by Kristina Lorenson, PATH
Regional distribution centers (RDCs) may be a realistic option for countries that distribute large quantities of vaccines and need to invest in cold chain infrastructure, according to a report by project Optimize. The report, completed this month, assesses the cost of using an RDC, or intercountry warehouse, for the storage and distribution of vaccines for multiple countries in a single geographic region.
Over the last decade, interest in vaccine development has increased dramatically. As a result, the number of World Health Organization-prequalified vaccines has almost tripled during this time. Given the large investments in research and development by manufacturers, new vaccines are priced higher and are often presented in single- or two-dose vials to minimize vaccine wastage. Countries are therefore facing the challenge of maintaining cost-effective, high-quality supply chains as more temperature-sensitive products that are priced higher and packaged in larger unit volumes are introduced.
Given the significant investment that countries may need to make as new vaccines are introduced, alternative options for the timely, cost-effective, safe delivery of vaccines are under evaluation. The report by project Optimize focuses on a specific supply chain strategy—the feasibility of leveraging an RDC model for vaccine distribution. It outlines the economic issues that need to be addressed for such a solution to be acceptable to country decision-makers, vaccine manufacturers, and private-sector warehouse and distribution companies.
Typically, an RDC organizes the shipment of vaccine products directly from manufacturers, stores these products in a central warehouse, and distributes them to countries as needed. By servicing multiple countries, an RDC would ideally be able to gain cost savings throughout the supply chain by generating economies of scale with regional consolidation and increased volumes of vaccines. The proximity of vaccine inventories to client countries would enable countries to increase the frequency of vaccine distribution to central or directly to second-level vaccine stores, aiding in inventory management and subsequently minimizing stockouts and wastage rates. In addition, leveraging an RDC could reduce the cold storage and transport investment requirements of individual countries.
The countries included in the Optimize study are Botswana, Malawi, Mozambique, Namibia, South Africa, Zambia, and Zimbabwe. This region was selected because it currently leverages an RDC model under the US President’s Emergency Plan for AIDS Relief HIV commodities and other pharmaceuticals and vaccine products for the private sector. The region also includes a diverse sample of countries with varying population sizes, income levels, and immunization coverage rates. The assessment, conducted via a series of interviews, involved stakeholders representing manufacturers, immunization program managers, other Ministry of Health personnel, existing RDC managers, and the UNICEF Supply Division.
To assess the potential cost of an RDC, an economic model was developed to test three different vaccine adoption scenarios for each of the seven countries between 2010 and 2020. While it would be ideal to model the potential reduction in wastage, freight damage, and vaccine security, data limitations required the model to compare only distribution costs—shipping and transport costs, handling and management fees, and cold chain infrastructure—between existing distribution and a potential RDC distribution model.
Four of the seven countries in the study were interviewed. Of the four, three had facility and transportation cold chain constraints from the provincial or district level down and one country had constraints at the central level and down. The initial assumption of the assessment model was that the RDC would take the place of a country’s central warehouse, saving governments from potentially large investments in cold chain equipment. However, several of the central warehouses in countries in the African region had recently been upgraded through funding provided by the USAID Supply Chain Management Systems project; thus, the potential savings impact of an RDC in such countries was not as significant.
The economic model shows that an RDC may be attractive to countries distributing large volumes of vaccines and needing to invest in additional cold chain infrastructure to meet future vaccine requirements. However, there are other situations where an RDC may be less attractive. For example, if management and distribution pricing is the same across all participating countries, the RDC may not be economically attractive for smaller countries that distribute smaller volumes of vaccines.
As the volume and value of vaccines increase over the next decade, handling and distribution costs will increase dramatically; those countries that have not already committed to investing in cold chain infrastructure may, therefore, be best positioned to consider leveraging an RDC for vaccine distribution.
To request a copy of the Optimize report, please email project Optimize ([email protected]).
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