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Kemsa to launch commercial arm

FINANCIAL STANDARD
By | February 22nd 2011

By Elizabeth Mwai

The Government's sole drug procurer, Kenya Medical Supplies Agency (Kemsa), is slowly finding its footing and is accelerating plans to launch a commercial unit.

The agency’s operations had almost screeched to a halt following a high state of indebtedness — to the tune of about Sh1.5 billion — owed to suppliers. Kemsa is now saving at least Sh3 million monthly in operational costs after a near collapse two years ago.

Following the commissioning of a Enterprise Resource Planning (ERP) system linking business processes, Kemsa projects a further increase in savings of up to 40 per cent over the next two years.

Kemsa chief executive officer John Munyu told Financial Journal Sh167 million funding from USaid has enabled the agency to install the ERP system, which has led to improvement of supply chain management and ultimately contributed towards operation cost reduction.

"ERP is a state-of-the-art information and technology system that has brought efficiency, transparency and accountability in delivery of services," said Munyu, Kemsa chief executive officer.

The adoption of ERP is in line with the recommendation made by a taskforce formed formed by Medical Services minister Prof Anyang Nyong’o on July 10, 2008.

The commercial wing will supplement the Government’s effort to avail drugs to public health facilities at low prices.

Munyu said the strategy is to take advantage of economies of scale to create a separate medical supermarket to initially serve public health facilities to buy medicines not supplied by the Government more cheaply.

Alternative market

"The unit will not compete with the agency but provide an alternative market for the public health facilities to source high quality drugs at affordable prices," said Munyu.

The monies obtained from the commercial unit will be ploughed back into improvement of Kemsa operations.

After a year of mismanagement and pending bills owed to suppliers, Kemsa was headed for ruin prompting Nyong’o to dissolve the board of directors and send the then chief executive officer on compulsory leave.

The minister commissioned a taskforce headed by former director of Medical Services Prof Richard Muga to assess and recommend ways of restructuring Kemsa.

Nyong’o had expressed concern that the top management had failed to perform its mandate leading to shortage of essential drugs and equipment in public healthcare institutions.

Munyu said Kemsa had made strides in implementing recommendations of the taskforce by re-engineering its business processes to improve service delivery.

He said in the past, the agency would serve six hospital orders for pharmaceutical and non-pharmaceutical supplies but this has climbed to 15. The agency now serves five districts a day from two.

Optimal operations

Munyu said Sh15 million had been invested in the purchase of handling equipment, which had speeded up operations, and reduced overtime claims, thus leading to substantial savings.

He said Kemsa requires Sh25 million to buy more handling equipment for optimal operation efficiency to be attained.

This saving has enabled Kemsa to operate day and night to meet the rising demand for medicines.

The Government allocates Sh14 million monthly for Kemsa’s operational costs, which is not adequate considering that it is the sole supplier of drugs to public institutions.

Munyu said although the flow of funding has improved and suppliers are paid in two weeks as opposed to the previous six-month period, the level of Government financing has remained the same.

Prof Muga observed that Kemsa was on the right track especially with the implementation of the ERP system, which had been a key recommendation in the restructuring processes, as it would help monitor drug stock levels in the stores.

"This a very positive move as the system can monitor what is in stock or out of stock," said Muga.

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