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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 – Prices and Terms
Prices and Terms settlement is an extremely important function of Procurement. This is part of the real negotiation.
For Active Pharmaceutical Ingredients, Excipients and Imported Packaging components, prices are to be taken each time a purchase is to be done. It is because the prices keep fluctuating, sometimes a little but sometimes with a serious difference.
GMP compliance requires source approval for APIs. It is good to have 2-3 approved sources, but it is customary to keep using the same source unless it becomes impossible to get the material from this source. In this case, alternative approved source will be used.
For every purchase of APIs, prices must be taken from at least three sources, a comparison should be made, and recommendation and approval be done on it. Some APIs have a single source or a single preferred source. In such cases, a comparison may be unnecessary. Excipients usually do not have many sources; in fact, some may have single, exclusive sources. Almost same situation prevails for imported packaging.
API manufacturers are usually represented by an agent in Pakistan (Indenter). The norm was to have one indenter for one supplier, but things have changed now. Some Chinese and Indian companies allow multiple indenters to represent them. In this way, they minimize their risk of getting stuck with one indenter. It also creates competition among indenters for getting business which is generally good for manufacturers in terms of price, terms and customer service.
For imported products, the ‘Terms of Business’ would be mainly two things; payment time and import instrument. Payment time could range from 100% advance to 120 days credit. Similarly, the import instrument may be a bank contract or a letter of credit. Other terms are also determined which relate more to logistics and will be discussed there.
I may mention here that getting credit terms is not without cost. If you work through LC at Sight, price will be lower, but if you work through LC with deferred payment, the price will be higher. Working through LC with developed countries such as US and Europe is quite tedious. They would come up with multiple conditions. It was not like this before. The world has changed, and Pakistan has come under a lot of cloud vis-à-vis money laundering allegations, hence the stringent conditions. The bank charges for handling LC in the US and Europe are exorbitant by our standard and supplier prefer to get 100% advance payment rather than LC. State Bank of Pakistan has recently instructed that no bank shall process advance payment without case-by-case approval from SBP. The sellers and buyers are still trying to find alternate solutions.
China and India can work with Bank Contract also, which is cheaper and easier for both parties.
Local Procurement is mostly packaging; things like aluminum foil, unit cartons, leaflets, glass bottles, caps, cups, spoons etc. Multiple vendors are employed for supplying these items and it is logical to do that. The number of items is quite large and using only one vendor may end up in unforeseen and uncontrollable shortages.
Couple of companies have put up their own printing facilities for their own use. This is a poorer arrangement. First is the viability issue, second is the quality issue, third is supplies issue, fourth is the push to accept whatever is available. It is better to focus on the core business, which is Pharmaceutical manufacturing and marketing. If the intent is to diversify, it is better to put up a printing facility and compete with the market.
It is advisable to call for quotations of packaging components, negotiate and fix vendors for various items. Same item should be supplied from the same vendor and items should not be shuffled. It is particularly important for printed packaging because a vendor takes time to get a handle on the color scheme, design, die cutting, and other embellishments. Vendor performance is expected to improve over time and permanency plays an important role.
Even when the rate running contracts are not signed with local vendors, it is understood that the price shall be held for a reasonable length of time, even for couple of years. Presently, the market is extremely volatile and holding prices is a challenge.