PHARMACEUTICALS SUPPLY CHAIN

MANAGEMENT (PSM/DSM)

By: Ismael Mohammed(B.Pharm. in Clinical) 1

 COURSE CONTENTS
 LO1. Medical supplies and reagents
 LO2. The logistics cycle
 LO3. Manage procurement process
 LO4. The purpose, flow of information and products,
roles & responsibilities in IPLS
 LO5. Record pharmaceutical transactions
 LO6. Report and order pharmaceuticals
 LO7. Receive pharmaceuticals
 LO8. Issue pharmaceuticals
 LO9. Manage pharmaceutical storage
 LO10. Organize and de-junk storage Places 2
COURSE OBJECTIVES
 Introduction
• Supply chain management is defined as the amalgamation
of key business processes across the supply chain for the
rationale of generating value for customers and
stakeholders.
• Indeed supply chain management integrates supply and
demand within and across companies in an efficient
business model.
• The pharmaceutical supply chain is the means through
which prescription medicines are manufactured and
delivered to patients.
• But the supply chain network is actually very complex,
requiring a number of steps that must be taken to ensure
medications are available and accessible to patients.
4
 Introduction………
• A wide range of stakeholders are also involved
in the pharmaceutical supply chain, including
manufacturers, wholesale distributors, and
others.
• In such a complex process, the stakes are high
for pharmaceutical companies. Drugs that are
distributed incorrectly affect both the
company’s reputation and customer
satisfaction, as well as potential profit. An
ineffective supply chain could also disrupt the
healing processes of patients and produce
negative effects on public health. 5
 Introduction………
• The pharmaceutical supply chain faces its own set of
challenges, including supply chain visibility, drug
counterfeiting, cold-chain shipping, and raising
prescription drug prices, which can significantly
increase out-of-pocket costs for patients.
• In the present context of a health-conscious society,
management of pharmaceutical supply chains has
become more complex because it involves the life-
saving interest of human being and requires the
participation of different stakeholders such as
pharmaceutical manufacturers, wholesalers,
distributors, customers, information service providers
and regulatory agencies. 6
 Introduction………
• The top priority in any health system is
delivering of medicine as a strategic product.
• Pharmaceutical companies, a most important
player of the drug supply chain, are subject to
many risks.
• These risks interrupt the quantity and quality of
supply of medicine and their delivery to the
accurate place and customers and at the
correct time.

7
 Introduction……..
The methods of treating illness and disease includes:
• Surgery, including organ transplantation;
• Psychotherapy;
• Physical therapy;
• Radiation;
• Pharmacotherapy
– is the most frequently used technique for treating disease
– has the broadest range of application over the greatest
variety of disease state
– usually the most cost effective and preferred treatment
method

8
• Most leading causes of death and disability in developing
countries can be
– prevented, treated or at least alleviated with cost
effective essential drugs.
• Despite this fact, millions of people do not have regular
access to essential drugs.
• Many of those who do have an access are given the wrong
treatment, receive too little medicine for their illness, or
do not use the drug correctly.
• Therefore, managing drug supply is concerned with
practical ways in which high quality essential drugs are
available, affordable, and used rationally.

9
Drugs
prevent,
alleviate symptoms of pain,
Diagnose and
cure disease
Not available to majority of the population when
needed
Because resources of developing countries
are very limited
budget allocated to health care facilities is always
in deficit

10
Even the limited budget is not properly managed
and utilized
 Funds allocated for acquisition of drugs and medical supplies
are wasted through inefficient management

 Huge proportion of the fund is eroded at every point

(Selection, procurement, distribution, storage and use)

 Organized Selection, Procurement, Distribution, Storage and

Use have many advantages in terms of economy and
effectiveness

11
 Regular supply of drugs without proper and efficient
management does not necessarily improve the health
care.
 Selection should be based on prevalent diseases of the
locality (health facility)

 Drugs should be properly quantified to minimize wastage

due to over-estimation or shortage

 Drugs must be properly distributed and stored

12
 Chapter 1:
NTS
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AN D
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U P P
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E DI C
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 MEDICAL SUPPLIES
 What are medical supplies?
Medical supplies means medical or surgical
items that are consumable, expendable,
disposable or non-durable and that are used for
the treatment or diagnosis of a patient's
specific illness, injury, or condition.
Medical supplies means items for medical use
that are suitable for use in a health care facility
or in the home and that are disposable or semi-
disposable and are non-reusable.
14
 Medical supplies…………
Medical supplies means health care related
items that are disposable or cannot withstand
repeated use by more than one individual and
are required to address an individual’s medical
disability, illness, or injury.
Examples of medical supplies include diapers,
syringes, gauze bandages, and tubing. Some
medical supplies may also be used on a
repeated, limited duration basis.

15
 Medical equipment: Medical devices requiring calibration, maintenance,
repair, user training, and decommissioning – activities usually managed
by clinical engineers.
 Medical equipment is used for the specific purposes of diagnosis and
treatment of disease or rehabilitation following disease or injury; it can be
used either alone or in combination with any accessory, consumable, or
other piece of medical equipment.
 Medical equipment excludes implantable, disposable or single-use
medical devices.
 Therefore, according to the above definitions medical equipment are
subset of medical devices which in turn are type of health technology in
the larger context of health care technology
 Laboratory Reagents
 Reagent
 any chemical substance used to dissolve, digest, extract,
react with or otherwise interact with any samples or
analytical component of the sample.
 A substance used for the detection or determination of
another substance by chemical or microscopical means,
usually in solution.

 A substance used to produce a chemical reaction so as

to detect, measure or examine another substance, or to
transform it by causing a reaction.

 A substance or compound that is added to a system in

order to bring a chemical reaction or is added to see if a
reaction occurs.
 Kit: a set of components used to perform
Laboratory test.

17
 Reagents……..
• A reagent is an integral part of any chemical
reaction.
• A reagent is a substance or compound that
can facilitate a reaction, and they are used in
most widely used tests.
• This includes, for example, pregnancy tests,
blood glucose tests, and most COVID-19 test
kits.

18
 Reagents……..
• Reagents used in diagnostic and research
testing assays are the most fundamental and
critical components necessary for a medical
Laboratory to function efficiently.
• Laboratory reagents used in this context shall
include the kits, stains, dyes, culture media,
chemicals, biochemical, QC materials that in
combination with a sample work together to
generate accurate, precise, and reliable test
results.
19
 TYPES OF REAGENTS
1: General Purpose Reagents (GPR)
Chemical reagent that has
general laboratory application.
• used to collect, prepare and
examine specimen from the
human body for diagnostic
purposes
2) Analyte Specific Reagents (ASRs)
Antibodies with specific receptor proteins,
ligands, nucleic acid sequences, enzymes and
similar reagents, which, through specific binding or
chemical reaction with substances in a specimen.
use in diagnostic application for identification
and quantification of an individual chemical
substance or ligand in biological specimen. 20
 Types of Reagents……
• Various kinds of reagents are employed for various
chemical reactions which lead to various products. These
reagents are normally used in chemical and biological lab
experiments. they are available in the form of organic or
perhaps inorganic compounds consisting of 2 or more
elements with defined chemical compositions.
• Reagents used in diagnostic and research testing assays are
the most fundamental and critical components necessary
for a medical Laboratory to function efficiently. Laboratory
reagents used in this context shall include the kits, stains,
dyes, culture media, chemicals, biochemical, QC materials
that in combination with a sample work together to
generate accurate, precise, and reliable test results.
21
 Types of Reagents……
 Types of reagents which are used in medical laboratories:
 Chemical Reagents: are used extensively in several fields’ health facilities,
life science laboratories, biotechnology along with other existing areas in
research. These types of reagents play crucial roles in composition
investigation for technological progress as well as in quantitative and
qualitative examination.
 Biological Reagents: reagents such as staining elements are often used in the
fields of medicine as well as biology to assist in visualizing structures like
those being used in microscopic studies. A good example is evaluating
sputum specimen carried out in tuberculosis laboratories. Diverse stains and
also dyes react and are also advantageous in marking cells in flow cytometry
along with other procedures including electrophoresis.
 Analytic Reagents: These are also referred to as diagnostic reagents used in
many fields in microbiology, electrochemistry and microscopy. Common
analytic reagents include high purity acids and also bases along with other
chemical compositions for ultra-trace analysis.
 General Reagents: includes hydrochloric, methanoic, boric, and sulphuric
acids. 22
 What is the purpose of a reagent?
• Reagents are commonly used to test for the presence of
certain substances, as the binding of reagents to the
substance or other related substances triggers certain
reactions. While sometimes used interchangeably with the
term “reactant”, reagents and reactants are quite different
• Reagents, such as the ones mentioned above, are commonly
used in laboratory or field settings to detect the presence of
a range of substances.
• For example, one of the widespread uses of reagents in
everyday life is to test for illegal drugs. While most kits, such
as those used to test for common drugs, are easy to use and
involve noticing whether there is a color change, other kits
are more complicated and require laboratory equipment,
such as chromatography. 23
• Reagents/Kits Receipt : All reagents purchased from a
commercial vendor and received in the Laboratory shall be
marked with the following information;
 Date of receipt.
 Date open.
 Initials of receiving staff.
 Expiration date.
• All reagents prepared by laboratory shall be labeled to
indicate the following unique identifiers:
 Name of reagents.
 Date of preparation.
 Content of the reagent.
 Strength or concentration.
 Storage conditions.
 Expiration date. 24
 CHAPTER - 2

YCLE
CS C
I STI
LOG
THE
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26
 What is Logistics Cycle ?
 The logistics cycle should be viewed as a complete list
of activities from procurement of goods or materials to
their final delivery to customers.
 The aim of logistics mgt is to ensure supply to the
customer the:
 Right product
 Right cost
 Right quantity
 Right quality/condition /
 Right place
 Right time

 The following main activities form a logistics cycle.

27
Process of Drug Supply Management

28
Components of the Pharmaceutical Management Cycle

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29
08/12/2024 Drug Supply Management 30
• The pharmaceutical management cycle operates
within and is affected by a political, legal, and
regulatory framework.
National Drug Policy
 provides a framework within which the activities of
the pharmaceutical sector can be coordinated.

31
• The objectives of NDP are to ensure:
Access: equitable availability and affordability
of essential drugs

Quality: the quality, safety and efficacy of all

medicines

Rational use: the promotion of therapeutically

sound and cost-effective use of drugs by health
professionals and consumers.
32
• Pharmaceutical legislation is mostly concerned with
ensuring that effective and safe drugs of good quality
are made available, and that correct information is
provided about them.

• The drug regulatory authority (DRA) is the agency

that develops and implements most of the legislation
and regulations on pharmaceuticals.

33
Ensuring effective and safe drugs of good
quality are made available by making certain
that
the manufacture
procurement
Import/export
Distribution
product promotion and advertising
clinical trials
are carried out according to specified standards.

34
Core elements of drug regulation

35
Key policy issues on selection are:
the adoption of the essential drugs concept
to identify priorities for gov’t involvement in the
pharmaceutical sector
procedures to define and update the national
list(s) of essential drugs;

selection mechanisms for traditional and

herbal medicines.

36
Key policy issues on affordability are:
• Gov’t commitment to ensuring access through increased
affordability;
– for all drugs: reduction of drug taxes, tariffs and
distribution margins; pricing policy

– for multi-source products: promotion of competition

through generic policies, generic substitution and
good procurement practices;

– for single-source products: price negotiations,

competition through therapeutic substitution
37
Key policy issues in RDU are:
 dev’t of evidence-based clinical guidelines, as
the basis for
training, prescribing, drug utilization & supply and
drug reimbursement

 establishment and support of drugs and

therapeutics committees

promotion of the concepts of essential drugs,

rational drug use and generic prescribing in basic
and in-service training of health professionals

38
 Pull and Push systems
In pharmaceutical management, distribution schemes for
medicines can be defined as ‘‘push’’ or ‘‘pull’’ systems
depending on which levels of the system order medicines and
which, if any, passively receive medicines from higher levels.
In a pull system, each level of the system determines the types
and quantities of medicines needed and place orders with the
supply source. Staff at health facilities work out demand
estimates and submit requisition to central stores.
In a push system, supply sources determine the types and
quantities of medicines to be delivered to lower levels. Supplies
are delivered according to a delivery plan made at the beginning
of a period. Health facilities are expected to provide stock and
consumption information to the supply source to assist planning.
This is also known as an allocation or ration system. The kit
system is atypical example of a push system . 39
 Push system (allocation/ration system)
• Supply sources at some level determine what
type and quantities of drugs will be delivered
to the lower levels.
• Conditions:
– Lower staff-not competent
– Demand greatly exceeds supply (ration necessary)
– Limited number of products are being handled
– Disaster relief is needed

08/12/2024 Drug Supply Management 40

 Pull system (independent demand/ requisition system)
• Each level of the system determines what types and
quantities are needed and place orders with the
supply source.
• Conditions:
– Lower level staff-competent
– Sufficient supply is available
– Large range of products are managed
– There is regular supervision and performance monitoring
In a requisition system, the person who receives the supplies
• In a requisition system, the person who receives the supplies
calculates the quantities of supplies required.
Incalculates the quantities
an allocation of supplies
system, the person who required.
issues the supplies
• In an allocation
calculates system,
the quantities ofthe personrequired.
supplies who issues the supplies
calculates the quantitiesDrugofSupply
08/12/2024
supplies
Management
required. 41
Process of drug supply management
 Definition
is a process of deciding the type of needed drugs
and medical supplies.

Why selection?
 Why Selection

Most of the drugs available in the world market

are duplicative or non-essential
Many are minor variations of the prototype drug
and offer no that d/t therapeutic advantage over
the other drugs that are already available
Reduces stock and inventory holding costs
Minimizes prescribing and dispensing confusions
Contribute to consistent prescribing pattern
 Drugs are released into the market without
sufficient information on safety and efficacy
Difficult to update prescribers
• Drug selection can lead to:
– Better supply
– More rational prescribing and dispensing
– Lower cost
– More rational patient use

• So careful selection of drugs has:

– Cost implications
– Clinical implications

08/12/2024 Drug Supply Management 45

Selection Criteria
 Basic steps in drug selection
Establish Drug Selection Committee
Determine the prevalent health problems and patient characteristics
Decide which health problems may be treated at the level of drug
selection
Choose the drugs to be used for the health problems
Select drugs that have adequate and sound information
Select drugs that are domains of the national drug list
Select drugs using their generic name (more informative, often
cheaper, facilitate product substitution)
Consider cost
Structure the list (level of importance, pharmaco-therapeutically or alphabetically)
Introducing the list of drugs to health professionals of institution
and other concerned bodies
Updating the list of drugs
08/12/2024 Drug Supply Management 47
 In Summary drug selection :

Easier procurement, distribution, storage, and stock

control
Lower stock and inventory holding costs
Helps provide focused training, education and
information
More experience with fewer drugs
Brings changes or improves prescribing, dispensing
and use behavior
Reduces confusion
Improve drug availability
No irrational treatment alternatives available
 Quantification of pharmaceuticals

• WHAT IS QUANTIFICATION?

49
 Quantification……..
• Quantification is the process of estimating the
quantities and costs of the products required for
a specific health program (or service) and
determining when the products should be
delivered to ensure an uninterrupted supply for
the program.
• Quantification takes into account the expected
demand for commodities, unit costs, existing
stocks, stock already on order, expiries, lead
time, minimum and maximum stock levels, and
shipping/transportation costs. 50
In short
• Quantification is the process of determining the
amount of drug products needed for the purpose of
procurement.
• Appropriate drug quantification can avoid:
– Shortage of (out of stock) drugs as well as
– Overstock of drugs.
• Poor quantification problems
Frequent shortage of drugs
Excess stock due to overestimation
Irrational and ineffective prescribing
 Prescribers shorten treatments to stretch the inefficient
supply (in extreme cases to the point of ineffectiveness)
 Substitute with inappropriate alternative drugs
08/12/2024 Drug Supply Management 51
Indicators of poor quantification:
Shortage of drugs

Overstocking of drugs

Irrational prescribing

Inefficient budget use

Suppression or distortion of demand

08/12/2024 Drug Supply Management 52
Quantification methods and steps
Consumption method
Morbidity method
Combination of consumption and Morbidity
Population based method
There is no single method best available
Each method has its own adv. and disadv.
The method used should be choosen according to:
• the purpose for which the results are to be used
• actual and potential availability of data
• the organization of the drug supply system
54
 Quantification methods and steps…………..
1. Consumption Method
Applicable when:
 Accurate consumption data are available or easily obtainable
 Drug supply at facility has been consistent (each drug should
not be out of stock for more than 3 months)
 Stock management is reasonably good
 Wastage and loss through expiry, damage and theft are not
excessive
Sources of information are:
 Stock records
 Distribution records
 Suppliers invoices
 Dispensing records
 Quantifications methods and steps………….
Steps of quantification using Consumption method


Step 1 Prepare list of drugs to be quantified

Step 2 Determine the period of time to be reviewed, simplest and
practical one is 12 months
Ensures the morbidity variations of all seasons
Improves the reliability of the data

Step 3 Enter consumption data for each drug and determine:
the total quantity used during the review period,
the total days for which the drug was out of stock
the lead time for the past procurement
 Quantification methods and steps……….
 Step 4 Calculate the consumption of drugs required: the consumption
can be obtained from:
 Patient registration book-more reliable to give the actual consumption
 Stock record card: Recorded consumption=Opening stock +Received-
closing stock
Step 5 calculate the average monthly consumption , the formula is
 CA=CT ÷[RM-(Dos ÷30.5)]
Step 6 adjust consumption for stock outs, if necessary
Step7 adjust for avoidable wastage and losses
Step 8 add allowance for expected changes in consumption pattern .
step 9 Calculate the safety stock.
SS=CA x LT
 Step 10 Calculate the quantity of each drug required in the next
procurement period
QO= CA x (LT+PP) +SS-(SI+SO).
Step 11 convert into order pack
Step 12 estimate costs for each drug and then the total cost
Step13 reconcile total costs with budget and make adjustments
 Consumption based calculations.
 Adjusted average monthly consumption(preferred)

CA=CT÷[RM-(Dos÷30.5)]
 Adjusted average monthly consumption ( alternative)

CA=CT÷(RM-Mos)
 Basic safety stock requirements

SS=CAxLT
 Quantity to order = CAx(LT+PP)+SS-(Si+So)
 Abbreviations
• CA= average monthly consumption, adjusted for
stock outs.
• CT=Total consumption during review period in
basic units.
• Dos=Number of days an item was out of stock
during the review period.
• LT= Average lead time( for projected supplier case)
in months
• Mos =Estimated number of months an item was
out of stock during the review period
• PP=Procurement period(number of months to be
covered by order)
 Abbreviations…
• Qo= quantity to order in basic units, before
adjustment for losses or program change.
• RM= review period in months (number of
months of data reviewed for forecasting)
• Si= Stock now inventory, in basic units
• So= Stock now on order , in basic units
• SS= Quantity needed for safety stock.
 Quantification methods and steps……..
 Advantages of Consumption Method
Does not require detailed morbidity data or standard treatment
protocol
Requires less detailed calculations
Useful for facilities like hospitals where health problems are
numerous and drug treatments complex
Identifies stock management problems and encourages
improvements
Reliable if consumption is well-recorded and stable
The disadvantages of this method are:-
does not encourage good morbidity recording
unreliable if there have been long stock-outs (over 3 months)
and high drug wastage or losses
does not provide a detailed and systematic basis for
reviewing drug use and improving prescribing
may be difficult to obtain reliable drug consumption data
especially in new or rapidly changing services
 Quantification methods and steps……….

Morbidity method
Morbidity method is more appropriate when:
Available consumption data are incomplete or unreliable
Prescribing patterns are not cost effective
The budget is unlikely to be sufficient to meet estimated
requirements
The health facility or services concerned are expanding
rapidly

Quality and reliability of morbidity data are very important. If data are
incomplete, then the drug estimate may be dangerously inadequate or
inappropriate.
 Quantification methods and steps……….
Morbidity method ……
Steps in quantification using morbidity method

1.Specify the list of problems

2.Establish the list of medicines to be quantified
3.Establish standard or average treatments
–QE = DCUXNDXLD
–Where
•QE = Quantity needed for each tt episode
•Tt episode= a pt contact for which a std course of drug tt is
required
•DCU=basic unit per dose
•ND=Number of doses per day
•LD=length of treatment per episode
4)Collect morbidity data for each health problems treated
•Sources of information for Morbidity data
•Health Information system
–morbidity pattern and treatment episode
–Information is not usually available
•Special study in Sentinel facilities
–Retrospective review of records in selected facilities
•accessible, complete and accurate
–Prospective study in a sample of health facilities
•Key issues in conducting studies
–Obtain No. of contacts and No. of treatment episodes
–Include only pt contacts that normally needs drug tt
•E.g. exclude well baby clinic
Express the frequency of each health problem in terms of
common denominator, such as 1000 inpatients or
outpatient visits
–Separate frequencies must be developed for all age
group specified in a STG
–If discrete type of prescribers (Doctors Vs Nurses) use
different treatment regimen, the number of episodes
must be compiled separately for each prescriber type
Morbidity method- additional tip
Always make adjustment for different reasons

Total number of patients

Children (%)

First line regimen (%)

Alternative Regimen (%)

Adult (%)

First line regimen (%)

Alternative regimen (%)

08/12/2024 Drug Supply Management 66

5)Calculate the No. of tt episodes for each health problem
–ET=CE X F
–Where ET = number of treatment episodes
–EC = expected total number of contacts
–F = the frequency of health problem estimated per 1000
contacts
6)Estimate the quantity of dugs needed for each health
problem
–QT=ET X QE X PT
•QT=quantity of drugs needed
•ET= number of treatment episodes
•QE=quantity of drugs for each treatment episode, BU
•PT=percentage of cases that are treated with that specific
regimen
7)Combine the estimates for each drug from the various health
problems into a master procurement list
8)Adjust quantities to cover other health problems, for filling the
pipeline and current stock position, and for expected losses
9)Estimate costs for each drug and total costs
10)Compare total costs with budget and make adjustment
•Example
•Estimate the total quantity of medicines required for the treatment
of Otitis Media based on the following information.
–Last total No. of contacts (C)= 3,123,408
–5% expected rate of increase
–Frequency of Otitis Media (per thousand) = (106 for <5, 29 for >5)
–Treatment for Otitis Media
•Under 5
–Amoxicillin suspension 250mg/5ml 5ml TID for 10 days
–Paracetamol sol/n of 120mg/5ml, 1.5ml QID for 10 days
–Pseudoephedrine syrup 2.5ml QID for 5 days
•Above 5
–Amoxicillin 250 mg tab TID for 10 days
–Paracetamol 500 mg tab, 2 tab QID for 5 days
–Pseudoephedrine 60 mg tab QID for 5 days
 All patients of Otitis Media are expected to be treated
by Amoxicillin and paracetamol, whereas 80% of
patients also treated with Pseudoephedrine
Solution
•QE = DCUXNDXLD
Under 5
•Amoxicillin suspension
–5ml x 3 x 10=150 ml
•Paracetamol 120mg/5ml
–1.5ml x 4 x 10=60 ml
•Pseudoephedrine syrup
–2.5ml x 4 x 5= 50 ml
Above 5
• Amoxicillin 250 mg
–1 tab x 3 x 10 =30 tab
•Paracetamol 500 mg tab
–2 tab x 4 x 5 =40 tab
•Pseudoephedrine 60 mg tab
–1 x 4 x 5= 20 tab
•CE= C+(C x AU)
–3,123,408 + (3,123,408 x 5/100))
–3,279,578
•ET=CE X F
–3,279,578 x 106/1000= 347, 635
–3,279,578 x 29/1000= 95,108
•QT=QE X ET X PT
Under 5
•Amoxicillin suspension
–150 ml x 347, 635 x 1
–52,145,250
•Paracetamol 120mg/5ml
–60 ml x 347, 635 x 1
–20,858,119
•Pseudoephedrine syrup
–50 ml x 347, 635 x 0.8
–13,905,412
 Morbidity method summary
Step 1 Prepare Average Standard Treatment Schedule
The name of the health problem and code number of the diagnosis
The patient’s age and sex
The generic name, strength and dosage form each drug used to
treat the disease
The average dose, number of doses/day and duration of treatment
The total average quantity of each drug used for a standard course of
treatment
Step 2 Estimate the number of treatment episodes for each health problem.
Obtaining the total number of patient contacts by diagnosis:
 Breakdown the number of patient contacts, within health problems,
by age, sex and severity
 Determine the proportion of contacts for which standard treatments
are required.
Step 3 Calculate the total quantity of each drug required
 When a drug is indicated for more than one standard
treatment , add the quantities required for each treatment
to obtain the total quantity of the drug.
 The quantity can be converted into the required number of
order packs/pack size.
Step 4 Estimate the cost of the drug quantities required
Step 5 Prepare annual budget
Step 6 Reconcile drug quantities with budget
Advantages of morbidity
 Does not require drug consumption data
 Useable for new services
 Provides a systematic basis for reviewing drug use and
prescribing
 Motivate reliable morbidity recording

Disadvantages of morbidity
 It requires detailed morbidity data and agreed standard
treatment schedule which are usually difficult to present
 Requires more detailed calculations
 Supply will not match use if standard treatments are not
observed/followed
Summary : Quantification by Consumption & Morbidity Methods

1 Consumption method 2. Morbidity Method

 Appropriate when the health facility
is adequately funded This method is appropriate:
 has acceptable prescribing pattern When available data are
incomplete or unreliable
 has adequate and uninterruptible drug
supply When prescribing practices are
expensive and irrational
 Has good stock management
When the budget is unlikely to
 Complete and accurate consumption be sufficient to meet requirements
data and stock out information
When the facility is new or
 Has low level of wastage and losses expanding
Summary of formulas of quantification
• Months of supply on hand=stock on hand ÷ average
monthly consumption
• Order quantity=maximum stock- (stock on
hand+quantity on order).
• Maximum stock quantity=average monthly
consumption x maximum number of months of
stock to be kept.
• Minimum stock level=Lead time stock level+safety
stock level
Proxy/adjusted consumption method
•Uses known consumption data from one system
“standard” to estimate the drug needs in a similar or
expanded system “target”
–Population based, defining drug use per 1000 population
–Service based, defining drug use per specified patient
case/inpatient admission
 Steps in quantification using proxy consumption method
Step 1: Select the standard system for comparison and
extrapolation.
–The standard and the target should resemble in terms of
–Geography, climate, morbidity pattern
–prescribing practice, drug supply status
–The standard should have an adequate and uninterrupted
drug supply, fairly rational prescribing practice, complete
and accurate records of patient contact and inventory
movement
Step 2 Develop the drug list
Step 3 Establish the time period to be covered in the review
Step 4 Review records from standard system to compile
contact or population data
Step 5 Establish denominator for extrapolation
–E.g consumption either be thousands of pt contact or
inhabitants in the region
Step 6 Determine consumption rate in the standard
system
–the adjusted annual consumption divided by either no.
of thousands of contact or inhabitants
Step 7 Extrapolate the standard system’s consumption
rate (SCR) to the target system
–SCR (for each drug) X estimated no. of contacts or
inhabitants for the target facility
Step 8 Adjust for expected losses
Step 9 Estimate costs for each drug and total costs and
make adjustment against the available budget
Example
•Estimate Ampicilline 250mg required from the
standard to the target system based on the
following information
•Standard system consumption
–50,000 inhabitants
–32,500 outpatient
–6 month total consumption: 89,000 capsule
–Out of stock: 34 days
•Target
–80,000 inhabitants
–Unknown outpatient
Step 1: Standard- X
•Step 2: Ampicilline 250mg caps
•Step 3: 6 month
•Step 4: Per thousand inhabitants or per thousand
outpatients
•Step 5: SCR
–SCR= adjusted annual consumption
no. of thousands of contact or inhabitants
= (218,617/50,000 inhabitants) x 1000= 4,372 per
thousand
Or
= (218,617/32,000 out patients) x 1000= 6,727 per
thousand
Step 6 : Projected requirement
–Extrapolate SCR to the target system
–SCR X estimated no. of contacts or inhabitants
for the target facility
–4,372 per thousand x 80,000 inhabitants
– 349,788 caps ~ 350 pack
–1 Pack= 24.7
–Value of proposed order = 8,645USD
Service level projection of budget requirements

•Information needed
–Average number of curative outpatient attendance, non
curative attendance and patient bed days for each
type of facility in the source health system
–The average cost per outpatient attendance, per non
curative attendance and per bed-day in each type of
facility
Steps in quantification
1)Establish the categories of facilities and determine the
number in each category (standard)
2)Determine the patient contact denominator for each type of
facility and compile or estimate the average number of
patients contacts of each type at each category of facility
3)Calculate the average cost per contact:
–The total drug purchases for the facility or facilities in class
divided by the attendances or bed-days

4)Calculate the total projected drug costs

 Summary of Quantification Methods
Methods Uses Essential Data Limitations
Consumption First choice for procurement Reliable inventory records, Must have accurate
and future consumption Records of supplier lead time, consumption data can
forecasts, given reliable data Projected drug costs perpetuate irrational use

Morbidity Estimating need in new Data on population and patient Morbidity data not
programs or disaster assistance, attendance; Actual or projected available for a diseases;
Comparing use with theoretical incidence of health problems; Standard treatments may
needs, Developing and Standard treatment; Projected not really be used
justifying budgets drug costs

Adjusted Procurement forecasting when Comparison area or system with Questionable comparability
consumption other methods unreliable; good per capita on consumption, of patient population
comparing use with other patient attendance, service levels morbidity and treatment
supply system and morbidity; Number of local rate
health facilities by category;
Estimation of local user
population broken down by age

Service Level Estimating budget needs Utilization by service levels and Variable facility attendance
projection of facility type; Average drug cost treatment pattern supply
budget per attendance system efficiency
requirements
Budget reconciliation

87
 Methods of reconciliation of demand with
budget
a. VEN analysis
• It is an approach in which drugs are divided
according to their health impact in to:
– Vital,
– Essential and
– Non-essential/Less Essential-use categories

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 – V (Vital drugs):
• Potentially lifesaving
• have significant withdrawal effect
• Crucial to providing basic health services
– E (Essential drugs):
• Effective against less severe but nevertheless significant
forms of illness
• Not absolutely vital to providing basic health services
– N (Nonessential drugs):
• Used for minor or self-limiting illnesses

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• Steps in conducting VEN analysis:
– Classify all drugs on the list as V, E, or N

– Analyze N items. Where possible, reduce

quantities to purchase or eliminate purchases
entirely.

– Identify and limit therapeutic duplications, if any

– Reconsider proposed purchased quantities

– Find additional funds if needed or possible

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b. ABC analysis
• ABC analysis is the method for determining
and comparing drug cost.

• It identifies three useful tiers for analysis:

– Class A items: highest annual usage ( high volume
or high cost)
• Usually accounts for 10-20 percent of items ordered
and 70 to 80 percent of funds.

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 – Class B items: moderate annual usage
• Accounts 10 to 20 percent of items ordered and 15 to
20 percent of funds.

– Class C items: Lowest annual usage

• Accounts for 60-80 percent of items ordered and 5-10
percent of funds.

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• Steps to perform ABC analysis:
– List all items purchased or consumed and enter
the unit cost

– Enter consumption quantities over a defined

period of time

– Calculate the value of consumption (utilize

acquisition cost)

– Calculate the percentage of total value

represented by each item.
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 – Rearrange the list. Rank items with descending
order by total value, staring at the top with the
highest value.

– Calculate the cumulative percentage of the total

value for each item

– Choose cutoff points or boundaries for A, B, and C

drugs

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C. Therapeutic category analysis
• Its applications are the same as those of ABC
analysis.
• The focus is on cost-control efforts on the
therapeutic categories that show the highest
consumption and greatest expenditures.
• In this approach, therapeutic categories
having the consecutive highest expenditures
will be looked for possible interventions.

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 Example 1: The following table shows stock movement of doxycycline
100mg tablet as obtained from a bin card and stock out recording form
in health center “X” for one year (consumption is in tablet).
Date Received from Issued/consumed Balance
supplier
1 Sep - - 5000 (opening stock)
5 Sep - 4000 1000
25 Oct 5000 - 6000
15 Nov - 2000 4000
20 Dec - 2000 2000
15 Jan 1000 1000
28 Jan - 1000 0
By 10th February the drug was totally out of stock in the health center
10 March 6000 2000 4000
28 April - 1000 3000
4 June - 2000 1000
10 July 3000 - 4000
15 July - 2000 2000

30 Aug - - 2000
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Example 2:
Drug “X” is available in tablet formulation of 500mg strength.
It is used for the treatment of three diseases (A, B and C).
The average amount of the drug needed per course of
treatment was 20 tablets for disease “A”, 20 tablets for
disease “B” and 10 tablets for disease “C” (assume the
average treatment schedule is the same for all group of
patients).
The total number of treatment episodes (number of cases
who need drug treatment) per year in a given hospital were
500 (disease “A”), 2000 (disease “B”) and 1000 (disease “C”).
If one box contains 100 strips of 10 tablets, calculate:
– The total quantity of the drug needed in box unit (consider 5%
allowance).

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 Chapter 3

PROCUREMENT

98