Pharmaceutical Procurement Strategies: How to Optimize Costs

In an interaction with India Pharma Outlook, Rajat Jain, GM – Global Sourcing Engineering & Capex, Panacea Biotec Ltd. shares his views on how Indian pharmaceutical companies are reengineering procurement strategies to balance regulatory compliance with cost optimization amid global price pressures and supply chain vulnerabilities.

With India’s pharma sector facing price pressures and stricter regulations, how are companies restructuring procurement to balance compliance and cost efficiency?

The pharmaceutical industry of India faces increasing cost and pricing challenges despite its international reputation for generating generic drugs. Various factors stemming from regulatory changes and market competition intensity along with rising operational expenses and material costs combine to create these challenges. Due to its extensive fragmentation of 3,000 manufacturers and 10,000 production units, the sector experiences intense pricing competition for legacy generics which compresses profit margins. The industry faces supply chain instability, currency value drops and shipping expense increases because it depends on Chinese APIs. International markets experience growing pricing limitations because of cost containment approaches such as group purchasing organizations (GPOs) in the US and European tender-based systems. The US FDA and EMA together with other global regulators have raised their compliance standards, which leads to increased regulatory expenses for pharmaceutical companies.

Pharmaceutical organizations have initiated fundamental strategic changes because of evolving market conditions. The PLI scheme for domestic API manufacturing combines with supply chain optimization tools and unit consolidation through non-viable facility closures. The pharmaceutical industry now focuses on lucrative therapies such as biosimilars alongside oncology drugs while it withdraws from unprofitable generic production. Companies use automation as well as shared services and global outsourcing to enhance their operations. Companies are boosting their M&A activities to enhance their size and product portfolio while entering new market territories.

India imports over 60% of its APIs from China. How are procurement teams reducing dependency while optimizing costs and ensuring supply security?

The pharmaceutical industry in India depends on China for Active Pharmaceutical Ingredient (API) imports to such an extent that suppliers from China provide 60–70% of all APIs. The sector's dependency to Chinese suppliers creates multiple risks that include geopolitical risks and supply chain interruptions and increasing costs. Indian pharmaceutical procurement divisions have implemented a strategic approach that combines foreign dependency reduction with supply security and cost preservation.

The main element of this strategy involves backward integration through increased domestic production of APIs. The Production Linked Incentive (PLI) scheme has motivated companies to allocate funds toward fermentation and other advanced technologies for domestic antibiotic and essential API production. The company has intensified its efforts to expand supplier networks by actively searching for new sources throughout Vietnam and South Korea as well as Taiwan and Europe to reduce dependence on a single geographic region.

The strategic stockpiling of APIs along with AI-based demand forecasting helps companies plan their inventory in an agile manner to reduce risks. Firms have started cost optimization by adopting green manufacturing techniques and localizing production while using government-backed API parks. Companies that partner with Contract Development and Manufacturing Organizations (CDMOs) can increase their API production capacity efficiently without needing to invest substantial capital, thus enhancing their competitive strength while improving their operational resilience.

AI-driven procurement solutions are improving cost efficiency in pharma. What are the biggest adoption barriers preventing full-scale digital transformation in India?

The pharmaceutical industry in India is experiencing a transformation through artificial intelligence that is leading to better efficiency and reduced supplier dangers while providing adaptable inventory management capabilities. However, the sector fails to effectively implement artificial intelligence despite its great potential because structural and technological and organizational obstacles block digital transformation at scale.

Automation across the pharmaceutical industry faces its primary obstacle from unorganized and scattered information systems. Most small to medium-sized companies continue using manual procurement processes along with old-fashioned ERPs while their data remains disjointed which makes AI tool integration difficult. The generation of actionable insights becomes challenging because unreliable supplier data alongside unorganized performance records, price analytics and unforecasted demand information lie across disconnected platforms.

The limitations imposed by infrastructure act as a barrier for AI implementation. Small firms face two major barriers to adopting cloud platforms, analytics tools and cybersecurity measures because of their initial expense and shortage of employees who understand AI. Companies operating with third-party AI providers face more expenses while also needing greater time for implementation.

API supplier networks become an additional hurdle within the vendor landscape. API suppliers maintain traditional procurement models because they have limited digital capabilities and resist algorithm-based purchasing processes. Regulatory restrictions including NPPA pricing regulations and organization-specific global compliance requirements make the integration of AI systems more complicated.

The broad adoption of AI technologies remains limited across the sector because of internal resistance and weak change management along with outdated hardware and insufficient IT infrastructure that primarily affect tier-2 clusters.

Sustainable sourcing is becoming a priority, but green raw materials are costly. How are companies balancing environmental goals with procurement cost control?

The pharmaceutical industry in India now treats sustainable sourcing as a strategic imperative because of increasing regulatory requirements and ESG standards and demanding stakeholder expectations. Besides, the exorbitant costs of green materials and eco-friendly processes that surpass conventional industry standards represent the main hurdle to incorporate environmental responsibility into procurement structures. The pursuit of sustainability must be conducted with great care to align with cost-efficiency needs.

The main challenge comes from the higher expense of bio-based and eco-certified materials. The procurement expenses rise because natural-origin APIs along with plant-derived excipients and green solvents require limited availability, complex extraction and ethical sourcing compliance. Green chemistry inputs need substantial research and development spending and unique facilities which cause supply instability that makes cost projections unpredictable.

Environmental regulation compliance which includes India’s EPA and EU Green Deal mandates investments into LCAs as well as emission monitoring while establishing sustainable waste disposal practices which increases operational expenses. The implementation of green platforms including solvent recovery units and energy-efficient systems requires substantial financial investment while delivering limited scale-up potential at the beginning of implementation.

Businesses counter these pressures through green chemistry development and sourcing locally while improving sustainable facilities. Through ESG-linked financing and government schemes as well as carbon credit markets, companies can offset their costs while improving compliance levels. By establishing strategic partnerships with suppliers, companies utilize artificial intelligence-based procurement analytics to achieve low-cost environmentally friendly sourcing results.

With geopolitical tensions and shifting trade policies, what future procurement strategies will define cost optimization for Indian pharma over the next five years?

Indian pharmaceutical companies will transform their procurement approaches during the period from 2025 to 2030 because of growing geopolitical risks and evolving international trade systems and expanded regulatory oversight. A strategic shift involving three essential elements—cost optimization, supply chain resilience and sustainability—will push Indian pharmaceutical companies to abandon their existing high-risk geographic sources particularly China.

The key strategic change requires pharmaceutical companies to distribute API procurement to various low-risk nations including Vietnam, South Korea, Eastern Europe and Latin America. Reducing dependency on Chinese imports together with stabilized input costs and decreased disruption risks will result from this approach. Production Linked Incentive (PLI) scheme from the Indian government along with API park expansion will drive domestic manufacturing and create supply security while decreasing long-term procurement costs.

The future of procurement will build its foundation on digitalization technology. Analyzing market demand through AI along with tracking supplier activities and handling geopolitical instabilities makes AI analytics essential for procurement operations. Supercritical infrastructure based on blockchain technology enables transparent contracts and besides automating compliance processes, smart contracts protect pricing integrity and minimize procurement fraud occurrences.

Future business operations will give increased importance to sustainability by selecting ESG-compliant suppliers who provide biodegradable materials using closed-loop manufacturing systems. Tax incentives along with carbon credit utilization programs will minimize financial strain for businesses. The partnership between suppliers and organizations will transform into investments that merge resources for extended co-development and stable pricing. The implementation of risk hedging strategies and AI-driven stockpiling with standardized digital platforms will complete a risk-resistant procurement system for the future.