Evaluate
Building an investment case
An investment case helps to determine whether to outsource certain functions or keep these in-house.
In this section you will learn:
- How to build an investment case framework for outsourcing versus retaining in-house
- Why you need to complete a cost-benefit analysis
- How to select key performance indicators (KPIs) aligned to country goals
- Key considerations to the risks associated with outsourcing
- How to make a decision to outsource or retain in-house
The investment case model
The investment case considers the ‘as-is’ operational cost of the supply chain before conducting a full cost-benefit analysis. The investment case model has five activities. It starts with building the investment case framework for outsourcing versus retaining in-house. The Decision Tree is a helpful tool to do this. In the second activity, you undertake a cost-benefit analysis to determine and identify all internal operational costs in comparison to outsourcing costs. Consideration must be given to non-cost factors that inform the decision to provide a total cost summary. The third activity requires you to determine the performance attributes and select KPIs. You will need to ensure KPIs align to strategic supply chain goals (reliability, responsiveness, agility, cost, assets) of the country and ministry of health. These considerations will guide vendor selection. The fourth activity involves assessing risks associated with outsourcing. The final activity is to make a decision about whether to retain in-house or explore an outsourced vendor assessment.
“The outsourcing investment case must demonstrate benefits for patient centred care and the case for improved health outcomes”
– Supply Chain Specialist, International Donor Agency
Factors to consider when developing a compelling outsourcing investment case
Scenario analysis
In respect to an outsourcing option, it is important to have cost-benefit ranges for review by senior management that include ‘low-case’, ‘mid-case’, ‘best-case’ outcomes. Research must be conducted, assumptions, costs and anticipated benefits of a project clearly defined, and allowances made for variations and/or uncertainty.
Clearly define and link each benefit
If an outsourced solution has the potential to raise performance, critical to link that directly to a vendor’s operational improvement in the supply chain (e.g. improved fleet surveillance, focused health care worker training, lower operating costs). Not linking a feature or characteristic of the project to a specific operational effect can potentially weaken the case.
Clearly identify the KPIs (to vendor impact)
KPIs are the factors that demonstrate the resultant impact of the potential project. If a KPI is not clear from the start, and not measured against the forecast benefits, it will be lost (e.g. increased vaccine availability through improved last mile distribution and route optimisation by a PSP). KPIs must be attributed directly to vendor performance. If a KPI is not clearly defined the senior management will not have the ability to attribute the benefit or measure its progress through the project.
Assess risks and non-cost elements
The risk of doing the project must be considered in the investment case and decision-making process. Similarly the risk of ‘no investment’ or ‘doing nothing’ is often over-looked. The impact of not investing must be considered. In the case of outsourcing the risk to the ministry of health may include job losses and reduced control of assets but the benefits may result in significantly improved vaccine availability and patient adherence, for example. It is important to note all risks, benefits and non-cost considerations.
Align to strategic goals
A good investment case provides justification for a particular initiative or solution often resulting in a positive return. For a potential outsourcing project to be deemed ‘viable’ by a decision-making executive, it must align to health goals. This can be done by ensuring the investment case demonstrates strategic intent.
Core versus non-core supply chain functions
The decision to outsource is informed by the ministry of health’s consideration for core versus non-core functions. Core supply chain functions are described as the essential and strategic services and/or activities necessary to achieve the organisation’s mission and/or objectives. These include functions central to the ministry of health such as planning, forecasting and quantification, procurement, and budgeting. Where the ministry of health considers the function non-core, it will retain an oversight role.
If you are struggling to determine core versus non-core functions there three guidelines to keep in mind:
- A ministry of health will rarely outsource core functions unless done internally to the central medical store as a statutory organisation under the ministry of health.
- Technical supply chain functions such as inbound logistics, stock management, warehousing, transportation are often considered less strategic to the ministry of health and may be outsourced.
- Determining the criteria and choices for what is a core vs non-core supply chain activity will vary from country to country.
Practical guide to make an outsourcing decision in the functional framework
Once a functional determination (core vs non-core) is made, the benefits case for outsourcing is developed. An illustrative example of how this can be done is shared below.
Functional area
KPI score
(supply assessment - process step 1)
Is the functional area core
(to ministry of health)?
Benefit questions to be asked?
Answer
Next step
Procurement
78%
Core
- N/A
- N/A
- Develop activities within ministry of health to raise performance to > 85%
Freight forwarding
65%
Non-core
- Do private sector have the resources to perform this function?
- Is there an opportunity that a private sector partner can deliver this function more effectively?
- What is the supply chain cost and benefits case to deliver this function with a private sector partner?
- Yes
- Yes
- Requires analysis
- Develop side-by-side evaluation of potential vendors - initial review of in-country private sector companies
- Assess private sector good practice of freight forwarding companies operating in other countries
- Develop a project charter
- Prepare an investment case for review within ministries of health and finance
Logistic Management Information Systems
57%
Non-core
- Does the ministry of health have the resources to improve visibility of its in-house data management, planning and reporting systems?
- Is there an opportunity that the private sector can partner with the ministry of health to provide a system with improved data visibility, and reporting effectiveness?
- What is the supply chain cost and benefits case to deliver these systems with a private sector partner?
- No
- Yes
- Yes
- Requires analysis
- Develop side-by-side evaluation of VAN candidates - initial review of the various systems, suppliers and their relative capabilities/effectiveness and suitability
- Assess good practices from other countries, past performance benchmarks
- Develop a Project Charter
- Prepare an investment case for review within ministries of health and finance
Warehousing
86%@ Central level
66% @ Provincial level
29% @ Regional level
Core
Non-core
Non-core
- At provincial level does the private sector have the resources to perform this function?
- At regional level does the private sector have the resources to perform this function?
- Is there an opportunity that the private sector can deliver this function more effectively?
- No
- Yes, regional depots
- Yes, regional depots only
- Requires analysis
- Retain provincial warehousing in-house and sustain capability
- Develop side-by-side evaluations of Regional warehouse vendors
- Assess private sector good practice from other countries
- Develop a Project Charter - potentially develop a proof of concept
- Prepare an investment case for review within ministries of health and finance
Last mile distribution
82% in Provinces 1-3
56% in Provinces 4-5
32% in Provinces 6 - 9
Non-core
Non-core
Non-core
- Not required in provinces 1-3
- Does the private sector have the resources in provinces 4-9 to perform last miles distribution to +5000 health facilities?
- Is there an opportunity for the private sector to deliver this function more effectively?
- What is the supply chain cost and benefits case to deliver it with the private sector?
- N/A
- yes
- yes
- Requires analysis
- Retain in-house last mile distribution in provinces 1 to 3 and sustain capability
- Develop side-by-side evaluations of transport partners
- Assess private sectors good practice from the countries to build view of what good looks like
- Develop a project charter
- Prepare an investment case for review within ministries of health and finance