This document discusses various aspects of pharmaceutical procurement including: 1. Definitions of key terms like procurement, objectives of procurement, and the six rights of procurement. 2. An overview of the procurement chain and how conflicting objectives can make it challenging. 3. Methods for quantifying drug requirements including consumption-based and morbidity-based approaches. 4. Classification tools to analyze and prioritize inventory items like ABC analysis. 5. Techniques for determining optimal order quantities like economic order quantity models.

1. •Procurement & store of pharmaceuticals
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2. Definition of procurement.
Objectives of procurement.
 six rights of procurement.
 Procurement chain.
 Conflicting objectives of procurement.
 Procurement strategy
 Quantifying drug requirement
 Why should procurement be a challenging problem?
Definition of Purchasing.
Differences between procurement and purchasing.
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3. Act of obtaining/buying goods & services from external
source which ensures that buyer receives goods,
services at the best possible price.
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4. • Primary purpose is to satisfy the customer needs.
• Others are :
 Pay the right price.
Save time.
Avoid overlooking vital steps in the process.
 Minimize the risk of making a costly mistake.
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5. Selection &
Quantification
Management
Support
Distribution
ProcurementUse
Policy and Legal Framework
M&E
M&E
M&E
M&E
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6. Distribution
Procurement
Selection
Management
Support
Use
Policy and Legal Framework
• Quantity needed
• Cost
• Quality: packaging,
cold chain
• Shelf life
• Supplier performance
• Management
information system
(MIS) to monitor
consumption
• Medical Supplies e.g.
BP machines

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8. items
quantit
y
qualitycost
time
suppli
er/plac
e
Right Quality
Right Quantity
Right place
Right time
Right price
right items
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9. • Right Quality
 Satisfactory quality & fit for their purpose.
 Otherwise may damage production machinery & increase the
production cost.
• Right Quantity
 Meet demands.
 Lack of stock may cause shutdowns in production, time waste
& late delivery.
 Too much stock may cause waste of storage space & risk of
deterioration.
• Right place
 Delivery to the correct delivery point & ensure their safe
arrival.
 Otherwise may cause unnecessary transport and handling
costs.
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10. • Procurement chain network is often very complex.
• Procurement chain partners have conflicting objectives.
• Consequently, making everyone to agree is not an easy
task
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11. Procurement Limited to Formulary List
 Order Quantities Based on Reliable Estimate of Actual
Need
Reliable payment and Good Financial Management
Transparency and Written Procedures
 Product Quality Assurance
 Regular reporting on Procurement performance
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12. • “Procurement” is the overall function that describes the
activities and processes to acquire goods and services.
Importantly, and distinct from “purchasing”, procurement
involves the activities involved in establishing
fundamental requirements, sourcing activities such as
market research and vendor evaluation and negotiation
of contracts. It can also include the purchasing activities
required to order and receive goods.
• "Purchasing” refers to the process of ordering and
receiving goods and services. It is a subset of the wider
procurement process. Generally, purchasing refers to the
process involved in ordering goods such as request,
approval, creation of a purchase order record and the
receipting
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13. A. Exchange functions
 Buying
Selling
B. Physical supply functions
Storage
 Transportation
C. Ancillary functions
 Standardization and grading
 Financing
 Risk-bearing
 Market information and research and related service
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14. Review Drug Selections Determine Quantities
Reconcile Needs and Funds
Choose Procurement Method
Locate and Select Suppliers
Specify Contract Terms
Monitor Order Status
Receive and Check Drugs
Make Payment
Distribute Drugs
Collect Consumption
Information
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15.  Review selection
 Determine needed quantities
 Reconcile needs & funds
 Choose procurement method
 Select suppliers
 Specify contract terms
 Monitor order status
 Receipt & inspection
Procurement cycle
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17. •Quantification of
medicines needs
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18. • A process that involves estimating—
• Quantities of a specific item needed for a procurement
• Financial requirements needed to purchase the items
• Estimating needs within a given context—
• Finances
• Human resources capacity
• Storage capacity
• Capacity to deliver services
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19. • Why we need to quantify the medicines need?
To ensure Available of good quality, safe and less
expensive medicines all the time
Part of a sequence of interdependent steps in the
medicines supply management system.
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20. • Main components are
Selection
Quantification
Procurement
Distribution
Use
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21. • Imbalance in quantification could lead to
High inventory
Stock outs
• Stock outs lead to
Local purchases
Poor image of the facility
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22. • Consumption method
• Morbidity method
• Adjusted-consumption method
• Service-level projection
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23. 1. The patient morbidity-standard treatment method
(morbidity method).
2. The adjusted consumption method (consumption
method).
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24. Method Advantages Disadvantages
Consumption  Morbidity data not
required
 Requires less detailed
calculations
Difficult to
review prescribing
habits
Difficult to get
consumption data
for new facilities
-Good for hospitals
(because
Treatment is more
complex)
Does not encourage
good morbidity recording
Reliable if consumption is
well recorded and stable
Unreliable if there have been
long stock-outs
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25. Method Advantages Disadvantages
Morbidity  Consumption data not
required
 Good for new services
 More detailed
calculation required
 Morbidity/STG
required
 Based on rational prescribing
 Motivate morbidity recording
Results may differ from
actual supply
Estimate only the
quantities needed
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26. Preparing an action plan for quantification.
Using centralized or Decentralized quantification.
Using manual or Computerized methods for
Quantification.
 Estimating the Time required.
Developing the drug list.
 Estimating Total procurement Cost.
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27. • This method starts from two sets of data:
The number of episodes of each health problem
treated by the type or types of facilities.
Standard treatment schedules agreed for each health
problem.
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28. • Total quantity of a drug required for a given health
problem =
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29. The stock in hand consists of two components, the
working stock and the safety stock
 Working stock varies from zero to the order quantity (Q)
and represents the stock which is used to satisfy demand
between deliveries
 Safety stock (S) exists to protect against stock outs,
which would otherwise occur when deliveries are
delayed, or when demand is unexpectedly high.
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Adjust for avoidable wastage and losses
Drugs destroyed by damp, time expired, batch seized for poor quality,
unaccounted
Should not exceed 5-10% in a well run pharmacy or store
Consumption adjusted for = Recorded consumption -
Avoidable wastage
avoidable wastage

31. • Safety stock is the quantity of stock used on average
during the average lead time from the current
supplier.
• For calculation: SS = LT X CA
Where SS=Safety stock
LT=Lead Time
CA=Average Consumption
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32. V- Vital (Fixed item & amt)
E- Essential (Fixed item)
N- Non-Essential
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33. VED ANALYSIS
• Based on critical value & shortage cost of an item
–It is a subjective analysis.
•Items are classified into:
Vital:
•Shortage cannot be tolerated.
Essential:
•Shortage can be tolerated for a short period.
Desirable:
Shortage will not adversely affect, but may be using more
resources. These must be strictly Scrutinized
V E D ITEM COST
A AV AE AD CATEGORY 1 10 70%
B BV BE BD CATEGORY 2 20 20%
C CV CE CD CATEGORY 3 70 10%
CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL
CATEGORY 2 - MODERATE CONTROL.
CATEGORY 3 - NO NEED FOR CONTROL
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34. • ABC was on the basis of value of consumption to value.
In most of the cases 10 to 20 % of the inventory account
for 70 to 80% of the annual activity.
 A typical manufacturing operation shows that the top
15% of the line items, in terms of annual rupees usage,
represent 80% of total annual rupees usage.(class A)
 Next 15% of items reflect 15% of annual rupees (classs
B)
Next 70% accounts only for 5% usage (class C)
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35. HML Classification
 XYZ Classification
FSN Classification
 SDF Classification
 GOLF Classification
 SOS Classification
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36. • According to the consumption pattern
• To combat obsolete items
• F – Fast moving
• S – Slow moving
• N – Non Moving
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37. • Based on source of procurement
• S – Scarce, D- Difficult, E- Easy.
GOLF
• G – Government, O – Ordinary, L – Local, F– Foreign.
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38. • FOR Raw materials especially for agriculture units
• S – Seasonal
• OS – Off seasonal
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39. Assumption
 Seasonal fluctuation in demand are ruled out
 Zero lead time – Time lapsed between purchase order
and inventory usage
 Cost of placing an order and receiving are same and
independent of the units ordered
 Annual cost of carrying the inventory is constant
 Total inventory cost = Ordering cost + carrying cost
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40. Trial and Error method
Order-formula approach
Graphical approach
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41. • Assumptions:-
• Annual requirement (C)=1200 units
• Carrying cost (I) = Rs.1
• Ordering cost (O) =Rs.37.5
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42. • EOQ =(2CO/I)
• C = Annual demand
• O = Ordering cost per order
• I = Carrying cost per unit
• EOQ =(2*1200*37.5/1) = 300 units
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46. • End !!
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