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What is supply chain costing

A costing exercise determines the cost of operating a health supply chain. It is one of the main tools for ensuring financial awareness of costs and measuring efficiency.

Cost optimization is a major goal for commercial supply chains which makes it a potential source of competitive advantage. Yet the public health sector is at an early stage of associating supply chain performance with its primary goal of effective and efficient health care delivery. Associating a cost to the health supply chain will become more important as donors request  beneficiaries to demonstrate value for money. A baseline costing exercise is the first step to establishing control of costs.

Why conduct a costing exercise

A costing exercise provides decision-makers with the financial information they need to make informed policy decisions about the supply chain.

It removes the need to estimate costs when requesting funds from donors. Donors can assess their contributions based on the finanical data from the costing exercise and allocate resources as needed.

A costing exercise may also be the basis for setting fees when negotiating outsourcing agreements for transportation, warehousing, or other supply chain functions. And it can help set appropriate prices for health commodities to ensure cost recovery.

It is advisable to conduct a cost baseline exercise before making any significant intervention in the supply chain. It allows you to repeat the exercise at the end of the intervention for comparison so you can compare and contrast the before and after scenarios to assess the financial impact.

Our methodology

We are able to cost your supply chain according to the ASCM SCOR model level-1 processes of  Plan, Source, Make, Deliver, Return and Enable.

Alternatively, we can cost your supply chain according to the USAID | DELIVER PROJECT methodology that analyses the costs by supply chain function (procurement, storage, transportation, and management) across the tiers of the health supply chain, from the central medical store to local clinics.

PSA can facilitate the planning of the exercise, and the data collection. We use our own in-house tools to analyse supply chain costing data, and report our findings to you with recommendations for next steps.

You can learn more about costing methods in our publication, Strengthening health supply chain performance through robust costing methods and cost-calculating tools, which is available to download as a PDF.

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