#82-From my unlocked diaries: Did we miss the Vaccine EoQ?
EoQ — Economic Order Quantity — this fundamental procurement & inventory management mantra was drilled into our heads by our professors way back in college. For those un-initiated or unaware of this term — EoQ, here’s what it means…
EoQ is a statistical method of calculating the optimal ordering quantity in order to minimize the inventory holding costs, after considering aspects like demand, cost per unit and inventory holding costs. Ok, I will stop here. I don’t want this to sound like a Inventory Management lecture !
Before I tell you why I am talking about Vaccine EoQ today, let me tell you about my conversation with my neighbor — complaining Kuppuswamy uncle (Kuppuswamy uncle). Sipping butter-milk straight from the plastic cover at the nearby Nandini Milk booth, he blurted out in Kannada (local language) — “Balu you see, he is like that Managey Maari, Para-rigey Upkaari”.
Ok, let me translate it for you — “Balu, you see, he appears like a ghost to inmates of his own home, while he comes across like an angel to outsiders”
You must have guessed by now … Kuppuswamy uncle does not like that Adar Poonawalla (Adar), CEO of Serum Institute of India (SII) for some reason (refer my Article dated Dec 27, 2020, to know why! — Link to that Article — https://www.linkedin.com/pulse/from-my-unlocked-diaries-uncle-kuppuswamy-returns-bold-r-balu-/).
Today again, Uncle Kuppuswamy was taking an angry dig at Adar, as he had earlier promised to export Corona Vaccines, instead of just prioritizing on meeting India’s surging demand.
Ok, let’s forget about Uncle Kuppuswamy’s rant for a while and come back to Vaccine EoQ.
How the hell did we miss it — the EoQ? The big elephant in the room; not just elephants, there were Hippos and Giraffes as well, all staring at us — the 125-crore population that needs to be Vaccinated.
Even assuming that about 100 crores out of the 125 crores people need to be eventually vaccinated, two doses each, India needs about 200 + crore doses of the Vaccine over the next 1 to 2 years — that’s the demand side of EoQ for you. Thought that was a simple calculation…? No??
Now let’s talk about the other variables in the EoQ equation — Rate of Vaccination.
Our ability to open up more and more Vaccination centers, both in Public and Private domain is not easy, but not impossible if they quickly rope in private hospitals, NGO’s and corporates and also run large Vaccination camps. History tells us, as a country we rise to the occasion when pushed to the Wall, which is where we seemed to be heading currently with the rising 2nd wave infections.
Holding cost is determined by two aspects. Cost of Cold Storage, which can be assumed as being in place (based on the assurance given by the Central Government — CG) and shelf-life of the Vaccine, which again is pre-determined by each of the Vaccine producers.
Now, the last key variable — cost / price per unit, which as of now is pre-determined by the CG at INR 250 per dose (in Private Hospitals).
So, with all the variables known, let us now assume we fix a target to administer about 10 crore doses a month (about 33 lacs per day pan India), over the next 12 months to develop a significant level of herd immunity. This translates to a EoQ of 10 crore per month to be delivered, after allowing for appropriate lead time.
So, the question is how did we earlier miss this — EoQ of 10 crores doses per month? And NOT have Vaccine manufacturers work back on appropriate production schedules, after considering production and logistics lead times?? This is the big ‘elephant in the room’ I am talking about.
Agree, the Vaccine producers like SII and Bharat Biotech are privately owned — they need to make profits, need to invest large amounts of money in ramping up their production infrastructure in a very short time and there is a production lead time as well. Their concerns all very legitimate — the current Vaccine pricing and the fact that the infrastructure they create in the short term, may need to be disbanded once the Corona Vaccine needs tapers off in the years to come. So, that’s why CG needs to step-in, and now.
Here are a few possible suggestions:
1. Re-direct all Production Linked Incentive (PLI) Schemes for the next 1 year to producing Corona Vaccines, or alternatively have special PLI with steep incentives for Corona Vaccine producers. The faster they produce, higher should be the PLI Incentive %.
2. If the concern of the government is pricing and its compulsion to control it, why can’t CG extend interest free, long duration loans (with repayment over 8 to 10 years to existing Vaccine producers) to accelerate capacity expansion? This will address funding constraints, while zero interest and PLI incentives will help achieve the objective of keeping Vaccine pricing at targeted levels.
3. CG to offer all possible help in capacity expansion & execution — Example: Fast-track land grants (closer to existing plants) or other locations, if needed bring in Army Engineering Core to build factory infrastructure on a war footing
Given the growing nervousness among people currently, and the private/corporate sector wanting to pitch in as well, I don’t think quickly ramping up Vaccination drive is going to be a challenge. But, I am afraid, if we don’t address production and EoQ issue immediately and put in place some urgent measures, there is a serious threat of the looming 2nd wave causing crippling economic damage, and of course deaths.
Failing to catch up on Vaccinations may make Indian as a an ‘untouchable’, even as countries like UK, US, Germany, Japan and Israel march rapidly to Vaccinate their population.
The last one year has shown that lockdowns and night curfews don’t help much. Economy goes for a toss and infections only come back to haunt, when the lockdowns are lifted.
So, it’s only our ability to produce and Vaccinate, and approach the target like chasing a score in a T-20 cricket match that can now get us out of trouble.
This is no time to obfuscate, throw blame darts around or just wait for someone else in the room to call out the EoQ. Need of the hour is — action.
Whatever be the reason, let’s admit, we sure did miss the Vaccine EoQ in the last several months. But, it’s not too late even now. Someone in the CG needs to just fix that — goddam EoQ. It’s only then the rest of the Vaccine EoQ equation will fall in place.
Balu
April 9, 2021
Please feel free to write in your comments & views to the author at — rbalasubramanya7@gmail.com
