The pharmaceutical industry is growing at an unprecedented pace, and supply chains have become more intricate and globally dispersed in the last decade. As a result, pharmaceutical manufacturers are increasingly reliant on external suppliers, exposing them to a wide range of supply chain risks. Initially, the risks were limited to quality or compliance level, but now, with the ever-changing geo-political landscape, the risks have grown multifold, including trade restrictions, tariff wars, and global disruptions.
The absence of a robust sourcing network can risk business continuity, and the major pharmaceutical companies cannot afford that. Hence, risk management for the supply chain has become one of the top priorities in the pharmaceutical industry. Even regulatory agencies have started focusing on the firm’s supply chain processes, emphasizing the need for stringent supplier oversight and higher quality standards. In this article, we will explore how to identify the right suppliers, mitigate risks, and build a strong and sustainable supply chain with them.
API Market Summary
According to the Grand View Research report, the global active pharmaceutical ingredients (API) market size was around $255 billion in 2024 and is projected to grow at a CAGR of 5.85% in the coming five years. This booming growth can be attributed to the growing global demand, especially in emerging markets, along with the treatment of chronic diseases like cardiovascular conditions, cancer, and diabetes. Research and development are taking center stage, resulting in the development of innovative drug formulations. The advancements in biosimilars and biologics, along with the shift towards general medicines, have given a shot in the arm to contract manufacturing organizations who, in turn, are helping API production and distribution flourish.
Overall Cycle
Establishing a strong supplier management network is a challenging task, and maintaining the network in a risk-free manner is all the more challenging. Pharma companies are increasingly looking for reliable suppliers of materials and services that fulfill their compliance and quality needs and also ensure a risk-free supply. In order to develop the strong supply chain, we need to first understand its four main phases:
- Selection Phase
- Qualification Phase
- Operational Phase
- Termination Phase
In this article, we will review each of the phases to understand the minute details and provide an exhaustive guide to choosing the right suppliers.
The Selection Phase
The very first step that needs to be done right at the start of sourcing is defining the product or service that is needed. Many times companies falter at this foundational step, resulting in chaos seeping through all the rest of the stages. Enough time and resources should be spent on listing down the exact requirements, which can include specific pointers related to quality, approvals, quantity, logistics network, and more. The more detailed the requirement document, the easier it gets for all the stakeholders in the supply chain to cater to the requirement.
The next step involves the procurement or the sourcing department. Based on the API requirement document, the team starts seeking out the right vendors based on their existing database or developing new networks. Standard documentation packages are requested from these vendors against the requirement. Along with the technical scope, the packages also ask for commercial details, including price, minimum order quantity, payment terms, taxation, and more. An ideal sourcing checklist should cover the following:
- Supplier capacity and capability
- GMP compliance, quality systems, performance track record
- Supply chain structure
- Subcontracting/outsourcing plans
- Logistics and transportation capabilities
- Financial health of the supplier
- Sustainability and EHS compliances
Please note that the points mentioned above are not exhaustive and will vary based on the product or the sourcing requirement. Once all the data is sourced, the procurement and technical teams conduct thorough scrutiny. This exercise should aim to increase confidence in the chosen supplier, identify any potential risks, develop a mitigation plan, and add any particular clauses or requirements if deemed fit. An essential aspect of the scrutiny is also an on-site visit to get a first-hand account of the supplier.
The Qualification Phase
One should always bear in mind that proper API sourcing is a combination of the right product and the right supplier. A supplier always needs to be selected by checking its capabilities vis-à-vis the product or supply it is providing. There can be cases when the supplier may not be the actual manufacturer; hence, further detailing of the manufacturing process and the supplier’s inward sourcing should also be considered. The qualification process should cover the initial assessment of material or service to evaluate the quality and the impact on API production. The supplier facility should be evaluated to assess whether the supplier can consistently supply the product with the right quality standards.
The criticality of the material being sourced will play a significant role in the qualification process. If the material is highly critical, then proper analytical evaluation of samples must be done. Random sampling can be used for medium criticality. While for low criticality, companies can solely rely on the documentation provided. Further information can be sought through audits or a questionnaire pertaining to the capability of the workforce employed by the supplier, the accreditation of the labs, and the legal requirements of handling specific products. Once all the technical assessment is done, the company can move towards commercial contracts or agreements. This stage should include quality agreements, user requirements, and any special needs instructions. A good way to go about the entire qualification process would be to create a matrix and grade the supplier options as per that.
The Operation Phase
Based on the above steps, once the supplier is qualified, the cycle moves on to the operational phase. Here, it is imperative to set up a Supplier Monitoring Program that ensures that the supplier continues to supply the product or service at a qualified level. Re-valuation of the supplier risks based on performance and validating the supplier side documentation through audits should be done on a periodic basis. Again, the criticality of the product or service will decide at what frequency it should be done. At the same time, specific events such as user-end complaints, quality deviations, or audit assessments should warrant an immediate review.
Based on the evaluations, corrective actions should be taken, which can include increasing audit frequency and its depth, enhancing quality through inspections or on-site visits, and modifying testing methods and frequency if needed. Failure to improve the standards can result in temporary blockage of supply. However, this step should be taken after considering the dependency of the supply product, the existing stock, and the lead time of shifting to another source. For these reasons, many firms always keep a contingency supply plan which can be put into action if the need arises. At the same time, the firm can take the following steps for risk control:
- Increasing quality control by enhanced testing
- Deploying an on-site representative for continuous inspections
- Revisiting the quality agreement to make it more stringent
- Increasing the frequency of internal and third-party audits
- Maintaining strategic safety stock
- Establish alternative sources or consider back integration
The Termination Phase
As discussed above, any supplier’s qualification can be terminated for several reasons, be it a drop in quality or other risks emerging from the contract. If the termination is happening because of quality concerns, a thorough evaluation of the product in stock, in transit, or already delivered to customers must be done. If it is done for more nontechnical reasons, like logistics issues or legal hurdles, then this step may not be needed.
Once a supplier’s qualification is terminated, it is essential to maintain a database of all critical information, such as retaining samples, manufacturer documentation, and other records used during the qualification process. Ensuring proper documentation will help maintain transparency and avoid any legal or contractual risks associated with the termination of the supplier.
Conclusion
Ensuring a robust API supply chain has become imperative for pharma companies. While the supplier base has expanded significantly, this surge has also resulted in quality inconsistencies, making it crucial for firms to exercise caution. However, by deploying a stringent selection and qualification process, companies can find the reliable suppliers and establish strong and sustainable relationships with them. For companies scouting the right API supplier, PharmaLinkage can prove to be a beneficial medium as it provides an exhaustive list of manufacturing facilities spread across the world. With its variety of filters, pharma companies can search based on quality, quantity, and certificate requirements, making the entire sourcing process easy and smooth.
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