Procurement teams in the pharmaceutical sector are grappling with greater challenges than ever trying to reduce expenditure and keep products supplied in a secure and compliant manner, while simultaneously ensuring product quality. However, one of the most significant problems faced by pharmaceutical sourcing is the lack of price transparency of Active Pharmaceutical Ingredients (APIs).
Many different suppliers in various regions may provide the same API at very different prices. Lacking reliable market intelligence can make it difficult for procurement professionals to know if a quoted price is fair or high. That's where API price benchmarking is essential.
Supplier intelligence, market information, and API Sourcing Database can help pharmaceutical companies make informed sourcing decisions, better negotiating strategies and building a stronger supply chain.
Unlike many commodity products, API is a product whose price is affected by many factors other than manufacturing costs.
API manufacturing may be in the country, and this can really affect the pricing. Regional differences in labor, utility, environmental, and tax rates are significant. Suppliers from countries where production costs are lower might provide better prices than those from countries with higher production costs.
APIs that are supported by regulatory submissions like Drug Master Files (DMFs), Certificates of Suitability (CEPs), or GMP certifications tend to fetch a premium price. These suppliers are very committed in compliance system, quality control, and regulatory documentation.
Large-scale manufacturers may be able to provide more competitive prices if they have large manufacturing facilities that they can leverage. Smaller manufacturers may have higher production costs and not be as accommodating during peak demand periods.
Demand, availability of raw materials, geopolitical events and supply chain disruptions are always impacting API markets. Prices can quickly escalate if there is a shortage of key intermediates or demand surges all of a sudden.
Worsen the logistics and transportation costs.Increase logistics and transportation costs.
Import costs, import taxes, shipping routes, and lead times may be a significant part of the overall procurement cost of an API. A lower quoted price does not necessarily mean that the total sourcing costs will be lower.
API price benchmarking involves triangulating the information from supplier quotes with market intelligence, historical procurement information, regulatory requirements, and supplier capabilities to achieve a reasonable and competitive purchasing price.
Supplier's quotes are not enough, procurement teams use benchmarking to know the truth about the market before getting into the negotiation process.
Benchmarking can support an organization to:
We need to determine competitive market prices.
Benchmarking is becoming a part of strategic sourcing for pharmaceutical companies in very competitive markets.
Comprehend supplier intelligence is the first step in successful negotiation. Procurement teams must take heed of a number of factors while taking the decision to buy.
Previous price information can be useful to understand the trend and supplier action. This requires looking at the quotations when the last purchase took place, to see if there are any unusual price rises, and then comparing it with the current quotation, to make sense their discussions.
Pricing should only be considered in combination with regulatory compliance. Although suppliers may charge more up front, typically those that have current DMFs, CEPs, and regulatory approvals offer more in the long run.
A supplier that charges less may add compliance risks that lead to higher costs.
Limited capacity may affect order schedules and continuity of supplies. When deciding on suppliers, procurement teams should evaluate the ability to meet demand, particularly critical APIs, consistently.
Often more value is obtained from reliable manufacturing than marginal value of price saving.
Trade intelligence can provide insights into market dynamics, pricing, volumes, and supplier performance.
Market data analysis provides buyers with greater insight into pricing benchmarks, and determine whether supplier quotations fit into the market.
Faster delivery lead times and better service quality lessen supply chain risks. As procurement professionals, you should check if suppliers are responsive, if their stock is available, and if they have business continuity plans.
One of the biggest challenges in pharmaceutical procurement is fragmented information. Supplier data, regulatory data, market intelligence, pricing insights can be distributed across various sources.
To address this issue, an API Sourcing Database can be helpful in bringing together key sourcing data in one location.
In contrast to the old-fashioned practice of searching for suppliers on several channels, procurement teams can find qualified API suppliers from around the world using a database.
This cuts the time taken to discover suppliers and makes sourcing more efficient.
A detailed list of information for each supplier can enable buyers to view several suppliers at once on the basis of their pricing, regulatory status, manufacturing capacity and location.
This facilitates supplier assessment and speeds up decision making.
Having access to the DMF information, GMP certifications, approvals and compliance documentation will help procurement teams to evaluate the supplier more effectively.
Today's sourcing platforms offer a wealth of supplier intelligence, market and procurement data which will enable buyers to set realistic price points.
Choosing a supplier on the basis of price alone should never be the sole criterion. Commercial, regulatory, and operational intelligence can be combined to create an API Sourcing Database to help with the more extensive qualification process.
A structured sourcing process is most useful in conjunction with benchmarking.
Step 1: Establish Product Specifications
Clearly define API requirements, including:
Correct specifications enable meaningful comparisons between suppliers.
Step 2: Identify Qualified Global API Suppliers
Develop a list of qualified suppliers. Look for suppliers that have a track record of manufacturing, regulatory approval, and good supply history.
A trusted API Sourcing Database can greatly simplify this process.
Step 3: Collect and Compare Quotations
Request quotations from several vendors to create a competitive market.
When comparing quotations, consider:
Step 4: Validate Prices with Market Intelligence
Compare supplier quotes with market intelligence and previous procurement information.
This can help you know if a price you have quoted is correct, or if you need to negotiate it further.
5. Develop a benchmark price range.
Use information gathered to set a reasonable price range based on market conditions.
This benchmark can be used as a valuable reference point in negotiations.
Leverage intelligence to discover negotiation opportunities. Procurement teams that engage the market with their own proposals do not get as big of a return as those that start with market data.
When the benchmarking is done, procurement professionals can concentrate on negotiating positive commercial terms.
Provide facts to back your opinion.
When you provide market intelligence, supplier comparisons, and pricing information, you will show that you are prepared and have some leverage in your negotiations.
Having more than one qualified supplier puts the procurement team in a better position in negotiations.
Competitive alternatives stimulate suppliers to provide better pricing/terms.
Not all of the lowest API price is the best price.
Take into account the following:
A total cost of ownership analysis can sometimes contribute to a more effective long-term solution.
Over time, strategic partnerships can create a lot of value.
Long-term commitment from customers is more likely to result in suppliers offering better prices, priority production, and better service.
There is a balance between saving money and quality and regulatory compliance.
Good procurement teams are more interested in sustainable value than low cost.
Many procurement organisations make avoidable mistakes and thereby hamper their sourcing efforts.
Low cost suppliers can have hidden risks of non-compliance, quality or supply reliability.
A supplier's regulatory standing is also a critical consideration, and equally as important as the price.
Without benchmarking data, negotiations start off on a weak foot, and risk overspending.
In the pharmaceutical industry, there is a need for reliable supply continuity. If there is any disruption in supply, the savings can quickly be wiped out.
Transparency, now a competitive advantage when buying pharmaceuticals. Global supply chains are getting more complex and more than just supplier quotations is needed to make sourcing decisions.
Organizations that harness supplier intelligence, regulatory data, and market trends to compare API prices will have a stronger advantage in cost management, risk reduction, and negotiating effectively.
Having a comprehensive API Sourcing Database and a knowledge-based supplier evaluation process will enable the procurement department to make informed decisions on supplier selection, streamline contract negotiations, and enhance the overall strength and performance of the pharmaceutical supply chain.
Sick and tired of always wondering if you are being asked to pay the right price for your APIs? This empowers you with the answers you need to make the right decisions in the Global API market.
Chemxpert Database is one of the biggest and most comprehensive directories of pharma and chemicals, manufacturers, suppliers and information. Provided with current information on prices, demand and transactions, it gives you instant feedback on whether you are buying what is right and at the right time.
Start using market intelligence today and allow yourself to be in control in the API market.
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