Examination of Health Supply Chain Integration in Kenya for Recommendation to Other Countries

Executive Summary

Examination of Health Supply Chain Integration in Kenya for Recommendation to Other Countries

Yuka Tani

Logistics & Supply Chain Management MSc September 2017

Supervisor: Dr. Silvia Rossi Tafuri, silvia@pamsteele.co.uk

Introduction Accessibility and affordability to healthcare is one of the biggest challenges in public health sector, and adequate supply chain management can contribute to tackle these issues. Kenya Medical Supplies Authority (KEMSA) is a parastatal agency founded in 2000 mandated procurement, warehousing and distribution of medical supplies for public health. KEMSA has been facing numerous challenges since then, such as - Weak legal framework - Lack of leadership

- Fragmented supply chain - Lack of ICT infrastructure - Poor data visibility

Following diagram has been known as showing fragmented health supply chain in Kenya as of 2001 (Aronovich and Kinzett, 2001, p. 6)

It has been said that KEMSA has gone through drastic reform since 2008, and integrated the fragmented supply chain. However, the extent and the effect of the supply chain integration has not been documented/ Overall Aim & Objective • Aim - Clarify and document the extent of integration of health supply chain in Kenya, and - develop recommendations for other developing countries

•

Objectives - Map and document the current supply chain under integration - Identify benefits and drawbacks of the integration - Identify enablers and bottlenecks for the integration - Develop recommendations for other developing countries

2

Methodology & Insights Methodology: - Literature review - Semi-structured interviews with o KEMSA o DPs (development partner, donors) o County governments o Health supply chain consultants - Focus group, with following topics:

o Enablers and challenges in supply chain integration o Supply chain management at county and sub-county level o How to integrate policy and people?

Literature Review Structure Following is the structure of literature review.

Insights from Literature Review - Fragmented supply chain is one of the underlying causes for the stock-out and wastage of medical supplies, which are the major challenge in health sector in developing countries. - Vertical supply chain is one aspect of the fragmented supply chain. Some argue that vertical supply chain deprives efficiency in supply chain, while others argue that vertical supply chain effectively ensures the quality of prioritised program.

- There are two verticality in the supply chain, as in the following figure.

3

- For other cases of health supply chain integration in developing countries, it is mostly done as integration of item-wise supply chains

- In supply chain management literature, followings are the major patterns of supply chain integration o Internal integration o Vertical integration (with suppliers/customers) o Horizontal integration ▪ Integration of multi-product supply chain ▪ Horizontal collaboration - Supply chain reforms have been performed in Kenya, prior to or in parallel with supply chain integration, including: o Recruiting new managers and staffs o Legal framework for KEMSA with autonomy o Transparent procurement o Pull distribution system based on demand data o Transport outsourcing to 3PL

Results Following four aspects of integration were mentioned by interviewees;

- Integration of item-wise parallel supply chains

Whereas there were other national entities respectively for laboratory kit and tuberculosis, now the warehousing and distribution service is integrated under KEMSA supply chain. However, vaccine is managed by another entity, and not integrated with KEMSA supply chain. Mixed handling of vaccine is not permitted under regulation, and persons on vaccine side perceives that the quality of KEMSA supply chain is not capable enough to handle vaccine. In addition, although other program drugs are basically integrated into KEMSA supply chain, consolidation of cargo tend to be challenging as order approval authority is different department within MOH and the approval is not made at concurrent timing to each other.

4

- Integration of DP-wise supply chain functions

Although DP used to procure items by themselves or their designated procurement agencies and gave KEMSA as in-kind donation, now 70% of program drugs are purchased by KEMSA. KEMSA provides procurement, warehousing and distribution services to DP with fee, and is sustainable as business. For DP, they can reduce operational cost compared to having standalone supply chain. DP also considers that merging it supply chain with KEMSA supply chain is more sustainable and strengthen local capability.

- Supply coordination for forecasting and quantification between DPs, MOH and KEMSA based on demand data

It has been commonly noted in developing countries that DPs do not coordinate supplies of drugs with each other, resulting in void of support (stock-out) or duplication (wastage). In Kenya, forecasting and quantification for supply is coordinated among DPs and MOH, with presence of KEMSA.

- Integration of fragmented layers of supply chain to increase visibility of information and activities across the supply chain.

One of the interviewee pointed out that end-to-end integration has not been focused or achieved in Kenya. According to her, end-to-end integration (vertical integration) should be the one which solve stock-out or wastage issue, but the data and system is not fully integrated from downstream to upstream.

5

Discussion & Conclusion As shown in the updated supply chain diagram below, procurement, warehousing and distribution functions are now mostly integrated to KEMSA.

In comparison with categorisation of supply chain integration in supply chain management literature and other cases of integration in developing countries, integration in Kenya can be classified as in the following table. Category Sub-category Other cases of SC integration in SC integration in Kenya

developing countries *

Internal integration Internal integration

Vertical integration Integration with supplier

Quantification coordination with DP

Integration with customer

Horizontal integration / collaboration

Multi-product supply chain integration

x

Item-wise SC integration / DP-wise SC integration

Horizontal logistics collaboration

*the cases introduced in Beith et al. (2006) and WHO and PATH (2013)

6

It was found that the integration occurring in Kenya is mostly horizontal integration, and followings are the main points of benefits and drawbacks, enablers and bottlenecks identified in Kenya.

Benefits

- Cost reduction - Reduction in delivery cycle time - Promotes sustainable supply chain

Drawbacks - No drawbacks identified, perhaps because Kenya has gone through numerous reforms and did adequate change management

Enablers - Planning of successful integration, including pilot project - Local initiative for integration leadership - Sharing and agreement of vision among stakeholders - Capability of existing national supply chain

Bottlenecks - Consolidation of order approval timing - Agreement among stakeholders, if vaccine is to be integrated based on further study

In addition, recommendations for other countries are; - Consider if vertical or horizontal integration is desirable for the country

- Conduct segmentation analysis of products to integrate - Build strong local leadership for continuous improvements

7