By Charley Grant

This time a year ago, Navin Katyal's phone wouldn't stop ringing.

The head of Pfizer's North American hospital unit, which sells 165 different medications like antibiotics, analgesics and sedatives for patients on ventilators, was receiving the same message from his thousands of customers as Covid-19 spread: We need more medicine, and we need it now. "Unprecedented demand all at once," he said to me this week. To respond properly to the crisis, Pfizer had to crank up production but also determine whose requirements were most urgent. "Just as with products like toilet paper, we had to sort out who was using the drugs and who was stocking up," he said.

Pfizer is hardly the only company to be forced to figure it out on the fly: The Wall Street Journal reported earlier this week that supply chain woes have mounted world-wide for all sorts of businesses, thanks to the pandemic and other disruptions. The world is learning that a just-in-time inventory system and a short-term focus on maximizing return on investment is no match for a restive Mother Nature.

Mr. Katyal's unit sells items that carry low profit margins, but no one doubts their importance after the pandemic. The emergency ramp-up of those products was a success: It was able to quadruple normal production rates of nine drugs that were in especially high demand. But for its customers, it was too late to avoid the damage. No stockpiles of essential medicines or personal protective equipment for medical staff made the early stages of the pandemic deadlier and more disruptive than it otherwise might have been.

If the extra deaths weren't bad enough, the situation also wreaked financial havoc for hospitals, which further impacted patient care. Suddenly, elective surgeries like hip replacements were too risky to perform for many hospitals, and a key profit center was lost. Medical equipment with seven-figure price tags was mothballed for want of small-ticket items like masks, gloves and gowns.

If only public health disruptions were the only sort that businesses have to worry about. Severe winter weather in Texas last month froze generators' water intake facilities and knocked out power for days, snarling local economic activity in the process. Utilities were caught off guard by the weather, even though such extremes aren't entirely new. In a business world where maximizing return on investment has long been the highest priority, corporate America has a way of costing itself big by not adequately preparing for trouble.

So why do similar mistakes keep playing out? In the case of Texas, strategist Michele Wucker points out that the massive financial losses are distributed among homeowners, renters and businesses that need a reliable grid to function. Those entities didn't have a say in whether equipment should be winterized. "Businesses are basically being subsidized for taking unwise risk when the consequences of bad decisions fall mainly on customers and taxpayers," said Ms. Wucker, author of the new book You Are What You Risk: The New Art and Science of Navigating an Uncertain World. The end result, she told me this week, is that the benefits of risk taking are privatized, while the consequences of bad decisions can be socialized. The short-termism that Wall Street often demands of CEOs certainly doesn't help.

While that explanation is clear, its implications are worrying: after all, bad incentives are much more difficult to fix than they are to identify.

As for hospital shortages, things aren't as simple as executives failing to prepare for trouble, explains Mr. Katyal. After all, they have significant cost pressures of their own. Bulk contracting can help hospitals use collective buying power to bring down expenses, but that has a downside: A 2019 report from the Food and Drug Administration highlighted a lack of financial incentives to maximize production of certain drugs, coupled with contracts that could reset prices for manufacturers without warning. "Contracts should ensure that manufacturers earn sustainable...returns on their investment in launching or continuing to market prescription drugs, especially older generic drugs that remain important elements of the medical armamentarium."

Clearly, there is value in fixing the next societal pressure point before it bursts, not after. At least some management teams are wide awake. For instance, scientists at Genentech and parent company Roche are working to develop new classes of antibiotics to keep up with the growing threat of antibiotic resistance. "So much of our practice of modern medicine requires good infection control," explained Genentech vice president and staff scientist Man-Wah Tan; basic dental procedures and routine surgeries could eventually become too dangerous to perform were the problem left unchecked.

Discovering new antibiotics isn't the only hurdle: Figuring out how to incentivize more development is also a challenge. After all, a new antibiotic that can tackle drug-resistant infection should be used sparingly in order to preserve its useful life, according to John Young, head of global infectious disease research at Roche, making it a challenge to sell.

Away from healthcare, companies like 3M are focused on rebuilding confidence in the return to work and play. After quadrupling production of its N95 respirators last year, 3M now expects increased demand for hygiene monitoring systems for food service areas and a protective film it makes for handrails, among other products, said Chief Technology Officer John Banovetz.

Anticipating what's coming next has always been a good way for companies to turn a profit. But in less turbulent times, executives have often been rewarded for pinching pennies instead.

Over the past year it's become clear that pinching too hard can cost them, and their customers, dollars.

Write to Charley Grant at charles.grant@wsj.com

(END) Dow Jones Newswires

03-19-21 1114ET