A Business Approach to Transforming Public Health Systems
Publication date: 2014
A BUSINESS APPROACH TO TRANSFORMING PUBLIC HEALTH SUPPLY SYSTEMS ALAN BORNBUSCH, TODD DICKENS, CAROLYN HART, CHRIS WRIGHT Acknowledgements We would like to acknowledge the following supply chain professionals who took the time to review and give feedback on this document: John Crowley, Ropah Hove, Patrick Lydon, Joe Mgaya, David Sarley, Thomas Sorensen and Prashant Yadav. The writing and production of this document was made possible through funding and in-kind contributions from the Reproductive Health Supplies Coalition and John Snow, Inc. The writers would also like to thank Ellen T. Tompsett, Lucian Alexe and Gus Osorio for their support in the development of this document. This publication was produced for the Systems Strengthening Working Group of the Reproductive Health Supplies Coalition. About the authors Alan Bornbusch is a Public Health Adviser with the US Agency for International Development. Todd Dickens is a Procurement Officer with PATH. Carolyn Hart is the Director of John Snow Inc.’s Washington Office and former Director of John Snow Inc.’s Center for Health Logistics. Chris Wright is a Senior Technical Advisor for John Snow, Inc. The authors’ views in this commentary do not necessarily reflect the views of the US Agency for International Development or the United States Government. TABLE OF CONTENTS Changing Dynamics 3 New Opportunities, New Perspectives 3 Evolving from Ownership to Stewardship 5 Expanding Roles of Private and Public Sectors 6 Positioning Supply Chains for the Future 6 Further Reading 7 1 A BUSINESS APPROACH TO TRANSFORMING PUBLIC HEALTH SUPPLY SYSTEMS 2 Picture this: You are the Minister of Health, responsible for supporting the health of your citizens. Your mandate—your business—is to make sure their needs for services, supplies, and information are met to maintain or recover their health and live productively in their communities. Lives depend on it, your economy depends on it, and your country depends on it. But the citizens you serve—your customers—are from every socioeconomic level and are scattered all over the country, many in very dicult-to-reach areas. And there are larger trends afoot that challenge and pose opportunities for you. Ensuring your customers can access aordable, quality drugs and other health products is part of your mandate but is dicult and costly. How will you lead that eort? In the commercial sector, the answer to that question is straightforward: Know your business, your business model, and your supply chain options to fulll them; your supply chain strategy serves your business strategy. Understand your customers’ needs and the resources you have available to meet them. Understand your options for supply chain services. Know when it is in your competitive advantage to develop in-house capabilities and when to outsource. Contract with companies that have the expertise you need, and negotiate rates that provide good value and good services. Manage those contractors and monitor customer satisfaction. Stay flexible and change what doesn’t work. That’s how the commercial sector does it. And with the right leadership, the public health sector can too. This means that you don’t need to own the trucks, hire the drivers, or build and manage the warehouses. You need to understand your business needs, choose the most reliable and cost eective mechanisms to deliver the goods, and provide stewardship to make sure your public health objectives are met. In recent years, the global health community has focused much attention on achieving relatively near- term goals such as the Millennium Development Goals in 2015 and FP2020. However, there is growing interest in longer-term end games that look a generation into the future. What will the global health landscape look like in the year 2035? For those concerned with ensuring access to health commodities, this longer-term vision requires a hard look at the supply systems of today—how well have they adapted to today’s development context? And are they equipped to take advantage of future opportunities and to meet future challenges? The role of public health supply chains must be understood in terms of improving health outcomes, lives saved, and lives bettered. 3 Changing Dynamics In just the last decade, low- and middle-income countries (LMICs) have seen signicant economic growth,i with many experiencing economic transitions. This growth has presented opportunities for health nancing, expansion of the private retail market, and increases in private sector logistics capacities. The mass penetration of mobile telecommunications around the world is powering a revolution in access to information, enabling greater transparency of data about health supplies. Changing demographics are powering both of these developments, with continued population growth, a younger population eager for opportunity, and increased urbanization that is concentrating markets. Within the public health sector, the traditional emphasis on communicable diseases has yielded signicant gains, and the looming priorities will be changing to address non-communicable diseases like cancer, diabetes, asthma, and cardiovascular disease that disproportionally aect LMICs.ii Decentralization of government services has increased the complexity of health services with a multitude of new stakeholders, nancing options, and decision-makers. New donors and global initiatives have expanded funding sources. Health care consumers, civil society, and development partners are all demanding better performance and cost eectiveness. Meanwhile, the basics of how public health supply systems are congured and managed have changed only gradually. They are straining under the vastly increased volume of products that have resulted from billions of dollars’ worth of investments in vaccines and in medicines and supplies to prevent, diagnose, and treat diseases (e.g. HIV, TB, and malaria), support family planning programs, and more. Some investment has been focused on strengthening existing in-country supply chains and creating alternative supply channels to compensate for under- performing government-managed systems. These investments have prevented collapse and yielded gains in overall performance in terms of commodity availability. Millions of lives have been improved, and millions of deaths averted. However, these performance gains are tenuous, as are the health outcomes, unless public health leaders take a more business-like approach to asking of today’s supply systems “is what we have today working as well as it needs to, and will it work for tomorrow?” New Opportunities, New Perspectives The people responsible for public health supply systems—those working in ministries of health, those managing priority programs, and those working for donors and development partners—must change or expand their perspectives of their own roles as well as the mission and composition of the supply systems they oversee or support. In making this shi¤ in perspective, there are three important guiding principles to keep in mind: 1. A government’s role is one of stewardship in achieving common development goals. Governments in particular must understand rst and foremost that their core competency is not in operating supply chains, which has been their traditional role in centralized systems (Figure 1). Instead they must see themselves as stewards providing vision, guidance, and oversight to ensure that supply chains achieve results—serving the needs of customers and helping improve and maintain people’s health. Stewardship does not require direct control of services and facilities; rather, stewards are responsible for orchestrating, leveraging, and engaging many dierent partners to achieve common development goals. INFLUENTIAL OPERATIONAL CLIENTS MINISTRY OF FINANCE DONORS DRUG REGULATORY AUTHORITY MINISTRY OF HEALTH PUBLIC PROCUREMENT UNITS PRIVATE DISTRIBUTORS CENTRAL MEDICAL STORES REGIONAL MEDICAL STORES SERVICE DELIVERY POINTS COMMUNITY HEALTH WORKERS RETAIL OUTLETS CLIENTS DISTRICT STORES SUPPLIERS NATIONAL LEGISLATURE Figure 1. Centralized government-operated supply chains are increasingly rare as complexity has increased. 4 2. Recognize the multiplicity of players and diversity of supply chain options that can now contribute to meeting improved public health outcomes. Stewards must expand their concept of what “supply chains” look like and embrace an increasing diversity of players. Traditional government-operated public health supply chains are an oversimplication and becoming a thing of the past. In most countries today, the reality is that public health supply systems are more like eco- systems, encompassing multiple supply chains and involving a multi-sectoral range of public, private, faith- based, and NGO facilities and distributors; diverse operational agencies and practices; and people from many organizations and professions (Figure 2). All of these actors are trying to work together to move medicines and other public health supplies to service delivery points and ultimately to customers. This diversity can become overwhelming, but when well understood, embraced, and managed, these diverse supply chains and supply chain actors can be woven into a rationally integrated system (Figure 3). This can give stewards flexibility and redundancy in funders, suppliers, distributors, procurement arrangements, and even in quality assurance, thereby reducing the risk of supply disruption.III 3. Understand the broader public health outcomes that supply chains should be designed to support. Stewards must understand the role of supply chains not simply in terms of distributing products but in improving health outcomes, such as lives saved and lives bettered, or even broader development goals, such as productivity increased and poverty reduced. Commodity availability must be understood within the greater context of global and national development goals. To bring about these broader perspectives, supply chain stewards must see the imperative for changing the way they do business in their organizations and recognize their roles in leading this change. Then, they must move past the awareness of these imperatives and identify and embrace the best solutions for making products accessible to customers. They must answer the question: How must the mission and goals of the organization change to provide the needed stewardship? Perhaps most importantly, they must commit themselves to their responsibility to make the change happen. They must have the personal resolve to lead an objective assessment of the readiness of their organizations for change. They must identify and engage relevant stakeholders from the total supply chain network in-country and enlist their ideas, support, and commitment for a renewed vision and mission for getting products to people. Eectively, they must put the stewardship role into action and lead the change required to optimize the multiplicity of options that exist in the total supply system. Figure 2. Public health supply systems today comprise an eco-system of operational and influential actors. (color coding as in Figure 1) NATIONAL LEGISLATURE MINISTRY OF FINANCE MINISTRY OF HEALTH DRUG REGULATORY AUTHORITY DONORS HEALTH INSURANCE PUBLIC PROCUREMENT UNITS PROCUREMENT AGENTS 4PLS CENTRAL MEDICAL STORES REGIONAL MEDICAL STORES QUALITY ASSURANCE LABS SERVICE DELIVERY POINTS COMMUNITY HEALTH WORKERS RETAIL OUTLETS CLIENTS SUPPLIERS PRIVATE DISTRIBUTORS DISTRICT STORES Figure 3. In an integrated supply system, people, functions, levels, and actors are linked and managed as an interconnected system. CLIENTS 5 Evolving from Ownership to Stewardship Ministries of health have traditionally operated public sector supply chains through central medical stores, which are either within the ministry of health structure (as a department or subunit) or are semi-autonomous parastatal entities.IV The norm is control of supply chain functions through ownership of supply chain assets—people, warehouses, vehicles, etc.—in order to fulll the social and political mandate of making aordable, high-quality medicines and other health commodities available to health facilities and customers. However, few governments have the requisite expertise or capacity to operate ecient and eective supply chains or the career structure that enables professionalism and promotes performance. At the same time, there is reluctance to outsource for private sector capacities for fear of loss of control, the presumption that outsourcing is costlier, worries over what are perceived as conflicting interests or misaligned motivesV, and lack of eective contract management capacity within government. But as supply systems evolveVI and incorporate a multiplicity of actors (see Supply Chain Evolution at the bottom of the page), stewards of the health sector must evolve with them. While public ownership of some supply chain assets might well be worthwhile, it is no longer an a priori necessity in most settings. Outsourcing functions such as storage, transport, and procurement services is increasingly common throughout LMICs where such service providers exist. Greater diversity in these services, as well as sources of supply, promotes cost savings and better performance through competition and reduces risk of dependency on a single distributor, supplier, or transport agency. Providing eective stewardship of a more diverse supply ecosystem requires not only new perspectives but also new skills and adequate capacity. These include a robust capacity for contract management and oversight of third-party logistics (3PL) and procurement service providers (assuming these providers exist), eective regulation of the commercial pharmaceutical sector, professional senior-level supply chain managers, expertise in supply chain modeling and nancial analysis, and adept collaboration and alliance-building among partners. It also requires commitment to good governance—transparent procurement of goods and services, clear specications and fair service level agreements, and timely payment to suppliers. Supply Chain Evolution The best commercial sector supply chains evolve through stages of maturity and improved performance, seeking end-to-end integration. Fourth-party logistics (4PL) providers function as system integrators or general contractors that coordinate quantication and procurement and manage freight forwarders, customs clearance, and other 3PLs— essentially taking responsibility for supply chain operations on behalf of the ministry.behalf of the ministry.behalf of the ministry. Ad hoc phase Stakeholders have little common understanding of what the supply chain looks like and have no formal procedures for its operation, leading to fragmented supply chain eorts across various entities in the system. Organized phase Standardized supply chain functions (including LMIS) are designed and implemented, roles and procedures for basic logistics functions are claried, and sucient nancial and human resources are mobilized to operate the system. Integrated phase People, functions, levels, and entities of the supply chain(s) are linked and managed as an interconnected supply system. Managers are empowered and understand how to collect and use information to map the system and streamline processes, use resources more eectively and eciently, monitor and improve performance, and align various partners to achieve common goals. 6 Expanding Roles of Private and Public Sectors There are numerous instances of successful private sector engagement in public health supply systems.VII Commercial or NGO 3PLs and distributors are working with governments and supplying public and private health facilities in Kenya, Mozambique, Malawi, Nigeria, South Africa, Tanzania, Uganda, Zimbabwe, and other countries. Many governments take advantage of procurement services oered by UN agencies as well as private rms for select health commodities. Fourth-party logistics (4PL) providers,VIII with responsibility to design, optimize, and operate supply chains, are increasingly recognized as good investments in the public sector. Even as opportunities to leverage the private sector increase, there remain many roles that public agencies can or must do. For example, e-procurement services for health commodities have been established by ministries of health or other government agencies in ChileIX and recently Indonesia,X where the minister of health credits the new service with reducing prices by 40 percent.XI Procurement has been decentralized in Bolivia, Colombia, and Ecuador, but in each country the ministry of health (or its equivalent) prequalies suppliers based on quality and reliability over time; local and regional governments are only allowed to procure from these prequalied suppliers.XII Greater autonomy of central medical stores, outsourced management, or competition from alternative agencies has improved customer service in Botswana,XIII Burkina Faso,XIV Chile, and Uganda.XV National drug regulatory authorities play an important function in quality assurance for pharmaceuticals in both the public and private sectors, but where capacity is limited, even quality assurance can be outsourced. In Tanzania, the Muhimbili University of Health and Allied Sciences is providing quality assurance testing for over 40 locally procured and distributed medicines used in HIV care and treatment.XVI Let’s be clear—there can be no eective public health supply system without the public sector playing a role across the policy, stewardship, and operational spectrum. Certain functions remain essential public stewardship responsibilities: regulating pharmaceuticals, setting essential medicines policy, dening benets and services, cra¤ing an overall supply system vision and strategy, and providing oversight of the health system in general. Positioning Supply Chains for the Future Eective supply systems today and tomorrow must be flexible and responsive to changing dynamics in health priorities, pharmaceutical manufacturing, technology, and health system nancing. In short, they must be nimble. Governments in general are not nimble. But with the appropriate set of skills, a clear understanding of their stewardship responsibility, and a strategic vision of their health sector goals, governments can re-engineer their public health supply systems to better serve their mandate and their business. Because every country context is dierent, there is no single design, conguration, or approach that can be applied everywhere, but there are several principles that can be embraced by governments: • Know your business. It is public health. Saving and improving lives are at least as powerful a motivator for re-thinking supply systems as is prot in the commercial sector. • Focus on what only you can do. First and foremost, focus on your core competencies to act as a steward (versus a provider) for public health. • Learn from the commercial sector. Ensure leadership at the highest levels for re-thinking your supply system and leading for change and continuous improvement. • Pursue diversity. Identify and leverage the ecosystem of supply chain actors from the public, private, and semi-private sectors to get the job done well and eciently. Business leaders recognize cost-eective supply chains are essential to their success and have given them the strategic vision and operational resources to succeed. Their success can be seen in manufacturing, agriculture, technology, pharmaceuticals, and retail sectors and can be measured on the bottom line. The same principles, models, and techniques that have achieved so much in the commercial world can be applied by public sector stewards to the business of strengthening supply chains that will lead to improved public health outcomes for the men, women, and children they serve. This is the Time to Act Change will happen; it is inevitable. The successful stewards of health systems will take charge and lead the change, leverage the multiplicity of supply chain actors, and dene a new vision for getting products to people. There are resources and organizations with extensive expertise that stand ready to help. There are eective tools that can inform the vision, guide the strategy, analyze the cost and performance benets, and help dene the right change for each country context. But political will and the desire and capacity to lead is the essential rst step. The time is now. 7 Further Reading The following table of resources provides additional information that might be useful to stewards who are seeking to embark on a review of their supply systems or who are seeking to optimize or better integrate their supply chains. Title Description Website 4PLs Take Control An article on the role and benets of fourth-party logistics providers. http://www.inboundlogistics. com/ cms/article/4pls-take- control/ Alternative Public Health Supply Chains: Reconsidering the Role of the Central Medical Store A publication exploring new models for public health supply chains. www.deliver.jsi.com Commercial Sector Performance-based Financing O¢ers Lessons for Public Health Supply Chains in Developing Countries A brief paper presenting four of the essential components of a successful performance-based nancing (PBF) program, with examples from the commercial sector. www.deliver.jsi.com Emerging Trends in Supply Chain Management: Outsourcing Public Health Logistics in Developing Countries A paper examining opportunities for public sector health systems to engage third party service providers to support the supply chain functions. www.deliver.jsi.com Getting Products to People: The JSI Framework for Integrated Supply Chain Management in Public Health. Publications and video resources for applying commercial solutions to transform PHSCM. www.jsi.com Learning from Coca Cola Article in the Stanford Social Innovation Review, Winter 2013 on applying lessons from Coca Cola’s supply chain to improve access to health commodities. http://iaphl.org/document- author/stanford-social- innovation-review/ Multiplicity in Public Health Supply Systems: A Learning Agenda An article in Global Health: Science and Practice open access journal, 2013. http://dx.doi.org/10.9745/ GHSP-D-12-00042 PSM Toolbox A repository of publications and resources on procurement and supply management for health commodities. www.psmtoolbox.org Vendor Managed Inventory: Is it Right for Your Supply Chain? A publication on applying commercial supply chain models in public health. www.deliver.jsi.com 8 References i Marone, Heloisa. 2009. Economic Growth in the Transition from the 20th to the 21st Century. New York: United Nations Development Programme. ii World Health Organization. 2011. Global Status Report on Noncommunicable Diseases 2010. Geneva: WHO. iii Bornbusch, Alan and James Bates. Multiplicity in public health supply systems: a learning agenda. Glob Health Sci Pract. 2013;1(2):154-159. http://dx.doi.org/10.9745/GHSP-D-12-00042. iv Watson, Noel, and Joseph McCord. 2013. Alternative Public Health Supply Chains: Reconsidering the Role of the Central Medical Store. Arlington, Va.: USAID | DELIVER PROJECT, Task Order 4. v United Nations Commission on Life-Saving Commodities, Working Group on Private Sector Engagement. 2013. Private Sector Engagement: A Toolkit for Supply Chains in the Modern Context. Forthcoming. vi John Snow, Inc. 2012. Getting Products to People: The JSI Framework for Integrated Supply Chain Management in Public Health. Arlington, VA: JSI. vii Ibid. viii O’Reilly, Joseph. 2011. “4PLs Take Control.” Inbound Logistics. http://www.inboundlogistics.com/cms/article/4pls- take-control/. (accessed March 31, 2014) ix Ibid. 4. x Posting by Laurentiu Stan to International Association of Public Health Logisticians Discussion Forum. October 10, 2013. https://knowledge-gateway.org/iaphl/discussions/0d4cd78e. xi PharmaBoardroom. 14 August 2013. “Interview: Dr. Nafsiah Mboi, Ped, MPH Minister of Health of the Republic of Indonesia.” PharmaBoardroom. http://www.pharmaboardroom.com/article/interview-dr-nafsiah-mboi-ped-mph- minister-of-health-of-the-republic-of-indonesia (accessed October 15, 2013). xii Program for Appropriate Technology in Health (PATH) and the World Health Organization (WHO). 2009. Procurement Capacity Toolkit. Supplementary Topics: Procurement Models: Centralized vs. Decentralized. Seattle: PATH. xiii Ibid. 4. xiv Govindaraj, Ramesh and Christopher H. Herbst. 2010. Applying Market Mechanisms to Central Medical Stores: Experiences from Burkina Faso, Cameroon, and Senegal. New York: The World Bank. xv Ibid. 4. xvi Wright, Christopher, et al. Strengthening Local Suppliers to Improve Access to Quality Essential Medicines. Submitted to the US Agency for International Development by the Supply Chain Management System (SCMS). Arlington, VA: SCMS. Forthcoming. The Reproductive Health Supplies Coalition The Coalition is a global partnership of public, private, and non-governmental organizations dedicated to ensuring that everyone in low- and middle- income countries can access and use aordable, high-quality supplies for their better reproductive health. It brings together agencies and groups with critical roles in providing contraceptives and other reproductive health supplies. These include multilateral and bilateral organizations, private foundations, governments, civil society, and private-sector representatives. Rue Marie-Thérèse 21, 1000 Brussels, Belgium Tel: +32 2 210 0222 / Fax: +32 2 219 3363 / E-mail: email@example.com / Website: www.rhsupplies.org
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