Business Aspects for Dr.One

The foreseen 50,000 flights per year in Ghana alone, saving US$ 8.00 each, would serve 20 million persons with an initial investment of only 2.5 US$ cents per person with considerable health care effects, potentially saving thousands of lives.
finding of the Black Belt Lean Six Sigma Business Case

Market Overview

The civilian market for drones is expected to grow rapidly to extensive proportions. There are many forecast for the market, with widely varying scopes and timelines. A recent forecast specifically for small UAS indicates an annual market of 1.9 billion dollar by the end of 2020. Although there is a complete ecosystem for drones materializing, the current market mainly focuses on the application of drones as a platform for sensors, e.g. cameras.
Finding of the Dr.One Market Study
Drone delivery is currently strongly restricted by regulations. For cost efficient drone delivery, a drone should be allowed to fly in an automated manner from one location to another that can be many kilometers away. Regulations in many countries do currently not allow for this type of operation, creating an important cause for the drone delivery market to be virtually non-existing. Expectations are, however, that as of 2019 drone delivery will evolve to become a significant market.
The worldwide need for the Dr.One concept can probably be identified with the help of four relatively simple criteria: developing country, poor infrastructure, challenged health care system, and a high percentage of people living in rural areas. An assessment of various data sources indicates that there are 35 countries that qualify for these criteria. Next to the Ministry of Health of these countries, organizations for National Health Service, International/Non-Governmental Health Care Organizations, Third Party Logistics Service Providers, Pharmaceutical manufacturers and specialized medicine supply organizations qualify as potential customers for Dr.One.
A top down analysis was performed to estimate the total market for the “last mile” delivery in Ghana; in 2014 the expenditure would have been approximately 15 M€. A bottom up estimate provided a potential market volume specifically for Dr.One, based on the number of facilities from which Dr.One would operate; this results in a market volume of approximately 2.5 M€ per year. As this volume might not provide sufficient critical mass for Dr.One, product diversification and/or expanding the market to Sub-Saharan Africa should be considered. The total addressable market for Dr.One in Sub Saharan Africa varies between 100 M€ and 140 M€ per year. The estimates for both Ghana and Sub-Saharan Africa are conservative, as they are based on MoH expenditure only, and do not incorporate potential other customers nor any kind of product diversification for Dr.One.
Dr.One is developed for use in Africa, in low resource settings with the need to be highly robust. Expectations are that once the Dr.One small UAS has evolved to a fully operational system in developing countries, it is more than fit to operate in other parts of the world as well.
Design team of Dr.One

Investment Plan

More than 1.2 M€ in means and hours has been invested in Dr.One so far, resulting in a successful Proof of Concept (PoC). Additional investments are required for the Pre-Market phase and the initial On-the-Market phase. A structured analysis of the Dr.One concept identified the necessary investments. All elements required to implement Dr.One successfully were identified and included in the calculations.
The next Phase of Dr.One, the Pre-Market phase, requires an investment of slightly more than 3 M€. This includes additional development of the Dr.One drone, the implementation of the Dr.One concept in a realistic district setting, and a detailed impact study. At two hub and several spoke locations, Dr.One will then start to provide operational services, in order to mature the concept further whilst validating the sustainability of the operations. Next to an initial Operator Organization for Dr.One, a local Maintenance, Training and Production facility are set-up. At the end of the Pre-Market phase, the Dr.One concept is considered to be a market ready product.
After the Pre-Market phase, during the initial On-the-Market phase, equipping a region similar to the Upper East Region with the Dr.One concept is expected to require an investment of approximately 2.2 M€. The Dr.One hub and spoke network will then cover one Regional Medical Warehouse, 10 district hospitals or district health directorates and 120 health posts. The figure includes the costs for setting up an Operator, a Maintenance and a Training Organization, together with a Production Facility. If the Dr.One concept is integrated into existing real estate, and a cost efficient solution for defining the routes is established, investments go down another 65% to 72.5k€ per district. Once Dr.One gets to scale, and the basic infrastructure is in place in a country, the investment for adding an additional location are limited to approximately the cost for an drone.

The preliminary Business Cases

The Business Case for Dr.One is considered viable when Dr.One is cost effective in comparison to the current processes for last mile delivery of health care commodities. Three consecutive evolutions of a business case for Dr.One have been developed, each time resulting in a more detailed sustainable business case for Dr.One.
Dr.One business case team
The initial business case was drafted by a team of the Marshall School of Business of the University of Southern California (USC). The high level findings were: the distance of a drone trip to a health facility are on average two third of the distance of a motorcycle trip to that facility; the costs for a trip by a drone to a health facility are significantly below that of a motorcycle; a trip by a drone to a health facility is significantly faster than the same trip by a motorcycle; when the weight of the goods that need to be transported exceeds twice the maximum capacity of the drone, it becomes cheaper and faster to deliver the goods by motorcycle.
The intermediate business case compares the financial costs of Dr.One operations to those of the current Motorbike Supply Chain System (MSCS). The analysis is based on the Dr.One use case scenarios and is put in the context of a representative district, the Builsa in the Upper East Region of Ghana. The average occurrence for each of the scenarios have been determined by using actual health care statistics, in consultation with the Navrongo Health Research Center (NHRC).
Purely based on the recurrent costs, calculations imply 11,3 Eurocents per km for the MSCS and of 8,7 Eurocents per km for Dr.One. The biggest savings for Dr.One are in human resource and fuel/electricity costs. Under the assumption that Dr.One has similar indirect costs as the MSCS, the overall costs for Dr.One are expected to be 22,4 Eurocent per km. This alone saves 2,6 Eurocent per kilometer compared to the 25 Eurocent per km for the motorbike. Additionally, the trip distances for Dr.One are significantly below that for a motorbike. When Dr.One instead of the MSCS takes care of all instances of the five use case scenarios in the Builsa district, the savings are little over €3000,- per year.
Once Dr.One is implemented in each rural district in Ghana, as an augmentation to the current MSCS, the overall savings for the whole of Ghana could be slightly more than € 357.000,- per year. When including all health facilities in Ghana located outside of the greater Accra region, the overall savings could become slightly more than € 783.000,- per year. A reduction of about 30% of the costs for transportation at the lowest level in Ghana would then be realized.

The finalized Dr.One Business Case

The finalized Business Case has been developed according to a formal Design For Six Sigma (DFSS) phasing: (1) Define, (2) Measure, (3) Analyze, (4) Develop, and (5) Verify. DMADV is a Six Sigma methodology used to design new processes while ensuring the end product or service is correctly delivered to the customer. The Navrongo Health Research Center helped us to collect the real life data that provided the input for this solid business case that clearly identifies the benefit of Dr.One.
Lean Six Sigma Black Belt Dr. Jan Joris Roessingh on the Dr.One Business Case
The deployment of Dr.One drones for the transportation of health commodities to remote locations, as an augmentation to the existing motorbike supply chain system, is cost effective. On the basis of actual health care data, the need for five hundred Dr.One flights per year in the Builsa district alone could be established. Actual cost savings for the Ghana Health Services amount to US$ 4,129 per drone per year when Dr.One drones are introduced in small quantities, for example at one location in the Builsa district.
Main cost savings can be attributed to differences in fuel costs (only low energy costs for electrically powered drones) and difference in vehicle speed during transportation (mainly resulting in low operator costs for the high-speed drones, when compared to the costs for motorbike dispatch riders). These two factors alone (fuel and vehicle speed) account for the majority of cost savings. The notion that drones fly point-to-point in a straight line while motorbikes follow a longer route via a road structure accounts for additional but smaller cost savings. Savings on wear-and- tear of motorbikes, savings on replacement of parts and savings on accidental damage to motorbikes are estimated to be smaller, but hard to predict at this stage, due to lack of usage data. Recruitment and training of qualified personnel for the launch and recovery of drones has to be taken into account as an extra cost factor for Dr.One drones.
In terms of size, the districts in the UER are assumed to be representative for the average district in Ghana. Builsa district is assumed to be representative for all other districts in terms of the Use Case scenarios. Linear scaling of the assumed savings of US$ 4,129 per drone per year results in total savings of US$ 412,900 for the whole of Ghana. Initial procurement costs for these 100 drones (US$ 5,000 each, including the rechargeable battery pack) would be $500,000. Hence, expected return on investment in these drones would take slightly more than one year. The resulting 50,000 flights per year, saving US$ 8.00 each, would serve a 20 million population with an initial investment of only 2.5 US$ cents per person of this population and with considerable health care effects, potentially saving thousands of lives.
Introduction of larger numbers of drones for transportation of health commodities in Ghana provides increasingly larger marginal cost savings per drone. Apart from the cost savings in transportation, which are relatively tractable, there are health care benefits that are at least as important, if not more important, but that we were not able (and did not attempt) to quantify within the current study. However, it must be realized that the cost savings associated with such health care benefits are more than substantial.

The Dr.One Business Model

A value chain of Strategic Business Units (SBUs) has been designed for Dr.One, consisting of an Operator Organization that is responsible for the Dr.One flights, a Maintenance Organization, a Training Organization, a Production Organization and an overarching Program Office. For all these SBUs the most suitable business models have been identified.
the Dr.One Business Model Team

Overview of the Dr.One Strategic Business Units

The Dr.One operator organization makes use of the usage based model; every delivery made is charged with a small fee to the health supply chain. In addition, the operator organization generates revenue by the advertisement model, through providing targeted digital content at remote locations. An operator organization can operate as part of a national Dr.One organization, can be integrated within existing health care organizations, but can also be franchised out to contractors. The production and maintenance organization initially start off with models that respectively focus on paying for products and hours spent, and as the concept matures, migrate towards a usage based model as power by the hour. The training organization uses a onetime up-front charge plus maintenance model, and a subscription model is used for continued access to training information.
The Dr.One program office initially uses a model that focuses on paying for products and hours spent, and then migrates towards a fixed price model. For its recurrent activities and for the further development of Dr.One the Program Office offers a subscription model.

Financial Opportunities

The Dr.One Proof of Concept (PoC) has been funded by private investments and the Dutch Ministry of Foreign Affairs. For the Pre-Market phase and the consecutive On-the-Market phase, many relevant financial opportunities have been identified, ranging from grants, subsidies of foundations and governments, social impact/investments funds, venture capitalist, crowdfunding, traditional investment to other opportunities.
During the PoC, many opportunities to attract funding were chased after and numerous proposals have been developed. However, so far it has proven to be impossible to attract additional funding.
  • The Dutch government does not (yet) provide any instruments for bridging the gap between proven concept and the ready to go to market.
  • Several characteristics of the Dr.One Concept are perceived as high risk, and in combination with the low direct return on investment, it seems impossible to attract financing from investment funds, venture capitalists and traditional investors.
  • Crowd funding requires a significant campaign and ditto resources, and even if successful, will most likely lead to amounts that are insufficient for the Pre-Market phase of Dr.One.
  • Private parties show an interest in Dr.One, yet do not (yet) see the need to invest.