Procurement and Distribution

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Nirmal Gurbani
IIHMR, Jaipur
  
 
 
 
 
 
 
 
 

Procurement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Objectives of Procurement
The process of acquiring
– the right quantity
– of the right health products
– of the right quality
– for the right customer
– at the right time
– in the most efficient, safest and least costly way
possible
Cost effective, Reliable suppliers of quality assured,
Timely delivery
 Session objectives

• Discuss Role of Procurement in Supply

Chain
• Understand Product Selection and
Prequalification
• Understand various Procedures
• Identify key Infrastructure & Resource
Requirements
 Outline
1. Introduction
2. Elements of Procurement Cycle
3. Requirements for Procurement
4. Procurement Methods
5. Challenges of Procurement
6. Monitoring of Procurement
7. Principles of Good Pharmaceutical
Procurement
 Introduction
• Procurement is a major determinant of medicine
availability and total health costs
• Medicine purchases account for the single
largest health expenditure after personnel
• Definition: Procurement is the process of
acquiring supplies from private or public
suppliers or through purchases from
manufacturers, distributors or agencies such as
Unicef, WHO, IDA, MSF
Procurement and supply
management cycle
Issues in Procurement Planning
 Procurement is a Cyclical Process
A chain is as strong as the weakest link
• Multiple stages: careful scheduling needed
• Better planning can reduce wastage,
shortages, costs
• Simultaneous demand (local or International)
affects supplier lead times
• Product shelf-life impacts planning
• Many stakeholders, many opportunities
major steps: identifying need, quantity, finding suppliers,
tendering, award, receive, pay, distribute, supplier monitoring
Principles of Procurement

Right Quality
Right Quantity
Right Condition
Right place
Right Time
Right Source
Right Price
Right
procedure
 The Supply Chain Cycle

Strong supply chains benefit programmes

in the following manner:
– Increased Programme impact through
consistent and reliable supply
– Enhanced quality of care
– Reduction of loss and wastage
– Increased support from stakeholders by
ensuring integrity of supply chain
 The Procurement Balance
Capital costs
Expiry
Improve planning Storage costs
Minimize shortages Hidden costs
Build trust in system Loss
Benefit from bulk purchases Wastage

More stock Less stock

 The Procurement Balance
Capital costs
Expiry
Storage costs
Improve planning
Hidden costs
Minimize shortages
Loss
Build trust in system
Wastage
Benefit from bulk purchases

STOCK - OUT

More stock Less stock

 Stages in Procurement Cycle
Tendering Quality Control/
Selection Process Assurance

Management
Overview Procurement

USE Procurement
Management
Delivery

Distribution Storage
 Procurement Options Differ
(products)

• Health Products:
- Pharmaceuticals
- Laboratory
- Medical devices

• Goods
– Office equipment, air conditioners,
vehicles, etc.
 Procurement Options Differ
(services)
• Services
– sub-contracts, engagement of technical
advisers, MIS developers, pharmacists, doctors,
trainers, facilitators, security, assessment works,
other individual/firm experts, etc.

• Works

– Office renovations, shelves, installations,

minor civil works, etc.

 Avoiding Confusion

Make sure everybody knows

exactly what is needed
 Avoiding Confusion
(when procuring products)
Requirements are defined as “Specifications”
Can be defined based on:
– Quality standards – pharmacopeia, monographs
– Design specifications, labels, packaging
– Performance specifications, shelf life, expiry
– Innovator or generic names
Require staff with experience in determining product
specifications
Tender document should be unambiguous
 Avoiding confusion
(when procuring services)

• Requirements are defined in the “Terms of

Reference (TORs)”
• TORs should be clear and precise enough
for the contractors/bidders to prepare a
responsive offer
• TORs also provides the basis of evaluation
after completion of Contract
 Avoiding confusion
(when procuring works)

• Requirements are defined in the

“Statement / Scope of Works (SOW)”
• SOW is a much more detailed and refined
version of the TOR.
• Thorough supervision is required, and
performance is bonded/secured financially
 Minimum Requirements for TORs/SOWs
GET ADVICE !
• Background / Context of Procurement
• The aim and objective of the assignment
• Scope of the work: Outputs/ Deliverables required of the contractor
• Institutional arrangements, requirements for supervision, progress
reporting and time schedule
• Training requirements where appropriate
• Additional References (Annexed) to guide the bidders
• Duration of the work/Implementation timetable
• Level of details of price breakdown
• Data, local services, personnel and facilities required from the buyer
• Recommended Presentation of Proposal
• Criteria for Evaluation of Proposals
 Drug procurement & availability of
medicines: What is the influence of one on
another?
Drug Procurement

– Drug Quality Problems • Incomplete/incorrect

– Unreliable suppliers patient record keeping
– Poor forecasting/bad • Inadequate dispensing
quantifications • Irrational Prescriptions
– Inefficient distribution • Incorrect Diagnosis
system • Absence of Formulary
– Poor inventory • Absence of STG
Management
Availability of medicines
 Requirements for Procurement
• Trained Staff – medical, pharmaceutical,
managerial, economic and political expertise
• Well-developed policies and procedures
• Adequate offices
• Appropriate computer hardware and software
• Good communications – telephone, fax, email
• Reliable inventory information
• Reliable consumption information
• Reliable finance
 Procurement Methods
• Request for Quotation (RFQ)
 most flexible and least formal (also called informal tender) –
usually has a maximum limit on expenditure; useful in urgent
needs of small quantities
• Invitation For Bids (IFB)
 commonly used method in tenders – international open/restricted
tenders, local tenders – applies equally to pre-qualified suppliers
• Request for Proposal (RFP)
 used in the procurement of services and complex goods (e.g.,
functional specifications cannot be expressed to exhaustion)
• Direct Contracting / Waiver of Competition
 there is no competitive marketplace for the requirement, previous
tender led to a failure or lack of response

 Procurement Regulations may determine method

 Comparing Methods
Open Tender Closed Tender
Larger list of suppliers to Less work for the purchaser;
choose from fewer proposals, bids to review
More competition for lower Both purchaser and supplier
prices know what to expect, based on
experience with each other

Possibility of finding new Suppliers more likely to respond

suppliers to closed tenders, as their
chances are higher

More control over product

quality?
 Comparing Methods (cont)
Open Tender Restricted Tender

Larger set of supplier bids to Pre-qualify suppliers, a must

evaluate for pharmaceuticals

Post-qualify suppliers during Bid evaluation restricted to set

tender period of prequalified suppliers
More competition for lower Faster bid evaluation, earlier
prices procurement
Possibility of new suppliers Procurement team must seek
submitting bids out new suppliers
Steps in Tendering Process
Prepare Procurement Plan Schedule
Prepare Tender Documents
Advertise Tender (IFB)
Receive Quotations (bids)
Open Bids
Prepare Comparative Schedule
Adjudicate Tender per set Criteria
Award Tenders
Issue Contracts
Monitor Tender Progression
Tender Documents or Content of
Master Tender Document
• Invitation For Bids (IFB)
• Instructions to Bidders
• General Conditions of Supply Contract
• Special Conditions of Supply Contract
• Technical Specifications
• Schedule of Requirements
 List of Bidding Forms
• Bid Form
• Bid Bond Form
• Letter of Authority from Manufacturer
• Model Contract Form
PROCUREMENT
PROCEDURES
 Bids/Tender Evaluation

• TPC
• Technical evaluation committee
• Price negotiation
• CVC guidelines
• Award of contract
• Supply order
• Follow up
• Check at consignees’ end
 RELEASE OF PAYMENT

– # INITIAL
– # FINAL
– # BANK GUARANTEE
– # SECURITY
– PERFORMANCE EVALUATION
– AFTER SALES SERVICE
– AMC
 PURCHASE ORDER
CONTENTS(1)
• Order Number
• Date
• Serial Number
• Full name & address of supplier
• Consignees’ name & address
• Terms & conditions, L/D etc.
• Description of goods
• Quantity
 PURCHASE ORDER
CONTENTS(2)
• Suppliers quotation reference
• Price terms
• Billing
• Mode of payment
• Delivery date & schedule
• Packing instructions
• Transport instructions
• Freight payment terms
 PURCHASE ORDER
CONTENTS(3)
• Inspection procedures
• Insurance
• Authorised signatures
• Penalty
• Other special terms and conditions , Fall
clause etc.
 TYPES OF PURCHASES
• Rate Contract
• Running Contract
• Systems contracting
• Blanket Order
• Repeat order
 RATE CONTRACT
• Items of standard types.
• Items required in recurring basis.
• Items for which prices are likely to be
stable.
• Annual turnover is about 25 Lakhs or
more.
 REPEAT ORDER
• Supplies against the original supply order have
been received.
• Placed within 3 months of the date of placement
of original order.
• Quantity to be purchased does not exceeds the
quantity originally ordered.
• Firm should give a certificate that there is no
downward trend in the cost.
DGS&D
DIRECTOR GENERAL OF
SUPPLIES AND DISPOSAL
 DGSD ROLE & FUNCTIONS
1. A CENTRAL PURCHASE & QUALITY
ASSURANCE ORGANISATION of Govt.
of India, Department of Supply, Ministry
of Commerce.
2.  In the year 1860, the British Govt.
evolved a concept of CENTRAL BUYING
& set up INDIA STORES DEPARTMENT
in LONDON for meeting procurement
needs of Govt. of India.
 DGSD ROLE & FUNCTIONS
3.   Established in 1951 in its present form
for rendering procurement services to
Central & State Govt. by placing Rate
Contracts for common user items &
contracts against their ad-hoc demands.
4.  Adhoc procurement decentralized in
December, 1991. Main function  now is to
conclude RATE CONTRACTS.
 DGSD ROLE & FUNCTIONS
5.  Quality assurance functions continue to
remain centralized as before.
6.  Continues to be the NODAL Agency of
Govt. of India for purchase policy . &
procedure
7. Govt. Departments/Organisations, who
have not built-up their own infrastructure
for purchase, can raise their demands on
DGS&D for ad-hoc procurement.
 Advantages in Associating with
DGS&D      
To Buyers

• Facility of bulk purchase of lowest competitive price.

• Enables buying as & when required.
• Saves effort involved in tedious & frequent
tendering.
• Just in Time availability of supplies for inventory
management.
• Availability of quality goods with full quality
assurance back-up.
• To Suppliers

• Its REGISTRATION is held in high esteem by all Govt.

Department/Agencies
• Award of rate contract lends respectability & image
enhancement.                   
• Marketing effort requires is nominal.
• Consistent & uniform purchase policies & procedures.
• Availability of technical guidance for upgrading
manufacturing processes & for building product quality.
• Uniform Quality Assurance techniques lead to
standardization.
• Registered suppliers are given prior intimation about
tenders.
REGISTRATION OF
FIRMS
 CRITERIA FOR REGISTRATION
• Two years in business
• Turn over for last two years
• Latest balance sheet
• Income tax clearance certificate
• Sales tax registration certificate
• Inquiry from the bankers / Market reputation
• Proof of ownership
• No pending inquiry
• Authority letter from principals
• Capacity
• Premises inspection
 CHECKLIST FOR SOURCES OF
SUPPLY
• Financial capacity
• Manufacturing capacity
• Total value of business
• Service facilities
• Business reputations with other customers
• Production process.
 REMOVAL FROM
REGISTRATION LIST
Firm can be removed from the list without
notice, if-
– Non execution of contract
– Firm is declared insolvent
– Firm is running in losses for successive two
years
– Fails to furnish income tax clearance certificate
– Does not renew the registration
 BLACK LISTING OF FIRMS
• Found guilty of malpractices
• Convicted for offences involving moral
turpitude
• Blacklisted by any other healthcare
institutions
• Product supplied found substandard or
unfit for use
• Furnished wrong details at the time of
registration.
TENDER
SYSTEM
 MODES OF TENDERS
• Single tender enquiry (simple)
• Limited tender enquiry
• Advertised tender enquiry (open)
– Indian Trade Journal, (DGOCI&S)
• Global tender enquiry
 WORLD BANK FINANCED
PROJECTS

• Direct contracting
• National competitive bidding
• Limited international bidding
• International competitive bidding
– United Nations development Business
Magazine (UNDBM)
 RECEIPT, ACCEPTANCE &
OPENING OF TENDER
• By post
• Tender box
• Opening of tender box
– Tender date not to be postponed
– No amendments are permitted
– Late tenders not accepted
– Rejection of all tender to be exception
• Evaluation of Tender
• Technical evaluation
• Approval of technical evaluation
• Opening of price bids
• Price negotiations (PNC)
• Award of contract.
• Placement of supply order
 TENDER DOCUMENT
• Invitation to bid
• Bidder particulars
• Bid form
• Bidder profile
• Performa for authority from manufacturers
• Proforma of guarantee for supply of
spares during warranty period
 IMPORTANT
TERMINOLOGIES
Use coefficient
Turnkey basis
Letter of credit (L/C)
F.O.R. (Free on rail)
F.O.B (Free on board)
C.& F (Cost and freight)
C.I.F (cost, Insurance and Freight)
C.I.F.C (Cost, Insurance, Freight and Commission)
Uptime Guarantee
Force Majeure
 Challenges to Procurement

1. Selection

2. Quantification
 Issues in Selection
• Medicines represent a large part of health budgets
• There are many medications available on the world
market
• Difficult to keep up with everything that appears on
the world market
• Staff involved in the selection & procurement need
relevant skills to ensure regular supply, cost-
effectiveness and the provision of quality products
Generic (multi-source) products versus
innovator (single/limited source)
• Advantages generic products
– names are more informative
– generally much less expensive
– greatly simplifies procurement
– generic prescribing facilitates substitution

• Arguments used against generic products

– inferior and have bioequivalence problems
– names are harder to remember
 Generic products versus innovator
(cont’d)
Multi-source (generic) Single/limited

Patent status Well established with long New products, patented in

history of use many countries/ difficult to
produce/ no commercial
interest
No. of manufacturers Many, worldwide Innovators, few generics
Public information & Information available in Not available. Generic
std. of quality control official compendia and manufacturers develop their
Guidelines for Evaluation own specs.
Existing therapeutic Long experience of well Experience limited in case of
experience documented use of time and/or sources of
products from different products
sources
Examples of Trimethoprim ARVs
HIV/AIDS related Ketoconazole Amphotericin B
drugs
 Supplier and product
pre-qualification
• Sourcing sub-standard medicines is a waste of money

• Poor treatment of HIV, TB and/or Malaria is an immediate

health risk to patients and a potential disaster for populations
at large
• Unethical practice

• Resistance

• Spreading of disease

• Death
 WHO Prequalification Project
• Set up in 2001, UN project
• Managed by WHO: to facilitate access to
medicines that meet international standards of
quality, safety and efficacy for HIV/AIDS, malaria
and tuberculosis – now being extended to
reproductive health products.
Why do we need prequalification?
• Offers equal opportunities for manufacturers from all
countries to comply with international standards and
participate in solving health emergencies.
• Eliminates or vastly reduces the risk of sourcing sub-
standard, counterfeit and/or contaminated medicines.
• Speeds up access to quality medicines – with an
efficient,standardized evaluation process.
• Facilitates a fast contract award process through limited
invitations for competitive bidding.
 Four major PQ activities
Medicines / Vaccines / Dx
• Assessment of dossiers for medicines, vaccines, diagnostics
– teams of professionals from national drug regulatory
authorities
• Manufacturing site GMP inspections
– WHO representative (qualified GMP inspector),
– inspector from well-established inspectorate
(Pharmaceutical Inspection Cooperation Scheme
countries) and
– national inspector(s)
• Inspection of CROs and QC labs
• Consideration of procurement agencies
 Prequalification Process
• Is there in-country capacity to conduct prequalification?

Yes No

•Practices & standards •Use suppliers &products

prequalified by WHO
•Strong Lab Infrastructure
•Single/limited source
•Verification of product
approved by DRA
compliance with
requirements •Labs needed for testing
•Evaluation of dossiers •Use a specialized
supplier
•Testing and Verification of
GMP/GDP
 Prequalification Goals

Goals of supplier qualification:

– Eliminate suppliers of substandard products
– Eliminate unreliable suppliers
– Reduce costs by limiting poor quality products
and wastage
– Faster access to quality products
– Informed tender adjudication
– Reduced risk
 What should be prequalified?
• Products, manufacturers and suppliers (site-
specific)
– “Prequalification” - WHO's first priority.  
• Procurement organizations
– Standards available (Self-assessment, and
prequalification procedure and standard (MQAS) 
• Quality control laboratories
– Procedure and standards, list published
• CROs
Is quality of pharmaceuticals a problem?
 Is quality of pharmaceuticals a problem?

Substandard drugs is a big problem - antibiotics,

antimalarials, antituberculosis, ARVs drugs included.

Incorrect
ingredient Percentage breakdown
16% of data on 325 cases of
substandard drugs -
Incorrect reported from around
amount the world to WHO
database
17%

No active
ingredient
Other errors 60%
7%
Criteria for safety, efficacy and quality
• What is required for multisource products?

Marketing Authorization of Pharmaceutical Products with special

reference to multisource (generic) products (WHO/DMP/RGS/98.5)
1. Details of the product
2. Regulatory situation in other countries
3. Active pharmaceutical ingredient (s) (API)
3.1 Properties of the active pharmaceutical ingredient(s)
3.2 Sites of manufacture
3.3 Route(s) of synthesis
3.4 Specifications
» API described in a pharmacopoeia:
» API not described in a pharmacopoeia:
3.5 Stability testing
» WHO Expert Committee on Specifications for Pharmaceutical
Preparations, Fortieth report. Geneva, World Health
Organization, 2006 (WHO TRS, No 937)
http://www.who.int/medicines/publications/pharmprep/en/index.html
 Prequalification Procedure
1. Invitation for Expression of Interest
2. Submission of Dossiers (generic / innovator)
3. Screening of dossiers for completeness
4. Dossier assessment by experts
5. GMP Inspection on site by experts
6. Report and outcome of evaluation
7. Assessment OK? Published on PQ list
8. Procurement, sourcing and supply
9. Re-evaluation at regular, specified intervals
10. Testing of samples and monitoring of complaints
 Prequalification procedure
Manufacturers WHO
→ Publish expression of interest (EOI)
→ Receive EOI from manufacturers
→ Submit EOI (and product dossier if → Send guidelines for product dossier to manufacturers
requested) → Receive product dossiers, samples and SMFs
→ Submit product dossier and samples → Screen dossiers
to UNICEF, Copenhagen → Evaluate product dossiers, prepare assessment reports
→ Submit site master file (SMF) to WHO, → Inform manufacturer of outcome of assessment
→ Plan and perform inspections
Geneva
→ Inform manufacturer of outcome of inspection
→ Assess additional data and information for product dossier
→ Assess corrective action plan, plan follow-up inspection where relevant
→ Inform manufacturer of outcome and decision
→ Prepare list of products and manufacturers meeting WHO norms and
→ Submit additional data and information standards
where requested
→ Submit corrrective action plan where
requested
 Monitoring Procurement

1. Supplier Performance Rating

2. Procurement office Performance Rating
3. Lead times
4. Availability of Supplies
5. Price comparisons internationally
6. Stock outs – individual suppliers/
worldwide
7. Use of Indicators to Monitor Performance
Monitoring Procurement (indicators)

• 4-5 Indicators only

• Define indicators, evaluation matrix, and possible
actions in SOPs
• Allocate budget for monitoring
• Identify who will do monitoring
• Start small; only collect what can be used
• Review next Procurement orders on basis of ABC and
VEN analysis
 Procurement Principles
• Divide key functions (selection, quantification,
preparation of product specifications, approval of
suppliers, adjudication and award of tender) among
different offices
• Procurement should be transparent with SOPs
• Procurement should be planned and monitored
• Limit medicines to EML or formulary
• List products by INN
• Quantities should be based on actual need
 Procurement Principles (cont’d)

• Ensure reliable financing

• Procurement should take advantage of
economies of scale
• Use competitive procurement methods
• Purchase only from supplier awarded tender
• Pre-qualify suppliers
• Procurement procedures should ensure all
drugs are quality assured
 Procurement in Practical Context
Best practices must ensure a balance between:
• Distribution capacity
• Storage capacity
• Procurement staff capacity
• Health delivery capacity
• Available finances
• Time…
 Product Acquisition
• Good Practices for Pharmaceutical Procurement,
WHO 2002: presents basic principles for effective
pharmaceutical procurement

•Selection of reliable manufacturers and suppliers (Prequalification)

•Lowest cost for products of quality

•Appropriate delivery times

•Transparent procurement procedures and management

?