Pharmaceutical Supply Transformation Plan.pdf

THE FEDERAL

DEMOCRATIC REPUBLIC

OF ETHIOPIA

ETHIOPIAN

PHARMACEUTICAL SUPPLY

AGENCY

Pharmaceuticals Supply Transformation Plan II (PSTP II) 2020/21-2029/30

Final Report

OCTOBER, 2020

ADDIS ABABA

ACKNOWLEDGEMENTS

This strategic plan has been developed by a team of experts from EPSA, development partners and local and external consultants with financial support from the Global Fund and two USAID supported projects, the DHA Project (JSI) and GHSC-PSM. EPSA would like to acknowledge these development partners for their technical and financial support in the development process of this strategic plan. The Agency would like to express its deep appreciation for the following members of the Strategic Plan Development Taskforce who devoted their full time and effort to the development of this strategic plan.

1. Mr. Melesse Tekle, EPSA (Chairperson)

2. Mr. Abreham Sime, EPSA (Secretary)

3. Mr. Fikru Worku, EPSA-UNFPA (Member)

4. Mr. Tsegaye Mebrahtu, EPSA (Member)

5. Mr. Yohannes Shiferaw, EPSA (Member)

6. Mr. Mulugeta Getaneh, EPSA-GHSC-PSM (Member)

7. Mr. Nebiyu Kokeb, EPSA (Member)

8. Mr. Sami Tewfik, JSI/DHA (Member)

The Agency is also thankful to Mrs. Gedamnesh Asferaw (EPSA), Mr. Samuel Hailu (EPSA), Mr. Habtamu Tesfaye (GHSC-PSM), and Mr. Abdissa Mengesha(McKinsey –SAPHE) for their valuable contributions at different stages of the development process. The technical support provided by UNFPA for this strategic plan is highly appreciated. EPSA is grateful for the contributions of the local consultant (Mr. Endris Argaw) and the external consultants (Mr. David

Sprent, Mr. Paul Dowling and Mr. Jeff Sanderson), who worked closely with the development team. The Agency would also like to acknowledge Dr. Kalkidan Lakew (Deputy Director

General for System Strengthening) for her compelling overall guidance and leadership throughout the planning process. The contribution of various officials and experts from the

MOH, EFDA, EHIA, donors and partners, as well as Directors, team leaders and Hub Managers of the Agency, have also been very instrumental in the development process.

FOREWORD

From the Minister of Health

The Ethiopian Pharmaceuticals Supply Agency (EPSA) is one of the key institutions in the country‘s healthcare system. Since its establishment, the Agency has played an indispensable role in the achievements of the health sector in terms of reducing morbidity and mortality that result from communicable and non-communicable diseases. Over the years, the range and quantity of pharmaceuticals the Agency has procured and distributed has significantly increased.

The Agency also stores and distributes products procured through donor/partner support or obtained through direct donation.

Among the various initiatives underway, significant progress made in the implementation of long-term procurement agreements (LTA), placement schemes, warehouse operations and management, establishment of modern disposal sites, and expansion of last mile, direct delivery.

In addition to their regular supply chain management activities, the Agency has also played a central role in responding to public health emergencies such as the COVID-19 pandemic.

Despite these notable achievements, there is a lot to be done to meet the ever increasing demand for pharmaceuticals in the country now and in the future. The upcoming Social Health Insurance

System is expected to notably increase the demand for pharmaceuticals. To this end, the Agency has developed the Second Pharmaceuticals Supply Transformation Plan 2020/21 – 2029/30

(PSTP II) in alignment with the Second Health Sector Transformation Plan (HSTP II). In this strategic plan, the Agency has envisioned to be ―The most responsive and efficient pharmaceuticals supply chain organization in Africa by 2030ǁ through the achievement of excellence in the areas of customer service, operations, financial sustainability, and leadership, governance, and human resource management.

Implementation of this strategy will require the concerted efforts of all interested stakeholders and partners. The Ministry is devoted to extending its support to the implementation of this strategic plan. I would like to call upon all stakeholders and partners to also extend their support to the Agency through this plan. I would also like to take this opportunity to thank the members of the Strategic Plan Development Taskforce, the management of EPSA, the consultants, and the stakeholders and partners who directly or indirectly took part in the plan development process.

Dr. Lia Tadesse

Minister of Health

From the Director General

The Ethiopian Pharmaceuticals Supply Agency (EPSA) has made significant progress in its operations towards achieving its vision of being ―The most responsive and efficient pharmaceuticals supply chain organization in Africa by 2030ǁ. The Agency has contributed its part for the achievements made in the health sector in the management of both communicable and non-communicable diseases. In addition to the regular supply chain management activities, the Agency has also been playing critical roles in responding to public health emergencies including the current COVID-19 pandemic.

EPSA is managing all categories of pharmaceuticals required for the prevention, diagnosis and treatment of diseases. Since 2018, the Agency has been undertaking its operations with a focus on key pharmaceuticals as per the Pharmaceuticals Procurement List (PPL) developed through a consultative process. As part of implementation of the Revised Pharmaceuticals Supply Transformation Plan (2018-2020), various initiatives aimed at advancing operations of the Agency to industry standards have been underway with promising progresses. Despite the notable achievements so far, there is a lot to be done to meet the ever increasing demand for pharmaceuticals. To realize this, the Agency has developed its Second Pharmaceuticals Supply Transformation Plan 2020/21 – 2029/30 (PSTP II) in line with HSTP II.

With the vision ―To be the most reliable and efficient pharmaceuticals supply chain organization in Africa by 2030ǁ, initiatives that can bring about transformative change in all operations of the Agency are included in the strategic plan. These include transformative initiatives in the areas of demand planning, medical equipment management, information management, strategic procurement, risk management, financial sustainability, warehouse operations management, strategic partnership, and leadership and governance. Appropriate implementation of this strategic plan will advance EPSA to an efficient, reliable and competent supply chain organization in the African continent that can supply pharmaceuticals to neighboring countries as well.

The Agency is committed to implementing the strategic plan through coordinating the efforts of its stakeholders and partners and would like to kindly request all its stakeholders and partners to join their hands for the implementation of this strategic plan thereby realizing the transformed EPSA. I would also like to use this opportunity to thank members of the strategic plan development team, the local and external consultants, and stakeholders and partners who directly or indirectly contributed for development of the strategy.

Dr. Abdulkedir Gelgelo Director General of EPSA

ACRONYMS

ABC Activity-Based Costing

APS Advanced Planning and Scheduling

APTS Auditable Pharmaceutical Transactions and Services

BPR Business Process Re-engineering

BPT Business Process Transformation

BSC Balanced Scorecard

CAD Cash Against Document

CCTV Closed Circuit Television

CoE Centre of Excellence

DTC Drug and Therapeutics Committee

E.C. Ethiopian Calendar

EFDA Ethiopian Food and Drug Authority

EFY Ethiopian Fiscal Year

EPHI Ethiopian Public Health Institute

EPSA Ethiopian Pharmaceuticals Supply Agency

ERP Enterprise Resource Planning

FBPIDI Food, Beverage and Pharmaceutical Industry Development Institute FMHACA Food, Medicine, Healthcare Administration and Control Authority FMoH Federal Ministry of Health

GDP Good Distribution Practice

GF Global Fund

GMP Good Manufacturing Practice

HAPCO HIV/AIDS Prevention and Control Office

HCMIS Health Commodity Management Information System

HR Human Resource

HSTP Health Sector Transformation Plan

ICB International Competitive Bid

IFRS International Financial Reporting Standards

IPLS Integrated Pharmaceuticals Logistics System

JSI John Snow, Inc.

KPI Key Performance Indicator

LC Letter of Credit

MHE Material Handling Equipment

MIS Management Information System

PFSA Pharmaceuticals Fund and Supply Agency

PSTP Pharmaceuticals Supply Transformation Plan

QA Quality Assurance

QC Quality Control

QMS Quality Management System

RDF Revolving Drug Fund

RHB Regional Health Bureau

SCM Supply Chain Management

SDP Service Delivery Points

SLA Service Level Agreement

SWOT Strengths, Weaknesses, Opportunities and Threats Analysis TBD To Be Determined

TMS Transport Management System

TWG Technical Working Group

UNCTAD United Nations Conference on Trade and Development

UNFPA United Nations Population Fund

USAID United States Agency for International Development

WMS Warehouse Management System

WoHO Woreda Health Office

EXECUTIVE SUMMARY

The Ethiopian Pharmaceuticals Supply Agency (EPSA), formerly known as Pharmaceuticals

Fund and Supply Agency (PFSA), is a governmental pharmaceuticals supply agency established by proclamation number 553/2007 with a mission to supply quality assured pharmaceuticals to public health facilities at an affordable price in a sustainable manner.

While the Agency has made significant achievements supporting the rapid expansion of healthcare services in Ethiopia, rapid growth has also brought challenges. The planned expansion of the number of hospitals and health facilities nationwide over the coming decade also points to demand growth continuing into the foreseeable future.

Commencement of procurement based on the Agency‘s procurement list, the introduction of framework agreements, improved management of warehouse functions, ownership of network of warehouses equipped with necessary materials and transportation vehicles and increased stakeholder management are among the strengths internal to the Agency while lack of a robust system that best handles all the operations of the Agency and weak demand planning and less emphasis on market shaping, long procurement lead time, inadequate management of medical equipment were among the weaknesses noted. COVID-19 pandemic related global changes and are expected to be challenges to the product service delivery.

Current initiatives that are at different stages of implementation under the PTSP I (Revised), new transformational initiatives based on the visioning survey, insight gained by proactive scanning and the leadership aspiration in addition to the initiatives for the problems identified in the situational assessment are taken into account as part of the strategy. The strategic plan will be aligned with other pharmaceutical sectors‘ and related organizations to constitute the national pharmaceutical sector roadmap, which serves as a national guide for the pharmaceutical sector.

The new EPSA Vision and Mission Statements are as follows:

Vision: “To be the most responsive and efficient pharmaceuticals supply chain organization in Africa by 2030.”

Mission: “We sustainably supply affordable and quality assured essential pharmaceuticals to our customers through advancing supply chain management systems to enhance the health of society.”

Based on the situational assessment, stakeholder feedback, and the revised mission and vision statements, the Agency will focus its new 10 Year program on four strategic themes:

1. Excellence in Customer Service

2. Financial Sustainability

3. Operational Excellence

4. Excellence in Human Resource Management, Leadership and Governance Through these strategic themes, the Agency intends to deliver high levels of customer satisfaction, improved financial capacity to operate the supply chain, a flexible and reliable operational model, and a learning organization with skilled and talented staff.

These four (4) strategic themes have been broken down into twelve (12) strategic objectives that describe the focus of the key activities and initiatives that the Agency believes are needed to deliver the changes in performance set out through the vision and mission statements. The strategic objectives include:

C1: Enhance customer and stakeholder satisfaction

F1: Improve financial performance and sustainability

P1: Enhance the use of supply chain planning and analytics

P2: Advance the procurement process

P3: Enhance warehousing, order management & distribution processes

P4: Enhance financial efficiency

P5: Enhance compliance

P6: Strengthen risk management

P7: Strengthen strategic partnerships

CB1: Strengthen leadership, governance & human resource management CB2: Transform the

SCM information system

CB3: Strengthen monitoring & evaluation, and knowledge management

This Transformation Plan has a ten-year timeframe, starting in 2020 G.C. and is estimated to cost USD 64,318,772.31 . Over half of this estimate (USD 32,000,000) is scheduled within the first three years of the plan. Notably, from the twelve strategic objectives, two of them: P3:

Enabling Warehousing, Order Management and Distribution Processes, and CB2: ERP -

Transforming Supply Chain Information System, account for roughly 75% of the total implementation budget required to commence the transformation.

TABLE OF CONTENTS

FOREWORD

EXECUTIVE SUMMARY...................................................................................................7 1.

INTRODUCTION ....................................................................................................11 1.1.

BACKGROUND.......................................................................................................................11 1.2. PURPOSE

OF THE PSTP II REPORT ........................................................................................12 1.3. PSTP II

FORMULATION FRAMEWORK ..................................................................................13 2. SITUATIONAL

ASSESSMENT..............................................................................14 2.1.

INTRODUCTION..........................................................................................................................14 2.1.1.

Background 14

2.1.2. Methodology 15 2.2. ANALYSIS OF INTERNAL

ENVIRONMENT...................................................................................15 2.3. ANALYSIS OF THE EXTERNAL

ENVIRONMENT ..........................................................................35 3. SWOT

ANALYSIS...................................................................................................36 4. THE

STRATEGIC FORMULATION ......................................................................37 4.1. MISSION, VISION AND VALUES .................................................................................................37 4.2. STRATEGIC

THEMES ..................................................................................................................38 EPSA STRATEGY

HOUSE.................................................................................................................39 4.3. STRATEGIC

OBJECTIVES AND THE STRATEGY MAP .............................................................41 4.3.2. OBJECTIVE -

COMMENTARY

C1: Enhance customer and stakeholder satisfaction...................................................... 41 F1:

Improve Financial Performance .............................................................................. 42 P1: Enhance

Supply Chain Planning and Analytics...................................................... 43 P2: Advance the procurement process........................................................................... 43 P3: Enhance warehousing, order management and distribution processes.................... 44 P4: Enhance financial efficiency ................................................................................... 44 P5: Enhance compliance

................................................................................................ 45 P6: Strengthen risk management system ....................................................................... 46 P7: Strengthen strategic partnerships............................................................................. 46 CB1: Strengthen leadership, governance and human resource management ................ 47 CB2: Transform the SCM

Information System............................................................. 47 CB3: Strengthen monitoring & evaluation, and knowledge management

THE STRATEGY MAP ........................................................................................................................48 C1:

Enhance Customer and Stakeholder Satisfaction.................................................... 50 Initiative

C1.1: Design the Customer Relationship Management (CRM) System........ 50 F1: Improve financial performance

Initiative F1.1 Develop and implement comprehensive financial management measures

P1: Enhance the supply chain planning and analytics

Initiative P1.1: Develop and implement demand-based forecasting and supply planning

Initiative P1.2: Design and Implement a Sales and Operations Planning Process

Initiative P1.3: Create data analytics capability within the planning function for decision-making

Initiative P1.4: Strengthen Market Intelligence and Shaping ........................................ 54 P2:

Advance the Procurement Process .......................................................................... 55 Initiative

P2.1: Strengthen Strategic Procurement System

Initiative P2.2: Develop and Implement a Supplier Relationship Management (SRM) system

Initiative P2.3: Design and Implement Medical Equipment Management.................... 57 5.

COSTING AND FINANCING .................................................................................85 5.1.

COSTING................................................................................................................................85 5.2.

FINANCING ........................................................................................................................92 6.

MONITORING AND EVALUATION.....................................................................93 7. SUMMARY

OF PSTP II FORMULATION................................................................101 102

8. Annexes:..................................................................................................................104 ANNEX 1:

SUMMARY OF PERFORMANCE MEASURE AND TARGETS ..............................................105 Annex 2: PSTP

II Implementation Timeframe .................................................................108 Annex 3: PSTP II projects Cost detail by year of implementation ...................................134 ANNEX 4:

METHODOLOGY FOR IMPLEMENTING THE BSC STRATEGY MANAGEMENT SYSTEM ...135 Annex 5:

Visioning Activity .............................................................................................140 References used:

1. INTRODUCTION

1.1. Background

The Ethiopian Pharmaceuticals Supply Agency (EPSA), formerly known as Pharmaceuticals

Fund and Supply Agency (PFSA), is a governmental pharmaceuticals procurement and supply agency established by proclamation number 553/2007. Its mission is to supply quality assured pharmaceuticals to public health facilities at an affordable price in a sustainable manner.

The Agency is responsible for the public sector‘s healthcare supply chain and all its key functions, including forecasting, procurement, warehousing, and distribution of medicines, medical supplies, diagnostic chemicals and reagents and medical equipment. Today, its activities constitute an annual turnover of almost USD 1 billion.

While the Agency has made significant achievements supporting the rapid expansion of healthcare services in Ethiopia, rapid growth has also brought challenges.

There have been significant increases in infrastructure and assets, yet business processes and systems have not kept up with this growth. Experience with Community-based Health Insurance

(CBHI) suggests nationwide health insurance could double the demand for the medicines and other supplies covered by CBHI. The planned expansion of the number of hospitals and health facilities nationwide over the coming decade also points to demand growth continuing into the foreseeable future.

A Pharmaceuticals Supply Transformation Plan (PSTP) was approved for implementation by the

Federal Ministry of Health (FMoH) after having been developed by EPSA in late 2015 and reviewed in 2018. The revised transformation plan from 2018 - 2022 had the following strategic objectives:

1. Achieve financial and operational self-sufficiency,

2. Ensure high levels of product availability and delivery of excellent customer service, and

3. Increase the level of Supply Chain Management (SCM) expertise and provide the staff with rewarding careers.

Overall outputs from the situational analysis indicated that progress is being made in all areas of the supply chain operations, although the organization continues to operate in a functional manner, with long delays in execution. An inadequate investment in people and systems have held back progress towards more customer-driven processes and outputs. Supply chain activities and supporting systems are characterized by complex and lengthy business processes, low levels of asset utilization, lack of management information to control key supply chain functions, operational systems that do not allow for the introduction of best practice techniques, and a somewhat dissatisfied workforce.

Vision: ―To be the most responsive and efficient pharmaceuticals supply chain organization in

Africa.ǁ

Mission: ―Ensure sustainable supply of quality assured essential pharmaceuticals to health facilities at affordable price through establishment of pooled procurement, robust inventory management and distribution, effective financial management, integrated management information system, and attracting and retaining motivated and competent workforce.ǁ

The strategic plan will be aligned with other pharmaceutical sectors‘ and related organizations to constitute the national pharmaceutical sector roadmap, which serves as a national guide for the pharmaceutical sector.

1.2. Purpose of the PSTP II Report

Currently the Federal Ministry of Health (FMOH) has developed 10-year Health Sector

Transformation Plan II (2021-2030 G.C.), which is in line with the FDRE Plan and Development

Commission‘s nationwide ten year strategic plan. To ensure alignment with the HSTP II, EPSA has also developed this 10-year strategic plan (PSTP II (2020/21-2024/25-

2029/30 G.C.) that includes a number of transformational initiatives. The feedback received on priorities and performance suggested that EPSA should continue to improve performance across a broad range of key functions, programs, and activities.

Thus, this strategic document is developed to address the rapidly increasing health commodity demand of the society with due consideration of current initiatives that are at different stages of implementation under the PTSP I (Revised), new transformational initiatives based on the visioning survey, insights gained by proactive scanning and the aspirations of the leadership, as well as initiatives included to address key problems identified in the situational assessment.

1.3. PSTP II Formulation Framework

EPSA has used the Balanced Scorecard (BSC) approach to develop the 10 year Pharmaceutical

Supply Transformation Plan (PSTP II). The strategic plan development went through the following steps.

The methodology for implementing the BSC strategic management system is attached in Annex

6of this document.

2. SITUATIONAL ASSESSMENT

2.1. Introduction

2.1.1. Background

The Ethiopian Pharmaceuticals Supply Agency (EPSA), formerly known as Pharmaceuticals

Fund and Supply Agency (PFSA), is a governmental pharmaceuticals procurement and supply agency established by proclamation number 553/2007. Its mission is to supply quality assured pharmaceuticals to public health facilities at an affordable price in a sustainable manner. The

Agency has been procuring, warehousing and distributing all categories of pharmaceuticals

(medicines, medical equipment and supplies, and laboratory chemicals and reagents) to health facilities.

The type and volume of products the Agency manages has significantly increased over the years.

The total value of program and RDF pharmaceuticals procured has increased from about ETB

6.4 billion in 2008 EFY to about ETB 13.2 in 2011 EFY. The value of products distributed annually increased from ETB 500 million when it was established to over ETB 17 billion in

2011 EFY.

The Agency‘s operations were guided by the Revised Pharmaceuticals Supply Transformation

Plan (Revised PSTP). Even though EPSA implemented various initiatives to achieve its vision of being "the most responsive and efficient pharmaceuticals supply chain organization in Africa" during the strategic period, it has a long way to go and is required to advance its operational effectiveness to attain a high level of customer satisfaction. To achieve excellence in its operations and thereby realize its vision, EPSA was required to evaluate its performance and develop a new strategic plan for the coming 10 years (2020-2030), aligned with the country‘s second Health Sector Transformation Plan (HSTP II).

The Revised PSTP I, prepared in 2010 EFY (2018 G.C), was the guide for EPSA‘s operations during the past two and half years. The Agency‘s performance during this period was assessed by the plan development Core Technical Team (CTT) with support from local and international consultants.

Thus, the CTT and consultants conducted the situational analysis of the external and internal environments of the Agency for the purpose of identifying opportunities, threats, strengths and weaknesses. In addition, stakeholder and mandate analyses were done to lay the groundwork for the development of the ten year strategic plan.

2.1.2. Methodology

The Revised PSTP, which had been guiding the Agency‘s operations, was first reviewed by the

PSTP II development CTT to generate information for the situational analysis report.

To this end, findings of various surveys, assessments and studies conducted during the implementation period, as well as periodic performance reports of the Agency, were lso used in preparing the document.

The documents that were reviewed included the Pharmaceutical Logistic Master Plan of the

Agency, assessment reports on forecasting and supply planning process, the Revised PSTP-I plan and its performance status, the HSTP–I plan and its Mid-term Review, the Monitoring and

Evaluation Framework of the Agency, the draft HSTP-II situation analysis report, IPLS survey reports from 2015 & 2018, the national strategy and plan of action for pharmaceutical manufacturing development in Ethiopia (2015-2025), the Health Policy and National Drug

Policy of Ethiopia, and the Proclamation of the Agency, as well as other related documents such as the competency framework, economic costing study, external audit reports, ERP business case, the Agency‘s human resource strategy, maturity model report, the Agency‘s annual performance reports, BPT report, BPR document, hub operational performance assessment report, Centre of Excellence progress update, quality management system progress update and others.

The report of the situational analysis presented the achievements and challenges in each operational area. In addition to the narrative, the team has made efforts to evaluate the Agency‘s performance against set targets based on available information.

2.2. Analysis of Internal Environment

This section focuses on the internal environmental analysis. The ―internal environmentǁ of the

Agency was defined by a number of factors and circumstances, particularly those that are under the direct control of the organization and may be consistent with, or contradictory to, existing strategy, vision, and mission and core values. The analysis aimed to cover each element in the same depth and examined all of the important issues in detail using available data and resources.

The internal analysis report is organized in a way that makes it easy to triangulate the situational assessment and the respective strategic objectives, initiatives and activities.

2.2.1. Process Improvement

Customer Service Practice

The success of any organization depends on its customers. Therefore it is important to understand customer needs, wants and expectations in order to meet or surpass these expectations by providing appropriate service.

EPSA‘s customer value proposition represents the attributes the Agency provides to health facilities to create loyalty and satisfaction. The value proposition is the key concept for understanding the drivers of the core measurements of satisfaction, acquisition and retention. The following were found to form a common set of attributes that organize the value propositions of

EPSA:

❖ Product/service: This encompasses the functionality of the product/service, its price, and its quality.

❖ Customer relationships: This dimension includes the delivery of the products/service to health facilities, including the response and delivery time dimensions, and how health facilities feel about purchasing from the Agency.

❖ Image and reputation: This reflects the intangible factors that attract health facilities to EPSA and enables it to proactively define itself for them.

Though EPSA has been striving to ensure pharmaceuticals availability to satisfy health facilities‘ demand in a timely manner, the revised PSTP clearly stated that some of the Agency‘s customers were not happy to the full extent for a host of reasons. Therefore, in order to assess the perceptions of the health facilities on its performance, the progress made to this point and to identify weaknesses, the Agency conducted a customer satisfaction survey.

The survey provided valuable information that can help measure the level of satisfaction of public health facilities on EPSA‘s overall performance, including its customer relationship management, capacity building activities at the health facility level, and areas that need to be strengthened. Findings showed that three out of four health facilities were satisfied on EPSA‘s overall performance, although there were significant variations across the hubs. Over 50% of the health facilities were satisfied across all of the 17 hubs of EPSA that were included in the survey.

EPSA has also been providing capacity building training for health facilities. However, only

68.2% of the health facilities were satisfied with the Agency‘s capacity building program.

Similarly, only half of the health facilities were satisfied with the organization‘s customer relationship management.

The Customer Relationship Management (CRM)

Although serving its customers to the standards set by its mission and related mandates is the key objective of EPSA, the Agency has no customer service department/unit that integrates process, people and technology to provide a high degree of service to its customers.

The CRM process provides the structure of how the relationship with the customer is developed and maintained. This process includes identifying key customers, segmenting them and tailoring products and services to their needs. The process also includes all activities related to working with customers in order to improve processes, eliminate demand variability and non-value adding activities and develop agreements of metrics.

To this end, the following are major challenges the Agency is facing:

❖ Absence of customer service policy, CRM strategy and plan.

❖ Inadequate implementation of service standard/charter.

❖ Inadequate service quality performance measurement.

❖ Limited integration of end-to-end processes with key service providers and other supply chain partners to provide differentiated products and service bundling for different customer segments, providing holistic real time order process support, and assuring complete focus on meeting customer demand with market fluctuations.

2.2.2. Financial Management

The Agency generates income mainly from the revolving drug fund, procurement, storage and distribution service charges, and donations. The Head Office serves both as a central administrator and controller. The accounts management system currently utilizes a computerized

Peachtree accounting system.

Accrual basis is used for accounting and recording transactions. In addition, quarterly reports are sent to the home office for budget utilization and financial planning.

Performance

The situational analysis revealed that the following are key findings:

1. Storage is the largest cost within the supply system and should be a target for cost reductions.

2. There is wide variation in total and unit cost across the Agency‘s Head Office and hubs. 3.

Supply chain operations are undertaken at suboptimal level.

4. The costs of holding slow moving commodities are significantly higher than that of faster commodities.

Table 1: Financial Performance of the Agency by KPIs

Key Performance Indicator (KPI) Baseline (2018)

Target (2020)

Performance (2020)

Reduce average credit sales collection days

NA 60 days 90 days

Decrease cost to income ratio NA 30% 25%

Produce reliable quarterly management accounting reports

NA 4 100%

Unqualified audit reports produced NA 3 TBD

2.2.3. Supply Chain Operations

2.2.3. 1. Quantification and Market Shaping

Unlike program pharmaceuticals‘ quantification, which is carried out centrally, the quantification of RDF pharmaceuticals is decentralized with health facilities being responsible to quantify their requirements annually. These estimates are then aggregated at the respective EPSA hubs. The aggregated requirement from the hub level is further consolidated at central EPSA level to determine national demand.

The quantification process has been constrained by a number of factors across the supply chain.

According to the 2018 National Integrated Pharmaceuticals Logistics System (IPLS) Survey, about 93% of tertiary and general hospitals and close to two-thirds of primary hospitals (63.3%) have implemented the electronic Health Commodity Management Information System

(HCMIS/DAGU); however, most of the facilities were not properly using this tool to monitor their pharmaceutical stock. This has resulted in lack of data to determine their consumption

(Average Monthly Consumption and Months of Stock) leading to high rates of quantification error, stock-outs, and wastage across the supply chain.

In addition, the HSTP-I Mid-Term review and the HSTP - I performance report revealed the following major findings in relation to the supply management of pharmaceuticals at health facilities and other levels, which directly or indirectly affected the quantification accuracy of

EPSA:

❖ Facility-specific medicine list was not available in most of the health facilities.❖ Electronic

HCMIS data of health facilities was not integrated with respective data systems of EPSA hubs and RHBs.

❖ Lack of availability and/or limited functionality of Drug and Therapeutics Committee

(DTCs).

❖ The pharmacy unit was not well institutionalized to provide optimal pharmaceutical service;

i.e. - promoting RDU, ensuring commodity availability, and increasing supply chain efficiency through better coordination between EPSA and health facilities.

❖ Health facilities forecasted their demand without considering their budget, and some health facilities did not know their pharmaceuticals budget at all.

❖ IPLS was only partially functional: bin cards, stock record cards, RRFs, IFRRs and other recording and reporting tools were not updated or used for forecasting demand.

Quantification within EPSA is supported only by semi-automated and fragmented tools (for supply planning and program commodities quantification like Quant-Med, PipeLine planning, Quant-TB etc). Quantification is often based on ordinary non-database tools (Excel spreadsheets) and standalone PCs that carry a high risk of data loss. The Revised PSTP acknowledged the introduction of the Pharmaceuticals Procurement List, which enabled the

Agency to define its product portfolio. The procurement list of the Agency currently in use contains 1373 pharmaceuticals.

Figure 2: EPSA’s Pharmaceuticals Procurement List

The list, which has been in use since 2018, is currently under revision. In addition, a capital medical device standard technical specifications list has also been finalized recently.

A further recommendation in the revised PSTP was to strengthen the Market Shaping capability of the Agency through training and mentoring, although the Agency has not gone far in this regard.

An assessment on the quantification process conducted by consultants from SmartChain revealed that the annual quantification exercise by EPSA is a labor intensive, expensive, and bottom-up process that takes more than 6 months to generate a forecast. The product is generally not trusted and is ineffective for the purpose of operating an efficient supply chain. According to

Smart Chain‘s survey, quantifications carried out by health facilities were not based on quality data and not in line with the budget allocated for pharmaceuticals. The report indicated that 3% of health facilities drive greater than 50% of the commodity sales value, and only 2% of commodities drive more than 50% of the sales value of EPSA.

In general, the following major gaps were observed across the supply chain with regard to the quantification process for RDF pharmaceuticals:

❖ High amount of forecasting error.

❖ Lack of alignment of plans between health facilities, Regional Health Bureaus and the

Agency.

❖ Poor or lack of monitoring and evaluation system on health facilities‘ pharmaceutical data management by RHBs or ZHDs or MOH.

❖ Lack of skill and commitment to manage logistics data at health facilities.❖ Poor follow-up of shipment delivery schedules to effectively implement the supply plan of pharmaceuticals and medical instruments.

❖Weak reconciliation of logistics and morbidity data; weak monitoring and reporting of reported case load vs. annual and quarterly demand forecast for early adjustment of demand forecast in case of program commodities.

❖Weak market intelligence to rectify market shortcomings in the supply chain.

The quantification of health program pharmaceuticals is progressing satisfactorily with well organized support from stakeholders and partners. Overall, the health system has better quality logistics, morbidity, service and demographic data available for the quantification of health program products. The presence of these sources of data has enabled the system to come up with better quantification results through triangulation of data from the various sources.

The Agency has achieved its target of reducing the forecasting error for program pharmaceuticals to less than 25%. However, the forecasting error for RDF products is far above the set target.

Table 2: Quantification Performance of EPSA in 2012 EFY

Key Performance Indicators (KPIs) Baseline Target Performance

Reduce Forecasting Error

Health Program - Below 25% 17%

RDF - Below 25% 38%

2.2. 3.2. Procurement

According to the Agency‘s 2011 EFY Annual Performance Report, the share of pharmaceuticals procurement by EPSA in relation to the total expenditure is 89%. A four-year trend analysis showed that the annual pharmaceuticals procurement value increased from about 6.5 billion

ETB in 2015/2016 (2009 EFY) to 13.3 billion ETB in 2018/19 (2011 EFY)

As part of the Agency‘s strategy to transform its overall operational activities, the Agency has made remarkable progress in the area of procurement over the last two years following the implementation of the recent business process reengineering.

To reduce year-round repetitive tendering and procurement, the Agency has implemented

Framework Agreement procurements. Currently, products for HIV/AIDS, family planning, malaria and RDF vital pharmaceuticals, medical supplies and chemical reagents are procured by framework agreement.

The following are the challenges associated with the procurement process:❖ Long procurement lead time: The average procurement lead time from PO order request to product delivery was

296.5 days as shown in table below.

The placement initiative has also faced challenges:

❖ Inadequate service and logistics data recording system at most health facilities.❖ Inadequate coordination and collaboration among health facilities, suppliers and EPSA on site readiness, installation and in timely signing of service level agreements.

Inadequate contract management, the cumbersome nature of EFDA‘s purchase order approval process, the long port clearance time (29 days on average), an inadequate performance bond tracking system, and the absence of implementing the practice of liquidated damages when suppliers fail to fulfil their obligations are some of the other problems that challenge the procurement process.

With regard to procurement from local manufacturers, the Ethiopian government developed a ten-year (2015–2025) National Strategy and Plan of Action for Pharmaceutical Manufacturing

Development in Ethiopia. In this strategy, EPSA‘s procurement from local manufacturers was planned to be 20% in 2015, 50% in 2020 and 60% in 2025. However, EPSA and the local manufacturers have failed to meet the planned targets. According to the 2011 EFY Annual

Performance Report of EPSA, the procurement share of local manufacturers was 22.3% from the total RDF and health program procurement, and hence their capability to substitute for the importing of pharmaceuticals lagged far behind the target.

The procurement performance of EPSA measured against the target KPI is presented in Table 3 below. The Agency‘s performance is lagging behind the set targets for most KPIs.

Table 3: Procurement Performance of EPSA

Key Performance Indicators (KPIs) Baseline Target Performance

Procurement lead time (Procurement request time + Suppliers lead time + Port clearance time)

- 160 days 296.5 days

Procurement request time - up to purchase order issuing and contract signing time

Less than 60 days

119 days

Suppliers lead time - From LC opening up to arrival at port of entry

Less than 90 days

77 days

Port clearance time Less than 10 days

27.5 days

2.2.3.3. Warehousing, Inventory Management and Distribution

Warehousing in EPSA involves the activities related to receiving, storing, and shipping of pharmaceuticals to and from distribution locations. It contributes to EPSA‘s supply chain goals by controlling costs, providing capacity at the right quality, and responding to changes.

Distribution in EPSA includes order management and fleet management. It is an essential activity within the supply chain to transfer products between storage locations. Distribution, like warehousing, is a key logistics function that must work closely with the warehousing operation to ensure availability while emphasizing cost effectiveness across the supply network.

The value of products distributed annually has increased from ETB 500 million when PFSA was established to over ETB 17 billion in 2011 EFY.

Inventory management is about ensuring that the correct level of products are stored within the supply network to enable maximum product availability at the lowest level of inventory (health facilities) while controlling inventory costs. From a supply chain perspective, it is about ensuring that inventory targets are set at each stage of the product flow and maintaining inventory within those targets. At the same time, inventory management is an integral part of sales and operations planning to fulfill customer demand without interruption.

Performance of the Agency in relation to warehousing, inventory management and distribution against the planned initiatives in the Revised PSTP are as follows:

1. Reducing the number of stock-holding distribution hubs from nineteen to ten. An over-investment in distribution network assets has taken place in recent years as a result of decisions made that were not based on SCM best practices. The increase in the number of distribution hubs has resulted in overlapping delivery areas and a reduced level of delivery vehicle utilization. In 2007, the national logistics distribution design developed by SCMS included a total of eight major hubs along with six stockless hubs; this network was to serve the whole nation. The 2018 proposal by the consultants that revised the PSTP suggested two additional primary hubs (southeastern part of the country and in Addis Ababa), making 10 stock-holding hubs.

The economic costing study done in collaboration with UNFPA also supported this network approach. According to this study, storage cost is the main cost driver in EPSA, which was about

Birr 695.6 million (USD 30 million) at that time and accounted for more than half (52%) of total

EPSA costs. The distribution cost Birr 234 million (USD 10.1 million) is quite low in comparison and thus, EPSA has room for balancing these cost elements as a result of warehouse network restructuring.

In addition, the implemented GPS, with all its limitations (not yet fully utilized for fuel management), has indicated a low level of vehicle utilization, which is brought about to some extent by the large number of distribution hubs and limited transport planning expertise.

It is important to develop a comprehensive strategy considering EPSA‘s long-term organizational objectives of maturity and extended supply chain (EPSA‘s stake in the end-to end supply chain system in CRM, VMI, reverse logistics, and market shaping). One of the success areas in this activity is the development of a proposal aimed at restructuring EPSA‘s network considering the new business model. The proposal clearly laid out commodity and information flows, the required human structures, and roles and responsibilities of the various parties in executing the activity.

[[2. Distribution Operations

The strategic initiative that is proposed in relation to distribution deploys direct deliveries to all health facilities on a more frequent basis than currently done. Work toward this goal has already been started by the Centre of Excellence Project Team at the Adama hub. This is an important

Supply Chain operational goal, as the alternative would have been to invest in additional storage capacity at health facilities in order to manage the expected increase in volume resulting from the introduction of the nationwide health insurance scheme.

A ‗Last Mile‘ Pilot Study is proposed with the aim of testing this Supply Chain design and to identify issues and/or problems that might emanate from the implementation of the Supply

Chain model incorporating a picking and packing operation at the selected hub. Currently, this pilot study is being implemented in Hawassa hub with Global Fund (GF) support.

As the distribution process is one of the vital cost centres, EPSA‘s hub distribution routes and vehicle planning are not supported by technologies to avoid human touch and which might bring increased efficiency and accountability to the distribution system.

3. Central Receiving Warehouse and Slow-moving Stock Facility

Warehouse operational efficiency is negatively impacted by the volume of slow moving and expired stock, which consumes valuable storage space, thus segregation is recommended. This is especially the case with regard to medical equipment and bed nets for which storage condition requirements are less stringent than those for pharmaceuticals and medical consumables. EPSA proposed to establish an in-bound central warehouse at Modjo for replenishing stock-holding hubs and managing the distribution of slow-moving stocks. This initiative is not yet implemented.

The Agency lacks strategic inventory management that requires process and capacity to make proactive decisions based on real time information and analytics. Specifically, stringent follow up of stock-on-hand and stock-on-pipeline, national average monthly consumption of products, national Months of Stock (MoS) of items is not being done to the desired level, and viable information is not generated for decision-making.

Apart from the above major initiatives, the Agency has also designed and is implementing the following process improvement initiatives to enhance the warehousing, order management, distribution and other relevant processes to improve product availability and enhance customer service:

The Center of Excellence (CoE)

The CoE is a high intensity transformation project designed to transform EPSA‘s processes by optimizing inventory management to increase velocity of throughput; enhance operational and management skills through on the job training of staff; drive performance through process audit/compliance/visibility; and review and update KPIs/SOPs/Staff JDs to meet GDP standards of EPSA, in partnership with the USAID/AIDSFree Project and Imperial Health

Services (IHS). EPSA and USAID embarked on this project in June 2018, at the Addis Ababa and Adama hubs, to test the Centre of Excellence (CoE) hypothesis.

The Proof of Concept (POC) in Adama and Head Office is used to further roll-out the transformation project to achieve the Center of Excellence (COE) standards. In line with this, EPSA has made promising progress in achieving the CoE standards at EPSA Center and hubs.

To mention a few:

❖ Cycle count cadence: Adama – 120 days, Central - 280 days

❖ Annual stock count days: Adama from 42 days to 7 days

❖ Increased storage capacity by 23.5% (1482 pallets), including ground-level picking implementation

❖ Good Distribution Practice (GDP) compliance increased from 28% to 74%

Despite some promising changes in warehousing, inventory control and distribution, the following are the key areas that need improvement:

❖ Use of inventory data for analytics and decision-making to help optimize processes and provide adequate customer service

❖ Implementation of maintenance strategies

❖ Medical equipment management

❖ Utilization of the currently available transportation resources due to poor maintenance planning,…