Large ARV Buyers and Sellers Forum 2016
Consolidated Demand Outlook
29 November, 2016
Geneva, Switzerland
Republic of South Africa
The Global Fund, PEPFAR and Government of South Africa will work
together to improve the consolidated demand outlook
What we will do
Coordinated approach and messages
What we will not do together
Long-term agreements with manufacturers
Synergistic strategies
Direct engagement with suppliers & supplier
visits (sometimes)
Align on key supplier performance metrics
Sharing of synthesized market intelligence and
general supplier performance
Sharing information (without providing
confidential / sensitive information)
Providing improved demand visibility
Selection of suppliers and demand
allocation
Execution of purchase orders
We will not manage actual supplier
performance jointly
Managing overall supplier performance
(Price, lead-time, delivery etc.)
1
Buyers and Sellers Forum 2016 follows clear ground rules!
We would like to reiterate our strong commitment to transparent, fair and competitive procurement processes. For example,
according to the Global Fund’s Code of Conduct for Suppliers, corrupt, fraudulent, collusive, anti-competitive or coercive
practices are not tolerated, and are subject to sanctions, which could include debarment from eligibility as a Global Fund supplier.
Participants to the meeting must not:
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discuss with other participants your own or your competitors prices, price changes, price differentials, discounts, margins, or
any terms of sale that might affect prices
discuss individual company figures on costs, capacity, compensation, business opportunities, products or services, or sales,
except for industry data such as interest rates that are made widely available to the industry by data services.
discuss what individual companies plan to do in particular geographic or product markets or with particular customers or
suppliers, including (a) customer or supplier policies, (b) the terms on which specific types of products may be distributed by
a firm, (c) the elimination, restriction, or limitation of the quantity or quality of any product or service to be sold, or (d) the
division or limitation of sales to particular territories, customers, or classes of customers.
discuss specific future plans of your company or other companies concerning the design, production, distribution, pricing
terms or marketing of particular products.
discuss matters relating to actual or potential individual suppliers or customers that might have the effect of excluding them
from any market or of influencing the business conduct of other companies toward such suppliers or customers.
disclose to others any other competitively sensitive or confidential information.
If you become aware of possible misconduct, this should be reported to the Office of the Inspector General. The Office of the
Inspector General treats all reports carefully and protects the identity of all whistle-blowers.
2
Who is here today?
Suppliers (manufacturers) - 22
Generic (16); originator (4); API (2);
Including potential new entrants
Hosts (large buyers) - 3
• PEPFAR/ USAID and its
procurement agent GHSC-PSM
• Global Fund
• South Africa Department of
Health
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Abbvie
Acebright/Desano
Aurobindo Pharma
Celltrion
Cipla
Cipla – Quality Chemicals Uganda
Emcure Pharmaceuticals
Hetero Drugs
Huahai pharm
Johnson & Johnson/Janssen
Laurus Labs Private Limited
Lupin
Macleods Pharmaceuticals Limited
Merck & Co
MSN Labs
Mylan Laboratories Ltd
SpecPharm
Strides
Sun Pharmaceutical
Teva
Universal Corporation
ViiV HealthCare
Partners - 7
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CHAI
International AIDS Society
Medicines Patent Pool
MSF
UNAIDS
UNITAID
WHO
Building on the June 2014 ARV Supplier Conference
• Increase the transparency of ARV orders for a more stable, visible and
predictable demand
• Establish inclusive buyer/seller forum with current and potential
suppliers
• annual in person buyer seller forums and periodic webcast
• share forward visibility for 12-18 months: 1st/ 2nd line; transitions
• discuss supply and demand opportunities and challenges
• Enable annual or longer orders for larger countries and high volume
products
• Coordinate procurement and timing of low volume products through
the multiagency coordinated procurement platform (APWG)
• Intensify efforts to enhance retention including encourage
programmes to move to multi-month dispensing and work with
companies to develop compliance messages on labels
• Work to harmonize and improve packaging and labelling
specifications (e.g., fewer variants, lower volume packs)
• Evolve procurement and sourcing strategies based on the situation
needs and implementation experience
4
GLOBAL FUND EXAMPLE
There are issues in how we manage demand, and we are currently
working to review our processes
Order volume fluctuates significantly…
…and order placement lead times often cannot be fulfilled
Order placement lead time and order
fulfillment lead times, %, 2016
Order Volume, TLE, million packs
8
Order placement lead time
Order fulfillment lead time
7
6
< 3 months
46%
5
4
3 - 6 months
3
2
6 - 9 months
37%
13%
39%
21%
12%
30%
1
0
Q1
Q2
Q3
2014
Q4
Q1
Q2
Q3
2015
Q4
Q1
Q2
Q3
> 9 months
Better demand
management
needed
13%
37%
Planned
procurement,
enabling best
value (product
and freight
costs)
2016
NOTE: Lead time is defined as a time between purchase order being sent to vendor, and a shipment delivery date. Includes planned delivery.
5
GLOBAL FUND EXAMPLE
Tanzania
Time dimension is often missing in the forecast
Original demand outlook can appear steady…
Malawi
…while actual orders can fluctuate quarter to quarter
Forecasted orders, million packs, 2015
Actual orders, million packs, 2015
6.6
2.9
3.4
1.4
1.5
4.3
2.9
2.9
1.5
1.0
Ø3
Q2
Q3
Q4
1.3
1.3
2.0
1.4
1.9
1.3
Q1
Q2
Q3
Q4
Q1
• Originally project quarterly demand volumes are
often relatively smooth across quarters
• Shelf life of 85% at pick-up leaves only 3.6
months to distribute the goods (out of e.g. 24
months) – limiting the flexibility to reallocate
between the quarters
1.9
0.3
2.3
1.9
0.2
1.7
Ø3
1.7
Actual orders fluctuate substantially due to
• Anticipated stock-outs – leading countries to requests for
financing and products from several sources at the same time
• Uncertainty in government financing – driving unexpected
shifts in partners’ demand
NOTE: Lead time is defined as a time between purchase order being sent to vendor, and a shipment delivery date. Includes planned delivery.
6
SOURCE: Switching Procurement
5 products from 10+1 countries make up ~55% of demand from Global
Fund, PEPFAR and South Africa
ARV grant allocations
2015, Number of packs, million (percent of total)
PEPFAR
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
Government of South Africa
The Global Fund
193
39
52
28
6
103
Total Volume
Bold font – non-PPM countries
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
159
(82%)
33
52
▪ TLE/TEE
▪ LZN (adult)
▪ LZN (pediatric)
▪ Atazanavir /Ritonavir
▪ Lopinavir /Ritonavir (adult)
23
18
12
75
Non-top-10 countries
Top 10 countires
Regular font – PPM countries
Non-top-5 products
in Top 10 countries
106
(55%)
21
34
52
Top 5 products in
top 10 countries
NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding. The PEPFAR data is USG Fiscal Year data.
7
SOURCE: Transactions Summary PQR; PEPFAR and Government of South Africa and data
To improve demand forecasting we will focus on biggest countries and
products to obtain a rough-cut overview
In scope
Currently, out of scope
▪ 18 months forecasting horizon
▪ Forecasting on a quarterly basis
▪ High-level forecast across top 10
▪ Forecasts for longer than 18 months out
▪ Monthly forecasts
▪ Detailed bottom-up forecast, and in-
countries and top 5 products, covering
~55% of demand
country forecast / inventory review
procedures
▪ Data from the Global Fund, PEPFAR and
▪ Integrating new sources of data and
the government of South Africa
▪ ARVs only
additional data sources
▪ Other health products (ANTM, ACT, LLIN)
NOTE: ARV = Anti-Retroviral Treatment; ANTM= Anti-malarial medicine; MRDT = Malarial Rapid Diagnostic Test; ACT =Artemisinin-based Combination Therapy
8
Consolidated demand forecast is derived in 5 simple steps
1
Gather grant and order information from across top ~10 countries
for top ~ 5 products
2
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3
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4
5

Translate order dates to the dates when order is placed towards
the supplier, adjusting for shipment lead times if necessary
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Consolidate the information from The Global Fund, PEPFAR and
The Government of South Africa
Triangulate the data with the general population information and
historical order patterns
Prepare a product-specific quarterly forecast breakdown and share it
with supplier and countries for their feedback
9
Caveats and limitations to the current version of the visibility data
 Conservative estimates based on currently confirmed orders
 Prepared based on data currently available to The Global Fund,
Government of South Africa and PEPFAR
 Preliminary estimates for the discussion – and not final
purchase commitments
 May not yet fully capture lead times between order placement at
manufacturer and in-country delivery
 First time the joint consolidated procurement forecast has been
prepared and shared
10
WORK IN PROGRESS
Consolidated Demand Forecast Outlook
Overall ARV Demand Outlook
2017-2018, Number of packs, million
Bold font – non-PPM countries
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
PEPFAR
Government of South Africa
The Global Fund
33
12
9
13
Q1
31
5
9
19
5
9
5
17
Q2
Q3
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
Regular font – PPM countries
▪ TLE/TEE
▪ LZN (adult)
▪ LZN (pediatric)
▪ Atazanavir /Ritonavir
▪ Lopinavir /Ritonavir (adult)
20
7
9
4
Q4
15
4
10
2
Q1
2017
2018
NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding. For South Africa, TEE is a predominant first-line instead of TLE.
DISCLAIMER: This is an initial version of the forecast, and may contain inaccuracies – please refer to caveats and data limitations on page 10. These slides contain a conservative estimate for demand management between the
three programs. As such, there may be future volumes not yet financially committed or confirmed.
SOURCE: PEPFAR, Government of South Africa, The Global Fund
11
WORK IN PROGRESS
TLE – Consolidated Demand Forecast Outlook
ARV Demand Outlook
2017-2018, Number of packs, million
Bold font – non-PPM countries
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
PEPFAR
Government of South Africa
The Global Fund
26
4
25
7
9
9
Q1
16
3
9
4
Q2
Regular font – PPM countries
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
9
17
5
13
9
3
15
3
10
2
Q3
Q4
Q1
2017
2018
NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding. For South Africa, TEE is a predominant first-line instead of TLE.
DISCLAIMER: This is an initial version of the forecast, and may contain inaccuracies – please refer to caveats and data limitations on page 10. These slides contain a conservative estimate for demand management between the
three programs. As such, there may be future volumes not yet financially committed or confirmed.
SOURCE: PEPFAR, Government of South Africa, The Global Fund
12
WORK IN PROGRESS
LZN (Adult) – Consolidated Demand Forecast Outlook
ARV Demand Outlook
2017-2018, Number of packs, thousands
Bold font – non-PPM countries
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
PEPFAR
The Global Fund
Regular font – PPM countries
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
6,290
3,290
2,725
170
2,555
1,249
3,000
800
449
Q1
121
Q2
Q3
2017
1,380
1,259
Q4
0
0
0
Q1
2018
NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding.
DISCLAIMER: This is an initial version of the forecast, and may contain inaccuracies – please refer to caveats and data limitations on page 10. These slides contain a conservative estimate for demand management between the
three programs. As such, there may be future volumes not yet financially committed or confirmed.
SOURCE: PEPFAR, Government of South Africa, The Global Fund
13
WORK IN PROGRESS
LZN (Pediatric) – Consolidated Demand Forecast Outlook
ARV Demand Outlook
2017-2018, Number of packs, thousands
Bold font – non-PPM countries
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
PEPFAR
The Global Fund
Regular font – PPM countries
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
2,136
858
1,278
Q1
1,236
280
Q2
Q3
2017
824
239
585
0
Q4
Q1
2018
NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding.
DISCLAIMER: This is an initial version of the forecast, and may contain inaccuracies – please refer to caveats and data limitations on page 10. These slides contain a conservative estimate for demand management between the
three programs. As such, there may be future volumes not yet financially committed or confirmed.
SOURCE: PEPFAR, Government of South Africa, The Global Fund
14
WORK IN PROGRESS
ATV/r – Consolidated Demand Forecast Outlook
ARV Demand Outlook
2017-2018, Number of packs, thousands
Bold font – non-PPM countries
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
PEPFAR
The Global Fund
Regular font – PPM countries
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
763
568
705
58
398
23
162
126
Q1
375
36
568
18
0
Q2
Q3
2017
Q4
18
0
Q1
2018
NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding.
DISCLAIMER: This is an initial version of the forecast, and may contain inaccuracies – please refer to caveats and data limitations on page 10. These slides contain a conservative estimate for demand management between the
three programs. As such, there may be future volumes not yet financially committed or confirmed.
SOURCE: PEPFAR, Government of South Africa, The Global Fund
15
WORK IN PROGRESS
LPV/r – Consolidated Demand Forecast Outlook
ARV Demand Outlook
2017-2018, Number of packs, thousands
Bold font – non-PPM countries
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
PEPFAR
The Global Fund
577
469
Regular font – PPM countries
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
642
508
260
297
413
180
382
108
95
Q1
Q2
130
50
Q3
2017
Q4
297
0
Q1
2018
NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding.
DISCLAIMER: This is an initial version of the forecast, and may contain inaccuracies – please refer to caveats and data limitations on page 10. These slides contain a conservative estimate for demand management between the
three programs. As such, there may be future volumes not yet financially committed or confirmed.
SOURCE: PEPFAR, Government of South Africa, The Global Fund
16
There are several factors that need to be accounted for when
preparing a consolidated forecast
 Different planning and procurement cycles across donors/buyers
 PEPFAR: one-year
 Global Fund: (up to) three-years
 South Africa: three-years
 Different budget cycles
 Support for country transitioning to Test/START
 Potential shifting in orders to accommodate Test/START
 Introduction and/or implementation of multi-month prescribing (MMP)
 Many national programs implementing MMP through 2018
 Likely transition to Dolutegravir (DTG)
 A transition from TLE to TLD likely within the next 24 months
17
Consolidated demand outlook is useful beyond the pure
forecast numbers
Besides improved visibility for suppliers, consolidated demand outlook
helps to
 Maintain dialogue between stakeholders – and to better understand
key demand drivers at the global and country level
 Identify and correct outliers early on and smoothen demand
towards manufacturers
 Work towards improving supply chain to and in the country
Going forward, a consolidated data file with demand per buyer per
product per quarter will be made available on a quarterly basis for
detailed review and feedback
18
PEPFAR Supply Chain Update:
New Thinking to Meet Demand, Improving
Coordination, and Managing Change
John Crowley
USAID/GH/OHA/SCH
19
Overview
• PEPFAR Approach to Planning and Ordering
– New thinking is needed to meet demand
• Next Evolution in Coordination
– Efforts in collaboration and coordination are maturing
• Methodology for Projecting Demand
– National quantification forums determine demand
• Managing Procurements
– PSM manages the procurement process
• Managing Change
– Critical Procurement Considerations
PEPFAR APPROACH
Planning Framework to Meet Demand
Maintain “Healthy Market”
•
•
•
Allocate orders across multiple suppliers
“Best Value” contract award strategy
Reward performance
Support New Products
•
•
•
ARV prioritization
Innovation criteria in tender evaluations
Project OPTIMIZE
•
Country /product registration management
Supplier Relationship Management
Longer lead time forecasting
Order volume allocation
Mitigate Supply Risk
•
•
•
Increase Predictability
Assure Product Availability
•
•
•
•
•
Annual volume commitments for majority of
TLE
Coordinated procurement for small volume
products
Annual quantification
Annual supply & ordering plans
Monitor on time & in full delivery by vendors
Optimize RDC and VMI stock levels
NEXT EVOLUTION
PEPFAR and Global Fund Coordination
• Improving the management of demand and improving partnerships with
vendors is the next evolution to this effort
• Given the magnitude of ARV demand and the new treatment
guidelines, a more strategically aligned and coordinated ordering process
for ARVs is essential to PEPFAR’s success
– Provide for a more stable and predictable global generic ARV
market
– Create greater visibility into the timing and quantity of ARV orders
– Ensure rational delivery schedule for country programs
• Ten target counties: account for 60% and 90% of the GF and PEPFAR’s
(respectively) total ARV demand for lower-middle income countries
• Five products: combination of first/second line, and pediatric ARVs
NEXT EVOLUTION
Where is the Majority of ARV Spend?
High-Volume Countries
Global Fund
Spend (FY14-15)
PEPFAR
Spend (FY14-15)
Malawi
$ 156,341,107
$0
Tanzania
$ 130,956,109
$ 30,440,703
Zimbabwe
$ 117,670,265
$ 50,015,649
Ethiopia
$ 100,517,865
$ 20,000
Zambia
$ 84,898,180
$ 62,111,531
Kenya
$ 79,886,219
$ 97,436,412
Mozambique
$ 46,963,029
$ 88,685,260
Nigeria
$ 45,112,399
$ 99,295,685
Uganda
$ 43,243,980
$ 79,509,842
Cote d’Ivoire
$ 9,126,215
$ 27,633,044
$ 814,715,368
$ $535,148,126
Total Spend:
NEXT EVOLUTION
Coordinated Schedule for ARV Procurement
• Expanding existing efforts and establishing a joint-forecasting and supply planning
process using a coordinated schedule
– Five products: combination of first/second line, and pediatric ARVs
– Ten target countries: accounting for 60% and 90% of the GF and
PEPFAR’s (respectively) total ARV demand for lower-middle income
countries
• Expanded coordination effort is not a significant shift
– Sharing actual procurement scheduling and ordering data between Global
Fund and PEPFAR for the next 12-18 months
– Ensures a rational delivery schedule for country programs and greater
predictability for manufacturers
• Global Fund and USAID/SCH will collect, analyze and share ARV orders for the
five products in the ten target countries
PROJECTING PEPFAR DEMAND
What is the Methodology Used?
• Procurement data collected from annual country-level national quantification
exercises and supply plans (adjusted quarterly)
– PEPFAR supply chain technical staff and implementing partners are active
participates in national quantification forums
– PEPFAR procurement data reflects the agreed upon USG contributions to
the national response supply plan based on annual country operational plans
• USAID’s GHSC-PSM collected the data from across the ten target countries and
synthesized for use
• Represents the first time procurement data has been collected globally, merged
with Global Fund and South Africa data, and shared with vendors
– Fair to assume there may be inconsistencies
– This is a first step in regular sharing of data (adjusted quarterly)
MANAGING PEPFAR PROCUREMENT
How Will Procurement Occur?
• USAID’s GHSC-PSM is the intermediary for all USG procurement in the
applicable target countries
• USAID’s GHSC-PSM will collect, update and share procurement data through
USAID Supply Chain for Health Division
• USAID’s GHSC-PSM will implement a sourcing strategy focusing on
– Annual minimum volume for TLE
• Use standard industry evaluation criteria
• enable improved production planning & greater efficiency
• Multi-vendor
PSM Procurement strategy uses the AQSCIR model
Evaluation Criteria
Weight
(DRAFT)
Assurance of Supply / Regulatory
tbd%
Quality
tbd%
Service
tbd%
Cost
tbd%
Innovation
tbd%
Price
tbd%
Total
100%
ARV LTC RFQ team will establish requirements and technical
questions aligned with AQSCIR model
DRAFT not for circulation outside the USG
27
MANAGING PEPFAR PROCUREMENT
GHSC-PSM Sourcing Strategy for LTC
Volume Long Term Commitments (LTC)
Allocate 75% of ‘committed’ country annual volumes of select ARV pharmaceuticals among vendors
employing the AQSCI-P evaluation model to evaluate offers and allocate contracts
Example for 100K packs:
Country
Committed
Total
Volume
Vendor LTC
Total
Allocation
Vendor A – Rank 1 - ##%
##K Packs
Vendor B – Rank 2 - ##%
##K Packs
Vendor C – Rank 3 - ##%
##K Packs
Vendor D – Rank 4 - ##%
##K Packs
Vendor E – Rank 4 - ##%
TLE
100K packs
TLE
75K packs
Vendor F – Rank 4 - ##%
##K Packs
##K Packs
Holdbac
k
25% / 25K Packs
Reserve
Incentive
Award
Multi-vendor award allocations based on ARV LTC RFQ evaluation rankings
MANAGING CHANGES IN PROCESS
Procurement Planning Considerations
• Different planning and procurement cycles across donors
– PEPFAR: one-year
– Global Fund: up to three-years
– South Africa: three-years
• Different planning and budgeting cycles
• PEPFAR support for country transitioning to Test/START
– Potential shifting in orders to accommodate Test/START
• Introduction and/or implementation of multi-month prescribing (MMP)
– Many national programs implementing MMP through 2018
• Likely transition to Dolutegravir (DTG)
– A transition from TLE to TLD likely within the next 24 months
Background on USAID’s OPTIMIZE Project
• USAID-funded consortium launched in 2015
• Purpose: improve treatment outcomes
– Optimize ARV drugs & formulations
– Accelerate their introduction in LMICs
• Approach integrates research, implementation science, and market access activities
• Consortium members: Wits Reproductive Health & HIV Institute (lead), ICAP at Columbia
University, Mylan, University of Liverpool, MPP (funded by UNITAID)
• Target drugs: DTG, EFV400,TAF, DRV/r
• Point of contact: Emily Harris, [email protected]
Joint effort with UNITAID and other key players
• USAID & UNITAD launched joint ART Optimisation Programme Advisory Committee (PAC),
which is co-chaired by WHO and Global Fund
– Aims to coordinate and communicate on ART optimization efforts
– Harmonize & align investments of USAID & UNITAID
• UNITAID ART programme includes closely aligned activities
– CHAI Optimal project– market preparedness & community engagement
– Wits RHI, University of Liverpool, University of New South Wales, Institut Bouisson
Bertrand/ANRS– clinical trials and studies & community engagement
– Related initiates: MPP, WHO Enabler, and WHO PQ activities
• PAC developed multiple recommendations, including:
– Coordinate key forecasts to align assumptions and portray a single, harmonized analysis
– Expand PEPFAR and Global Fund’s coordination on procurement to include transitions
to new products
South Africa
Mr Gavin Steel
Chief Director: Sector-wide Procurement
South African National Department Of Health
Geneva November 2016
Contents
1. Demand Forecast
2. Value For Money
3. Supplier Performance
33
1. Demand Forecast
34
Demand Forecast Method
Procurement
Data
Patients
per
regimen
• Patient numbers =
average of:
o Patients derived
from Procurement
data (RSA Pharma
database), and
o District Health
Information System
(DHIS) data
Programme
Patient Data
35
Deriving Patient Numbers
Cascade method used to derive patient numbers from procurement data
Regimens
• South African National Consolidated Guidelines for the Prevention of
Mother-to-Child Transmission of HIV and the Management of HIV in
Children, Adolescents and Adults, 2015
Adult 1L
TDF+FTC+EFV
TDF+FTC+NVP
TDF+3TC+EFV
TDF+3TC+NVP
AZT+3TC+EFV
AZT+3TC+NVP
ABC+3TC+EFV
ABC+3TC+NVP
Adult 2L
TDF+3TC+LPV/r
TDF+FTC+LPV/r
AZT+3TC+LPV/r
AZT+TDF+3TC+LPV/r
ABC+3TC+LPV/r
TDF+3TC+ATV/r
TDF+FTC+ATV/r
AZT+3TC+ATV/r
AZT+TDF+3TC+ATV/r
ABC+3TC+ATV/r
Peds 1L
ABC+3TC+LPV/r
ABC+3TC+EFV
ABC+3TC+NVP
Peds 2L
AZT+3TC+LPV/r
AZT+ABC+LPV/r
36
Patient Growth
• Monthly growth rate calculated based on DHIS data
• Number of adults and children under the age of 15 started on ART per
month
• Monthly growth rate using a 3 month’s average of new patients on ART,
per month
Total:
o Monthly growth Adults: 52 450 patients
54 373 patients
o Monthly growth Paediatrics: 1 923 patients
• Scale up for Universal Test and Treat:
• Based on a modeling study1
• Estimated increase in patient numbers: 164 000/annum
• Included across all regimens
1. Bor J, Ahmed S, Fox M, Rose S, Meyer-Rath G, Katz IT, Tanser F, Pillay D, Bärnighausen. Effect of
eliminating CD4-count thresholds on HIV treatment initiation in South Africa: an empirical
modeling study. Unpublished manuscript. 2016
37
Attrition Rates
• Definition: loss of patient due to death and loss to follow up
• Adult attrition rate:
o Based on epidemiological studies (adults: Ahonkhai et al1)
o After 12 months on ART, attrition rate is 26%
o Monthly attrition rate: 2.48%
Assumptions & limitations:
• Attrition rate same for all patients and all months
o 1st line and 2nd line
o Newly initiated and existing patients
• Attrition rate is same amongst all provinces
• Attrition rate of paediatrics is half of the adult rate
1. Ahonkhai AA., Noubary F., Munro A., et al. “Not All Are Lost: Interrupted
Laboratory Monitoring, Early Death, and Loss to Follow-Up (LFTU) in a Large
South African Treatment Program.” PLoS Med. 2012 March; 7(3): e32993.
Migration Rate From 1st to 2nd Line Regimens
Migration rate (epidemiological data):
• Adult
o After 5 years on ART, 10.1% patients switch from 1st to 2nd line
therapy1
o Monthly switch rate: 0.18%
• Paediatric
o After 42 months on ART, 6.3% virological failure rate2
o Monthly switch rate: 0.15%
Assumptions & limitations for migration rates:
• Migration to 2nd line are the same for all 1st line patients
• Stay constant throughout forecast period
• Same for all provinces
1. MP., Cutsem GV., Giddy J., et al. “Rates and Predictors of Failure of First-line
Antiretroviral Therapy and Switch to Second-line ART in South Africa.” J
Acquir Immune Defic Syndr 2012;60:428-437.
2. Davies M., Boulle A., Technau K., et al. “The role of targeted viral load testing
in diagnosing virological failure in children on antiretroviral therapy with
immunological failure.” Trop Med Int Health. 2012 November;
17(11):doi:10.1111/j.1365-3156.2012.03073.x.
Other input assumptions
Switches within regimens:
Switch rates based on epidemiological data1 and expert advice
Assumptions: switches within regimens
• Remains constant between 1st line regimens throughout forecast period
• Same for all provinces
• No switches within 2nd line regimens
Paediatric weight distribution
Based on data from Rahima Moosa Hospital (Gauteng)
Assumptions & limitations:
• Weight distribution remains constant over forecast period
• Applies to all provinces
1. Njuguna C., Orrell C., Kaplan R., et al. “Rates of Switching Antiretroviral Drugs
in a Primary Care Service in South Africa before and after introduction of
Tenofovir .” PLOS ONE 2013; vol 8: issue 5: pp1-7
Forecasted Patient Numbers
(Current) Avg./month Avg./month
Dec. 2016
2017
2018
Total adults
3 531 373
3 478 507
4 330 796
Total paediatrics
204 200
196 090
234 702
Total patients
3 735 572
3 674 597
4 565 497
41
1st line regimen distribution: Adults
1st Line Regimen
TDF + FTC + EFV
TDF+FTC+NVP
TDF+3TC+EFV
TDF+3TC+NVP
AZT+3TC+EFV
AZT+3TC+NVP
ABC+3TC+EFV
ABC+3TC+NVP
Total
(Current)
Dec. 2016
2 940 284
244 160
47 219
814
11 966
3 261
103 641
4 099
3 355 444
Avg./month
2017
3 145 057
346 304
45 756
539
5 969
2 934
90 495
3 457
3 640 510
Avg./month
2018
3 521 002
492 114
44 857
239
5 093
2 363
73 574
2 503
4 141 745
42
1st line regimen distribution: Paeds
1st Line Regimen
ABC + 3TC + LPV/r
ABC+3TC+EFV
ABC+3TC+NVP
Total
(Current)
Dec. 2016
98 833
101 798
1 650
202 281
Avg./month
2017
104 194
107 892
1 028
213 115
43
Avg./month
2018
114 079
118 135
963
233 177
2nd line regimen distribution: Adults
2nd Line Regimen
TDF + 3TC + LPV/r
TDF+FTC+LPV/r
AZT+3TC+LPV/r
AZT+TDF+3TC+LPV/r
ABC+3TC+LPV/r
TDF+3TC+ATV/r
TDF+FTC+ATV/r
AZT+3TC+ATV/r
AZT+TDF+3TC+ATV/r
ABC+3TC+ATV/r
Total
(Current)
Dec. 2016
12 909
33 330
69 090
4 395
43 529
5 132
1 864
2 678
73
2 931
175 929
Avg./month
2017
Avg./month
2018
12 298
29 620
87 582
3 747
37 112
4 375
1 589
2 283
62
2 499
181 167
11 380
24 037
115 410
2 772
27 456
3 237
1 175
1 689
46
1 849
189 051
44
2nd line regimen distribution: Paeds
TABLE: Number of Patients
2nd
Line Regimen
AZT + 3TC + LPV/r
AZT+ABC+LPV/r
Total
(Current)
Dec. 2016
1 067
852
1 919
Avg./month
2017
Avg./month
2018
985
786
1 771
848
677
1 525
45
Estimated Financial Value
DEC 2016
Total Estimated Annual Value
(12 months)
Average Value per Month
R 537 413 861
2017
2018
R 2293 926 793 R 2 554 121 629
R 573 481 698
R 638 530 407
Total Estimated Value
(2017 + 2018)
R 4 848 048 421
Avg. Value per Month
(2017 – 2018)
R 606 006 053
2017: January 2017 – December 2017; 2018: January 2018 – December 2018; Prices from
MPC, November 2016
Current contract expires early 2018
Planning has been initiated for new tendering process, including market and business
intelligence to ensure security of supply and competitive pricing.
46
2. Value For Money
47
Visibility & Analytics Network
The VAN is the combination of People, Process, Technology and Policy organised coherently to ensure
medicine availability and supply chain efficiencies:
Element
The VAN is…
The VAN is more than just…
• A team of dedicated professionals with defined
roles and responsibilities, the right skills and
knowledge, and a patient-centred, proactive
approach to evidence-based quality
improvement.
• A new name for the existing roles.
• Minor changes to organisational structures.
• A small once-off change management effort.
Process
• Data driven processes that use analytical
methods to continually plan, proactively
respond to, and recommend improvements.
• New standard operating procedures
• Business process re-engineering
• One-off system redesign
Tech
• The integration of multiple data systems, to
generate alerts and actionable insight across
the value chain with automation wherever
possible.
• A new logistics and information system to
support procurement and stock or financial
transactions
• Dashboards, reports and analytics platforms
• A cross-cutting governance framework with
clear responsibilities and accountability and
empowered decision makers with defined
‘spans of control’ across the value chain.
• An improvement mechanism for one domain
(e.g. just procurement, warehousing).
• A project to improve milestones/KPIs for one
program e.g. CCMDD.
People
Policy
Policy
Tech
Process
People
The VAN is an Operating Model, the
combination of People, Process, Technology and
Policy
48
Demand Forecasting and Planning
Bottom Up
Top Down
Demand planning applies anticipated trends and constraints to historical data treated with statistical
rigor (baseline forecast) to develop a consensus Demand Plan across products and facilities:
Forecasted Gross Adds
• By geography
• Demographics
• Epidemiology
Forecasted EML / MPC
• Product
• Lifecycle / STG Relevance
• Price point / Affordability
• Campaigns
Historical Data
• Consumption
• Availability to Consume
• Historical Campaigns
• Epidemiology
Statistical Modeling
• Analyze consumption
trends
• Adjust based on
forecasted gross adds
and formulary picks by
province / facility
• Constrain Forecast by
Available Budget
Product View by:
• Product type
• Programmes
• Campaigns
• STGs
Demand Plan
Geography View by:
• Province / District
• Channel
• Facility/Treatment
Tier
49
Supply Planning
Supply planning determines inventory targets based on the demand plan, variables that are channel
specific, and supplier input to determine a consensus supply plan across products and geographies:
Demand Plan
 By product
 By Geography
Planning Variables
 Demand Forecast accuracy
 Replenishment frequency
 Stock on Hand Sample Rate
 Demand variability
 Product availability
 Order cycle time / total lead time
 Product Expiry / Longevity
Supplier Collaboration
 Manufacturing constraints (e.g. API)
 Production schedules
 Supplier Stock Holding (VMI)
 Lead times
Inventory Netting
Depot
Cycle Stock
+
Safety Stock
–
On-Hand
Inventor
–y
Open Orders
+
Facility
Cycle Stock
+
Safety Stock
–
On-Hand
Inventor
–y
Open Orders
Product View by:
• Product type
• Programmes
• Campaigns
• STGs
Supply Plan (orders)
& Replenishment Plan
(shipments)
Geography View by:
• Province / District
• Channel
• Facility/Treatment
Tier
50
3. Supplier Performance
51
Antiretroviral Supply Contract
•
•
•
•
http://www.health.gov.za/tender/docs/contracts/HP132015ARVApril2015toM
ar2018.pdf
INCOTerm – Delivery Duty Paid (DDP)
Performance Management Criteria
– Lead Time Performance (LT)
– On Time and In Full Deliveries (OTIF)
– Contractor Engagement & Reporting
Monitoring
– System development, RSA Pharma, where suppliers report monthly on LT
& OTIF as well as fortnightly on their pipeline
– Scorecards that inform future contract award
– Dashboards to manage operational activities
52
OTIF for ARV Suppliers
53
Supplier OTIF for TEE Supply
54
LT for ARV Suppliers
Average: 65%
55
Supplier LT for TEE Supply
56
Thank You
57
Implementing the Global Fund’s Market Shaping Strategy
29 November 2016
Geneva
Global Fund has proactively shaped markets to improve health
outcomes since 2004
Market Shaping Strategy is approved by
Board, with focus on pooling procurement,
value for money, capacity building and ARVs
With WHO, recipients
transitioned to ACTs from
suboptimal therapies
2004
2007
Board approves first Market Shaping
Strategy, including Price & Quality Reporting
and Voluntary Pooled Procurement
2011
2013
2015
Operational initiatives through
Procurement for Impact
strengthen market shaping tools
Changing market dynamics, context, and new Global Fund strategy
prompted revision of Market Shaping Strategy
59
Market Shaping Strategic objectives: New strategic actions & level of effort: 2015
Strategic objective
Ensure the continued
availability and affordability
of health products
Continue, Refine, Institutionalize
a)
Continue to facilitate market transparency
d) Extend benefits of market shaping
b)
c)
Leverage strategic procurement via PPM
Prevent and respond to potential stock-outs
and emergency orders
Continue to define and enforce quality
standards for Global Fund-financed products
c) Strengthen quality standards for diagnostics & other
non-pharmaceutical health products
a)
Promote consistent
quality standards
Support efforts to
stimulate innovation
Accelerate the adoption of
new and/or more
cost-effective products
Prepare for country transition
and support long-term
market viability
Strengthen key market
shaping enablers
Invest going forward
b)
Support the WHO prequalification programme
and collaborative registration
a)
Recognize value of innovation in sourcing
strategies, with differentiated approaches
a)
Accelerate the introduction of products for
which there are few QA’d suppliers
a)
Invest in strengthening in-country PSM
systems and national regulatory authorities
a) Continue to strengthen and operationalize
partnerships
Investment already made;
little additional required
b)
d)
b)
Proactively optimize product selection within WHO
guidance
Coordinate with partners to develop and implement
“roadmaps” for key product needs
Coordinate with partners to reduce risk of market entry
Build in-country PSM capacity
c)
Incorporate market health in transition plans
d)
Assess additional market implications of transition and
develop interventions
c)
b) Strengthen tools and systems for forecasting, market
intelligence and data management
Substantive upfront, or
some ongoing investment
Significant initiative
over period of strategy
The Global Fund has introduced a more balanced supply system based on
5 elements to improve supplier performance
A
E
Benefit
sharing
D
Risk
management
A
Cost
competitiveness
Balanced
supply
system
B
Performance
 Providing products at the lowest possible affordable and
sustainable price to reach the maximum number of patients
 Reducing price volatility and eliminating predatory pricing
 Supplying product timely and in full
B  Incentivizing suppliers to introduce better formulations
C
 Supporting new suppliers to ensure sufficient supply and
mitigate geographic supply risks
 Investing in suppliers with sustainable manufacturing practices
 Maintaining well-diversified supplier base
D  Meeting The Global Fund and national quality requirements
 Mitigating implementation risks
C Sustainability
 Publishing reference prices
E  Building capacity and implementing rapid supply mechanisms
61
Selection of suppliers depends both on commercial and other technical /
value criteria
Supplier /
product score


45.5%
45.5%
54.5%
54.5%
Commercial
Technical and Value
Initial price
Target pricing: 1st line products;
equalization of pricing for alternate 1st
and 2nd line products; better pediatric
formulations





Delivery performance (OTIF)
Quality elements: shelf life, national
registrations
API supply security (alternative sources)
Supply of high and low volume products
Commitment, ability and approach
62
TOP 5 PRODUCTS ACROSS TOP 10 COUNTRIES
Today's process for The Global Fund is primarily a top-down approach
Forecast calculated
Process
steps
Data
sources/
rationale
Owners
Gather key countries /
products information
Extrapolate for other
countries
Prepare Forecast
Share allocations

Gather grant / order
information across
top ~10 countries /
top ~ 5 products
Create initial
demand estimate

Add 30% to the
demand estimate to
account for other
countries / products


Informal info from
individual countries
List of Health
Products (LOHP)1

Historical: value for
non-top 10 countries
5 products was
~30% of total

Safety buffer for an
unexpected demand
and product
transitions
Procurement

Procurement

Procurement




Add certain safety
margin to derive a
PPM Forecast
Final forecast released
Calculate and share
commitments
Share 80% volume
of the PPM forecast
as the allocation
value
Reserve 20% for
new entrants (PPM)
 Communicate 70%
of PPM forecast
volume as
commitment volume

Driven by the Global
Fund policy

Driven by the Global
Fund policy

Procurement

Procurement

Ongoing
Time
Forecast today is generated top-down based on informally gathered information on key countries and products, and could be
further strengthened by incorporating triangulation with orders history, clear preparation timeline and regular reviews
1 Derived from national in-country quantification
63
Global Fund demand: 10 countries/5 products
TLE
LZN
LZN paed
ATV/r
LPV/r
Total
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
8,957,753
4,476,900 12,710,418 3,034,602
1,540,000
2,979,790
448,714
2,555,417
121,168
1,278,324
279,691
1,236,025
584,680
57,534
143,221
374,711
107,543
95,343
382,256
50,036
13,380,944
5,443,869 17,258,827 3,790,486
1,540,000
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
Bold font – non-PPM countries
Regular font – PPM countries
Global Fund 2017-2019 Funding Cycle
•
Donors pledged US$ 12.9 billion at the
Global Fund’s 5th Replenishment in
September for the 2017-2019 funding
cycle
•
Eligible countries will receive their
allocation amount in December 2016
•
Able to access their funding over the
2017- 2019 period
•
Grants can start after the current grant
ends, last 3 years as standard and end at
least a year after the allocation period in
order to allow a 12 month buffer to apply
for new funding
http://www.theglobalfund.org/en/applying/funding/resources/
Large ARV Buyers and Sellers Forum 2016 – Breakout Session
Demand Management – potential for improving process and visibility
November 29, 2016
Geneva, Switzerland
Republic of South Africa
Buyers and Sellers Forum 2016 follows clear ground rules!
We would like to reiterate our strong commitment to transparent, fair and competitive procurement processes. For example,
according to the Global Fund’s Code of Conduct for Suppliers, corrupt, fraudulent, collusive, anti-competitive or coercive
practices are not tolerated, and are subject to sanctions, which could include debarment from eligibility as a Global Fund supplier.
Participants to the meeting must not:






discuss with other participants your own or your competitors prices, price changes, price differentials, discounts, margins, or
any terms of sale that might affect prices
discuss individual company figures on costs, capacity, compensation, business opportunities, products or services, or sales,
except for industry data such as interest rates that are made widely available to the industry by data services.
discuss what individual companies plan to do in particular geographic or product markets or with particular customers or
suppliers, including (a) customer or supplier policies, (b) the terms on which specific types of products may be distributed by
a firm, (c) the elimination, restriction, or limitation of the quantity or quality of any product or service to be sold, or (d) the
division or limitation of sales to particular territories, customers, or classes of customers.
discuss specific future plans of your company or other companies concerning the design, production, distribution, pricing
terms or marketing of particular products.
discuss matters relating to actual or potential individual suppliers or customers that might have the effect of excluding them
from any market or of influencing the business conduct of other companies toward such suppliers or customers.
disclose to others any other competitively sensitive or confidential information.
If you become aware of possible misconduct, this should be reported to the Office of the Inspector General. The Office of the
Inspector General treats all reports carefully and protects the identity of all whistle-blowers.
67
Contents
 Background: current state and main issues
 Way forward: potential changes and enablers required
 Breakout discussion: challenges and next steps
 Value creation levers and case studies
 Breakout discussion: challenges and next steps
 Background: Supplier Performance Evaluation
 Breakout discussion: challenges and next steps
68
GLOBAL FUND EXAMPLE
There are issues in how we manage demand, and we are currently
working to review our processes
Order volume fluctuates significantly…
…and order placement lead times often cannot be fulfilled
Order placement lead time and order
fulfillment lead times, %, 2016
Order Volume, TLE, million packs
8
Order placement lead time
Order fulfillment lead time
7
6
< 3 months
46%
37%
13%
5
4
3 - 6 months
3
2
6 - 9 months
39%
21%
12%
30%
1
0
Q1
Q2
Q3
2014
Q4
Q1
Q2
Q3
2015
Q4
Q1
Q2
Q3
> 9 months
Better demand
management
needed
13%
37%
Planned
procurement,
enabling best
value (product
and freight
costs)
2016
NOTE: Lead time is defined as a time between purchase order being sent to vendor, and a shipment delivery date. Includes planned delivery.
69
GLOBAL FUND EXAMPLE
Countries have below-benchmark forecast accuracy, annual forecasts
much more accurate than quarterly
Forecast accuracy (FCA), across top 10 countries, Percent
(Monthly) FCA benchmarks
Quarterly (2015)
Annual (2015)
▪
Most countries
annual and
quarterly FCA is
below monthly FCA
benchmarks
▪
Quarterly accuracy
is substantially
lower than annual,
suggesting
improvement
potential along timing
dimension
99%
79%
Top: 72%
Avg: 65%
66%
74%
69%
64%
50%
44%
46%
40%
47%
36%
23%
27%
18%
12%
8%
19%
19%
14%
1%
BF
44%
0%
CM
CG
CI
GH
GQ
0%
MW
MZ
NG
TZ
UG
ZM
NOTE: Forecasting accuracy is defined as 100%- (ABS(FCT - ACT) / ACT); quarterly accuracy is the average accuracy of forecasts for Q1- Q4 2015
Dates are the delivery dates for actuals / in-country need-by dates for forecasts
70
SOURCE: Transactions Summary PQR; McKinsey POBOS
GLOBAL FUND EXAMPLE
Tanzania
Time dimension is often missing in the forecast
Original demand outlook can appear steady…
Malawi
…while actual orders can fluctuate quarter to quarter
Forecasted orders, million packs, 2015
Actual orders, million packs, 2015
6.6
2.9
3.4
1.4
1.5
4.3
2.9
2.9
1.5
1.0
Ø3
Q2
Q3
Q4
1.3
1.3
2.0
1.4
1.9
1.3
Q1
Q2
Q3
Q4
Q1
• Originally project quarterly demand volumes are
often relatively smooth across quarters
• Shelf life of 85% at pick-up leaves only 3.6
months to distribute the goods (out of e.g. 24
months) – limiting the flexibility to reallocate
between the quarters
1.9
0.3
2.3
1.9
0.2
1.7
Ø3
1.7
Actual orders fluctuate substantially due to
• Anticipated stock-outs – leading countries to requests for
financing and products from several sources at the same time
• Uncertainty in government financing – driving unexpected
shifts in partners’ demand
NOTE: Lead time is defined as a time between purchase order being sent to vendor, and a shipment delivery date. Includes planned delivery.
71
SOURCE: Switching Procurement
5 products from 10+1 countries make up ~55% of grant allocations by
Global Fund, PEPFAR and South Africa
ARV grant allocations
2015, Number of packs, million (percent of total)
PEPFAR
▪ Malawi
▪ Tanzania
▪ Zimbabwe
▪ Ethiopia
▪ Zambia
Government of South Africa
The Global Fund
193
39
52
28
6
103
Total Volume
Bold font – non-PPM countries
▪ Kenya
▪ Mozambique
▪ Nigeria
▪ Uganda
▪ Cote d'Ivoire
159
(82%)
33
52
▪ TLE
▪ LZN (adult)
▪ LZN (pediatric)
▪ Atazanavir /Ritonavir
▪ Lopinavir /Ritonavir (adult)
23
18
12
75
Non-top-10 countries
Top 10 countries
Regular font – PPM countries
Non-top-5 products
in Top 10 countries
106
(55%)
21
34
52
Top 5 products in
top 10 countries
NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding. The PEPFAR data is USG Fiscal Year data. For South Africa, TEE is reported instead of TLE.
72
SOURCE: Transactions Summary PQR; PEPFAR and Government of South Africa and data
To improve demand forecasting in the short-term, we will focus on
biggest countries and products to obtain a rough-cut overview
In scope
Currently, out of scope
▪ 18 months forecasting horizon
▪ Forecasting on a quarterly basis
▪ High-level forecast across top 10
▪ Forecasts for longer than 18 months out
▪ Monthly forecasts
▪ Detailed bottom-up forecast, and in-
countries and top 5 products, covering
~55% of demand
country forecast / inventory review
procedures
▪ Data from the Global Fund, PEPFAR and
▪ Integrating new sources of data and
the government of South Africa
▪ ARV drugs only
additional data sources
▪ Other health products (ANTM, LLIN)
NOTE: ARV = Anti-Retroviral Treatment; ANTM= Anti-malarial medicine
73
Contents
 Background: current state and main issues
 Way forward: potential changes and enablers required
 Breakout discussion: challenges and next steps
 Value creation levers and case studies
 Breakout discussion: challenges and next steps
 Background: Supplier Performance Evaluation
 Breakout discussion: challenges and next steps
74
Demand Management is one of value creation levers aimed at creating
mutual benefits, rather than purely attacking suppliers’ margin
Detailed further
Different levers employed aim at facilitating processing factors without
Typical cost structure, illustrative
Levers used
Example impact

Margin
Price-centric
RFP approach

Freight
Overhead
Direct
labor
CAPEX
Materials

Sourcing
Demand
management
Processes
and product
lifecycle
Supply chain
optimization







Competitive bidding
situations
Firm price negotiations
Cheaper raw materials due
to volume commitments
API supplier optimization
Reduced freight costs from
better mode selection
No rush order overtimes
Less overheads to deal with
regulatory and compliance
Batch size optimization
Cheaper transportation from
better space utilization
Reduced write-off risks
Rather than
focusing purely on
price reduction
through margin –
value creation levers
address other cost
components (which
make up a much
larger share of total
product cost),
creating value for
both parties without
“squeezing the
suppliers”
75
There are tangible benefits for all stakeholders from the
improved demand management process
Demand
Management
Patients & HIV programs
Partner organizations
Suppliers
Increased delivery
reliability
More affordable and
sustainable prices
Optimized raw
materials sourcing
Supply security and less
need for “rush orders”
Better transparency into
country requirements
More efficient
production scheduling
Lower “safety stock”
requirements
Lead time reduction
Reduced write-offs
and obsolescence
76
TOP 5 PRODUCTS ACROSS TOP 10 COUNTRIES
Today's process for The Global Fund is primarily a top-down approach
Forecast calculated
Process
steps
Data
sources/
rationale
Owners
Gather key countries /
products information
Extrapolate for other
countries
Prepare Forecast
Share allocations

Gather grant / order
information across
top ~10 countries /
top ~ 5 products
Create initial
demand estimate

Add 30% to the
demand estimate to
account for other
countries / products


Informal info from
individual countries
List of Health
Products (LOHP)1

Historical: value for
non-top 10 countries
5 products was
~30% of total

Safety buffer for an
unexpected demand
and product
transitions
Procurement

Procurement

Procurement




Add certain safety
margin to derive a
PPM Forecast
Final forecast released
Calculate and share
commitments
Share 80% volume
of the PPM forecast
as the allocation
value
Reserve 20% for
new entrants (PPM)
 Communicate 70%
of PPM forecast
volume as
commitment volume

Driven by the Global
Fund policy

Driven by the Global
Fund policy

Procurement

Procurement

Ongoing
Time
Forecast today is generated top-down based on informally gathered information on key countries and products, and could be
further strengthened by incorporating triangulation with orders history, clear preparation timeline and regular reviews
1 Derived from national in-country quantification
77
REPUBLIC OF SOUTH AFRICA EXAMPLE
Demand Forecasting and Planning process in South Africa
Demand
planning applies
anticipated
trends and
constraints to
historical data
treated with
statistical rigor
(baseline forecast)
to develop a
consensus
Demand Plan
across products
and facilities
78
PEPFAR EXAMPLE
Demand Forecasting process used by PEPFAR
 Procurement data collects from annual country-level national
quantification exercises and supply plans (adjusted quarterly)
 PEPFAR supply chain technical staff and implementing partners are active
participates in national quantification forums
 PEPFAR procurement data reflects the agreed upon USG contributions to the
national response supply plan based on annual country operational plans
 USAID’s GHSC-PSM collects the data from across all PEPFAR countries1
and synthesizes for use
 Represents the first time procurement data is collected globally, merged
with Global Fund and South Africa data, and shared with vendors
 Fair to assume there may be inconsistencies
 This is a first step in regular sharing of data (adjusted quarterly)
1 Not including Kenya, where it is collected by KEMSA
79
TOP 5 PRODUCTS ACROSS TOP 10 COUNTRIES
There are opportunities to improve today’s process
Create a forecast with
the time dimension
Initial forecast calculated
Update and finalize
forecast
Analyse demand
Prepare and
triangulate a master
forecast (quarterly
for 18 months out)

Review forecast
with other
stakeholders

Incorporate obtained
feedback
 Compare the actual
vs historical forecast
quantities
The Global Fund PR,
PEPFAR and South
Africa orders


Revised inputs
Partners’ feedback

Unanticipated
orders from PRs,
PEPFAR, and South


Historical forecasts
Actual orders

Procurement

Procurement


Procurement
Partners

Procurement

Weeks 4 – 5

Weeks 6 – 9

Weeks 10 – 12

Ongoing
Prepare forecast

Collect, clean and
capture the data



The Global Fund PR,
PEPFAR and South
Africa orders


HIV program
relationship

Weeks 1 – 3
Process
steps
Owners
Time
Introduce forecast expost analysis
Final forecast released
Gather stakeholders’
feedback (PRs /
funders / buyers)
Gather information
Data
sources
Key changes
Assign clear owners
for forecast updates
The review process happens twice a year – with major changes
communicated back to suppliers when necessary
Introduce strict deadlines for
forecast preparation and update
Analyze forecast
Discipline & Accountability
are key factors of success
80
To get from “as-is” to “to-be”, several enablers will need to be activated
Immediate steps
Actions we need to take
Country
Program
Ownership
▪
▪
Adjust
incentives
Collaboration
between
parties
Top 10 countries prepare anticipated orders for next 18
 Countries have the best overview of
months, and monitore actual demand across top 5 medications
their own future demand and other
stakeholders rely on this information
PEPFAR, RSA and The Global Fund compile the gathered data
in country dashboards
▪
Strict
timelines
Benefits
▪
▪
Strict timelines and schedule for each of the participants to
adhere to
Forecasts are reported by countries regularly
Forecasting review and update process is performed every
half-a-year
 Timely provision of information
ensures preparation of accurate
forecasts
▪
▪
▪
Countries are incentivized to stick to forecast
6–9 months lead times are firmly communicated
Counterparties adhere to commitments made
 Allows for more stable demand
forecast, accounting for time dimension
 Reduces ad-hoc buys will help to
stabilize demand
▪
Top 10 countries / top 5 products approach adopted by non
PPM, PEPFAR, GSA
PEPFAR, TGF and GSA collect and exchange data on a
regular basis
Collaboration on data collected by big LMIC donors
 Allows for one consolidated forecast
across Global Fund, RSA and PEPFAR
 Improves transparency and ability to
plan capacity for suppliers
▪
▪
81
Contents
 Background: current state and main issues
 Way forward: potential changes and enablers required
 Breakout discussion: challenges and next steps
 Value creation levers and case studies
 Breakout discussion: challenges and next steps
 Background: Supplier Performance Evaluation
 Breakout discussion: challenges and next steps
82
Large ARV Buyers and Sellers Forum 2016 – Breakout Session
Value for Money – options and incentives for improved collaboration
29 November, 2016
Geneva, Switzerland
Republic of South Africa
Buyers and Sellers Forum 2016 follows clear ground rules!
We would like to reiterate our strong commitment to transparent, fair and competitive procurement processes. For example,
according to the Global Fund’s Code of Conduct for Suppliers, corrupt, fraudulent, collusive, anti-competitive or coercive
practices are not tolerated, and are subject to sanctions, which could include debarment from eligibility as a Global Fund supplier.
Participants to the meeting must not:






discuss with other participants your own or your competitors prices, price changes, price differentials, discounts, margins, or
any terms of sale that might affect prices
discuss individual company figures on costs, capacity, compensation, business opportunities, products or services, or sales,
except for industry data such as interest rates that are made widely available to the industry by data services.
discuss what individual companies plan to do in particular geographic or product markets or with particular customers or
suppliers, including (a) customer or supplier policies, (b) the terms on which specific types of products may be distributed by
a firm, (c) the elimination, restriction, or limitation of the quantity or quality of any product or service to be sold, or (d) the
division or limitation of sales to particular territories, customers, or classes of customers.
discuss specific future plans of your company or other companies concerning the design, production, distribution, pricing
terms or marketing of particular products.
discuss matters relating to actual or potential individual suppliers or customers that might have the effect of excluding them
from any market or of influencing the business conduct of other companies toward such suppliers or customers.
disclose to others any other competitively sensitive or confidential information.
If you become aware of possible misconduct, this should be reported to the Office of the Inspector General. The Office of the
Inspector General treats all reports carefully and protects the identity of all whistle-blowers.
84
Contents
 Background: current state and main issues
 Way forward: potential changes and enablers required
 Breakout discussion: challenges and next steps
 Value creation levers and case studies
 Breakout discussion: challenges and next steps
 Background: Supplier Performance Evaluation
 Breakout discussion: challenges and next steps
85
Value creation levers aim at creating mutual benefits rather than purely
focusing on suppliers’ margin
Different levers could help jointly improve key cost components
Typical cost structure, illustrative
Levers used
Example impact

Margin
Standard RFP
approach

Freight
Overhead
Labor
CAPEX
Materials

Sourcing
Demand
management
Processes
and product
lifecycle
Supply chain
optimization







Competitive bidding
situations
Firm price negotiations
Cheaper raw materials due
to volume commitments
API supplier optimization
Reduced freight costs from
better mode selection
No rush order overtimes
Less overheads to deal with
regulatory and compliance
Batch size optimization
Cheaper transportation from
better space utilization
Reduced write-off risks
Rather than
focusing purely on
price reduction
through margin –
value creation levers
address other cost
components (which
make up a much
larger share of total
product cost),
creating value for
both parties without
“squeezing the
suppliers”
86
There are several value creation levers across key dimensions, driving
value for all parties without squeezing suppliers
Description of lever in supplier collaboration
Value levers
▪

Sourcing / Supplier
performance
management
Demand
management
Process and
product lifecycle
▪
▪
Supplier purchasing practices and
conditions to other upstream suppliers
Demand planning, supply reliability, inventory
and capacity management
Product lifecycle and processes at supplier
and integration to own development
Leveraging volume
 Bundling high- and low-volume products
A COGS-based negotiation (e.g. cleansheets)
 Balanced allocation and commitment model
B Demand forecast visibility and limited volatility

Demand specification standardization and optimization
 Better planning (especially, along the time dimension)
 Continuous production process improvement along
the product lifecycle
C Good procurement practice up the entire supply chain
 Innovative packaging
Supply chain
optimization
▪
Distribution network and supply chain
integration

Sound sourcing strategies for raw materials

Supplier “make” vs. “buy” decisions

Product regulatory strategy
D Freight and packaging optimization

Staggered deliveries

Stock visibility

In-country supply chain capacity strengthening
87
A Advanced clean sheet yields substantial cost improvement
through supplier collaboration
Example: Clean sheet gaps
Percent of actual price
1 Gap is potentially driven from
▪ Higher than expected supplier
raw material (resin) discounts
▪ Higher than estimated
supplier margin
▪ Supplier’s lack of understanding of true cost structure
2 Optimal operations
include
▪ Higher
equipment
utilization
▪ Lower scrap
rates
3 Additional
opportunities include:
▪ Design to Value
▪ Resin innovation
▪ Leading edge
supplier equipment
technology
▪
▪
Actual
Price
Should
cost
gap
Incumbent
should
cost**
Optimal
operations
gap
Best in
class
cost
DTV &
innovation
savings
Target
Supplier
collaboration effort
drives
transparency into
suppliers’ cost
structure enabling
joint efforts to
reduce cost
Total identified
opportunities as
part of supplier
collaboration effort
yields substantial
cost improvement
B Better demand visibility will help to secure production capacity for
ARV vs. high-margin products and stabilize the load
Scenario 1: “Flexible competition” without long-term forecast
High-margin
product
ARV
100%
High-margin
product
ARV
Capacity
utilization
50%
Product 2
Product 1
High-margin
product
Product 3
High-margin
product
If the ARV medication is
competing vs. the high-margin
products in an environment
when the manufacturing
capacity hasn’t been reserved,
the flexible allocation is likely to be
margin-based – driving the ability
to react in ARV low, compared to
that of higher-margin products
Time
Scenario 2: “Reserved capacity” based on the long-term forecast
100%
Capacity
utilization
50%
ARV
Product 2
Reserved capacity coupled with
the long-term forecast would
allow to allocated certain capacity
to the “baseline ARV load” –
leaving sufficient flexible buffer to
be used for the higher-margin
product
High-margin
product
High-margin
product
Product 1
ARV baseline load
Time
89
ILLUSTRATIVE EXAMPLE
C Collaborative effort to reduce supplier Lead Time leads to inventory
optimization, improved order quality and increased OTIF
Approach
Impact
▪
Supplier lead time
▪
▪
▪
▪
Conduct joint project with suppliers in order to
– Increase flexibility
– Reduce cost in supply chain
– Improve information flow
Map the current end to end process - from forecast to
final delivery
Identify improvement opportunities along the supply
chain, e.g. Order raw materials based on forecast,
postpone order differentiation point, etc.
Setup joint improvement teams and regular update
sessions, assure implementation at supplier and within
own system
Install monthly S&OP planning with supplier
-13%
120 days
Old lead time
90 days
New lead time
▪ Reduced safety stocks
▪ Improved order quality due to
▪
shorter reaction time
Increased OTIF
90
ILLUSTRATIVE EXAMPLE
D Significant opportunities captured in optimizing packaging through
introducing e.g. shrink packaging
Example: Introducing new packaging options …
… brings large savings
 Removing additional
carton packaging
increases number of
bottles per box from
108 to 144
 Placing leaflets on
top of the bottles
(instead of on each
bottle) also helps to
reduce space needed
▪ Looking at the properties
of the shrink packaging,
and taking into account
some efficiency loss, the
expected savings around
20-30% on direct volumeweight-related costs
▪ This translates into an
expected average saving
of direct freight-costs of
5-7k USD per 100,000
packs
91
We have overlaid the key ARV attributes to the product lifecycle to
determine the strategic priorities …
Pipeline
Attributes
Challenges for
suppliers
Emerging
Growing
Mature
Few FPP suppliers
More suppliers
Technical driven
licensing
Continous process improvement and investment
No more investment
Focus on in-house
API supply
Diversification of
API sources
Few API sources
Less competition
Competitive drive
Lack of clarity
for investment
Recover from
investment &
growth
Reducing FPP suppliers
Declining
Concentration of API sources
Fewer FPP suppliers
Few incentives to manufacture
Brutal competition
Ethical exit plan
Address long lead-time and poor delivery performance
Strategic
Implication
Early
engagement
Competitive
cost
Deliver sustainability: Mitigate price volatility and secure supply
Time
92
ILLUSTRATIVE
… which in-turn allows to leverage different value levers across
lifecycle stages
Key focus
and main
drivers
Emerging
Growing
Mature
Declining

Ramp-up volume and
investment case uncertainty


Proactively manage
complexity


Economy of scale, trying to
globalize launches to a
maximum possible extent
Fast onset of rival products
shortens the window for
profitability


Gaining market share
Develop and launch the
extensions

Proactively manage
complexity
Divest and substitute with
the next generation
 Demand forecast visibility and limited volatility
 Balanced allocation and commitment model
 Continuous production process improvement
 Demand specification standardization
Potential
value
levers
 COGS-based negotiation (e.g. cleansheets)
 Sound sourcing strategies
 Innovative packaging
 Supply Chain optimization
 Product regulatory strategy
 Joint scenario planning
 Joint scenario planning
Time
93
NON-EXHAUSTIVE
There are several situations in the ARV market, when pulling value
creation levers need to be applied
New products
enter the
market
Implications for supplier
Implications for patients and program




 Transition to the new treatment regimen
(e.g. switch side effects)
 Potential supply gap between old and new
product, and delayed access
 Wastage of old regimens
New API sources potentially necessary
Decreasing demand for old product
New price re-negotiations
Global and national regulatory
implications
Innovative
packaging and
customized
labelling
 Investments in developing new
packaging necessary
 Simpler or more complex supply
chain, depending on geographical
coverage of new packaging
Quality and
regulatory risks
 Large and unexpected shifts in
demand between suppliers
Cancellation
of orders
 Drop in capacity utilization, which
could be hard to fill with other products
Upstream supply
challenge
 Alternative API sources potentially
necessary
 Better supply availability if packaging
allows for wider distribution
 Potential cross-market “grey market”
redistribution
 Need to switch to products from
alternative suppliers
 Risk to the continuity of supply
94
Contents
 Background: current state and main issues
 Way forward: potential changes and enablers required
 Breakout discussion: challenges and next steps
 Value creation levers and case studies
 Breakout discussion: challenges and next steps
 Background: Supplier Performance Evaluation
 Breakout discussion: challenges and next steps
95
Large ARV Buyers and Sellers Forum 2016 – Breakout Session
Balanced supply system – criteria and performance evaluation
29 November, 2016
Geneva, Switzerland
Republic of South Africa
Buyers and Sellers Forum 2016 follows clear ground rules!
We would like to reiterate our strong commitment to transparent, fair and competitive procurement processes. For example,
according to the Global Fund’s Code of Conduct for Suppliers, corrupt, fraudulent, collusive, anti-competitive or coercive
practices are not tolerated, and are subject to sanctions, which could include debarment from eligibility as a Global Fund supplier.
Participants to the meeting must not:






discuss with other participants your own or your competitors prices, price changes, price differentials, discounts, margins, or
any terms of sale that might affect prices
discuss individual company figures on costs, capacity, compensation, business opportunities, products or services, or sales,
except for industry data such as interest rates that are made widely available to the industry by data services.
discuss what individual companies plan to do in particular geographic or product markets or with particular customers or
suppliers, including (a) customer or supplier policies, (b) the terms on which specific types of products may be distributed by
a firm, (c) the elimination, restriction, or limitation of the quantity or quality of any product or service to be sold, or (d) the
division or limitation of sales to particular territories, customers, or classes of customers.
discuss specific future plans of your company or other companies concerning the design, production, distribution, pricing
terms or marketing of particular products.
discuss matters relating to actual or potential individual suppliers or customers that might have the effect of excluding them
from any market or of influencing the business conduct of other companies toward such suppliers or customers.
disclose to others any other competitively sensitive or confidential information.
If you become aware of possible misconduct, this should be reported to the Office of the Inspector General. The Office of the
Inspector General treats all reports carefully and protects the identity of all whistle-blowers.
97
Contents
 Background: current state and main issues
 Way forward: potential changes and enablers required
 Breakout discussion: challenges and next steps
 Value creation levers and case studies
 Breakout discussion: challenges and next steps
 Background: Supplier Performance Evaluation
 Breakout discussion: challenges and next steps
98
We all are working to deliver on our mission to achieve 90/90/90
99
GLOBAL FUND EXAMPLE
Supplier OTIF for ARV products is low and highly variable –
creating potential risks for patients (1/2)
On-Time In-Full delivery (OTIF), Q1 – mid-Nov 2016, %
88%
Supplier 1
81%
Supplier 2
74%
Supplier 3
72%
Supplier 4
Supplier 5
67%
Supplier 6
66%
Supplier 7
40%
LZN example: one supplier in
2013/2014 had 76% of product
deliveries late, with ~10% of
product deliveries being late 100
or more days
Number of stockouts have
reduced over the past 3 years
Average: (77%)
Note: LZN is an first-line HIV treatment drug, a combination of Lamivudine, Zidovudine and Nevirapine
100
GOVERNMENT OF SOUTH AFRICA EXAMPLE
Supplier OTIF for ARV products is low and highly variable –
creating potential risks for patients (2/2)
Average: 65%
101
GLOBAL FUND EXAMPLE
We all have balanced supply systems built around similar
key elements
A
E
Benefit
sharing
D
Risk
management
A
Cost
competiveness
Balanced
supply
system
B
Performance
 Providing products at the lowest possible affordable and
sustainable price to reach the maximum number of patients
 Reducing price volatility and eliminating predatory pricing
 Supplying product timely and in full
B  Incentivizing suppliers to introduce better formulations
C
 Supporting new suppliers to ensure sufficient supply and
mitigate geographic supply risks
 Investing in suppliers with sustainable manufacturing practices
 Maintaining well-diversified supplier base
D  Meeting quality requirements
 Mitigating implementation risks
C Sustainability
 Publishing reference prices
E  Building capacity and implementing rapid supply mechanisms
102
Reliable
Lowest price often means poor performance
Product price, LZN, 2013-2014, USD per pack
Price
performance
Low-price supplier
Median supplier
8.4
8.2
8.0
0
Share of orders, %
Volumes
secured
100%

Low-price supplier
consistently undercuts
prices in the market…

… which allows them
to secure high share
of orders (~50%)…

… however, the
delivery performance
is low
Avg.
~50%
50%
0%
Q1 2013
Q2
Q3
Average delay, days
Delivery
performance
GLOBAL FUND EXAMPLE
Q4
Q1 2014
Maximum delay, days
+79% (+75 days)
+39% (+13 days)
33
45
95
Median
Low-price
Median
170
Low-price
Similar issues have been observed with several TLE suppliers in 2015-2016
Note: LZN is an first-line HIV treatment drug, a combination of Lamivudine, Zidovudine and Nevirapine
103
Responsible
Both buyers and sellers’ strategies in the market
affect the price
GLOBAL FUND EXAMPLE
Supplier behaviors
Quoted tender price, TLE, USD per pack
The Global Fund
target pricing
Actual price, TLE, USD per pack
11
Suppliers who responded
to tender price
10
10
Suppliers who did not
respond to tender price
9
9
8
8
0
Initial
0
Initial
11
+15%
1H 2015
2H 2015
2016
-14%
1H 2015
2H 2015
2016
• Some suppliers responded to Global Fund target pricing, but others could not or would not –
offering 15% higher than the target price
• After the allocation, suppliers who could not offer target pricing subsequently reduced prices by up
to 14% below the target pricing, which were captured through the “most favored nation” clause
NOTE: TLE = combination of tenofovir (TDF) in combination with lamivudine (3TC) and efavirenz (EFV)
104
SOURCE: The Global Fund TLE pack prices
Responsive
Changes introduced in 2015 improved supply
Supplier delivery performance (OTIF) has improved …
Percent
62%
51%
43%
Best
Average1
85%
74%
58%
Worst
35-45%
… and lead times and urgent orders reduced
Average lead time for WHO-optimal products2
and share of late orders, days / percent
26%
141
BEFORE
July 2013 -June 2014
AFTER
July 2014 - Sep 2016
• Supplier OTIF increased by 35-45% (15-25
percentage points) for all suppliers
• Volume-weighted OTIF improved from 41%
to 75%
GLOBAL FUND EXAMPLE
BEFORE
2013-2015
xx
Average
lead times
xx
Share
of orders
19%
-47%
75
AFTER
2016
• Since implementing vendor managed inventory
(VMI) in 2015, average lead time to delivery
decreased by 47% (from 142 to 75 days)
• Number of urgent orders went down from
over 25% in 2015 to under 20% in 2016
1 Simple non-weighted average across top 7 suppliers
2 For Rapid Supply Mechanism (RSM) products, time of order to time of demanded delivery by PR
3 Less than 3 months between ordering and time of demanded delivery by PR
105
Main changes to achieve a balances supply system
From
To
Timing
Spot market purchases
• Purchase of orders on a need basis,
potentially leading to unpredictable pricing
and performance
Longer-term tender agreements
• Improved forecasting leading to higher committed purchase
volumes
• Bundled volumes with lower volume drugs to ensure availability
Relationships
Transactional relationships
• Relationship purely based on one-time
buyer–supplier interactions
Strategic partnerships
• Preferred suppliers of choice based on quality of supplier
• Quality standards transparency
Visibility
Black box
• No clear visibility as to how the contract
distribution has been allocated
Transparent selection criteria
• Full transparency into selection criteria
• Support as to how to improve to acquire higher share
• Focus on demand visibility
Cost
efficiency
Lowest price
• Price push to ensure high quantity with little
regard to sustainability and quality
Joint cost optimization
• Keep number of suppliers high
• Grow new suppliers
• Ensure quality of products
Perception
Market position
• Selection based on history and market
positioning
Awards based on capability and performance
• Evaluation based on supplier’s technical capabilities and
commercial terms
106
Contents
 Background: current state and main issues
 Way forward: potential changes and enablers required
 Breakout discussion: challenges and next steps
 Value creation levers and case studies
 Breakout discussion: challenges and next steps
 Background: Supplier Performance Evaluation
 Breakout discussion: challenges and next steps
107
Large ARV Buyers and Sellers Forum 2016
Breakout sessions – key takeaways and next steps
November 29, 2016
Geneva, Switzerland
Republic of South Africa
Demand Management is one of value creation levers aimed at creating
mutual benefits, rather than purely attacking suppliers’ margin
Detailed further
Different levers employed aim at facilitating processing factors without
Typical cost structure, illustrative
Levers used
Example impact

Margin
Price-centric
RFP approach

Freight
Overhead
Direct
labor
CAPEX
Materials

Sourcing
Demand
management
Processes
and product
lifecycle
Supply chain
optimization







Competitive bidding
situations
Firm price negotiations
Cheaper raw materials due
to volume commitments
API supplier optimization
Reduced freight costs from
better mode selection
No rush order overtimes
Less overheads to deal with
regulatory and compliance
Batch size optimization
Cheaper transportation from
better space utilization
Reduced write-off risks
Rather than
focusing purely on
price reduction
through margin –
value creation levers
address other cost
components (which
make up a much
larger share of total
product cost),
creating value for
both parties without
“squeezing the
suppliers”
109
BREAKOUT NOV 29
Demand Management – challenges and opportunities (1/2)

Closer engagement with country programs

Most value will be derived from the discussions about the forecast and numbers – what does it
say/not say; where are the apparent inconsistencies
Communication
and alignment

Open communication and dialogue, periodically publish aggregate actual volumes earlier and joint
problem-solving together on large deviations to help build “trust in the forecast”

Develop aligned messaging around the importance and benefits of better demand planning for all
parties (win-win)
Methodology

Engaging decision makers and make economic and program implications clearer

Include more countries and products to increase scope beyond 55% demand

Avoid double-counting of volumes between buyers

More real-time sharing of volume data; providing more regular forecast updates

More nuanced forecasting accuracy metric can highlight where issues / opportunities are

Indicate level of certainty in the forecast (including “firm commitments” vs. “less certain’)

Alignment on the definitions and time-points; portray production and in-country timelines separately
110
BREAKOUT NOV 29
Demand Management – challenges and opportunities (2/2)
New products
and regimens
In-country
processes

Provide forecasts for new/old products as volumes ramp-up/down to enable better formulation and
API planning

Obtaining more timely data on country forecasts and quantifications

Countries systems and methodology are the key drivers of procurement accuracy

Consider either stockholding or Vendor Managed Inventory

Weak capabilities and systems

Increase accountability
111
Value creation levers aim at creating mutual benefits rather than purely
focusing on suppliers’ margin
Different levers could help jointly improve key cost components
Typical cost structure, illustrative
Levers used
Example impact

Margin
Standard RFP
approach

Freight
Overhead
Labor
CAPEX
Materials

Sourcing
Demand
management
Processes
and product
lifecycle
Supply chain
optimization







Competitive bidding
situations
Firm price negotiations
Cheaper raw materials due
to volume commitments
API supplier optimization
Reduced freight costs from
better mode selection
No rush order overtimes
Less overheads to deal with
regulatory and compliance
Batch size optimization
Cheaper transportation from
better space utilization
Reduced write-off risks
Rather than
focusing purely on
price reduction
through margin –
value creation levers
address other cost
components (which
make up a much
larger share of total
product cost),
creating value for
both parties without
“squeezing the
suppliers”
112
BREAKOUT NOV 29
We have jointly brainstormed on collaborative opportunities
Sourcing
Demand
management
 Optimal API make vs. buy decisions
 Use volume commitments to drive cheaper raw material prices
 Encourage staggering of procurements under long term arrangements
 Stabilize order management process
 Smoothen demand, including more aligned order schedules between buyers
 More certainty on time dimension of demand
 Explore optimized Supply chain set ups
Process and
product
lifecycle




Supply chain
optimization
 Optimize packaging (e.g., e.g. shrink packaging) to reduce material and logistics cost
 Streamline administrative process to reduce inventory and write-off process
Early engagement buyer, seller, and countries, e.g. on new regimens
Optimization and consistent application of product standards (e.g. multi-month packs)
Optimization of batch sizes and reduce bulk ordering
Create stable partnership and demand outlook to allow sustainable investments (e.g., scale
up, process development)
…
BREAKOUT NOV 29
Overcoming some key barriers will help to create value significantly
(examples)
 Non-customized labelling
 Transparency on supplier shipments across buyers to improvement
accuracy of forecast
 Increase demand/ stock visibility on country level, covering >70% of
demand
 Increase country ownership of volatility in forecasting and ordering,
incentivize stable supply chain
 Stronger coordination between buyers re. the ordering cycle
 ….
What are the next steps for each of the stakeholders going forward?
Next steps
▪
Continue to maximize transparency for suppliers on
▪ Definition of performance with clear metrics
▪ Consequences of poor/good performance for suppliers
▪ Supplier performance throughout tenure period
Buyers
Suppliers
Partners
▪ Ensure clear path to enter for new entrants
▪ Consider whether and how to enable poor performers to improve and gain share
▪ Engage countries still focusing on lowest price to have a more balanced approach
▪ Communicate wider on cost of poor performance
▪
▪
Invest in ability to respond to enhanced requirements
▪
Support country programmes to plan better
Voluntarily provide market intelligence more frequently