The Future of Distribution
While the COVID-19 pandemic significantly disrupted the global supply chain, its impact was largely manageable in healthcare institutions in the Kingdom of Saudi Arabia. This was thanks to increased government spending to mitigate the negative impacts and also to the effective exchange programs between hospitals and healthcare institutions1.
As the Kingdom emerges from the pandemic and continues to focus on the Vision 2030 goals of transforming healthcare, there are tremendous opportunities in the industry. Key learnings from the pandemic re-emphasized the critical importance of healthcare investment and localization as an element of national security, sustainable job opportunities and increased competitiveness.
To support the transformation goals, the Ministry of Investment (MISA) has identified areas within the healthcare sector — such as medical devices, biopharma products manufacturing and pharmaceuticals — as opportunities for national and foreign investment to create local capacity. The government has also created the Local Content and Government Procurement Authority aimed at increasing the rate of localization in the military sectors specifically2. The policies include a price premium for national products, such as devices and pharmaceuticals, and a mandatory list of products that should be purchased from local manufacturers, which includes medications3. As a result of these government initiatives, the pharmaceutical drugs market is expected to grow at an annual rate of 7.3% over the next six years4.
For healthcare distribution companies, the lessons from the pandemic combined with the ongoing transformation efforts mean a renewed focus on localization and boosting supply chain resilience by leveraging data insights and increasing transparency.
What Saudi Arabia is doing to boost localization in the healthcare industry
The government is dedicated to fostering localization and increasing local production capacity in the healthcare industry both to reduce the impact of future disruptions and also to meet Vision 2030 transformation goals.
MISA has identified pharmaceuticals and medical devices as two areas with high investment potential5. In pharmaceuticals, the goal is to localize 40% of the pharmaceutical sector and reduce the high import dependency for key products. One key effort will be to establish and operate a generic drugs manufacturing facility to cater to local and regional demand6.
New foreign direct investment measures, such as the 100% foreign direct ownership, incentivize private sector participation in increasing pharmaceutical production capacity in the Kingdom. Other enablers for investment include up to 50% tax credit on Saudi national worker’s payroll and training costs for 10 years and salary subsidies of up to 50% for Saudi nationals for a period of two years.
For medical devices, MISA noted that currently over 90% of medical devices in the Kingdom are imported. Local manufacturing of these devices would reduce dependence on foreign companies and supply chain risk exposure while increasing capacity and job opportunities. It identified the production opportunities as glucometers, implants and 21 product segments, including IVD, orthopedics, anesthesia, nephrology/urology, dental, and hospital supplies.
The public-private partnership model with foreign investment is already yielding results with several high-profile agreements and partnerships underway in the Kingdom. For example, Spanish pharmaceutical company Grifols will produce blood plasma-based medicines, France’s Sanofi will produce insulin products and Pfizer is planning further expansion of its manufacturing and packing facilities in the coming years7. Additionally, the government is exploring public-private partnerships to build specialty clinics for gynecology, oncology, and cosmetology in the Kingdom as well8.
Data is critical to improving healthcare distribution
Collecting and sharing data was invaluable during the pandemic. The Ministry of Health launched a COVID-19 dashboard to give government and health officials the ability to monitor and combat COVID-19, through precise geography-based details and statistics9. In addition to showing confirmed active cases and deaths, the dashboard provided insights into the capacity of medical facilities to identify when locations needed additional support to help internal Ministry of Health decision-makers effectively allocate resources10 .
In the post-pandemic era, the challenge for a data-rich industry such as healthcare lies in applying the right data to support real-time decisions that create a meaningful impact on outcomes, cost and quality. When data is applied effectively, it helps healthcare distribution companies identify and address potential supply shortages before patient care is impacted. It can increase collaboration and provide insights needed to make smarter, faster decisions11 .
An astute analysis of data can unlock productivity in inventory management, warehousing and delivery. For example, more accurate demand planning means distributors can deliver the right products at the right time in post efficient ways and, in turn, deepen market penetration12 .
Such data-informed forecasting will require greater collaboration among all healthcare stakeholders to increase predictive accuracy. Sharing data on delivery of care needs, patient outcomes, product quality, cost and more will lead to systems modelling more aligned with local requirements and needs.
To support data-informed healthcare decision making, the Ministry of Health has partnered with IHME to develop world-class integrated surveillance and burden of disease monitoring systems. The effort includes a project to monitor local and national health trends across more than 300 diseases, injuries, and risk factors in the Kingdom13.
Supply chain transparency will increase efficiency
The pandemic has created a demand for locating and sourcing supplies from trusted vendors. Local distribution companies like Salehiya are ideally positioned to support the needs of the industry due to their local knowledge and regional infrastructure. Some distribution companies have dedicated and speciality setups at airports to more efficiently facilitate the transportation of vital medical products and prevent delays on their way to their destination.
In addition to trusted vendors, industry leaders see resiliency and management of supply-chain risk as more important than ever. As such, greater visibility and transparency throughout the supply chain will be expected in the post-pandemic era. Furthermore, supply chains with increased transparency can function more efficiently, builds trust with customers and, in some cases, can lead to higher sales14.
Combined with transparency, supply chains must be more resilient too as the pandemic revealed the vulnerability of supply chains without flexibility and redundancies. Now supply chains are shifting from “just in time” to “just in time and just in case” because the priority for customers is not on the cost of individual transactions but rather on the end-to-end value of a resilient and efficient supply chain15.
In Saudi Arabia, increasing local manufacturing of pharmaceuticals and medical devices will offer greater ability to control and address production or logistics challenges that can disrupt supply chain efficiency. Localization also permits increased end-to-end transparency that is necessary to build trust with customers.
The future of supply chains is digital
The future of the Kingdom’s supply chain will be fully digitally enabled. The government has mandated the development of the logistics sector with a key focus on Industry 4.0 and allocated roughly US$36 billion to improve the country’s logistics infrastructure16. The goals for the sector include developing a regional distribution platform and establishing an efficient internal distribution network to enable industry and service supply chains.
A supply chain that is digitally enabled allows for greater collaboration, automation, advanced analytics that lead to greater predictability and resilience17. For example, with fully digital supply chains, decision making can be improved through real-time and end-to-end transparency while in warehouses and distribution centers, automation can increase efficiency and reduce costs18.
The pandemic pushed Saudi Arabia’s healthcare supply chains to the limit. Now is the time to invest in enhancing the sector through localization, public-private partnerships, and digitization to accelerate the Vision 2030 transformation goals and improve healthcare outcomes for every person living in the Kingdom.