TABLE Outsourcing Supply Chain Logistics in Low- and Middle-Income Countries: The Advantages, the Hurdles, and Some Recommendations on How to Move Forward
AdvantagesHurdlesRecommendations
Outsourcing saves money: Using private operators to distribute medicines and other health commodities can reduce costs by as much as one-third or more.aThere is general reluctance by in-country leadership to give up government ownership of delivery systems and infrastructure.Evaluate what lies within government’s core competency, and what lies outside of it. Through oversight and enforcement of strict service-level agreements, governments can maintain control over their supply chains even while outsourcing the logistics; government still owns and manages the process, even when non-government drives the trucks.
Built-in performance incentives: Logistics operators are motivated to provide effective, efficient service and prevent stock-outs in order to win and keep their contracts.There is insufficient capacity and expertise within governments to write and effectively manage contracts with private operators.Assist governments with building effective contract management and enforcement teams.
Medical staff at service delivery points are no longer responsible for restocking inventory and can focus on patient care; new jobs are created in the local private sector as local companies hire more employees and otherwise invest in their own growth to secure government contracts.Outsourcing the logistics of health commodity distribution could threaten to eliminate some public-sector jobs.Governments may need help restructuring their human resources and retraining and reassigning employees for oversight and supervisory roles; local private operators may need training and other support.
In a government-run distribution system, employee working hours and staffing levels are fixed; private operators can be more flexible, so government pays only for what it needs and uses.In some markets, it can be difficult to find private-sector operators trained and equipped to use state-of-the-art approaches to inventory management and to comply with strict requirements regarding storage and transport of medicines.Private-sector donors or businesses, acting as fourth-party providers, can assist in the professional development of local private-sector operators.
Contracting with multiple operators can help spread risk, so that the failure of one is far less likely to bring a whole system down.Concerns exist about long-term financing and sustainability of the new health distribution system given the temporary nature of donor support.Private-sector expertise can help with the necessary costing analysis, but top-level, in-country leadership must take ownership over the process—and the solutions.
  • a Outsourcing in Senegal reduced distribution costs by an estimated 36%,3 and outsourcing the distribution of vaccines in South Africa yielded significant savings, from 28% of the vaccine cost to 6%.9