Increasing private–sector involvement in antiretroviral delivery

Ambika Raghavan, Bob Keating, Rosanah Fung

The USAID Global Health Supply Chain Program-Procurement and Supply Management (GHSC-PSM) project has increased private-sector engagement to lower costs and create supply chain efficiencies, while making ARV suppliers more accountable. These strategic sourcing approaches undertaken by the project have changed the market dynamics, altering the relationship between buyers and suppliers from a short-term transactional relationship to a more long-term strategic partnership where the supplier is a true partner in the supply chain. USAID moved from market takers to market shapers.

The long-term goal of these relationships is to establish a sustainable, market-led HIV supply chain that benefits the manufacturers and procuring countries, and ultimately the people at the end of the supply chain availing of these lifesaving medications.

Group D Incoterms (D-Terms): GHSC-PSM began implementing the D-Terms program in 2021 to transfer the risks and complexities associated with international shipping and customs clearance to the supplier, away from USAID and GHSC-PSM. This enables GHSC-PSM to establish fixed costs for product delivery despite the fluctuating freight market and the complexities related to importing medicine into multiple countries. The suppliers assume responsibility for all aspects of the transportation process, removing the number of stakeholders participating at various steps in the supply chain making it a more sustainable and economical model. Suppliers manage all logistics, including arranging the shipment, selecting the carrier, and covering transportation and customs clearance costs in return for volume commitments, allowing them to plan their production based on product demand. For GHSC-PSM, as a steward of these U.S. Government health commodity donations, D-Terms reduces risks during transit because the manufacturer has taken over this responsibility, protecting USAID from financial losses related to damaged, lost, or delayed products.?

USAID vendor-managed solutions (VMS) program: GHSC-PSM established the USAID vendor-managed solutions (VMS) program in 2023 to build upon the success of the ARV D-Term program and expand the scope of qualified vendors from freight services to supply chain partners, forward stocking products in Southern Africa for regional use. Through this program, three VMS suppliers are responsible for delivering ARVs that they preposition in quality-assured bonded warehouses in South Africa. The stock is prepositioned at their own risk, which they base on demand signals shared by GHSC-PSM. Strategic prepositioning of health commodities in the region reduces lead times for product availability. This creates opportunities for countries to lower their stockholding levels, alleviating warehousing constraints without increasing the risk of stockouts or product expiries. GHSC-PSM cut the lead time from order to final delivery in half under the VMS program, from an average 120 days to 63 days while maintaining first-line treatment costs under $40 per patient per year[1]. ?

These ARV procurement strategies have increased private-sector involvement in the delivery process and created a more sustainable environment where suppliers are true partners in addressing in-country supply chain challenges. For example, in Mozambique, GHSC-PSM is engaging with suppliers under the VMS program to bypass the overcrowded central warehouses and deliver product downstream, directly to provincial warehouses. These downstream services will further lessen the burden of high stock levels and inventory holding costs at the Central Medical Stores (CMS), while also alleviating government budget constraints for in-country distribution.

Volume commitments by PEPFAR and other procurement agencies provides suppliers with a predictable stream of revenue and incentivizes them to allocate resources and make investments in PEPFAR supported countries. This in turn results in suppliers proposing recommendations to GHSC-PSM on how to create a market-led supply chain. It allows them to better plan production schedules and better manage inventory levels. This increased transparency is a key part of the global partnership between suppliers and GHSC-PSM, fostering trust, collaboration, and sustainable partnerships.

This increased private-sector engagement and the closer linkages between suppliers and countries helps reduce the likelihood of ARV stockouts. Having stock pre-positioned in-country moves countries closer to a just-in-time model where they can rapidly respond to ARV needs as they occur and deliver them to the last mile without a lengthy transit and customs process. This saves the country money through a more streamlined and less time-sensitive approach to getting ARVs in the hands of patients.??

[1] 40 days is required the import waiver into Mozambique