Preparing for Future Pandemics with a Reserve of Inventory, Capacity, and Capability (preprint)

The response to COVID-19 as a public health emergency has raised questions about preparedness against future pandemics. The United States Strategic National Stockpile (SNS) with medically critical items such as ventilators and personal protection equipment for major public health emergencies proved to be inadequate in the first half of 2020. To address how the government should modify its stockpile approach for a more robust response to future pandemics, we use stylized models to present a different type of 'strategic reserve'. With a highly skewed `demand' distribution reflecting a rarely occurring pandemic, our models characterize the cost-optimal quantities of a three-tiered approach comprising stockpile inventory as the first tier, backup capacity as the second, and standby capability to manufacture as the third. We show that inventory and capacity can be traded off so even if domestic capacity was much more expensive, the cost would reduce as capacity would be rarely put into use as a second tier. Likewise, capacity and capability can be traded off. The resulting three-tiered reserve will have far less inventory than that required in an inventory-only stockpile, releasing funds for developing domestic capacity and capability instead. Numerical examples illustrate how such a reserve would tackle rare public health emergencies more effectively and at a much lower expected cost than an inventory-only-based stockpile despite the use of high-cost domestic capacity and manufacturing capability.