Strategic Decentralization: Centralizing Logistics

Effective logistics systems determine the success or failure of any health program. Historically, public health and family planning programs have ignored logistics systems (also called supply chains). Like many details of running an organization, nobody cares about logistics until it stops working. So, why should you care?

Logistics is crucial—if you don’t have a product, you don’t have a program. However, having a product is not all it takes to make a program. But, for many essential preventive public health programs, you need products to provide quality health services—which explains DELIVER’smotto: No product? No program.

Commodity Security

The overarching goal of a logistics system is frequently called “commodity security” or “product availability”— a concept analogous to food security. An organization has achieved commodity security when it—

Knows its commodity requirements.
Plans the necessary financial resources to meet those requirements.
Procures the commodities it needs—or has them procured.
Reliably delivers the commodities to its customers.

The fourth concept, providing dependable service to the customer, is what drives modern commercial logistics systems.

Customer Focus

Figure 1. Logistics Cycle

The customer must be the focal point of any logistics system. Figure 1 shows the customer at the top of the logistics cycle, with all functions ultimately feeding back to serve them. Figure 2 graphically displays how everything, from the raw materials to the policymakers and all the facilities, moves toward the customer.

Health Sector Reform

Decentralization and other health sector reform innovations, such as integration, cost recovery, and privatization, may affect logistics systems. The Family Planning Logistics Management (FPLM) project, DELIVER’s predecessor project, examined how health sector reform affects logistics systems over many years. FPLM observed the following:

In Nepal and Mali, respectively, FPLM discovered that integration can result in both improvements and harm to logistics management information systems (LMIS).
Privatization in the Philippines resulted in stockouts at all levels and problems with government contracts for private carriers.
Cost recovery in Mali resulted in expired condoms for HIV prevention because the condoms could not be sold, and health reform did not include free distribution.

In the Philippines and in Mexico, decentralization led to some regions not ordering contraceptives—or not ordering enough because of budget constraints and competing priorities—causing stockouts at many levels.

In 2000, FPLM studied the implications for logistics systems relating to the four major health sector reform innovations. The most significant finding for contraceptive logistics was its frequent protection in health sector reform settings due to family planning programs being so reliant on donors. (See FPLM’s Implications of Health Sector Reform for Contraceptive Logistics.)

When we look specifically at decentralization as a component of health sector reform, it is important to consider how it will affect the various functions of the logistics cycle. Table 1 displays the advantages and disadvantages of decentralizing each function in the cycle.

Table 1. Advantages and Disadvantages of Decentralizing Logistics Functions

Logistics Functions /

Advantages

/ Disadvantages
Serving customers / Service delivery based on local needs / Reduced control over prescribing practices.
Product selection / Selection based on local needs / Selection based on non-medical criteria.
Reduced influence on:

treatment guidelines

products for priority essential services

priority of preventive products

Forecasting and procurement / Quantification based on local requirements / Greatly increased prices.
Increased:

forecasting labor

forecasting error

procurement complexity

Inventory management / Local control over reordering decisions / Impossible to rationally allocate scarce products.
Local control of shipping schedules / Local resources (e.g., staff and transport) may be unavailable.
Information, money, people / LMIS may be lost or folded into HMIS.
and quality / Local financial resources may be inadequate.
Local staff may be absent, or lacking necessary skills.
Commodity quality control difficult if procurement decentralized.

Commercial Logistics

Although the public sector does not have many of the advantages of a commercial logistics system (for example, money for computer systems, distribution centers, and reliable transportation 24 hours a day), it can still learn from them.

Lessons Learned from the Commercial Sector

Eliminate intermediate levels in the supply chain because each level adds delays, excess inventory, possibility of supply imbalances, and costs (facilities, staff, utilities, operations, and storing inventory). Each level also adds management challenges because the distribution system typically follows the political structure (e.g., district warehouses exist because the political system has districts), which was not established with transportation efficiency in mind.

Include a strong LMIS to ensure that everyone at higher levels knows what is happening at the lower levels. If the stock situation is not known for the facilities you serve, you need additional buffer stocks. However, if you do know their stock situation, you can anticipate facilities’ needs, reducing your uncertainty and your inventory levels.

Increase supply chain “agility” to strengthen the system. For example, if you resupply your facilities every month, you can respond 12 times faster to changing needs than if you resupply annually. If you receive your orders by phone or computer instead of by mail, you can start work immediately instead of waiting for the mail to arrive.

Finally,commercial organizations may be willing to decentralize everything but their logistics systems. Large enterprises, such as Wal-Mart, would never consider decentralizing procurement to lower levels. Their solution is to centralize supply chain functions with a small group of experts with powerful computers, and let the computers do all the work. Resupply calculations are mechanical. Instead of training 8,000 people to calculate by hand, which also requires supervision, the commercial organizations program their computers to do the work. The health systems of low- and middle-income countries cannot mimic Wal-Mart, but they can adopt similar solutions for improving logistics management.

Planning for Decentralization

When you plan for decentralization, first consider centralizing logistics system functions. This would be complemented by other centralized health system functions, such as drug registration, development of standard treatment guidelines, and health professional licensing. Although health systems in low- and middle-income countries cannot become fully centralized, you can begin thinking like a commercial enterprise when considering how to structure decentralized logistics systems.

The goal is to establish effective and efficient supply chains. The Kenyan Ministry of Health is a good example of letting the computer handle the decisions for some logistics functions. They implemented a first-world automated technique called “Distribution Resource Planning”; the computer schedules deliveries, plans the delivery routes, and dispatches the trucks, based on its computation of stock levels at the district. With enough sustained effort, such solutions are possible elsewhere.

Short of fully centralizing logistics functions, health systems should retain central capability for the logistics functions that will fail if they are decentralized.

For example, retain centrally:

Specification and enforcement of the essential drugs list.
Product selection and essential service package specification.
Bulk and international purchasing.
Rationing for scarce essential products.
Quality assurance for all products.
Logistics management information systems.

Conclusions

The following points are based both on FPLM’s recent HSR study and extensive experience in-country.

Decentralize decision making only if you can give local managers the resources to execute those decisions.

This recommendation stems from FPLM’s findings in Zambia, where the system depended on

district managers to determine quantities of drugs to order. Because the drug supply was shrinking, the managers were unable to make appropriate ordering decisions, thus disrupting system

performance.

Begin with a detailed, indicator-based logistics systems assessment.

Too many decentralization and other HSR efforts are driven by ideology. System changes shouldn’t be recommended until you thoroughly understand the strengths, weaknesses, and constraints of the current systems. Start with a detailed logistics system assessment. DELIVER has tools that can help.

Examine planning assumptions critically (e.g., funding, personnel, organizational constraints, and time).

Many decentralization efforts observed by FPLM dramatically underestimated the money required, the organizational constraints that had to be overcome, and the time it took to implement such drastic change. They also overestimated the availability and skills of personnel to do the new jobs.

Develop a detailed plan for effective functioning for all aspects of the logistics cycle, and be prepared to change the plan.

FPLM found that planning is done but not at a level of detail that addresses complex logistics issues.

Strengthen, or at least protect, the LMIS at all costs.

The LMIS is critical for effective logistics functioning, and it is vulnerable during decentralization efforts. Remember that if you lose the LMIS, you’ve lost it all.

Ensure that logistics training to support decentralization is competency-based and accompanied by periodic follow-up.

Decentralization is an appealing and popular concept, but its success is highly dependent on the capacity of local-level staff to carry out their tasks.

Include logistics oversight in supervision efforts.

Although supervision is often conducted regularly, it must include logistics oversight.

For more information, contact Paula Nersesian at DELIVER (703-528-7474) or .