Pooled Procurement

Pooled procurement combines several buyers into a single entity which purchases items on behalf of those buyers. The rationale behind the concept is to consolidate spend, standardise requirements, increase leverage over suppliers and achieve lower prices. The basic form of pooled procurement is the centralisation of procurement activities within countries. For example, the Kenya Medical Supplies Authority (KEMSA) is a government agency which purchases healthcare commodities on behalf of the country’s 47 counties. This enables the achievement of competitive pricing and high quality standards.

Centralising spend can be successful. A study of seven low and middle income countries (LMICs), including four in Africa (Senegal, South Africa, Tunisia and Zambia), found that centralised procurement systems reduce the price of essential medicines by 15%.[1]

The pooled procurement concept has also been expanded to include cross-country arrangements. There are a number of different pooled procurement arrangements that vary depending on the degree of coordination between the country and the activities undertaken. The figure below demonstrates these different arrangements.

Cross Country Collaboration Agreements

These involve information sharing and coordination between countries which enable more informed buying. An example is provided below (Case 1).[2]

Cross Country Group Purchasing Organisations (GPOs)

These require a greater level of coordination and integration, therefore they are more difficult to achieve. In Africa, donor organisations have traditionally acted as the GPO but, as countries develop and take on more financial responsibility for healthcare spending, they will need to take on this role. Case 2 below provides an example of countries attempting to do so.[3]

Barriers To Pooled Procurement

There are a number of legal, regulatory, and political constraints which may act as barriers to the GPO model being established.[4] These are discussed below.

Incompatible legal frameworks. There is a lack of clarity around applicable laws for new initiatives, the types of contracts allowed, and the responsibilities of different parties within that initiative. National laws could inhibit the set-up of pooled procurement. Any new initiative would have to consider whether the legal context allows the type of collaboration proposed, and if it does not, the feasibility of developing such frameworks.

Regulatory misalignment. There are different national quality standards, lengthy registration processes, and varying adherence to good manufacturing practices (GMP). The African Medicines Regulatory Harmonization (AMRH) initiative, which aims to streamline product registration and strengthen regulatory capacity in a number of regional economic communities, is tackling some of these barriers in some LMICs. Other regional harmonisation projects have struggled. For example, the Southern Africa Development Community (SADC) first discussed pooled procurement in 1999, but implementation has been stalled in part because of a lack of mutually recognised registration.

Uncertain cash flow. Some cross-country initiatives have been financed in part by revolving funds, which require an initial capital investment by donors or members that is then replenished through a purchasing fee. Revolving funds are beneficial because they allow members to immediately receive orders and make payments (interest-free) during a given window after commodities are received, smoothing over supplies and mis-matched budgeting cycles. However, countries’ limited willingness to make the initial capital investment has hindered the expansion of these funds.

Local versus global sourcing. Some countries have a strong preference for local manufacturing. They justify this by claiming that local manufacturing brings down prices (particularly in rural areas), simplifies procurement and supply chains, reduces lead times, and enables countries to boost their economy and move towards self-reliance. Governments also sometimes rely on them for central cold storage and internal distribution; as a result, local producers often enjoy preferential treatment. At the same time, donors have a clear preference for buying quality-guaranteed products, often sourced from India, and have been reluctant to buy locally, given that most manufacturers do not meet GMP standards. These competing preferences could destabalise cross-country pooled procurement arrangements and members must therefore develop an agreed sourcing strategy.

Case 3 below gives an example of one project where many of these barriers were overcome.

Fully Integrated Supply Operation

This is the most ambitious form of pooled procurement and involves a combination of group procurement and distribution. An example established in response to the Covid-19 pandemic is outlined in Case 4 below.[5]