Strategic Decentralization Centralizing Logistics - DOC

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					        Strategic Decentralization: Centralizing Logistics
Effective logistics systems determine the success or failure of any health program.
Historically, public health and family planning programs have ignored logistics systems
(also called supply chains). Like many details of running an organization, nobody cares
about logistics until it stops working. So, why should you care?

Logistics is crucial—if you don’t have a product, you don’t have a program. However,
having a product is not all it takes to make a program. But, for many essential preventive
public health programs, you need products to provide quality health services—which
explains DELIVER’s motto: No product? No program.

Commodity Security
The overarching goal of a logistics system is frequently called “commodity security” or
“product availability”— a concept analogous to food security. An organization has
achieved commodity security when it—
1. Knows its commodity requirements.
2. Plans the necessary financial resources to meet those requirements.
3. Procures the commodities it needs—or has them procured.
4. Reliably delivers the commodities to its customers.

The fourth concept, providing dependable service to the customer, is what drives modern
commercial logistics systems.

Customer Focus

          Figure 1. Logistics Cycle

The customer must be the focal point
of any logistics system. Figure 1                         Figure 2. Supply Chain
shows the customer at the top of the
logistics cycle, with all functions ultimately feeding back to serve them. Figure 2
graphically displays how everything, from the raw materials to the policymakers and all
the facilities, moves toward the customer.
Health Sector Reform
Decentralization and other health sector reform innovations, such as integration, cost recovery, and
privatization, may affect logistics systems. The Family Planning Logistics Management (FPLM) project,
DELIVER’s predecessor project, examined how health sector reform affects logistics systems over many
years. FPLM observed the following:
 In Nepal and Mali, respectively, FPLM discovered that integration can result in both improvements
    and harm to logistics management information systems (LMIS).
 Privatization in the Philippines resulted in stockouts at all levels and problems with government
    contracts for private carriers.
 Cost recovery in Mali resulted in expired condoms for HIV prevention because the condoms could
    not be sold, and health reform did not include free distribution.
 In the Philippines and in Mexico, decentralization led to some regions not ordering contraceptives—
    or not ordering enough because of budget constraints and competing priorities—causing stockouts at
    many levels.

In 2000, FPLM studied the implications for logistics systems relating to the four major health sector
reform innovations. The most significant finding for contraceptive logistics was its frequent protection in
health sector reform settings due to family planning programs being so reliant on donors. (See FPLM’s
Implications of Health Sector Reform for Contraceptive Logistics.)

When we look specifically at decentralization as a component of health sector reform, it is important to
consider how it will affect the various functions of the logistics cycle. Table 1 displays the advantages and
disadvantages of decentralizing each function in the cycle.

Table 1. Advantages and Disadvantages of Decentralizing Logistics Functions

Logistics Functions           Advantages                                   Disadvantages

Serving customers             Service delivery based on local needs        Reduced control over prescribing
Product selection             Selection based on local needs               Selection based on non-medical criteria.
                                                                           Reduced influence on:
                                                                            treatment guidelines
                                                                            products for priority essential services
                                                                            priority of preventive products

Forecasting and procurement   Quantification based on local requirements   Greatly increased prices.
                                                                            forecasting labor
                                                                            forecasting error
                                                                            procurement complexity
Inventory management          Local control over reordering decisions      Impossible to rationally allocate scarce
                              Local control of shipping schedules          Local resources (e.g., staff and transport)
                                                                           may be unavailable.
Information, money, people                                                 LMIS may be lost or folded into HMIS.
and quality                                                                Local financial resources may be
                                                                           Local staff may be absent, or lacking
                                                                           necessary skills.
                                                                           Commodity quality control difficult if
                                                                           procurement decentralized.

Commercial Logistics
Although the public sector does not have many of the advantages of a commercial logistics system (for
example, money for computer systems, distribution centers, and reliable transportation 24 hours a day), it
can still learn from them.

Lessons Learned from the Commercial Sector
Eliminate intermediate levels in the supply chain because each level adds delays, excess inventory,
possibility of supply imbalances, and costs (facilities, staff, utilities, operations, and storing inventory).
Each level also adds management challenges because the distribution system typically follows the
political structure (e.g., district warehouses exist because the political system has districts), which was not
established with transportation efficiency in mind.

Include a strong LMIS to ensure that everyone at higher levels knows what is happening at the lower
levels. If the stock situation is not known for the facilities you serve, you need additional buffer stocks.
However, if you do know their stock situation, you can anticipate facilities’ needs, reducing your
uncertainty and your inventory levels.

Increase supply chain “agility” to strengthen the system. For example, if you resupply your facilities
every month, you can respond 12 times faster to changing needs than if you resupply annually. If you
receive your orders by phone or computer instead of by mail, you can start work immediately instead of
waiting for the mail to arrive.

Finally, commercial organizations may be willing to decentralize everything but their logistics systems.
Large enterprises, such as Wal-Mart, would never consider decentralizing procurement to lower levels.
Their solution is to centralize supply chain functions with a small group of experts with powerful
computers, and let the computers do all the work. Resupply calculations are mechanical. Instead of
training 8,000 people to calculate by hand, which also requires supervision, the commercial organizations
program their computers to do the work. The health systems of low- and middle-income countries cannot
mimic Wal-Mart, but they can adopt similar solutions for improving logistics management.

Planning for Decentralization
When you plan for decentralization, first consider centralizing logistics system functions. This would be
complemented by other centralized health system functions, such as drug registration, development of
standard treatment guidelines, and health professional licensing. Although health systems in low- and
middle-income countries cannot become fully centralized, you can begin thinking like a commercial
enterprise when considering how to structure decentralized logistics systems.

The goal is to establish effective and efficient supply chains. The Kenyan Ministry of Health is a good
example of letting the computer handle the decisions for some logistics functions. They implemented a
first-world automated technique called “Distribution Resource Planning”; the computer schedules
deliveries, plans the delivery routes, and dispatches the trucks, based on its computation of stock levels at
the district. With enough sustained effort, such solutions are possible elsewhere.

Short of fully centralizing logistics functions, health systems should retain central capability for the
logistics functions that will fail if they are decentralized.

For example, retain centrally:
 Specification and enforcement of the essential drugs list.
 Product selection and essential service package specification.
 Bulk and international purchasing.
 Rationing for scarce essential products.
 Quality assurance for all products.
 Logistics management information systems.

The following points are based both on FPLM’s recent HSR study and extensive experience in-country.

   Decentralize decision making only if you can give local managers the resources to execute those
    This recommendation stems from FPLM’s findings in Zambia, where the system depended on
    district managers to determine quantities of drugs to order. Because the drug supply was shrinking,
    the managers were unable to make appropriate ordering decisions, thus disrupting system
   Begin with a detailed, indicator-based logistics systems assessment.
    Too many decentralization and other HSR efforts are driven by ideology. System changes shouldn’t
    be recommended until you thoroughly understand the strengths, weaknesses, and constraints of the
    current systems. Start with a detailed logistics system assessment. DELIVER has tools that can help.
   Examine planning assumptions critically (e.g., funding, personnel, organizational constraints, and
    Many decentralization efforts observed by FPLM dramatically underestimated the money required,
    the organizational constraints that had to be overcome, and the time it took to implement such drastic
    change. They also overestimated the availability and skills of personnel to do the new jobs.
   Develop a detailed plan for effective functioning for all aspects of the logistics cycle, and be prepared
    to change the plan.
    FPLM found that planning is done but not at a level of detail that addresses complex logistics issues.
   Strengthen, or at least protect, the LMIS at all costs.
    The LMIS is critical for effective logistics functioning, and it is vulnerable during decentralization
    efforts. Remember that if you lose the LMIS, you’ve lost it all.
   Ensure that logistics training to support decentralization is competency-based and accompanied by
    periodic follow-up.
    Decentralization is an appealing and popular concept, but its success is highly dependent on the
    capacity of local-level staff to carry out their tasks.
   Include logistics oversight in supervision efforts.
    Although supervision is often conducted regularly, it must include logistics oversight.

For more information, contact Paula Nersesian at DELIVER (703-528-7474) or