Health Care Supply Chains after the Pandemic

COVID-19 is likely to have profound and long-term consequences on global health supply chains, as did HIV. The HIV pandemic transformed health care supply chains globally and in particular in lower- and middle-income countries (LMICs), leading to:

• The mobilization of new financial resources for health care products and service delivery.
• The creation of international bodies (including The Global Fund and PEPFAR) that focused on and expanded product and service delivery.
• The growth of generic manufacturing in China and India to provide affordable medicines.
• Large-scale development of new technologies (such as rapid test kits).
• Flexibility in regulatory and intellectual property regulations.
• Investments in country-based supply chains.

In many ways, COVID-19 is a different type of pandemic. Less lethal but more infectious. An acute rather than a chronic condition. Less associated stigma.

The short-term effects of COVID-19 on global health care supply chains have been severe—factory and border closures, transportation disruption, shifting demand, and price increases—but what will the long-term consequences be? And how will global changes affect LMICs? Will we look back 20, or even 10 years from now, and recognize this moment as an inflection point for the health care supply chain in general, and in developing countries in particular? Will the changes be positive overall? Or will we revert to the same systems that left us unprepared for an international pandemic?

The short answer to these questions is that we don’t know. However, crises like pandemics tend to have lasting impacts, and it is likely that the short-term disruption of health care supply chains we are seeing will result in longer-term structural changes. JSI and some of our collaborators have been discussing what some of these changes might be, and what they might mean for LMICs.

• Market Disruption: Some of the short-term disruptions will last. Smaller companies, including in LMICs, may go out of business. DKT International is a nonprofit organization that distributes health care products mainly for reproductive health and HIV in more than 60 countries. CEO Chris Purdy fears that many of the “middlemen” in LMIC supply chains will be driven out of business. Larger companies with deeper pockets may find it easier to survive, but they are few and far between. 

What is interesting in LMICs is that many of the new private market entrants into the health care supply chain—like mPharma and MyDawa (see below)—offer strong technological solutions, which may help them survive and even prosper. While less fragmentation and more concentration in LMIC health care supply chains might be a good thing in the long run, it also introduces risks. 

Mara Hansen Staples of Impact for Health has studied these innovators in health product distribution in Africa for years and says “it’s important that the market maintains space for these innovators to develop and find their way but at the same time help them to grow to scale.” So although there are new opportunities for innovators, there is risk, and their small size makes it difficult for them to exploit those opportunities. 

• Supplier Diversification and Onshoring: COVID-19 has exposed the weaknesses of the current global health care supply chain with its focus on efficiency and cost control. As countries scramble to obtain sufficient personal protective equipment (PPE) and medicines, the importance for both national security and health reasons of having flexible supply chains that are not overly dependent on a single source (or country) is becoming apparent. We will certainly see movement by governments and companies seeking to diversify their supplier base and move some of that base closer to home. This is easier said than done, however, as the cost implications and practical difficulties become apparent. It is simply not enough to onshore manufacture of finished products; there are also active pharmaceutical ingredients (and in turn their raw materials), excipients, and packaging materials. 

For LMICs in particular, cost will remain a critical factor in sourcing decisions, and expanding local pharmaceutical manufacturing will remain a huge challenge. Serious trade-offs, not least for cost and quality, will need to be considered. The focus will likely be on increasing diversification with some onshoring of manufacturing as part of the equation, but this will require strong industrial policy by governments.

• Technology: COVID-19 will likely turbocharge the trend in increased technology adoption for supply chains, particularly to enhance visibility. Gaps in visibility identified during the COVID-19 response will lead companies to seek more visibility in their supply chains both upstream and downstream, and in turn in those of their suppliers and customers. Technology adoption will also accelerate in manufacturing, which may facilitate onshoring to industrially developed countries. 
• Flexibility: As the pandemic recedes, ways to make supply chains more flexible, agile, and resilient to absorb shocks will accelerate. There should be more of a focus on building supply chains that can quickly adapt to changing demand rather than simply trying to forecast or predict demand a year or more into the future. 

Risk planning will grow in importance, including for organizations in LMICs. Mukul Taperi, the managing director of Pregna, an India-based manufacturer of reproductive health devices, says his company had a risk-mitigation plan but it was focused on smaller, localized crises like fires or earthquakes, not a global pandemic. Pregna is now rethinking its entire risk-mitigation strategy. 

Another aspect of flexibility seen recently is regulators and suppliers coming together to ensure products flow. DKT’s Purdy hopes that this move to more flexibility continues. “Regulatory issues are often the reason why products are unavailable in LMICs. Post-COVID-19 there may be an opportunity for more flexibility…there is a tendency to seek the perfect at the cost of the good-enough.”

• Governance: Will COVID-19 lead to long-term change in supply chain governance in LMICs, including a greater private sector role in supply chain management and away from government-run supply chains? This is hard to predict. On the one hand, governments may decide that supply chain management has become too important—and complicated—for them to run directly, or they may decide supply chains have become too important to outsource. What COVID-19 has revealed in developed economies is the importance of government and private sector collaboration to resolve problems.  
• Patient-Centricity: In the U.S., we are already seeing shifts in how people are accessing products and services during stay-at-home orders, with an increase in telemedicine and more home delivery of medicines. This was an existing trend and COVID-19 has accelerated it. DKT’s Purdy was seeing gradual shifts in LMICs to home-based care for contraceptives with self-administration of injectable contraceptives like Sayana Press, and thinks this will accelerate. 

The dominant public sector model in LMICs will struggle to provide direct delivery to patients. The private sector has already begun filling this gap and this trend is growing. MedRx Inc. is a direct-to-consumer service provider based in Accra, Ghana. Hansen-Staples of Impact for Health cites CEO Hayford Brako, who in early April said, “We have seen increases in the use of MedRx by both pharmacies and patients. We are getting a lot of calls because every pharmacy wants to be a part of our network, and definitely more patients getting on board because this is the easier way to buy medicines now.” Brako notes that in the past four weeks, the company witnessed a 30 percent increase in users ordering from pharmacies through its platform.

MyDawa, a licensed e-pharmacy operating in Nairobi, offers tele-pharmacy and delivery of health products to locations of the customer’s choice, including households, workplaces, and local shops. According to Hansen-Staples, Tony Wood, MyDawa’s managing director, said in early April that the company had noticed a significant increase in the sales of PPE, soap, and sanitizers. Meanwhile, South Africa is looking to expand its offering of medicine ATMs with Right ePharmacy, and the National Department of Health is fast-tracking expansion of its Collect & Go smart lockers. In May, 70 new locker sites were rolled out in Gauteng, Mpumalanga, and the Free State.

• Investment: One of the outcomes of HIV was increased investment in LMIC supply chains. While the hope is that COVID-19 will increase recognition of the importance of strong health care supply chains with commensurate investment, there will also be pressure on funders to rebuild their own shattered economies. There will be pressure to turn inward, certainly over the short term. There may also be opportunities for alternative financing mechanisms including venture capital—Ghana’s mPharma, which supplies pharmacies with both medicines and supply chain expertise, raised US $17 million in May. A shortage of working capital is a big obstacle to expansion of services like those offered by mPharma. Some say it’s time to look at streamlining disease-specific approaches. Mukul Taperia of Pregna says, “you have one agency supporting TB, another supporting malaria, another immunization, maybe it’s time we looked at systems more comprehensively.” 

All these factors will play out over the coming years. Most—technology, increased role for the private sector, a focus on supply chain resilience, and patient-centricity—are not new, but will accelerate in the post-COVID-19 world. The fundamentals of supply chain management—the need for visibility, connectivity, flexibility, and efficiency—remain. Our guess is we are in for a period of major disruption and change, but it’s worth remembering that disruption does not necessarily mean negative outcomes. It is incumbent on all of us working in health supply chains to turn this disruptive event into positive change.

Written by: Paul Dowling, Senior Technical Advisor, Center for Health Logistics