Chapter 1. Executive Summary
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1 Chapter 1. Executive Summary Background With 5.6 million people living with HIV/AIDS, South Africa is home to the world s largest population of people in need of treatment. In 2009, the president of South Africa announced an unprecedented scale-up of the national antiretroviral (ARV) program. In response, the US government (USG) announced that it was making available $120 million over two years in support of this initiative through the USG ARV Bridging Assistance Fund. This strategic fund focused on facilitating accelerated scale-up of treatment in conjunction with the rollout of new treatment guidelines. Under the fund, Supply Chain Management System (SCMS) was given $110 million for the procurement, warehousing and distribution of selected ARVs to the 10 provincial depots serving the public health sector. The priority focus areas for SCMS were to enable an ARV price reduction to align with international benchmarked pricing; provide consistent access to essential ARVs during the scale-up; and attain sustainable supply chain improvement, building toward long-term country ownership after the initiative. In partnership with Clinton Health Access Initiative (CHAI), Management Sciences for Health Strengthening Pharmaceutical Services (MSH SPS), National Department of Health (NDoH) and the United States Agency for International Development (USAID), the program launched in January 2010 and concluded in January This report provides the final documentation for SCMS s contribution to the Bridging Assistance Program. It is designed to assist other organizations, governmental or nongovernmental, that take on a large-scale procurement and distribution program. Chapter 2 provides background on the program approach. Chapters 3 8 describe the supply chain that was developed and implemented for the program, organized by process, challenges, lessons learned and outcomes. Chapter 9 describes the Logistics System Strengthening Program (LSSP) that was implemented with the provincial depots in support of the overall initiative. Chapters describe overall program strategies, including communications, business operations and transition. The final chapter summarizes the program s financial results. Many of the chapters include annexes of project documents that may be useful examples for other programs. A brief summary of the report content follows. 1
2 Process This large, complex supply chain was divided into six essential components for description. Forecast and Demand Planning Identification of quantities for procurement Procurement International competition for best-value commodities Inbound Transportation of goods from the manufacturers to the local distribution center (LDC) Inventory Management Management of the sampling and storage process for quality assurance Outbound Delivery of goods to the provincial depots and facilities Incident Management Ongoing management, response and amelioration of undesirable situations These components are illustrated in Figure 1-1. Figure 1-1. Supply chain components 2
3 Challenges Although the program environment entailed a number of challenges that are discussed in detail later in the report, three cut across supply chain areas and presented the greatest overall challenges. Managing volumes despite constraints in the public health supply chain. The planned volumes for treatment scale-up put great stress on the supply chain infrastructure at the provincial depots. The depots were already space-constrained, and the HIV treatment program was only one of a number of health programs requiring logistics support. Thus the depot teams needed to manage the ARV scale-up while continuing to provide support to the other health programs and day-to-day activities. Therefore, planning for delivery of product on a planned schedule was incorporated from the earliest steps of the procurement process in order to avoid overwhelming the depots. Regulatory compliance. As this program was unique in South Africa, processes for obtaining customs clearance, medical compliance and value-added tax exemption for internationally procured generic ARVs were defined by the regulatory authorities for the first time. In developing new processes, all clear roles and responsibilities specific to the SCMS program were communicated. The partnership structures between international vendors and local applicant holders created initial challenges, as they were just beginning to work together for the SCMS program. Throughout the program, SCMS identified and established relevant processes to ensure alignment with local regulations and worked with relevant stakeholders to determine procedures and timelines. Vendor management. Vendor on-time delivery varied, with some instances of late delivery and some instances of early delivery. This variance impacted scheduled deliveries to the depots and made space planning at the LDC unpredictable. Turnaround timeframes to gather samples for quality assurance were challenging throughout the program, requiring consistent management with vendors. Proactive management with vendors, as well as planning for supply chain flexibility, were essential responses to this persistent challenge. Lessons learned The program learned numerous lessons through implementation, ranging from the operational to the strategic. Five cross-cutting lessons applied to every stage of the supply chain and the program overall. Structured, continuous communication. Working with multiple stakeholders required regular, clear lines of communication to ensure all parties knew the expectations, status and timeline updates for delivery. Managing internal communication channels ensured that relevant information was 3
4 shared among the different functional units to align expectations and alert the parties to any out-ofline situations. To manage relevant external stakeholder communication and avoid mixed messages, points of contact were clearly identified; for example, all vendor communications were managed by the procurement unit. As a result of structuring communication in this way, messages delivered to external clients were clear, and issues were resolved quickly as they arose. Active monitoring and management of timelines and milestones. For the ARVs to be available for distribution to the depots on time and according to agreed schedules, it was essential to achieve established milestones and benchmark timelines throughout the inbound process. At each stage of the process, milestones and key performance indicators were established in order to continuously assess progress toward intended goals. The complexity of the supply chain and reliance of each stage on completion of the previous stage rapidly creates bottlenecks through the entire chain, while contingency planning in the supply plan can allow for time to be made up in later stages. Anticipating delays allows mitigation plans to be put in place, for example, communicating with depots in advance that product will be late or making space available at the LDC. Generating, using and sharing data. The program began in an environment with limited data, which affected the ability to forecast and plan. Forecasting of commodity requirements was carried out based on several assumptions, which were later revised as more data became available. Close coordination with stakeholders allowed for improved data gathering over the course of the project, which informed each subsequent round of procurement. SCMS worked with the depots to understand available data, such as monthly usage estimates, which provided essential insights into trends on program scale-up or alerted to potential issues that would impact logistics support. SCMS also shared regular updates with stakeholders through all stages of the supply chain. Continuous improvement program. Continuous improvement of processes based on lessons learned throughout the program delivered an increasingly dependable program over time. At the start of the program, various tracking and monitoring tools were established to manage program deliverables. As the program progressed, a greater understanding of production timelines, sampling timelines and depot capacity was developed. Tools were then enhanced to provide relevant data to the various stakeholders, and processes adjusted to accommodate realistic timelines. For example, the SCMS delivery schedule report for depots was reviewed and improved to include additional data, such as a summary of all the orders allocated for dispatch, as well as expected quantities. To improve service in one of the provinces with the greatest space constraints, the program instituted a new model of direct deliveries. Overall incident management as a routine practice in the supply chain ensured continuous status review and steady progress toward consistent improvement. 4
5 Planning for transition from the beginning. Established as a two-year program to fulfill an immediate need, the ARV Bridging Assistance Fund was time-bound from the start. Preparing for project transition began from Day One, and communication in each phase of the project emphasized the transition message. To transition successfully, SCMS managed the program through to final delivery, communicated lessons learned, strengthened partners and created a foundation for continuous improvement of the South Africa supply chain. Figure 1-2. Overall project phases Initiate Establish and align requirements, regulations and governance DeCine procurement and logistics based on estimates Design process and integration of teams Enable communication to coordinate program delivery Deliver Monitor, analyze and recine process to enable Clexible support Demonstrate compliance Collate data to track progress and trends Manage cost efciciencies and milestones Build capacity applying best- practice approach Transition Initiate early communication and planning for transition Highlight scale- down of donation ARVS procurement with need to scale up local procurement Share market trends and supply chain methods to maintain access to increasing commodity volume requirements Outcomes Price reduction The program pooled procurement of large quantities for the entire country. It leveraged internationally competitive ARV prices to significant cost savings under the Bridging Assistance Fund and modeled best procurement practice for the South Africa national tender. The program saved more than US$93 million, compared with what the cost would have been with pricing from the 2008 South Africa tender. 5
6 Figure 1-3. Comparison of 2008 government tender and SCMS pricing and percentage savings for five rounds of ARV procurements Total Value in US$ Millions $- $10 $20 $30 $40 $50 $60 $70 Round I Round II 48% 40% 2008 Government Tender SCMS Round III 44% Round IV 59% Round V 47% The program drove down pricing on ARVs from prices previously paid by the NDoH on the national tender. The subsequent tender conducted by the South African government in 2010 achieved a drop in prices across product lines. The estimated total savings to the government of South Africa in the 2010 tender, compared to the 2008 tender pricing, was over $600 million. In response, the Minister of Health, Dr. Aaron Motsoaledi, publicly announced the impact of this tender in December 2010: 1 It is my pleasure to announce the massive reduction in the prices of antiretroviral drugs which has resulted in the 53.1% reduction in the cost of the total tender which translates to a R4,7 billion savings. The percentage decrease in the cost of each item ranges from 4% to 81% implies that South Africa can now afford to treat twice as many people on ARVs compared to that which was previously budgeted We therefore welcome the award of the R4.280 billion tender for procurement of antiretroviral drugs to support the implementation of HIV and AIDS treatment in the country for the next two years effective from 01 January 2011 to 31st December Given the clear evidence of the success of this approach to procurement, the Department of Health will be replicating this approach through a Central Procurement Authority. The Authority will focus on procurement of ARVs, TB drugs, vaccines and drugs for the treatment of diseases related to maternal and child health This Authority will implement measures that: improves the availability and supply of medicines, achieves the lowest possible procurement prices and ensure that suppliers are paid on time. 1 ARV tenders mean more can now access treatment 6
7 As a result of this commitment by government leadership, the project s financial best practices will continue to have a profound, long-term impact on efficiency of public health procurement in South Africa. Consistent access Overall, the program was very successful in supporting an unprecedented scale-up of ARVs, providing treatment to over 1.4 million people in South Africa by the end of Figure 1-4. Antiretroviral treatment scale-up versus AIDS deaths in South Africa Source: UNAIDS Despite uncertainty about the rate of new patients and the usage of varying ARV regimens at the start of the program, SCMS was able to forecast ARV quantities sufficient to support the scale-up without any reports of expiries of products. These forecasts translated into procurement of nearly 22 million units (packs or bottles) of 12 lines of ARVs through five rounds of procurements. 7
8 Figure 1-5. Quantities delivered to depots and facilities by product In support of the national scale-up, the program was required to manage huge volumes of inbound ARVs, held in the LDC for sampling and then delivered outbound to depots and sites. All volumes were processed between April 2010 and January 2012, and equaled over 1 million kilograms (2.2 million pounds) of product. Figure 1-6. Inbound and outbound pallet volumes by month # of pallets Inbound Outbound 8
9 In compliance with national regulations, over 1,280 samples were extracted and compliance certificates received in order to allow product to be released. Figure 1-7. Number of batches quality tested, by round and vendor # of batches tested Round 1 Round 2 Round 3 Round 4 Round 5 Hetero Emcure Aurobindo Strides GSK Cipla Figure 1-8 presents the vendor short supplied and damaged quantities throughout the program. At no phase of the process were damages higher than the tolerance threshold, and the overall achievement of.05% of product unavailable is well under the industry standard. In cases where short supply could not be rectified with product replacement, vendors issued a credit note, ensuring that the project did not pay for goods that were never received. Figure 1-8. Program product loss summary (units) Vendor Inbound Inventory Product Description Ordered Quantity Short/ Over Supply Quality Damages Transport Damages Outbound Warehouse Damages Outbound Damages Total Short/ Damaged Abacavir 20mg/ml Oral Sol 460, % Abacavir 300mg Tabs 47, % Efavirenz 200mg Tabs 130, % Efavirenz 50mg Tabs 552, % Efavirenz 600mg Tabs 5,064, % Lamivudine 10mg/ml Oral Sol 543, % Lamivudine 150mg Tabs 6,603,127-2,727-1, , % Lamzid 150mg /300mg Tabs 100, % Nevirapine 200mg Tabs 2,522,527-2, , % Nevirapine10mg/ml Oral Sol 241, % Tenofovir DF 300mg Tabs 4,459, % Zidovudine 300mg Tabs 1,186, % ,910,642-6,721-1,622-2, ,630 5% % of total 9
10 Sustainable supply chain improvements The Logistics Systems Strengthening Program assisted depots in better managing the large volumes of ARVs and ensuring compliance with regulatory requirements. Immediate improvements were achieved in areas such as stock handling practices and documentation of standard operating procedures. These quick wins signaled a culture change and presaged more fundamental improvements in operations and functioning. Figure 1-9. Improved housekeeping in Depot 4 Depot 4 Figure Improved documentation in Depot 1 Depot 1 As documented in this report, the SCMS contribution to the ARV Bridging Assistance program generated important lessons and results that can be carried forward by the South African government. 10
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