World Bank Training Program on HIV/AIDS Drugs

Training Module 5Procurement

based on the World Bank documentBattling HIV/AIDS: A Decision Maker’s

Guide to the Procurement of Medicines and Related Supplies World Bank, 2004

Session Objectives

• To identify ways to improve efficiency in the procurement process

• To discuss how we can achieve optimal economical results from expenditures of public funds

• To advocate for increased transparency and accountability in public financed procurement

Module Learning Objectives

Upon completion of the module the learner should be able to

• Identify specific components involved in the procurement of the HIV/AIDS care package and their interrelationship

• Initiate an evaluation of the implementing capacity of a procurement system

Module Learning Objectives (Cont.)

•Identify appropriate procurement strategies and key elements of planning

•Choose an appropriate procurement method

Procurement Module( recommended preparatory reading )

– Battling HIV AIDS:

• Chapter 3 page 21 – 30Managing the supply cycle for better outcomes

• Chapter 5 page 63 – 78Procurement

– Cameroon vs Malawi as a Case Study in ARV Procurement

Outline of the Module1. INTRODUCTION: Procurement as part of

the procurement cycle 2. Commodities that support HIV/AIDS

programmes3. Procurement methods4. How to choose the “right” procurement

method for a particular situation5. Important procurement elements6. Assessing capacity of procurement agency7. Case study

Objective 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.

Procurement as Part of the Supply Cycle

Determine Quantities

needed

Reconcile needsand funds

Choose Procurementmethod

Locate and selectsuppliers

Specify contract termsMonitor

order status

Receive and Check Supplies

Make Payments

Distribute Supplies

Collect Consumption Information

Review Drug Selection

THE PROCUREMENT CYCLEManaging Drug Supply; Second Edition

Procurement as part of the Supply Cycle

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 global demand affects supplier lead times

• Product shelf-life impacts planning

• Many stakeholders, many opportunities

The procurement balance

Minimize shortages

Build trust in system

Benefit from bulk purchases

Capital costs

Expiry

Storage costs

Loss

Wastage

More stock Less stock

The procurement balance

Minimize shortages

Build trust in system

Benefit from bulk purchases

Capital costs

Expiry

Storage costs

Loss

Wastage

More stock Less stock

STOCK - OUT

You are going to run out of stock

Your stock is going to expire

WHAT ARE YOU GOING TO DO ABOUT IT ?

Unit 1

Specific Issues in Procurementof HIV commodities

Elements of a Comprehensive HIV Care Programme

ARTARVs

Palliative CareDrugs and

consumable medical supplies

TreatmentDrugs, consumables to treat

STI, OI TB

DetectionDiagnostic Agents and lab supplies

HIV STI TB OIs

PreventionContraceptives, condoms, lubricants, gloves,

protective gear Family Planning

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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

STEP 1:

Make sure everybody knows

exactly what you need

Avoiding confusion(when procuring products)

Requirements are defined as “Specifications”

Can be defined based on:– Quality standards / Commercial Standards

– Design Specifications, Labels, Packaging

– Performance Specifications, shelf life, expiry

– Brand or Trade Names

– Samples: Lazy person’s method

Avoiding confusion(when procuring services)

Requirements are defined in the

“Terms of Reference (TORs)”

• TOR should be clear and precise enough for the contractors/bidders to prepare a responsive offer

• TOR 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

• 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 offerors• 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

GET ADVICE !

Unit 2

Procurement Methods

Objective 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.

Procurement methods• Request for Quotation (RFQ)

most flexible and least formal

• Request for Proposal (RFP)

used in the procurement of services and complex goods (e.g., functional specifications cannot be expressed)

• Single Source /Direct Contracting / Waiver of Competition

there is no competitive market for the requirement, previous tender failed

Procurement Methods

• Invitation to Bid (ITB)normally used when entity is not required to propose technical approaches to a project activity (i.e., goods, civil works)

– National Competitive Bidding (NCB) with prequalification

– International Competitive Bidding (ICB) with prequalification

– Limited International Bidding (LIB)

• International Shopping (IS)

Procurement Methods (Cont.)

• Use of specialized low cost international procurement suppliers or UN

• Use of Pooled Procurement (PP)

–Group Contracting

–Central Contracting

Single Source orDirect Contracting

Advantages• Availability of

product guaranteed• Simplified

procurement rules• Expeditious process

Disadvantages• Usually less

competitive prices• Dependent on one

supplier• Less transparent

National Competitive Bidding with Prequalification

• Only applicable if there is a robust and fully qualified local industry

• Not recommended for procurement of medicines

Limited International Bidding (LIB)

Advantages• Competitive prices• Supply of particular

product assured• Quality control

procedures assured• ‘Good’ relationship

with supplier

Disadvantages• Purchaser should

actively follow developments in Pharmaceutical market(e.g. should be very knowledgeable of the market)

International Competitive Bidding with Prequalification

Advantages• Assurance of getting

the lowest price offers

• Transparent• Multi source

products• Quality control

procedures assured

Disadvantages• Expensive process• Lengthy process• HR intensive• Requires highly technical

expertise for evaluation of applicants and bids

International Shopping

Advantages• Speedy and simple

process• Negotiating room on

non-price issues• Useful for emergency

orders• Practical in case of

particular products with few suppliers

Disadvantages• Less competitive

prices• Limited options• Less transparent• Suppliers don’t take

you serious

Unit 3Choosing the ‘Right’ Procurement Method

Comparing methods

Open tender Restricted tender

Larger set of supplier bids to evaluate

Pre-qualify suppliers: Less work for the tenderer; fewer proposals, bids to review

Post qualify suppliers during tender period

Bid evaluation restricted to pre-qualified suppliers; more control over product quality

More competition for lower prices

Both tenderer and supplier know what to expect, based on experience with each other

Lengthy evaluation, need expertise in new markets

Faster bid evaluation, earlier procurement

Possibility of new suppliers submitting bids

Suppliers more likely to respond. Procurement team must seek new suppliers and prequalify

Selection of Procurement Method

Market situation:IS: International ShoppingNS: National ShoppingDC: Direct ContractSS: Single SourceICB: International Competitive BiddingLIB: Limited International Bidding

On patent + available from

originator supplier in

ACCESS Initiative

NOT on patent + available from originator and

generic manufacturer

Not on patent +available from

originator ONLY, or on or more generic manufacturer ONLY

Small

Medium

Large

Contracts:

BUZZ Group Exercise 1

Per table: Divide into two procurement expert groups

Sub group 1: You are international experts. Suggest the most effective procurement method for the nine options proposed

Subgroup 2: You are national experts. Suggest the most effective procurement method for the nine options proposed within the local financial rules

Adherence toProcurement principles

1. Divide key functions among different offices2. Procurement should be transparent with SOPs3. Procurement should be planned and

monitored4. Limit medicines to EML or formulary5. List products by INN6. Quantities should be based on

actual need

Adherence to Procurement principles

7. Ensure reliable financing

8. Procurement should take advantage of economies of scale

9. Use competitive procurement methods

10. Purchase only from supplier awarded tender

11. Pre-qualify suppliers

12. Procurement procedures should assure all drugs are quality assured

Procurement in context

Best practices must balance between:• Distribution capacity• Storage capacity• Procurement staff capacity• Health delivery capacity• Available finances• Time…

Structures for Storage and Distribution

• Government Central Medical Store

• Autonomous supply agency

• Direct delivery system

• Prime vendor system

• Private supply system

Unit 4Important Procurement

Elements

Procurement Flow Chart

Supplier of ARTS

Procurement agency: tender

process

Purchaser of ARTS

Regulatory agency registration

Authorities & donor: Tender model

Storage of ARTS

Distribution of ARTS

Health facility ordering and issuing ARTS

Preparation of H/F orders

Procurement Planning1. Identify requirements to initiate and

complete your procurement

• Clarify scope of the task/specifications• Time required for each task• Staffing levels• Resources: financial, storage, logistics• External dependencies

HOW WILL THIS ACTIVITY GO TO SCALE ?

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Treatment period

Estim

ated

vs

real

enr

olle

men

t

Estimate

Real

Place order

Stock arrive

Procurement Planning 2. Schedule all tasks

Procurement phase 1 2 3 4 5 6 7 8 9 10 11 12Plan procurementIdentify staffDevelop written proceduresSelect productsDetermine order quantitiesPrequalify suppliersTenderAdjudicate and awardEstablish QA/QC systemGoods in transitReceive and QC medicinesMonitor supplier performance

Month

Procurement Planning 3. Scheduling procurement

• How long will procurement take?• When to start? • How often to procure?• What to do if shortages are possible?• How to monitor the process?

Procurement Planning 4. Identify and Manage Cost Factors

• Interval between orders• Safety stock levels• Increased costs from emergency orders• Bulk procurement• Reliable payment• Hidden costs

Procurement Planning 5. Identify critical path items

• Identify tasks that can disrupt schedule• Develop strategies to monitor and keep:

–critical path items on schedule–external dependencies on schedule

• Monitoring of contract terms, and application of penalties

Procurement Planning 6. Expedite: Product available for use

Procurement phase 1 2 3 4 5 6 7 8 9 10 11 12Plan procurementIdentify staffDevelop written proceduresSelect productsDetermine order quantitiesPrequalify suppliersTenderAdjudicate and awardEstablish QA/QC systemGoods in transitReceive and QC medicinesMonitor supplier performance

Product distributionProcess monitoring

Month

Procurement and Supply Chain Magagement ConsortiumThe Executive Committee

KEMSAChairman

Crown Agents Secretariat

GTZAccountant

JSIMember

Project Management UnitPhase 2

PMU Team leader

GTZFranz Frederichs

Technical Director

KEMSADr. M. Lewa

Logistics Expert

JSISteve Kinzett

ProgrammerGTZ

Samuel Otoko

ProgrammerKEMSAL. Mueri

ProgrammerJSI

Mercy Maina

Procurement ManagerCA

Robert Nyamweya

Procurement ManagerKEMSAMr. Kavi

Logistics ManagerKEMSA

A. Kaburu

Procurement OfficerGTZCaroline Minayo

Procurement OfficerKEMSAJoseph Mburu

Logistics OfficerJSIJane Wawer

Warehouse/Logistics OfficerKEMSAMr. Kyalo

Office Asst - GTZE. Ikua

Office Asst-KEMSAL. Mutua

Office Asst - JSINN

Office Asst - CANN

Office Asst - KEMSALeah Biketi

Procurement Expert

CAAlan Pringle

Driver CANN

Driver GTZPaul Wanyoike

Driver CANN

Driver JSINN

KENYA PROCUREMENT AND SUPPLY CHAIN MANAGEMENT

Contra-ceptives and

RHequipment

STIDrugs

EssentialDrugs

Vaccinesand

Vitamin ATB/Leprosy

BloodSafety

Reagents(inc. HIV

tests)

DFID

KfW

UNICEF

JICA

GOK, WB/IDA

Source offunds for

commodities

CommodityType

(colour coded) MOHEquip-ment

Point of firstwarehousing KEMSA Central Warehouse

KEMSARegionalDepots

Organizationresponsible

for delivery todistrict levels

KEMSA and KEMSA Regional Depots (essential drugs, malaria drugs,

consumable supplies)

ProcurementAgent/Body Crown

AgentsGovernment

of Kenya

GOK

GTZ(procurement

implementationunit)

JSI/DELIVER/KEMSA LogisticsManagement Unit (contraceptives,

condoms, STI kits, HIV test kits, TBdrugs, RH equipment etc)

EU

KfW

UNICEF

KEPI ColdStore

KEPI(vaccines

andvitamin A)

Malaria

USAID

USAID

UNFPA

EUROPA

Condomsfor STI/

HIV/AIDSprevention

CIDA

UNFPA

USGov

CDC

NPHLS store

MEDS(to Missionfacilities)

PrivateDrug

Source

GDF

Government

NGO/Private

Bilateral Donor

Multilateral Donor

World Bank Loan

Organization Key

JapanesePrivate

Company

WHO

GAVI

SIDA

NLTP(TB/

Leprosydrugs

Commodity Logistics System in Kenya (as of April 2004) Constructed and produced by Steve Kinzett, JSI/Kenya - please communicateany inaccuracies to skinzett@cb.jsikenya.com or telephone 2727210

Anti-RetroVirals

(ARVs)

Labor-atorysupp-lies

GlobalFund forAIDS, TB

and Malaria

The"Consortium"

(Crown Agents,GTZ, JSI and

KEMSA)

BTC

MEDS

DANIDA

Mainly District level staff: DPHO, DPHN, DTLP, DASCO, DPHO, etc or staff from the Health Centres,Dispensaries come up and collect from the District level

MEDS

Provincial andDistrictHospital

LaboratoryStaff

Organizationresponsible fordelivery to sub-district levels

KNCV

MSF

MSF

Is the Procurement of ARVs

something special ?

BUZZ Group Exercise 2

As a group, discuss those issues that make the procurement of ARVs different from the procurement of the essential commodities we routinely procure for our programmes

List the 3 most important considerations that affect procurement of ARVs

Be prepared to explain to the meeting why you have listed them as priority considerations

Is the Procurement of ARVs

something special ?

Technical Issues

• Each single treatment needs an uninterrupted life long supply of ARTS

• ARVs are combination medicines• Need to be combined with other drugs to

treat Opportunistic Infections (OIs)• Need to be combined with proper lab

testing facilities (supplies!!)• Decentralisation to community level• ARVs are scarce and valuable

Development and Research Issues

• Service provider, client and community education are in an early stage of development

• Treatment protocols and ARVs are subject to continuing research: changes can occur quickly and can be significant

Financial Issues

• ARVs are scarce and (still) expensive, prices change frequently: procurement planning difficult

• These ‘ small ’ and often ‘ vertical ’programmes have a HUGE impact on the health budgets and probably the economy of small countries

Political & Social Issues

• AIDS = Politically sensitive

• AIDS = Stigma

Product Registration

• ARVs change rapidly and often need “fast track” registration

• Special “fast track” procedures should be encouraged

Legal Issues

• International: TRIPS

• National: existing legislation, fast track registration of medicines, quality control, procurement etc

Conclusions• The procurement of ARVs has very specific

components that differ from the procurement of other drugs

• The strategy and planning of procurement of ARVs can only be short term and flexible due to rapidly changing treatment protocols and market situation

• The procurement of ARVs must be a long term commitment

UNIT 5

Assessing the Capacity of a Procurement Agency

Why is capacity of a procurement agency

important?Procurement of ARVs is critical to:

• Successful project implementation

• The attainment of the objectives of the project

• Sustainability

Objectives of Assessment

• To evaluate capability of the implementing agency and adequacy of the procurement systems in place

• Assess the risks (institutional, political, organizational, legal, procedural etc)

• Develop an action plan to address deficiencies and to ensure coordination

• Propose a suitable procurement supervision plan, now and in SCALE UP

Elements of Assessment

• Existing infrastructure and capacities• Compliance with guidelines, local & int• Organization / organizational capacity• Bureaucracies: Approvals procedures,

Practices• Human Resources• Physical Resources• Record keeping, good management

information

Results of Assessment

• Procurement capacity sufficient

• Activities to introduce new commodities / Deficiencies that can be addressed

• Third party required ? (procurement agent, distribution agent)

Assessing the robustness ofProcurement Planning

HIV-AIDS procurement needs are difficult to plan in advance for a complete program; how strong are the links ?

• Funding

• Capacity

• HIV testing programmes

• Community involvement

• Changing protocols and prices

Assessing the robustness ofProcurement Planning (Cont.)

• Are there sub-projects or – components, taking policy priorities into account

– Plan for those components ? – For a limited period ?

• Planning to expand capacity, how will it be updated ?

Assessing the robustness ofProcurement Planning (Cont.)

Procurement Scheduling

• When are goods and services needed ?

• Was a time frame prepared, working backwards from desired date of delivery ?

• Then determine if and how procurement can / should be arranged

Procurement Strategy for Each Product Category

• Multi source/ generic products

• Limited source products

• Single source products

Prequalification of Suppliers

Is prequalification of suppliers part of the strategy ?

What are the benefits of prequalification to the programme ?

•Registration

•Quality control

Key determinants

• Value of the procurement

• Lead times: How fast are the products needed

• Number of potential suppliers

• Donor requirements

• National policies

• Patent issues

Storage and Distribution

• Assessment of capacity and capability

• Conditions of storage and transport

• Is a separate storage and distribution system needed?

Push and Pull

•Push system: Health authorities determine what and how much a health facility will receive

•Pull system: Health facility prepares requisition often based on consumption data

Push and Pull

Advantages and Disadvantages

• Continuing presence of the right quantities

• Rational selection

• Flexibility

• Waste, overstocking, undersupply

• Capacity building etc

BUZZ Group Exercise 3As a group, briefly share how the procurement of HIV COMMODITIES

is organised in your country, using the following points as guides:• Current MoH Procurement agencies involved• The Bidding process• Pre-qualification of suppliers, quality control• Bid evaluation, contract awards and management• Warehousing, storage and distribution• Capacity to support programme(s) going to scale

Is the capacity in your procurement agency sufficient to conduct this procurement ?

List the 3 most important deficiencies that need to be addressed for you to be a ‘ BEST PRACTICE EXAMPLE’ in the region.

If you were to issue a bid for a third party procurement agency to conduct procurement on your behalf, what are the three most important considerations to take into account

You are going to run out of stock

Your stock is going to expire

WHAT ARE YOU GOING TO DO ABOUT IT ?