Amendment 1 Attachment 4_EPSS Transportation and Fleet Management RTMS Evaluation FINAL 140323.pdf

EPSS SUPPLY CHAIN

ROUTE-TO-MARKET

SERVICE EVALUATION

REPORT

Presented to Alemayehu Wolde Prepared by Hendrik Labuschagne and Zachary Kariuki

02 March, 2023

ACKNOWLEDGEMENT

This evaluation has been done by and arc consultants in collaboration with OTRC Technical Specialists from the Village Reach and the EPSS's technical Work Group. EPSS would like to acknowledge USAID for the financial support, African Resource Centre (ARC) and GHSC-PSM for the technical assistance in the evaluation process. EPSS is thankful to all staff, members of the technical work group who participated in the in-country supply chain study, the distribution and fleet management and the general services staff for the unwavering support in verifying assessment report the organization would like to appreciate all the vendor companies that participated in this evaluation for their acceptance to host interviews and study of their operations.

ABBREVIATIONS

3PL Third -Party Logistics Partner

4PL Fourth-Party Logistics Partner

ARC Africa Resource Centre

CBM Calculate Cubic Meters

EPSA Ethiopia Pharmaceutical Supply Agency

EPSS Ethiopia Pharmaceutical Supply Service

ETB Ethiopian Birr

FIMS Fleet Information Management System

FIT Freight in Time

GDP'S Good Distribution Practices

GHSC Global Health Supply Chain

GPS Global Positioning System

HQ Head Quarters

KIIs Key Informant Interviews

KPI'S Key Performance Indicators

MOH Minister of Health

NDA Non-Disclosure Agreements

NGO's Non-Governmental Organization

OSTK Outsourcing Toolkit

OTRC Outsourced Transport Resource Center

PHFs Public Health Facilities

PSTP II Pharmaceutical Supply Chain Transformation Plan

RFP Request for Proposal

ROA Return on Assets

SCTPII Supply Chain Transformation Project

SCM Supply Chain Management

SDPS Service Delivery Points

SLA 's Service Level Agreement

TMA Transportation and Fleet Management System

ACKNOWLEDGEMENT

ABBREVIATIONS

EXECUTIVE SUMMARY

Key Findings:

Transportation Management

Fleet Operations and Maintenance Management

In-country Logistics Service Providers Vendor Market

Key Recommendations

1. BACKGROUND

1.1 OUTSOURCING EVALUATION CONTEXT

1.2 PURPOSE OF THE EVALUATION

1.3 EVALUATION OBJECTIVES

2. APPROACH AND METHODOLOGY

2.1 METHODOLOGICAL DESIGN

2.2 PROJECT SCOPE

2.3 KEY EVALUATION ACTIVITIES

2.4 KEY SUB-ACTIVITIES

3. KEY FINDINGS AND DISCUSSIONS

3.1 OVERVIEW AND COVERAGE

3.2 SITUATION ANALYSIS

3.2.1. Transportation Management

3.2.2. Fleet Management and Maintenance

3.2.3. In-country High-level Vendor Evaluation and Benchmarking

3.2.4. Key Insights

4. OUTSOURCING DECISION FRAMEWORK

4.1 IN-COUNTRY SUPPLY CHAIN ASSESSMENT

4.2 APPROACHES TO THE IN-COUNTRY SUPPLY CHAIN ASSESSMENT

4.2.1 EPSS Benchmarking Data Input And Output

4.2.2 Transportation Management SWOT Analysis

4.2.3 Fleet Management and Maintenance SWOT Analysis (1year maintenance data)

4.2.4 EPSS Trucking Efficiency Benchmarked Out-Country: 3 Months GPS Tracking

4.3 EXTERNAL BENCHMARKS GOOD PRACTICE REVIEW

4.3.1 Benchmarking Approach

5. IN-COUNTRY VENDOR PROFILING

5.1 OVERVIEW

5.2 OBJECTIVE OF THIS EVALUATION

5.3 GUIDING PRINCIPLE

5.4 VENDOR EVALUATION APPROACH

5.5 KEY OBSERVATIONS MADE

5.6 KEY ATTRIBUTES OF THE VENDOR MARKET AND INSIGHTS

5.7 VENDORS EVALUATION MATRIX

5.8 CONCLUSION

6. DECISION ANALYSIS

6.1 RECOMMENDATIONS, EVALUATION AND OUTSOURCING DECISION FRAMEWORK

6.1.1 The Decision Variables

6.1.2 Key factors considered:

6.1.3 Key determinations made:

6.1.4 Evaluation Limitations and Assumptions

7. RECOMMENDATIONS

Appendix A: In-Country Vendor Profiles

APPENDIX B: Vendor Questionnaire

APPENDIX C: Vendors Costs Template

APPENDIX D: Vendors Trucking Performance Template

APPENDIX E: Project Governance Structure

Appendix F: Key Performance Indicators Explained

EXECUTIVE SUMMARY

The Ethiopia Pharmaceutical Supply Service (EPSS) has continued to pursue fulfilment of the Pharmaceutical Supply Chain Transformation Plan (PSTP II) across the organization. Included in this plan are interventions aimed at the transformation of the “Transportation and Fleet Management Systems” at the EPSS with clear goals to scale up performance, for an efficient and cost-effective distribution of healthcare products and technologies from the Central Warehouses to the Service Delivery Points across the Country, through the Regional Hubs. These are part of the 15 identified projects to be implemented over a ten-year period. To achieve this transformation goal, the EPSS Management has adopted a multifaceted approach that integrates the efforts of different healthcare actors and institutions towards creating an evidence-based decision path that allows adoption of the best healthcare products Transportation and Fleet Management capability for EPSS.

In 2021 EPSS with the support of ARC and partners conducted a Transportation and Fleet Management Assessment (TMA). The assessment highlighted performance gaps in key functional elements including; transportation, fleet maintenance and fleet administration.

Outsourcing was one of the options that was tabled to improve performance. To support EPSS to make an informed decision on the best option to improve performance, ARC has leveraged the OSTK’s evaluate step as a support tool. This evaluation approach has provided a methodical and progressive step-by-step guideline that has led to a determinate outcome of a decision path from the set of alternative solutions that have been evaluated in this project.

In this evaluation phase, the study has been designed to achieve the following goals:

a) Make a decision on what functional area(s) are identified for outsourcing

b) Determine what vendor capability exists to meet that functional need

c) Build the investment case to inform the outsourcing options

The above key goals therefore formed the basis of the evaluation study of the EPSS key supply chain functions that had been identified as key candidates for outsourcing during the TMA. These included; Transportation management and the fleet operations and maintenance management subjecting them into further functional performance evaluation and analysis.

Key Findings:

The evaluation validated the TMA findings that recommended the transportation and fleet management functions as candidates for outsourcing for EPSS to upscale the healthcare commodities availability at the service delivery points. These are illustrated as below:

Transportation Management There are weak performance levels for transportation key performance indicators (KPIs) to sustain continued. Trucking capacity and momentum cannot sustain commodities order fulfilment at the lowest cost and continuously demand presence of a large fleet to mitigate for evaluated performance inefficiencies. Based on performance analysis, and in-country performance benchmarks, a 50% of the current EPSS Head office fleet could be enough to move the same (100%) volume of products, for the same duration of time (18 Months) as scoped in this analysis, if the performance is to be scaled-up to the level of the in-country benchmarks.

Fleet Operations and Maintenance Management The key driver of fleet availability for transportation activities is the vehicles/ trucks serviceability.

At EPSS, this serviceability is coming at a great cost and impeding on maintenance costs sustainability, adequate fleet availability, and promoting low drivers’ man hours utilization (high idle time). Due to prolonged stay at garages for trucks, between a min of 1 day and a max of 295 days, fleet availability has averages as low as 59%, and average fleet garage-days at 36 days.

This has come at a huge maintenance cost with overall maintenance cost at USD307,793 an average of USD5,307 per truck for the 1year period under review. This was before the cost of tyres that has not been established for this evaluation, due to unavailability of records. Fleet management at EPSS contribute significantly to the inefficiencies in commodities distribution and overall impacting on national healthcare goals.

Challenges in foreign exchange market impeding speedy spares procurement and the lack of planning for plannable repair components/ service kits has been cited as a mitigating factor for the long garages turn-around delays.

In-country Logistics Service Providers Vendor Market Evaluating the vendors on all the attributes prescribed in this study, revealed a significantly mature market in the Logistics Services industry. Most vendors evaluated demonstrated requisite experience in moving huge volumes of in-country cargo from various source points. Key notable findings on vendors included:

a) The market has strong and growing Logistics and Transportation firms moving volumes of cargo for private sector, NGOs, and public institutions clients.

b) In-country logistics vendors expressed enthusiasm to participate in the contracting process and partnership with EPSS as logistics services providers.

c) Initial evaluations from vendors data illustrate positive improvements in transportation and fleet performance and related costs, if outsourcing of these functions is implemented. The management teams interviewed expressed demonstrated depth and full understanding of key performance drivers for an effective transportation and fleet management operation.

These findings reinforce the conviction that the Ethiopian logistics market is capable to provide credible and experienced logistics service providers should the “contracting” phase of the outsourcing process be approved by the EPSS Board.

Key Recommendations From the findings of the evaluation, it is evident that the current EPSS Transportation and Fleet Management establishment is a bottleneck to the sustainable achievement of the healthcare goals by being an impediment to efficient and cost-effective commodities availability at the service delivery points.

To reverse this trend, EPSS need to advance the recommendations made for outsourcing the transportation and fleet management functions that are underperforming as assessed and validated during this evaluation phase.

Referencing the “Assess” phase recommendations, and after making key determinations on functional performances of EPSS Supply Chain and vendor market readiness, the following key recommendations have been made to the EPSS Management and the Board for approval and adoption based on their impact assessment and the risk matrix.

Option A Outsource fully the Head Office Transportation and fleet management operations to the Hubs but retain present operating model for Hubs-to-In-country last mile transportation to the Health Facilities.

This outsourcing model prescribes an ambitious approach to the EPSS outsourcing of transportation and fleet management where EPSS shall surrender fully the management and operations of the functional activities and resources (capacity and capability) to the private sector logistics services provider for the transportation of healthcare products to the Hubs.

Option B Implement the option ‘A’ above “full Head Office transportation and fleet management operations outsourcing model retaining Hubs-to-In-country last mile operations”, through a pilot phased approach, starting with a Cluster/s of Hubs as illustrated in the in-country benchmark study.

This outsourcing model is premised on a conservative and measured-risk approach for the EPSS outsourcing of transportation and fleet management. It is proposed that the EPSS shall surrender 100% functional activities, capacity and capability to the logistics services provider for the transportation of healthcare products to selected Hubs defined by a cluster/s formation from Central Warehouses. This shall be a piloting approach before full scale-up and the rationale is to mitigate the strategic risks of abruptly losing full control of the healthcare commodities distribution from Central Warehouse a key driver for healthcare commodities availability across the country’s health facilities.

Option C Maintain the present Transportation and Fleet Management Operations model (As-Is) and develop a full “Transportation and Fleet Management Systems” processes transformation program for immediate implementation.

To avoid exposures to market forces (private sector driven cost’s dynamics) and build on the experiences of the current human resources, EPSS Management should consider a creating a full transformation program to strengthen or re-build afresh the functional pillars that make up the Fleet and Transportation Management System.

Option D EPSS shall outsource the Transportation and Fleet Management Operations but continue owning (retains right of ownership) the fleet assets.

Under this approach, the appointed logistics services provider shall take the responsibility of managing the affairs and input resources for the transportation of the products from EPSS Central Warehouses in Addis to the 19 hubs and also take control of the fleet assets including managing their routing schedule, manning levels and preventive and corrective maintenance operations including costs management.

1. BACKGROUND

The Ethiopian Pharmaceutical Supplies Service (EPSS), the public organization mandated by the Ethiopian Government through the MOH to plan, procure, warehouse, and distribute pharmaceutical products and technologies to all the Public Health Facilities (PHFs) across the country, have embarked on a Supply Chain transformation project, the SCTPII to reengineer the supply chain processes and optimize on service delivery. Among the many sub-projects of the SCTPII was the Supply Chain Functional Performance and Costs Assessment of the Transportation and Fleet Management systems (TMA) conducted in year 2021, where the assessment identified and recommended certain functions as potentially feasible and practical outsourcing candidates for further evaluation, based on their performance score card within the context of a generally low supply chain performance for the EPSS. The identified targets for outsourcing included the transportation and fleet management functions with specific activities identified as loading and unloading, transportation management including trucking & fleet tracking fuel and per diem management, fleet management including maintenance management and fleet availability controls and the administration functions including fuel, per diem and fleet maintenance costs management.

The assessment recommended alternative outsourcing decisions for further evaluation and final determination made on the most objective, practical and inclusive outsourcing model that would take into consideration the achievement of the EPSS mission and goals with the level of operational efficiency, costs containment and service delivery that are aligned to the National Health Care goals.

In addition, when considering outsourcing models and strategies, the profit and business centred motives of the private sector organizations shall need to be balanced against the legal, economic, public service, and political mandates of Federal Government of Ethiopia.

To make a strong outsourcing case, EPSS Management must evaluate the criticality of the outsourcing functions to the organization’s and the Federal Ministry of Health (MOH) mission and goals, availability of third-party vendors with adequate capacity and capability, cost, and service quality. Through In-country and external benchmarking, case studies, best practice studies, an investment case decision modelling shall be applied to evaluate the outsourcing decisions.

This project thus aims to develop a logical framework for making the outsourcing decision with due consideration to the key factors that drive them.

1.1 OUTSOURCING EVALUATION CONTEXT

Outsourcing is the form of business processes privatization in whole or partial in which the service delivery is contracted to an external private vendor, while the contracting party/ business owner continues to exercise oversight and control over the service delivery. This continues to be embraced by both the Public and Private-sector organizations with clear goals to lower the cost to serve, improve performance and quality of service. Additionally, outsourcing in Public Sector enables the organizations to focus on their core mandate, which helps them to accelerate service delivery to the citizens across the country and venture more into policy and regulatory compliance mandate as they support the MOH and the National Government strategic goals and objectives.

1.2 PURPOSE OF THE EVALUATION

The TMA conducted in 2021 developed three possible alternatives to upscale the capability and performance of the transportation and fleet management functions at EPSS. The EPSS Management and the Board further endorsed these alternatives for further study and guidance on the best alternative ARC recommended leveraging the OSTK to support the decision-making process of the best option to improve the performance for transportation and fleet management.

The evaluation entails building the outsourcing decision and determinations framework for all the proposed outsourcing alternatives and bring out the final outsourcing recommendations to the EPSS and MOH decision makers for adoption, approval and implementation.

1.3 EVALUATION OBJECTIVES

This “Evaluate” phase was commissioned in November 2022 with the following key objectives including:

d) To assist the EPSS leadership in their decision-making process by identifying the most practical and viable outsourcing alternatives for the supply chain functions that were identified during the "assess" phase of the Route-to-Market Supply Chain Outsourcing project.

e) Development of a logical and systematic decision-making framework and process including building investment cases to evaluate the recommended outsourcing options upon which the decision to outsource or in-source shall be considered.

f) Identify, contact and conduct a systematic evaluation of third-party logistics vendors across the Ethiopian landscape, evaluating their capabilities, capacities and creating their strength profiles, for use in side-by-side evaluation of the vendors.

g) Seek EPSS Senior Management and Partners advocacy and sign-off of the proposed outsourcing decision.

2. APPROACH AND METHODOLOGY

The “Outsourcing Evaluation and Decision Framework” provides a foundation for the study as articulated in the OSTK toolkit. As part of the study outcomes, possible improvements to the OSTK toolkit were considered and shall contribute to a report on the effectiveness and relevance of the toolkit, making suggestions for improvement, based on the experience of its application in the Ethiopian landscape.

2.1 METHODOLOGICAL DESIGN

The evaluation has been conducted within the step-by-step framework as guided by the OSTK toolkit in the design of an optimal outsourcing decision-making model. A phased approach was used for this evaluation to achieve an optimized decision-making framework. The process comprised of four major steps as illustrated below:

In-country supply chain assessment &

Inception

• Reviewed the project scope and validated the functional candidates for outsourcing

• Reviewed the TMA report

• Ratified the data-set requirements for the study

• Conducted the inception meeting with the EPSS internal working group assigned to the project, including the GHSC technical support

• Transportation and fleet functional reviews, analysis and validation

External Benchmarks, good practice reviews

• Developed the In-Country vendor evaluation tools; - Vendor questionnaire, financial and operational performance templates

• Identified and developed a list of potential transportation and logistics vendors within the Ethiopian landscape, supported by In-Country support team.

• Scheduled and conducted interviews with all the vendors who accepted the invite, and received filled up questionnaires from most of the later after the interviews. Financial and operation performance templates were also received though from only 3 vendors.

• Conducted a preliminary in-country vendors evaluation results workshop for the project cross-functional team including the EPSS top leadership where feedback was shared to enrich and strengthen the next steps.

Investment case modelling

• Investment Case development is a critical step in the outsourcing decision framework.

• Village Reach team seconded to the project through the the "OutsourcedTransport Resource Centre" OTRC joined the in-country team and collaborated in the development of the Investment Case framework.

• Benchmark reports and scenarios shared by the Village Reach from past outsourcing projects in Mozambique and a case in Ethiopia for a past Immunization distribution study provided learnings. These collaborations helped to better understand EPSS's outsourcing need as a lever for a more sustainable ad high performing end-to-end supply chain.

• All EPSS's internal operations costs were identified and where practicable analysed. The analysis gave better insights and comparable variables against the little available outsourcing costs.

• The supply chain functions were also subjected to deep dive performance evaluation for key performance indicators (KPIs) attributes and their metrics. These formed a formidable basis of comparing EPSS performance against the In-country vendors performance benchmarks.

• Using feedback from the In-country vendors and the key Informant Interviews with the EPSS management teams, it was possible to assess outsouring risks for each of the outsourcing options we were evaluating.

High-level vendor assessment

• Using the vendor feedbacks in questionnaires and templates, vendor profiles were created for each of the interviewed logistics services provider, and key insights developed with regard to the following attributes:

• Functional expertise (capacity and capability)

• Past performance (experience)

• Financial stability

• Cost saving potential

These resources and the inception sessions were critical to the fulfilment of the evaluation and made the process flow with minimal disruptions. The EPSS in-house functional reviews were conducted through one-on-one interviews with the Transportation Directorate and the Coordinators as well as the General Maintenance Coordination team, where operational insights and relevant performance and costs data were shared for further analysis.

Interaction and access of key functional data from the Transportation Information System (Lambadina) an in-house ICT tool developed by the EPSS team, as well as the GPS system made triangulation of the Key Informant Interviewees (KIIs) very impactful and enabled a development of an objective and verifiable investment case for outsourcing consideration.

2.2 PROJECT SCOPE

Picture 1: Graphical representation of the project scope

2.3 KEY EVALUATION ACTIVITIES

As guided by the step-by-step evaluation framework, the following high-level activities formed the basis of this evaluation project and each was split into various sub-activities to form the basis of the outsourcing case build-up and decision processing:

a) Determination of the stakeholders needed to initiate the investment case: This is the local work team (see Annex 3 project governance structure) support to the project that assisted in the review of the TMA report and the benchmarking functional variables. This was crucial as the base for sustained support, advocacy, buy-in and building effective consensus.

b) Built assumptions, financial variables (costs, benefits, KPIs): Through Systematic study and analysis of the evaluation issues in the proposed outsourcing functions, and referencing to the TMA Report, assumptions were made to aid in the effective cost-benefit analysis between EPSS functional as-is analysis and In-country vendors simulated performance levels for the same level of functional output.

Supply Chain Elements scoped in the evaluation:

a) This is the evaluation phase for the Supply Chain Route-to-Market Service outsourcing for Transportation and Fleet Management at EPSS.

b) The evaluation relies on the application of the OSTK, including the functional as-is costs analysis, SWOT analysis, costs benefit and investment case development and finally the In-country vendor benchmarking and profiles development.

Administrative Performance Management, Drivers management

Maintenance Management Preventive and corrective, fleet availability costs

Transportation Management

Loading, trucking, unloading, fuel management, costs analysis, performance management and tracking

Cost Elements analytics

Personnel, supplier, buildings, overhead, per diem & travel allowances

c) Formation of a cross-functional work team: This was informed by the functions identified and validated for outsourcing, and other activities as guided by the OSTK. The team formed the platform for reviewing the assess report, external benchmarks, potential vendors reviews, and development of investment case and cost-benefit analysis.

d) Collating vendor profiles: This was achieved by conducting on-site vendors visitations and interviews, filled questionnaires analysis, phone-calls clarifications, and in one instance visiting one of the Transportation company’s key client for validation. This helped in the high-level side-by-side vendors evaluations and preliminary scoring.

e) Investment Case development: This has been developed in collaboration with other Technical Advisors from Village Reach OTRC and ARC, to aid in the outsourcing decision processing.

2.4 KEY SUB-ACTIVITIES

To implement the above, the following key sub-activities were identified to drive this evaluation and formed the largest of the in-country deliverables for the project.

a) Reviewing the Transport and Fleet Management Assessment report for EPSS: - This had the impact of creating the basis for identifying and validating functions proposed for outsourcing. Gleaning from the reports insights to identify the rationale and potential data useful for the project.

b) Mapping the project stakeholders: With the help of the ARC Enabler, all key stakeholders were identified and their input into the project was made clear at the start. This helped create an engagement framework with stakeholders and understanding of their specific roles into the project including engagement timetable and advance information requirements from each.

c) Conducting performance and cost analytics for the functional outsourcing candidates: This helped create the main basis of the in-country vendors market evaluation by identifying the structure of each function including:

• Operations

• Resourcing

• Integration (ICT needs)

• Administration

• Performance management vs capacity

• EPSS/MOH performance demand requirements/ benchmarks etc.

d) Identification of data sets requirements: - This was a critical input in the evaluation process as it helped fast track key data sharing for timely functional analysis and the evaluation of key expected performance levels for the various functions as a basis of arriving at the market evaluation criteria.

e) Systematic study and analysis of the functions: This helped to understand and measure the existing functions to identify: -

• Inputs and outputs of the processes

• Suppliers, both internal and external (operating environment) and their impact to the functional effectiveness

• Customers, both internal and external and their demand requirements, satisfaction levels, Service Level Agreements and key performance indicators (KPIs) illustrating the delivery of the functional mandate, where applicable.

• Cost of Service/ Total Cost of Ownership of various functional deliverables

• Service quality versus the EPSS’s Service Charter.

• Functional Strategic Plans and forecasts/ projections versus the EPSS and MOH goals for the National Universal Health Coverage goals.

• Human Capital resourcing for the functions and performance metrics, and the projected growth based on EPSS operational and efficiency goals.

The above has formed the basis of developing both the qualitative and quantitative performance evaluation criteria for this study.

f) Creating the survey tools- (questionnaire, data templates): Based on the above study and evaluation attributes, the in-country vendors study methodology and interview questions were developed with an objective to obtain factual, objective, relevant and a credible information, able to identify potential capabilities, capacities, weaknesses, organizational cultural behaviours and fit for purpose attributes of the selected vendors.

g) In-country vendors reviews and analysis: With collaboration from the Transportation

Directorate and the In-country landscape support TA, potential vendors were identified, interviews scheduled and conducted. Most responded positively with varied qualitative and quantitative performance information that was analysed.

h) Benchmarking: Through a collaboration with the Village Reach team past projects that had been executed in Mozambique and Ethiopia were shared. Additionally, some performance and costs information were provided by some of the In-country transportation vendors as benchmarks and these were validated as best practice by some of the clients interviewed e.g., Dashen Breweries Ethiopia and DHL Ethiopia.

i) Vendors Profiling: This was done for each of the 12 vendors who accepted our invite and interview and who subsequently shared the filled questionnaires.

j) Investment Case development: The decision framework was agreed and created and this has formed the basis of the outsourcing solutions that has been processed as recommendations.

3. KEY FINDINGS AND DISCUSSIONS

3.1 OVERVIEW AND COVERAGE

The section details the outcomes of the in-country deep-dive, systematic study, analysis and evaluation of the EPSS supply chain functional activities to establish and validate operational and cost performance of the outsourcing candidates, revealing In-country vendors reviews and profiles and documenting any performance and costs benchmarking available as per the objectives of the assignment.

3.2 SITUATION ANALYSIS

The situation analysis (AS-IS) has been conducted using SWOT Analysis for the key functions identified for outsourcing for a qualitative and quantitative performance validations. This has been achieved through key informant interviews (KIIs) and performance KPIs reviews for the period May 2021 to October 2022 (18 Months), with data extracted from the EPSS Transportation Management System (Lambadina). This was to evaluate the inherent strengths, weakness, opportunities and threats that could give an objective foundation for the outsourcing cost-benefit analysis and investment case development. The following are observations made for each of the reviews:

3.2.1. Transportation Management

• 7 Hubs contribute to 68% fuel cost, 70% Per Diem cost but only 40% of CBM products moved and 39.6% of trips made. This illustrates significant misalignment between productivity and cost, an indicator of inefficient use of the fleet, hence low return on assets (ROA).

• EPSS’s average trucking Kms per day per truck is 64% of the average industry benchmark (223.87Km against 350km respectively). This low trucking mileage per day contributes to long trip-days above the industry benchmarks, impacting on total per diem costs and low fleet utilization/ productivity.

• EPSS’s average round-trip days to the hubs double the average industry round-trip days at 6 days against 3 days.

• High Per Diems costs @74% of the Drivers and Assistants Salary cost. Per trip Per Diem way above the In-Country benchmark rates.

• There is an elaborate health commodities storage infrastructure across the country (Hubs) with a carrying capacity of more than 3 months stocks-cover each, thereby a potential to reduce multiple monthly trips with proper demand quantification/ planning & forecasting and effective order management downstream.

Finding

Situation analysis of all the functional elements demonstrated weak performance of the KPIs and no longer sustainable at the current levels. Levels of tracking capacity and momentum cannot sustain commodities order fulfilment at the lowest cost and continuously demand presence of a large fleet to mitigate for evaluated performance inefficiencies. From the available performance analysis, and in-country performance benchmarks, 50% of the current EPSS Head office fleet could be enough to move the same (100%) volume of products, for the same duration of time (18 Months) as scoped in this analysis, the performance should be scaled-up to the level of the in-country benchmarks.

3.2.2. Fleet Management and Maintenance

• 10 Trucks out of a fleet of 61 contribute to 25% garage days and 32% accumulating a bill of USD99.2K of the total maintenance cost. Illustrates a low and unsustainable serviceability of some fleet, delays in evidence-based decisions on fleet retention/ replacement, weak garages contracting and low repairs monitoring and tracking at the Garages, value for money from garages validation by the General Service.

• EPSS has an average garage days per truck @36 days against an In-country benchmark of 3-4 days. This greatly impacts fleet availability and hence low return-on-assets (ROA) for EPSS and significant idle labour hours.

• Fleet availability at EPSS is at 59% against an In-country availability benchmark of 92% among the large logistics firms evaluated.

The key driver of fleet availability for transportation activities is the vehicles/ trucks serviceability.

At EPSS, this serviceability is coming at a great cost and impeding on maintenance costs sustainability, adequate fleet availability, and promoting drivers’ man hours utilization (high idle time). The number of trucks with prolonged stay at garages is high, with 37 trucks in garages between 50-295 days, 54 trucks in garages between 30-49 days and 78 trucks in garages between 1-29 days. This gives an overall fleet availability of 59% and average fleet garage days of 36. This has also come at a huge maintenance cost with overall maintenance cost at USD307,793 and an average of USD5,307 per truck. This was before the cost of tyres that has not been established for this evaluation. The above shows that fleet management at EPSS contributes significantly to the inefficiencies in commodities distribution, overall impacting on national healthcare goals

Despite the challenges in forex impeding speedy spares sourcing from overseas market being cited as a mitigating factor at the garages turn-around delays, there was little demonstrable effort in making plannable repair components/ service kits available for the fleet, which is to a large extent comprised of IVECO a homogenous brand, easy to plan and source for.

3.2.3. In-country High-level Vendor Evaluation and Benchmarking

a) Benchmarking: - The EPSS Transportation and Fleet Maintenance performance has been benchmarked against in-country (Ethiopia) transportation and logistics services providers who were evaluated. These were 12 Vendors, identified with the help of the EPSS Transportation Directorate. Their management teams were interviewed at their offices and subjected to further evaluation through the information they provided in writing including answers to questionnaires and profile brochures.

NB: Out-country benchmarking limiting factor:

Benchmarking across the neighbouring country logistics operations has not been largely considered mainly because of the difference in the operating and regulatory environment between logistics services providers in Ethiopia and those from neighbouring countries like Kenya and Uganda. Key influencers/ drivers of logistics performance in Ethiopia were considered but could not give a like-for-like comparisons, e.g. Government blocked travel-time within Addis, cargo axle-loads limits, and dependencies like forex access for spares procurement, greatly vary across the neighbouring countries.

Table 1: Out-country benchmarking limiting factors:

Benchmark Element Attribute Ethiopia Kenya

Trucking per day in KMs Regulatory- By-Laws Trucking is restricted in Addis during peak hours (reduced day-time travel hrs)

No restrictions during peak hours

Trucks Load Capacity Regulatory- Highway Code

Trucks allowed up-to a Max. of 40 tons

Max. Permissible payload 24 tons

(Source: National Transport & Safety Authority)

Forex availability (key driver for repair spares access)

Economic environment

Vendors cited the challenge in accessing enough for the spare’s importation

Not a limiting factor

(Source: Monthly Central Bank Report on Forex Imports Cover)

b) Key elements of supply chain functions benchmarked:

• Performance metrics- fleet availability, transportation cost/ton/cbm, round-trip days, trucking kms, capacity utilization.

• Fleet operations and maintenance performance and their metrics- Garage days, fleet utilization.

• In all benchmark elements, it was observed that EPSS performance was significantly low compared to the in-country logistics service providers, illustrating that the Ethiopian Logistics Services Providers could outperform the current EPSS Transportation and Fleet Management establishment and therefore offers an alternate solution to EPSS Management should outsourcing be considered.

c) Table 2: Transportation Performance Benchmark

SC element benchmarked

Operational Performance

EPSS In-country Vendors

Implication

Trucking Kms per day

223.87 300-350 The in-country vendors are moving faster than EPSS trucks in the range of 34-56%. This reduces the trip days, implying lower Per Diems costs and more trips within a given period of time.

Trucking Kms/Hr

29 50

Avg. round trip days

6.01 3 This has direct impact on per diem and fleet productivity.

d) Table 3: Fleet Performance Benchmark

Benchmarking limiting factors:

• Functional costs could not be adequately benchmarked due to disclosure limitations by the Vendors. They didn’t share their financials and cost metrics hence relied heavily on performance benchmarks.

• Vendors potential price nuggets were in Tons to the respective hubs, while EPSS data is provided in CBM. EPSS Data misses vital costs on Adama Projects (a component of the Head office transportation) using the Hired Trucks.

SC element benchmarked

Operational Performance

EPSS In-country Vendors

Implication

Fleet availability

59% 92% The In-country vendors are using their fleet assets more, hence they can deploy fewer trucks to move more commodities.

Avg. garage days per visit

36 3-4 There is a lot of waste in vehicles serviceability time and idle drivers who are permanent but have no vehicles.

Tyre life-cycle distance

50-60 Km 70 Km The frequency of tyre changes at EPSS is high, with attendant cost implication. This affects cost efficiency of the commodities distribution.

e) High-level Vendors evaluation: The purpose was to evaluate the in-country private sector vendors’ (3/4PLs) capability, capacity and willingness that may or may not be available in the market to meet the operational requirements for the transportation and fleet management functions identified as outsourcing candidates. This provides an initial vendor-market profile ahead of the actual sourcing through the Request for Proposal (RFP), that must be conducted within the applicable Ethiopian public procurement laws and regulatory framework.

Guiding principle: - For this evaluation, objectivity and independence was key, to secure relevance of the assessment output. Key focus was on the following in-country vendors attributes:

• Functional expertise

• Past performance

• Financial stability

• Cost-saving potential

• Willingness to participate in EPSS’s transportation and fleet management outsourcing procurement project

Evaluating the vendors on all the attributes prescribed in this study, revealed a significantly mature market in the Logistics Services industry. Most vendors evaluated demonstrated requisite experience in moving huge volumes of in-country cargo from various source points. Key notable findings on vendors included:

a) Ethiopia landscape has developed with strong and growing Logistics and Transportation firms moving volumes for private sector, NGOs, and Public Institution clients.

b) In-country logistics vendors had real expression of great interest to participate in the contracting process and on-board as EPSS alternate logistics services provider if selected.

c) Initial evaluations from vendors data illustrate positive improvements in Transportation and

Fleet performance and costs, if outsourcing of these functions is adopted. The management teams interviewed expressed demonstrated depth and full understanding of key performance drivers for an effective distribution system.

Above have reinforced the conviction that the Ethiopian logistics market shall provide credible and experienced logistics service providers should the contracting phase of the outsourcing process be approved by the EPSS Board.

3.2.4. Key Insights

• The Ethiopian landscape is well serviced by competent logistics services firms of all sizes (small-medium-large) offering varied logistics services including: bulk port-of-entry to Addis transportation, in-country transportation for projects; clearing and forwarding and 3PL services to large organizations (factories and development partners).

• There is significant interest in this potential outsourcing project by the evaluated bidders where majority expressed interest to participate. (See evaluation summary)

• Most organizations demonstrated availability of both financial and operational capacity, with some operating own large fleet of trucks and own garages, complemented by additional contracts with Associations for fleet back-ups.

• Most vendors demonstrated experience to transport and manage huge loads of cargo both from sea-port to Addis and in-country for huge projects supporting both public and private organizations as well as development partners in the humanitarian sector.

• The large logistics firms demonstrated technical competencies in full end-to-end supply chain solutions and recommended inclusion of other supply chain functions in the RFP including: downstream Order Management; Procurement; Warehousing.

• Most vendors favour full outsourcing of the transportation and fleet management operating their own fleet.

4. OUTSOURCING DECISION FRAMEWORK

The overarching objective of this evaluation project was to build the outsourcing decision and determination framework for all the proposed outsourcing alternatives and bring out the final outsourcing recommendations to the EPSS and MOH decision makers for adoption, approval and implementation.

The OSTK toolkit prescribes a four steps approach to optimize the outsourcing decision-making process. The four steps are sequential and progressive and starts with the identification of potential candidates for outsourcing during the Assess phase up to the step where potential vendors assessment matrix is developed.

The four steps are outlined as below:

a) In-country supply chain assessment

b) External benchmarks good practice review: -

c) Investment case model development

d) High level vendor assessment

4.1 IN-COUNTRY SUPPLY CHAIN ASSESSMENT

Through the review of the TMA report, key functional performance outputs illustrated through KPIs score cards were used to build the functional SWOT analysis both for Transportation Management and Fleet Maintenance Management. This analysis was demonstrable in highlighting clear functional performance gaps that reinforces the case for outsourcing the related activities.

The Assess phase performance information review was augmented and validated with functional performance data/ information for the 18 months period from May 2021 to October 2022. This

Data was extracted from the Lambadina- transportation management information system and corroborated by the GPS spot fleet performance reports for the period September 2022 to November 2022.

The Supply Chain functions recommended for outsourcing at the assess phase were reviewed for their as-is costs situational analysis and this formed the basis for the in-country benchmarking.

The picture 2 below illustrates the various activities that were reviewed and analyzed forming the basis for the SWOT analysis.

This in-country supply chain analysis and findings, and augmented by the In-country vendor benchmarking findings resulted into a deeper evaluation of the outsourcing recommendations made during the “Assess” phase of the project.

The considerations and risks assessed during the TMA phase would change, necessitating inclusion and evaluation of a 4th recommendation at “Evaluate” phase, where “piloting” was considered as a safe approach/ option to the outsourcing model of the EPSS transportation and fleet management.

4.2 APPROACHES TO THE IN-COUNTRY SUPPLY CHAIN ASSESSMENT

Based on the available information and supported by the TMA report reviews, it was possible to carry out effective evaluation of the supply chain functional performances as illustrated above.

Clear insights were created and assumptions made to progress into the costs-benefits analysis, a key input into the outsourcing decision-making framework.

Key considerations for this assessment and the decision-making framework included:

4.2.1 EPSS Benchmarking Data Input And Output

Picture 2

4.2.2 Transportation Management SWOT Analysis

Table 4:

Transportation As-Is Functional Situational Analysis:

Total Spend (ETB) Total CBM Moved

No. of Trips Avg CBM/ Trip Avg. Transport Cost/ CBM

(ETB)

Avg. Days/ Round Trip

Avg. Per Diem/ Trip

(ETB)

Total KM moved

Avg Daily KM/ Truck

Avg. Fuel Per Cost KM (ETB)

Avg. Transport Cost/ KM ETB

52,097,587 100,556 3,905 26 518.18 6 2,821 2,114,630 223.87 18.38 24.68 7 Hubs contributed to 68% fuel cost, 70% Per Diem cost but only 40% of CBM products moved and 39.6% of trips made.

Hubs Sample CBM Moved Fuel Cost ETB In-Country Benchmarks

Bahir Dar 8,941.15 5,285,675 Trucking Kms per Day

300-350 Kms Gonder 6,241.55 4,676,956

Dessie 6,911.35 2,955,260

Dire Dawa 4,466.75 2,450,604

Jigjiga 3,188.35 2,070,156 Avg. Trip Days

3 Hawassa 6,846.75 2,051,347

Arba Minich 3,851.35 2,006,735

Strengths Opportunities

Huge storage capacity across the Hubs with a carrying capacity of more than 3 months stocks cover- Can reduce multiple monthly trips with proper demand planning, forecasting and effective order management.

Strong relationship with the Federal Ministry of Health to lobby for concessions on trucking hours as a special consideration for healthcare commodities movement

EPSS committed fleet management and transportation team with own developed information processing ICT System (Lambadina)

Growing rapprochement between EPSS/ MOH and Development Partners that could unlock funding support for key supply chain systems strengthening.

Large relatively young fleet of common models in Ethiopia, with wider access to spare parts markets from OEMs and agents.

Weaknesses Threats

Low trucking mileage per day contributing to long trips above the industry benchmarks, impacting on total per diem costs and low fleet utilization/ productivity. Aggregate KMs moved per truck per month/ annum is very low compared to industry standards.

Travel-time restrictions during peak hours in Addis and failure to organize and plan transportation activities during blocked time to maximize on the trucking hours within Addis

Poor management of the drivers rostering contributing to high Per Diems costs @74% of the Drivers and Assistants gross salary cost (including allowances). Per trip Per Diem way above the In-Country benchmark rates.

Key Insight: Many of the EPSS HQ-to-Hubs transportation trucks are of moderate size and the transportation team has made considerable efforts in ensuring an average of 82% load capacity utilization in most of the trips. The trucks are capable of trucking more mileage and less trip days with stringent performance management

Forex Rate: ETB52.5 to USD1.00

4.2.3 Fleet Management and Maintenance SWOT Analysis (1year maintenance data) Table 5:

Fleet Maintenance As-Is Functional Situational Analysis:

Total Annual Spend (ETB)

Fleet in Trucks Avg Annual Spend per truck (ETB)

Expected Fleet Days (260 days' year)

Total Annual Garage Days

Fleet garage days (1 year)

Avg. Garage Days/ Truck/ per garage Visit

Fleet Available Days (260 days’ year)

Fleet Availability

Avg. Visits to Garage/ truck/ Year

Tyres Life-cycle (KMs)

16,159,132 58 278,618 15,080 6,112 50-295 days:37 30-49 days: 54 1-29 days: 78

36 8,968 59% 3 50-60K

10 Trucks contribute to 25% garage days and 32% of maintenance cost

Trucks Sample Garage Days

Spend in USD In-Country Benchmarks

4-15060/00290 120 12,742.59 In-Country Benchmarks Garage Days 3 to 4

4-15062/00289 103 12,458.39

4-23497 175 10,864.39 In-Country Benchmarks Availability 92%

4-18550 219 10,486.27

4-23570 111 9,869.83 In-Country Benchmark Tyres life-cycle 70K Kms

4-20284 263 8,915.42

Strengths Opportunities

Existing in-house M/vehicles workshop that if scaled-up could add great strength in maintenance planning and repairs efficiency and cost containment.

EPSS could leverage on good relations with MOH to lobby support for quicker access to forex for direct importation of common fleet spares and save on time lost at Garages awaiting spares for predictable and plannable corrective maintenance.

Could leverage on large fleet model uniformity to negotiate with Original Equipment Manufacturers (OEMS) for dedicated spares and services support

Weaknesses Threats

Poor contracting framework with garages for maintenance. 8 Garages (mostly OEMs affiliated) engaged to maintain the fleet with no Contracts and/or SLAs

Forex availability is a huge threat and challenge for Garages as it prolongs spares procurement lead times affecting turn-around-times (TAT) in garages.

EPSS's General Service carry out preventive maintenance, however, the team does not have enough manpower with only 1 senior mechanic and 2 junior trainee mechanic

Weak maintenance management process at Garages, value for money tracking & validation.

Tyres life cycle management weak and changed sooner than industry best practice.

Key Insight: Information to Manage Fleet and Maintenance Performance involves data collection and analysis and timely reaction to support maintenance planning. Without a Fleet Management Information System (FIMS), the above noticeable gaps will prevail, hence outsourcing a favorable decision.

Forex: ETB52.5 to USD1.00

4.2.4 EPSS Trucking Efficiency Benchmarked Out-Country: 3 Months GPS Tracking

EPPS Head Office Trucks…