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SCMS ARV Bridging Assistance Fund Final Report, Chapter 6

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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 withdemand 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.

ProcessUnder 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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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 statusto 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: Commodities are certified for distribution in South Africa, and the

vendor is paid.

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 stockreport.

Table 6-3. Held stock report

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.

Depot NamePO

NumberOrder #

Pre-alert

QtyPallets Pre-alert date From Planned dispatch Date Storage Request Date By Proposed Del Date SCMS Approval Date Actual Dispatch Date

KZN 7565- 0 040 14 890 16 24- May- 11 Nevas hni Gounden 26- May- 11 24- May- 11 Kos hini Budhia 30- May- 11 26- May-11 27- May- 11

KZN 7575-0 042 70 542 25 10- Feb- 11 Pugis o Nts ele 21- Feb- 11 None Found N/A Not confimed No Wr itte n A ppr oval 30- Jun- 11

KZN 8979- 0 057 192 759 50 24- May- 11 Nevas hni Gounden 31- May- 11 24- May- 11 Kos hini Budhia 7- Jun- 11 26- May-11 6- Jun- 11

KZN 8379- 0 058 11 477 12 24- May- 11 Nevas hni Gounden 26- May- 11 24- May- 11 Kos hini Budhia 14- Jun- 11 26- May-11 14- Jun- 11

KZN 8382- 0 061 98 430 35 20- Jun- 11 Nevas hni Gounden 28- Jun- 11 20- Jun- 11 Kos hini Budhia DDV No Wr itte n A ppr oval 4- Aug- 11

KZN 8421-0 0 63 51 637 4 04-May-11 Nevashni Gounden 5-May-11 04-May-11 Rheka 10-May-11 24-May-11 13-May-11

KZN 8373- 0 065 6 118 7 07- Jun- 11 Nevas hni Gounden 9- Jun- 11 07- Jun- 11 Kos hini Budhia 15- Jun- 11 No Wr itte n A ppr oval 22- Jun- 11

KZN 8373- 0 066 46 843 17 24- May- 11 Nevas hni Gounden 9- Jun- 11 24- May- 11 Kos hini Budhia 23-Jun-11 26-May-11 14- Jul -11

KZN 8373-0 067 55 260 20 24-May-11 Nevashni Gounden 3-Jun-11 24-May-11 Koshini Budhia 1-Jul-11 26-May-11 14-Jun-11

KZN 8423-0 071 77 924 20 24-May-11 Nevashni Gounden 3-Jun-11 24-May-11 Koshini Budhia 1-Jul-11 26-May-11 19-Jun-11

KZN 8381- 0 072 18 046 7 07- Jun- 11 Nevas hni Gounden 9- Jun- 11 07- Jun- 11 Kos hini Budhia DDV No Wr itte n A ppr oval 13- Jul- 11

KZN 8420-0 073 52 055 27 24-May-11 Nevashni Gounden 9-Jun-11 24-May-11 Koshini Budhia 23-Jun-11 26-May-11 14-Jul-11


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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.

ChallengesEstablishing 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 thesampling 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 inevitableunexpected 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.Some of the key elements that contributed include the following:

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 put-

away 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 motivatingthe vendor to finalize sampling release, as well as communicating with the LDC whensamples were released in an effort to maintain reduced inventory levels. Structured lines ofcommunication ensured that the LDC was kept informed at key moments so that stockcould be managed. The procurement unit also coordinated information flow from varioussources to achieve a streamlined and unambiguous communication channel.

Inventory management within the LDC involved participation and communication betweenthe following three functional teams:

o Receiving team: Stock offloading, batching, recording (GRS) and putawayo QA team: Quality checks as well as batch sampling extraction and releasingo 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 applicationof internal systems such as CRM, processes documentation (e.g., GRS) email and systeminventory reports.

OutcomesIn 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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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 variedfrom 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 slightimprovement over time.

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

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

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Figure 6-6. Sampling process performance by process phase

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 turn-

around 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

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

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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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