Large ARV Buyers and Sellers Forum 2016 · 29/11/2016 · Buyers and Sellers Forum 2016 follows...

Large ARV Buyers and Sellers Forum 2016

Consolidated Demand Outlook

29 November, 2016

Geneva, Switzerland

Republic of South Africa

The Global Fund, PEPFAR and Government of South Africa will work

together to improve the consolidated demand outlook

1

What we will do

Coordinated approach and messages

Synergistic strategies

Direct engagement with suppliers & supplier

visits (sometimes)

Providing improved demand visibility

Sharing of synthesized market intelligence and

general supplier performance

Sharing information (without providing

confidential / sensitive information)

Align on key supplier performance metrics

Long-term agreements with manufacturers

Selection of suppliers and demand

allocation

Execution of purchase orders

We will not manage actual supplier

performance jointly

Managing overall supplier performance

(Price, lead-time, delivery etc.)

What we will not do together

Buyers and Sellers Forum 2016 follows clear ground rules!

2

We would like to reiterate our strong commitment to transparent, fair and competitive procurement processes. For example,

according to the Global Fund’s Code of Conduct for Suppliers, corrupt, fraudulent, collusive, anti-competitive or coercive

practices are not tolerated, and are subject to sanctions, which could include debarment from eligibility as a Global Fund supplier.

Participants to the meeting must not:

discuss with other participants your own or your competitors prices, price changes, price differentials, discounts, margins, or

any terms of sale that might affect prices

discuss individual company figures on costs, capacity, compensation, business opportunities, products or services, or sales,

except for industry data such as interest rates that are made widely available to the industry by data services.

discuss what individual companies plan to do in particular geographic or product markets or with particular customers or

suppliers, including (a) customer or supplier policies, (b) the terms on which specific types of products may be distributed by

a firm, (c) the elimination, restriction, or limitation of the quantity or quality of any product or service to be sold, or (d) the

division or limitation of sales to particular territories, customers, or classes of customers.

discuss specific future plans of your company or other companies concerning the design, production, distribution, pricing

terms or marketing of particular products.

discuss matters relating to actual or potential individual suppliers or customers that might have the effect of excluding them

from any market or of influencing the business conduct of other companies toward such suppliers or customers.

disclose to others any other competitively sensitive or confidential information.

If you become aware of possible misconduct, this should be reported to the Office of the Inspector General. The Office of the

Inspector General treats all reports carefully and protects the identity of all whistle-blowers.

Hosts (large buyers) - 3• PEPFAR/ USAID and its

procurement agent GHSC-PSM

• Global Fund

• South Africa Department of

Health

Suppliers (manufacturers) - 22

Generic (16); originator (4); API (2); Including potential new entrants

• Abbvie

• Acebright/Desano

• Aurobindo Pharma

• Celltrion

• Cipla

• Cipla – Quality Chemicals Uganda

• Emcure Pharmaceuticals

• Hetero Drugs

• Huahai pharm

• Johnson & Johnson/Janssen

• Laurus Labs Private Limited

• Lupin

• Macleods Pharmaceuticals Limited

• Merck & Co

• MSN Labs

• Mylan Laboratories Ltd

• SpecPharm

• Strides

• Sun Pharmaceutical

• Teva

• Universal Corporation

• ViiV HealthCare

Partners - 7• CHAI

• International AIDS Society

• Medicines Patent Pool

• MSF

• UNAIDS

• UNITAID

• WHO

Who is here today?

4

• Increase the transparency of ARV orders for a more stable, visible and

predictable demand

• Establish inclusive buyer/seller forum with current and potential

suppliers

• annual in person buyer seller forums and periodic webcast

• share forward visibility for 12-18 months: 1st/ 2nd line; transitions

• discuss supply and demand opportunities and challenges

• Enable annual or longer orders for larger countries and high volume

products

• Coordinate procurement and timing of low volume products through

the multiagency coordinated procurement platform (APWG)

• Intensify efforts to enhance retention including encourage

programmes to move to multi-month dispensing and work with

companies to develop compliance messages on labels

• Work to harmonize and improve packaging and labelling

specifications (e.g., fewer variants, lower volume packs)

• Evolve procurement and sourcing strategies based on the situation

needs and implementation experience

Building on the June 2014 ARV Supplier Conference

There are issues in how we manage demand, and we are currently

working to review our processes

8

7

4

6

0

2

5

1

3

Q2Q4 Q3Q1Q3 Q4Q1 Q3Q2

46%

Q2 Q1

Order volume fluctuates significantly… …and order placement lead times often cannot be fulfilled

Order placement lead time and order

fulfillment lead times, %, 2016

2014 2015 2016

Order Volume, TLE, million packs

NOTE: Lead time is defined as a time between purchase order being sent to vendor, and a shipment delivery date. Includes planned delivery.

Planned

procurement,

enabling best

value (product

and freight

costs)

Better demand

management

needed

37%

39%

12%

13%

13%

21%

30%

37%

< 3 months

3 - 6 months

6 - 9 months

> 9 months

Order fulfillment lead time

Order placement lead time

5

GLOBAL FUND EXAMPLE

Time dimension is often missing in the forecast

6

Original demand outlook can appear steady… …while actual orders can fluctuate quarter to quarter

Actual orders, million packs, 2015

• Originally project quarterly demand volumes are

often relatively smooth across quarters

• Shelf life of 85% at pick-up leaves only 3.6

months to distribute the goods (out of e.g. 24

months) – limiting the flexibility to reallocate

between the quarters

Actual orders fluctuate substantially due to

• Anticipated stock-outs – leading countries to requests for

financing and products from several sources at the same time

• Uncertainty in government financing – driving unexpected

shifts in partners’ demand

2.91.4

Q1

2.01.3

1.5

3.4

Q4

2.9

1.9

2.9Ø 3

Q3

1.4

1.5

Q2

1.0

Tanzania

Malawi

Ø 31.9

6.6

1.3

4.3

1.3

Q2

0.2

1.72.3

Q1

1.7

Q3 Q4

1.9

0.3


SOURCE: Switching Procurement

Forecasted orders, million packs, 2015

GLOBAL FUND EXAMPLE

5 products from 10+1 countries make up ~55% of demand from Global

Fund, PEPFAR and South Africa

ARV grant allocations

2015, Number of packs, million (percent of total)

159

(82%)193

Top 10 countires

18

Non-top-10 countries

28

75

52

Total Volume

3452

Top 5 products in

top 10 countries

106

(55%)39

33 126

21

103

52

Non-top-5 products

in Top 10 countries

23

Government of South Africa

The Global Fund

PEPFAR▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire

▪ TLE/TEE

▪ LZN (adult)

▪ LZN (pediatric)

▪ Atazanavir /Ritonavir

▪ Lopinavir /Ritonavir (adult)

SOURCE: Transactions Summary PQR; PEPFAR and Government of South Africa and data

7

NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding. The PEPFAR data is USG Fiscal Year data.

Bold font – non-PPM countries Regular font – PPM countries

To improve demand forecasting we will focus on biggest countries and

products to obtain a rough-cut overview

NOTE: ARV = Anti-Retroviral Treatment; ANTM= Anti-malarial medicine; MRDT = Malarial Rapid Diagnostic Test; ACT =Artemisinin-based Combination Therapy

In scope

▪ 18 months forecasting horizon

▪ Forecasting on a quarterly basis

▪ High-level forecast across top 10

countries and top 5 products, covering

~55% of demand

▪ Data from the Global Fund, PEPFAR and

the government of South Africa

▪ ARVs only

Currently, out of scope

▪ Forecasts for longer than 18 months out

▪ Monthly forecasts

▪ Detailed bottom-up forecast, and in-

country forecast / inventory review

procedures

▪ Integrating new sources of data and

additional data sources

▪ Other health products (ANTM, ACT, LLIN)

8

Consolidated demand forecast is derived in 5 simple steps

9

Gather grant and order information from across top ~10 countries

for top ~ 5 products

Translate order dates to the dates when order is placed towards

the supplier, adjusting for shipment lead times if necessary

Consolidate the information from The Global Fund, PEPFAR and

The Government of South Africa

Prepare a product-specific quarterly forecast breakdown and share it

with supplier and countries for their feedback

Triangulate the data with the general population information and

historical order patterns

1

2

3

4

5

Caveats and limitations to the current version of the visibility data

10

Conservative estimates based on currently confirmed orders

Prepared based on data currently available to The Global Fund, Government of South Africa and PEPFAR

Preliminary estimates for the discussion – and not final purchase commitments

May not yet fully capture lead times between order placement at manufacturer and in-country delivery

First time the joint consolidated procurement forecast has been prepared and shared

Consolidated Demand Forecast Outlook

11

Overall ARV Demand Outlook

2017-2018, Number of packs, million

▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire

SOURCE: PEPFAR, Government of South Africa, The Global Fund

NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding. For South Africa, TEE is a predominant first-line instead of TLE.


Q1

10

4

20

4

7

Q3 Q4

5

917

19

59

33

9

31

9

13

Q2

12

Q1

2

15

5

The Global Fund


PEPFAR

2017 2018

▪ TLE/TEE

▪ LZN (adult)

▪ LZN (pediatric)



DISCLAIMER: This is an initial version of the forecast, and may contain inaccuracies – please refer to caveats and data limitations on page 10. These slides contain a conservative estimate for demand management between the

three programs. As such, there may be future volumes not yet financially committed or confirmed.

WORK IN PROGRESS

TLE – Consolidated Demand Forecast Outlook

12

ARV Demand Outlook

2017-2018, Number of packs, million

▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire



3

17

Q1

10

15

Q4

2

Q1

25

9

Q2

9

26

9

Q3

13

9

16

4

9

7

3

4

5 3


The Global Fund

PEPFAR

2017 2018

NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding. For South Africa, TEE is a predominant first-line instead of TLE.

WORK IN PROGRESS



LZN (Adult) – Consolidated Demand Forecast Outlook

13

ARV Demand Outlook

2017-2018, Number of packs, thousands

▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire



3,290

6,290

Q1

3,000

Q4Q3Q2

2,5551,249

4491,259800

2,725

170 1,380

121 0

0

Q1

0

PEPFAR

The Global Fund

2017 2018

NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding.

WORK IN PROGRESS



LZN (Pediatric) – Consolidated Demand Forecast Outlook

14

ARV Demand Outlook


▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire



0

824

Q3

1,236

Q2 Q4

585

239

Q1

858

2801,278

2,136

Q1

PEPFAR

The Global Fund

2017 2018


WORK IN PROGRESS



ATV/r – Consolidated Demand Forecast Outlook

15

ARV Demand Outlook


▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire



36126

Q1

18

0

568

763

23

Q3

162

58 18

568

0

398

Q1

375

705

Q4Q2

PEPFAR

The Global Fund

2017 2018


WORK IN PROGRESS



LPV/r – Consolidated Demand Forecast Outlook

16

ARV Demand Outlook


▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire



50

Q4

382

0

Q1

297180

297

130

Q3

642

508577

108

469

260

Q1 Q2

95

413

PEPFAR

The Global Fund

2017 2018


WORK IN PROGRESS



There are several factors that need to be accounted for when

preparing a consolidated forecast

17

Different planning and procurement cycles across donors/buyers

PEPFAR: one-year

Global Fund: (up to) three-years

South Africa: three-years

Different budget cycles

Support for country transitioning to Test/START

Potential shifting in orders to accommodate Test/START

Introduction and/or implementation of multi-month prescribing (MMP)

Many national programs implementing MMP through 2018

Likely transition to Dolutegravir (DTG)

A transition from TLE to TLD likely within the next 24 months

Consolidated demand outlook is useful beyond the pure

forecast numbers

18

Besides improved visibility for suppliers, consolidated demand outlook helps to

Maintain dialogue between stakeholders – and to better understand key demand drivers at the global and country level

Identify and correct outliers early on and smoothen demand towards manufacturers

Work towards improving supply chain to and in the country

Going forward, a consolidated data file with demand per buyer per product per quarter will be made available on a quarterly basis for

detailed review and feedback

19

PEPFAR Supply Chain Update:

New Thinking to Meet Demand, Improving

Coordination, and Managing Change

John Crowley

USAID/GH/OHA/SCH

Overview

• PEPFAR Approach to Planning and Ordering

– New thinking is needed to meet demand

• Next Evolution in Coordination

– Efforts in collaboration and coordination are maturing

• Methodology for Projecting Demand

– National quantification forums determine demand

• Managing Procurements

– PSM manages the procurement process

• Managing Change

– Critical Procurement Considerations

PEPFAR APPROACH

Planning Framework to Meet Demand

Maintain “Healthy Market”

Mitigate Supply Risk

• Allocate orders across multiple suppliers

• “Best Value” contract award strategy

• Reward performance

• Country /product registration management

Supplier Relationship Management

• Longer lead time forecasting

• Order volume allocation

Increase Predictability

• Annual volume commitments for majority of

TLE

• Coordinated procurement for small volume

products

Assure Product Availability• Annual quantification

• Annual supply & ordering plans

• Monitor on time & in full delivery by vendors

• Optimize RDC and VMI stock levels

Support New Products• ARV prioritization

• Innovation criteria in tender evaluations

• Project OPTIMIZE

• Improving the management of demand and improving partnerships with vendors is the next evolution to this effort

• Given the magnitude of ARV demand and the new treatment guidelines, a more strategically aligned and coordinated ordering processfor ARVs is essential to PEPFAR’s success

– Provide for a more stable and predictable global generic ARV market

– Create greater visibility into the timing and quantity of ARV orders

– Ensure rational delivery schedule for country programs

• Ten target counties: account for 60% and 90% of the GF and PEPFAR’s (respectively) total ARV demand for lower-middle income countries

• Five products: combination of first/second line, and pediatric ARVs

NEXT EVOLUTION

PEPFAR and Global Fund Coordination

High-Volume Countries Global Fund

Spend (FY14-15)

PEPFAR

Spend (FY14-15)

Malawi $ 156,341,107 $ 0

Tanzania $ 130,956,109 $ 30,440,703

Zimbabwe $ 117,670,265 $ 50,015,649

Ethiopia $ 100,517,865 $ 20,000

Zambia $ 84,898,180 $ 62,111,531

Kenya $ 79,886,219 $ 97,436,412

Mozambique $ 46,963,029 $ 88,685,260

Nigeria $ 45,112,399 $ 99,295,685

Uganda $ 43,243,980 $ 79,509,842

Cote d’Ivoire $ 9,126,215 $ 27,633,044

Total Spend: $ 814,715,368 $ $535,148,126

NEXT EVOLUTION

Where is the Majority of ARV Spend?

• Expanding existing efforts and establishing a joint-forecasting and supply planning

process using a coordinated schedule

– Five products: combination of first/second line, and pediatric ARVs

– Ten target countries: accounting for 60% and 90% of the GF and

PEPFAR’s (respectively) total ARV demand for lower-middle income

countries

• Expanded coordination effort is not a significant shift

– Sharing actual procurement scheduling and ordering data between Global

Fund and PEPFAR for the next 12-18 months

– Ensures a rational delivery schedule for country programs and greater

predictability for manufacturers

• Global Fund and USAID/SCH will collect, analyze and share ARV orders for the

five products in the ten target countries

NEXT EVOLUTION

Coordinated Schedule for ARV Procurement

• Procurement data collected from annual country-level national quantification

exercises and supply plans (adjusted quarterly)

– PEPFAR supply chain technical staff and implementing partners are active

participates in national quantification forums

– PEPFAR procurement data reflects the agreed upon USG contributions to

the national response supply plan based on annual country operational plans

• USAID’s GHSC-PSM collected the data from across the ten target countries and

synthesized for use

• Represents the first time procurement data has been collected globally, merged

with Global Fund and South Africa data, and shared with vendors

– Fair to assume there may be inconsistencies

– This is a first step in regular sharing of data (adjusted quarterly)

PROJECTING PEPFAR DEMAND

What is the Methodology Used?

• USAID’s GHSC-PSM is the intermediary for all USG procurement in the

applicable target countries

• USAID’s GHSC-PSM will collect, update and share procurement data through

USAID Supply Chain for Health Division

• USAID’s GHSC-PSM will implement a sourcing strategy focusing on

– Annual minimum volume for TLE

• Use standard industry evaluation criteria

• enable improved production planning & greater efficiency

• Multi-vendor

MANAGING PEPFAR PROCUREMENT

How Will Procurement Occur?

PSM Procurement strategy uses the AQSCIR model

27

ARV LTC RFQ team will establish requirements and technical

questions aligned with AQSCIR model

Evaluation CriteriaWeight

(DRAFT)

Assurance of Supply / Regulatory tbd%

Quality tbd%

Service tbd%

Cost tbd%

Innovation tbd%

Price tbd%

Total 100%

DRAFT not for circulation outside the USG

MANAGING PEPFAR PROCUREMENT

GHSC-PSM Sourcing Strategy for LTC

Volume Long Term Commitments (LTC)

Allocate 75% of ‘committed’ country annual volumes of select ARV pharmaceuticals among vendors

employing the AQSCI-P evaluation model to evaluate offers and allocate contracts

Example for 100K packs:

Multi-vendor award allocations based on ARV LTC RFQ evaluation rankings

##K Packs

##K Packs

##K Packs

TLE

100K packs

TLE

75K packs

Country

Committed

Total

Volume

Vendor LTC

Total

Allocation

25% / 25K Packs

Reserve

Incentive

Award

Holdbac

k

Vendor A – Rank 1 - ##%

Vendor B – Rank 2 - ##%

Vendor C – Rank 3 - ##%

Vendor D – Rank 4 - ##%

Vendor E – Rank 4 - ##%

Vendor F – Rank 4 - ##%

##K Packs

##K Packs

##K Packs

• Different planning and procurement cycles across donors

– PEPFAR: one-year

– Global Fund: up to three-years

– South Africa: three-years

• Different planning and budgeting cycles

• PEPFAR support for country transitioning to Test/START

– Potential shifting in orders to accommodate Test/START

• Introduction and/or implementation of multi-month prescribing (MMP)

– Many national programs implementing MMP through 2018

• Likely transition to Dolutegravir (DTG)

– A transition from TLE to TLD likely within the next 24 months

MANAGING CHANGES IN PROCESS

Procurement Planning Considerations

Background on USAID’s OPTIMIZE Project

• USAID-funded consortium launched in 2015

• Purpose: improve treatment outcomes

– Optimize ARV drugs & formulations

– Accelerate their introduction in LMICs

• Approach integrates research, implementation science, and market access activities

• Consortium members: Wits Reproductive Health & HIV Institute (lead), ICAP at Columbia

University, Mylan, University of Liverpool, MPP (funded by UNITAID)

• Target drugs: DTG, EFV400, TAF, DRV/r

• Point of contact: Emily Harris, [email protected]

Joint effort with UNITAID and other key players• USAID & UNITAD launched joint ART Optimisation Programme Advisory Committee (PAC),

which is co-chaired by WHO and Global Fund

– Aims to coordinate and communicate on ART optimization efforts

– Harmonize & align investments of USAID & UNITAID

• UNITAID ART programme includes closely aligned activities

– CHAI Optimal project– market preparedness & community engagement

– Wits RHI, University of Liverpool, University of New South Wales, Institut Bouisson

Bertrand/ANRS– clinical trials and studies & community engagement

– Related initiates: MPP, WHO Enabler, and WHO PQ activities

• PAC developed multiple recommendations, including:

– Coordinate key forecasts to align assumptions and portray a single, harmonized analysis

– Expand PEPFAR and Global Fund’s coordination on procurement to include transitions

to new products

South Africa

Mr Gavin Steel Chief Director: Sector-wide ProcurementSouth African National Department Of Health

Geneva November 2016

Contents

1. Demand Forecast

2. Value For Money

3. Supplier Performance

33

1. Demand Forecast

34

• Patient numbers = average of:o Patients derived

from Procurement data (RSA Pharmadatabase), and

o District Health Information System (DHIS) data

Demand Forecast Method

Procurement Data

Programme Patient Data

Patients per

regimen

35

Regimens• South African National Consolidated Guidelines for the Prevention of

Mother-to-Child Transmission of HIV and the Management of HIV in Children, Adolescents and Adults, 2015

Deriving Patient Numbers

Adult 1L

TDF+FTC+EFV

TDF+FTC+NVP

TDF+3TC+EFV

TDF+3TC+NVP

AZT+3TC+EFV

AZT+3TC+NVP

ABC+3TC+EFV

ABC+3TC+NVP

Adult 2L

TDF+3TC+LPV/r

TDF+FTC+LPV/r

AZT+3TC+LPV/r

AZT+TDF+3TC+LPV/r

ABC+3TC+LPV/r

TDF+3TC+ATV/r

TDF+FTC+ATV/r

AZT+3TC+ATV/r

AZT+TDF+3TC+ATV/r

ABC+3TC+ATV/r

Peds 1L

ABC+3TC+LPV/r

ABC+3TC+EFV

ABC+3TC+NVP

Peds 2L

AZT+3TC+LPV/r

AZT+ABC+LPV/r

Cascade method used to derive patient numbers from procurement data

36

• Monthly growth rate calculated based on DHIS data

• Number of adults and children under the age of 15 started on ART per month

• Monthly growth rate using a 3 month’s average of new patients on ART, per month

o Monthly growth Adults: 52 450 patients

o Monthly growth Paediatrics: 1 923 patients

• Scale up for Universal Test and Treat:

• Based on a modeling study1

• Estimated increase in patient numbers: 164 000/annum

• Included across all regimens

Patient Growth

1. Bor J, Ahmed S, Fox M, Rose S, Meyer-Rath G, Katz IT, Tanser F, Pillay D, Bärnighausen. Effect of eliminating CD4-count thresholds on HIV treatment initiation in South Africa: an empirical modeling study. Unpublished manuscript. 2016

37

Total: 54 373 patients

• Definition: loss of patient due to death and loss to follow up• Adult attrition rate:

o Based on epidemiological studies (adults: Ahonkhai et al1)o After 12 months on ART, attrition rate is 26%o Monthly attrition rate: 2.48%

Assumptions & limitations:• Attrition rate same for all patients and all months

o 1st line and 2nd lineo Newly initiated and existing patients

• Attrition rate is same amongst all provinces• Attrition rate of paediatrics is half of the adult rate

Attrition Rates

1. Ahonkhai AA., Noubary F., Munro A., et al. “Not All Are Lost: Interrupted Laboratory Monitoring, Early Death, and Loss to Follow-Up (LFTU) in a Large South African Treatment Program.” PLoS Med. 2012 March; 7(3): e32993.

Migration rate (epidemiological data):• Adult

o After 5 years on ART, 10.1% patients switch from 1st to 2nd line therapy1

o Monthly switch rate: 0.18%• Paediatric

o After 42 months on ART, 6.3% virological failure rate2

o Monthly switch rate: 0.15%

Assumptions & limitations for migration rates:• Migration to 2nd line are the same for all 1st line patients• Stay constant throughout forecast period• Same for all provinces

Migration Rate From 1st to 2nd Line Regimens

1. MP., Cutsem GV., Giddy J., et al. “Rates and Predictors of Failure of First-line Antiretroviral Therapy and Switch to Second-line ART in South Africa.” J Acquir Immune Defic Syndr 2012;60:428-437.

2. Davies M., Boulle A., Technau K., et al. “The role of targeted viral load testing in diagnosing virological failure in children on antiretroviral therapy with immunological failure.” Trop Med Int Health. 2012 November; 17(11):doi:10.1111/j.1365-3156.2012.03073.x.

Switches within regimens: Switch rates based on epidemiological data1 and expert adviceAssumptions: switches within regimens• Remains constant between 1st line regimens throughout forecast period• Same for all provinces• No switches within 2nd line regimens

Paediatric weight distribution Based on data from Rahima Moosa Hospital (Gauteng)Assumptions & limitations:• Weight distribution remains constant over forecast period• Applies to all provinces

Other input assumptions

1. Njuguna C., Orrell C., Kaplan R., et al. “Rates of Switching Antiretroviral Drugs in a Primary Care Service in South Africa before and after introduction of Tenofovir .” PLOS ONE 2013; vol 8: issue 5: pp1-7

Forecasted Patient Numbers

(Current)Dec. 2016

Avg./month2017

Avg./month 2018

Total adults 3 531 373 3 478 507 4 330 796

Total paediatrics 204 200 196 090 234 702

Total patients 3 735 572 3 674 597 4 565 497

41

1st line regimen distribution: Adults

1st Line Regimen(Current)Dec. 2016

Avg./month2017

Avg./month 2018

TDF + FTC + EFV 2 940 284 3 145 057 3 521 002

TDF+FTC+NVP 244 160 346 304 492 114TDF+3TC+EFV 47 219 45 756 44 857TDF+3TC+NVP 814 539 239AZT+3TC+EFV 11 966 5 969 5 093AZT+3TC+NVP 3 261 2 934 2 363ABC+3TC+EFV 103 641 90 495 73 574ABC+3TC+NVP 4 099 3 457 2 503Total 3 355 444 3 640 510 4 141 745

42

1st Line Regimen(Current)Dec. 2016

Avg./month2017

Avg./month 2018

ABC + 3TC + LPV/r 98 833 104 194 114 079ABC+3TC+EFV 101 798 107 892 118 135ABC+3TC+NVP 1 650 1 028 963

Total 202 281 213 115 233 177

1st line regimen distribution: Paeds

43

2nd line regimen distribution: Adults

2nd Line Regimen(Current)Dec. 2016

Avg./month2017

Avg./month 2018

TDF + 3TC + LPV/r 12 909 12 298 11 380TDF+FTC+LPV/r 33 330 29 620 24 037AZT+3TC+LPV/r 69 090 87 582 115 410AZT+TDF+3TC+LPV/r 4 395 3 747 2 772ABC+3TC+LPV/r 43 529 37 112 27 456TDF+3TC+ATV/r 5 132 4 375 3 237TDF+FTC+ATV/r 1 864 1 589 1 175AZT+3TC+ATV/r 2 678 2 283 1 689AZT+TDF+3TC+ATV/r 73 62 46 ABC+3TC+ATV/r 2 931 2 499 1 849Total 175 929 181 167 189 051

44

2nd line regimen distribution: Paeds

2nd Line Regimen(Current)Dec. 2016

Avg./month2017

Avg./month 2018

AZT + 3TC + LPV/r 1 067 985 848AZT+ABC+LPV/r 852 786 677Total 1 919 1 771 1 525

TABLE: Number of Patients

45

Estimated Financial ValueDEC 2016 2017 2018

Total Estimated Annual Value (12 months)

- R 2293 926 793 R 2 554 121 629

Average Value per Month R 537 413 861 R 573 481 698 R 638 530 407

Total Estimated Value (2017 + 2018)

R 4 848 048 421

Avg. Value per Month(2017 – 2018)

R 606 006 053

2017: January 2017 – December 2017; 2018: January 2018 – December 2018; Prices from MPC, November 2016

Current contract expires early 2018Planning has been initiated for new tendering process, including market and business intelligence to ensure security of supply and competitive pricing.

46

2. Value For Money

47

Element The VAN is… The VAN is more than just…

• A team of dedicated professionals with defined roles and responsibilities, the right skills and knowledge, and a patient-centred, proactive approach to evidence-based quality improvement.

• A new name for the existing roles. • Minor changes to organisational structures.• A small once-off change management effort.

• Data driven processes that use analytical methods to continually plan, proactively respond to, and recommend improvements.

• New standard operating procedures• Business process re-engineering• One-off system redesign

• The integration of multiple data systems, to generate alerts and actionable insight across the value chain with automation wherever possible.

• A new logistics and information system to support procurement and stock or financialtransactions

• Dashboards, reports and analytics platforms

• A cross-cutting governance framework with clear responsibilities and accountability and empowered decision makers with defined ‘spans of control’ across the value chain.

• An improvement mechanism for one domain (e.g. just procurement, warehousing).

• A project to improve milestones/KPIs for one program e.g. CCMDD.

Policy

Process

People

Tech

The VAN is the combination of People, Process, Technology and Policy organised coherently to ensure medicine availability and supply chain efficiencies:

Tech

PeopleProcess

PolicyThe VAN is an Operating Model, the combination of People, Process, Technology and Policy

Visibility & Analytics Network

48

Product View by:

• Product type

• Programmes

• Campaigns

• STGs

Geography View by:

• Province / District

• Channel

• Facility/Treatment

Tier

Historical Data

• Consumption

• Availability to Consume

• Historical Campaigns

• Epidemiology

Statistical Modeling

• Analyze consumption

trends

• Adjust based on

forecasted gross adds

and formulary picks by

province / facility

• Constrain Forecast by

Available Budget

Forecasted Gross Adds

• By geography

• Demographics

• Epidemiology

Forecasted EML / MPC

• Product

• Lifecycle / STG Relevance

• Price point / Affordability

• Campaigns Demand Plan

Bo

tto

m U

pT

op

Do

wn

Demand planning applies anticipated trends and constraints to historical data treated with statistical rigor (baseline forecast) to develop a consensus Demand Plan across products and facilities:

Demand Forecasting and Planning

49

Supply planning determines inventory targets based on the demand plan, variables that are channel specific, and supplier input to determine a consensus supply plan across products and geographies:

Supply Planning

Planning Variables

Demand Forecast accuracy

Replenishment frequency

Stock on Hand Sample Rate

Demand variability

Product availability

Order cycle time / total lead time

Product Expiry / Longevity

Demand Plan

By product

By Geography

Supplier Collaboration

Manufacturing constraints (e.g. API)

Production schedules

Supplier Stock Holding (VMI)

Lead times

Product View by:

• Product type

• Programmes

• Campaigns

• STGs

Geography View by:

• Province / District

• Channel

• Facility/Treatment

Tier

Supply Plan (orders)

& Replenishment Plan

(shipments)

Inventory Netting

Open Orders

Cycle Stock

Safety Stock

On-Hand

Inventor

yOpen Orders

+

–

–

Facility

Cycle Stock

Safety Stock

On-Hand

Inventor

y

+

–

–

Depot

+

50

3. Supplier Performance

51

Antiretroviral Supply Contract• http://www.health.gov.za/tender/docs/contracts/HP132015ARVApril2015toM

ar2018.pdf

• INCOTerm – Delivery Duty Paid (DDP)

• Performance Management Criteria

– Lead Time Performance (LT)

– On Time and In Full Deliveries (OTIF)

– Contractor Engagement & Reporting

• Monitoring

– System development, RSA Pharma, where suppliers report monthly on LT & OTIF as well as fortnightly on their pipeline

– Scorecards that inform future contract award

– Dashboards to manage operational activities

52

http://www.health.gov.za/tender/docs/contructs/HP132015ARVApril2015toMar2018.pdf

OTIF for ARV Suppliers

53

Supplier OTIF for TEE Supply

54

LT for ARV Suppliers

Average: 65%

55

Supplier LT for TEE Supply

56

Thank You

57

Implementing the Global Fund’s Market Shaping Strategy

29 November 2016

Geneva

Global Fund has proactively shaped markets to improve health

outcomes since 2004

59

Changing market dynamics, context, and new Global Fund strategy

prompted revision of Market Shaping Strategy

2004

With WHO, recipients

transitioned to ACTs from

suboptimal therapies

20132011

Board approves first Market Shaping

Strategy, including Price & Quality Reporting

and Voluntary Pooled Procurement

2007

Market Shaping Strategy is approved by

Board, with focus on pooling procurement,

value for money, capacity building and ARVs

Operational initiatives through

Procurement for Impact

strengthen market shaping tools

2015

Strategic objective Continue, Refine, Institutionalize Invest going forward

Ensure the continued

availability and affordability

of health products

a) Continue to facilitate market transparency d) Extend benefits of market shaping

b) Leverage strategic procurement via PPM

c) Prevent and respond to potential stock-outs

and emergency orders

Promote consistent

quality standards

a) Continue to define and enforce quality

standards for Global Fund-financed productsc) Strengthen quality standards for diagnostics & other

non-pharmaceutical health products

b) Support the WHO prequalification programme

and collaborative registration

Support efforts to

stimulate innovation

a) Recognize value of innovation in sourcing

strategies, with differentiated approaches

Accelerate the adoption of

new and/or more

cost-effective products

a) Accelerate the introduction of products for

which there are few QA’d suppliers

b) Proactively optimize product selection within WHO

guidance

c) Coordinate with partners to develop and implement

“roadmaps” for key product needs

d) Coordinate with partners to reduce risk of market entry

Prepare for country transition

and support long-term

market viability

a) Invest in strengthening in-country PSM

systems and national regulatory authorities

b) Build in-country PSM capacity

c) Incorporate market health in transition plans

d) Assess additional market implications of transition and

develop interventions

Strengthen key market

shaping enablers

a) Continue to strengthen and operationalize

partnerships

b) Strengthen tools and systems for forecasting, market

intelligence and data management

Market Shaping Strategic objectives: New strategic actions & level of effort: 2015

Investment already made;

little additional required

Substantive upfront, or

some ongoing investment

Significant initiative

over period of strategy

A

Cost

competitive-

ness

C Sustainability

B

Perform-

ance

D

Risk

manage-

ment

E

Benefit

sharing

Balanced

supply

system

A Providing products at the lowest possible affordable and

sustainable price to reach the maximum number of patients

Reducing price volatility and eliminating predatory pricing

B Supplying product timely and in full

Incentivizing suppliers to introduce better formulations

C Supporting new suppliers to ensure sufficient supply and

mitigate geographic supply risks

Investing in suppliers with sustainable manufacturing practices

D Maintaining well-diversified supplier base

Meeting The Global Fund and national quality requirements

Mitigating implementation risks

E Publishing reference prices

Building capacity and implementing rapid supply mechanisms

The Global Fund has introduced a more balanced supply system based on

5 elements to improve supplier performance

61

Selection of suppliers depends both on commercial and other technical /

value criteria

Supplier /

product score

Commercial Technical and Value

45.5% 54.5%

Delivery performance (OTIF)

Quality elements: shelf life, national

registrations

API supply security (alternative sources)

Supply of high and low volume products

Commitment, ability and approach

Initial price

Target pricing: 1st line products;

equalization of pricing for alternate 1st

and 2nd line products; better pediatric

formulations

45.5% 54.5%

62

Today's process for The Global Fund is primarily a top-down approach

Forecast today is generated top-down based on informally gathered information on key countries and products, and could be

further strengthened by incorporating triangulation with orders history, clear preparation timeline and regular reviews

Time Ongoing

Final forecast releasedForecast calculated

Extrapolate for other

countriesPrepare Forecast Share allocations

Gather key countries /

products information

Calculate and share

commitments

Process

steps

Gather grant / order

information across

top ~10 countries /

top ~ 5 products

Create initial

demand estimate

Add 30% to the

demand estimate to

account for other

countries / products

Add certain safety

margin to derive a

PPM Forecast

Share 80% volume

of the PPM forecast

as the allocation

value

Reserve 20% for

new entrants (PPM)

Communicate 70%

of PPM forecast

volume as

commitment volume

Data

sources/

rationale

Informal info from

individual countries

List of Health

Products (LOHP)1

Historical: value for

non-top 10 countries

5 products was

~30% of total

Safety buffer for an

unexpected demand

and product

transitions

Driven by the Global

Fund policy


Fund policy

Owners Procurement Procurement Procurement Procurement Procurement

63

TOP 5 PRODUCTS ACROSS TOP 10 COUNTRIES

1 Derived from national in-country quantification

Global Fund demand: 10 countries/5 products

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018

TLE 8,957,753 4,476,900 12,710,418 3,034,602 1,540,000

LZN 2,979,790 448,714 2,555,417 121,168

LZN paed 1,278,324 279,691 1,236,025 584,680

ATV/r 57,534 143,221 374,711 -

LPV/r 107,543 95,343 382,256 50,036

Total 13,380,944 5,443,869 17,258,827 3,790,486 1,540,000

▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire


Global Fund 2017-2019 Funding Cycle

• Donors pledged US$ 12.9 billion at the

Global Fund’s 5th Replenishment in

September for the 2017-2019 funding

cycle

• Eligible countries will receive their

allocation amount in December 2016

• Able to access their funding over the

2017- 2019 period

• Grants can start after the current grant

ends, last 3 years as standard and end at

least a year after the allocation period in

order to allow a 12 month buffer to apply

for new funding

http://www.theglobalfund.org/en/applying/funding/resources/

http://www.theglobalfund.org/en/applying/funding/resources/

Large ARV Buyers and Sellers Forum 2016 – Breakout Session

Demand Management – potential for improving process and visibility

November 29, 2016

Geneva, Switzerland



67




















Background: current state and main issues

Way forward: potential changes and enablers required

Breakout discussion: challenges and next steps

Value creation levers and case studies


Background: Supplier Performance Evaluation


Contents

68

There are issues in how we manage demand, and we are currently

working to review our processes

8

7

4

6

0

2

5

1

3

Q2Q4 Q3Q1Q3 Q4Q1 Q3Q2

46%

Q2 Q1

Order volume fluctuates significantly… …and order placement lead times often cannot be fulfilled

Order placement lead time and order

fulfillment lead times, %, 2016

2014 2015 2016

Order Volume, TLE, million packs


Planned

procurement,

enabling best

value (product

and freight

costs)

Better demand

management

needed

37%

39%

12%

13%

13%

21%

30%

37%

< 3 months

3 - 6 months

6 - 9 months

> 9 months

Order fulfillment lead time

Order placement lead time

69

GLOBAL FUND EXAMPLE

27%

66%

79%

36%

47%

12%8%

1% 0%

19%23%

14%18%

69%64%

44%44%

50%

46%

0%

74%

19%

99%

40%

Avg: 65%

Top: 72%

Countries have below-benchmark forecast accuracy, annual forecasts

much more accurate than quarterly

Forecast accuracy (FCA), across top 10 countries, Percent

NOTE: Forecasting accuracy is defined as 100%- (ABS(FCT - ACT) / ACT); quarterly accuracy is the average accuracy of forecasts for Q1- Q4 2015

Dates are the delivery dates for actuals / in-country need-by dates for forecasts

Annual (2015)Quarterly (2015)(Monthly) FCA benchmarks

SOURCE: Transactions Summary PQR; McKinsey POBOS

▪ Most countries

annual and

quarterly FCA is

below monthly FCA

benchmarks

▪ Quarterly accuracy

is substantially

lower than annual,

suggesting

improvement

potential along timing

dimension

BF CM CG CI GH GQ MW MZ NG TZ UG ZM

70

GLOBAL FUND EXAMPLE

Time dimension is often missing in the forecast

71

Original demand outlook can appear steady… …while actual orders can fluctuate quarter to quarter

Actual orders, million packs, 2015

• Originally project quarterly demand volumes are

often relatively smooth across quarters

• Shelf life of 85% at pick-up leaves only 3.6

months to distribute the goods (out of e.g. 24

months) – limiting the flexibility to reallocate

between the quarters

Actual orders fluctuate substantially due to

• Anticipated stock-outs – leading countries to requests for

financing and products from several sources at the same time

• Uncertainty in government financing – driving unexpected

shifts in partners’ demand

2.91.4

Q1

2.01.3

1.5

3.4

Q4

2.9

1.9

2.9Ø 3

Q3

1.4

1.5

Q2

1.0

Tanzania

Malawi

Ø 31.9

6.6

1.3

4.3

1.3

Q2

0.2

1.72.3

Q1

1.7

Q3 Q4

1.9

0.3


SOURCE: Switching Procurement

Forecasted orders, million packs, 2015

GLOBAL FUND EXAMPLE

5 products from 10+1 countries make up ~55% of grant allocations by

Global Fund, PEPFAR and South Africa

ARV grant allocations

2015, Number of packs, million (percent of total)

159

(82%)193

Top 10 countries

18

Non-top-10 countries

28

75

52

Total Volume

3452

Top 5 products in

top 10 countries

106

(55%)39

33 126

21

103

52

Non-top-5 products

in Top 10 countries

23


The Global Fund

PEPFAR▪ Malawi

▪ Tanzania

▪ Zimbabwe

▪ Ethiopia

▪ Zambia

▪ Kenya

▪ Mozambique

▪ Nigeria

▪ Uganda

▪ Cote d'Ivoire

▪ TLE

▪ LZN (adult)

▪ LZN (pediatric)



SOURCE: Transactions Summary PQR; PEPFAR and Government of South Africa and data

72

NOTE: Dates used are vendor INCO fulfillment dates. For the ease of analysis we excluded South Africa from The Global Fund funding. The PEPFAR data is USG Fiscal Year data. For South Africa, TEE is reported instead of TLE.


To improve demand forecasting in the short-term, we will focus on

biggest countries and products to obtain a rough-cut overview

NOTE: ARV = Anti-Retroviral Treatment; ANTM= Anti-malarial medicine

In scope

▪ 18 months forecasting horizon

▪ Forecasting on a quarterly basis

▪ High-level forecast across top 10

countries and top 5 products, covering

~55% of demand

▪ Data from the Global Fund, PEPFAR and

the government of South Africa

▪ ARV drugs only

Currently, out of scope

▪ Forecasts for longer than 18 months out

▪ Monthly forecasts

▪ Detailed bottom-up forecast, and in-

country forecast / inventory review

procedures

▪ Integrating new sources of data and

additional data sources

▪ Other health products (ANTM, LLIN)

73








Contents

74

Demand Management is one of value creation levers aimed at creating

mutual benefits, rather than purely attacking suppliers’ margin

75

Different levers employed aim at facilitating processing factors without

Freight

Direct

labor

Materials

Overhead

CAPEX

Margin

Typical cost structure, illustrative Levers used

Sourcing

Demand

management

Processes

and product

lifecycle

Supply chain

optimization

Example impact

Price-centric

RFP approach

Rather than

focusing purely on

price reduction

through margin –

value creation levers

address other cost

components (which

make up a much

larger share of total

product cost),

creating value for

both parties without

“squeezing the

suppliers”

Competitive bidding

situations

Firm price negotiations

Cheaper raw materials due

to volume commitments

API supplier optimization

Reduced freight costs from

better mode selection

No rush order overtimes

Less overheads to deal with

regulatory and compliance

Batch size optimization

Cheaper transportation from

better space utilization

Reduced write-off risks

Detailed further

Demand

Management

There are tangible benefits for all stakeholders from the

improved demand management process

76

Lower “safety stock”

requirements

Increased delivery

reliability

Supply security and less

need for “rush orders”

Lead time reduction

More affordable and

sustainable prices

Better transparency into

country requirements

Reduced write-offs

and obsolescence

Optimized raw

materials sourcing

More efficient

production scheduling

Partner organizationsPatients & HIV programs Suppliers

Today's process for The Global Fund is primarily a top-down approach

Forecast today is generated top-down based on informally gathered information on key countries and products, and could be

further strengthened by incorporating triangulation with orders history, clear preparation timeline and regular reviews

Time Ongoing

Final forecast releasedForecast calculated

Extrapolate for other

countriesPrepare Forecast Share allocations

Gather key countries /

products information

Calculate and share

commitments

Process

steps

Gather grant / order

information across

top ~10 countries /

top ~ 5 products

Create initial

demand estimate

Add 30% to the

demand estimate to

account for other

countries / products

Add certain safety

margin to derive a

PPM Forecast

Share 80% volume

of the PPM forecast

as the allocation

value

Reserve 20% for

new entrants (PPM)

Communicate 70%

of PPM forecast

volume as

commitment volume

Data

sources/

rationale

Informal info from

individual countries

List of Health

Products (LOHP)1

Historical: value for

non-top 10 countries

5 products was

~30% of total

Safety buffer for an

unexpected demand

and product

transitions


Fund policy


Fund policy

Owners Procurement Procurement Procurement Procurement Procurement

77


1 Derived from national in-country quantification

Demand Forecasting and Planning process in South Africa

78

Demand planning applies anticipated trends and constraints to historical data treated with statistical rigor (baseline forecast) to develop a consensus Demand Plan across products and facilities

REPUBLIC OF SOUTH AFRICA EXAMPLE

Demand Forecasting process used by PEPFAR

79

Procurement data collects from annual country-level national quantification exercises and supply plans (adjusted quarterly) PEPFAR supply chain technical staff and implementing partners are active

participates in national quantification forums

PEPFAR procurement data reflects the agreed upon USG contributions to the

national response supply plan based on annual country operational plans

USAID’s GHSC-PSM collects the data from across all PEPFAR countries1

and synthesizes for use

Represents the first time procurement data is collected globally, mergedwith Global Fund and South Africa data, and shared with vendors Fair to assume there may be inconsistencies

This is a first step in regular sharing of data (adjusted quarterly)

1 Not including Kenya, where it is collected by KEMSA

PEPFAR EXAMPLE

There are opportunities to improve today’s process Key changes

80


Final forecast releasedInitial forecast calculated

Prepare forecast

Gather stakeholders’

feedback (PRs /

funders / buyers)

Update and finalize

forecastGather information Analyze forecast

Process

steps

Collect, clean and

capture the data

Analyse demand

Prepare and

triangulate a master

forecast (quarterly

for 18 months out)

Review forecast

with other

stakeholders

Incorporate obtained

feedback

Compare the actual

vs historical forecast

quantities

Data

sources

The Global Fund PR,

PEPFAR and South

Africa orders

The Global Fund PR,

PEPFAR and South

Africa orders

Revised inputs

Partners’ feedback

Unanticipated

orders from PRs,

PEPFAR, and South

Historical forecasts

Actual orders

Owners HIV program

relationship

Procurement Procurement Procurement

Partners

Procurement

Time Weeks 1 – 3 Weeks 4 – 5 Weeks 6 – 9 Weeks 10 – 12 Ongoing

Assign clear owners

for forecast updates

Introduce strict deadlines for

forecast preparation and update

The review process happens twice a year – with major changes

communicated back to suppliers when necessary

Discipline & Accountability

are key factors of success

Create a forecast with

the time dimension

Introduce forecast ex-

post analysis

To get from “as-is” to “to-be”, several enablers will need to be activatedImmediate steps

81

Actions we need to take Benefits

Collaboration

between

parties

▪ Top 10 countries / top 5 products approach adopted by non

PPM, PEPFAR, GSA

▪ PEPFAR, TGF and GSA collect and exchange data on a

regular basis

▪ Collaboration on data collected by big LMIC donors

Allows for one consolidated forecast

across Global Fund, RSA and PEPFAR

Improves transparency and ability to

plan capacity for suppliers

▪ Top 10 countries prepare anticipated orders for next 18

months, and monitore actual demand across top 5 medications

▪ PEPFAR, RSA and The Global Fund compile the gathered data

in country dashboards

Countries have the best overview of

their own future demand and other

stakeholders rely on this information

Country

Program

Ownership

▪ Strict timelines and schedule for each of the participants to

adhere to

▪ Forecasts are reported by countries regularly

▪ Forecasting review and update process is performed every

half-a-year

Timely provision of information

ensures preparation of accurate

forecastsStrict

timelines

Adjust

incentives

▪ Countries are incentivized to stick to forecast

▪ 6–9 months lead times are firmly communicated

▪ Counterparties adhere to commitments made

Allows for more stable demand

forecast, accounting for time dimension

Reduces ad-hoc buys will help to

stabilize demand








Contents

82


Value for Money – options and incentives for improved collaboration

29 November, 2016

Geneva, Switzerland



84



























Contents

85

Value creation levers aim at creating mutual benefits rather than purely

focusing on suppliers’ margin

86

Different levers could help jointly improve key cost components

CAPEX

Margin

Materials

Overhead

Labor

Freight


Sourcing

Demand

management

Processes

and product

lifecycle

Supply chain

optimization

Example impact

Standard RFP

approach

Rather than

focusing purely on

price reduction

through margin –


address other cost

components (which

make up a much


product cost),

creating value for


“squeezing the

suppliers”

Competitive bidding

situations














There are several value creation levers across key dimensions, driving

value for all parties without squeezing suppliers

87

Sourcing / Supplier

performance

management

Demand

management

Process and

product lifecycle

Supply chain

optimization

Value levers

Leveraging volume

Bundling high- and low-volume products

COGS-based negotiation (e.g. cleansheets)

Balanced allocation and commitment model

▪ Supplier purchasing practices and

conditions to other upstream suppliers

Demand forecast visibility and limited volatility

Demand specification standardization and optimization

Better planning (especially, along the time dimension)

▪ Demand planning, supply reliability, inventory

and capacity management

Continuous production process improvement along

the product lifecycle

Good procurement practice up the entire supply chain

Innovative packaging

Sound sourcing strategies for raw materials

Supplier “make” vs. “buy” decisions

Product regulatory strategy

▪ Product lifecycle and processes at supplier

and integration to own development

Freight and packaging optimization

Staggered deliveries

Stock visibility

In-country supply chain capacity strengthening

▪ Distribution network and supply chain

integration

Description of lever in supplier collaboration

A

B

C

D

Advanced clean sheet yields substantial cost improvement

through supplier collaboration

Example: Clean sheet gaps

Percent of actual price

TargetBest in

class

cost

Should

cost

gap

Optimal

operations

gap

Incumbent

should

cost**

DTV &

innovation

savings

Actual

Price

▪ Supplier

collaboration effort

drives

transparency into

suppliers’ cost

structure enabling

joint efforts to

reduce cost

▪ Total identified

opportunities as

part of supplier

collaboration effort

yields substantial

cost improvement

Gap is potentially driven from▪ Higher than expected supplier

raw material (resin) discounts▪ Higher than estimated

supplier margin▪ Supplier’s lack of under-

standing of true cost structure

1 Optimal operations include▪ Higher

equipment utilization

▪ Lower scrap rates

2 Additional opportunities include:▪ Design to Value▪ Resin innovation▪ Leading edge

supplier equipment technology

3

A

Better demand visibility will help to secure production capacity for

ARV vs. high-margin products and stabilize the load

89

B

Scenario 1: “Flexible competition” without long-term forecast

Scenario 2: “Reserved capacity” based on the long-term forecast

50%

100%

50%

100%

Time

If the ARV medication is

competing vs. the high-margin

products in an environment

when the manufacturing

capacity hasn’t been reserved,

the flexible allocation is likely to be

margin-based – driving the ability

to react in ARV low, compared to

that of higher-margin products

Capacity

utilization

Capacity

utilization

Product 1High-margin

productProduct 3

ARVHigh-margin

productARV

High-margin

product

ARV baseline load

Product 1High-margin

product

Product 2

ARVHigh-margin

product

Product 2

High-margin

product

Reserved capacity coupled with

the long-term forecast would

allow to allocated certain capacity

to the “baseline ARV load” –

leaving sufficient flexible buffer to

be used for the higher-margin

product

Time

Approach Impact

▪ Conduct joint project with suppliers in order to

– Increase flexibility

– Reduce cost in supply chain

– Improve information flow

▪ Map the current end to end process - from forecast to

final delivery

▪ Identify improvement opportunities along the supply

chain, e.g. Order raw materials based on forecast,

postpone order differentiation point, etc.

▪ Setup joint improvement teams and regular update

sessions, assure implementation at supplier and within

own system

▪ Install monthly S&OP planning with supplier

Collaborative effort to reduce supplier Lead Time leads to inventory

optimization, improved order quality and increased OTIF

New lead time

-13%120 days

Old lead time

90 days

▪ Reduced safety stocks

▪ Improved order quality due to

shorter reaction time

▪ Increased OTIF

Supplier lead time

90

C

ILLUSTRATIVE EXAMPLE

Significant opportunities captured in optimizing packaging through

introducing e.g. shrink packaging

Example: Introducing new packaging options … … brings large savings

▪ Looking at the properties

of the shrink packaging,

and taking into account

some efficiency loss, the

expected savings around

20-30% on direct volume-

weight-related costs

▪ This translates into an

expected average saving

of direct freight-costs of

5-7k USD per 100,000

packs

91

ILLUSTRATIVE EXAMPLE

D

Removing additional

carton packaging

increases number of

bottles per box from

108 to 144

Placing leaflets on

top of the bottles

(instead of on each

bottle) also helps to

reduce space needed

We have overlaid the key ARV attributes to the product lifecycle to

determine the strategic priorities …

92

Pipeline Emerging Growing DecliningMature

Attributes

Challenges for

suppliers

Strategic

Implication

More suppliers Reducing FPP suppliers Fewer FPP suppliers

Technical driven

licensingContinous process improvement and investment No more investment

Focus on in-house

API supplyFew API sources

Diversification of

API sourcesConcentration of API sources

Few FPP suppliers

Less competition Few incentives to manufactureCompetitive drive

Lack of clarity

for investment

Recover from investment & growth

Brutal competition Ethical exit plan

Early

engagementCompetitive cost

Deliver sustainability: Mitigate price volatility and secure supply

Address long lead-time and poor delivery performance

Time

… which in-turn allows to leverage different value levers across

lifecycle stages

93

Time

Key focus

and main

drivers

Emerging Growing Mature Declining

Potential

value

levers

Fast onset of rival products

shortens the window for

profitability

Gaining market share

Proactively manage

complexity

Proactively manage

complexity

Develop and launch the

extensions

Ramp-up volume and

investment case uncertainty

Economy of scale, trying to

globalize launches to a

maximum possible extent

Divest and substitute with

the next generation

COGS-based negotiation (e.g. cleansheets)

Continuous production process improvement

Innovative packaging

Demand forecast visibility and limited volatility

Demand specification standardization

Joint scenario planning Joint scenario planning

Sound sourcing strategies

Product regulatory strategy

Supply Chain optimization

Balanced allocation and commitment model

ILLUSTRATIVE

There are several situations in the ARV market, when pulling value

creation levers need to be applied

94

Need to switch to products from

alternative suppliers

Risk to the continuity of supply

Implications for supplier Implications for patients and program

Innovative

packaging and

customized

labelling

Investments in developing new

packaging necessary

Simpler or more complex supply

chain, depending on geographical

coverage of new packaging

Better supply availability if packaging

allows for wider distribution

Potential cross-market “grey market”

redistribution

New products

enter the

market

New API sources potentially necessary

Decreasing demand for old product

New price re-negotiations

Global and national regulatory

implications

Transition to the new treatment regimen

(e.g. switch side effects)

Potential supply gap between old and new

product, and delayed access

Wastage of old regimens

Cancellation

of orders

Drop in capacity utilization, which

could be hard to fill with other products

Quality and

regulatory risks

Large and unexpected shifts in

demand between suppliers

Upstream supply

challenge

Alternative API sources potentially

necessary

NON-EXHAUSTIVE








Contents

95


Balanced supply system – criteria and performance evaluation

29 November, 2016

Geneva, Switzerland



97



























Contents

98

We all are working to deliver on our mission to achieve 90/90/90

99

Supplier OTIF for ARV products is low and highly variable –

creating potential risks for patients (1/2)

On-Time In-Full delivery (OTIF), Q1 – mid-Nov 2016, %

LZN example: one supplier in

2013/2014 had 76% of product

deliveries late, with ~10% of

product deliveries being late 100

or more days

Number of stockouts have

reduced over the past 3 years40%

66%

67%

72%

74%

81%

88%

Supplier 6

Supplier 7

Supplier 5

Average: (77%)

Supplier 4

Supplier 2

Supplier 1

Supplier 3

Note: LZN is an first-line HIV treatment drug, a combination of Lamivudine, Zidovudine and Nevirapine

100

GLOBAL FUND EXAMPLE

Supplier OTIF for ARV products is low and highly variable –

creating potential risks for patients (2/2)

101

Average: 65%

GOVERNMENT OF SOUTH AFRICA EXAMPLE

A

Cost

competive-

ness

C Sustainability

B

Perform-

ance

D

Risk

manage-

ment

E

Benefit

sharing

Balanced

supply

system

A Providing products at the lowest possible affordable and

sustainable price to reach the maximum number of patients

Reducing price volatility and eliminating predatory pricing

B Supplying product timely and in full

Incentivizing suppliers to introduce better formulations

C Supporting new suppliers to ensure sufficient supply and

mitigate geographic supply risks

Investing in suppliers with sustainable manufacturing practices

D Maintaining well-diversified supplier base

Meeting quality requirements

Mitigating implementation risks

E Publishing reference prices

Building capacity and implementing rapid supply mechanisms

We all have balanced supply systems built around similar

key elements

102

GLOBAL FUND EXAMPLE

8.2

8.4

8.0

0

0%

50%

100%

Q1 2014Q3 Q4

Avg.

~50%

Q2Q1 2013

Low-price

45

+39% (+13 days)

33

Median

17095

Low-price

+79% (+75 days)

Median

Low-price supplier

consistently undercuts

prices in the market…

… which allows them

to secure high share

of orders (~50%)…

… however, the

delivery performance

is low

Price

performance

Volumes

secured

Delivery

performance

Maximum delay, daysAverage delay, days

Share of orders, %

Product price, LZN, 2013-2014, USD per pack

Low-price supplier

Median supplier

Lowest price often means poor performance

Note: LZN is an first-line HIV treatment drug, a combination of Lamivudine, Zidovudine and Nevirapine 103

GLOBAL FUND EXAMPLE

Reliable

Similar issues have been observed with several TLE suppliers in 2015-2016

Both buyers and sellers’ strategies in the market

affect the price

NOTE: TLE = combination of tenofovir (TDF) in combination with lamivudine (3TC) and efavirenz (EFV)

Supplier behaviors

• Some suppliers responded to Global Fund target pricing, but others could not or would not –

offering 15% higher than the target price

• After the allocation, suppliers who could not offer target pricing subsequently reduced prices by up

to 14% below the target pricing, which were captured through the “most favored nation” clause

10

9

11

0

8

2016Initial

+15%

2H 20151H 2015

Quoted tender price, TLE, USD per packThe Global Fund

target pricing

Suppliers who responded

to tender price

Suppliers who did not

respond to tender price

Actual price, TLE, USD per pack

0

8

11

10

9

-14%

20162H 20151H 2015Initial

104

SOURCE: The Global Fund TLE pack prices

GLOBAL FUND EXAMPLE

Responsible

… and lead times and urgent orders reduced

Changes introduced in 2015 improved supply

1 Simple non-weighted average across top 7 suppliers

2 For Rapid Supply Mechanism (RSM) products, time of order to time of demanded delivery by PR

3 Less than 3 months between ordering and time of demanded delivery by PR

Supplier delivery performance (OTIF) has improved …

Percent

• Supplier OTIF increased by 35-45% (15-25

percentage points) for all suppliers

• Volume-weighted OTIF improved from 41%

to 75%

Best Average1 Worst

62%

51%43%

85%

74%

58%

BEFOREJuly 2013 -June 2014

AFTER July 2014 - Sep 2016

• Since implementing vendor managed inventory

(VMI) in 2015, average lead time to delivery

decreased by 47% (from 142 to 75 days)

• Number of urgent orders went down from

over 25% in 2015 to under 20% in 2016

75141

-47%

Average lead time for WHO-optimal products2

and share of late orders, days / percent

26% 19%

BEFORE2013-2015

AFTER 2016

xxShare

of orders

Average

lead timesxx

35-45%

105

GLOBAL FUND EXAMPLE

Responsive

Main changes to achieve a balances supply system

Timing Spot market purchases

• Purchase of orders on a need basis,

potentially leading to unpredictable pricing

and performance

Longer-term tender agreements

• Improved forecasting leading to higher committed purchase

volumes

• Bundled volumes with lower volume drugs to ensure availability

From

Cost

efficiency

Lowest price

• Price push to ensure high quantity with little

regard to sustainability and quality

Joint cost optimization

• Keep number of suppliers high

• Grow new suppliers

• Ensure quality of products

Perception Market position

• Selection based on history and market

positioning

Awards based on capability and performance

• Evaluation based on supplier’s technical capabilities and

commercial terms

To

Relation-

ships

Transactional relationships

• Relationship purely based on one-time

buyer–supplier interactions

Strategic partnerships

• Preferred suppliers of choice based on quality of supplier

• Quality standards transparency

Visibility Black box

• No clear visibility as to how the contract

distribution has been allocated

Transparent selection criteria

• Full transparency into selection criteria

• Support as to how to improve to acquire higher share

• Focus on demand visibility

106








Contents

107

Large ARV Buyers and Sellers Forum 2016

Breakout sessions – key takeaways and next steps

November 29, 2016

Geneva, Switzerland


Demand Management is one of value creation levers aimed at creating

mutual benefits, rather than purely attacking suppliers’ margin

109

Different levers employed aim at facilitating processing factors without

Freight

Direct

labor

Materials

Overhead

CAPEX

Margin


Sourcing

Demand

management

Processes

and product

lifecycle

Supply chain

optimization

Example impact

Price-centric

RFP approach

Rather than

focusing purely on

price reduction

through margin –


address other cost

components (which

make up a much


product cost),

creating value for


“squeezing the

suppliers”

Competitive bidding

situations














Detailed further

Demand Management – challenges and opportunities (1/2)

110

Communication

and alignment

BREAKOUT NOV 29

Methodology

Closer engagement with country programs

Most value will be derived from the discussions about the forecast and numbers – what does it

say/not say; where are the apparent inconsistencies

Open communication and dialogue, periodically publish aggregate actual volumes earlier and joint

problem-solving together on large deviations to help build “trust in the forecast”

Develop aligned messaging around the importance and benefits of better demand planning for all

parties (win-win)

Engaging decision makers and make economic and program implications clearer

Include more countries and products to increase scope beyond 55% demand

Avoid double-counting of volumes between buyers

More real-time sharing of volume data; providing more regular forecast updates

More nuanced forecasting accuracy metric can highlight where issues / opportunities are

Indicate level of certainty in the forecast (including “firm commitments” vs. “less certain’)

Alignment on the definitions and time-points; portray production and in-country timelines separately

Demand Management – challenges and opportunities (2/2)

111

BREAKOUT NOV 29

New products

and regimens

In-country

processes

Obtaining more timely data on country forecasts and quantifications

Countries systems and methodology are the key drivers of procurement accuracy

Consider either stockholding or Vendor Managed Inventory

Weak capabilities and systems

Increase accountability

Provide forecasts for new/old products as volumes ramp-up/down to enable better formulation and

API planning

Value creation levers aim at creating mutual benefits rather than purely

focusing on suppliers’ margin

112

Different levers could help jointly improve key cost components

CAPEX

Margin

Materials

Overhead

Labor

Freight


Sourcing

Demand

management

Processes

and product

lifecycle

Supply chain

optimization

Example impact

Standard RFP

approach

Rather than

focusing purely on

price reduction

through margin –


address other cost

components (which

make up a much


product cost),

creating value for


“squeezing the

suppliers”

Competitive bidding

situations














We have jointly brainstormed on collaborative opportunities

Demand

management

Stabilize order management process

Smoothen demand, including more aligned order schedules between buyers

More certainty on time dimension of demand

Explore optimized Supply chain set ups

BREAKOUT NOV 29

Process and

product

lifecycle

Early engagement buyer, seller, and countries, e.g. on new regimens

Optimization and consistent application of product standards (e.g. multi-month packs)

Optimization of batch sizes and reduce bulk ordering

Create stable partnership and demand outlook to allow sustainable investments (e.g., scale

up, process development)

Supply chain

optimization

Optimize packaging (e.g., e.g. shrink packaging) to reduce material and logistics cost

Streamline administrative process to reduce inventory and write-off process

Sourcing

Optimal API make vs. buy decisions

Use volume commitments to drive cheaper raw material prices

Encourage staggering of procurements under long term arrangements

…

Overcoming some key barriers will help to create value significantly

(examples)

BREAKOUT NOV 29

Non-customized labelling

Transparency on supplier shipments across buyers to improvement

accuracy of forecast

Increase demand/ stock visibility on country level, covering >70% of

demand

Increase country ownership of volatility in forecasting and ordering,

incentivize stable supply chain

Stronger coordination between buyers re. the ordering cycle

….

What are the next steps for each of the stakeholders going forward?

Buyers

Suppliers

Partners

Next steps

▪ Continue to maximize transparency for suppliers on

▪ Definition of performance with clear metrics

▪ Consequences of poor/good performance for suppliers

▪ Supplier performance throughout tenure period

▪ Ensure clear path to enter for new entrants

▪ Consider whether and how to enable poor performers to improve and gain share

▪ Engage countries still focusing on lowest price to have a more balanced approach

▪ Communicate wider on cost of poor performance

▪ Invest in ability to respond to enhanced requirements

▪ Voluntarily provide market intelligence more frequently

▪ Support country programmes to plan better

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