32 ISE Magazine | www.iise.org/ISEmagazine
Industrial and systems engineering and supply chain
management focus on overall efficiency improvements
and cost reduction. This focus has signicantly benefited
all parties in society. However, sometimes the focus does
not best serve the ultimate user of the supply chain –
If we need something in the United States and in most
areas of the world, we go to the supermarket or shop on-
line, where there are abundant supplies and myriad products.
These products come from the supply chain and originate
from natural resources such as sand, oil, water, plants, miner-
als and energy from the sun.
Supply chain can be considered the complex network of
rms and organizations working together to convert natural
resources into the products and services we need or want,
such as water, toilet paper, drinks, food, furniture, cell-
phones, carpet, medical treatment or classes. The supply
chain in this broad sense can be simplified in Figure 1.
Firms in the supply chain perform various functions,
shown in the supply chain box, between natural resources
from earth and converting these resources to products and
services to fulll human needs. The arrows pointing to the
right represent the supply chain people often refer to. After
use, humans dispose products back to nature or reintroduce
the disposed products to the supply chain for repurposing or
recycling. During the process, the supply chain emits exhaust
back into nature. The disposal and emission are the reverse
chain shown by the arrows moving to the left. Therefore,
the supply chain is a supply cycle from which human beings
draw utility.
Industrial and systems engineering contributes tremen-
dously to the supply chain system through cost reduction and
efficiency improvement. Cost reduction helps lower prices
of products and services so more people can get more of
what they need and want. Efficiency improvement reduces
resource requirements such as human, energy, natural re-
sources and others. Over the years, ISE has developed many
tools for logistics and supply chain, analytics, manufacturing,
ergonomics, quality improvement and work system design.
These share a common mindset.
ISE and supply chains for human needs
Process improvement tools can help serve nutrition, healthcare needs
By Chen Zhou
July 2021 | ISE Magazine 33
Ed Rogers of UPS put it well: The optimists think the
glass is half full; the pessimists think the glass is half empty;
the ISEs think the glass is too big!
However, the challenge in modern society is that improve-
ments in cost reduction and efciency improvement are not
sufficient to supply human needs. To increase awareness of
the alignment and misalignment between cost and efficiency
and the supply of human needs, we will use the examples of
a food desert and healthcare sys-
tems. This important and timely
topic has a lasting impact in the
wake of the social and environ-
mental issues we face.
Living in a food desert
Example No. 1: Tonya lives in
a low-income neighborhood. In
the morning, she spends more
than an hour commuting to
work using public transporta-
tion, including time walking,
waiting and transferring. Lunch
is a packaged meal. When she
needs more food, she walks to
a convenience store to get pack-
aged, canned or frozen food. If
she wants to save time and enjoy
a meal out, she walks to a nearby
fast-food restaurant.
In the United States, more
than 11 million people live in
such an environment based on
a U.S. Food and Drug Admin-
istration report in 2012, “Char-
acteristics and Inuential Fac-
tors of Food Deserts,” by Paula
Dutko, Michele Ver Ploeg and
Tracey Farrigan. These “food
deserts” refer to regions with
large proportions of low-income
households, lack of access to
good transportation and without
easy access to fresh and affordable
produce and healthy groceries.
Convenience stores supply low
cost, heavily processed, packaged
or frozen foods, shown in the top
photo in Figure 2. Fast-food res-
taurants serve low cost, heavily
processed foods. Grocery chains
with produce shown in the bot-
tom picture have tried but failed
to compete in a food desert.
Packaged and fast foods lack
the nutrients required for hu-
man health. Low-income popu-
A cyclical chain
A big picture look at the supply cycle for human needs.
Nutrition versus convenience
Packaged food pictured at the top offers lower costs and more convenience and availability to both
consumers and retailers than healthier produce, at the bottom.
34 ISE Magazine | www.iise.org/ISEmagazine
ISE and supply chains for human needs
lations in food deserts do not have access to affordable pro-
duce to satisfy their health needs. However, convenience
stores and fast-food restaurants do well in the food desert
because of their low costs and high efciency. Thus, the
existing supply chain with a focus on cost and efficiency is
insufficient to serve human needs, specifically for nutrition.
Costly healthcare system
Example No. 2: One morning, Tyler felt a pain in his stom-
ach and wanted to get medical attention. His choices were
urgent care, a hospital emergency room or a doctors office.
He called the doctor’s office for an appointment set in two
weeks. A week later, the pain worsened, so he went to the
emergency room. After a long wait, he saw a surgeon and
later checked into the hospital for treatment.
Tyler had medical insurance through his job. He got a bill
from the hospital, one from two different doctors’ offices and
paid for the drugs. The total, after the negotiation between
the providers and insurance, was more than $8,000.
These charges are very high, even with health insurance.
What if he did not have health insurance? He might take
painkillers and hope the problem would go away until one
day he is rushed to the emergency room. Hospitals are re-
quired to provide basic service even if one cannot afford to
pay. Emergency is one of the most expensive services and is
not an efficient way to treat a patient, when avoidable. His
problems may have been prevented or treated with much
lower cost and better results if started earlier.
The United States spends almost 18% of its gross domestic
product on healthcare, almost twice the percentage of other
developed economies.
In the 2020 U.S. elec-
tion, healthcare ranked
as the second most im-
portant issue on vot-
ers’ mind behind the
economy. In 2000, The
World Health Organi-
zation (WHO) ranked
the U.S. health sys-
tem No. 37 among all
countries. Bloomberg’s
ranking on Healthcare
Efficiency ranks U.S.
at 55 in 2020 before
the pandemic, 50th
in 2017, 44th in 2014
(Asia Trounces U.S. in
Health-Efficiency In-
dex Amid Pandemic,
Bloomberg.com, Decem-
ber 2020).
The objective of a healthcare system is human health. Fig-
ure 3 shows the changes in healthy life expectancy at birth
from 2000 to 2019 published by the WHO (“Healthy life
expectancy at birth,” 2000-2019). Among the developed
economies, the life expectancy in the U.S. is low and has de-
creased since 2010. As one of my students put it, “The U.S.
has a sick-care system, not a healthcare system.
A successful alumnus told me that he was no longer
sure if his recommendations to the healthcare services had
helped the patient more or helped the hospital to get more
money. Although cost reduction and efficiency improve-
ment are helpful in silos, in the big picture, the existing
healthcare supply chain has not efficiently provided human
health needs.
Fulfilling human needs
The above two examples illustrate that cost reduction and ef-
ficiency improvement work well for most people and meet
HALE figures
The health-adjusted life expectancy (HALE) at birth for developed countries from 2000-2019 provided by the
World Health Organization.
Over the years, ISE has developed many tools for
logistics and supply chain, analytics, manufacturing,
ergonomics, quality improvement and work system
design. … However, the challenge in modern society
is that improvements in cost reduction and efficiency
improvement are not sufficient to supply human needs.
July 2021 | ISE Magazine 35
most needs and wants. However, in certain parts of the supply
chain, they do not work as well to satisfy the important human
needs of nutrition and health. Most know Abraham Maslow’s
hierarchy of human needs, shown in Figure 4. Although the
upper-level needs can be debated, no one would question the
importance of physiological needs of nutrition and health.
How can we find more insights and potential solutions for
these fundamental human needs?
Microeconomics is the study of the economic choices in-
dividuals and firms make and how these choices create mar-
kets. In the food desert example, Tonya chooses food that is
affordable and accessible. Since she does not have a car and
public transportation takes too much time, she can only go
to places within walking
distance. Her choices gener-
ate demand. Supplies such as
grocery stores, convenience
stores, fast food and family
restaurants provide the sup-
ply to meet it.
Demand and supply meet
in the market, reach a bal-
ance and set prices. They ac-
quire supplies from suppliers,
all the way to the materials
from nature. The pricing sig-
nal described by Nobel lau-
reate Friedrich Hayek creates
a value chain to link supply
and demand throughout the
chain. The “invisible hand
metaphor introduced by
Adam Smith encourages ef-
ciency, competition and col-
laboration. For most prod-
ucts and services, the pricing
chain aligns well with human needs.
Figure 5 shows a simplified supply chain for convenience
stores and supermarkets for humans’ nutritional needs. After
harvest, some produce is sent to food processing plants in the
upper chain where additives are included to prolong shelf life,
add flavors and make handling easier. Other produce is sent to
the distribution centers for minor processing such as grouping
or cleaning. This produce has a shorter shelf life and is often
difficult to handle, transport and store. The processing can
reduce the overall cost to the supply chain. Yet in the U.S., the
cost of adding tasty fats, sweets, artificial flavors and preserva-
tives is low.
Convenience stores choose foods that are low in cost, easy
What matters most
Maslow’s hierarchy of human needs is built on a foundation of the most vital needs that include nutrition
and health.
Food chain channels
The supply chain of convenience stores and supermarkets includes raw products sent for processing and those that make it to the produce
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. Hayeks 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. Tonyas limited access to healthy
foods can lead to bad choices by her children (“Factors In-
fluencing Childrens 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
nd 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
Healthcare channels
The players related in the healthcare supply chain include some that are unseen by consumers.
July 2021 | ISE Magazine 37
and maximize profit. Healthcare services, with multiple pay-
ers and complex relationships, can also put patients at a disad-
vantage. The efficiency improvement in silos may not trans-
late to benefits for patients.
The size of Medicare and Medicaid insurance allows the
government to benefit from the economies of scale as well
as monopoly power to negotiate lower payment than private
insurance firms or uninsured patients. The government pays
much less than private insurance firms, sometimes so low hos-
pitals lose money treating Medicare and Medicaid patients.
The hospitals must recoup the loss from other groups, adding
additional complexity and inefficiency to the system.
Behavior economics in healthcare. The players negoti-
ate with each other for their own interests. The objectives of
the patient are high quality care with low cost. The objectives
of the hospitals are to collect payments for services with mini-
mum cost. The objectives of the insurance companies are to
make a profit between the premiums and their payments for
services. These objectives may not be aligned.
Georgia Tech senior design students have found a lot of
waste in hospitals where products are already paid for by insur-
ance. The insurance companies do not worry about the charg-
es as long as their costs are covered by the premiums. This is
called moral hazard, and there are many forms of it in the
healthcare system from many players. Even patients can over-
consume medical services if the costs are covered by others.
A patient may not reveal prior health problems when pur-
chasing insurance; this is called adverse selection. To hedge
the risk, the insurance company must charge all customers
more, including those without prior health problems. When
dealing with one hospital, the insurance companies adversely
choose not to reveal their dealings with other hospitals. There
are many forms of adverse selection in health systems.
The knowledge required for medical services is high.
Therefore, the information asymmetry is strong. Health ser-
vices are prone to supplier-induced demand. The information
asymmetry can lead to higher costs to the patients in the end,
since all healthcare costs are paid for by patients in the form of
copay, insurance premiums or taxes.
Applying ISE tools to fulfill human needs
The tools in the ISE toolbox are great. Cost reduction and
efficiency improvement help most people with more and bet-
ter products and services. Even in a food desert, the low cost
reduces the economic burden for low-income populations.
In the healthcare system, ISEs can help provide more ser-
vices to more people at lower costs within the existing com-
plex structure. However, the optimized solutions in silos have
not supplied human needs well for food deserts and healthcare.
There are essential factors and information related to hu-
man needs not considered in cost- and efficiency-focused sup-
ply chain research and development. Non-ISEs often propose
inefficient solutions to the problems. ISEs have an advantage
to supplement their tools on cost and efficiency with a few
more tools, such as a deterrent to moral hazards and the inter-
nalization of externalities, to address some of the most impor-
tant social and environmental issues.
Many corporations have made changes to serve the broader
range of stakeholders that are closely linked to human needs.
Similarly, the ISE profession can lead the way in creating a
supply chain to better meet those human needs.
Chen Zhou is the associate chair and associate professor in the H. Mil-
ton Stewart School of Industrial and Systems Engineering at Georgia
Tech. His areas of research are supply chain, sustainability, distribu-
tion center design, competition and collaboration. He has published 30
journal papers and given five keynote talks. He received his Ph.D. in
industrial engineering and masters degree in mechanical engineering
from Pennsylvania State University, and bachelors degree in mechani-
cal engineering from Tianjin University. He is an IISE member. Con-
tact him at czhou@isye.gatech.edu.
Crowdsourced data can help identify food deserts
The first step in overcoming the challenge of providing healthy nutrition in U.S. food deserts is finding where they exist. To capture and
interpret such information, a July 2020 study published in Frontiers in Public Health noted that crowdsourced data from mobile apps
such as Yelp could help local leaders better identify where such deserts exist and create policies to address the problem.
The U.S. Department of Agriculture (USDA) factors three metrics in defining what qualifies as a food desert: income, vehicle ownership
and distance to the nearest full-service supermarket. Researchers at the University of Texas at Dallas expanded the criteria to include two
additional factors: access to public transit and shopper-provided food pricing data gathered from Yelp.
The researchers analyzed data from nearly 300 Dallas neighborhood areas via census tracks. They identified nine food deserts based
on the USDAs definition, but 50 with their broader definition (33 met both standards).
Though the research team could not confirm the timeliness of the Yelp data as a replacement for the USDAs, it showed that leveraging
crowdsourced, georeferenced information could supplement government efforts in guiding public health policies. They believe such
crowdsourced information also could guide other public-health mapping, such as for noise or pollution.