By Mohan Sambandan, Industry Lead for Business Transformation in Emerging Markets, Resolve.
The provision of a reliable and effective supply of affordable pharmaceuticals for African populations and markets is a key component of today’s policy planning for African governments. The drugs are essential, not only in the fight against deadly diseases like HIV/AIDS, malaria and TB, but in improving the overall quality of life on the continent. And yet the challenges facing the policymakers largely boil down to supply chain challenges.
Market Trend – Emerging markets drive generic market supply
The global pharmaceutical market has a value of over $300bn per annum, a fair proportion of which is devoted to supplying the drugs African governments need to combat disease and improve quality of life in their countries – some estimates put the value of the so-called ‘grey market’ in counterfeit drugs in Africa alone at $35bn per annum.
The supply of generic medicines especially has become globalised and dominated by India and China, which supplies mostly generic medicines to much of the emerging market economies around the world – up to 80% of this market in fact. India is now the second largest manufacturer of contract medicines in the world, with other bespoke medicines being supplied by the more mature European and US markets.
Africa Health Care System – Funding Challenges
The demand channel in Africa for drugs which combat these deadly diseases is through national governments. They devote funds to purchase drugs from their national healthcare budgets, on average around 3% of GDP. This is lower than the 5% recommended by the World Health Organisation, though South Africa’s healthcare budget was last reliably measured by the World Bank 5 years ago at over 8% of GDP.
In most of these public sector budgets, where budgets cannot be fulfilled or there is a supply constraint, African governments work hand-in-hand with large international funding agencies such as USAID and The Global Fund, created to bring together governments, the industry, the private sector and affected communities in partnerships to fight these diseases. These agencies focus on the UN’s Millennium Goals – halving poverty rates and halting the spread of AIDS prominent among them – in providing drugs to governments.
The African continent is one of the key focus areas for USAID and The Global Fund for the provision of ARVs. The main African markets are Mozambique, Malawi, Tanzania, Nigeria, Uganda and Kenya, and in all of them, the funders act through supply chain delivery agencies to help governments deliver the drugs to their populations.
The drivers of supply constraint in Africa
The drivers of supply constraint are the following:
- Lack of Visibility: In public sector supply chains, centralised supply, even when the drugs are brought in and distributed by international funding agencies rather than the governments themselves, is challenged by a widely dispersed and disparate network of hospitals, clinics and government departments which don’t connect or communicate well with each other, making the visibility and efficiency of the supply network difficult.
- Quantification: a challenge exists in automating or correctly forecasting advance orders when government stores or healthcare departments order in bulk for their entire network. Wrong numbers, especially overstocks, can cause wastage in the form of expired drugs, with up to 20% of orders ending up this way.
- A related supply challenge is lead times – which can, incredibly, be between one and three years! This is because most governments have no defined supplier relationships and strategic sourcing processes, so every order requires a tender process. Supply constraints also exist in the Indian market, which has to supply their domestic market of 1bn people, perhaps in preference to a six-month lead time for orders from a much smaller African market. A further complication is that most of these lead times require bulk orders, since the public system globally is not transactional.
- Finally, people in the supply chain network often have little understanding of processes and procedures in the effective management of supply. Many clinic pharmacists, for example, act as supply chain experts!
What can be done?
Considering that up to 40% of the delivered cost of medicines in Africa is made up of supply chain, distribution and other non-core costs, how can we confront these challenges and constraints?
Firstly, the supply chain needs to be approached as a specialised function, separate to the pharmacy and the clinic, and education programmes are needed on this.
Secondly, much can be done to manage the primary supply chain. The healthcare sector is often run by one-to-one supplier relationships – how do we consolidate drugs in a more efficient hub and spoke system on the supply side in supply countries such as India and China and elsewhere, as well as in Africa?
Thirdly, the efficient management of last-mile distribution is crucial. Resolve is in the process of building a global visibility centre on TB, Malaria and HIV for a leading international funding agency. This can mature into an Integrated Supply Chain Centre of Excellence, with three areas of core focus:
- Visibility and quantification
- Integrating supply and last mile distribution
- People empowerment and skills development.