
36 ISE Magazine | www.iise.org/ISEmagazine
ISE and supply chains for human needs
to handle, long in shelf life and easy to store. Supermarkets
may supply the same foods as well as more expensive food
from the food processors and produce suppliers. Produce has a
shorter shelf life, requires bigger storage space and more han-
dling. ISEs know that the demand fluctuation coupled with
short shelf life leads to either excess waste or shortage, which
leads to higher costs. Even a major retailer with many ISEs is
challenged to compete in the food desert.
Economics, behavior in a food desert
The economic results are that supermarkets cannot compete
with convenience stores on price due to the higher cost inher-
ent in the supply of produce. Similarly, family restaurants can-
not compete with fast-food restaurants.
The measure in economics is utility. The utility in the fi-
nancial chain works well in the food desert. However, the
utility for human nutritional needs fails. Hayek’s pricing sig-
nals reflect the financial exchange values. In a food desert, the
value chain does not align with the human needs.
The concept of externality in economics can be used to un-
derstand part of the problem. For the convenience stores, the
cost of healthcare and loss of productivity due to poor health
are external to the convenience store accounting system.
Low-cost foods are strong in flavor and packaged foods are
much more favorable than produce. Suppliers have learned
how to push craving buttons by making packaged foods salty,
sweet, fatty and with strong flavors. Behavior economics show
that the brain constantly battles over short-term rewards and
long-term goals. The short-term rewards such as creature
comfort, time savings and craving satisfaction trump the long-
term goals of health.
Studies show that food choices are influenced strongly by
what we eat as children. Tonya’s limited access to healthy
foods can lead to bad choices by her children (“Factors In-
fluencing Children’s Eating Behaviours,” by Silvia Scaglioni,
Valentina De Cosmi, Valentina Ciappolino, Fabio Parazzini,
Paolo Brambilla and Carlo Agostoni, Nutrients 2018). There
are also historical, educational, infrastructural and other rea-
sons for the food desert.
Healthcare service versus shopping
If we want to buy a headset, we find the best choice by com-
paring prices, features, vendors and reviews, then we pay the
price. Buying a car using a loan is more complicated. Once
you determined the make, model and details, you may only
find listed prices that are up for negotiation. When you nego-
tiate, dealers add options, rebates, trade-ins and finance pack-
ages to make it more complicated.
Healthcare systems are complex with many players, shown
in Figure 6. They include doctors, hospitals, emergency room,
urgent care, pharmacy and insurance, including private in-
surance companies and government-run insurance such as
Medicare and Medicaid. Government also sets the rules and
regulations for health services. In addition, there are also value-
added networks (VAN), group purchasing organizations
(GPO) and pharmacy benefit managers (PBM) in the back-
ground with whom Tyler does not interact directly.
These players set up contracts with each other to optimize
their interests. There are many contractual relationships too
complicated to illustrate. These contracts are invisible to the
patients and among the different players.
Some reasons for high healthcare costs. Tyler has to
make his choices for his health services without pricing and
product information. The hospitals charge insurance compa-
nies and other players without information about the insur-
ance companies’ contracts with other hospitals, VANs, GPOs,
PBMs or Medicare. Therefore, the healthcare market does not
follow the typical market dynamics.
A new federal rule took effect Jan. 1, 2021, requiring hos-
pitals to reveal their charges. The Wall Street Journal found that
the prices for several common medical procedures can vary
more than five times. The charges are related to the negoti-
ated deals between the hospitals and insurance companies and
are hidden from the consumer. The Journal also reported that
hospitals work to hide pricing search results.
The many contractual relationships among the players add
additional complexity. In car shopping, dealers may make the
deal more complicated by mixing different elements to pro-
vide additional opportunity to take advantage of information
FIGURE 6
Healthcare channels
The players related in the healthcare supply chain include some that are unseen by consumers.