New business model that lifts fortunes of drugs agency

An online business model is paying off for one parastatal in the face of stiff competition in supplying medicines to public health facilities.

Kenya Medical Supplies Authority (Kemsa) adopted a ‘medical supermarket’ model that has seen it record a significant increase in sales. It has also made Kemsa one of the few parastatals that no longer needs cash injections from the Treasury.

Since the business platform was unveiled, Kemsa’s sales have increased from Sh1.5 billion in 2013 to Sh5 billion in the financial year ended June 2016. Sales are expected to hit Sh6 billion this financial year.

The agency’s performance has defied reports that had predicted diminished fortunes for the drugs supplier in an era of devolution, as it would no longer enjoy a monopoly supplying medical commodities to public health facilities.

Self-service portal

In anticipation of the health sector being put under the control of county governments, Kemsa set up its medical supermarket model in February 2013.

It enables public facilities to shop online for drugs from the agency through a self-service portal. Once the shopping is completed, customers can expect their orders to be brought to their doorsteps within days.

“This model has enabled us to effectively address the varied demands of our clients, including the 47 counties. They pick and choose what they need, and we deliver it as quickly as possible,” Kemsa CEO John Munyu said.

“In our medical supermarket, everything is done electronically – no more visits to our warehouses or need for physical documentation. This system has helped us retain and grow our market share.”

The agency’s revolving fund has also risen from Sh6.9 billion in the 2012-13 financial year to almost Sh9 billion in the last year, which has improved its capacity to restock and procure necessary drugs.

“We have managed to achieve self-sustainability. The revenues from drug sales are used to replenish our stocks. This would not have been possible under the old business model in which we were dependent entirely on the Treasury,” said Dr Munyu.

Pricing structure

An estimated 70 per cent of medical commodities that county governments purchase are sourced from Kemsa.

The agency said it has managed to remain competitive because of its pricing structure that puts a slight mark-up on the commodities it sells to public facilities.

“We operate on a not-for-profit basis that is more focused on self-sustainability than on fat profits. This is meant to ensure that Kenyans can access affordable medical care through public health facilities,” said Munyu.

“We are able to negotiate good discounts with our suppliers since we purchase commodities in bulk, thus enjoying economies of scale. We then pass on these discounts to our clients.”

But it has not all been rosy with the online model. The strategy ran into a rough patch when counties defaulted on payments, threatening Kemsa’s ability to replenish its stocks.

This forced the drugs agency to introduce a policy where a client’s failure to make payments within 45 days of delivery would mean no other orders from it would be processed.

“Fortunately, the majority of counties are now paying within the agreed timelines, enabling us to replenish our stocks. Only three counties are having challenges, and we are in constant consultations with them on repayment formulas,” Munyu said.

He added that Kemsa is in plans to gradually increase the variety and product mix in its medical supermarket based on demand.

In July next year, for instance, it will begin to stock more drugs for the treatment of non-communicable diseases, such as cancer, diabetes, high blood pressure, renal complications and heart disease. Public health facilities currently purchase these drugs from other sources.

The agency expects its entry into this space to help bring down the costs of these drugs.

Kemsa has also managed to grow revenue by providing supply chain services for donor-funded programmes for diseases like HIV and Aids, tuberculosis and malaria.

Kemsa, which falls under the Ministry of Health, offers procurement, warehousing and distribution services for medical commodities for clients like USAid, World Bank and the Global Fund.

“Almost 60 per cent of our revenues come from our supply chain services. But even without that revenue stream, Kemsa would still be self-sustaining with the sale of essential medicines,” Munyu said.

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