Case Study: Procurement Controls Audit for a Pharmaceutical Distributor
Benchmarking procurement prices, testing vendor relationships and redesigning purchasing controls
Executive Mandate Summary
Key Transaction & Governance Challenges
- •One purchasing manager had selected vendors, negotiated prices and placed orders for six years, creating significant concentration of procurement authority.
- •Purchases were made without a formal competitive quotation process, limiting the company's ability to establish whether prices remained competitive.
- •The business had not systematically compared purchase prices against market rates, competitor pricing or alternative supplier quotations.
- •There was no periodic framework assessing vendors on pricing, quality, delivery performance or compliance.
Northrop Execution Architecture & Methodology
Financial Impact and Governance Change
The two connected vendors were removed and the four overpriced SKUs were re-sourced. Annual procurement cost reduced by approximately Rs 78 lakh, while following-year net profit increased from Rs 1.5 crore to Rs 2.2 crore.
The engagement also shifted procurement from an individual-dependent process toward a documented, independently reviewable control framework.
Redesigning Procurement Controls
The redesigned process introduced mandatory competitive quotations above Rs 50,000, annual vendor evaluation, segregation between vendor selection, purchase ordering, goods receipt and payment approval, and quarterly benchmarking of the top 50 SKUs.
Quantifying the Procurement Impact
The redesigned process introduced mandatory competitive quotations above Rs 50,000, annual vendor evaluation, segregation between vendor selection, purchase ordering, goods receipt and payment approval, and quarterly benchmarking of the top 50 SKUs.
Testing Vendor Relationships
The four significantly overpriced vendors were physically verified. Two operated from legitimate commercial premises, while two operated from residential addresses without visible commercial activity.
Further authorised checks identified a shared bank-account joint holder between one vendor and the purchasing manager's spouse and a second vendor registered with the purchasing manager's personal mobile number.
Verifiable Institutional Outcomes & Value Realized
- The majority of high-value SKUs were priced within 2% of benchmark market pricing.
- Four SKUs were priced 12% to 18% above market rates without an evident commercial justification.
- The four overpriced SKUs represented Rs 6.2 crore of annual procurement and approximately Rs 85 lakh in excess cost.
- Vendor verification identified two vendors with indicators of a relationship with the purchasing manager.
Pratham Sharma
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