Saturday, March 9, 2013

Outsourcing in Supply Chain Management of Public Health Systems

A document by the USAID describes a "potential opportunity for public sector health systems to engage third party service providers to support the logistics functions with an emphasis on distribution, warehousing, and inventory management." This document takes a look at developing nations and the ability of the public health sector to seek support from the private sector by way of outsourcing third party logistics providers. The document explains outsourcing as “engaging a third party provider to perform services for the host organization that were previously performed in-house.” This third party provider is previously not present in the exisitng supply chain process and due to a strategic reason, a company brings them on board in order for it to be able to focus on its core capabilities. The third party provider is brought on board after the management has evaluated the company's core competencies and performance and it has decided on the best party to bring on board in line with the company's objectives. Areas in which public health systems can contract third party providers within their supply chain process according to the publication include: Contracting a Non Governmental Organisation to provide healthcare services to clients or manage hospital administration to improve the system or to boost hospital management. Other areas that a Ministry of Health would outsource for its supply chain and logistics mangement includes "forecasting and procurement, storage, distribution, and logistics management information systems." It is important to note that the public health systems will not outcource areas that they feel are within their core competencies. such areas would include "developing and updating treatment guidelines, developing health policies, resourcing health facilities, creating national essential drug lists, and selecting products." Getting down to the detail of the supply chain functions for which they would outsource, the document by USAID explains that the Ministries of Health within the developing nations would commonly contract third party providers because of their lack of specialisation in the areas. These areas may include but are not limited to importation where the government certifies the movement of goods into the country but they outsource third parties to observe storage conditions like the ideal temperatures for storeage of vaccines, climate controlled warehousing and inventory accuracy guarantees. Other functions for which they would outsource includestransportation and delivery between different levels of the supply chain, product security in terms of secure storage, monitoring, strict access, and product tracking as well as information services that "invest in information systems to monitor stock movements, order status, and invoicing, using bar coding and electronic data management systems." The document mentions three kinds of service providers inclusive of the aforementioned Third Party Logistics Providers, Non Asset Based Third Party Logistics Providers who provide logistics solutions without necessarily owning the physical resources such as warehouses and trucks and Fourth Party Logistics Providers who are the primary manager of all the above and "act as a supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution". The document further identifies some limitations and benefits of outsourcing. The benefits of outsourcing may include cost savings in terms of a reduction in labour costs as well as in using physical and human capital, and improved services due to competition within the private sector. The limitations of outsourcing include the redundancies that Toyota's "lean manufacturing system" would generally frown upon because of the wastefulness. In my opinion, developing nations have a chance at improving their healthcare systems in terms of service by outsourcing, but they need to be careful to be able to invest in research and development to enable to implement vertical integration for reduction of costs in the supply chain in future. Alternatively, they need to be able to mobilise all data produced across the supply chain and employ skilled and technical management skills to be able to monitor, control and propagate the system for the benefit of citizens by improving the capability to reduce the costs of healthcare that would otherwise be incurred when third party logistics providers increase their price to accomodate the transaction costs that they would have to incur. Do you feel that there are benefits for developing nations in outsourcing Third Party Logistics Providers? If yes, is it cost effective?? Emerging Trends in Supply Chain Management Outsourcing Public Health Logistics in Developing Countries U.S. Agency for International Development

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