Outsourcing: A promising solution for vaccine supply chains

by Patrick Lydon, World Health Organization; Chutima Suraratdecha, PATH; Michelle Arnot, Western Cape Department of Health; Ticky Raubenheimer, Collaborative Centre for Cold Chain Management; Arthorn Riewpaiboon, Mahidol University; and Cha-oncin Sooksriwong, Mahidol University In recent years, vaccine supply chain management has become a priority for many countries working to scale up vaccine delivery. However, the introduction of new vaccines is increasingly complex and costly, bringing with it a number of challenges. In addition, the resources necessary for expanding the supply chain capacity and better enabling health care workers to effectively manage, store, and distribute vaccines are often unavailable. Without external resources, many ministries of health are hesitant to make large capital investments in the kind of vaccine supply chain system that scale-up would require. As a result, more and more countries are engaging the private sector in supply chain and logistic functions. When such expertise is available in-country, governments are frequently outsourcing the physical storage and handling of commodities to specialized private-sector logistic operators. Outsourcing is a growing trend in high- and middle-income country settings, yet remains an emerging trend in low-income country settings. While the theoretical benefits of outsourcing are clear, the true costs and benefits remain unclear. Optimize recently conducted studies in both South Africa and Thailand to gather information regarding the challenges of outsourcing public health supply systems as well as conditions necessary to make outsourcing successful. The Western Cape Experience in South Africa Through a collaboration with the Western Cape Department of Health, the Optimize team recently reviewed the outsourcing experience in South Africa’s Western Cape province. This review aimed to demonstrate the benefits of outsourcing as a way to address anticipated challenges in the vaccine supply chain in South Africa and other countries in the region. The review addresses information gaps regarding the cost and benefits of outsourcing the supply chain and logistic functions of the system. As part of the review, a case study was conducted in the Western Cape in which The Biovac Institute (a third-party private-sector company) took over roles of vaccine procurement, warehouse management, inventory management, and vaccine distribution directly to health centers. At the time of the review, three new vaccines had just been introduced into South Africa’s national immunization schedule, which were both voluminous and expensive. This outsourced supply chain led to a streamlined three-step supply chain for vaccines—from the national to the provincial level and from the provincial level to the health centers. The review provides evidence on the potential benefits of both a streamlined and outsourced system to address the growing pipeline of future vaccine. The review team took two main approaches to analyze the outsourcing experience. They first interviewed key stakeholders to understand the context and rationale that led to the decision to outsource, the perceived strengths and weaknesses of the system, and clients’ (i.e., health centers) satisfaction with the services provided. The second approach included a diagnosis of the outsourced supply chain’s strengths and weaknesses based on an effective vaccine management assessment, a temperature monitoring analysis to ensure that vaccines were kept within the recommended temperature ranges, and an economic and financial analysis to understand the outsourcing model’s costs and to what extent outsourcing is good value for the money spent. While outsourcing may not be the right solution in every setting and context, the review concluded that the vaccine supply chain outsourcing to The Biovac Institute has been a good solution for the Western Cape Department of Health and is a viable option for future consideration by other provinces. In fact, the outsourcing agreement proved a key factor in the Western Cape’s ability to handle a 2010 measles outbreak and the introduction of the three new vaccines. Thailand’s vendor-managed inventory system Prior to 2009, Thailand’s vaccine supply chain and logistics system had become overburdened with challenges such as wasted and expired vaccine products, inventory control issues, and high costs. In order to improve system efficiency, the government of Thailand launched a pilot project to outsource vaccine supply management and distribution to the Government Pharmaceutical Organization (GPO). The GPO introduced a vendor-managed inventory (VMI) system, which is a streamlined approach to inventory management and order fulfillment. The goal of VMI is to streamline supply chain operations for suppliers and their customers, increasing management efficiency and reducing vaccine wastage. The GPO subcontracted with a private logistics company to distribute vaccine products in 28 of 76 provinces, and the system gradually expanded nationwide by late 2010. In order to better understand Thailand’s vaccine supply chain system and the challenges of implementing the streamlined VMI system, the Health Systems Research Institute, in collaboration with project Optimize, commissioned a study led by the Faculty of Pharmacy, Mahidol University. This study aimed to evaluate the overall performance of VMI compared to the previous conventional system and the associated vaccine logistics costs, while also providing recommendations to improve Thailand’s vaccine supply chain and logistics system. Conducted in 12 provinces from March 2010 to July 2011, the research involved document reviews, interviews with representatives of implementing agencies, surveys of health officials, and an economic analysis. The findings revealed that, overall, the VMI system has been implemented successfully in Thailand. The transition from the conventional vaccine distribution system to VMI was viewed positively by staff and implementers. Problems encountered in the early stages of system implementation were adequately resolved. The information technology used in the current VMI system, while satisfactory, could be further developed for even greater efficiency. VMI provided streamlining by reducing the conventional five steps to three steps in the supply chain, thus reducing in-stock vaccine volume and increasing vaccine turnover rate. Furthermore, the economic analysis found that the VMI system saved nearly one-fifth of the total cost of vaccine procurement and distribution in its first year through more efficient use of resources, lower logistics costs, and a smaller number of vaccines procured and distributed. While the report outlines remaining challenges, such as decreasing vaccine shortages, improving clarity of staff roles and responsibilities, and strengthening the computer system infrastructure, in general, the VMI system has streamlined the supply chain, improved communication, built on existing infrastructure, and increased staff information technology capacity in Thailand. Lessons learned The reviews conducted in South African and Thailand highlight successful examples as well as important considerations that other countries should weigh before deciding to outsource. Outsourcing can help improve supply chain performance—but it is by no means a panacea. Venturing down the path of outsourcing will require new sets of skills and will result in a host of new challenges. It is important that the right framework and approach be established in order for an outsourcing public-private partnership to be successful. To comment, click reply.