JSI Logistic Handbook Chp 5-9 PDF

5 CHAPTER 5 QUANTIFICATION OF HEALTH COMMODITIES FIGURE 5-1. Serving Customers THE LOGISTICS CYCLE THE LOGISTICS CYCLE Warehousing &...

5 CHAPTER 5 QUANTIFICATION OF HEALTH COMMODITIES FIGURE 5-1. Serving Customers THE LOGISTICS CYCLE THE LOGISTICS CYCLE Warehousing & Product Distribution Selection Management Support Functions System Design & Strategy Logistics Management Information Systems (LMIS) Performance Management Organizational Capacity and Workforce Financing Risk Management Inventory Quantifcation Strategy Procurement WHAT A SUPPLY CHAIN MANAGER NEEDS TO KNOW: The supply chain manager needs to know the following about quantification, which are included in this chapter: The importance of accurately estimating total quantity and cost of products required for health programs and the timing of when they are needed The role of quantification in program planning and budgeting, resource mobilization, and procurement Key steps in quantification: preparation, forecasting, and supply planning. 53 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 5.1 INTRODUCTION TO QUANTIFICATION Quantification is the process of estimating the quantities and costs of the products required for a specific health program (or service), and determining when the products should be delivered to ensure an uninterrupted supply for the program (see figure 5-1). Quantification is a critical supply chain management activity that links information on services and commodities from the facility level with program policies and plans at the national level to estimate the quantities and costs of the commodities required for a health program. Quantification is important for informing supply chain decisions on product selection, financing, procurement, and delivery. The results of a quantification exercise help program managers: Identify the funding needs and gaps for procurement of the required commodities Leverage the sources, amounts, and timing of funding commitments to maximize the use of available resources Advocate for additional resources, when needed Develop a supply plan to coordinate procurements and shipment delivery schedules to ensure a continuous supply of commodities The quantification process is not a one-time, annual exercise but an iterative process of reviewing and updating the quantification data and assumptions, and recalculating the total commodity requirements and costs to reflect actual service delivery and consumption as well as changes in program policies and plans. The results of a quantification exercise should be reviewed every six months, and more frequently for rapidly growing or changing programs. The right people need to be involved in each step of the quantification process, from data collection and analysis to presenting final results to the Ministry of Health and other relevant authorities. The following personnel are usually involved in a quantification exercise: logistics managers, policymakers, program managers, technical experts, procurement officers, warehouse managers and service providers. Members of the quantification team should have the following knowledge and skills to complete a quantification exercise for health commodities: Expertise in the specific program area and knowledge about the commodities and how they are used Computer literacy and proficiency in the use of Microsoft Excel spreadsheets, or software programs to create and manage databases Quantification is not a one-time annual exercise but an iterative process which includes reviews and updates required year-round. THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 54 5 Commitment to conduct ongoing monitoring and data collecting; and update forecasting data, assumptions, and the supply planning data for the PipeLine database Ability to prepare and present the quantification data and methodology and the final quantification results to key stakeholders and implementers 5.2 KEY STEPS IN QUANTIFICATION Quantification of health commodities follows a step-by-step approach. The steps, outlined in figure 5-2, include preparation, forecasting, and supply planning. FIGURE 5-2. STEPS IN QUANTIFICATION Preparation Describe the program Defne scope and purpose of the quantifcation Collect required data Forecasting Organize, analyze, and adjust data Build forecasting assumptions Adjust Forecasing Assumptions Calculate forecasted consumption for each product Reconcile forecasts to produce a fnal estimate for each product No Resolve Supply Planning Pipeline Monitoring Yes Gap? Quantifcation Organize, analyze, and adjust data Build supply planning assumptions Calculate total commodity requirements and costs Adjust Supply Planning Develop supply plan Assumptions Compare costs to available funding No Increase Funds No Funding? Su°cient? Yes Yes Mobilize Additional Procure Quantities Resources Required 55 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 STEP 1: PREPARATION TABLE 5-1. PREPARATION PROCESS PREPARATION PROCESS Part 1 Describe the program Part 2 Define the scope and purpose of the quantification Part 3 Collect the required data DESCRIBE THE PROGRAM At this step, background information on the program should be collected, which includes a review of the program goals, strategies, priorities, and any expansion plans or change in policies that will influence uptake of services and demand for commodities. The review should also include a brief description of the service delivery model, supply chain, level of political commitment, and financial support for services and for commodities. DEFINE THE SCOPE AND PURPOSE OF THE QUANTIFICATION In this stage, the following need to be defined – scope of the program (public, private and/ faith based; geographical region or specific population group; funding agency or implementing partner) and list of commodities. Also identify the purpose of the quantification and how it will address the program’s needs. Lastly, define the time period for the quantification exercise which could range from two to five years. A quantification for a two-year rolling period is recommended which includes actual quantities to be procured, when they should be procured, and a shipment delivery schedule that considers procurement and supplier lead times as well as maximum- minimum stock levels. COLLECT REQUIRED DATA This involves collecting data for forecasting and supply planning steps. Data for forecasting include consumption data, services data on the number of health services being provided, morbidity data, demographic data, and information on current program performance, expansion Factors that may affect demand for services and commodities include changes in policies and STGs; emergence of new products and formulations; changes in program priorities; strategies and goals; seasonality in incidence or specific diseases/health conditions; changes in political, legal or regulatory environment. THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 56 5 plans, strategies, priorities, and program targets for each year of the quantification. Data for supply planning include national/program level stock on hand, expiration dates for products in stock, quantity on order, established shipment schedules and current shipment delivery schedule, established national/program level maximum and minimum stock levels, product information, supplier information, funding information, procurement information, and distribution information. In addition to the above, information on programmatic, environmental, societal and behavioral factors that may influence demand for services and commodities should also be collected. The data collection activity, though initiated in the preparation step, can be continued throughout the forecasting and supply planning steps of the quantification. PREPARATION FOR A NATIONAL HIV TEST KIT QUANTIFICATION PROGRAM IN MALAWI To estimate the total HIV test kit requirements staff, Central Medical Stores staff, NGO and costs for two government fiscal years, representatives, and external Malawi completed a quantification exercise. technical advisors. The results enabled the Ministry of Health to maintain the current volume of services being Stakeholders and key informants: A provided and it met the government’s plans for broad range of stakeholders were invited scaling up HIV testing and counseling services. to consultative meetings; one-on-one interviews were scheduled, as needed, with Timing and scope of the quantification MOH program management staff, NGO exercise: The quantification exercise representatives, service providers, laboratory was coordinated to coincide with the specialists, donors, and technical and MOH budgeting cycle and donor funding clinical experts. disbursement schedule. National HIV test kit requirements were to be quantified for public, Initiation of data collection activities: The private, non-governmental organizations following types of documents were researched, (NGO), and mission facilities for two years. collected, and reviewed prior to undertaking any facility level, direct data collection activities Products to be quantified: HIV test kits - - program policy and technical documents, Determine, Uni-Gold, and SD Bioline simple program progress and performance reports, rapid assay tests, and long ELISA test kits. central-level health management information system (HMIS) and logistics management Sources of funding for HIV test kits: information system (LMIS) reports, including Government funding, Global Fund, consumption and stock-on-hand data. and UNITAID Procurement mechanism: UNICEF Number and selection of sites for data collection: A sample of 20 facilities providing Quantification team: Seven quantification HIV testing and counseling services, plus three team members were selected from the regional medical stores, were selected for MOH, HIV and AIDS program management data collection. 57 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 STEP 2: FORECASTING Forecasting, the second step in the quantification process, uses the data collected during the preparation step to estimate the quantity of each product that will be dispensed or used during each year of the quantification. These quantities are the basis for calculating the total commodity requirements in the supply planning step. The forecasting step in a quantification exercise is a four-part process (see table 5-2): TABLE 5-2. FORECASTING PROCESS FORECASTING PROCESS Part 1 Organize, analyze, and adjust the data. Part 2 Build and obtain consensus on the forecasting assumptions. Part 3 Calculate the forecasted consumption for each product. Part 4 Compare and reconcile results of different forecasts. During preparation for a quantification be obtained from the lowest level of issue exercise, team members collect program to lessen the over or underestimation of background information and multiple types of consumption. data from various sources. The four primary types of data are consumption, services, Services data are historical program-level or morbidity, and demographic (see table 5-3 for facility-level data on the number of patient examples of these data). visits to facilities, the number of services Consumption data are historical data on provided, number of disease episodes the actual quantities of health commodities or health condition treated, or number of that have been dispensed to patients patients who receive a specific service or or consumed at SDPs within a specific treatment within a given period. period of time. Consumption data can be Morbidity and demographic data include collected from a well-functioning LMIS that total population, population growth rates, captures and aggregates data from SDPs. incidence and prevalence of specific disease/ Consumption data are most useful in mature, health conditions that may be available by stable programs that have full supply of population group or through surveillance products and reliable data. Other logistics or research study group and extrapolated data such as issues data can also be used to estimate national-level incidence or as a proxy for consumption data; issues data prevalence rates of specific diseases/health are data on the number of commodities conditions. Demographic data include transferred from one level of the supply data on the number and characteristics of chain to another. Issues data should ideally the population targeted for services while THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 58 5 morbidity data are estimates of the number targets, or percentage of total need, to be of episodes of a specific disease or health reached. Because forecasts using morbidity condition that will occur in a common and demographic data tend to overestimate denominator of the population. These data commodity needs, the forecast should be can be extrapolated to define total estimated compared to the forecasts using consumption need and then refined to determine specific and service data. Photo courtesy of John Snow, Inc. 59 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 TABLE 5-3. TYPES AND SOURCES OF DATA FOR FORECASTING PRODUCT CONSUMPTION CHALLENGES IN TYPE OF DATA SOURCES OF DATA DATA QUALITY Program progress and evaluation reports, Program policy and strategic planning documents, May be outdated and not background technical reports, and workplans that specify reflect current policies, information the timing of training and expansion of strategies, or context services LMIS reports, facility surveys of stock records Data may be unavailable, and consumption records outdated, incomplete, or Consumption Reported quantities of products dispensed to unreliable for the past 12 patients/clients or quantities of products used months HMIS reports, program M&E reports, facility surveys of service records, daily registers Data may be unavailable, Reported number of services provided, outdated, incomplete, or Services e.g., number of cases of disease or health unreliable for the past 12 condition treated, number of HIV tests months conducted, number of children immunized Data from epidemiological Epidemiological surveillance data or research studies may be outdated data on incidence and prevalence of disease (1–2 years) or health conditions in a given population If data is specific to a Morbidity Expressed as a ratio or percentage of a particular population group, defined population (denominator) with will need to extrapolate a specific disease or health condition to estimate incidence or (numerator) prevalence in the general population Demographic Health Survey (DHS), national Tends to be outdated (1–4 census data, Population Reference Bureau years old or more) Data on population growth and trends Data may not reflect the Demographic Data on population characteristics, e.g., same time period and, geographical distribution, age, gender, therefore, cannot be easily occupation aligned Program targets may be National policy and strategic planning politically motivated for documents Program targets advocacy purposes and not National annual program targets or service based on realistic program coverage rates set as goals for the program capacity THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 60 5 FORECASTING PART 1: ORGANIZE, ANALYZE, AND ADJUST DATA After the available data has been collected, the quantification team should assess the quality of the data. The most common data quality issues are inaccurate, incomplete, or outdated data. To assess data quality, determine the facility reporting rate, stockouts, timeliness of data, and any factor that may influence future demand. The adjustment techniques described in chapter 3 can be used to address incomplete or incorrect consumption and services data. When adjusting for outdated demographic data, assumptions about trends for various variables such as population growth rate should be made to project population estimates. Be sure to document the methodology for making any data adjustments, noting any adjustments made for stockouts, for percentage of facilities reporting, or for outdated data. Table 5-4 describes an example of the assessment of data quality for a quantification. Photos courtesy of USAID | DELIVER Project 61 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 TABLE 5-4. EXAMPLE COUNTRY DATA QUALITY ANALYSIS FOR ARV DRUG QUANTIFICATION TYPE OF DATA DATA QUALITY OF DATA NOTES Not used for the forecast Quantities of ARV because central-level data does Consumption drugs issued to not represent actual consumption data not available. facilities over the Central-level issues The program is rapidly expanding past 12 months (e.g., data used as proxy and thus historical issues data 650,000 bottles of for consumption. is not a true representation of TDF/3TC/EFV) Consumption future demand Central-level stock on hand Facility-level stock on Used later during the supply (e.g., 700,000 hand not available planning step bottles of TDF/3TC/ EFV on hand) Total number Includes the cumulative number of patients on of patients that ever started Facility reporting rate antiretroviral ART. Does not account for any is 90% therapy (ART) patients who discontinued (703,268 adults) treatment. Services Newly revised ART patient Number of patients Collected at nine registers collect the number of on ART by regimen facilities and from patients on ART, by regimen; (e.g., 44,190 adults individual partners but data is not being reported or on TDF/3TC/NVP) supporting facilities aggregated at central-level Total population Not used for the forecast Demographic/ (40,454,000) because, given program capacity, One year old morbidity HIV prevalence calculated quantity would have rate (5.3%) been unrealistic National program targets for 2017 and Not based on existing 2018 (e.g., target Program targets patients or historical Not used for the forecast number of ART scale-up rates patients for 2017 is 850,000) THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 62 5 FORECASTING PART 2: BUILD AND SAMPLE ASSUMPTIONS OBTAIN CONSENSUS ON FORECASTING FOR A CONTRACEPTIVE ASSUMPTIONS QUANTIFICATION Assumptions are made to adjust historical program data when it is of poor quality During the national quantification of (incomplete, outdated, unreliable, or public sector contraceptives, unavailable) and also for future program the forecasting team made the performance. Assumptions may include issues following assumptions: such as: The method mix for oral Expected uptake in services contraceptives was assumed to Compliance with recommended treatment be 90% combined orals and 10% guidelines progesterone-only orals Future changes in standard treatment Use of long-term contraceptives guidelines and/or introduction of new was expected to increase due commodities to promotion of such methods Impact of changing program policies and by the Ministry of Health and strategies on supply and demand training of more health workers in the insertion of IUDs Service capacity (infrastructure, human and implants resources availability, and capacity) As a result of the quantification: Client awareness of and access to services – Consumption of pills was Timing and amount of funding reduced and added to implants commitments for procurement – Use of lactational amenorrhea Seasonality (LAM) and injectables were Geographic variations in disease incidence reduced and IUDs increased and prevalence Other factors that might affect demand Consensus should be reached on the forecasting assumptions and a quantification workshop is an effective forum for achieving such consensus. During a quantification workshop, sufficient time should be allocated for clarifying, agreeing upon, and documenting assumptions. The assumption-building exercise should be a consultative process involving program planners, clinical experts, pharmacists, procurement specialists, and warehouse managers. When building assumptions, the sources of information and inputs from key informants should be documented and the quantification should be revised if any of the assumptions change. When completing a forecast based on morbidity/demographic data, a forecasting tree is useful for organizing and utilizing data and assumptions to estimate the forecast. A forecasting tree is a diagrammatic presentation of health conditions and the products required to treat one patient or episode (see figure 5-3). 63 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 FIGURE 5-3. SAMPLE FORECASTING TREE FOR ZINC TABLETS FOR TREATMENT OF DIARRHEA IN CHILDREN UNDER 5 IN THE PUBLIC SECTOR (INCLUDING CHWs) Population age 0-5 Population at risk A1 x estimated episodes/child/year by age group if available Estimated cases of diarrhea per year in children under 5 Est. cases of diarrhea x % that seek care by sector(s) of interest or not at all A3 A2 A4 Number who seek care from private Number who seek care from Number who do not sector facilities public sector facilities seek care # seeking care within public sector A5 A6 x Est. % attending health facilities or CHWs Number who seek care from Number who seek care from public sector health facilities public sector CHWs Population under 4 x % in each age group per STGs A8 A7 A7 A8 Number of children age Number of children age Number of children age Number of children age 6-59 months treated 2-6 months treated for 2-6 months treated for 6-59 months treated for for diarrhea at diarrhea at public diarrhea by CHWs diarrhea by CHWs public sector facilities sector facilities # of children age 2-6 months treated A9 x # of tablets per course treatment + # of children age 6-59 months treated x # of tablets per course treatment A10 A11 Number of tablets of zinc needed for forecast period Est. need for facilities + Est. need for CHWs for both age groups Assumptions A1 Incidence of diarrhea in children under 5 (episodes/child/year) A2 Children/care givers who seek care for diarrhea from the public sector, % A3 Children/care givers who seek care for diarrhea from the private sector, % A4 Children/care givers who do not seek care for diarrhea, % A5 Children with diarrhea/care givers who will seek care from a public sector facility, % A6 Children with diarrhea who will seek care from a public sector CHW, % A7 Children 2–6 months with diarrhea, % A8 Children 6–59 months with diarrhea, % A9 No. of tablets needed for course of treatment for children 2-6 months A10 No. of tablets needed for course of treatment for children 6-59 months A11 Total number of tablets THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 64 5 FORECASTING PART 3: CALCULATE THE FORECASTED CONSUMPTION FOR EACH PRODUCT Forecasts based on consumption data and services data can be calculated using time series models that “predict” the future based on the historical data that were adjusted in the previous step. Such models can be useful when demand appears to follow repeating patterns; they are most effective when many periods of data are available and patterns are more evident. Quantification teams may believe that more recent data points are more reliable–for instance, because of LMIS improvements –or indicative of future needs. Thus, in using time series models, quantification teams need to consider the trade-offs between creating projections that emphasize more recent data point(s) versus less recent historical data. Time series approaches include: Trend projection. Historical consumption data and services data are analyzed for historical trends by plotting monthly, quarterly, bi-annual, or annual values on a graph. The implicit assumption is that historical trends seen in previous data will continue into the future. The growth trend functionality in MS Excel can be used to project the forecast. However, the disadvantage of this method is that it does not account for program growth that may occur in the future as a result of expansion of services. The trend analysis function in PipeLine uses the trend projection method for forecasting consumption based on historical consumption data. Regression methods. MS Excel functions, including Linest, can fit a line to past data in order to project future values. Moving average. A moving (or “rolling”) average uses a series of averages of historical data to forecast the demand for the next period–month, quarter or year. A moving average approach is used when demand is fairly constant; it mitigates the effect of random variation. Weighted moving average. In this approach, more value, or weight, is placed on data from more recent periods. For instance, LMIS improvements might lead the quantification team to deem more recent data more reliable or predictive of the future. As logistics management information systems improve and produce consumption data that are closer to “real-time,” more sophisticated statistical methods may become increasingly relevant for forecasting consumption of health commodities Exponential smoothing. This approach uses both past forecast and past actual data to project future needs in a way that reduces variability. It is in effect a way of assessing forecast error and incorporating it into the new forecast. It requires only one past period of forecast and actual data and uses a “smoothing” constant between 0 and 1 to assign weight to the past actuals and past forecast data. Exponential smoothing software can be used for forecasting, including a function in MS Excel. Types of exponential smoothing calculations include Simple Exponential Smoothing and Damped Trend. Forecasts completed using consumption data estimate the future consumption of each product needed for quantification period based on the historical consumption and trend (in percentage 65 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 or absolute number). The historical trend can be adjusted to reflect changes in the future trends based on the assumptions made. This trend is then applied to project the future demand. Forecasts completed using services, morbidity, demographic, or program target must be converted from number of patients, visits, and episodes treated into estimates of quantities of products consumed. The future number of patients treated, services provided, or episodes of a disease or health condition that will be treated for the period of the forecast is estimated. The estimation can be made based on the historical trends and assumptions about program plans, targets, and any changes in product selection, STGs, or other policies and strategies that are expected to affect future demand. Table 5-5 shows the conversion factors that should be applied for different types of forecasting data. The conversion requires assumptions about the application and adherence to STGs, dispensing protocols, testing algorithms or lab testing procedures. TABLE 5-5. CONVERSION OF DATA INTO PRODUCT QUANTITIES FORECASTED TYPE OF DATA CONVERSION FACTOR CONSUMPTION Estimated quantity of product Consumption X = to be dispensed/used Dispensing Services (family Estimated # of visits or users X protocol = planning) (contraceptives) Services (HIV Estimated # of patients, # STGs, testing and AIDS, TB, of episodes of disease, or X algorithm, lab = malaria, essential health condition, # of lab procedure medicines, labs) tests Quantities Demographic Estimated # of users X CYP factor = of product (family planning) Estimated # of patients, # of STGs, testing Demographic/ episodes of disease or health X algorithm, lab = morbidity condition, # of lab tests procedure Targeted # of users, # of CYP factor, STGs, patients, # of episodes of Program targets X testing algorithm, = disease or health condition, # lab procedure of lab tests THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 66 5 At this stage of the quantification exercise, forecasting software such as Quantimed or ForLab and MS Excel can be utilized to calculate the forecast for each year of the quantification. SOFTWARE FOR FORECASTING QUANTIMED is a Microsoft Access-based FORLAB is a multi-method forecasting tool that facilitates the forecasting of tool that measures laboratory service pharmaceutical needs (medicines and delivery and supply chain performance. health supplies) using three forecasting The tool uses data from multiple sources methods: historical consumption, morbidity (demographic, usage, and tests) to (including scaling-up patterns), and proxy compare expected demographic/morbidity consumption. It can be used to determine estimates with actual usage and service the need for a single health facility, statistics to identify gaps between patient national public health program, or a need and existing service capacity. group of geographic areas. It is designed For more information, see Introducing to quantify requirements for both acute ForLab, a new open-source, multi-method and chronic health conditions. To obtain laboratory quantification tool (Clinton Quantimed, email [email protected] Health Access Initiative). or via http://siapsprogram.org/tools-and- guidance/quantimed/. FORECASTING PART 4: COMPARE AND RECONCILE RESULTS OF DIFFERENT FORECASTS If availability and quality of data permits, different data types should be used to generate multiple forecasts. The forecast output from each data type should be compared to arrive at the final forecast. When reconciling the forecasts, the following factors should be assessed: Evaluate the quality of each data type (completeness, accuracy, timeliness, and Photo courtesy of A. Makulec, Ethiopia availability) Reliability of intermediate variables: assess whether these variables are based on current and accurate local data. Variables include dispensing protocols, CYP conversion factors, population of program covered or reached by program, assumptions such as method mix, disease prevalence, population growth rate, adherence to STGs or testing protocols, and scale-up factor. 67 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 Local, political, economic or programmatic events that may have an impact on consumption or service utilization such as commodity shortages or stockouts, strikes or civil unrests that may make forecasts based on consumption and service data artificially low. Based on the above factors, either one of the forecasts can be selected as the final forecast or the forecasts can be reconciled by adjusting, weighing, or averaging the different forecast quantities. The reconciliation stage should preferably be held as part of the quantification workshop to allow a collaborative process in assessing the quality of the data and strength of the assumptions. A NOTE ON SEASONALITY: Some products show clear seasonal consumption patterns. So that the supply chain can ensure product is available in accordance with seasonal needs, monthly forecast quantities that reflect this seasonality – rather than standard “average monthly consumption” figures – are required to plan shipments in the supply planning step. One option for arriving at monthly forecast consumption quantities that reflect the seasonal nature of demand is to develop a seasonality index that relates consumption for each month to a reference month based on patterns observed in historical data. This index is applied to the annual forecast quantity. Other methods that may be used to estimate forecasted consumption using data that show seasonal patterns include double and triple exponential smoothing methods. STEP 3: SUPPLY PLANNING The supply planning step is used to estimate the total commodity requirements and costs for the program based on the forecast generated from the forecasting step (see table 5-6). To ensure a continuous supply of products, and maintain stock levels between the established maximum and minimum levels, developing the supply plan entails coordinating the timing of funding disbursements from multiple funding sources with procurement lead times and supplier delivery schedules. The output of the supply planning phase, the supply/procurement plan, should be for twelve to eighteen months and updated on a rolling basis. TABLE 5-6. SUPPLY PLANNING PROCESS SUPPLY PLANNING PROCESS PART 1 Organize and analyze data PART 2 Build supply planning assumptions PART 3 Estimate total commodity requirements PART 4 Develop supply plan PART 5 Compare costs to available funding THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 68 5 SUPPLY PLANNING PART 1 ORGANIZE AND ANALYZE DATA Data for the supply planning step are different from the data for the forecasting step. Supply planning data can be collected during the preparation phase and during the quantification process —for example, during individual meetings or consultative workshops with stakeholders. Table 5-7 describes the specific data required for the supply planning step. TABLE 5-7. SUPPLY PLANNING DATA REQUIREMENTS Patent, registration, or prequalification status, if applicable Verification that products to be quantified are on the national essential medicines list PRODUCT Specific product characteristics (formulations, dosages, shelf life, temperature requirements, number of units per pack size, unit cost, and others) Supplier prices Supplier packaging information Supplier lead times SUPPLIER Current shipping and handling costs, by supplier Current shipment intervals and delivery schedules, by supplier Funding sources for procurement of commodities Amount and timing of funding commitments by funder FUNDING Funding disbursement schedules to determine when funding will be available for procurement from each source All procurement mechanisms (e.g., competitive international bidding/tendering, donor procurement, local procurement) for all PROCUREMENT products to be quantified Procurement lead time for each procurement mechanism Customs clearance fees DISTRIBUTION In-country storage and distribution costs (if applicable) In-country sampling/quality testing costs Current stock on hand of each product at program level (preferably from physical inventory) Program maximum and minimum stock levels STOCK STATUS Product consumption and expiration dates to assess months of stock on hand for each product Quantity on order for each product and expected delivery date 69 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 SUPPLY PLANNING PART 2: BUILD SUPPLY PLANNING ASSUMPTIONS As with the forecasting step, assumptions need to be made in the supply planning step to account for missing or low quality data, and consensus should be reached with various stakeholders at the quantification workshop. It is important to clearly and specifically document the sources of information and the key informant inputs on the assumptions. Examples of supply planning assumptions include: Timing of available funds Amount of available funds Lead times for each supplier Arrival dates of supplies Minimum and maximum stock levels for each level in the system Timing for mopping up existing stock of a commodity that is being phased out SUPPLY PLANNING PART 3: ESTIMATE TOTAL COMMODITY REQUIREMENTS AND COSTS Estimating the total commodity requirements consists of determining the quantity of each product needed to meet the forecasted consumption and ensure that the in-country supply pipeline has adequate stock levels to maintain a continuous supply to SDPs. This is determined by calculating the additional quantities of product needed to cover procurement and supplier lead times, and to maintain stock levels between the minimum and maximum. Then, subtract the quantity of each product already in stock in-country, any quantities that have been ordered but have not been received (quantity on order), and any quantities of products that will expire before they are used. PipeLine is a software tool that is recommended to facilitate the estimation of total commodity requirements and costs as well as preparation of a supply plan. It is specifically designed to address the unique considerations of supply planning and pipeline monitoring in resource-poor and limited settings. SUPPLY PLANNING PART 4: DEVELOP THE SUPPLY PLAN Developing a supply plan, including the shipment quantities and delivery schedules, will ensure a continuous supply of products to the country. Developing the supply plan helps program managers to: Enter and track forecasted and actual consumption data Identify funders and funding commitments, by product Identify suppliers for each product THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 70 5 Coordinate timing of funding commitments and procurements Schedule shipments according to procurement lead times, supplier lead times, and stock levels in-country to maintain stock levels between the established maximum and minimum levels and avoid stockouts and/or losses due to overstocking and expiry SUPPLY PLANNING PART 5: COMPARE FUNDING AVAILABLE TO TOTAL COMMODITY COSTS The final decision on the quantities to procure is based on the amount of funding available for procurement of products. If sufficient funding is available, the final quantity to procure for each product will be the same as the quantity to order that was determined during the quantification. However, if funding is insufficient, the quantification team will need to determine whether additional resources can be mobilized. Presenting the results of the quantification exercise and highlighting the gaps in funding to stakeholders is an effective mechanism for resource mobilization. When it is impossible to mobilize additional resources to procure the full quantities of products required, the forecasted consumption will need to be reduced. This is achieved by revisiting the forecasting step and engaging in further consultation and consensus building to adjust the forecasting assumptions. For example, for ARV drugs, the patient targets for each month may need to be reduced. For antimalarial drugs, the number of malaria episodes projected to be treated may need to be reduced. Adjusting the forecasting assumptions will reduce the total quantities of products expected to be dispensed or used, thereby reducing the overall total commodity requirements and costs. Photo courtesy of USAID | DELIVER Project PIPELINE SOFTWARE PipeLine is a central-level tool designed to monitor stock status of product pipelines and product procurement plans within a program. It provides information needed to initiate and follow-up on actions to ensure continuous supply of commodities at the program or national level thus resulting in optimal procurement and delivery schedules for health commodities. To access the PipeLine software and user’s manuals, contact [email protected]. 71 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 5.3 USING THE QUANTIFICATION RESULTS The quantification team should formally present the results of the quantification to stakeholders. This will enable the team to receive feedback about the assumptions made during the forecasting and the supply planning steps, as well as the data sources used. Presenting the results of the quantification is an opportunity for the team to describe the national stock status of commodities to all stakeholders and to outline the supply chain actions required to maintain adequate stock levels. The presentation to stakeholders should explain each step of the quantification, including: Scope, purpose, and timeframe of the quantification Review of all data sources used, and challenges in data collection Summary of the major forecasting assumptions and description of the data sources used to make those assumptions Summary of supply planning assumptions (especially if assumptions about amounts and timing of funding commitments will affect procurement and delivery) Total quantities of each product required for each year of the quantification National stock status (MOS on hand) for each product (PipeLine stock status graphs are very useful to convey this information); highlight products that are about to expire, stocked out, or overstocked, based on stock status analysis (MOS on hand) Summary of shipments, by supplier Total funding gaps for the next 24 months Specific actions required to address any critical stock imbalances and to maintain stocks at the established level These quantification outputs enable program managers, funders, buyers, and suppliers to plan and schedule their inputs, to coordinate available resources, and to advocate for additional resources when funding gaps are identified. Presentation of the quantification results to policymakers, program managers, procurement managers, funders, and commodity managers facilitates the following activities: Program planning and budgeting Mobilization and allocation of funding for commodity procurement Coordination of multiple sources of funding for procurement Procurement decision making about which products to procure, how much to procure, and when to procure Adjustment of timing of procurements and shipment delivery schedules to ensure continuous supply while avoiding stockouts and overstocking THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 72 5 In addition, conducting a quantification exercise typically reveals supply chain management needs, including strengthening data collection and reporting systems and inventory management procedures, and improving dissemination and training of providers in standard treatment guidelines. The quantification exercise is also an opportunity to identify and advocate for other supply chain improvements. PIPELINE MONITORING This is a continuous process that needs to be completed at regular intervals. Pipeline monitoring involves updating data in PipeLine (or other supply planning tool) as new information becomes available, and making informed decisions based on the update. Data to be updated include consumption (actual versus forecast), changes in delivery dates or quantities, and stock on hand. If actual consumption differs greatly from the previously estimated consumption, it may be prudent to update the forecast and supply plan accordingly. Based on the updates, changes to anticipated stock levels may require rescheduling or canceling existing shipments, or creating new shipments. If orders have already been placed, the supply chain manager coordinates with the supplier regarding rescheduling or canceling an existing order. Routine pipeline monitoring helps ensure the continuous supply of commodities and prevent understocking or overstocking. 5.4 REVIEWING AND UPDATING THE QUANTIFICATION Quantification does not end when the final product quantities and costs have been calculated. It is an ongoing process of monitoring, reviewing, and updating the forecasting data and assumptions; and recalculating the total commodity requirements and costs, as needed. For the quantification exercise to be useful and effective, the forecasting assumptions and the supply plan should be reviewed at least every six months; and more frequently for rapidly growing or changing programs. The forecast and supply plan should be updated whenever new data are available - whether this is the status of a shipment, updated consumption data, or updated stock on hand data. Ideally, the same core team of people who conducted the initial quantification should conduct routine updates. Many country programs have instituted a quarterly quantification review process for specific commodity categories such as ARVs. Ongoing pipeline and supply plan monitoring and updating of the quantification is critical to keep program managers, donors, and other stakeholders informed on the availability of drugs; is required for timely decision- making about product selection, financing, and delivery of commodities. Reviewing and updating the quantification includes the following activities: Updating the actual consumption for each product, and comparing the actual consumption against the forecast consumption to determine the forecast accuracy Reviewing and updating the forecasting data and assumptions Calculating or recalculating the forecasted consumption using Quantimed, Excel spreadsheets, or other software 73 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  5 Updating the stock on hand for each product Assessing national stock status for each product, based on product consumption and stock levels Reviewing and updating shipment delivery schedules to ensure continuous supply and maintain desired stock levels Updating the amounts and timing of funding commitments Recalculating the commodity requirements and costs over time Estimating and updating funding needs and gaps for procurement. MONITORING FORECAST ACCURACY As noted in this chapter, quantification is a continuous process that includes regular monitoring and updating. Not only is it important to assess the quality of the data and the assumptions used to calculate the initial forecast, but, to assess the accuracy of the forecast, the actual quantities consumed should be compared with the forecasted quantities. Because forecasting for public health products is more art than science, actual consumption almost always differs from the forecast consumption. By calculating the mean absolute percent error (MAPE)—the absolute difference between the forecasted and actual values, expressed as a percentage of the actual values—the percentage error can be assessed. If error rates are high, the assumptions should be revisited and data quality improved so that the revised forecast better reflects actual consumption. Over time and with regular monitoring, the forecast accuracy and overall quality of quantifications can improve. Photo courtesy of IAPHL THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 74 6 CHAPTER 6 HEALTH COMMODITY PROCUREMENT FIGURE 6-1. Serving Customers THE LOGISTICS CYCLE THE LOGISTICS CYCLE Warehousing & Product Distribution Selection Management Support Functions System Design & Strategy Logistics Management Information Systems (LMIS) Performance Management Organizational Capacity and Workforce Financing Risk Management Inventory Quantifcation Strategy Procurement WHAT A SUPPLY CHAIN MANAGER NEEDS TO KNOW: The supply chain manager needs to know the following about health commodity procurement, which are covered in this chapter: The key challenges of procuring health commodities Key elements and considerations in crafting the procurement strategy 75 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  6 The procurement cycle for public health sector systems The main steps to conduct a procurement Procurement is a critical part of the logistics cycle (see figure 6.1) because it ensures that: Correct products are procured Products are of good quality Value for cost is maximized Supply of products is reliable and meets the demand Procurement process follows the rules and regulations of the local government and the funding agency 6.1 THE COMPLEXITY AND CHALLENGES OF PROCUREMENT Only effective and rigorous procurement policies, processes, and procedures can ensure a reliable flow of commodities into the supply chain, and can effectively respond to any contextual or operational changes in the supply chain. The procurement function is affected by preceding elements of the logistics cycle and the regulatory context. Factors include the characteristics of the products, registration, quality and importation requirements, procurement rules and regulations, and quantification requirements. These directly flow into the procurement activities, and need to be reflected in the tender documents. Photo courtesy of USAID | DELIVER Project THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 76 6 However, the procurement activities are also shaped by downstream activities in the logistics cycle, including distribution plans, whether they need to be pre-packed for dispatching or kitted, and whether there are specific brands or models that users or service providers have been trained to use. 6.1.1 THE KEY STAKEHOLDERS The procurement process involves many different parties, whose decisions and requirements have a direct impact on the way the procurement can be conducted: The in-country government program unit (i.e., the Family Health Division, National Malaria Control Program, etc.) or the Ministry of Health usually determines which products need to be procured to support their programs. Most of the time, the national essential medicines list and the national standard treatment guidelines must be consulted to select the needed products. The National Drug Regulatory Agency (NDRA) has the most up-to-date information on requirements for: Product registration (including the product categories requiring registration, registration expiration dates, or submissions pending approval) Quality, such as international pre-qualifications and potential local product testing Importation requirements Understanding these requirements is critical as they will feed the technical requirements of the tender. The funding agency (e.g., donor, granting, or lending organization, or national government) has procurement rules, regulations, and requirements attached to the use of the funds and has its own timeline for the release of funds. (refer to Chapter 10). The supply chain partners in country that are responsible for the warehousing and distribution of the commodities. Their operational and distribution plans may have a direct impact on the packing requirements, the final destination, etc., which need to be specified in the tender document. The suppliers and manufacturers who will be responsible for manufacturing the commodities and for carrying out the registration with the NDRA. Their past performance is standard evaluation criteria in the tender document. 6.1.2 SPECIFIC PROCUREMENT CHALLENGES Given the scope, high profile, and value of the purchases, the nature of the commodities, the number of stakeholders, or the strict nature of public procurement procedures, challenges often arise during the procurement process. While a wide range of issues can affect procurement, the most common and critical procurement challenges revolve around the following: 77 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  6 LENGTHY PROCUREMENT PROCESS AND EXTENSIVE LEAD TIME Each step of the process requires a certain amount of time to complete. While some steps can be done in parallel and will vary in the time required, some are often fixed for a set period, and may require validation or concurrence of one or several stakeholder(s). PRODUCT QUALITY ASSURANCE Counterfeit and substandard products are in the marketplace, creating significant product quality risks for the supply system. To address this risk, public sector procurement processes and national regulatory agencies must implement appropriate quality assurance measures to ensure that only good quality products enter the supply system. Procurement addresses this responsibility through the technical specifications, issued in the tender document, which identify key product quality requirements, such as product certification requirements, pharmacopeia standards (when applicable), labeling and packaging requirements, shelf life requirements, etc. TRANSPARENCY, EQUITY, AND INTEGRITY THROUGHOUT THE PROCUREMENT PROCESS The procurement unit must support an open procurement process by consistently applying relevent procurement regulations and procedures, and international best procurement practices that promote transparency and accountability. PROJECTIONS AND ESTIMATES Cost projections and lead time estimates are often difficult to make. The procurement unit should be aware of the main market trends, although it cannot readily gather information specific to a tender prior to the publishing of the tender document and receipt of the bids. 6.2 DEVELOPING THE PROCUREMENT STRATEGY 6.2.1 UNDERSTAND THE CONTEXT OF THE PROCUREMENT Procurement activities should be conducted in the context of the overall health program and supply chain: procurement is one piece of the logistics cycle with many challenges and stakeholders. To best align procurement activities with the overall health program goals and supply chain strategy, the procurement unit should be aware of the following: Program information: goals, targets, timelines, stakeholders Importance of the program for the organization, the client How procurement activities align operationally with other elements of the logistics cycle THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 78 6 6.2.2 RESEARCH THE SUPPLY AND DEMAND MARKETS In order to design the procurement strategy, the procurement unit develops a good understanding of the market by covering the following areas: Market structure What is the size of the market? How many suppliers are in the market? What is their size (production, capacity, market share)? Where are suppliers located? What is the degree of market concentration? What are the market trends? Competition What are the competition criteria (price, quality, service, other?) What are the barriers to entry? What are the key competitive advantages? Supply chain How complex is the supply chain from raw material to finished product? How stable is that chain; what are the vulnerabilities? Products Are there any alternatives or substitute products or suppliers? What is the extent of product differentiation? Specifically for health commodities, are there branded (patented) products or generic products? Are there any quality standards segmenting the products? Value as a customer What is the procurement’s market share and attractiveness and hence the leverage as a customer for the suppliers? Prices Inputs on pricing are valuable, especially for budgeting purposes. The procurement unit can research pricing using reference prices, historical prices, and existing relationships with players in the market other than the suppliers. Even if the procurement has existing relationships with suppliers, they should refrain from directly reaching out to these suppliers before and during the bidding period until a contract is awarded because of the transparency and fairness requirements in public procurement. The Request for Information (RFI) and Request for Expression of Interest (RFEOI) are very useful tools similar to Request for Quotes (RFQ) and Request for Proposals (RFP), except that the RFI’s purpose is strictly to get information, and both do not directly lead to the award of a contract. The RFI’s and the RFEOI’s main purposes are to: Develop a clearer understanding of the market Stimulate interest and assess the market for interested parties Align the technical requirements with the market’s capacity Help determine the most appropriate procurement approach 79 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  6 6.2.3 IDENTIFY THE APPLICABLE RULES AND REGULATIONS, AND REQUIREMENTS Depending on the stakeholders, various sets of rules and regulations (regarding procurement, importation and distribution, use of funds) and quality assurance requirements apply to the procurement activities, namely those flowing from: The funding entity The organization conducting the procurement activities Local regulatory requirements Applicable standard treatment guidelines The funding donor or the procuring organization may pre-qualify sources for its procurement activities. If there are no prequalified sources, the following quality criteria and certifications are often considered as the most reliable: Products approved by a Stringent Regulatory Authority (SRA) WHO Prequalified (WHO PQ) products Products reviewed by the WHO Expert Review Panel with a category 1 or 2 result Photo courtesy of John Snow, Inc. THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 80 6 Alternatively, the following criteria are valuable sources to gauge the quality of the products: Pre-qualification and/or recent use of the suppliers by international organizations (USAID, UNICEF, UNFPA, the Global Fund, etc.) Confirmation that the product is manufactured in a current Good Manufacturing Practice (cGMP) certified site CE, ISO certifications. Good Manufacturing Practices (GMPs) “GMP is a system for ensuring that products are consistently produced and controlled according to quality standards. It is designed to minimize the risks involved in any pharmaceutical production that cannot be eliminated through testing the final product. The main risks are: unexpected contamination of products, causing damage to health or even death; incorrect labels on containers, which could mean that patients receive the wrong medicine; insufficient or too much active ingredient, resulting in ineffective treatment or adverse effects. GMP covers all aspects of production, from the starting materials, premises, and equipment to the training and personal hygiene of staff. GMP requires detailed, written procedures for each process that could affect the quality of the finished product and systems to provide documented proof that the correct procedures are consistently followed. Many countries have formulated their own requirements for GMP based on WHO GMP. Others have harmonized their requirements, for example, in the Association of Southeast Asian Nations (ASEAN), in the European Union and through the Pharmaceutical Inspection Convention.” Registration Most health commodities and especially pharmaceuticals need to be registered in the destination country to be imported and distributed in country. Active registration or ability to obtain an import waiver should therefore be a requirement in the bidding documents, and should be verified with the manufacturer and/or the national drug regulatory authority (NDRA). In case a product is not registered in country, the product will need to have the government’s approval for importation and distribution in country via a waiver. Waivers normally require proof of product quality, although the document set is not as comprehensive as that for registering a product. Some countries participate in WHO-supported regulatory harmonization initiatives which may be a good source of information regarding national regulatory policy and registration status in country. Examples include African Vaccine Regulatory Forum and the African Medicines Regulatory Harmonization (AMRH) initiative. Custom clearance and importation In addition to registration requirements, customs clearance and importation requirements should be clarified with the in-country regulatory agency and reflected in the tender documents. While the incoterms (shipping terms, responsibilities and costs) may vary, it is the responsibility of 81 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  6 both the purchaser and supplier to support the customs clearance and importation process by ensuring that the necessary documentation is provided. Insufficient or incorrect documentation can cause unnecessary delays in clearance, which frequently leads to charges. 6.2.4 RISK MANAGEMENT Risk management is the systematic application of management techniques (policies, procedures, practices) to identifying, analyzing, and prioritizing risks, and to mitigating the likelihood and/or the consequence of a risk happening. Risk management is, therefore, a way to anticipate, avoid, and/or mitigate the negative impact the occurrence of an event can have on the outcome of the procurement (See chapter 11). At a minimum, the following list should be put together and reviewed through the end of the procurement activities: Hierarchized list of the potential risks based on the likelihood of each risk to occur (low, medium, high) and the impact of each risk in case of occurrence (low, medium, high) Mitigation plan for each risk (against occurrence and/or impact), or at least for any medium- high and high-high combinations Any disruption in the supply chain results in a potential risk and change for the procurement activities, so it is important that risk management is conducted throughout the supply chain and that the procurement unit is associated in this work to evaluate the potential impact on the procurement activities and to design a way to mitigate it. In addition, the procurement activities are themselves subject to specific risks, divided in three main categories: Technical risks Typical technical risks are non-technical conformance, quality issues. They are mainly mitigated in the technical specifications of the tender document.. Commercial risks Typical commercial risks are the supplier’s financial viability, capacity to perform the contract (in time, at the agreed price, etc.). They are mainly mitigated in the tender document’s requirements (specifications around past experience and financial statements, weight of these criteria in the evaluation), and in the contractual terms and conditions (with clauses such as liquidated damages, price variation clauses, termination clauses). Administrative risks Typical administrative risks are funds availability, obtaining the necessary clearance and concurrence from the relevant stakeholders through the procurement cycle. They are mainly addressed by carefully planning the administrative tasks associated with the purchase and determining the associated timeline. THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 82 6 6.2.5 BUILD THE PROCUREMENT PLAN 6.2.5.1 IDENTIFY THE OVERALL PROCUREMENT OBJECTIVES Based on the previous section, the procurement unit has enough information to be able to classify the procurement according to the matrix below, which in turn provides the overall procurement objectives and the type of relationship to develop with the supplier. The supply positioning matrix figure 6-2 evaluates each major category of products to be procured according to the supply risk (difficulty of securing supply) and its relative expenditure (compared with the total value of products procured; this can be fine-tuned with considerations of how urgently the products are needed or how strategic they are for the program or the organization). FIGURE 6-2. SUPPLY POSITIONING MATRIX 3. Critical Products 4. Strategic Products Objective: Objective: HIGH Secure product availability Reduce risk & costs by e°ective supplier relationship management Supply Risk 1. Routine Products 2. Leverage Products Objective: Objective: Transaction cost reduction Reduce costs & fnd discounts LOW LOW Relative Expenditure HIGH For routine products, the objective is to reduce the transaction costs, e.g., simplifying the ordering system; the relationship with the supplier is usually transactional only. The contract is usually based on a fixed price, either reduced to a simple purchase order, or a long-term contract with indefinite quantity. For leverage products, the objective is to reduce costs and find discounts. The market is dynamic and there is little supply risk which constitutes an opportunity to maximize the competition to get attractive prices and conditions. The contract type is usually a long-term contract with several suppliers which are then invited to competitively bid regularly for release orders. 83 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  6 For critical products, the objective is to secure product availability. Otherwise, failure to secure supply means a potential bottleneck in the supply chain. A close relationship and strong communication with the supplier should be maintained. The contract is usually a long-term contract, with a fixed price and quantity (or with a minimum quantity). For strategic products, the objective is to focus on optimal supplier and contract performance management. A strategic relationship with the supplier needs to be maintained (long-term focused, partnership based). The contract is usually a long-term contract, with a fixed price and indefinite quantity with a ceiling. 6.2.5.2 SELECT THE PROCUREMENT METHOD AND THE CONTRACT TYPE Depending on the value of the procurement and/or the nature of the products to be procured, the following are the main methods of procurement. “Shopping”: there is usually a threshold under which organizations authorize the procurement unit to simply buy the products without any formal competitive bidding Limited-competitive bidding: only a limited number of suppliers are invited to participate to the bidding process. This occurs when the funder and procurement agency have rules and regulations limiting procurement of certain products from only pre-selected suppliers. In this scenario, it is important that the procurement unit carefully documents the rationale behind the limited-competitive bidding. Sole-source procurement: only one single supplier is invited to participate in the bidding process. This occurs when only one source is able to supply the requested product. In this scenario, it is important that the procurement unit carefully documents the rationale behind the sole-source justification. Competitive bidding: Suppliers are invited to submit formal bids in response to a tender which is publicly published, advertising the scope, specifications, and terms and conditions of the proposed contract, as well as the criteria by which the bids will be evaluated. The procurement unit creates a tender document, to solicit formal offers from suppliers. Depending on the nature of the program and the procurement (one-time procurement versus a multi-year supply program), and the market environment (sole-source versus competitive supply), the procurement unit needs to identify the contract type that will be best suited for the activity. It is important to think about the contract type early in the procurement planning as the contract sets the framework in which the transactions and the interactions between the buyer and the supplier will take place. In addition, the contract type as well as the terms and conditions (general and specific) need to be mentioned in the tender document. THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 84 6 Every contract is different, as it should be uniquely adapted to the product category, the supply chain requirements, and the procurement strategy. The following are the main contract types and aspects to consider: Duration: Some contracts are one-off contracts, capturing one single purchase order (PO). The contract can be reduced to the PO, provided that it captures the elements listed further below and references documents (such as the tender document or the bid) and agreements made during the procurement cycle by the two parties. Prices of such contracts are usually fixed (see below). On the other side of the spectrum, long-term contracts are in place for several years, thus giving a framework for a potential long-term relationship between the parties. Prices of such contracts can be fixed or variable (see below). Price: The price in a contract for the supply of health commodities is usually fixed, and firm (compared to adjustable prices – for example, in the case of a price linked to a raw material’s price). The advantage for the buyer is to be able to manage the value of the procurement more easily. Quantity: A minimum quantity in the contract helps secure the supply An indefinite quantity in the contract (though usually with a minimum and a ceiling quantity) gives the flexibility to respond to changing demand A firm quantity in the contract usually helps the supplier to offer the most possible competitive price although it increases the buyer’s risk if there is a change in demand A contract should capture the following as agreed between the parties: Key technical specifications of the product Contract duration Quality-assurance requirements General terms and conditions Quantity Special terms and conditions Delivery schedule (such as liquidated damages) Delivery terms (INCOTERMS) Payment conditions Contract value How changes to the terms of the contract should be managed 85 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  6 6.2.5.3 DETERMINE THE PROCUREMENT TIMELINE Procurement is often a lengthy process, with a lot of steps and stakeholders at every stage. A full timeline should be developed, updated, and communicated with the stakeholders (internal and external) to ensure an efficient integration within the whole supply chain, to plan and support the procurement cycle, avoid stockouts, and manage stakeholders’ expectations. The procurement timeline should capture at least the following: Key activities and milestones (such as specifications development, tender advertising, bids evaluation, contract award, product availability, transit, etc.) Estimated dates for completing each activity The name of the responsible parties for each activity The name of the parties who should receive the timeline updates The supply plan and timeline, which is the final output from the quantification exercise, provide critical inputs to the procurement plan and timeline. The procurement activities should be started 24–36 months ahead of when products will be needed and the timeline should be updated regularly. This is usually a rolling activity given the cyclical nature of health products procurement—rarely is it a one-time activity. This process also ensures that all activities are accounted for, to ensure that the right products arrive in the right quantities, at the right time, in the right condition, at the right price, and to the right place. Photo courtesy of C. Keddem, Myanmar THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 86 6 6.3 STEPS IN PROCUREMENT (FOCUS ON COMPETITIVE TENDERING ) In public procurement, each step is standardized and regulated according to the requirements of the various stakeholders and relies on thorough documentation and transparency throughout the process. This ensures that the whole process is fair and competitive, that stakeholders are engaged, and concur when needed. It is critical to manage the procurement process effectively to ensure that procedures are followed and the process is well documented. An open and transparent process will increase competition and fairness while decreasing the risk of bidder protests. The main steps in a procurement are captured in figure 6-3. These are the standard steps only; they do not include administrative steps linked to the stakeholders’ specific requirements (for example, if approval to contract is needed from the funding entity) which need to be developed and incorporated in the procurement timeline. FIGURE 6-3. PROCUREMENT STEPS Needs Tender Tender Bids Contract clarifcation preparation publication evaluation award 6.3.1 DEVELOPING THE SPECIFICATIONS Specifications are at the heart of procurement. A specification is a statement of needs to be satisfied by the procurement. Good product specifications need to be complete, comprehensive, and accurate as they: Define the customer’s needs Tell the procurement unit what to procure Tell the potential supplier what is required Establish the standards against which evaluation, inspection, tests, and quality checks would be made There are three types of specifications: Functional specifications, such as the purpose, duty, role, or function of the product to be procured Performance specifications, such as the capability, input/output criteria, performance characteristics Technical specifications, such as the detailed physical characteristics 87 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  6 The basic product information is usually provided by program managers, but the procurement unit should also be sure to have the following confirmed as they are key specifications: For pharmaceuticals: Generic name Dosage and formulation Shelf life Packaging (primary, secondary, tertiary, and for specific shipping) Adequate protection for cold-chain products Language on the inner and outer packaging, labels, and inserts Quality assurance specifications: o Proofs of certifications and approvals (GMP/CE/ISO certification, WHO PQ, etc.) o Manufacturing records, testing data, regulatory certificates, registration certificates, etc. o Certificate of Analysis (COA), Certificate of Conformance (COC), Certificate of Origin (COO), testing results, etc., associated with the actual production batches when the contract is awarded o Testing requirements including plans for inspection by the procurer or its contractor, product sampling procedures, testing requirements, retain samples requirements, etc. For devices and equipment: Warranty Spare parts Customer service Training and installation For products where there can be more than one supplier, specifications must be product-neutral and not written to favor one supplier or brand and model over another. Specifically, performance specifications should mention minimum requirements and acceptable tolerances whenever possible. In case a specific brand and product or model is requested, the rationale should be clearly explained, validated by the relevant stakeholders, and documented. In addition, waivers to restrict competition will usually need to be obtained. Supplier’s capacity The specifications capture the requirements requested for the product. But it is critical to also be able to assess the supplier’s capacity to perform. The following are the main criteria that can be used for this purpose: Past and similar experience, Financial viability (by requesting the last three years’ financial statements, for example) THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES 88 6 Past performance with the procuring organization Organizational resources References who can share their experience with the bidder 6.3.2 THE TENDER DOCUMENTS For effective competitive procurement, it is important that the tender document lays out in detail the following: Background and context of the procurement Quantities of the desired products Specifications of the desired products Quality assurance requirements of the desired products Delivery dates Incoterms and required destination of the shipment Instructions, bid submission forms and templates if applicable evaluation criteria and method which will be used to evaluate and select suppliers The procurer’s General Terms and Conditions (GT&C) The procurer’s Specific Terms and Conditions (ST&C) The tender document needs to be publicly advertised (on organizational and government websites, in newspapers, trade bulletins, journals, and local bulletin boards). Additionally, the procurement unit can send invitations directly to suppliers it would like to bid. 6.3.3 EVALUATION CRITERIA AND EVALUATION METHODS The evaluation of bids is the process of assessing offers in accordance with the established evaluation method and evaluation criteria, with a view to obtaining best value for the organization. The process needs to be conducted in a fair and transparent manner to ensure equal treatment of all bidders. The evaluation of the bids received should be carried out based on the evaluation criteria and method detailed in the tender document. The following are the main phases of the evaluation: Responsiveness of the bid: This phase evaluates whether a bid is complete (all required documents and information were shared), was submitted in time, and follows the instructions laid out in the tender document. Technical review: This phase evaluates the bid against each technical requirement that was 89 THE SUPPLY CHAIN MANAGER’S HANDBOOK A PRACTICAL GUIDE TO THE MANAGEMENT OF HEALTH COMMODITIES  6 set out in the tender document. Bids which do not comply technically should be rejected and no longer considered. Business review: This is the evaluation of the proposed cost. Depending on the procurement, the business review considers the offered price only, or adopts a more total cost approach. The main methods of evaluation are the following: Each bid is reviewed on a meet/does not meet criteria for every requirement in the tender document. Bids meeting all the requirements are deemed compliant, all non-compliant bids should not be further considered. The compliant offers are compared based on the offered price. The compliant bid with the lowest cost is the winning bid. The same method can be used with a hierarchized list of the key requirements based on the context of the procurement (for example, registration in country or lead time can be the differentiating criteria) Each bid is scored or scaled for every requirement and for the offered price. The winning bid is th