ADAMA HOSPITAL MEDICAL COLLEGE
PRESENTATION ON:-DRUG PROCUREMENT
By:-
Gemechu
Lemi (Bsc.pharm)
Date
23/11/2016 E.C
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Objectives
Define drug procurement
Describe drug procurement cycles
Describe drug procurement methods
Describe drug purchasing models
DSM cycle
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DSM cycle
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Procurement is the process of acquiring drug product
through purchase, manufacture or donation.
It is a major determinant of drug availability and the
total health cost.
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Characteristics of effective procurement system .
An effective procurement process should:
procure the right drug in the right time
obtain the lowest possible purchase price
ensures that all drugs procured meet recognized
standard quality
arrange timely delivery to avoid shortage and stock
out
ensure supplier reliability with respect to service
and quality
achieve these objectives in the most efficient
manner possible
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Steps in the Procurement Cycle
The procurement cycle involves the following.
Reviewing drug selection
Determining quantities needed
Recognize needs and funds
Choosing procurement method
Locating and selecting suppliers
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Specifying contract terms
Monitoring order status
Receiving and checking drugs
Making payment
Distributing drugs
Collecting consumption data
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Methods of Procurement
There are numerous mechanisms by which
governments and NGOs procure drugs.
However all pharmaceutical procurement methods fall
into one of the following four basic categories.
1. Open tender
2. Restricted tender
3. Competitive negotiation
4. Direct procurement
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1. Open tender
It is a formal procedure where by bids are invited
from a potential manufacturer or supplier.
- contrary to the expectations, pharmaceutical
companies generally respond to tenders even for
relatively small quantities.
- As a result, too many offers are submitted that
overload the limited capacity of procurement
agencies in small countries.
- Hence, proper evaluation of the bidders as well as the
bids can't be undertaken within the schedule of the
tender process.
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Advantages:
lower price due to many bidders and their
competition
encourages new suppliers to participate
many product alternatives, etc
Disadvantages:
higher work load/time consuming
need for proper evaluation compared to other
methods
uncertainty for sustainable product supply from
new bidders, etc
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2. Restricted tender
- It is open only to pre-qualified suppliers and seems
to work best in small countries.
- Although initial evaluation of supplier is time
consuming, when a number of pre- qualified
suppliers have already been established, the
resulting work for procurement agency
- and the over all work load is significantly lower than
in open tender
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- The prequalification process is open to all potential
suppliers.
- The qualification criteria include adherence to
Good Manufacturing Practice (GMP), past supply
performance, etc...
Advantages: -
- fewer bids leading to lower work load
- easier to ensure quality, etc...
Disadvantages:-
- need to have a system for pre-qualification of
suppliers
- fewer bids with more limited options, etc...
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3. Competitive negotiation
It means approaching selected companies and
requesting price quotations (typically at least
three).
Advantages:
- Suppliers are generally well known.
- - less evaluation work, etc...
Disadvantage:
• generally higher price
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4. Direct procurement
This is the simplest but perhaps the most expensive
procurement method of all as it involves direct
purchase from a single supplier either at a quoted
price or negotiated price.
The method is well suited for emergency situations
but it is not the preferred choice for routine orders.
It is also better for small volume purchases or for
lower price drugs (total price).
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Advantages:
• easy and quick
• best for emergency needs
Disadvantage:
• high price
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Principles for Good Pharmaceutical
Procurement System
There are 12 operational principles for a GPP which
are categorized into 3 clusters.
1.Efficient and transparent management:
Separation of key functions that require different
expertise; e.g. selection, quantification, pre-
qualification, tender- contracting, etc...
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Transparency, written procedures and explicit
criteria towards contracts
Procurement should be planned properly and
procurement performance should be monitored
regularly.
Monitoring should include annual audit.
Drug procurement should be limited to an EDL
defined by the recognized lead health authority.
EDL adapted to national standards
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2. Drug selection and quantification:
Procurement and tender documents should list
drugs by their INN/generic names; leads to fair
competition.
Order quantities should be based on a reliable
estimate of actual need versus stock out and over
stock.
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3.Financing and competition:
Ensure reliable payment and good financial
management Procurement in bulk
makes favourable prices and contract terms more
likely.
Consider also divided deliveries.
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Use competitive procurement methods
except to a very small or emergency purchases
Sole-source commitment i.e. commitment not to
enter a separate deal with non-contracted
suppliers
Hence all contracted drugs are procured from
winning suppliers.
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Formal supplier qualification and monitoring, either
before tendering (pre-qualification) or after
tendering (post-qualification)
Product quality assurance programme. It includes
o Performing quality assurance testing
o Reporting product problems and
o performing post-marketing surveillance
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Purchase Models
• Procurement may proceed under different
models.
The most common inventory control models are:
1. Annual purchasing
2. Scheduled purchasing
3. Perpetual purchasing
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1 .Annual purchasing
• It is a one level periodic review model with the
interval set at once a year.
• It is a form of scheduled purchasing.
NB:Drug purchase prices per unit are usually lower
when large volume purchases are made.
• Its disadvantage involves: work load, storage space
need, actual consumption is often different from
annual forecast (shortages, surpluses).
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In general, annual purchasing is best suited to
new programs, where there is no existing system
for inventory management.
• It is used also in cases of limited local suppliers
and lead time from foreign supplier average
several months.
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2.Scheduled purchasing
• It is a periodic review model in which orders are
placed at prescribed intervals (such as weekly,
monthly, quarterly, biannually) with both one-level
and two-level variations.
• It is advantageous in terms of work load uniformly,
ware houses management, proper quantity
contracting with tenders, etc...
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3.perpetual purchasing
• It is a two level model in which stock levels are
reviewed each time when stock is issued (or at least
weekly) and orders are placed whenever stock falls
below a minimum level.
• Safety stock and average inventories are much
lower with this model than with either annual or
scheduled purchasing.
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• It is advantageous in that it has the ability to
rapidly respond to sudden changes to
consumption because the inventory position is
reviewed continuously and orders are placed
frequently.
• NB: Combination of the three models is better
since each model has its own advantages and
disadvantages.
Emphasis is given for fast moving, expensive
items.
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REFERENCES
1. Mds-3 managing Access to Medicines and health technology 2012
2. Rwanda drugs management SOPs at health facilities.
3. Ethiopia MOH 2012. Logistics Management Office (LMO)
provisional terms of reference.
4. Ethiopia MOH 2010. The Coordinated Procurement and
Distribution System, governance document.
5. The Logistics Handbook: A Practical Guide for the Supply Chain
Management of Health Commodities;
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THANK YOU
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