is another downside to stockpiling equipment in addition to having to maintain the equipment?

OM in the News: Stockpiles of Personal Protective Equipment

Millions of masks. Pallets of disposable isolation gowns. Tons of gloves. Caught in bidding wars for medical supplies and forced to scour the globe for personal protective equipment when Covid-19 ripped through last year, hospitals are now sitting on stockpiles of gear, reports The Wall Street Journal (July 2, 2021).

How they got to this point is a mix of state policy, market forces and timing. The pandemic has forever shifted the way hospitals purchase supplies, requiring procurement departments to diversify their suppliers and become adept at understanding where raw materials are sourced. “There are some items that are going to take us 6-9 months to kind of wean down because we bought so much of it. And then, there’s items we might have for years,” said one hospital VP. “It will last us forever the amount of masks that we have.”

covid1

In New York State, hospitals are still bound by a 2020 requirement to maintain a 90-day stockpile of PPE equipment. The stockpile is calculated on a hospital’s height-of-the-pandemic usage, multiplied by 90 days. This “safety stock” (discussed in Chapter 12) is designed to keep hospitals from scrambling and again paying exorbitant costs for some items. During the 2020 surge, many hospitals were running with just days of surgical and N95 masks, disposable gowns, disposable thermometers, bleach wipes, hand soap, hand sanitizer, face shields, stethoscopes and body bags.

Now, however, the excess in supplies is partly due to contracts signed during the height of the pandemic. Manufacturers had to dramatically ramp-up production of some products. To enable that production, healthcare systems were required to sign very large, multiyear contracts. This represents a shift from a lean inventory approach where products are delivered as needed. By the time the manufacturing and supply chain caught up to the peak-Covid-19 demand, the daily burn rate on certain medical supplies started to drop.

Classroom discussion questions:

  1. What are the advantages and disadvantages of the large safety stock set for PPE equipment?
  2.  What  can a manager do to bring about a more rational and efficient inventory policy?