Procurement Planning

Addis Ababa University
School of Public Health & UNFPA

Training on Reproductive Health Commodity Security for
MPH RH Graduate Students
Procurement Planning Procurement Planning
Motuma Adimasu (B. Pharm, MPH, M.Sc.)
Kaleb Hotel, Addis Ababa
August 9 10, 2014
Motuma Adimasu; August 2014
Outline of the presentation
Define Procurement
Importance of Procurement in the Supply Chain
Key terms & terminologies
Methods of procurement Methods of procurement
Procurement process and procedures
Procurement Planning
The Good Procurement Practices
Summary
Definition Definition
Procurement is the process process of acquiring drugs and products
through purchase, manufacture and donation.
Procurement includes the acquisition of both:
goods and services,
embrace not only purchasing (buying of goods) but also the
hiring of contractors or consultants to carry out services
Where is Procurement in the Logistics Cycle?
Source: USAID | DELIVER PROJECT, http://deliver.jsi.com/dhome
Why is Procurement in the Supply Chain?
Procurement is important activity to ensure:
the correct products are available in-country and
are ready for distribution & use when they are needed. are ready for distribution & use when they are needed.
Without proper procurement, it would not be possible
to meet the six rights.
Procurement Procurement contributes contributes to to 55 of of the the 66 Rights Rights in in Supply Supply
Chain!! Chain!!
Right Quality Right Cost
- Registration: Suppliers & products
-Prequalification
- Competitive methods
-Efficiency
Right Product
Right
Quantity
Right time
- Selection
-Specification
-Supplier Selection
-As an output of Quantification
-Ordering the desired qty
- Shorter Lead times
-Follow-up
Key terms in procurement
Tender - is the documentation and initiation of a process for soliciting bids;
the specifications for the product desired & opening the contract - to the bidding
process.
Bid is a written offer for a quantity of goods at a stated price;
Bids are submitted to a purchaser by an interested seller in response to an Bids are submitted to a purchaser by an interested seller in response to an
Invitation for Bids.
Contract agreement agreement entered into by two parties for the execution of a
certain activity; for example, a sale and purchase, or provision, of services.
Framework contract is a general term term for for an an agreement agreement with a supplier.
sets out terms and conditions against which specific purchases can be made.
Terminologies, ctd
Good Manufacturing Practices (GMP) a quality system covering the
manufacturing and testing of medicines.
guidelines that outline the aspects of production and testing that can
impact the quality of a product.
Prequalification (WHO) is a process of predetermining predetermining that a
specific product, from a specific manufacturer, meets stated
requirements.
Supplier - is the party that transfers goods out of its control and to a
named recipient.
Procurement Methods
All Pharmaceutical Procurement Methods fall under one of
the following methods:
Open Tender Open Tender
Restricted Tender
Competitive Negotiations, and
Direct Procurement
Open Tender
Quotations are invited from any manufacturer or manufacturers
representatives on local or worldwide basis, subject to the terms
and conditions specified in the tender invitation.
Two forms: Two forms:
International International Competitive Competitive Bidding Bidding (ICB) (ICB) is a tender open to all
interested international manufacturers.
provides a wide range of choices for selecting the best bid offer from
suppliers.
fosters competitive pricing and greater efficiencies.
Open Tender, ctd
requires longer lead times for advertisement, bid review,
and GMPs inspection.
It is the preferred method of procurement goods, unless:
the threshold levels or the threshold levels or
circumstances relating to a specific requirement,
make it more appropriate for one of the other procurement
methods to be used.
National competitive bidding (NCB):
less competitive, and
tends not to attract international bidders tends not to attract international bidders
because small procurement volumes result in lower revenues
and profits.
Restricted Tender
Restricted Restricted Tendering Tendering also termed as: closed closed bid bid or
selective selective tender tender. . Here,
interested suppliers must be approved in advance, through
pre-qualification process based on: pre-qualification process based on:
Adherence to GMPs
Past supply performance
Financial viability, and related factors
The pre-qualification process is often open to any supplier
that wishes to apply
Ethiopian context, PPA
Source: Public Procurement and Property Administration Agency.
(Dec 2011). Public Procurement Plan
Competitive Negotiations
Competitive Competitive Negotiations Negotiations also called Negotiated
procurement or international or local shopping.
The steps involved are:
Identify the item or the package of items to be purchased from Identify the item or the package of items to be purchased from
the procurement plan
Shop around for at least 3 quotations.
Prepare a comparison sheet to select the most appropriate
supplier.
Conduct the purchase
Competitive Negotiations, ctd
Advantages:
getting value for money through competition,
transparency and ease in accountability/audit, and [[Our Our context?] context?]
business opportunity for the suppliers/service providers.
Disadvantages:
effort and time involved in obtaining 3 quotations (which may not be
available in one place),
overhead in terms of selection of a supplier and record keeping.
Direct procurement
The simplest simplest, but usually the most most expensive expensive method method of
procurement is direct purchase froma single supplier,
either at the quoted price or at negotiated price.
Steps: Steps:
Procurement Committee approaches a supplier.
Negotiations,
Items/services purchase (or a contract is signed, if needed)
for the negotiated price.
Direct procurement, ctd
Request for price offer and purchase is made from a single supplier
because of one or more of the following:
Patent monopoly,
Formulation and bioavailability variation,
For components or spare parts of medical equipments, For components or spare parts of medical equipments,
No bidders for previous tenders floated,
No sufficient contingency time to follow other methods in emergency cases
If the quantity to be purchased is so small & this method is believed
feasible.
Direct procurement, ctd
Advantages:
immediate availability of resources in a shorter period of time and
facilitation in dealing with emergency situations or
encountering sudden & unforeseen needs.
Disadvantages:
risk of lack of transparency,
risk of lack of providing opportunities to other prospect
suppliers/service providers,
who could have provided a better service at a lower cost.
COMPARISON OF PROCUREMENT METHODS
Procurement Process
What is procurement?
Procurement
is process process of, is process process of,
acquiring goods and services through procurement, manufacture
and/or donation!
The procurement processes consists of the following activities:
identification of requirements,
developing specifications,
identifying suppliers/ service providers, identifying suppliers/ service providers,
inviting bids/ proposals,
evaluating and awarding contracts,
contract management,
receipt and certification of goods/ services,
evaluation and closure of contract.
Procurement process
Setting up a purchase committee
establish a Purchase Committee responsible for procurement.
The committee should have at least 3 members having expertise in
technical, financial and management matters. technical, financial and management matters.
This committee will be responsible for:
Preparing a procurement plan and updating it regularly;
Approving what to buy, and when to buy?
Finalize technical specifications and terms of references for goods/civil works
and services respectively;
Selecting a procurement method:
Open Tender: ICB or NCB
Restricted Tender
Competitive Negotiation
Direct Procurement
Preparing a procurement plan
Because procurement is:
a lengthy process
involves the transfer of money
it needs to be planned carefully and often well in advance of the actual it needs to be planned carefully and often well in advance of the actual
activities.
A procurement plan is similar to a supply plan but it includes more
information.
The supply plan, which is the final output from the quantification
exercise, provides critical inputs to the procurement plan.
Procurement planning is scheduling steps involved to
purchase resources.
The plan/schedule answers the following questions:
What to buy? What to buy?
When to buy?
How much/many to buy?
Fromwhere to buy?
How much to allocate for payments?
Procurement plan includes:
Information from Supply plan
Quantities, with a schedule of desired delivery date (What, How much &
When).
Procurement method & list of key steps to be followed:
Such as bid advertisement, bid opening, bid evaluation, contract award, Such as bid advertisement, bid opening, bid evaluation, contract award,
payment disbursements, etc
The timeline estimated dates of completion of each steps of the
process,
includes the names of responsible persons.
The procurement plan should be prepared several months ahead,
and be updated regularly.
Procurement plan preparation
Advertising: advertisement is necessary to:
Informeveryone about the business opportunities available;
Promote transparency and accountability;
Generate competition to get the best prices.
There are many ways for advertisement. Some of the commonly used include: There are many ways for advertisement. Some of the commonly used include:
posting of a notice in the public places including shopping areas, a tree,
community hall/center, government office etc.;
community discussion groups;
use of local radio station;
distribution of flyers;
local news papers etc.
Evaluation and comparison of bids
Technical compliance to the given requirement
GMP (good manufacturing practice) GMP (good manufacturing practice)
Registration
Pharmacopoeia standards (BP, USP, EPetc)
Shelf life requirement (80% upon arrival)
Monitoring and evaluation of procurement process
This is required to evaluate against the objectives using appropriate
indicators
Indicators:-
Degree of adherence to procurement time table Degree of adherence to procurement time table
Lead time
Informative drug requisition degree degree of of elaboration elaboration on on the the specifications specifications
Availability of significant amount of defective drug products
Before a payment is made, Purchase Committee should inspect and
certify that the goods are in acceptable condition.
Summary about Procurement Methods
In the initial stages of developing a new pharmaceutical
procurement system, start with a relatively simple purchasing
methods:
Combination of negotiation with known suppliers, negotiating Combination of negotiation with known suppliers, negotiating
international procurement agencies, and local tendering.
This will bring supplies into the system quickly while a more elaborate
tendering systemis being developed.
International open tenders (ICB) usually attract the the most most
competitive competitive offers offers and and potentially potentially the the lowest lowest prices prices. .
Summary,
Virtually all professionally managed pharmaceutical procurement
organizations:
Purchase most large-volume items by Restricted tender or by Competitive
negotiations fromlimited list of reliable suppliers.
Some use combination of methods:
Open or Restricted Tender for large volume items, and
Competitive negotiations or Direct procurement for lower volume and
emergency supplies
In most circumstances, procurement in the public sector is performed
through formal competitive methods.
Summary,
As long as drug drug quality quality and service service reliability reliability are assured,
competition should be increased to the point at which drug prices are as
low as possible.
The rule rule- -of of- -five five for pharmaceutical pricing: The rule rule- -of of- -five five for pharmaceutical pricing:
generic prices generally reach their minimum when there are at
least five generic alternatives on the market and
prices in tendering systems are at their lowest where there are at
least five bids per item;
adding more bids generally does not result in further lowering of prices.
Follow Good Procurement Practices:
Procurement by generic name;
Limitation of Procurement to essential drug list;
Procure in bulk;
Formal supplier qualification and Monitoring;
Competitive Procurement;
Order Quantity based on reliable estimates of actual needs;
Sole-source commitment
Reliable payment and Good Financial Management
Transparency and written procedures
Product Quality Assurance Program
Regular Reporting of Procurement Performance

Procurement Planning

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Addis Ababa University

School of Public Health & UNFPA

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