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In-Country Supply Chains

By Prashant Yadav

Great progress has been made in recent years in developing new medicines, vaccines and other technological interventions to improve health throughout the world.

Increased financing from multilateral, bilateral and private donors has resulted in these new drugs and vaccines being available to end patients in low-incomes countries, where affordability remains a serious issue. Many global health managers now realize that promoting health and reducing the burden of disease requires action across the health system, including vast improvements in the supply chain for distribution of medicines and other health commodities.

The need for better in-country supply chains is no simple matter; the inefficiency and ineffectiveness of the in-country supply chains is often staggering.

Many large multilateral donors, such as the Global Fund to fight AIDS, TB and Malaria and GAVI, have begun to acknowledge that the overwhelming lack of supply chain infrastructure and management capacity in recipient countries poses a key challenge to their ability to spend their resources effectively. 

Many innovations have occurred at the global flow architecture for products, financing and information in this supply chain (See Figure 1). For instance, donors have started to explore pooled procurement as a means to address weak in-country procurement capacity and reduce disparity in prices; pledge guarantees and market-driven bridge-financing mechanisms are being piloted to counter against uncertainties in financial flows; coordination between multiple stakeholders and better information flow from countries is leading to more accurate forecasts; and, regional distribution hubs are cutting down the time and cost of flow of products from the manufacturers to the countries.

Some argue that a key reason for poor availability of drugs at the service delivery point is on account of poor financial and operational management, which leads to delays in purchasing drugs and does not ensure that sufficient quantities are in the pipeline. However, in my opinion, the weakest link in the chain now is the in-country distribution system. The costs of ignoring this key part of the health system can be extremely high.

A key reason for the poor performance of the in-country supply distribution system is the lack of an institutional and governance framework on how to organize in-country distribution. When it comes to health-care provision, OECD countries have a varying mix from private to public with many shades in between. However, the distribution of pharmaceuticals to hospitals and retail point of dispensing is invariably carried by the private sector in almost all OECD countries. On the other hand, very few developing country governments and other global health stakeholders have begun to accept that pharmaceutical distribution is not necessarily a public sector role.

Most African governments still choose a distribution model, where a publicly run central medical store distributes drugs to clinics using a government-owned transport fleet. In such a model, the managers of government-owned central medical stores confront severe challenges in improving operational performance. They often have difficulty hiring people with business experience and skills because of poor wages and incentive systems in the public sector and often lack the ability to remove incompetent workers.

Distribution models such as decentralized medical stores, quasi-private or private drug-distribution systems offer several advantages over fully public distribution systems but are rarely implemented. A few countries, such as Zambia, have established para-statal drug distribution entities and have contracted out the operational management of such entities to private third-party companies. Some countries, such as Ghana, have decentralized their distribution by allowing districts to purchase drugs and supplies from private-sector suppliers, creating competition for the publicly run central medical store.

Admittedly, many of these models have not yielded their promised successes, but implementation weaknesses should not be seen as weaknesses in the distribution model itself. Admittedly, it is not a one-size-fits-all problem. Not all countries can outsource medicine distribution to the private sector because in many countries there is no capacity in the private sector to carry out this role. In other instances, the regulatory and contracting capacity in the government is so poor that monitoring and ensuring the quality of the distribution will be a challenge.

Within publicly owned and operated drug distribution systems, a large number of countries have a three-tiered distribution system with product flowing from a central medical store to district or regional stores and then to the clinics. The most challenging part of such distribution systems (often called "last mile logistics") is making deliveries to small clinics and health centers that are remote and have poor road access. In such instances, the clinic and health center staff themselves travel to the district or regional medical store to receive their drug supplies using their own means of transport, such as cars, motorbikes etc., in the process taking away extremely crucial health-care worker time from the primary health system. When there is a system to distribute from the districts to the clinics, there is often a shortage of staff at the health centers that are trained to carry out the tasks of stock-keeping, ordering and requisitioning. Poor last mile logistics imply lack of consumption data from the service dispending point which should be the backbone of all planning in the upstream system.

Here it is worthwhile to note that organizations, such as Coca-Cola, which are known to have high distribution reach and efficiency, use a more decentralized distribution model in Africa. In developed countries, their distribution model works on the principle of delivering large amounts of product via trucks or smaller vehicles to retail outlets. However, acknowledging the challenges of road infrastructure and smaller retail markets in Africa, they use a distribution method that relies on manual distribution, utilizing methods such as bicycles, boats and pushcarts to distribute small quantities of product to a range of small dispensing outlets. Their model is similar to community health workers travelling to small villages with drug and health commodity supplies with the difference being that owners of Coca-Cola manual distribution centers have a financial incentive to ensure timely and adequate replenishment at each of the retail points.

With the recent explosion of inexpensive information technology such as mobile phones, a range of new options to organize last mile distribution and collect information about clinic level consumption have become available. However, while mobile phone technology will clearly act as an enabler and catalyst of innovative distribution models at the last mile, it alone cannot achieve much unless the institutional and governance structure in the public sector creates the right incentives for better last mile distribution and investments are made to train field staff on better quantification and replenishment planning.

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 Prashant Yadav is professor of Supply Chain Management at MIT-Zaragoza International Logistics program in Spain.