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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
PROCUREMENT II – Vendor Selection and Qualification
The importance of vendors and suppliers has been recognized by the regulatory authorities worldwide. It is understood that the quality of product starts from the quality of materials, hence the importance of vendors. Detailed guidelines are available from international regulatory bodies. GMP (Good Manufacturing Practices) which is the governing document for Pharmaceutical business, emphasizes upon vendor qualification through a rigorous process.
Vendor selection and qualification has two aspects; regulatory and commercial
Regulatory or GMP compliance of vendors is an elaborate and detailed subject. Important to mention is that Procurement alone does not qualify the vendor; Quality Assurance, Production and Quality Control share the responsibility of approving and monitoring suppliers of materials. Please visit related sites to get more information on the regulatory aspect.
Commercial considerations are different and include, albeit not limited to the following.
- Market Standing – Years in business
- Technical capability
- Financial capability
- Ability to ensure uninterrupted supplies
- Ability to adjust according to changes in demand
- Ability to supply consistent quality
After the vendor has been qualified, the next step is negotiation.
Negotiation is a highly refined skill which actually means a win-win situation for the buyer and the supplier. The buyer should get the desired quality, consistency and reliability; the supplier should get fair market price.
In our local scenario, unfortunately negotiation is taken as one-party win. The buyer, having more power in the transaction, desires to get the highest quality at the cheapest price at the longest credit period. No wonder, the buyer-supplier relationship in Pakistan is based on ‘mutual distrust’. The buyer believes and expresses that the supplier is trying to rob him while the supplier complains that the buyer is trying to extract the last ounce of life from him. In this atmosphere, negotiation becomes defending own position and securing own rights. Negotiation is a war, rather than a productive, peaceful process. Let us be honest. No one is a fool around here. It is better to practice negotiation in the real spirit and build lasting, reliable, mutually beneficial relations.
Another obstacle in vendor relation is not adhering to the agreed terms. It happens both ways. The vendor does not deliver agreed quality or does not deliver on time; the buyer does not pay on time. In fact, the vendor payments are delayed even on the slightest pretext. Delay in payments is taken as a normal, everyday event in most companies, some do it even deliberately. If a buyer is delaying payments regularly, the word is spread in the market that a 30-days credit actually means 90-120 days. The vendors react in several ways, such as increasing the prices, degrading the priority or even compromising on quality. It is fair to say that the reliability applies to both sides; reliable deliveries, reliable payments.
Yet another obstacle in vendor relations is the lack of respect. Many buyers, owners as well as staff, treat vendors in disrespectful manner. This attitude has several fallouts. Bigger vendors do not come to do business; smaller vendors do not deliver reliably; prices go up and generally buyer receives compromised goods and services. There is no justification for treating the vendors poorly. They are businesses in their own right and may even have bigger business than some of the buyers.
Finally, another practical issue in vendor management is the effort to get the kick-back from them. Far too many procurement professionals are involved in it. The completely unethical activity has been rationalized also. The argument is that ‘we got the best possible price for the company. If we get something extra for us, it is ok because in any case, it would not go to company’. Kick-back does not become legitimate even if it would never go to benefit company and benefits the person instead. When a procurement person is on the lookout for kick-back, his judgement will be clouded and biased, and vendor selection will neither be transparent nor sound.
I have focused more on the issues which are not discussed in supply chain trainings. It is because the standard procedures are available online and in books and other sources. The non-standard, practical issues are not included in any discussion, hence the need.