SCMS ARV Bridging Assistance Fund Final Report, Chapter 6

Chapter 6. Inventory Management

Inventory management under SCMS provides systems and processes that support the following activities: planning inventory (purchase order forecasting), setting inventory management targets (sampling turnaround times), enabling efficient replenishment performance (stock accessibility), tracking inventory status reports (quality assurance/available stock) and handling all functions related to tracking and managing SCMS commodities once in the local distribution center, down to the depot level. For this program, effective inventory management required minimizing the time products were held in storage by reactively monitoring storage costs. The scope of inventory management incorporates monitoring replenishment lead times, forecasting inventory and aligning forecast availability with demand requirements. Other core processes included monitoring the availability of inventory locations, managing quality and using reverse logistics for defective commodities. Balancing these competing requirements was an ongoing process that led to optimal inventory levels and provided the project with the flexibility to react to national requirements. Driving best practice inventory management while minimizing the timeline for product storage was a key indicator of program success.

Process
Under inventory management, commodities that are held at the LDC are managed as partial vendor deliveries until they are released from quarantine and made available for dispatch. They will be considered delivered only when they are available for distribution. Under MCC regulations, any imported medications must have samples extracted, and these samples must be certified by an approved laboratory as containing the necessary pharmacological ingredients. The medicines are therefore made available for distribution only after each batch has been sampled and certified by the vendor-nominated laboratories. Effective inventory management at this stage ensures compliance with South African regulations and accurate tracking of all received and quarantined units. It also ensures timely release of products for distribution, freeing up space at the LDC for further inbound shipments and meeting expected schedules for delivery to the depots. The overall goal of the inventory management process is to implement best practices for receiving and storing commodities while tracking commodities through the sampling process to enable dispatch.
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Step 1. Sampling Samples are extracted in prescribed quantities for each delivered batch and then certified by vendornominated laboratories. Responsible: LDC, vendors Actions 1) After the commodities have been received and the GRS has been created, bins are allocated for each pallet and commodities are put away as prescribed by the system, within 48 hours of receipt. Commodities are received initially into a restricted location to ensure sampling requirements are highlighted and communicated to the quality team as well as to eliminate possible distribution of noncertified commodities. 2) The LDC extracts samples from each batch and returns to the vendor for analysis. 3) The vendor submits samples for analysis at an approved laboratory and obtains certificate within 31 days. The program products were sampled at laboratories in different locations, depending on arrangements made by the vendors: Aurobindo: India Strides: Cape Town (SA) Cipla: Cape Town (SA) Emcure: Johannesburg (SA) Hetero: Johannesburg (SA) 4) The vendor provides certificate of sampling to the LDC to allow the batch to be released.
Step 1 outcome: Commodities are certified as meeting standards for distribution and use in South Africa.

Step 2. Sampling release Commodities are then documented as released and the vendor is paid. Responsible: LDC, SCMS accounting unit Actions 1) The LDC updates the sampling release sheet and emails SCMS with quantities of released batches within 24 hours of receiving the release documents.

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Table 6-1. Sampling release sheet

2) The LDC updates the milestone sheet with the release date and then informs SCMS South Africa of the full ASN release. 3) In case of a product recall, before or after sample release, the shipment is considered partially delivered until all batches and units are made available for distribution. In such an event, payment will not be made to the vendor for the affected shipment/consignment, until a decision has been made to either reduce or replace the quantities from recalled batches. 4) SCMS field office reviews the release against expected quantities from the ASN and resolves any issues or discrepancies such as batches being held back or incorrect numbers of units being released. 5) The product is now considered delivered. Once all ASNs from a specific PO have been fully delivered, SCMS South Africa sends an email to the SCMS procurement unit to update the status to delivered or D1 in the Orion system. This date is given within 30 days of the actual sample release date in case of any resolution that is needed before payment. 6) The SCMS accounting unit in Washington issues payment to the vendor as soon as the D1 status is applied.

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Table 6-2. Milestone sheet: From arrival at LDC to dispatch

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Step 2 outcome: vendor is paid. Commodities are certified for distribution in South Africa, and the

Process considerations
Although the goal of the inventory management stage is to hold commodities for as short a time as possible, in some cases, commodities could not be distributed to the provincial depots as soon as the sampling release took place. This was due to two primary causes: 1) Requests for storage were made from the depots for short periods due to space constraints or audits when depots could not receive stock. 2) Product was identified as damaged, requiring QA analysis. In the first event, some depots could not receive their consignment immediately after release. Hence, commodities were moved to a nonrestricted location and tracked. Stock that was held in this way was reported to the SCMS field office weekly through the held stock report.
Table 6-3. Held stock report
Depot Name KZN KZN KZN KZN KZN KZN KZN KZN KZN KZN KZN KZN PO Number 7565-0 7575-0 8979-0 8379-0 8382-0 8421-0 8373-0 8373-0 8373-0 8423-0 8381-0 8420-0 Order # 040 042 057 058 061 063 065 066 067 071 072 073 Pre-alert Qty 14 890 70 542 192 759 11 477 98 430 51 637 6 118 46 843 55 260 77 924 18 046 52 055 Pallets 16 25 50 12 35 4 7 17 20 20 7 27 Pre-alert date 24-May-11 10-Feb-11 24-May-11 24-May-11 20-Jun-11 04-May-11 07-Jun-11 24-May-11 24-May-11 24-May-11 07-Jun-11 24-May-11 From Nevashni Gounden Pugiso Ntsele Nevashni Gounden Nevashni Gounden Nevashni Gounden Nevashni Gounden Nevashni Gounden Nevashni Gounden Nevashni Gounden Nevashni Gounden Nevashni Gounden Nevashni Gounden Planned dispatch Date Storage Request Date By 26-May-11 21-Feb-11 31-May-11 26-May-11 28-Jun-11 5-May-11 9-Jun-11 9-Jun-11 3-Jun-11 3-Jun-11 9-Jun-11 9-Jun-11 24-May-11 None Found 24-May-11 24-May-11 20-Jun-11 04-May-11 07-Jun-11 24-May-11 24-May-11 24-May-11 07-Jun-11 24-May-11 Koshini Budhia N/A Koshini Budhia Koshini Budhia Koshini Budhia Rheka Koshini Budhia Koshini Budhia Koshini Budhia Koshini Budhia Koshini Budhia Koshini Budhia Proposed Del Date SCMS Approval Date Actual Dispatch Date 30-May-11 Not confimed 7-Jun-11 14-Jun-11 DDV 10-May-11 15-Jun-11 23-Jun-11 1-Jul-11 1-Jul-11 DDV 23-Jun-11 26-May-11 No Written Approval 26-May-11 26-May-11 No Written Approval 24-May-11 No Written Approval 26-May-11 26-May-11 26-May-11 No Written Approval 26-May-11 27-May-11 30-Jun-11 6-Jun-11 14-Jun-11 4-Aug-11 13-May-11 22-Jun-11 14-Jul-11 14-Jun-11 19-Jun-11 13-Jul-11 14-Jul-11

In the second event, detailed product return or quarantine SOPs were followed, in line with MCC regulations for product recall. Key steps included the following: 1) Identify affected batches and move to restricted (quarantined) area in the warehouse. Where stock is identified at a depot, provide the reverse logistic service to return the stock to the LDC. Damaged stock is physically separated from available stock in the warehouse, as well as on the system, to eliminate any possibilities of distribution of quality non-conforming products.

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2) Arrange to have the affected items analyzed by QA for their recommendation and as needed, request removal by the vendor or provide support in the destruction process with a regulated supplier.

Challenges
Establishing the LDC in South Africa created the first central medical store for South Africa, holding donation ARVs for the nine provinces until distribution to sites in line with a scheduled plan. As the bridging stage between the inbound and outbound processes, it required alignment with multiple stakeholders. This presented several challenges to the program, which are shared below. Sampling turnaround timeframes were challenging at the outset and throughout the program, requiring consistent management with vendors.

At the beginning of the program, sampling turnaround times were agreed to with the vendors. However, vendors did not always meet the agreed-upon timeframes. Delays in the sampling processes resulted in delayed ARV distribution, therefore increasing space requirements at the LDC because product was held for longer-than-expected periods. Contributing factors that resulted in delays in sampling turnaround include the following: o At the start of the program, international vendors had to establish processes with local applicant holders and labs to drive a focus on on-time turnaround. o For vendors sampling product internationally, additional time was required to freight the samples to the international lab. o Increased inbound volumes challenged vendor-nominated labs sampling capacity when managing multiple consignment batches. o Certain products were produced with more batches than others, requiring increased sampling tests per product ratio. o Storage costs were not the vendors responsibility; hence this diminished the priority vendors placed on rapid sampling. As a result, this process required consistent focus and communication to drive timelines with the vendors. SCMS managed vigilant tracking and regular updates to request urgent attention from the vendors as key dates were monitored. SCMS procurement worked with vendors to determine estimated timelines per product. As the project progressed, contingency time was put into the expected release dates using predicted and past experience sample times. The product INCO terms were DDP to the LDC, and the typical point of payment to the vendors would be upon delivery at the LDC. SCMS, however, could access the product only when the sample was released. Therefore, the process was changed so that payment of product was linked to the sampling release date for the full ASN delivery. This focused the attention of the vendor on achieving faster turnaround times for sampling.

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SCMS procurement initiated a process of following up with the international vendor directly on sampling release and informing the SCMS field office to alert the LDC of imminent releases. This enabled the LDC to start preparing for dispatch activities and allowed further follow-up with the local applicant holder if the LDC did not have the official documentation for release. The very large product volume procured under round 5 put additional pressure on inventory management processes during the sampling processes.

At the outset of round 5, there was significant concern that the increased volumes would lead to a deterioration in performance by the vendors in moving product through sampling and certification. However, the contingency time put into the expected release dates at the start of the round, and the fact that SCMS established that payment would be provided at full PO release rather than by ASN, helped maintain reasonable timeframes. Also, having split tenders for most products across two vendors resulted in minimizing the burden on individual labs and spread the risk of delays across multiple vendors. Incidents of damages, though infrequent, complicated inventory management processes and required additional action for resolution.

As per industry best practice, any damaged product was not distributed and required reduction of the recorded amounts of available stock for dispatch to depots. In principle, one unit damaged in such a significant and life-saving program is one too many. Ideally, no unit should be deemed damaged and unusable. SCMS drove disciplines of product quality throughout the supply chain and at the depot level, requesting that any damages or quality issues were to be notified to the SCMS field office and to the LDC immediately for corrective action. Examples of damages experienced in the program included: Damages in-transit o Damage through multiple handling points at transport hubs during flight o Damage through poor packaging of commodities in containers o Wet damage during air shipment for one product in round 1 Warehouse damages o Product damage through poor handling during put-away or pick procedures Distribution damages o Product damage through poor handling during distribution Manufacturing packaging quality related damages, o The Western Cape depot alerted SCMS to this specific incident. o Several health facilities reported that the container cap would not fit after bottle opening, a situation referred to as a popped cap o The issue related only to specific batches and the vendor issued a batch recall to return the product batches to the LDC for inspecting and identifying replacement quantities needed.

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All damages were resolved through the standardized incident management process, which enabled trends to be monitored, root cause analysis to be performed and corrective actions put in place to avoid recurrence. Where necessary, additional training was provided to identified LDC personnel on logistics best practices and standard operating procedures. Chapter 8 provides further details on damage management and incidents experienced by the program. Managing stock allocations, order picking, and dispatch quantities for the enormous volumes flowing through the LDC in short periods of time required attention and systems to track and resolve any issues, as needed.

Stock allocations and order picking were conducted on a large scale throughout the program. The two processes required intense attention to batch allocation, stock picking, and dispatch. Any error resulted in inaccurate stock lists, and short supply or oversupply to the depots. All stock management issues identified through stock counts and order checking were resolved through the incident management process, requiring in-depth investigation and report documentation. At program completion, the LDC completed a final audit of donation ARVs that remained in the warehouse by tracing batch history on all outbound transactions. This exercise helped determine claimed and unclaimed short supply in relation to the LDC customer relations management system. All confirmed short supplies were reinvoiced, and remaining quantities in the LDC were then dispatched where depots indicated requirements existed.

Challenges with outbound deliveries also required flexibility to store unexpected quantities.

As the program volume scaled up, requests for released stock to be held for short periods were received from the two largest recipient depots due to space constraints. This required the LDC storage plans to remain flexible to accommodate the extra stock on hold. SCMS worked with one of the depots to develop a system of direct deliveries of the stock to the health care sites, thereby distributing the commodities and bypassing the depot, which was severely constrained by increased volumes to support ART program scale-up.

Lessons learned
Proactive management throughout the inventory management stage was crucial to planning commodity receipt, managing inventory availability timelines according to scheduled plans, and reducing storage costs.

SCMS implemented tracking and tracing of all shipments throughout the supply chain to plan required receiving and storage capacity, based on pre-alerted quantities. By tracking
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vendor milestones, the LDC could adjust the receiving and storage plans while potential delays were flagged for action. Similarly, the LDC regularly followed up on all storage requests from the depots to plan redelivery of product for managing lowest possible inventory levels and storage costs. By actively managing, planning and re-planning, the program could respond to the inevitable unexpected changes in supply chain activities. While the inbound processes established a timeline for shipments to arrive at the LDC, the LDC needed to remain flexible to cater to unforeseen issues faced by the vendors during the production and freighting of commodities to the LDC.

Inbound delays, whether the result of freighting delays, delays at port, delays in delivery from port or VAT exemption issues impacted the inventory receiving management procedures, as higher-than- planned volumes were required to be processed into the LDC. The LDC had to be able to maintain flexibility in established processes such as receiving slot availability and defined offloading time schedules to ensure product remained within the chain of custody. While two booking slots were made available each day as needed for SCMS stock, this was increased or amended as, and when, required. During planned peak times, additional staff was brought in to assist in offloading, batching and listing shipment contents. Another area in which the LDC needed to remain flexible in the event of unexpected volumes was storage space allocation. Sudden and unplanned increases in received volumes or delayed outbound volumes created unplanned space requirements for greater volumes of inventory, and scalable space access was essential. When a health program is scaled up, flexible overflow space allocation needs to be considered, especially where current infrastructure is already working at peak levels.

SCMS communicated inbound and planned outbound volumes to the LDC in advance, and this information was used to forecast and allocate overall capacity requirements. Leveraging the private sector to support this rollout enabled storage capacity to be made available as, and when, required. This helped manage increasing and decreasing volumes, even at short notice. A total 1,200 pallet bin locations were allocated for the entire SCMS program, and a further 400 pallet bin locations were available for additional capacity requirements. Functioning under GWP guidelines with well-established SOPs, best practice managed inventory processes enabled a very low rate of incidents within this high-volume program. o Allocation of product by batch to a bin-enabled easy location for the outbound process. o The ERP online tracking system provided accurate product status by tracking unique consignment references.
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o The availability of material handling equipment helped in managing inventory putaway volumes. o Trained resources, with clear job descriptions, were monitored for performance and adherence to SOP processes. o The first expiry first out (FEFO) system application helped list and highlight expiry dates by flagging and automatically allocating batches, with least shelf life first. o Warehouses were temperature controlled and monitored, and delivery trucks were insulated. Internal and external communications with multiple stakeholders need to be structured and actions tracked consistently to ensure regular follow-up and to close out actions.

The procurement unit was responsible for communicating with the vendor and motivating the vendor to finalize sampling release, as well as communicating with the LDC when samples were released in an effort to maintain reduced inventory levels. Structured lines of communication ensured that the LDC was kept informed at key moments so that stock could be managed. The procurement unit also coordinated information flow from various sources to achieve a streamlined and unambiguous communication channel. Inventory management within the LDC involved participation and communication between the following three functional teams: o Receiving team: Stock offloading, batching, recording (GRS) and putaway o QA team: Quality checks as well as batch sampling extraction and releasing o Inventory team: Storage bin allocation, bin restrictions (to ensure capacity maintenance for forecasted use) These teams communicated extensively on product progress and status with the application of internal systems such as CRM, processes documentation (e.g., GRS) email and system inventory reports.

Outcomes
In order to comply with South Africas sampling and regulatory requirements for the entire quantity of commodities, a large number of samples had to be extracted and managed over the course of the program. Overall nearly 1,300 samples were taken, comprising over 5,900 units.

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Figure 6-1. Number of samples extracted by round and vendor

450 # of Samples Extracted 400 350 300 250 200 150 100 50 0 Round Round Round Round Round 1 2 3 4 5 Hetero Emcure Aurobindo Strides GSK Cipla

Figure 6-2. Number of units sampled by round

2,500 2,000 # of units sampled 1,500 1,000 500 - Round 1 Round 2 Round 3 Round 4 Round 5

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As sample extraction was a function of the LDC, it was entirely within the programs power to implement, and therefore a high standard was held for the ability to turn around receipt of goods and the sampling process. The average number of days for sample extract varied from one to nine days each month, but overall trended downward, despite increasing volumes as the program progressed. Sample submission followed more or less immediately on sample extract, and the time between sample extract and submission never exceeded an average of 2.5 days and in the last six months of the program, averaged less than one day SCMS viewed vendor management not only from a cost perspective but also from the vantage point of strategy--it is key to successful program delivery. Unfortunately, throughout the program vendor performance in moving products through the sampling process was higher than the initial expectations of time for the sampling process, though there was slight improvement over time.

Figure 6-3. Average number of days from GRS to sample extract

10 9 Average # of days 8 7 6 5 4 3 2 1 Nov-10 Mar-11 May-11 Nov-11 Sep-10 Apr-11 Feb-11 Sep-11 Oct-10 Oct-11 Jan-11 Dec-10 Aug-10 Aug-11 Dec-11 Jun-10 Jun-11 Jan-12 Jul-10 Jul-11 0

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Average # of days 0.0 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 0.5 1.0 1.5 2.0 2.5 3.0

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Figure 6-4. Average number of days from sample extract to sample sent

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Figure 6-5. Average number of days from sample sent to sample release
50 45 40 35 Average # of days 30 25 20 15 10 5 0

Vendor sampling performance greatly impacted the length of time that inventory management in terms of the sampling periodby far the longest portion of the inventory management process was the period where the vendor-contracted laboratories were conducting sampling.

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Figure 6-6. Sampling process performance by process phase

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50 Average number of days Sample sent to sample release date Sample extract to sample sent date

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Analysis of performance by vendor fails to yield any time trends. Performance by each vendor varied greatly by month. Overall, Aurobindo tended to take longer than other vendors, unsurprisingly considering that their samples were transported to India for analysis. Vendors providing smaller quantities, such as Emcure were also able to achieve quicker turnaround times in some instances. Important to note is that all vendors, with the exception of Aurobindo were able to achieve fast turn-around (less than 20 points) in at least one period of time, indicating that improved performance is possible with vendor dedication and focus. This is particularly notable in the final months of the program as vendors knew that the window for payment was closing.

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Figure 6-7. Sampling process performance by vendor

80 70 60 50 40 30 20 10 Nov-10 Mar-11 May-11 Nov-11 Sep-10 Apr-11 Feb-11 Sep-11 Oct-10 Oct-11 Jan-11 Dec-10 Aug-10 Aug-11 Dec-11 Jun-10 Jun-11 Jan-12 Jul-10 Jul-11 0 Auro Cipla Strides GSK Emcure

In addition to sampling performance, the LDC also successfully warehoused products between when the items were GRSed and when they were distributed to the depots. This involved utilizing a large and varying number of pallet bin locations throughout the program.
Figure 6-8. Pallet bin use in the LDC at month end, by month
1,600 # of pallet bin locations utilized 1,400 1,200 1,000 800 600 400 200 Nov-10 Nov-11 Sep-10 Apr-10 Apr-11 Feb-11 Sep-11 May-10 Mar-11 May-11 Dec-10 Aug-10 Aug-11 Dec-11 Feb-12 Oct-10 Oct-11 Jan-11 Jun-10 Jun-11 Jan-12 Jul-10 Jul-11 -

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The program lost only 410 units to damages during the inventory management phase, or .002 percent of the product under management.

Reporting and monitoring

Key performance indicator: Sample release on time Interim tracking indicators: Goods sampled, certificate of sampling issued, milestone sheet updated, vendor paid Key outcome statistics: Quantities received and sampled, vendor sampling turnaround time, damage quantities Data sources: Orion ERP tracking system, sampling release sheet, milestone sheet, held stock report

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