Pharma: Outsourcing

only five companies impressed enough to be shortlisted. Having identified the best custom synthesis partners, PPS is working with these companies to help meet its supply requirements for advanced intermediates. The second strategy proposed

by the risk mitigation team was to ensure PPS has at least one alternate vendor in India for each intermediate, thereby enabling it to access essential ingredients in the event of disruption in China. In executing that strategy, PPS developed in-house technology and then worked with outsourcing partners. The initiative has seen PPS work with manufacturers of key starting materials with operations in India and prioritize local sourcing. PPS’s risk mitigation team also advised assessing forward and backward integration possibilities depending on the criticality of the raw material’s risk. Options included backward integration through outsourcing or the establishment of in-house manufacturing capabilities, as well as direct procurement for the forward integration stage. In assessing how to execute the strategy, PPS considered technological assistance, global sourcing, and financial support for input materials.

Other changes include the decisions to procure from manufacturers rather than traders, cover raw materials with annual contracts, carry inventory, split orders between two vendors when possible, and step up capacity planning and utilization. For formulations with an internal API, PPS also explored direct API procurement. Throughout this risk mitigation initiative, emphasis was placed on enhanced communications with customers to keep them informed and sensitized on the criticality of raw material supply and the need for alternative vendors.

Evidence of success

The risk mitigation strategy has proven successful (see “Success Stories” box). At a challenging time, PPS mitigated risks to the supply of raw materials without any impact on its business, such as major stock-out situations or manufacturing shortfalls. Thecompany continued to consistently complete more than 95% of projects on time and in full. If anything, PPS’s performance improved during the period of change. Demand rose, turnaround times for new orders fell, communication and reliability were improved, and the Customer Satisfaction Index score increased.

No filings were delayed and key products were launched successfully.

The cost advantages enjoyed historically by Chinese raw material suppliers would suggest that, while reducing dependency on China may bring some advantages, it would come at a price. Instead, PPS reduced its dependence on China while actually lowering its raw material cost base. Over the past two years, PPS has seen its raw material spend with China decrease by about 40%. As a result of the switch to domestic sources, the company achieved cost savings of about 2% while growing its business by almost 25%.

Ensuring lasting resilience

PPS is building on the early success of its risk mitigation

strategy through weekly review meetings and new additions to its team. The strengthened team is ensuring customers are kept informed of the raw material situation and working on various long-term strategic initiatives. Specific initiatives include encouraging collaborations to access cost-effective process technology, seeking government support, upgrading regulatory and quality ecosystems, and penetrating global markets.

While the risk mitigation

programme stemmed from the need to lessen reliance on China, the value of its effects on the resilience of PPS’s supply chain were reinforced by the pandemic. Having come through those challenges, PPS is now further strengthening its supply chains to ensure it has the resilience to provide timely, consistent access to affordable intermediates whatever the disruption.

References 1. EU dependence on the Chinese pharmaceuticals market. https:// www. document/E-9-2020-004734_EN.html. 2. Exploring U.S. reliance on China’s biotech and pharmaceutical products. https:// testimony/exploring-grow¬ing-us-reliance- chinas-biotech-and-pharmaceutical- products-07312019 (2019). 3. Yap, C.-W. How the U.S. ceded control of drug supplies to China. Wall Street Journal (2020).

Further information W: www. 22 March/April 2021 • Issue 2

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