Supply Solutions for Children

Agenda Procurement statistics Major commodity areas Drug Procurement Sourcing and Special Procurement Supplier Registration and Evaluation Case Study

Procurement Total Procurement 2000: $502 million. Offshore: $288 million Local/Regional: $214 million Vaccines/Immunization: 40% Procurement for: UNICEF programmes/admin Oil for Food Programme - Iraq Global Alliance for Vaccines & Immunizaion Procurement Services Warehouse Replenishment

Offshore Procurement 2000 (millions of United States Dollars) Total Procurement $288 million

Receiving Countries India 70.9

Major Commodity areas Medical & Hospital Equip. Electrical Equip. Transport Nutrition Products Education Equip. Immun. & Cold Chain Laboratory Equip. Diagnostic Test Kits Office Equip. Relief Items Shelter Material Pharmaceuticals Water and Sanitation

Summary An effective procurement process should: Procure right drugs in right quantities Obtain lowest possible purchase price Recognized standards of quality Timely delivery Supplier reliability Procure the right drugs in the right quantities. Obtain lowest possible purchase price Ensure that all drugs procured meet recognized standards of quality Arrange timely delivery to avoid shortages and stock-outs Ensure supplier reliability with respect to service and quality

Drug procurement Procurement of pharmaceuticals differ from procurement of other commodities because the effect of receiving and utilizing a substandard/poor quality product can have severe consequences in terms of damage to the consumers health or treatment failure, because the product does not have the intended effect. Therefore a number of precautions need to be taken when buying pharmaceutical products and these should be followed in a systematic manner.

Procurement Cycle Determine Quantities Review Drug Needed Selection Reconcile Needs and Funds Collect Consumption Data Choose Procurement Method Distribute Drugs Locate and Select Suppliers The procurement cycle includes most of the decisions and actions that determine the specific drug quantities obtained, prices paid, and quality of drugs received. Procurement is defined here as the process of acquiring supplies from private or public supplies or through purchases from manufacturers, distributors, or agencies such UNICEF, WHO, MSF, or bilateral aid programs. These sources may be used individually or in combination to meet the entire range of drug needs. Make Payment Specify Contract Terms Receive and Check drugs Monitor Order Status

Principles of Good Pharmaceutical Procurement Procurement by generic name; Limitation of procurement to the EDL; Procurement in bulk; Formal supplier qualification/monitoring; Competitive procurement; Sole-source commitment; Generic name: INN for fair competition EDL: a limited rug list or formulary, defining which drugs will be purchased, is one of the most effective ways to control procurement costs. It simplifies other supply management activities and reduces inventory holding costs as well. Procurement in bulk: larger procurement volume makes favorable prices and contract terms more likely. Pooling of procurement volume from many facilities, restriction of the drug list, and elimination of duplication within therapeutic categories lead to higher volumes for single items. In addition, the commitment to award single contract for the entire volume of each item raises supplies’ interest in bidding and provides an incentive for them to offer competitive prices. Supplier qualification/monitoring: based on drug quality, service and financial reliability. Approve suppliers before tendering (prequa.) or after (post). Use a formal monitoring system to ensure continued supplier qualification. By first eliminating substandard suppliers from the tender process, prequalification ensures that the lowest tenderer is qualified and thus expedites adjudication. Competitive procurement: there are 4 main methods for purchasing drugs, restricted&open tenders, competitive negotiations, and direct purchase from single source. Sole source: must be monitored and enforced.

Principles of Good Pharmaceutical Procurement Order quantities based on reliable estimate of actual need; Reliable payment and good financial management; Transparency and written procedure; Separation of keys functions; Product quality assurance programme; Order quantities…:accurate estimates of drug requirements are needed to avoid stockouts of some drugs and overstocks others. The most accurate way to quantify pharmaceutical needs is to start with accurate past consumption data from all units being supplied. These data should be tempered by known or expected changes in morbidity patterns, seasonal factors, service levels, prescribing patterns and patient attendance. Unfortunately, in many countries, consumption data are incomplete or do not reflect real need because the supply pipeline has never been full. Reliable:prompt, reliable payment can have as great an influence on bringing down drug prices as bulk discounts. Efficient financial management systems are especially important if funds are limited and procurement priorities must be set. Transparency: appearance and reality of fairness are essential to attract the best suppliers and the best prices. This can be achieved by maintaining transparent tender procedures should be followed throughout the tender, and formal, explicit criteria should be used to make procurement decisions. Information on the tender process and results should be public, to the extent permitted by law. Separation: discussed in detail in the following slide.. Product quality: an effective procurement program must ensure that the drugs purchased and distributed are of high quality , according to international standard.

Strategic objectives for drug procurement Procure the most cost-effective drugs in the right quantities Select reliable suppliers complying to GMP Ensure high quality products Ensure timely delivery Achieve the lowest possible total cost

Procurement Methods Open tender Restricted tender Competitive negotiation Direct procurement Open tender: formal procedure by which quotations are invited from any manufacturer on a local or worldwide basis, subject to the terms and conditions specified in the tender invitation. ICB as specified in WB guidelines, is a tender open to all interested international manufacturers from WB member countries. Restricted tender: closed bid or selective tender, interested suppliers must be approved in advance, often through a formal prequalification process that considers adherence to GMP, past supply performance, financial viability, and related factors. Competitive negotiation: buyer approaches a limited number of selected suppliers (at least 3) for price quotations. May also bargain with suppliers to achieve specific price or service arrangements. Direct procurement: simples, most expensive, is direct purchase from a single supplier at quoted/negotiated price. Single source/patent with no ,license agreements.

Special procurement types Direct Ordering “Contract set up by SD allowing Country Offices to ”Buy internationally” Long Term Agreement “Not binding frame agreement setting the terms and limits for contracts” Typically 24 month agreements + Direct Ordering “Contract set up by SD allowing Country Offices to ”Buy internationally” Long Term Agreement “Not binding frame agreement setting the terms and limits for contracts” Typically 24 month agreements +

Drug procurement scenarios Who are the suppliers? Pharmaceutical manufacturers Pharmaceutical wholesalers International drug supply agencies Where are they situated? Well-regulated countries Less well-regulated countries

Sourcing Through direct contacts Special catalogues of manufacturers in a specific area, eg. drugs Through trade missions in respective embassies Exhibitions, fairs UN Business Seminars Internet Important to realize: Regarding sales and marketing efforts, all UN organizations should be treated as individual companies, it is not sufficient to deal with only one of them and expect the information to be replicated automatically to everyone in the UN family.

Organization of the national procurement process Who will prepare invitation to bid (ITB) and handle the commercial aspects Who decide on standards for product and production, quantities etc. There are several keys functions which typically require different expertise. In general, these functions should be handled by separate individuals, units, committees. Such functions include: selection of drugs; quantification of drug requirements; preparation of product specifications; approval of suppliers (pre or post qualification) adjudication and award of tender. Without separation of functions, the procurement process is much more susceptible to influence by special interests. Separation of keys functions contributes to professionalism and accountability. Who will take care of delivery and distribution and monitor supplier performance Who will adjudicate the bid and take care of quality assurance

Supply Division Organisation Bidding RFQ/RFP Contracts - DO/LTA Contracting Sourcing Technical specifications Web catalogue Technical Quality Assurance Supplier registration Supplier evaluation Inspections

Organization of the national procurement process, cont. Clear definition (and division) of responsibilities, authorities, procedures for procuring selection of drugs pre-selection of suppliers quantification of needs standard-setting technical adjudication quality assurance distribution to ensure transparent process

Procure the most cost-effective drugs in the right quantities most cost Questions to ask: Drug selection - Is there a national list of essential drugs? Are drugs requested on this list? If not, why are drugs requested - relevance to the pattern of prevalent diseases?

Procure the most cost-effective drugs in the right quantities, cont. Quantification of drug requirements - How many patients can be treated with requested quantities? Does this tally with morbidity data or past drug consumption figures? Can the quantity be used before expiry? Drug needs can be quantified by using one or a combination of four standard methods (consumption method, morbidity method, adjusted consumption method and service-level projection of budget requirements). Quantification involves estimating the quantities of specific drugs needed for a procurement. Consumption method: uses records of past consumption of individual drugs (adjusted for stockouts and projected changes in drug utilization) to project future need. First choice for procurement forecasts, given reliable data. Limitations: must have accurate consumption data, can perpetuate irrational... Morbidity method: estimates the need for specific drugs based on the expected number of attendance, the incidence of common diseases, and standard treatment patterns for diseases considered. Limitations: morbidity data not available for all diseases, standard TX may not really be used. Adjusted consumption method: uses data on disease incidence, drug consumption or utilization, and/or drug expenditures from a standard supply system and extrapolates the consumption or utilization rates to the target system, based on population coverage or service level to be provided. Limitations: questionable comparability of patient populations, morbidity, and treatments practices. Service-level projection of budget requirements: uses the average drug procurement cost per attendance or bed-day in different types of health facilities in a standard system to project drug costs in similar types of facilities in the target system. This method does not estimate quantities of individual drugs.

Procure the most cost-effective drugs in the right quantities, cont. Questions to be asked: Product specification - Is it a generic or a proprietary drug? Patent situation? Is drug registration requested? If it is a generics drug - what quality of product are we aiming at supplying? Consider finished product spec.s and quality of active ingredient, product stability, therapeutic equivalence. Product specifications must be clear and detailed in the ITB

Select reliable suppliers of high quality products What is the advantage of pre-qualifying suppliers? Elimination of sub-standard suppliers More efficient adjudication process What should be considered in a pre-qualification? Production standard (GMP) Business viability

Select reliable suppliers of high quality products Who and how to pre-qualify? Ask for references Inspection of manufacturers

Request information about manufacturer What is the link between the supplier and the product? Marketing authorisation holder? Manufacturer? Distributor? What is the regulatory situation in the country of manufacture? Product currently registered and marketed? Registered but not marketed? Product registered for export only? No registration? Regulatory situation in other countries? EU/USA Request certificates: Certificate of Pharmaceutical Product according to WHO Certification Scheme Statement of Licensing status of Pharmaceutical Product according to WHO certification Scheme Marketing license Export license

Example of contents of product specification Name (INN) Dosage form Strength per dosage unit Route of administration Number of units/volume/weight per container Type of container, in certain cases specification Acceptable pharmacopoeias references/ standards Request the following information Finished product specification Active pharmaceutical ingredient specification (DMF/CEP) Stability: what testing has the product been subject to? Label and insert information Therapeutic equivalence

Monitor and maintain quality Pre- and post shipment inspection Analytical drug testing Appropriate storage, distribution, dispensing Reporting system for complaints

Supplier Registration Process Company Data Financial Data References Supplier Profile Form Step 3 Supplier interested Step 2 UNICEF interested Step 1

Supplier Evaluation Suppliers are evaluated on their financial soundness, capacity, quality performance, technical capability, ability to service their products in the destination countries. Preference is to purchase directly from manufacturers and not from dealers.

Supplier Evaluation Certificates of interest: - Quality system ISO 9000 - BS14000 - Environmental systems - Social Accountability SA 8000 - CE markings on products

Group discussion You receive a request from the Ministry of Health for purchase of drugs for the national malaria and HIV/AIDS control programmes. You are given a list of 100 drugs requested. What do you do with this list? How do you decide what to purchase and where? How do you ensure that the drugs will imported and distributed smoothly?