Mapping and Realigning Incentives in the Global Health Supply Chain (Risk and Incentive study of Global Health Supply Chains)

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Researchers: Prashant Yadav, Kirsten Curtis and Neelam Sekhri

Dec 2006

Centre for Global Development: Global Health Forecasting Working Group Background Paper

http://www.cgdev.org/

Project Description

Poor allocation of risks among the constituents of a supply chain results in a misalignment of incentives, leading to over-reactions, unnecessary interventions, second guessing, mistrust, and distorted information – ultimately degrading its ability to match supply and demand. This study assesses the current allocation of operational risks and their impact on the incentives of different players in the global health supply chain, focusing on the case of fixed-dose artemisinin-based combination therapy for malaria as an illustrative example.

Currently, there is a highly non-optimal allocation of risks in this supply chain, where constituents that have the best knowledge about demand uncertainty, or the highest ability to resolve part of this uncertainty, or have the highest potential to benefit from this uncertainty reduction, do not necessarily carry its corresponding risks. This and other improper risk allocations lead to misaligned incentives for accurate forecasting, sharing demand/supply information in this supply chain. Similarly, an asymmetric risk structure for the quality regulators does not provide them the right incentive to quickly approve more drugs by higher resource commitment.

The authors recommend establishing a global health infomediary to overcome the uncertainty due to the opacity of data from the various supply chain nodes. Funding agencies should also adopt a risk-sharing approach based on rolling partially-flexible purchase commitments, which would lead to an economically optimal sharing of risks and would eliminate some of the incentive misalignments, as well as a broader use of framework contracts. Finally, manufacturers should explore the potential for a joint demand driven supply-hub to respond more rapidly to order and reduce the overall reliance on demand forecasts.

This paper informed the deliberations of the Center for Global Development’s Global Health Forecasting Working Group and is cited extensively in their final report, A Risky Business: Saving Money and Improving Global Health through Better Demand Forecasts.

Press and Media Mentions

Publications, invited talks and conferences

  • Levine, Ruth, Jessica Pickett, Neelam Sekhri and Prashant Yadav. “Demand Forecasting for Essential Medical Technologies.” American Journal of Law and Medicine, June 2008
  • Contribution to Book: “A Risky Business: Savings Lives Through Better Demand Forecasting”. Center for Global Development, Washington DC. More info and pdf available · “A Risky Business: Savings Lives Through Better Demand Forecasting”. Global Health Council Meet, Washington DC, May 2007.
  • “Mapping and Realigning Incentives in the Supply Chain for Global Health Products” Yadav P., N. Sekhri and K. Curtis. Background Paper 2006, Center for Global Development, Washington DC. Download pdf
  • Yadav, Prashant, Sekhri, Neelam and Curtis, Kirsten Anne, “Barriers to Access: An Assessment of Stakeholder Risks and Incentives in the Value Chain for Artemisinin Combination Therapy (ACT) Treatments” (June 2007).Available at SSRN