Focus of DFID’s Current Research

Identify the market characteristics and determinants of reproductive health commodity supply,

Determine whether and in what way international finance and procurement systems play a role in securing commodity security, and

Through selected country case studies, explore county level architecture and systems that influence RH commodity security

Focus of the Country Level Studies

Understanding how continuing inefficiencies in demand estimation, financing and procurement systems at country level are contributing to the RH supply security problem

Identifying how these problems have been overcome in some circumstances, and

Knowing whether and how commodity security has been affected by the introduction of aid instruments like SWAPs or budgetary support

International study – emerging conclusions

For most reproductive health commodity products, supplier markets are sufficiently deep to enable supply security, without active donor intervention. In fact, the rise of generic Southern suppliers is beginning to enable major cost efficiencies – though a number of issues remain

International procurement efforts are hampered by a lack of coordination between donors and by short term funding horizons

There is evidence that international procurement efforts have been improving in efficiency and effectiveness, though evidence is patchy and there are concerns over service quality

The main issue for donors seem to be a relative lack of capability building results at country level. This issue will be pursued further during the country level study, but there is clear evidence of a lack of a coordinated, long-term strategic effort on this front

There is clearly potential for improved coordination between donors on the strategic capability building level. Real success for such an effort is likely to require:

– Clear agreement between donor stakeholders on overall direction and strategy

– Strong, committed leadership and dedicated, but lean, resource– An appropriate organisational form – whether as stand-alone organisation

or fitting into existing organisational structures

World contraceptive commodity supply markets

11,000

Source: UNFPA, Global Consultants

Donor-funded and operated

Government-operated, may be partly donor

funded

Private sector/ other

Total, developing country

World totalDeveloped countries

15,000

4,000

300224

~3,500

$m, 2002

Includes:•Oral contraceptives (60%+ of market)•Male condoms (25% + of market)•Implants/ injectibles•IUDs•Female condoms•Emergency contraceptives

•Does not include sterilization products/ services

Rise of generic suppliers

Source: Interviews

•For reasons of IPR or technology capabilities, only “Northern” manufacturers supply market

•Limited number of suppliers

•No/ few quality issues

•High prices, except where products given away at discount

“Northern”* suppliers only

Entry of “Southern”* suppliers [Transition phase]

Maturity of “Southern” suppliers

•“Southern” suppliers enter market

•Much lower production costs enables much lower prices

•However, major quality and reliability issues with new entrants

•Use of certification and quality control procedures is key

•New entrants mature and resolve quality and reliability issues

•Donors will have a large pool of qualified producers, enabling highly competitive sourcing

*”Northern” suppliers: manufacturers in developed countries. “Southern” suppliers: manufacturers in developing countries/ emerging markets, e.g. Brazil, India, China

Bangladesh Southern sourcing case study

Source: Interviews

•Over the last 4 years, the Bangladeshi Government procurement function (all local staff) have managed to reduce reproductive commodity procurement cost by 1/3 (from $60 to $40m) with no loss in quality or adverse product mix

•This has been done purely by using best practice procurement techniques, including pushing for generic products and using a “Southern” supplier base

•Following some initial quality problems, “Southern” suppliers are now performing very well

•Anecdotally, “Southern” suppliers were able to offer oral contraceptives for 10 cents/ cycle; half the 20 cents/ cycle offered by “Northern” manufacturers

•Anecdotally, Wyeth upset about these low prices – “we can never match this”

Entry barriers becoming lower

Source: Interviews; Gujarat Business Council, WHO

Oral contraceptives

Male condoms

Injectable contraceptives

Capital cost of plant

Other resources required

Minimum efficient scale/ turnover*

•$4-$6m •Skilled latex/ chemical engineers•Skilled labour

•500,000 gross @ 144 condoms (70m)•$2-$3m

•$3-$5m •Skilled chemical engineers•Skilled labour

•5-10 million doses•$5-$9m

•$2.5-$6m •Skilled chemical engineers•Skilled labour

•15 million cycles•$3-$4m

Need for donor intervention to build market capacity

Source: Interviews

•Donor demand is a large fraction of total demand (or even all of it)•Long ramp-up times for production; no slack in system•Few suppliers (or none)

•Example: ACT

•Donor demand is a low proportion of total demand•Short ramp-up times for production/ slack in systems•Many suppliers

•Example: Most contraceptives

High Low

-

50,000

100,000

150,000

200,000

250,000

Others

IPPF

DFID

BMZ/KFW

World Bank

PSI

UNFPA

USAID

Donor procurement of contraceptive commodities

Source: UNFPA

$’000

Efficiency of donor condom procurement

Source: UNFPA

$/gross (144) – real 2002 prices

7.74 8.04 8.15 8.14

6.73 6.527.01

6.396.90

6.05

7.22

4.904.43

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$4.44

$2.57

UNFPA target range

2001-2002:boost in donor procurement spend

Average procurement prices for various donors

Source: UNFPA

$/gross (144) – 2002

Country level issues

Source: Interviews

Government/Regional authorities

Donors•Fragmented, short term funding, focusing on commodity buying, not capability building (tactical, not strategic)

•Low quality supply chains, and management information systems

•Multiple, overlapping supply chains (agencies, governments)

•Low priority

•Governance

•Generally weak procurement capabilities

•Lack of coordination between agencies and governments

•Low priority

•Governance

$$$ $

Procurement Supply chain

Recommendations

Continue to expand the supplier base– Some work on certification and quality control measures required– Improve international procurement– Consider options to smooth fund flows and make them more predictable, to

facilitate procurement– Improve donor coordination– Improve information flows (e.g. why only detailed information available on

condom procurement?) Improve donor support for country level implementation

– This seems to be the biggest issue– Substantially increased strategic focus on long-term capability building

required, across procurement and supply chains – increased funding clearly required, but not just a money issue

– Strongly improved donor coordination Creation of a strategic implementation vehicle

– Clearly benefits from a coordinating vehicle between donors– Needs to provide strong leadership and resources on strategy and capability

building issues– May also help facilitate regional procurement pooling, possibly channelling

through UNFPA– Not clear whether better housed inside existing organizations or as a stand-

alone entity – benefits and drawbacks to both models