UNIT-3

3.Pharmaceutical Procurement

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 Procurement
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 Is the process of acquiring drugs products through purchase,

manufacture and donation

 An effective procurement process ensures

 The availability of the right drugs in the right qualities &

quantities, at reasonable price, at the right time from the
reliable source.
 Drug procurement could be:

 Centralized
 Decentralized
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 3.1 Common Terms in Procurement
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 Tendering:

 It is the process of choosing the best and cheapest company to

supply goods and services

 Bids:

 Comprise the supplier proposals and will include factors such

as delivery schedule, availability, and pricing.

 Bidder:

 A supplier/ a person submitting a bid

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 Bidding document:

 the documents prepared by the public body as a basis for

preparation of bids, which contain a specification of the

desired object of procurement.

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 3.2 The procurement cycle (steps)… 2
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1. Review drug selection
 Resources are limited and choices have to be made.

 A limited list of drugs for procurement, based on an essential drugs

list or drug formulary.

 Generic name:- also known as International nonproprietary names

(INNs) are normally used in identifying selected drugs.

 Brand name:- Proprietary medicines are medicines protected by a

patent, which are sold under a trade name given by the

manufacturer.
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2. Determine quantities needed

 Quantification involves estimating the quantities of specific drugs

needed for a procurement.

 An accurate quantification of procurement requirements is needed

to avoid stock-outs of some drugs and overstocks of others

 The factors:- delivery (lead) time, monthly consumption and

request indicator are considered as the basis for calculating the

appropriate quantity of a particular drug to be ordered.

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3. Reconcile needs and funds

 Decisions must be made to reduce the number of drugs and/or the

quantities of drugs until the estimated quantities and costs

correspond with available budget.
 Decision can be made using

 VEN analysis,
 ABC analysis and
 therapeutic category analysis.
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4. Choose procurement method

 There are four types of procurement methods used to purchase

drugs.
 Open tender,
 Restricted tender,
 Competitive negotiation &
 Direct procurement.
 They vary with respect to their effect on price, delivery times,

and work load of the procurement office

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4. Choose procurement method….

 The procurement method chosen should:

 Obtain the lowest possible purchase price for high quality

products
 Ensure suppliers’ reliability, in terms of both quality and
service
 Maintain transparency in the process
 Achieve these objectives with the least possible professional
and with in the shortest possible time.
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5. Locate and select suppliers

 The selection of suppliers has a profound impact on the quality and

cost of drugs acquired.

 Inadequate safeguards in supplier selection may result in the

purchase of drugs that are ineffective, unsafe or even deadly.

 Hidden costs resulting from late deliveries, losses due to poor

packaging, or short expiry dates are common problems with

unreliable suppliers that may raise the actual drug cost to several
times the original contract cost.
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 Pre-qualification: is the procedure of evaluating supplier capacity and
reputation before bids are solicited for specific products.
 Post-qualification: evaluates the suppliers after bids have been received.
 If there are numerous offers from unknown suppliers there may be long
delays in awarding contracts, as it will be necessary to validate suppliers’
capacity to supply good-quality products.
 Also procurement offices ensure continued good supplier performance
through a formal monitoring system which tracks:
o lead time
o compliance with contract terms
o partial shipments, quality of drugs
o remaining shelf-life
o Compliance with packaging and labeling instructions , etc.

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 There are three ways of locating qualified suppliers
A. Direct inquiries: Direct inquiries to local and foreign suppliers
are the quickest means of attracting an offer.
B. Public Tender: can be publicized through local newspaper
notices, international notices, and direct mailings
to known suppliers to attract a large number of
bidders.
C. Contacts with International Agencies:
 May be one of the most effective ways for a procurement office with
little international experience to identify potential suppliers
 WHO, the World Bank, or UNICEF may be able to help establish
communications with companies, and procurement agencies.

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6. Specify contract terms
 A contract for provision of goods or services is a legally binding

document between a purchaser and seller for a specified period of

time.
 Critical details include

 The specification of the drug

 The quality standards required
 The type of packing
 The price and payment terms and
 The last day of shipments
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7. Monitor order status

 The procurement office must actively track suppliers’:

 lead time
 delivery status
 compliance with contract pricing and terms
 shelf life, and
 packaging of product

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8. Receive and check drugs
 Check the drugs to be received for :

 The type, quantities received against the drug requisition & invoice

 The quality, packaging, shelf- life & labeling of the products in

order to verify whether they meet the required standards.

 Report any discrepant in quantity, quality to the supplier (filled in

three copies of w/c the original copy is sent to the supplier) 2nd
copy to the archive & the 3rd copy remains in the pharmacy section)

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9. Make payment
10. Distribute drugs
Correct storage of drugs to avoid deterioration and waste is

essential, as is a proper stock inventory control system that

can be computerized.
11. Collect consumption information

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 3.3. Procurement methods
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 There are four methods of procurement.

 Open tender
 Restricted tender
 Competitive negotiation, &
 Direct procurement

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 Procurement methods….
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They vary with respect to their effect on:

 Price,
 Delivery times, and
 Work load of the procurement office.
These methods are used combined with the standard

purchasing methods – annual, scheduled, or perpetual review

– given the right sort of procurement contract.

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 …Methods cont’d
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I. Open tender:
Is a formal procedure by which–quotations are invited

from:
 Drug manufacture on a local or world wide basis,
subject to the terms & conditions specified in the tender
invitation.
One of the key features of open tendering is its transparency

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 …Methods cont’d
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II. Restricted tender

Closed bid or selective tender

Interested suppliers must be approved in advance often

through a formal prequalification process that considers

adherence to;
 GMPs
 Post supplies performance

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 …Methods cont’d
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III. Competitive negotiation

The buyer approaches a limited number of selected suppliers

(typically at least three) for price quotations.

Buyers may also bargain with these suppliers to achieve

specific price or service arrangements..

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IV. Direct procurement:

 The simplest but usually expensive procurement method from single

supplier either at the quoted price or at a negotiated price.

 For single source drugs (generally those under patent with no licensing

agreements that allow other firms to manufacture the drug), the buyer has
two choices-
 Direct procurement or
 Selection of an alternative drug.
 This method is usually characterized by highest prices.

 It is favorable for emergency purchases when negotiation is not possible.

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 3.4 Principles of good pharmaceutical Procurement
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1. Procurement by generic Name

 Important for fair competition, specify quality standards
2. Limitation of procurement by essential drug list, Formulary &
STG
 Avoid generic (Brand) duplications
 Select safe, effective, cost- effective drugs
3. Procurement in bulk
 Concentrate purchases on limited list to increase quality, reduce price
 Specify divided deliveries
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4. Formal Suppliers Qualification & monitoring

 Use formal suppliers qualification based on drug quality,

service reliability

 Approve suppliers before tendering (prequalification) or

after (post qualification).

 Use a formal monitoring system to ensure continued

supplier qualification.

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5. Sole-source commitment

 All contracted drugs are procured from winning supplier.

 Enter into no separate deals with non-contracted suppliers.
 Adjust for expected program growth & changing disease
pattern

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6. Order quantities based on reliable Estimate at Actual need.

 Develop reliable consumption records & morbidity data.

7. Reliable payment & Good financial management

 Develop mechanisms for prompt, reliable payment

 Prompt payment may bring down drugs prices as much as bulk

discounts.

 Financial mechanisms that establish separate drug accounts

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8. Transparency & written procedure

 Develop & follow written procedures for all procurement

actions

9. Separation of key functions

 Separate key functions that require different expertise

 Functions that involve d/t committees, units, or individuals

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10. Product quality Assurance program

 Establish & maintain a formal system for product quality

assurance

 Include quality assurance product certification, inspection of

shipments, targeted laboratory testing, and reporting of suspect
products.

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11. Annual Audit with published results

 Conduct an annual audit to assess Compliance with

procurement procedures, promptness of payment, &
related factors.

12. Regular reporting procurement performance

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 3.5 Purchasing models
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 Total purchasing costs can be minimized by choosing the

optimal purchasing model.

 Annual, scheduled and perpetual
1. Annual purchasing
 Products/drugs are purchased once a year

 Main reasons to use annual purchasing are:

 Easier to manage and

 Usually lower unit price
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 1. Annual purchasing
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 It has the following disadvantages when used as a sole

means of drug purchasing:

Consumption change (Shortage or surplus)
High inventory holding cost
More space for storage if not spaced in delivery
May be difficult to cope up with funds at once

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 2. Scheduled purchasing
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 A periodic review model in which orders are placed at

prescribed intervals.
 For example purchase from Pharmaceutical Fund and
Supply Agency(PFSA) every two months

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 3. Perpetual purchasing
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 Drugs are purchased when the stock reaches:

 reorder quantity or
 safety stock

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Thank you

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