Download Supply Chain Metrics Measuring Total Cost per Patient to Developing World

Supply Chain Metrics
Measuring Total Cost per Patient to
Drive Supply Chain Improvement in the
Developing World
www.pwc.com/publicsector
Measuring Total Cost per Patient to
Drive Supply Chain Improvement in
the Developing World
>
Introduction
A global response to health challenges requires the integration of prevention, treatment,
and care programs; and the coordinated delivery of key commodities, including:
medicines, test kits, and other medical consumables. Each improvement to supply
chain processes has the potential to reduce response time and to shift the allocation of
budgeted resources from logistical costs to direct patient care.
In recent years, multi-national organizations have made significant strides in
implementing supply chain mechanisms that have driven improvements in drug
delivery to the developing world (see Appendix A for examples). Most improvements
have been implemented at the global level by donor or partner organizations. Often,
however, countries that would benefit from such measures have not adopted these
industry standard practices to improve their internal supply chain systems and
processes. On the contrary, many nations have become dependent on external parties to
perform key supply chain activities on their behalf, and thus have had little incentive to
identify reforms or invest resources to improve their own systems.
To address this concern, donor organizations and governments should consider
adopting measures tied to new or ongoing aid projects and programs that serve to
properly incentivize supply chain improvement and innovation. This will serve to
promote the longer-term goal of facilitating self-sufficiency and sustainability in
countries benefitting from humanitarian aid.
Barriers to Improvement
Numerous inefficiencies exist in national supply chains despite large amounts of
disbursed aid. In fact, large disbursements of aid given unconditionally can in itself
act as a barrier to realizing efficiencies. When clear systems of accountability or
mechanisms for oversight have not been defined, aid funding is at greater risk of misuse
or misappropriation at the country-level.
Commonly encountered supply chain inefficiencies within countries receiving such
aid include frequent stock-outs of critical medicines, and large amounts of product
waste driven by inadequate forecasting and demand planning capabilities, resulting in
higher prices paid for expedited product orders. In-country distribution networks and
infrastructure may be inadequate, with an inordinate amount of resources directed
toward facilitating product availability at the “last mile.” Capabilities of supply chain
practitioners in-country present yet another challenge, as this field is often considered
an added duty rather than a career track unto itself, and therefore adequate training is
not provided or widely available. Additionally, managers often lack the necessary data
systems and analytical tools to gain end-to-end visibility of their supply chains.
Resolving supply chain inefficiencies in the developing world is a long-term effort,
requiring significant time, resources, and political commitment. While there is no
short-term solution, some aid initiatives are better structured than others to help speed
the pace of improvement and innovation. To encourage countries to invest human
and financial resources to improve supply chain systems and processes, donors and
government organizations should carefully assess and recommend project structures
that incentivize countries to engage in continued capacity-building.
1
PwC
Supply Chain Metrics
>
Performance Measures Drive Improvement
Countries that are inefficient often share one characteristic: they have failed to adopt
supply chain leading practices that are proven at the global level. The development
and application of a commonly used, sound metric that gives donors insight into the
efficiency of supply chain operations within a given country can motivate countries to
reduce inefficiencies and drive down costs through the adoption of leading practices.
One such metric that can help to drive desired improvement is total cost per patient,
specifically as related to implementing and maintaining a public health initiative within
a given country. This metric serves as an indicator of the efficiency and maturity of
a country’s distribution system. Less mature supply chains consume a great deal of
resources to achieve desired results, resulting in a higher cost per patient. Conversely,
countries operating more efficient supply chains are poised to achieve the same results
at a lower cost per patient.
While many organizations measure their individual cost contribution toward specific
programs and projects, measuring by total cost per patient differs in that it accounts
for total end-to-end supply chain costs incurred in drug delivery. It also relates costs
to the number of patients served, which provides additional perspective and context
for determining the true efficiency (or magnitude of inefficiency) of the system being
measured.
Example: An aid organization purchases $10M of medicines for Country A, and $10M
for Country B. The additional cost associated with management, warehousing and
delivery in each country is $5M. However, the patient population for Country A is
10,000 and Country B 20,000. In this example, Country A will achieve a total cost
per patient of $1,500 and Country B $750, indicating the Country B is able to more
efficiently deliver product in-country.
Total supply chain cost per patient is a powerful metric as it can be both actionable
and meaningful to multiple stakeholders. It provides aid organizations with a greater
understanding of the total costs associated with program implementation, and aligns
stakeholders behind an informed mechanism for action. The metric can be measured
in many different ways and customized to specific areas of interest. When measured
by country and by disease, the metric allows for comparison across the two, giving
organizations the ability to highlight inefficiencies and to direct their resource portfolio
to facilitate improvements. Measuring the total cost per patient over time also enables
an understanding of the impact of investments on improving the efficiency of drug
delivery. A successful supply chain improvement will have a direct, measurable, and
positive impact on overall cost; conversely, an inefficient supply chain mechanism will
have a negative impact on overall cost.
Understanding how to use the cost per patient metric is equally as important as
defining how to measure it. Aid organizations should seek to continually improve this
metric, and consider building this requirement into grants as a performance evaluation
criterion or a condition for continued funding.
It is important to note, however, that this metric cannot be viewed in isolation; rather,
it must also be considered against the effectiveness of aid. Implementing a total cost
per patient measure without consideration to supply chain outcomes could create
perverse incentives to reduce cost at the expense of service, and negatively impact the
availability and affordability of medicines and other critical health commodities. When
adopting a measure of this nature, aid organizations must strike a balance between
efficiency and effectiveness.
Supply Chain Metrics
PwC
2
>
Measuring Total Cost per Patient
A common fallacy in measuring the cost per patient metric is to consider the supply
chain as a discrete set of activities operating in isolation of one another, and which
can be measured and analyzed independently. Rather, supply chain activities are
tightly linked, and actions taken in one area of the supply chain may have a direct and
significant impact on another. As a result, to adequately measure the total cost per
patient of a public health initiative, organizations must account for total costs incurred
at each stage, from product procurement through delivery to the final customer. By
evaluating the supply chain as a cohesive system, organizations gain a better visibility
of the root cause of supply chain inefficiencies in order to target appropriate measures
for improvement.
The challenge in measuring total cost lies in defining the components that should
be included in its calculation. A framework such as the Supply Chain Operations
Reference® (SCOR®) Model can be leveraged to account for end-to-end cost
components. Created collaboratively in 1996 by supply chain practitioners in industry
and academia, the SCOR® Model is commonly accepted as the premier and most
broadly used tool for commercial and public sector supply chain management. SCOR®
is a process reference model that “links business process, metrics, leading practices,
and technology features into a unified structure to support communication among
supply chain partners; and to improve the effectiveness of supply chain management
and related supply chain improvement activities.”1 It is important to note that SCOR®
is purposefully generic, so that it may be applied to a number of industries and supply
chains. As a result, the framework must be tailored and customized to the environment
in which it will be used.
The SCOR® Model deconstructs the supply chain into its most fundamental elements,
and defines the key processes, activities, and tasks commonly performed within any
distribution system. Each relevant process, task, and activity has a corresponding cost
associated with it that must be incorporated into the measurement of total cost per
patient.
At the highest level, SCOR® defines five “Level 1” supply chain processes, including
Plan, Source, Make, Deliver, and Return. These Level 1 processes can serve as a
foundation for identifying the cost components that should be included within a total
cost per patient metric.
The adjacent table defines each SCOR® Level 1 process and provides examples of costs
that must be considered within each category.
http://supply-chain.org/scor
*SCOR® is a registered trademark of the Supply-Chain Council, Inc.
1
3
PwC
Supply Chain Metrics
>
Closing Thoughts
The mechanisms implemented by donor organizations and governments to address
supply chain inefficiencies have been effective at a global level, and improvements
are continually being made. However, the lack of in-country capabilities continues to
thwart efforts made by global organizations to improve the availability, affordability,
and access to critical medicines and other health supplies.
It is important to build in-country capacity and encourage country self-sufficiency
so that the benefits of these supply chain improvement mechanisms can continue
to be realized. To identify the areas in the supply chain where resources should be
placed, the SCOR® framework and the metric of total cost per patient should be used.
Using this metric can help donor organizations measure the effectiveness of their aid
programs and the supply chain mechanisms they put in place. As the effectiveness of
the end-to-end supply chain improves, donor organizations will be more easily able to
contribute to getting medications to people in developing countries most in need and
when they need them.
Supply Chain Metrics
PwC
4
>
Next Steps
About PwC
PwC recognizes that donor organizations
are focusing on their return on investment
(ROI) now more than ever. Donors want
to see that aid distributions are reaching
patients in the most effective and efficient
way possible. Currently, many donors fail
to understand the real impact of their aid
because they lack a universal, end-to-end
methodology to measure this ROI. We
hope that this whitepaper encourages
organizations to consider measuring
total cost per patient as a mechanism for
evaluating investments. This paper is
intended to be a catalyst for change in the
way that international aid organizations
measure efficiency, manage their portfolio
of programs, and incentivize countries
receiving aid to self-improve.
PwC is a recognized leader in delivering
operational strategy and results to
the global health and development
sector. Having worked with several
major pharmaceutical companies, PwC
brings extensive knowledge of relevant,
commercial healthcare leading practices
to our public health clients. In addition,
we recognize the unique set of challenges
and requirements in the global health and
development space. Our understanding
comes from ground-level experience in
developing countries. We have developed
customized solutions for supply chains
required to operate in environments with
poor resources, limited infrastructure,
and several stakeholders. Furthermore,
our approach to supply chain diagnostics
is inherently collaborative. By working
closely with clients in a structured way,
PwC not only provides high-quality
deliverables, but also ensures the
continued client ownership of solution
design and outcomes necessary for a
sustainable solution.
We offer the SCOR® framework as a
starting point for that change, which will
lead to customized solutions for individual
organizations and their programs. If your
organization is interested in learning
more about how to measure total cost
per patient for your programs or projects,
please contact one of our team members
listed at the end of this paper.
5
PwC
Supply Chain Metrics
PwC firms provide industry-focused
assurance, tax, and advisory services
to enhance value for our clients. More
than 180,000 people in 157 countries in
firms across the PwC network share their
thinking, experience, and solutions to
develop fresh perspectives and practical
advice.
Appendix A: Examples of Global Supply Chain Innovations
Global supply chain innovations
have taken form through a variety
of mechanisms including pooled
procurement. Implemented by
organizations such as the U.S. Agency
for International Development (USAID)
and the AIDS-relief group UNITAID,
pooled procurement synchronizes the
timing of procurement for multiple
parties (e.g., organizations, countries)
and places product orders in bulk at
regularly scheduled intervals. This enables
organizations to achieve economies of
scale and discounted prices that they
otherwise might not have independently.
It can also stabilize product supply,
particularly for entities that require
only small volumes of product. By
aggregating orders, donor or government
organizations are more likely to meet
manufacturer minimum batch size
requirements for production, and are
therefore less likely to experience delays
or difficulties in obtaining products.
Buffer stock schemes represent another
mechanism that has been implemented
by organizations such as UNICEF,
USAID, and the Stop Tuberculosis (TB)
Partnership Global Drug Facility (GDF)
to improve supply chain reliability and
effectiveness. Supply chain leading
practices suggest holding a small,
rotating stockpile of inventory to
maintain consistent supply in the event
of unanticipated fluctuations in supply
or demand. Organizations that fail to
maintain product buffers are slower
to respond when inventory is less than
actual demand, or when manufacturers
face limited production due to low supply
of raw materials. Product held in a buffer
can be delivered almost immediately once
a need is identified, and organizations
maintaining buffers are not exposed to
unpredictable manufacturer lead times.
By contrast, those that do not maintain
a buffer have to place a new order with
suppliers each time a need is identified.
Another example of a global supply chain
improvement is the increased availability
of generic drugs to the developing world.
Donor organizations have funded many
initiatives to encourage new research
and development, and to reduce barriers
to entry for generics manufacturers,
with the objective of improving the
availability of affordable medicines
in the developing world. The growing
presence of generics manufacturers
drives competition in the marketplace,
strengthens local industry, and promotes
the development of emerging markets and
their infrastructure.
If you would like to discuss any of the issues raised in this report, please reach out to any of the contacts listed below.
Chandresh Harjivan
Principal
Public Sector Practice
[email protected]
+1 (202) 756-1710
John Geiran
Managing Director
Public Sector Practice
[email protected]
+1 (703) 918-1266
Shabana Farooqi
Director
Public Sector Practice
[email protected]
+1 (571) 215-5222
Supply Chain Metrics
PwC
6
www.pwc.com/publicsector
© 2014 PwC. All rights reserved. “PwC” and “PwC US” refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International
Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
PSP-013e_WP Supply Chain Metrics_HGF