A shipment of health commodities is delivered.

How Can Countries Pay for Their Health Systems? Supply Chains Might Hold the Answer

| 3 Minute Read
Supply Chain Management | Health Supply Chains | Data Visibility | Commodity Procurement and Freight Forwarding | Distribution and Transportation | Forecasting and Supply Planning
Global Health Supply Chains | Data Visibility | Commodity Procurement and Freight Forwarding | Distribution and Transportation | Forecasting and Supply Planning

Supply chain logistics costs can account for up to 50 percent of a health product’s final price. According to Director Dah El Hadj Sidi, reducing costs throughout the supply chain could free up much-needed funding for other essential health-care programs. Photo credit: Lan Andrian/USAID GHSC-PSM.

One objective under Goal 3 of the Sustainable Development Goals is to “achieve universal health coverage, including financial risk protection, access to quality essential health-care services, and access to safe, effective, quality, and affordable essential medicines and vaccines for all.” To achieve this objective by 2030, countries need an increase in health financing efforts both domestically and internationally. However, as countries transition away from donor-supported programs and confront the inadequacy of domestic financing, there is one crucial question we must address: How can governments find the funding they need for their health programs?

The supply chain is one domain where countries can find considerable savings that could be used to strengthen health systems and buy more health products. For example, supply chain logistics costs alone account for five to 50 percent of a final health product’s price. A quick look into a country’s supply chain shows multiple stakeholders, systems, and processes. Operations in supply chain require synchronization of supply and demand, tracking the flows of goods and information, and the management of all these interrelations.

$8 million

in savings per year for an HIV treatment

$1.3 million

in savings per year for viral load tests

$1 million

in savings per year for malaria medication

Finding efficiencies in supply chains and improving supply chain operations offer an opportunity to reduce costs. Here are three activities that have been implemented in many countries with positive results.

1. Strategic Sourcing and Improved Procurement Processes

The strategic sourcing approach with improved data collection and use can consolidate government procurement capability. This strategy combined with the tracking of market influence and trends can help countries get the best deal possible. The USAID Global Health Supply Chain Program-Procurement and Supply Management (GHSC-PSM) project, implemented by Chemonics, has generated significant cost savings by implementing this strategy. For instance, the project has negotiated contracts that have yielded $8 million in savings per year for an important HIV treatment, $1.3 million per year for viral load tests, and $1 million per year for malaria medication.

In a similar example, the Global Fund to Fight AIDS, Tuberculosis and Malaria funded the Pooled Procurement Mechanism, which, through its market shaping strategy, maximizes purchasing power and negotiates favorable procurement pricing and delivery terms for health products. This approach achieved $205 million in savings in 2017 as a result of implementing effective procurement strategies.

2. In-Country Supply Chain Optimization

By applying innovative processes and modern tools, countries can minimize operating costs such as production, storage, and distribution costs, leading to greater efficiency in the supply chain. One example of the impact that optimization can have on in-country supply chains is the consolidation of GHSC-PSM’s regional distribution network from five to three centers; one each in Belgium, the United Arab Emirates, and South Africa. This is projected to save $38 million over six years through reduced warehousing and transportation costs and decreased lead time for countries in need. Moreover in Nigeria, where GHSC-PSM directly supports implementation of all aspects of the in-country donor supply chain, the project directly supported storage and transportation efficiencies that are projected to save $2.3 million a year.

3. Enhanced Visibility

Lack of visibility leads to supply chain malfunction which leads to stockouts, overstock, and increased cost of health products at the health facility level. Stockouts at health facilities, combined with expensive medicines, are detrimental to health programs. To better track stock levels and the availability of health commodities, countries are setting up end-to-end (E2E) data visibility through platforms called control towers. A control tower is a central hub with the required technology, structures, and processes to capture and use supply chain data to provide enhanced visibility for short- and long-term decision-making aligned with strategic objectives. The successful implementation of control towers is the greatest enabling factor to supply chain agility and responsiveness. Although countries with limited infrastructure will face issues around Internet connectivity, electricity coverage, and human resource capability, and therefore may struggle to implement their E2E data visibility initiatives, these challenges can be overcome through strategically targeted support to better leverage these innovative approaches. According to One Network Enterprises, the expected benefits of successful implementation of control towers are five to 10 percent reductions in freight costs, 20 to 50 percent reductions in planning staff, and 20 to 30 percent reductions in inventory levels.

In Nigeria, Chemonics is partnering with One Network Enterprises, the global provider of a multi-party digital network platform and services, to set up a control tower and achieve E2E data visibility. Use of this platform is expected to result in up to $2 million in savings each year.

The supply chain is one domain where countries can find considerable savings that could be used to strengthen health systems and buy more health products.

By redesigning national supply chains through operational optimization, countries can gain significant savings to offset domestic financing shortfalls and create more funding for the procurement of health products. However, efficiency alone should not be the end goal; it must be combined with enhanced effectiveness. Together, efficiency and effectiveness will lead to increased affordability and access to lifesaving medicines, and ultimately, positive health outcomes.

A professional headshot of Dr. Dah El Hadj Sidi.

About Dr. Dah El Hadj Sidi

Dr. Dah El Hadj Sidi is a specialist in health commodity management with more than 20 years of experience in the management of essential drugs, pharmaceutical systems and policies, and logistics and supply chain management. Currently, Dah serves as a technical director in Chemonics’ Global Health Division. As a previous senior procurement and supply chain…