Olon calls for stronger domestic pharma sourcing

For pharmaceutical manufacturers, procurement is no longer only about finding the lowest-cost supplier. The Covid-19 pandemic, the Russia-Ukraine war and continuing geopolitical uncertainty have highlighted the need for secure and resilient sources of raw materials. At Olon, this has strengthened the focus on domestic sourcing, supplier diversification and closer collaboration with business partners.

Olon is an Italian company focused on the development and manufacturing of active pharmaceutical ingredients (APIs), with capabilities spanning chemical synthesis, microbial biomanufacturing and highly potent APIs. The company operates manufacturing facilities across Europe, the US and India, along with R&D capabilities supporting its API and CDMO activities. Its Indian operations include the Mahad manufacturing site in Maharashtra, which combines fermentation and chemical synthesis capabilities. The facility produces rifamycin O and S, key raw materials for the Rifa product portfolio, and has also been expanded to support production of Rifaximin, Rifampicin and related intermediates. Olon has also invested in a high-containment production line at Mahad for handling potent substances and supporting CDMO and proprietary product requirements.

According to Sheshagiri Koppal, Deputy General Manager – Direct Procurement, Olon, who oversees direct procurement for Olon’s India operations and supports other global sites with sourcing requirements from India, the company’s procurement needs include advanced intermediates, specialty chemicals, solvents and packaging materials. He says the expansion of manufacturing is increasing not only the volume of materials required but also the need for new and more complex molecules.

Koppal discusses how geopolitical risks, supplier diversification, domestic sourcing, Biopharma Shakti, complex APIs, digital procurement, sustainability and logistics are changing pharma procurement.

How are geopolitical risks influencing sourcing decisions, and what indicators are becoming more important?
The Covid-19 pandemic was one of the first major supply chain risks in recent years. After the pandemic, there was some relaxation, but the Russia-Ukraine war created another major risk as energy prices increased and Europe faced significant challenges. The current Gulf War has also affected markets across the world, particularly the energy sector and products derived from petroleum, oil and crude oil.

From a sourcing perspective, the first preference should be given to domestic supply. If the required material is not available domestically, companies need to look further geographically. For high-value or critical items, a regional sourcing strategy can also be considered, with sources across Asia, China and Europe.

Price remains an important challenge, but sustainability is equally important. Companies first need to understand their spending and whether the required material is available domestically. If it is not available, they should work with domestic sources to see whether the material can be developed locally while continuing with the existing source in parallel.

As Olon expands its manufacturing footprint, how can companies prepare for the procurement risks that come with expansion?
As Olon expands globally, requirements will increase. However, the increase is not only in terms of volume. There will also be new types of materials, new intermediates and complex molecules that will be required.

Therefore, the focus should again be on developing domestic sources. Companies need to check whether intermediates, Key Starting Materials (KSMs) or specialty molecules are available in India. India is still developing in this area, although the country is gradually making progress.

When an organisation expands its footprint, it also creates new opportunities for business partners. I prefer to call them business partners or collaborators rather than suppliers because they are part of the company’s growth journey.

How do you decide when supplier diversification improves resilience and when it simply adds cost and complexity?
Supplier diversification is a complex situation because every organisation faces price pressure. Companies need to remain cost-competitive to sustain themselves in the market.

At the same time, cost needs to be balanced with long-term sustainability. Procurement can categorise materials based on value, such as Class A, Class B and Class C, and develop sourcing strategies accordingly.

The first preference should be given to an existing supplier because the supplier understands how the company works and knows its capacity and requirements. When a new material or requirement comes up, the first question should be whether the existing supplier is capable and willing to provide it. If the supplier is not interested or does not have the capability, then a new source should be developed.

If a higher-cost option is required for resilience, the procurement team should also explain the consequences of not taking that option to the relevant stakeholders. The team needs to understand that in some cases, a higher cost may be necessary.

Can initiatives such as Biopharma Shakti help India build a stronger domestic supplier ecosystem?
The government has started a very good initiative, and the thought process behind it is very positive. However, developing the ecosystem will take time.

India is still largely seen globally as a generic pharmaceutical supplier. The country needs to build its own image as a supplier of high-value products and also develop its own supplier base. India is still behind China and Europe in some areas, but the ecosystem is gradually taking shape. Such parks, initiatives and incentives can help the industry.

There also needs to be greater collaboration between the government and industry representatives. They should interact regularly to identify hurdles and work out solutions. These could include areas such as talent development and common services such as effluent treatment and analytical services. If these services are developed on a common basis, companies can share the cost instead of each company having to develop its own facilities and teams.

ADC manufacturing, or antibody-drug conjugate manufacturing, is one of the areas gaining importance internationally. ADCs combine an antibody with a drug through a chemical linker and are used to deliver potent drugs to specific cells, including cancer cells.

Many companies are entering this segment, so the government's involvement comes at an important time. However, close interaction with industry will be important because announcing an initiative is one thing, while implementing it effectively is another. Execution needs to be proper and timely so that the industry can see results faster.

As pharmaceutical manufacturing moves towards biologics, biosimilars and high-potency APIs, how is procurement changing?
India is trying to move beyond its image as a generic supplier towards high-value and non-conventional APIs and biologics APIs. This requires new and more complex materials.

For these materials, the supplier base can be limited because only a small number of suppliers may have the capability to produce complex molecules. Some of these suppliers may also have limited R&D strength.

The industry should therefore improve its R&D capabilities. Stronger R&D will not only help companies develop new products but can also help optimise the cost of existing products.

The number of products is also increasing compared with earlier years. Therefore, the industry needs to match the pace of the current market.

Which procurement decisions should not be fully automated despite advances in AI and digital platforms?
We have many digital platforms and AI tools, but these systems work based on the data that is available. They cannot consider information that is not available to them.

The way data is entered also influences the output. Procurement, however, involves human business partners and collaborators. You are not dealing only with a digital platform.

AI and digital platforms have limitations when it comes to decision-making because they make decisions based on available data. They may not be able to account for factors such as geopolitical developments, future price movements or what may happen in a particular market.

That is why human judgement remains important. Procurement involves people dealing with other people, and only human beings can understand how another person is thinking.

How should procurement teams balance sustainability, cost competitiveness and supply reliability?
Companies need to give greater importance to environmental care, employee safety and plant safety. We cannot think only about cost.

These measures first require understanding and maturity. Stakeholders need to be educated about the importance of employee safety, plant safety and environmental safety. These principles need to become part of the organisational culture.

If required, companies have to spend money on safety measures because they come at a cost. However, it is not only about spending more. There also needs to be a culture and understanding around safety and sustainability. Simply increasing expenditure without creating that culture will not deliver the desired result.

A more collaborative team and greater training for stakeholders on safety, environmental care and plant safety are therefore important.

Where can closer collaboration between procurement and logistics providers improve pharma supply chain resilience?
Logistics costs have an impact on the overall product cost, and they also affect suppliers because suppliers depend on logistics in the same way that manufacturers do.

Communication needs to improve, and logistics providers need to become more organised. Today, GPS and tracking systems are available, while electronic releases and digital invoices have also helped reduce paperwork.

Logistics providers should focus on providing real-time shipment tracking. If there is a problem with a shipment, there should be a single point of contact, either at the company or regional level, along with a clear escalation matrix.

Logistics providers should also look at how they can reduce costs and keep them stable over a longer period. Cost fluctuations ultimately affect the overall cost of the product and can also create friction between teams when there is too much communication around repeated issues.

Looking ahead five years, what will differentiate successful pharma procurement organisations?
The Covid-19 pandemic changed the importance given to supply chain and procurement functions. Earlier, procurement did not always receive the same level of attention from management. Today, management is increasingly recognising the importance of sourcing and procurement.

If you look at any product, raw materials account for a major part of the cost, and that cost component is managed by the procurement team. As a result, companies are gradually giving more importance to procurement.

At the same time, supplier relationships are equally important. Without a good relationship, it is difficult to build a long-term association. Companies need to understand each other's difficulties, and timely communication is important.

Honesty in communication and transparency in transactions help build confidence between teams. Transparency and an ethical approach can strengthen supplier relationships.

Digital tools and search platforms can also support sourcing strategies. One of the key areas of focus should be developing domestic sources.

Business owners and entrepreneurs also need to understand what the pharmaceutical industry requires and improve their capabilities accordingly. If new enterprises are required to meet those needs, they should be developed. These areas will help differentiate procurement organisations in the coming years.