Antiviral Therapy 2014; 19 Suppl 3:79–89 (doi: 10.3851/IMP2903)
Review Antiretroviral procurement and supply chain management David J Ripin1, David Jamieson2, Amy Meyers3, Umesh Warty4*, Mary Dain5, Cyril Khamsi6 Access Programs, The Clinton Health Access Initiative (CHAI), Boston, MA, USA Global Partnerships, Partnership for Supply Chain Management (PFSCM), Arlington, VA, USA 3 Manufacturing and Supply Initiatives, CHAI, Boston, MA, USA 4 Procurement, CHAI, Boston, MA, USA 5 Health Financing, CHAI, Boston, MA, USA 6 Global Markets, Malaria, CHAI, Boston, MA, USA 1 2
*Corresponding author e-mail: [email protected]
Procurement, the country-level process of ordering antiretrovirals (ARVs), and supply chain management, the mechanism by which they are delivered to healthcare facilities, are critical processes required to move ARVs from manufacturers to patients. To provide a glimpse into the ARV procurement and supply chain, the following pages provide an overview of the primary stakeholders, principal operating models, and policies and regulations involved in ARV procurement. Also presented are key challenges that need to be addressed to ensure that the supply chain is not a barrier to the goal of universal coverage. This article will cover the steps necessary to order and distribute ARVs, including
different models of delivery, key stakeholders involved, strategic considerations that vary depending on context and policies affecting them. The single drug examples given illustrate the complications inherent in fragmented supply and demand-driven models of procurement and supply chain management, and suggest tools for navigating these hurdles that will ultimately result in more secure and reliable ARV provision. Understanding the dynamics of ARV supply chain is important for the global health community, both to ensure full and efficient treatment of persons living with HIV as well as to inform the supply chain decisions for other public health products.
Introduction Procurement, the country-level process of ordering drugs and other items, and supply chain management, the mechanism by which these are delivered to healthcare facilities, are critical processes required to move antiretrovirals (ARVs) from manufacturers to patients. The examples given illustrate the complications inherent in fragmented supply and demand-driven models of procurement and supply chain management, and suggest tools for navigating these hurdles that will ultimately result in more secure and reliable ARV provision. Understanding the dynamics of ARV supply chain is important for the global health community, both to ensure full and efficient treatment of persons living with HIV as well as to inform the supply chain decisions for many other public health products. An effective and efficient supply chain is characterized by the following ‘six rights’ [1]: the right ©2014 International Medical Press 1359-6535 (print) 2040-2058 (online)
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product, ordered in the right quantities, available in the right condition (product has been handled properly), delivered to the right place, delivered at the right time and all achieved for the right cost. The supply chain for ARVs is far-reaching. Each year, over 100 million packs, worth more than USD1 billion move globally from a handful of manufacturers to recipient countries around the world; they are then further distributed within each country to tens of thousands of antiretroviral treatment (ART) sites, and ultimately reach an estimated 9.7 million patients per year [2], many of whom reside in very remote regions. The ARV supply chain is even more impressive considering that it has achieved this reach only within the past decade, as broader efforts to aggressively address the HIV epidemic have accelerated. 79
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to be more attractive. As a result there is internal competition for generic manufacturing capacity.
Stakeholders
Beneficiaries Globally, the recipient country and associated partner networks involved with delivering HIV care are described as the beneficiary, although this term doesn’t reflect the full degree of country involvement. The recipient country influences both upstream and downstream aspects of the supply chain. Upstream, before orders are placed, recipient countries and their partners determine the products and volumes, the timing of orders, and set the lead time expectations; in addition, national policies, treatment guidelines, product registration, import requirements and other factors will influence how procurement and distribution are carried out. Downstream, the beneficiaries will operate or manage a country’s internal supply chain system, which often consists of warehousing at a Central Medical Store (CMS), transportation to regional distribution centres, and then further distribution out to ART sites where patients receive treatment. Depending on the funding source and related agreements, beneficiaries may also themselves control the procurement and supply chain processes from manufacturer to patients. A growing number of beneficiary governments are making contributions towards the funding of ARVs from their own revenues and this can further complicate the task of coordinating procurement and supply management.
The ARV supply chain involves four key stakeholder groups who determine the chemical entity, formulation, quantity of ARVs and their projected route from manufacturer to recipient country. These include: manufacturers who make the products, beneficiaries who are responsible for patient treatment, funders/donors who provide financing and operational agents, who execute all the processes for getting products from manufacturers to beneficiaries and payments from donors to manufacturers. Unlike typical commercial supply chains where a buyer both pays for and receives a product, for ARVs in many lower-income countries the ‘buyer’ role is divided between funders (financing) and beneficiaries (recipients) and their procurement agents and programme implementers – typically national HIV control programmes in the recipient country or designated partners. Countries that produce ARVs locally or finance their own commodity procurement can also have procurement and supply challenges, however they are not covered in detail in this article. Manufacturers There are comparatively few global ARV manufacturers given the major hurdle of stringent quality standards required by most large donors and the major capital requirement inherent in establishing new production capacity. The manufacturers can be divided into two main categories: originators and generics. Originators are the first to launch a new drug. These drugs are manufactured by a given company under patent protection. Generics are drugs that are bio-equivalent to an originator in active ingredient, dosage, strength, route of administration, performance and intended use, and are marketed when a product is no longer under patent protection or where specific licensing arrangements have been made to allow other suppliers to produce the product (see Pascual [3] on intellectual property in this supplement). Because multiple companies can produce the ‘same’ product for sale, there is direct competition. Generics are typically available at lower prices. Most originators of ARVs focus on lower volumes of higher margin sales in middle- and high-income countries; nonetheless, many do offer access programmes that provide products to low-income countries at reduced prices [4]. The generic manufacturers are mostly limited to lower- and lower-middle-income countries as a result of patent protections and license agreement terms. Their lean manufacturing model is well-suited to serve the higher volume and lower margin markets in these countries. However, these same manufacturers have markets for their other generic products in middle- and high-income countries where margins tend 80
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Donors and other funders Donors and other funders (referred to as donors in this article) make finance available to purchase products. Historically, the majority of ARVs in low- and middle-income countries were purchased by outside organizations, either through direct purchases or by providing funding to countries. Over time, financing options have become more complex, such that many countries are both the recipient and funder, in that they are self-financing or partially self-financing the procurement of their health commodities, such as through funding agreements with the World Bank. For others, the majority of the financing for the procurement and supply of ARVs are provided by donors. Donors play a significant role in shaping the supply chain for ARVs – in 2011, the two largest donors, the President’s Emergency Plan for AIDS Relief (PEPFAR) and the Global Fund to fight AIDS, Tuberculosis and Malaria (Global Fund), covered 51% of the global spending on ARVs. Donors and other funders set policies that determine the selection of operational agents, product quality standards, as well as tendering and procurement requirements. Though there are certain common themes reflected in the requirements stipulated by donors, such as fair procurement practices and transparency in supplier ©2014 International Medical Press
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selection and awarding contracts, there are also key differences that drive variation in supply chains. In particular, depending on a donor’s emphasis on country ownership and the associated policies and requirements, the procurement and supply chain of ARVs will range between an integrated global supply chain to a country-led decentralized model with greater country ownership. Operating agents Procurement and supply chain processes require specialized skills to manage the timely and efficient delivery of quality ARVs to the countries and patients that need them. Operating agents include procurement agents, freight forwarders, customs brokers and carriers, as well as government-managed operations; of these, procurement agents represent the umbrella organization responsible for contracting with many of these operating partners, whose activities would commonly include: order placement, tracking and execution; supplier selection, negotiations and performance management; pre-shipment quality control; and logistics per agreed international commercial terms and documentation. Though the functions of these procurement agents are largely transactional, the implementation and resulting shape of the supply chain may differ substantially based on the terms of their contract, agreed by donors and beneficiary countries. The procurement agents involved in the supply of ARVs include national procurement agents, procuring on behalf of their respective country, for example, the Zambia Public Procurement Authority; large aid organizations with procurement arms, such as the United Nations Children’s Fund (UNICEF), United Nations Development Program (UNDP) and Médecins Sans Frontières (MSF); and global organizations hired specifically for procurement, such as the International Dispensary Association Foundation (IDAF), Crown Agents or the Partnership for Supply Chain Management (PFSCM).
Procurement and supply chain models: distributed and integrated Depending on the configuration of donor policies, country preferences and procurement agent capacities, the current procurement and supply chain management model for ARVs ranges from a distributed, country-led model to an integrated model. Distributed, country-led Under a distributed model, donors provide the flexibility for individual countries to lead the management of their supply chain and procurement. A country will choose its own supply chain and procurement partners and has the freedom to set policies to manage tendering, Antiviral Therapy 19 Suppl 3
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purchasing, ordering and delivery, as long as they are compliant with the requirements framed by the donor. Regardless of shared suppliers, in a distributed model, procurement and supply chain management are carried out independently of other countries, such that synergies and economies of scale are limited. For example, some countries with small populations on a given drug can only order in small volumes that are well below a production batch size. Inherent in the distributed model is the risk of negative competition as countries and their procurement agents compete for available capacity and suppliers are able to quote differentiated prices to different buyers. This can be particularly acute for small purchasers whose business may not be attractive to the global-level suppliers, leading to failed tenders or higher pricing. Countries receiving funding from the Global Fund are more likely to operate under this model, as are countries funding their own ARV needs. As an example, many countries in West Africa operate in a distributed model. Many receive funding from the Global Fund, as well as fund themselves, and will have national procurement arms, potentially contracted out to a specialized agent, which performs all procurement agent functions from tendering to delivery to and through the country. Under this model, countries have a high level of control and ownership over procurement; however, this may come at the cost of efficiencies and supply stability that would be achieved under an integrated model. Integrated In a fully integrated model, like those used by PEPFAR and the Supply Chain Management System (SCMS), procurement activities are carried out on behalf of countries, with the donor directly contracting for services including tendering, order placement, warehousing, clearing and other related activities across multiple countries. Through this method, procurement agents manage orders for multiple countries and have the ability to aggregate orders to achieve certain supply and price benefits. For example, integrated procurement models may include global or regional warehousing of pre-purchased ARVs, which can be used as a buffer for emergency orders and to open additional methods of shipping to reduce costs. To support country ownership of the treatment programme, orders and deliveries are directed by country-level quantification and supply management plans. In addition, by pooling demand to increase volume, the procurement agent can achieve greater leverage with suppliers to help achieve reduced prices and ensure access to products for all of their clients, particularly in periods of supply constraint when ‘rationing’ by managing deliveries across beneficiaries can ensure all clients receive sufficient quantity to avoid supply interruptions. 81
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Most countries that receive PEPFAR funding will by default have SCMS managing the procurement and supply chain processes at least through to delivery incountry. SCMS will supply from regional warehouses, for which inventory has been purchased in a pooled manner and shipped by less-costly sea freight compared with air freight. Likewise, SCMS directly engages in supplier selection and negotiation, holding agreements with manufacturers.
Key components of procurement and supply chain management processes The procurement and supply chain management process can be broken down into six discrete steps, as indicated in Figure 1. Each step, complete with robust monitoring and evaluation throughout, is required for efficient supply chain function and uninterrupted supply to patients. To begin with, products are selected based on need, and potential suppliers of key products are screened and selected based on diversity of supply, pricing, quality compliance, product availability and logistics management. Products that are selected must be chosen in compliance with national Standard Treatment Guidelines (STGs). Forecasting is required to determine the amount of product needed. Following formal forecasting, financial analyses are needed to determine appropriate cost structures for bids against total available funds. Procurement commences with the formal request for tender, or bid, which is submitted to the purchaser or their procurement agents, who adjudicates the best value bid and then orders the appropriate quantities and types of drugs from the selected supplier. As described below, this process can be split into two phases, strategic sourcing to identify preferred suppliers and order placement with those over
Figure 1. Procurement and supply chain cycle
Product/supplier selection
Inventory management
Forecasting
Use
Procurement
Distribution
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a given period. This avoids the need for time-consuming tender processes for each order. Once the drugs arrive and have been cleared through customs and quality confirmed, they are distributed from national warehouses to local or regional warehouses, from which they are then supplied to facilities or other point-of-service and dispensed to the patient. Inventory and stock management tracks usage, then informs the next round of the process, beginning again with product selection based on need. Extensive documentation on procurement models and guidelines are available from both implementing partners and the World Health Organization (WHO): three reference documents from MSH, the WHO and John Snow, Inc. (JSI) are listed [5–7]. This cycle of procurement and supply chain management can be broken into two key processes: strategic processes and operating processes. Strategic processes occur at regular planned intervals and have a strong planning element, providing the foundation for successful procurement operations. These strategic processes have supply market implications and can be used strategically to drive market shifts in prices. Operating processes occur throughout the year, and are linked to the movement of products from manufacturers to beneficiaries.
Strategic processes These processes include both forecasting the amount of ARVs that are anticipated to be required in the foreseeable future and selection of the most appropriate supplier. Strategic processes: forecasting The forecasting and quantification processes are almost always performed in-country under the leadership of or in close coordination with the Ministries of Health, HIV control programmes and other locally based implementers. This component answers the critical questions of what to buy, how much and when to buy, and when delivery is needed. The process will often begin with a country’s National Strategic Plan (NSP), used in conjunction with forecasting tools [4], however, the process is not simple. Forecasting is highly complex, particularly where there are frequent changes of preferred drug regimens or ambitious treatment scale-up plans, and often challenged with limited data availability. Input data are frequently not available or very limited with a large number of ART sites and interim distribution points providing poor information on stock levels, accurate consumption rates, patient treatment numbers and other relevant strategic information. Nonetheless, annual forecasting is essential for the supplier selection process, as proposals and commercial terms are often shaped by expected volumes. Suppliers ©2014 International Medical Press
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need to plan their manufacturing, so the more clearly a beneficiary can articulate what products it wants to buy, and when, the greater the probability that those products will be able to be delivered on time and at the right price. In integrated models, aggregating forecasts from multiple countries increases the volumes for negotiations. Regular forecasts – sometimes on a quarterly basis – are essential to reflect increases in patient populations and changes in prescribing practices as regimens change and patients graduate to second-line regimens. Such forecasts, combined with information on existing inventories are used to determine the quantities in a specific product order. As an example, the UNITAID-CHAI Paediatric Project provided broad market visibility and generated negotiating power with suppliers by aggregating forecasts across 40 countries for paediatric ARVs, resulting in price reductions of over 80% for key ARVs over 6 years [4]. PFSCM follows a similar process with the PEPFAR-funded SCMS project and the Global Fund is introducing a similar approach in their new strategic sourcing model. Strategic processes: supplier selection This is the process of evaluating and selecting suppliers based on defined criteria, such as price and performance, compliance with quality standards at both the product and facility level, and establishing commercial contractual terms with selected suppliers. Tendering is a timeconsuming process, requiring on average 2–4 months. Therefore, the typical duration for a framework contract
following the tender is at least 1 year. Given the shared emphasis on fairness and transparency for supplier selection, many donors stipulate global tendering, and for supply stability, certain donors also directly engage manufacturers with long-term price contracts. Alternative methods to tendering include: requests for proposals (RPF), indefinite quantity contracts (ICQ) or spot buying. Independent of this method, the process is similar: the ‘buyer’ shares information in a structured way about what it wishes to buy, including products, volumes, quality expectations and delivery expectations – then suppliers provide an equally structured proposal including information on their capabilities and quality management sytsems, pricing and related terms of service. The tactics by which stakeholders choose suppliers can influence dynamics of the market and supply chain. Given that treatment interruption poses a major threat to patient survival, additional evaluation criteria have recently gained greater visibility and use, particularly delivery performance. Likewise, breadth of in-country registration has gained popularity [8]. In another example, while tenders traditionally select one bidder only, by applying a practice common in the private sector, volumes may be split between bidders in order to support new suppliers of a given product, promoting greater supply security. In situations where the lack of competition has kept prices high, opening up the market to multiple suppliers can have rapid, dramatic price implications (Figure 2).
Figure 2. Case study 1: benefits of splitting tender on price
Splitting tenders facilitated the entry of additional LPV/r suppliers into the market...
...allowing them to lower prices, leading the primary supplier to reduce its price for the first time
Market share Primary supplier
Per patient per year price
Secondary supplier
Other
Primary supplier Secondary supplier
$12.3M in cost savings
$765 $567 $493 $434 $441 2006
2007
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Year
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$396 $370
$420 2010
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Year
Taken from a presentation by DJR at the Institute of Medicine (USA) workshop on development and strengthening the global supply chain for second-line drugs for multidrugresistant tuberculosis and reproduced with his permission. This figure illustrates the impact of multiple suppliers and split tenders on the overall market share and the per patient per year drug price. As demonstrated, the introduction of secondary or tertiary suppliers into the market in 2007 and 2009, respectively, caused decreases in overall drug prices. Split tenders and use of different suppliers for the same drug, contributed to an overall decrease in drug pricing of USD12.3 million. LPV/r, ritonavir-boosted lopinavir. Antiviral Therapy 19 Suppl 3
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Operating processes These processes are cyclic and on-going, and assist the countries with movement of drugs from manufacturers to beneficiaries.
times, and the appropriate selection is dependent on the urgency of the need, the destination and the budget. Sufficient volume is also necessary to make sea freight a viable option, but where this is viable significant savings in freight costs are achievable.
Operating processes: order requests Countries retain responsibility for quantifying and forecasting their ARV needs. The country quantification process typically involves the collection of consumption or patient data, which is ideally an aggregation of a country’s site-level data. Combined with existing stock-level data and desired levels of in-country buffer stock, the aggregated information is used to determine upcoming order quantities for country-selected products. Once the quantities have been agreed upon, orders will be placed with the procurement agent to handle purchasing from suppliers.
Operating processes: customs clearance Upon arrival at the destination port goods need to be cleared through customs to comply with import regulations. This activity is almost always performed by specialized agencies for a fee with a fixed component per shipment and a variable component related to shipment value. In many countries customs clearance and the obtaining of customs waivers for the donated goods are a frequent cause of delay, which must be factored into delivery times.
Operating processes: order placement and execution This component of the process covers the placement of purchase orders by procurers with manufacturers, order acceptance, manufacture of goods, in-house quality control by the manufacturer and packing the goods. The typical time taken by these sub-processes is 8–10 weeks. This process may be extended if manufacturers have difficulties or delays in sourcing their raw materials, particularly the active pharmaceutical ingredients. Delay may also be incurred if small quantity orders do not meet the manufacturer’s minimum volume levels for a manufacturing batch or run. In this circumstance the supplier may wait to accumulate sufficient orders to constitute a viable production run. Operating processes: pre-shipment quality check After a manufacturer prepares the goods, they may be checked for quality, which can include a physical inspection as well as laboratory test for chemical analysis. These are performed by specialized agencies that have the skills and accreditation. Laboratories conducting these tests must be either WHO pre-qualified and listed on the WHO website or International Organization for Standardization and the International Electrotechnical Commission 17025 (ISO/IEC) accredited for the required scope of drug testing. Most donors and some countries require this quality check. Operating processes: primary transportation Transportation of ARVs from manufacturing location to the recipient country is governed by export regulations of the country of origin, import regulations of the recipient country and international trade practice related to transportation of goods. There are two primary methods of transportation in use for the shipment of ARVs from manufacturers to countries: sea and air. There are trade-offs in terms of costs and lead 84
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Operating processes: in-country distribution The importation process ends when the goods are received in-country at the first point of delivery, often the CMS. In-country distribution to ART facilities will involve distinct processes and stakeholders, which vary significantly by country. Depending upon the size of the country and number of ART centres, there can be regional or intermediate stocking points between the central store and treatment centres. The success of access programmes in a country depends to a great extent upon in-country distribution because what affects the patient most is the availability at ART centre and not in the central warehouse. The time required for replenishment of stocks from central warehouse to ART centre can be long for some countries due to procedural delays and can result in stock-outs at the ART site level despite having stock at the central warehouse. Distribution and implementation of the ART programmes will usually involve both public and private sector actors, both for-profit and not-for-profit.
Policies and regulations Various parties set policies and regulations that govern the ARV supply chain from manufacturers to recipient countries. The country of origin provides export regulations, the recipient country will have import regulations and there are international trade practices. The responsibility and risk is passed on from manufacturer to carrier to recipient country or consignee depending upon the contract terms used. Trade policies and regulations: import fees and tariffs Export/import of ARVs do not come under bilateral trade agreements, but rather are hard currency transactions subject to normal import tariffs in a given recipient country; however, these goods often qualify for waiver of import duties. As a large part of the funding for ARVs comes from donor organizations, the goods are ©2014 International Medical Press
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free donations and not intended for sale. Additionally, both buyer and seller must confirm that there are no intellectual property protections in either the country of manufacture or the country of import (see Pascual [3] in this supplement for a detailed discussion of intellectual property and trade-related topics). Drug and quality policies and regulations: quality control As medicines, the policies and regulations for quality are expressed in several ways. At one level, global donors have rigorous quality policies that will typically require any ARVs purchased with their funding to have stringent regulatory authority (SRA) approval, or provide clear guidance on alternatives to SRA approval, such as the WHO pre-qualification programme. For example, PEPFAR, will only accept United States Food and Drug Administration (USFDA)-approved or tentatively approved ARVs. The Global Fund requires that all ARVs funded through their grants are either prequalified by the WHO pre-qualification programme or approved by SRA or the Expert Review Panel (ERP) [9]. UNITAID has a similar requirement. Under the terms of an agreement between WHO and USFDA, all USAID approved and tentatively approved ARVs are included in the WHO pre-qualified listing. As a result the two lists are similar. Other donors and countries funding their own procurement may have different requirements; for example, South Africa has its own regulatory approval. Other countries may forego SRAapproval to support locally produced drugs or lower cost to maximize patient coverage out of the country’s own funding. It is expected that in such cases, countries follow a stringent quality control regimen for batches of drugs purchased. While such quality control is voluntary, donors and certain countries also require a mandatory pre-shipment inspection (see Rägo et al. [10] in this supplement for a detailed discussion of quality and regulatory topics). Drug and quality policies and regulations: registration Though ARVs do not fall under the prohibited goods list on either the import or export sides, as medicines, they are subject to import control by customs authorities and by the National Drug Regulatory Authorities (NDRAs) of recipient countries. Product registration with NDRAs in recipient countries is a primary requirement for import, which, depending on location, may be a straightforward process or potentially prone to delay and complication. In a few cases involving adoption of newer, more efficient formulations, countries will issue waivers for such registration for a limited period, but such cases are rare. Certain countries also require prior clearance of imports based on proforma invoices. It is essential to be very clear on the regulations before commencing a procurement. Antiviral Therapy 19 Suppl 3
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Drug and quality policies and regulations: traceability As ARVs are a pharmaceutical product, manufacturers must comply with drug regulation in the country of manufacture, which invariably involves labelling requirements and batch traceability systems. Therefore, in the event of a quality issue or adverse clinical event, the products concerned can be traced back to the manufacturing records. Large manufacturers also have pharmacovigilance systems that cover complaints from the field. In addition to the standard documentation for international trade, some countries also require Certificates of Origin (CoO). Drug and quality policies and regulations: shelf life Most countries have minimum shelf life requirements as part of import requirements in order to prevent an exporting country or supplier from passing-off low shelf life or near-expiry stocks as a donation. The typical restrictions on minimum shelf life are expressed as a percentage of overall product shelf life, typically between 75% and 80% for most countries. As the average ARV shelf life is usually 24–36 months, a product must arrive in the country within a few months of manufacture; hence manufacturers do not take the risk of keeping goods ready for stock themselves, and most ARVs are ‘made to order’ though this can result in longer lead times and an inability to meet emergency orders. In emergency situations, such as stock-outs, where the product will be consumed in a short space of time it may be more practical to consider the shelf life in number of months, rather than percentage of total shelf life. However, to deviate from the national guideline will need specific approval, usually in the form of a waiver.
Procurement and supply chain challenges In order to meet the aggressive universal coverage goals for HIV treatment, the ARV supply chain developed rapidly, enabling millions of patients to receive the lifesaving treatment needed at the time. However, given the organic nature of rapid scale-up, procurement and supply chain challenges arose that must be managed in order to avoid becoming a barrier or road-block to consistent treatment. Some of the key procurement and supply chain issues that challenge timely and reliable delivery of ARVs include fragmentation of demand, forecasting inaccuracy, shelf life requirement challenges and registration issues.
Demand fragmentation in small segments and niche markets There exists variability in country-to-country control and timing of implementation of WHO guidelines for 85
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ARVs. As a result, the formulary list varies between countries. Further, each regimen may have multiple formulations, including single, double or triple fixed-dose combination (FDC) options. The use of a large number of overlapping products leads to demand fragmentation, as the overall demand is split into smaller and smaller volumes by chemical entity and then by formulation. This becomes particularly concerning for niche populations, such as paediatrics, where demand for a single product can become so small it is no longer profitable for a manufacturer to produce it regularly (Figure 3). Addressing demand fragmentation requires either real or virtual consolidation. Real consolidation tries to reduce the number of products. Virtual consolidation tries to organize the market to bring together different fragments to increase procurement leverage. Several options for addressing demand fragmentation are outlined below. Virtual demand pooling and information sharing There is a trend for major global buyers to share information on their demand and order data so that demand can be pooled across all buyers, where multiple countries either order at the same time, or actually aggregate volumes into a single order. For some of the smaller product segments, such as paediatric and second-line ARVs, pooling orders is a necessity rather than simply desirable. Since different buyers can have different quality standards, vendor selection criteria and ordering schedules, full synchronization may not be possible, but even interim steps such as placing orders
on a pre-set schedule can improve supply security and reduce lead times and potentially costs (Figure 4). Real product optimization As a long-term solution, countries would ideally consolidate demand around a shorter list of formulations. For example, in the paediatric market, there is a list of optimal and limited use products formulated by the UNAIDS Inter-Agency Task Team on HIV/AIDS and Children (IATT), winnowed down from over 40 paediatric products available in 2012 [11]. This list was formally published by the IATT and the WHO in March 2014 supplement (Annex 10.1) to the ‘2013 consolidated guidelines on the use of antiretroviral drugs for treating and preventing HIV infection’ [12]. The list covers all recommended treatment protocols with a far smaller number of formulations, making it more likely that each of these products will be available. For example, examining a treatment regimen by consolidating demand from the number of formulations to one dispersible FDC could yield significant enough volumes for a manufacturer to more reliably schedule manufacturing (Figure 5). Real product harmonization One of the reasons for demand fragmentation is lack of pack standards between countries. There is a scope for countries to come together and standardize on common requirements in three different areas, labelling, pack size and registration.
Figure 3. Low treatment volumes are further fragmented across regimens, weight-bands and formulation Patients on ART (in millions) Adults receiving ART Children receiving ART
7.4M
Adult AZT formulations 1. AZT 300 mg 2. AZT/3TC 300/150 mg 3. AZT/3TC/NVP 300/150/200 mg
6.2M 4.9M 3.8M 2.8M
0.20M
0.28M
0.35M
0.46M
0.56M
2007
2008
2009
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Paediatric AZT formulations 1. AZT 50 mg/5 ml 2. AZT 100 mg 3. AZT/3TC 60/30 mg 4. AZT/3TC 60/30 mg dispersible 5. AZT/3TC/NVP 60/30/50 mg 6. AZT 300 mg 7. AZT/3TC 300/150 mg 8. AZT/3TC/NVP 300/150/200 mg
Year Taken from a presentation by DJR at the Institute of Medicine (USA) workshop on development and strengthening the global supply chain for second-line drugs for multidrug-resistant tuberculosis and reproduced with his permission. This figure illustrates low-volume paediatric formulation orders in comparison to adult formulations. As illustrated, there are not only far fewer paediatric patients on treatment, approximately less than 10%, but there are also more formulations required. Maintaining profitability is difficult for manufacturers producing small volumes of very specialized drugs. ART, antiretroviral treatment; AZT, zidovudine; NVP, nevirapine; 3TC, lamivudine. 86
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Figure 4. Cumulative CHAI, SCMS and VPP orders for abacavir 60 mg dispersible 8-month delay between initial order and initial production 5,000 pack minimum batch size (manufacturing delayed until September)
Packs 5,050
4,793
5,500 5,000 4,500
4,201
4,000 3,500 3,000 2,155
2,335
2,500 2,000 1,500
861
1,000 500 0
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
This graph illustrates the effects of pooled demand on lead times and production delays. Pooled demand from three sources allows for achievement of collective minimum batch size requirements; even so, this process is lengthy and can contribute to supply insecurity at the country level. Note: each bar represents an individual country order. CHAI, The Clinton Health Access Initiative; SCMS, supply chain management system; VPP, Voluntary Pooled Procurement of the Global Fund.
Figure 5. Fragmented versus consolidated demand Fragmented quarterly demand
Consolidated quarterly demand
6,000
Number of packs
5,000 4,000 3,000
Insufficient volumes
2,000 1,000 0
1,896
2,759
5,287
ABC Syrups
ABC Dispersible tablets
ABC Dispersible tablets
Fragmented quarterly demand does not meet minimum batch requirements (represented as dashed lines) for the total number of packs in one abacavir (ABC) example. Consolidating demand across formulations yields productivity in lead time through achieved minimum production run under a shorter time frame.
Demand forecasts With hundreds of ART centres in operation in many countries, often with limited data training and support, accurately forecasting and ordering at the ART centre level for each product is a difficult task. Moreover, the time required for replenishment of stocks from a central warehouse to ART centre can stretch Antiviral Therapy 19 Suppl 3
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to many months. These factors often lead to either stock-outs or expired products at ART sites, despite having stock at the central warehouse. At the central level, it is likewise difficult to estimate demand accurately given low site-level visibility and frequent switches between regimens and unpredictable scale-up rates. This results in lack of storage space, 87
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sub-optimal storage, risk of expiry write offs as well risk of stock-outs. Some countries compensate poor forecasting accuracy with large safety stock levels. Although this works well to prevent stock-outs, it can contribute to product expirations or the costly efforts to relocate stocks from one centre or country to another. In the short term, there are significant optimization opportunities for instituting a robust forecasting process in several countries. Improved forecasting, combined with more frequent information-sharing between levels of the supply chain, would improve the efficiency and effectiveness of these processes. As patient populations continue to grow and tenofovir (TDF) and zidovudine (AZT) backbones become predominant among ART regimens, the supply requirements should become less volatile, supporting long-term forecasting and longer dated contracting. A longer-term vision is to achieve an integrated database and data management system, which connects all data capture events from receipt in a CMS down to inventory and dispensing of drugs to patients at ART sites, and could eventually connect to patient management systems.
Shelf life requirements The time required for replenishment of stocks from a central warehouse to ART centre can be long for some countries due to the number of distribution points and the efficiency of information sharing between points. Recipient countries typically specify minimum shelf life criteria as a percentage of total shelf life – 75–80% of total shelf life is typical. Though valuable, this high percentage-based requirement presents a downside: manufacturers will not carry inventory to avoid undeliverable stock that has fallen below country requirements. Instead, a supplier will postpone production until they are confident that there exists adequate demand to merit a full batch, often leading to delivery delays and stockouts, particularly for smaller volume countries. Shelf life is a bigger issue for low volume products where batches are produced infrequently, leading to situations of both stock-outs and expired products on the shelves. There is an increasing trend on the part of the manufacturers to examine the clinical ramifications of extending the total shelf life from 24 months to 36 months and beyond, reducing expiry risks. However, the incentive to the manufacturer is limited as country shelf life requirements are typically percentage-based. For example, a product with an additional year in shelf life will only gain an additional 2–3 months before it has to arrive incountry, thus rendering the added benefit less helpful in the long term for countries struggling with expiry risk. In order for countries to ensure stocks have adequate shelf life when arriving in a country, while also improving supplier responsiveness, one solution is to set the shelf life 88
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requirement based on number of months, or potentially, a hybrid percentage or month requirement, for instance more than 18 months or 75% of total shelf life. Good supply chain practice from the commercial sector would also recommend more frequent deliveries of smaller quantities to keep available product fresh and to increase the ability to respond to changes in demand patterns. This reduces the risk of loss from expiry, but requires a more active management of the supply chain. With large patient volumes, and thus increased demand for storage, regular supply of smaller quantities makes better use of existing storage capacity and revolves the stock more quickly.
Product registration Registration requirements and processes vary by country. In some countries it can be an extremely drawn-out process, with negative implications for procurement by limiting the number of potential suppliers for a given product, reducing competition and increasing the likelihood of price increases. In addition, difficult or exclusive registration requirements prevent manufacturers from selling to larger markets, and in the case of smaller countries, suppliers simply will not apply as it is not cost-effective. There is a need to find ways to streamline the process and share information so that registration becomes both an effective way to manage quality without restricting access to critical products. Recognizing the importance of this challenge, there are ongoing initiatives supported by the Gates Foundation, WHO and the World Bank to support regulatory system strengthening, dossier sharing and regulatory harmonization. The East African Community is the most advanced in seeking a regional solution to registration challenges in an initiative supported by the WHO and the African Union. Efforts such as the East African initiative have the potential to both save time and help to bring in new products to the market more quickly (see Rägo et al. [10] in this supplement for a detailed discussion of quality and regulatory topics).
Conclusion Procurement and supply chain processes play a critical and often under-appreciated role in universal access. Successful execution of these processes requires both a long-term strategic view of markets and highly detailed attention to country-specific requirements at an operational level. This article provides only a glimpse of the key processes and procurement and supply chain challenges faced in scaling-up to universal coverage. The ever growing patient populations provide both a challenge and opportunity to normalize the supply chain to serve the routine ongoing needs of those patients moving from an emergency to managing a chronic disease. As HIV ©2014 International Medical Press
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service provision coverage increases, the improved infrastructure it requires will pave the way for further health system strengthening that will benefit all patient populations, not just people living with HIV/AIDS. A more robust supply chain, better trained personnel, superior medical equipment and efficient access to care when integrated will create an enhanced portfolio of health-care services in resource-poor settings. Considering the currently unfolding rise in chronic or non-communicable diseases, such as cancer, cardiovascular illness and diabetes, improved supply chain and health system infrastructure will become essential as the developing world tackles the next decade’s public health challenges. As procurement and supply chain management becomes increasingly country-run, efficient system management and sustainable capacity building will be an essential element of the drug movement process. Given appropriately functioning supply chain mechanisms and infrastructure, countries will gradually be able to adopt full control of their procurement processes, and will move away from implementing a partner-enforced model of distribution. Some countries, such as Rwanda, are already exhibiting this level of capacity and call upon external support only as is needed for assistance. The ideal procurement and supply chain management models will incorporate both a forward-looking approach to health system improvement, and a handover approach to country adoption of system function and monitoring.
Disclosure statement The authors declare no competing interests.
References 1.
2.
World Health Organization. Global update on HIV treatment 2013: results, impact and opportunities. (Accessed August 2013.) Available from http://www.who. int/hiv/pub/progressreports/update2013/en/index.html.
3.
Pascual F. Intellectual property rights, market competition and access to affordable antiretrovirals. Antivir Ther 2014; 19 Suppl 3:57–67.
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Analysis based on unpublished data from Clinton Health Access Initiative/Supply Chain Management System.
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MSH. MDS-3: managing access to medicines and health technologies. (Accessed 21 July 2014.) Available from https://www.msh.org/resources/mds-3-managing-access-tomedicines-and-health-technologies
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WHO. The world medicines situation report, updated chapters on Procurement and Supply Chain Management. (Accessed 21 July 2014.) Available from http://www.who. int/medicines/areas/policy/world_medicines_situation/en/
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JSI. The logistics handbook. A practical guide for the supply chain management of health commodities. (Accessed 21 July 2014.) Available from http://jsi.com/JSIInternet/Resources/ publication/display.cfm?txtGeoArea=INTL&thisSection=Re sources&thisSectionTitle=Resources&thisPage=publications &id=11497
8.
Unpublished UNITAID-CHAI order data for Pediatric HIV project.
9.
The Global Fund to Fight AIDS, TB and Malaria. Quality assurance of pharmaceutical products. (Updated 2014. Accessed 17 April 2014.) Available from http://www. theglobalfund.org/en/procurement/quality/pharmaceutical/
10. Rägo L, Sillo H, ‘t Hoen E, Zweygarth M. Regulatory framework for access to safe, effective quality medicines. Antivir Ther 2014; 19 Suppl 3:69–77. 11. World Health Organization. Interagency Task Team on Prevention and Treatment of HIV Infection in Pregnant Women, Mothers and their Children: report of the Meeting of the Pediatric Working Group, Developing a List of Pediatric ARV Formulations. (Updated 5 May 2011. Accessed October 2013.) Available from http://www.who. int/hiv/pub/meetingreports/iatt_meeting.pdf. 12. WHO. March 2014 supplement (Annex 10.1) to the ‘2013 consolidated guidelines on the use of antiretroviral drugs for treating and preventing HIV infection’. (Accessed 21 July 2014.) Available from http://www.who.int/hiv/pub/ guidelines/arv2013/arvs2013upplement_march2014/en/
United Nations Population Fund. These six rights summarize our approach. (Accessed 13 October 2013.) Available from http://archive-org.com/page/2976137/201310-06/http://web.unfpa.org/supplies/rights.htm Accepted 23 May 2014; published online 13 October 2014
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Review Antiretroviral procurement and supply chain management David J Ripin1, David Jamieson2, Amy Meyers3, Umesh Warty4*, Mary Dain5, Cyril Khamsi6 Access Programs, The Clinton Health Access Initiative (CHAI), Boston, MA, USA Global Partnerships, Partnership for Supply Chain Management (PFSCM), Arlington, VA, USA 3 Manufacturing and Supply Initiatives, CHAI, Boston, MA, USA 4 Procurement, CHAI, Boston, MA, USA 5 Health Financing, CHAI, Boston, MA, USA 6 Global Markets, Malaria, CHAI, Boston, MA, USA 1 2
*Corresponding author e-mail: [email protected]
Procurement, the country-level process of ordering antiretrovirals (ARVs), and supply chain management, the mechanism by which they are delivered to healthcare facilities, are critical processes required to move ARVs from manufacturers to patients. To provide a glimpse into the ARV procurement and supply chain, the following pages provide an overview of the primary stakeholders, principal operating models, and policies and regulations involved in ARV procurement. Also presented are key challenges that need to be addressed to ensure that the supply chain is not a barrier to the goal of universal coverage. This article will cover the steps necessary to order and distribute ARVs, including
different models of delivery, key stakeholders involved, strategic considerations that vary depending on context and policies affecting them. The single drug examples given illustrate the complications inherent in fragmented supply and demand-driven models of procurement and supply chain management, and suggest tools for navigating these hurdles that will ultimately result in more secure and reliable ARV provision. Understanding the dynamics of ARV supply chain is important for the global health community, both to ensure full and efficient treatment of persons living with HIV as well as to inform the supply chain decisions for other public health products.
Introduction Procurement, the country-level process of ordering drugs and other items, and supply chain management, the mechanism by which these are delivered to healthcare facilities, are critical processes required to move antiretrovirals (ARVs) from manufacturers to patients. The examples given illustrate the complications inherent in fragmented supply and demand-driven models of procurement and supply chain management, and suggest tools for navigating these hurdles that will ultimately result in more secure and reliable ARV provision. Understanding the dynamics of ARV supply chain is important for the global health community, both to ensure full and efficient treatment of persons living with HIV as well as to inform the supply chain decisions for many other public health products. An effective and efficient supply chain is characterized by the following ‘six rights’ [1]: the right ©2014 International Medical Press 1359-6535 (print) 2040-2058 (online)
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product, ordered in the right quantities, available in the right condition (product has been handled properly), delivered to the right place, delivered at the right time and all achieved for the right cost. The supply chain for ARVs is far-reaching. Each year, over 100 million packs, worth more than USD1 billion move globally from a handful of manufacturers to recipient countries around the world; they are then further distributed within each country to tens of thousands of antiretroviral treatment (ART) sites, and ultimately reach an estimated 9.7 million patients per year [2], many of whom reside in very remote regions. The ARV supply chain is even more impressive considering that it has achieved this reach only within the past decade, as broader efforts to aggressively address the HIV epidemic have accelerated. 79
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to be more attractive. As a result there is internal competition for generic manufacturing capacity.
Stakeholders
Beneficiaries Globally, the recipient country and associated partner networks involved with delivering HIV care are described as the beneficiary, although this term doesn’t reflect the full degree of country involvement. The recipient country influences both upstream and downstream aspects of the supply chain. Upstream, before orders are placed, recipient countries and their partners determine the products and volumes, the timing of orders, and set the lead time expectations; in addition, national policies, treatment guidelines, product registration, import requirements and other factors will influence how procurement and distribution are carried out. Downstream, the beneficiaries will operate or manage a country’s internal supply chain system, which often consists of warehousing at a Central Medical Store (CMS), transportation to regional distribution centres, and then further distribution out to ART sites where patients receive treatment. Depending on the funding source and related agreements, beneficiaries may also themselves control the procurement and supply chain processes from manufacturer to patients. A growing number of beneficiary governments are making contributions towards the funding of ARVs from their own revenues and this can further complicate the task of coordinating procurement and supply management.
The ARV supply chain involves four key stakeholder groups who determine the chemical entity, formulation, quantity of ARVs and their projected route from manufacturer to recipient country. These include: manufacturers who make the products, beneficiaries who are responsible for patient treatment, funders/donors who provide financing and operational agents, who execute all the processes for getting products from manufacturers to beneficiaries and payments from donors to manufacturers. Unlike typical commercial supply chains where a buyer both pays for and receives a product, for ARVs in many lower-income countries the ‘buyer’ role is divided between funders (financing) and beneficiaries (recipients) and their procurement agents and programme implementers – typically national HIV control programmes in the recipient country or designated partners. Countries that produce ARVs locally or finance their own commodity procurement can also have procurement and supply challenges, however they are not covered in detail in this article. Manufacturers There are comparatively few global ARV manufacturers given the major hurdle of stringent quality standards required by most large donors and the major capital requirement inherent in establishing new production capacity. The manufacturers can be divided into two main categories: originators and generics. Originators are the first to launch a new drug. These drugs are manufactured by a given company under patent protection. Generics are drugs that are bio-equivalent to an originator in active ingredient, dosage, strength, route of administration, performance and intended use, and are marketed when a product is no longer under patent protection or where specific licensing arrangements have been made to allow other suppliers to produce the product (see Pascual [3] on intellectual property in this supplement). Because multiple companies can produce the ‘same’ product for sale, there is direct competition. Generics are typically available at lower prices. Most originators of ARVs focus on lower volumes of higher margin sales in middle- and high-income countries; nonetheless, many do offer access programmes that provide products to low-income countries at reduced prices [4]. The generic manufacturers are mostly limited to lower- and lower-middle-income countries as a result of patent protections and license agreement terms. Their lean manufacturing model is well-suited to serve the higher volume and lower margin markets in these countries. However, these same manufacturers have markets for their other generic products in middle- and high-income countries where margins tend 80
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Donors and other funders Donors and other funders (referred to as donors in this article) make finance available to purchase products. Historically, the majority of ARVs in low- and middle-income countries were purchased by outside organizations, either through direct purchases or by providing funding to countries. Over time, financing options have become more complex, such that many countries are both the recipient and funder, in that they are self-financing or partially self-financing the procurement of their health commodities, such as through funding agreements with the World Bank. For others, the majority of the financing for the procurement and supply of ARVs are provided by donors. Donors play a significant role in shaping the supply chain for ARVs – in 2011, the two largest donors, the President’s Emergency Plan for AIDS Relief (PEPFAR) and the Global Fund to fight AIDS, Tuberculosis and Malaria (Global Fund), covered 51% of the global spending on ARVs. Donors and other funders set policies that determine the selection of operational agents, product quality standards, as well as tendering and procurement requirements. Though there are certain common themes reflected in the requirements stipulated by donors, such as fair procurement practices and transparency in supplier ©2014 International Medical Press
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selection and awarding contracts, there are also key differences that drive variation in supply chains. In particular, depending on a donor’s emphasis on country ownership and the associated policies and requirements, the procurement and supply chain of ARVs will range between an integrated global supply chain to a country-led decentralized model with greater country ownership. Operating agents Procurement and supply chain processes require specialized skills to manage the timely and efficient delivery of quality ARVs to the countries and patients that need them. Operating agents include procurement agents, freight forwarders, customs brokers and carriers, as well as government-managed operations; of these, procurement agents represent the umbrella organization responsible for contracting with many of these operating partners, whose activities would commonly include: order placement, tracking and execution; supplier selection, negotiations and performance management; pre-shipment quality control; and logistics per agreed international commercial terms and documentation. Though the functions of these procurement agents are largely transactional, the implementation and resulting shape of the supply chain may differ substantially based on the terms of their contract, agreed by donors and beneficiary countries. The procurement agents involved in the supply of ARVs include national procurement agents, procuring on behalf of their respective country, for example, the Zambia Public Procurement Authority; large aid organizations with procurement arms, such as the United Nations Children’s Fund (UNICEF), United Nations Development Program (UNDP) and Médecins Sans Frontières (MSF); and global organizations hired specifically for procurement, such as the International Dispensary Association Foundation (IDAF), Crown Agents or the Partnership for Supply Chain Management (PFSCM).
Procurement and supply chain models: distributed and integrated Depending on the configuration of donor policies, country preferences and procurement agent capacities, the current procurement and supply chain management model for ARVs ranges from a distributed, country-led model to an integrated model. Distributed, country-led Under a distributed model, donors provide the flexibility for individual countries to lead the management of their supply chain and procurement. A country will choose its own supply chain and procurement partners and has the freedom to set policies to manage tendering, Antiviral Therapy 19 Suppl 3
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purchasing, ordering and delivery, as long as they are compliant with the requirements framed by the donor. Regardless of shared suppliers, in a distributed model, procurement and supply chain management are carried out independently of other countries, such that synergies and economies of scale are limited. For example, some countries with small populations on a given drug can only order in small volumes that are well below a production batch size. Inherent in the distributed model is the risk of negative competition as countries and their procurement agents compete for available capacity and suppliers are able to quote differentiated prices to different buyers. This can be particularly acute for small purchasers whose business may not be attractive to the global-level suppliers, leading to failed tenders or higher pricing. Countries receiving funding from the Global Fund are more likely to operate under this model, as are countries funding their own ARV needs. As an example, many countries in West Africa operate in a distributed model. Many receive funding from the Global Fund, as well as fund themselves, and will have national procurement arms, potentially contracted out to a specialized agent, which performs all procurement agent functions from tendering to delivery to and through the country. Under this model, countries have a high level of control and ownership over procurement; however, this may come at the cost of efficiencies and supply stability that would be achieved under an integrated model. Integrated In a fully integrated model, like those used by PEPFAR and the Supply Chain Management System (SCMS), procurement activities are carried out on behalf of countries, with the donor directly contracting for services including tendering, order placement, warehousing, clearing and other related activities across multiple countries. Through this method, procurement agents manage orders for multiple countries and have the ability to aggregate orders to achieve certain supply and price benefits. For example, integrated procurement models may include global or regional warehousing of pre-purchased ARVs, which can be used as a buffer for emergency orders and to open additional methods of shipping to reduce costs. To support country ownership of the treatment programme, orders and deliveries are directed by country-level quantification and supply management plans. In addition, by pooling demand to increase volume, the procurement agent can achieve greater leverage with suppliers to help achieve reduced prices and ensure access to products for all of their clients, particularly in periods of supply constraint when ‘rationing’ by managing deliveries across beneficiaries can ensure all clients receive sufficient quantity to avoid supply interruptions. 81
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Most countries that receive PEPFAR funding will by default have SCMS managing the procurement and supply chain processes at least through to delivery incountry. SCMS will supply from regional warehouses, for which inventory has been purchased in a pooled manner and shipped by less-costly sea freight compared with air freight. Likewise, SCMS directly engages in supplier selection and negotiation, holding agreements with manufacturers.
Key components of procurement and supply chain management processes The procurement and supply chain management process can be broken down into six discrete steps, as indicated in Figure 1. Each step, complete with robust monitoring and evaluation throughout, is required for efficient supply chain function and uninterrupted supply to patients. To begin with, products are selected based on need, and potential suppliers of key products are screened and selected based on diversity of supply, pricing, quality compliance, product availability and logistics management. Products that are selected must be chosen in compliance with national Standard Treatment Guidelines (STGs). Forecasting is required to determine the amount of product needed. Following formal forecasting, financial analyses are needed to determine appropriate cost structures for bids against total available funds. Procurement commences with the formal request for tender, or bid, which is submitted to the purchaser or their procurement agents, who adjudicates the best value bid and then orders the appropriate quantities and types of drugs from the selected supplier. As described below, this process can be split into two phases, strategic sourcing to identify preferred suppliers and order placement with those over
Figure 1. Procurement and supply chain cycle
Product/supplier selection
Inventory management
Forecasting
Use
Procurement
Distribution
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a given period. This avoids the need for time-consuming tender processes for each order. Once the drugs arrive and have been cleared through customs and quality confirmed, they are distributed from national warehouses to local or regional warehouses, from which they are then supplied to facilities or other point-of-service and dispensed to the patient. Inventory and stock management tracks usage, then informs the next round of the process, beginning again with product selection based on need. Extensive documentation on procurement models and guidelines are available from both implementing partners and the World Health Organization (WHO): three reference documents from MSH, the WHO and John Snow, Inc. (JSI) are listed [5–7]. This cycle of procurement and supply chain management can be broken into two key processes: strategic processes and operating processes. Strategic processes occur at regular planned intervals and have a strong planning element, providing the foundation for successful procurement operations. These strategic processes have supply market implications and can be used strategically to drive market shifts in prices. Operating processes occur throughout the year, and are linked to the movement of products from manufacturers to beneficiaries.
Strategic processes These processes include both forecasting the amount of ARVs that are anticipated to be required in the foreseeable future and selection of the most appropriate supplier. Strategic processes: forecasting The forecasting and quantification processes are almost always performed in-country under the leadership of or in close coordination with the Ministries of Health, HIV control programmes and other locally based implementers. This component answers the critical questions of what to buy, how much and when to buy, and when delivery is needed. The process will often begin with a country’s National Strategic Plan (NSP), used in conjunction with forecasting tools [4], however, the process is not simple. Forecasting is highly complex, particularly where there are frequent changes of preferred drug regimens or ambitious treatment scale-up plans, and often challenged with limited data availability. Input data are frequently not available or very limited with a large number of ART sites and interim distribution points providing poor information on stock levels, accurate consumption rates, patient treatment numbers and other relevant strategic information. Nonetheless, annual forecasting is essential for the supplier selection process, as proposals and commercial terms are often shaped by expected volumes. Suppliers ©2014 International Medical Press
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need to plan their manufacturing, so the more clearly a beneficiary can articulate what products it wants to buy, and when, the greater the probability that those products will be able to be delivered on time and at the right price. In integrated models, aggregating forecasts from multiple countries increases the volumes for negotiations. Regular forecasts – sometimes on a quarterly basis – are essential to reflect increases in patient populations and changes in prescribing practices as regimens change and patients graduate to second-line regimens. Such forecasts, combined with information on existing inventories are used to determine the quantities in a specific product order. As an example, the UNITAID-CHAI Paediatric Project provided broad market visibility and generated negotiating power with suppliers by aggregating forecasts across 40 countries for paediatric ARVs, resulting in price reductions of over 80% for key ARVs over 6 years [4]. PFSCM follows a similar process with the PEPFAR-funded SCMS project and the Global Fund is introducing a similar approach in their new strategic sourcing model. Strategic processes: supplier selection This is the process of evaluating and selecting suppliers based on defined criteria, such as price and performance, compliance with quality standards at both the product and facility level, and establishing commercial contractual terms with selected suppliers. Tendering is a timeconsuming process, requiring on average 2–4 months. Therefore, the typical duration for a framework contract
following the tender is at least 1 year. Given the shared emphasis on fairness and transparency for supplier selection, many donors stipulate global tendering, and for supply stability, certain donors also directly engage manufacturers with long-term price contracts. Alternative methods to tendering include: requests for proposals (RPF), indefinite quantity contracts (ICQ) or spot buying. Independent of this method, the process is similar: the ‘buyer’ shares information in a structured way about what it wishes to buy, including products, volumes, quality expectations and delivery expectations – then suppliers provide an equally structured proposal including information on their capabilities and quality management sytsems, pricing and related terms of service. The tactics by which stakeholders choose suppliers can influence dynamics of the market and supply chain. Given that treatment interruption poses a major threat to patient survival, additional evaluation criteria have recently gained greater visibility and use, particularly delivery performance. Likewise, breadth of in-country registration has gained popularity [8]. In another example, while tenders traditionally select one bidder only, by applying a practice common in the private sector, volumes may be split between bidders in order to support new suppliers of a given product, promoting greater supply security. In situations where the lack of competition has kept prices high, opening up the market to multiple suppliers can have rapid, dramatic price implications (Figure 2).
Figure 2. Case study 1: benefits of splitting tender on price
Splitting tenders facilitated the entry of additional LPV/r suppliers into the market...
...allowing them to lower prices, leading the primary supplier to reduce its price for the first time
Market share Primary supplier
Per patient per year price
Secondary supplier
Other
Primary supplier Secondary supplier
$12.3M in cost savings
$765 $567 $493 $434 $441 2006
2007
2008
2009
Year
2010
2011
2008
2009
$396 $370
$420 2010
2011
Year
Taken from a presentation by DJR at the Institute of Medicine (USA) workshop on development and strengthening the global supply chain for second-line drugs for multidrugresistant tuberculosis and reproduced with his permission. This figure illustrates the impact of multiple suppliers and split tenders on the overall market share and the per patient per year drug price. As demonstrated, the introduction of secondary or tertiary suppliers into the market in 2007 and 2009, respectively, caused decreases in overall drug prices. Split tenders and use of different suppliers for the same drug, contributed to an overall decrease in drug pricing of USD12.3 million. LPV/r, ritonavir-boosted lopinavir. Antiviral Therapy 19 Suppl 3
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Operating processes These processes are cyclic and on-going, and assist the countries with movement of drugs from manufacturers to beneficiaries.
times, and the appropriate selection is dependent on the urgency of the need, the destination and the budget. Sufficient volume is also necessary to make sea freight a viable option, but where this is viable significant savings in freight costs are achievable.
Operating processes: order requests Countries retain responsibility for quantifying and forecasting their ARV needs. The country quantification process typically involves the collection of consumption or patient data, which is ideally an aggregation of a country’s site-level data. Combined with existing stock-level data and desired levels of in-country buffer stock, the aggregated information is used to determine upcoming order quantities for country-selected products. Once the quantities have been agreed upon, orders will be placed with the procurement agent to handle purchasing from suppliers.
Operating processes: customs clearance Upon arrival at the destination port goods need to be cleared through customs to comply with import regulations. This activity is almost always performed by specialized agencies for a fee with a fixed component per shipment and a variable component related to shipment value. In many countries customs clearance and the obtaining of customs waivers for the donated goods are a frequent cause of delay, which must be factored into delivery times.
Operating processes: order placement and execution This component of the process covers the placement of purchase orders by procurers with manufacturers, order acceptance, manufacture of goods, in-house quality control by the manufacturer and packing the goods. The typical time taken by these sub-processes is 8–10 weeks. This process may be extended if manufacturers have difficulties or delays in sourcing their raw materials, particularly the active pharmaceutical ingredients. Delay may also be incurred if small quantity orders do not meet the manufacturer’s minimum volume levels for a manufacturing batch or run. In this circumstance the supplier may wait to accumulate sufficient orders to constitute a viable production run. Operating processes: pre-shipment quality check After a manufacturer prepares the goods, they may be checked for quality, which can include a physical inspection as well as laboratory test for chemical analysis. These are performed by specialized agencies that have the skills and accreditation. Laboratories conducting these tests must be either WHO pre-qualified and listed on the WHO website or International Organization for Standardization and the International Electrotechnical Commission 17025 (ISO/IEC) accredited for the required scope of drug testing. Most donors and some countries require this quality check. Operating processes: primary transportation Transportation of ARVs from manufacturing location to the recipient country is governed by export regulations of the country of origin, import regulations of the recipient country and international trade practice related to transportation of goods. There are two primary methods of transportation in use for the shipment of ARVs from manufacturers to countries: sea and air. There are trade-offs in terms of costs and lead 84
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Operating processes: in-country distribution The importation process ends when the goods are received in-country at the first point of delivery, often the CMS. In-country distribution to ART facilities will involve distinct processes and stakeholders, which vary significantly by country. Depending upon the size of the country and number of ART centres, there can be regional or intermediate stocking points between the central store and treatment centres. The success of access programmes in a country depends to a great extent upon in-country distribution because what affects the patient most is the availability at ART centre and not in the central warehouse. The time required for replenishment of stocks from central warehouse to ART centre can be long for some countries due to procedural delays and can result in stock-outs at the ART site level despite having stock at the central warehouse. Distribution and implementation of the ART programmes will usually involve both public and private sector actors, both for-profit and not-for-profit.
Policies and regulations Various parties set policies and regulations that govern the ARV supply chain from manufacturers to recipient countries. The country of origin provides export regulations, the recipient country will have import regulations and there are international trade practices. The responsibility and risk is passed on from manufacturer to carrier to recipient country or consignee depending upon the contract terms used. Trade policies and regulations: import fees and tariffs Export/import of ARVs do not come under bilateral trade agreements, but rather are hard currency transactions subject to normal import tariffs in a given recipient country; however, these goods often qualify for waiver of import duties. As a large part of the funding for ARVs comes from donor organizations, the goods are ©2014 International Medical Press
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free donations and not intended for sale. Additionally, both buyer and seller must confirm that there are no intellectual property protections in either the country of manufacture or the country of import (see Pascual [3] in this supplement for a detailed discussion of intellectual property and trade-related topics). Drug and quality policies and regulations: quality control As medicines, the policies and regulations for quality are expressed in several ways. At one level, global donors have rigorous quality policies that will typically require any ARVs purchased with their funding to have stringent regulatory authority (SRA) approval, or provide clear guidance on alternatives to SRA approval, such as the WHO pre-qualification programme. For example, PEPFAR, will only accept United States Food and Drug Administration (USFDA)-approved or tentatively approved ARVs. The Global Fund requires that all ARVs funded through their grants are either prequalified by the WHO pre-qualification programme or approved by SRA or the Expert Review Panel (ERP) [9]. UNITAID has a similar requirement. Under the terms of an agreement between WHO and USFDA, all USAID approved and tentatively approved ARVs are included in the WHO pre-qualified listing. As a result the two lists are similar. Other donors and countries funding their own procurement may have different requirements; for example, South Africa has its own regulatory approval. Other countries may forego SRAapproval to support locally produced drugs or lower cost to maximize patient coverage out of the country’s own funding. It is expected that in such cases, countries follow a stringent quality control regimen for batches of drugs purchased. While such quality control is voluntary, donors and certain countries also require a mandatory pre-shipment inspection (see Rägo et al. [10] in this supplement for a detailed discussion of quality and regulatory topics). Drug and quality policies and regulations: registration Though ARVs do not fall under the prohibited goods list on either the import or export sides, as medicines, they are subject to import control by customs authorities and by the National Drug Regulatory Authorities (NDRAs) of recipient countries. Product registration with NDRAs in recipient countries is a primary requirement for import, which, depending on location, may be a straightforward process or potentially prone to delay and complication. In a few cases involving adoption of newer, more efficient formulations, countries will issue waivers for such registration for a limited period, but such cases are rare. Certain countries also require prior clearance of imports based on proforma invoices. It is essential to be very clear on the regulations before commencing a procurement. Antiviral Therapy 19 Suppl 3
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Drug and quality policies and regulations: traceability As ARVs are a pharmaceutical product, manufacturers must comply with drug regulation in the country of manufacture, which invariably involves labelling requirements and batch traceability systems. Therefore, in the event of a quality issue or adverse clinical event, the products concerned can be traced back to the manufacturing records. Large manufacturers also have pharmacovigilance systems that cover complaints from the field. In addition to the standard documentation for international trade, some countries also require Certificates of Origin (CoO). Drug and quality policies and regulations: shelf life Most countries have minimum shelf life requirements as part of import requirements in order to prevent an exporting country or supplier from passing-off low shelf life or near-expiry stocks as a donation. The typical restrictions on minimum shelf life are expressed as a percentage of overall product shelf life, typically between 75% and 80% for most countries. As the average ARV shelf life is usually 24–36 months, a product must arrive in the country within a few months of manufacture; hence manufacturers do not take the risk of keeping goods ready for stock themselves, and most ARVs are ‘made to order’ though this can result in longer lead times and an inability to meet emergency orders. In emergency situations, such as stock-outs, where the product will be consumed in a short space of time it may be more practical to consider the shelf life in number of months, rather than percentage of total shelf life. However, to deviate from the national guideline will need specific approval, usually in the form of a waiver.
Procurement and supply chain challenges In order to meet the aggressive universal coverage goals for HIV treatment, the ARV supply chain developed rapidly, enabling millions of patients to receive the lifesaving treatment needed at the time. However, given the organic nature of rapid scale-up, procurement and supply chain challenges arose that must be managed in order to avoid becoming a barrier or road-block to consistent treatment. Some of the key procurement and supply chain issues that challenge timely and reliable delivery of ARVs include fragmentation of demand, forecasting inaccuracy, shelf life requirement challenges and registration issues.
Demand fragmentation in small segments and niche markets There exists variability in country-to-country control and timing of implementation of WHO guidelines for 85
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ARVs. As a result, the formulary list varies between countries. Further, each regimen may have multiple formulations, including single, double or triple fixed-dose combination (FDC) options. The use of a large number of overlapping products leads to demand fragmentation, as the overall demand is split into smaller and smaller volumes by chemical entity and then by formulation. This becomes particularly concerning for niche populations, such as paediatrics, where demand for a single product can become so small it is no longer profitable for a manufacturer to produce it regularly (Figure 3). Addressing demand fragmentation requires either real or virtual consolidation. Real consolidation tries to reduce the number of products. Virtual consolidation tries to organize the market to bring together different fragments to increase procurement leverage. Several options for addressing demand fragmentation are outlined below. Virtual demand pooling and information sharing There is a trend for major global buyers to share information on their demand and order data so that demand can be pooled across all buyers, where multiple countries either order at the same time, or actually aggregate volumes into a single order. For some of the smaller product segments, such as paediatric and second-line ARVs, pooling orders is a necessity rather than simply desirable. Since different buyers can have different quality standards, vendor selection criteria and ordering schedules, full synchronization may not be possible, but even interim steps such as placing orders
on a pre-set schedule can improve supply security and reduce lead times and potentially costs (Figure 4). Real product optimization As a long-term solution, countries would ideally consolidate demand around a shorter list of formulations. For example, in the paediatric market, there is a list of optimal and limited use products formulated by the UNAIDS Inter-Agency Task Team on HIV/AIDS and Children (IATT), winnowed down from over 40 paediatric products available in 2012 [11]. This list was formally published by the IATT and the WHO in March 2014 supplement (Annex 10.1) to the ‘2013 consolidated guidelines on the use of antiretroviral drugs for treating and preventing HIV infection’ [12]. The list covers all recommended treatment protocols with a far smaller number of formulations, making it more likely that each of these products will be available. For example, examining a treatment regimen by consolidating demand from the number of formulations to one dispersible FDC could yield significant enough volumes for a manufacturer to more reliably schedule manufacturing (Figure 5). Real product harmonization One of the reasons for demand fragmentation is lack of pack standards between countries. There is a scope for countries to come together and standardize on common requirements in three different areas, labelling, pack size and registration.
Figure 3. Low treatment volumes are further fragmented across regimens, weight-bands and formulation Patients on ART (in millions) Adults receiving ART Children receiving ART
7.4M
Adult AZT formulations 1. AZT 300 mg 2. AZT/3TC 300/150 mg 3. AZT/3TC/NVP 300/150/200 mg
6.2M 4.9M 3.8M 2.8M
0.20M
0.28M
0.35M
0.46M
0.56M
2007
2008
2009
2010
2011
Paediatric AZT formulations 1. AZT 50 mg/5 ml 2. AZT 100 mg 3. AZT/3TC 60/30 mg 4. AZT/3TC 60/30 mg dispersible 5. AZT/3TC/NVP 60/30/50 mg 6. AZT 300 mg 7. AZT/3TC 300/150 mg 8. AZT/3TC/NVP 300/150/200 mg
Year Taken from a presentation by DJR at the Institute of Medicine (USA) workshop on development and strengthening the global supply chain for second-line drugs for multidrug-resistant tuberculosis and reproduced with his permission. This figure illustrates low-volume paediatric formulation orders in comparison to adult formulations. As illustrated, there are not only far fewer paediatric patients on treatment, approximately less than 10%, but there are also more formulations required. Maintaining profitability is difficult for manufacturers producing small volumes of very specialized drugs. ART, antiretroviral treatment; AZT, zidovudine; NVP, nevirapine; 3TC, lamivudine. 86
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Figure 4. Cumulative CHAI, SCMS and VPP orders for abacavir 60 mg dispersible 8-month delay between initial order and initial production 5,000 pack minimum batch size (manufacturing delayed until September)
Packs 5,050
4,793
5,500 5,000 4,500
4,201
4,000 3,500 3,000 2,155
2,335
2,500 2,000 1,500
861
1,000 500 0
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
This graph illustrates the effects of pooled demand on lead times and production delays. Pooled demand from three sources allows for achievement of collective minimum batch size requirements; even so, this process is lengthy and can contribute to supply insecurity at the country level. Note: each bar represents an individual country order. CHAI, The Clinton Health Access Initiative; SCMS, supply chain management system; VPP, Voluntary Pooled Procurement of the Global Fund.
Figure 5. Fragmented versus consolidated demand Fragmented quarterly demand
Consolidated quarterly demand
6,000
Number of packs
5,000 4,000 3,000
Insufficient volumes
2,000 1,000 0
1,896
2,759
5,287
ABC Syrups
ABC Dispersible tablets
ABC Dispersible tablets
Fragmented quarterly demand does not meet minimum batch requirements (represented as dashed lines) for the total number of packs in one abacavir (ABC) example. Consolidating demand across formulations yields productivity in lead time through achieved minimum production run under a shorter time frame.
Demand forecasts With hundreds of ART centres in operation in many countries, often with limited data training and support, accurately forecasting and ordering at the ART centre level for each product is a difficult task. Moreover, the time required for replenishment of stocks from a central warehouse to ART centre can stretch Antiviral Therapy 19 Suppl 3
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to many months. These factors often lead to either stock-outs or expired products at ART sites, despite having stock at the central warehouse. At the central level, it is likewise difficult to estimate demand accurately given low site-level visibility and frequent switches between regimens and unpredictable scale-up rates. This results in lack of storage space, 87
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sub-optimal storage, risk of expiry write offs as well risk of stock-outs. Some countries compensate poor forecasting accuracy with large safety stock levels. Although this works well to prevent stock-outs, it can contribute to product expirations or the costly efforts to relocate stocks from one centre or country to another. In the short term, there are significant optimization opportunities for instituting a robust forecasting process in several countries. Improved forecasting, combined with more frequent information-sharing between levels of the supply chain, would improve the efficiency and effectiveness of these processes. As patient populations continue to grow and tenofovir (TDF) and zidovudine (AZT) backbones become predominant among ART regimens, the supply requirements should become less volatile, supporting long-term forecasting and longer dated contracting. A longer-term vision is to achieve an integrated database and data management system, which connects all data capture events from receipt in a CMS down to inventory and dispensing of drugs to patients at ART sites, and could eventually connect to patient management systems.
Shelf life requirements The time required for replenishment of stocks from a central warehouse to ART centre can be long for some countries due to the number of distribution points and the efficiency of information sharing between points. Recipient countries typically specify minimum shelf life criteria as a percentage of total shelf life – 75–80% of total shelf life is typical. Though valuable, this high percentage-based requirement presents a downside: manufacturers will not carry inventory to avoid undeliverable stock that has fallen below country requirements. Instead, a supplier will postpone production until they are confident that there exists adequate demand to merit a full batch, often leading to delivery delays and stockouts, particularly for smaller volume countries. Shelf life is a bigger issue for low volume products where batches are produced infrequently, leading to situations of both stock-outs and expired products on the shelves. There is an increasing trend on the part of the manufacturers to examine the clinical ramifications of extending the total shelf life from 24 months to 36 months and beyond, reducing expiry risks. However, the incentive to the manufacturer is limited as country shelf life requirements are typically percentage-based. For example, a product with an additional year in shelf life will only gain an additional 2–3 months before it has to arrive incountry, thus rendering the added benefit less helpful in the long term for countries struggling with expiry risk. In order for countries to ensure stocks have adequate shelf life when arriving in a country, while also improving supplier responsiveness, one solution is to set the shelf life 88
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requirement based on number of months, or potentially, a hybrid percentage or month requirement, for instance more than 18 months or 75% of total shelf life. Good supply chain practice from the commercial sector would also recommend more frequent deliveries of smaller quantities to keep available product fresh and to increase the ability to respond to changes in demand patterns. This reduces the risk of loss from expiry, but requires a more active management of the supply chain. With large patient volumes, and thus increased demand for storage, regular supply of smaller quantities makes better use of existing storage capacity and revolves the stock more quickly.
Product registration Registration requirements and processes vary by country. In some countries it can be an extremely drawn-out process, with negative implications for procurement by limiting the number of potential suppliers for a given product, reducing competition and increasing the likelihood of price increases. In addition, difficult or exclusive registration requirements prevent manufacturers from selling to larger markets, and in the case of smaller countries, suppliers simply will not apply as it is not cost-effective. There is a need to find ways to streamline the process and share information so that registration becomes both an effective way to manage quality without restricting access to critical products. Recognizing the importance of this challenge, there are ongoing initiatives supported by the Gates Foundation, WHO and the World Bank to support regulatory system strengthening, dossier sharing and regulatory harmonization. The East African Community is the most advanced in seeking a regional solution to registration challenges in an initiative supported by the WHO and the African Union. Efforts such as the East African initiative have the potential to both save time and help to bring in new products to the market more quickly (see Rägo et al. [10] in this supplement for a detailed discussion of quality and regulatory topics).
Conclusion Procurement and supply chain processes play a critical and often under-appreciated role in universal access. Successful execution of these processes requires both a long-term strategic view of markets and highly detailed attention to country-specific requirements at an operational level. This article provides only a glimpse of the key processes and procurement and supply chain challenges faced in scaling-up to universal coverage. The ever growing patient populations provide both a challenge and opportunity to normalize the supply chain to serve the routine ongoing needs of those patients moving from an emergency to managing a chronic disease. As HIV ©2014 International Medical Press
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service provision coverage increases, the improved infrastructure it requires will pave the way for further health system strengthening that will benefit all patient populations, not just people living with HIV/AIDS. A more robust supply chain, better trained personnel, superior medical equipment and efficient access to care when integrated will create an enhanced portfolio of health-care services in resource-poor settings. Considering the currently unfolding rise in chronic or non-communicable diseases, such as cancer, cardiovascular illness and diabetes, improved supply chain and health system infrastructure will become essential as the developing world tackles the next decade’s public health challenges. As procurement and supply chain management becomes increasingly country-run, efficient system management and sustainable capacity building will be an essential element of the drug movement process. Given appropriately functioning supply chain mechanisms and infrastructure, countries will gradually be able to adopt full control of their procurement processes, and will move away from implementing a partner-enforced model of distribution. Some countries, such as Rwanda, are already exhibiting this level of capacity and call upon external support only as is needed for assistance. The ideal procurement and supply chain management models will incorporate both a forward-looking approach to health system improvement, and a handover approach to country adoption of system function and monitoring.
Disclosure statement The authors declare no competing interests.
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