THOUGHT LEADERSHIP

OWNING OR OUTSOURCING: WHICH IS BEST FOR HEALTHCARE DELIVERY?

IF GOVERNMENTS RELEASE PART OF THEIR SUPPLY CHAIN DISTRIBUTION AND WAREHOUSING, THEY DON'T LOSE CONTROL BUT ACTUALLY GAIN AN INCREDIBLE ADVANTAGE THROUGH BETTER USE OF FUNDING, SUPPLY CHAIN FUNCTIONAL AGILITY AND ACCESS TO EXPERTISE FROM SERVICE PROVIDERS.

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Authors: Bronwyn Timm and Trip Allport

As governments seek to improve the availability of medicines, they are leaning into learnings and best practices from private sector supply chain approaches. Outsourcing is often a significant component of private sector supply chains and it raises the question of whether governments should emulate this aspect of commercial supply chains, or if it’s better for them to directly own all aspects of their healthcare supply chain. We believe that outsourcing is an important aspect of supply chain effectiveness for governments, and in many instances can actually offer better value for investment.

If governments release part of their supply chain distribution and warehousing, they don’t lose control but actually gain an incredible advantage through better use of funding, supply chain functional agility and access to expertise from service providers. Governments are increasingly buying in to the value of this. Private sector experts are helping them to see outsourcing in different ways.

Donors who are major contributors to healthcare in Africa, are also beginning to see that their funding has been used in an outsourcing format all this time, but often not to the best standards. Historically, donors have paid for services to be delivered by non-profit organisations and have consequently not seen the progress commensurate with their level of investment or the pace required to produce substantial improvement in healthcare delivery. Which is not to say that all such organisations have done a poor job. With private sector input, donors are beginning to question whether their funding can see better results from using more qualified outsourced service providers. The additional benefit that these providers offer is their proficiency in honing a particular aspect of supply chain over a long period.

Outsourcing models also tend to include governments more in the design process and create robust supply chains that they can have oversight and visibility of, even if funding partnerships change over time. During engagement with private sector partners, we have seen healthcare donors surprised to learn that so many private sector companies outsource different parts of their supply chain, and how it is common practice for them to utilise this approach without losing control of their supply chain.

In some instances, third- and fourth-party logistics providers have expressed an appetite for providing services to public health supply chains, but have indicated a measure of concern about the financial risks around possible payment delays and such. Part of the Africa Resource Centre’s (ARC) work is to help connect government to private sector expertise around funding models and developing business cases that will also address these concerns. This allows funding partners to identify and address specific gaps, such as capital to set up infrastructure, underwriting insurance or establishing longer-term funding contracts.

MARKET CAPACITY

The next step in changing people’s minds about outsourcing is understanding market capacity. As part of a project with the Global Financing Facility, UPS and Merck in Mozambique, outsourcing was chosen as an acceptable strategy for part of the supply chain. ARC then assessed whether there was an outsource service provision capacity in the market within Mozambique to actually take up all of the business that was going to come from the Ministry of Health.

Evaluating market capacity includes understanding which existing logistics providers already work in healthcare distribution, and what other providers could become healthcare and logistics providers.

The final, and perhaps most difficult, component of establishing outsourcing as a long-term strategy is determining how to build marketing capacity from the beginning, as in, how do you build a company to do healthcare distribution? This approach emulates private sector strategies where companies do a market analysis to understand who can do which parts of their business externally.

NOT ONE SIZE FITS ALL

ARC has been working with several partners and countries to develop an outsourcing toolkit that outlines best practices and offers support for how to go about implementing outsourcing in different contexts. The toolkit has been developed with special care to address the fact that outsourcing requires a nuanced approach in each context; it’s not a one size fits all solution. Even private sector companies don’t always have the same elements of their supply chain outsourced in all the territories where they operate.

Outsourcing is an immensely powerful tool for developing more effective and efficient supply chains to make healthcare services and products readily available to all who need them. If governments release part of their supply chain distribution and warehousing to outsourced partners, they will not lose control, they will gain an incredible advantage and get significantly closer to achieving their healthcare goals.

 

About the authors

Bronwyn Timm is the strategy and partnerships lead at ARC. She learnt and implemented design thinking, agile organisations and disruptive growth methodologies and best practices in her work at McKinsey and AB InBev. She now applies those skills to improve medicines’ availability in Africa. Trip Allport is managing director of ARC. For over a decade, he has helped shape and manage partnerships supporting market-oriented solutions to the world’s most challenging development issues between the private and development sectors.

 

 

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