In the last decades, the pharmaceutical industry has developed a well efficient global supply chain. Raw materials, active pharmaceutical ingredients (APIs), intermediates, excipients and packaging materials can be required to be transported thousands of miles to a manufacturing plant.
This model has reduced costs but it has been proven to be vulnerable in the recent disruptions. The procurement teams has had to rethink the sourcing strategies due to pandemic shutdowns, geopolitical tensions, export restrictions, freight delays and raw material shortages.
This has made near-shoring a topic of the day in pharmaceutical procurement. However, will bringing sourcing closer to manufacturing facilities really decrease risk?
The answer is yes, but only if supplier diversification program is undertaken as a broader initiative.
Why Pharma Supply Chains Are Under Pressure
The production of today's pharmaceuticals relies on a network of suppliers from multiple countries. There are APIs and pharmaceutical raw materials that are vital to many companies, and these are limited to a few regions.
This focus presents a number of problems:
- Longer lead times
- Transportation disruptions
- Regulatory uncertainties
- Supply shortages
- Price volatility
- Loss of visibility of supplier activities
If there's a disruption at a critical manufacturing site, that can have an effect throughout the supply chain. Production can be delayed, inventory can rise and manufacturers may experience difficulties in offering products to the market.
The task for procurement teams is not only to identify the cheapest supplier. This focus has shifted to developing resilient sourcing networks.
Near-Shoring: What It Entails for Pharmaceutical Sourcing
Near-shoring is the process of purchasing pharmaceutical raw materials from suppliers in geographical proximity to the manufacturing plant or to the market of the product.
For instance, a pharmaceutical or other company producing pharmaceuticals in Europe may procure only part of its raw material supply from countries in Europe, not from a longer distance away.
Near-shoring is different than reshoring in that it emphasizes minimizing geographic distance while still getting access to competitive suppliers.
The goal is straightforward: to find ways to make supply chains more reliable while not forgoing the benefits of global sourcing models.
How Near-Shoring Can Reduce Supply Chain Risk
Faster Lead Times
The biggest benefit of Nearshooring is lower transportation time.
Shorter transportation routes make it easier for manufacturers to:
- Receive materials faster
- Improve production planning
- Minimize the emergency procurement expenses
- Be able to respond more quickly to market demand
As lead times become more predictable, inventory management is easier and procurement teams are more flexible.
Better Supply Chain Visibility
It can be easier to communicate with and control suppliers who are closer to production facilities.
Procurement teams can:
- Conduct supplier audits more efficiently
- Verify manufacturing capabilities
- Monitor quality systems
- Strengthen supplier relationships
Enhancing visibility allows businesses to detect issues early on before they become significant disruptions.
Avoid Being Overly Exposed to Geopolitical Risks
International Supply Chains are once again at risk due to escalation of trade disputes, export restrictions, sanctions and conflicts in the region.
Near-shoring helps to minimize reliance on remote sourcing areas and mitigate exposure to these external risk factors.
Risk cannot be completely avoided with any of the sourcing models, but geographic diversification does offer an extra layer of protection.
Improved Regulatory Compliance
Pharmaceutical sourcing is based on the compliance to quality and regulatory standards.
Collaborating with local pharma raw material suppliers could be easier:
- Quality audits
- Documentation reviews
- Supplier qualification processes
- Regulatory inspections
This can aid manufacturers in having more robust quality assurance measures in the supply chain.
What are the Products that can be Near Shored as a Pharma Raw Material List?
Not all products are suitable for near-shoring. Sourcing depends on availability, manufacturing complexity and capacity of suppliers.
In general, the following types are more readily available locally:
|
Pharma Raw Material Category
|
Near-Shoring Potential
|
|
Excipients
|
High
|
|
Solvents
|
High
|
|
Packaging Materials
|
Very High
|
|
Industrial Chemicals
|
High
|
|
Pharmaceutical Intermediates
|
Medium
|
|
APIs
|
Medium
|
|
Specialty Ingredients
|
Low to Medium
|
Several pharmaceutical companies take an intermediate strategy: they buy specialized APIs worldwide, but they near-shor the components that are not specialized.
This enables them to strike a balance between cost, quality and supply chain resilience.
Challenges of Near-Shoring Pharma Raw Materials
While the near-shore option has benefits, it is not always the right choice.
Higher Procurement Costs
Regional suppliers may cost more than the traditional sourcing areas because of manufacturing costs and the cost of labor.
It's important for procurement teams to consider TCO instead of just unit pricing.
Limited Supplier Availability
A comparatively small number of companies globally produces certain APIs and specialty ingredients.
In such instances, the local sourcing may be restricted or not possible.
Capacity Constraints
There may be a lack of scale of production to support large pharmaceutical concerns at some regional suppliers.
Manufacturers need to take time to evaluate suppliers' capacity and capability before changing the sourcing strategy.
Technology Gaps
Complex pharmaceutical excipients may need specialist expertise and facilities for manufacture.
The level of production capability for complex pharmaceutical materials varies from region to region.
Creating a Balanced Supplier Strategy
The most robust pharmaceutical supply chains are not solely reliant on any particular sourcing model.
Rather, top procurement teams are pairing up:
- Provisions for rare materials from the world over.
- This will be achieved through near-shoring of critical supporting materials.
- Multiple qualified suppliers
- Continuous supplier risk assessments
- Procurement intelligence and market monitoring.
This will help to mitigate reliance on a single supplier, country or region.
Now diversification is just as crucial as cost optimization.
A verified network of pharma raw material suppliers can help them better plan for disruptions, production continuity and market dynamics with the verification of the organization.
Conclusion
Near-shoring is not a replacement of Global Sourcing. It's all about building a more resilient pharmaceutical supply chain.
Near-shoring can help to mitigate risk by shortening lead times, increasing supplier transparency, enhancing compliance monitoring and mitigating against geopolitical risk.
A combination of near-shoring with supplier diversification and procurement intelligence, however, offers the best approach. Companies with access to trusted pharma raw material suppliers and a variety of sourcing options are more likely to be ready for future disruptions and able to keep their production lines running.
