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global sourcing methods of the Health Authority of Anguilla pharmaceutical supplies

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Table of Contents

Introduction   3

  1. Background 3
  2. Pharmaceutical Procurement Services 3

Examination of global sourcing methods  5

  1. Problems faced in Global Sourcing 5
  2. Technological Advancement in the Global Sourcing Methods 6

Global Procurement Strategy   7

  1. Proposal of global strategy 8
  2. Make or Buy Analysis 9

III.     Total Acquisition Costs Analysis  9

Conclusion   11

Bibliography   12

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

I.                    Background

This report will critically examine the global sourcing methods of the Health Authority of Anguilla pharmaceutical supplies and provide a proposal for the development of a global procurement strategy, which can lead to procurement excellence and improve the body’s competitive advantage.

Anguilla, a British Overseas Territory (BOT), is the most northern island of the Leeward Islands, located about 150 miles east of Puerto Rico. The island is 35 square miles with an approximate population of 15,094 as 03 March 2021 (Anon., 2020). The main entry to Anguilla is by boat from St. Martin. The island’s main industry is Tourism. Due to a lack of industry diversity, the island is forced to import most of its product offerings. Imported products range from food to medical supplies to automobiles. In 2005, the trade balance was -310,786,028.00 (Government of Anguilla, n.d.). Anguilla is a part of the Organization of Eastern Caribbean States (OECS) and is an associate member of the Caribbean Community (CARICOM).

The Health Authority of Anguilla (HAA), a statutory body of the Government of Anguilla, was established in 2015 under the Health Authority of Anguilla Act. The Health Authority is tasked with the promotion and protection of the health of persons; provision of integration of primary and secondary care; operation, repair, extension, and maintenance of the health infrastructure; determination of health priorities; assessment of ongoing health needs of the population, ensuring quality care to residents and visitors. The HAA is the only public body providing health services to the island. Services include but are not limited to Emergency Medicine, Pharmaceutical, Dentistry, Imaging, Pediatrics, Laboratory Services, Renal Dialysis, General Surgery, and Anesthesiology (Maeza Demis- Adams, 2020). The HAA currently competes with two private pharmacies. One locally owned and the other a branch of French-owned St. Martin pharmacies.

II.                  Pharmaceutical Procurement Services

HAA carries the burden of ensuring the entire population has access to readily available pharmaceuticals. While the private pharmacies are equipped with some pharmaceuticals, the Government has not placed any duty on them to mandatorily provide for the population and visitors. Therefore, a core competence of the HAA is to have readily available pharmaceuticals based on the needs of the population at large. Currently, the HAA uses the OECS Pharmaceutical Procurement Services (OECS PPS).

The OECS PPS is a regional pool consisting of 10 OECS countries capturing 1 million people procuring pharmaceuticals for the enlisted countries. The body was established in 1986 with the broad objective to alleviate the financial strain on OECS governments to finance medicines adequately. The body collates forecasts from member countries, invites bids, awards contracts. The countries then submit requisitions to PPS, PPS places their order, the supplier ships directly to the consignee, the country receives the goods, informs PPS, and then makes payments via the Eastern Caribbean Central Bank. Figure 1 illustrates the PPS procurement cycle described above.

Figure 1-Tendering/Ordering/ Payment cycle (Burnett, 2015)

The assessment defines global sourcing as “the coordination and integration of procurement requirements across worldwide business units, looking at common items, processes, technologies, and suppliers (Birou and Fawcett 1993)”.

Pharmaceutical procurement of the HAA does not snuggly fit within this framework. Currently, only regional units are being utilized, but there are opportunities as a BOT that can enhance the procurement network currently being utilized that may allow the HAA to realize efficacy in the structure and provide them with a competitive advantage over private pharmacies.

Examination of global sourcing methods

I.                    Problems faced in Global Sourcing

Researchers identified that local drug prices were often higher than the lowest international reference level across low and middle-income countries. These high prices are shown to deplete already small health budgets. Centralized buying provides the opportunity for price-takers to become non-price-takers when they can bargain together. The research concluded that centralized procurement allows the public sector to obtain lower prices (Dubois, et al., 2021).

An example of this is the Pooled Pharmacy Services (PPS) created by the OECS. Currently, through its member state association with the OECS, the HAA has joined a pool of member countries that group their financial resources and member capacity to gain bargaining power and lowest rates. The pool was created as there was an awareness that a “pooled procurement mechanism and improved supply management practices will result in the reduction in the unit cost of pharmaceutical and medical supplies to each Participating state” (Eastern Caribbean Drug Service, 1990).

The PPS currently holds an 840 item product portfolio of which pharmaceutical and non-pharmaceutical items are procured. Every 18 months, the PPS uses an e-tendering platform to accept bids from potential providers to supply the items of the regional formulary. A list of awards is then posted containing the items, selected supplier, unit, size, and price (depending on delivery method). When the member states make requisitions, the requested items must be purchased from the chosen supplier as the PPS uses contractual agreements to secure pharmaceuticals based on forecasts of needs and to lock in the agreed price. The PPS utilizes the regional banking system to pay suppliers 60 days after items are delivered to the requisitioning country. The ECCB, for no additional cost to the PPS member states, facilitates the payment of foreign exchange to suppliers.

Admittedly, this approach has been shown to reduce the regional market cost of medicines by 20 percent (Burnett, 2017). Other benefits of the PPS include economies of scale, monopsony- resulting in higher bargaining power, fixed the common price for the tender period, enhanced quality assurance, coordinated training sharing of information, and transparent and rational procurement (Burnett, 2015).

However, there are evident disadvantages to this approach. One is left with the question, so why is the public hospital always out of medicines? A few things come to mind. PPS has identified forecasting as a challenge. This means that member countries are not accurately forecasting their needs; in turn, the PPS cannot secure sufficient drug supply during the procurement stage. Being one of the smallest states, Anguilla will most likely be affected by this as it can only procure necessary amounts to supply the population without overstocking. Based on the PPS offerings, one can deduce that there are still many pharmaceutical items not covered under the regional formulary. For those items, the HAA uses direct supplier purchasing based on the more traditional practice of only considering the cost. While the HAA sees costs-savings from the drugs procured through PPS, they are price-takers when direct buying. Sometimes, unable to recover the full cost of drugs due to the general population not being able to afford the final costs. Another issue presented by the PPS is that Anguilla has little input contribution to the tendering process. The question to be asked here is, ‘Is the PPS selecting based on price or quality?’ When PPS posts the selected list, the HAA as a member is forced to use whichever brand has been selected for the specific molecule. Also, when that supplier encounters supply issues with stock or delivery or even issues with the manufacturer, it passes on to each member state.

This means that the HAA has chosen to outsource the procurement of its pharmaceutical needs. Due to the small size of the island and accessibility hardships, such a strategic purchasing plan can seem ideal. However, it lacks in providing the range and quantities of medications actually needed on the island as the only public pharmacy.

II.                  Technological Advancement in the Global Sourcing Methods

Prior to 2019, the HAA did not have a functioning IT system to monitor drug stocks. In 2019, the HAA introduced the implementation and preservation of a pharmaceutical inventory system to monitor stock rotation. In this way, the HAA has put itself in a better position to forecast and track drug usage trends on the island. Thus, should improve the availability of drugs now and in the future.

In comparison, the local-owned pharmacy also uses direct supplier purchasing to procure goods. However, they have long had a proper system in place to monitor stocks. While the final costs of drugs are more expensive, customers can rely on finding readily available drugs when necessary. In such cases, many people forego the public pharmacy due to the high likelihood of the drugs being unavailable and head directly to the private pharmacy. The French-owned pharmacy on the island holds a buying agreement with a drug supplier in the neighboring island St.Martin. All of the pharmacies on the French side of St.Martin hold a similar agreement. The supplier has a warehouse set up, where the pharmacies can order drugs for twice a week delivery. The ordering is done through a website like an Amazon Marketplace. The pharmacies select the drug, the quantity and are billed upon the packaging of their order. St. Martin is a 15-minute boat ride from Anguilla; this approach allows for easy accessibility to the island. Unlike the PPS, where drugs are coming from several destinations and the island currently having very limited flights to the island. Wait times are much longer under PPS.

Global Procurement Strategy

To meet the increasing demands of medicines and healthcare supplies on the island, HAA has no choice but to search for global strategies and procurement plans. It is aimed at sourcing the supplies globally at cost-effective prices to ensure the needs of the people are met and fulfilled, but at low costs and with influential buyer-supplier relationships. HAA can gain a competitive advantage when it effectively sources drugs from internal or external borders. Most importantly, I believe HAA can gain a competitive advantage if it joins forces with the other pharmacies on the island and in the region.

However, HAA must launch an effective global procurement strategy to ensure that drugs are procured at cost-effective prices but on time and of the required quality. The analysis is performed to ensure that global sourcing incorporates all the dimensions required in the global procurement strategy, as summarized in figure 2.

Figure 2-Steps to follow in Global Procurement Strategy (Henshall, 2015)

I.                    Proposal of global strategy

 

As stated earlier, the OECS PPS has proven to reduce regional costs of drugs by 20%. But, is this enough for the HAA to continue to use this mechanism as its only means of sourcing drugs? The HAA, in its unique position, can tap into the structure contractually outlined between the French pharmacy on the island and the French drug supplier in St. Martin. In terms of accessibility, St.Martin is the closest island to Anguilla and requires only a 15-minute boat ride or 5-minute flight for access. This eliminates the issue of the frequent unavailability of drugs usually provided by the public pharmacy. The HAA should form a mutual relationship with the French pharmacy to use them as a catalyst to place drug orders from the neighboring island. In this agreement, the HAA will agree to pay the French pharmacy administration fees. But, the HAA seeks to gain a competitive advantage in always having essential drugs available to the public; they will not have much in-house administration costs as the administration is outsourced to the French pharmacy; this allows the HAA to focus on other necessary issues in the sector. The French pharmacy also gains the advantage of lower prices and higher drug security as it will be ordering multiples of what is usually ordered.

The HAA should continue active participation in the OECS PPS. They will need to decide which drugs are more sensible to procure through the OECS PPS and through the joint agreement with the French pharmacy. Taking into consideration; availability, wait times, price, quality, and demand of the public. Taking this mixed approach offers HAA what is lacking in availability. The OECS PPS has a limited drug catalog and can only use one supplier for each drug. However, under this mixed approach, when it is more beneficial, the HAA can procure drugs outside of the regional formulary, at higher quality and in some cases at better prices in a timelier fashion.

 

II.                  Make or Buy Analysis

 

Usually, companies have two options to perform in the competitive market to sell their products at competitive prices. Firstly, HAA can consider the making option. Currently, the island does not have the capital capacity (human, physical, financial) to pursue investing in the manufacturing of drugs locally. However, under the UK, Anguilla receives several grants for the development of the island. The HAA, along with the other pharmacies on the island, can consider making a case to the UK to provide funding for the development in this area. However, it is worth noting that unlike Brazil; which has a population of approximately 213,993,437 and has been a stalwart for its efforts in R&D, large-scale essential drug production, and strategic drug production to reduce the health sector trade deficit, Anguilla does not have even a significant fraction of that population that can sustain such an operation (Junior, 2012).

This goes without saying that the buying option is most suitable for the HAA. HAA needs to consider the Total Acquisition Costs of using suppliers to provide necessary drugs, as discussed in section 2. However, when deciding to buy, a supplier must be chosen. When selecting a supplier, a few critical things must be taken into consideration; the reliability of the supplier, the cost, the capacity of production,

III.                Total Acquisition Costs Analysis

 

In selecting an effective global sourcing strategy, HAA must calculate the total acquisition cost that depends on various factors. Moreover, the price of drugs bought from the suppliers can be affected because of factors like the raw material quality, negotiation skills of the supplier and the importer, the quantity of the raw material available with the supplier and the quantity the company must buy, and the transportation costs between the supplier and HAA.

Therefore, before deciding on the procurement strategy, Total Acquisition Cost (TAC) is calculated, which focuses on several factors before calculating the total cost that a company is bound to pay (Market Business News, n.d.). It includes:

  • Transportation (distance between supplier and HAA)- typically high as Anguilla has limited accessibility. HAA will need to negotiate with on-island couriers to secure reasonable shipping rates from chosen suppliers. However, freight from St. Martin is relatively cheap.
  • Inventory storage- the HAA has recently expanded under a $60 million UK grant; extra space can be used to curate a room fit for the storage of drugs. Also, the agreement with the French pharmacy will allow the HAA to keep leaner stock as orders are fulfilled twice a week.
  • Supply Chain- drugs are sent from manufacturers in France directly to the supplier in St.Martin. The French pharmacy in Anguilla uses the e-market to order drugs as per request from the HAA. The supplier then packs and loads the order onto a boat for forwarding to Anguilla. The HAA will then send its store staff to the port to collect drugs for inventory and storage at the pharmacy.
  • Import and export fees- the HAA, in its capacity as a statutory body, is not required to pay duties on imports. Analysis of export fees from supplier countries will need to be done.
  • Quality of the suppliers- In 2019, France was rated number 5 of 15 countries with the highest export of drugs, exporting $26.6 million worth of drugs to the rest of the world (Workman, n.d.). This speaks to the quality of drugs offered by France and, in turn, to Anguilla. The OECS PPS selects suppliers from many countries, which uses manufacturers from several countries, and therefore hard to determine the quality of drugs that will be received.

 

Conclusion

Production rather than procurement could be the best alternative but highly challenged by resource constraints. The Health Authority of Anguilla (HAA) has a critical decision that needs proper scrutiny of the best drug sourcing process. Underlying problems associated with any of the alternatives, including transport, cost, quality and quantity are restrictive.  As the production of these drugs locally calls for enormous sourcing, the centralized method is better in the meantime as the HAA decides to establish improved methods. Considering there is a wide variety of drugs required, the overall investment period for considerable manufacturing before the process can get to an optimum level is relatively long. This also calls on quality. According to a sourcing research by Jensen (2017), a sequential model can be an effective methodology to scrutinize all the underlying process to determine the best route to follow especially in production. The insufficiency of the available funding from development grants for local production to establish an immediate transformation could be put under various uses. First, HAA could use part of the funds to boost the supplies through the current centralized sourcing by referring to the previous deficits and raising the budget. This would enhance the quantity and quality aspects. Secondly, the remaining funds from these grants can be used for a progressive development plan for local drug production. The process would take several years, but in the long run, the goal will be achieved. This can be set as one of the country’s missions in industrialization. As a result, the continued centralized procurement would finally cease when HAA would be in the position to manufacture the drugs locally. Alternatively, the OECS countries involved in the centralized procurement would successfully establish the production facility by joining forces for the required industrial setup. The process would reduce the required industrialization budget and process Anguilla would be struggling with independently.  This can be an establishment of the regional development goal.

 

 

 

 

Bibliography

Anon., 2020. Worldometer. [Online]
Available at: https://www.worldometers.info/world-population/anguilla-population/
[Accessed 03 March 2020].

Burnett, F., 2015. Tendering/Ordering/Payment cycle. Ecuador: Organisation of Eastern Caribbean States.

Burnett, F., 2017. OECS Pharmaceutical Procurement Service (PPS) grows from strength to strength, s.l.: Organisation of Eastern Caribbean States.

Dubois, P., Lefouili, Y. & Straub, S., 2021. Pooled procurement of drugs in low and middle income countries. European Economic Review, 01 January .Volume 132.

Eastern Caribbean Drug Service, 1990. [Online]
Available at: http://ctrc.sice.oas.org/CARICOM/OECS/ECDS.pdf
[Accessed 04 March 2021].

Government of Anguilla, n.d. Anguilla Statistics Department. [Online]
Available at: http://www.gov.ai/statistics/2005_Trad_Publication.htm
[Accessed 03 March 2021].

Henshall, D., 2015. A Guide to Global Sourcing. [Online]
Available at: http://purchasingpractice.com/a-guide-to-global-sourcing-for-competitive-advantage
[Accessed 10 March 2021].

Jensen, P.A., 2017. Strategic sourcing and procurement of facilities management services. Journal of Global Operations and Strategic Sourcing.

Junior, W. F. S., 2012. The production and R&D structure of the Brazilian pharmaceutical industry: The role of public procurement and public drug production. Global Public Health, 7(10), pp. 1062-1079.

Maeza Demis- Adams, 2020. Opertaional Plan 2020, s.l.: Health Authority of Anguilla.

Market Business News, n.d. Global sourcing – definition and meaning. [Online]
Available at: https://marketbusinessnews.com/financial-glossary/global-sourcing/
[Accessed 09 March 2020].

Workman, D., n.d. Drugs and Medicine Exports by Country. [Online]
Available at: http://www.worldstopexports.com/drugs-medicine-exports-country/
[Accessed 09 March 2021].

 

 

 

 

 

 

 

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