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Dear Pharma Veterans. This series of Blogs is a summary view of Pharma Business in Pakistan. It is a series spread over several parts covering the entire spectrum of Pharma business.
Pharma Business – OPERATIONS – SUPPLY CHAIN
After the planning has been done, the Planner raises the Requests for Purchases. The names may vary but the document is intended to initiate a request for Procurement. The Requisition will go through necessary approvals at two stages separately or together, depending upon the company working. Either, the request for quantity is approved first and then the price/value is approved later, or it may be done in one step.
Procurement is not the same as ‘Purchase’. A Purchase is a one-step activity where you negotiate the price and buy. It is one part of Procurement of course, but Procurement is a multi-step, holistic process. You will see the difference as you go through the Procurement process.
Procurement is an extremely important activity in any manufacturing organization, even trading companies for that matter, for the following reasons.
- Procurement ensures the supply line for manufacturing/ trading operations. If the procurement is delayed, the entire operation may be disrupted.
- Procurement must be done from quality-conscious and reliable vendors so that right quality materials are delivered on time.
- Procurement consumes large amount of company revenue. The spending must be arranged in a way that financial impact is distributed without causing overburden at any given time.
- Procurement must be transparent. Wherever there are large financial transactions, the possibility of ‘malpractices’ is likely to come insidiously. This factor has to be guarded at all times. Not having a check on it may harm the company over time and in several ways.
- Procurement is the company’s interface with the Suppliers and Vendors, who form an integral part of business. Suppliers and Vendors Identification, Evaluation and Development is done through Procurement/ Supply Chain.
- There are no physical, cash transactions in larger businesses. Payments are made after several days/weeks of receiving the stock. In some cases, the payment is done in advance and the stock is received much later. In both instances, the company and its suppliers/vendors must be able to rely on each other. Reliability is not just an ethical thing; it evolves from a rigorous procedure and firmness of dealings. Procurement builds reliable relations with Suppliers/ Vendors.
- Lastly, Suppliers and Vendors actually invest in your business and directly add to your working capital through offering goods and services on credit. This facility is developed and sustained through Procurement.
At any given time, Procurement is handling multiple requests for purchases. The lead time for delivery is highly variable. For materials to be imported, the lead time may vary from 8-16 weeks; for materials to be procured locally, it may be 1-4 weeks. Although the lead time factor is built into planning, but procurement needs to do its own planning all the same.
In Pharma industry, most raw materials are imported while most packaging materials are procured locally.
Procurement Planning is based on following factors.
- Lead time to shipment
- Nature of shipment
- Time to arrive at the port
- Time to do regulatory and customs clearance
- Economic order size
- Lead time to deliver
- Consolidated orders for regular packaging items
- Integrated buying for all packaging components
- Vendor capacity
- Minimum Order Quantity – MOQ
- Reorder Level (ROL) & Reorder Quantity (ROQ)
Procurement thus may make some changes to quantities determined by Planning, but the information will go back to Planning.
Next, we shall take up Vendor Selection and Qualification.