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Cost of Quality Control – Quality control of APIs is more stringent and rightly so. Several steps are needed at various stages of production to remove chemicals used in processing, which are many and must be removed completely, or kept in a narrow, acceptable range. The CoA – Certificate of Analysis must mention the detail of such residual materials. The finished goods manufacturers rely on the CoA of API manufacturer; even otherwise, they do not have the facility to test residual chemicals. Secondly, the API will undergo variable manufacturing conditions in various pharma companies and must behave reliably.

These are some reasons which demand that if the government is serious in promoting the industry of Pharmaceutical APIs for domestic use and export, it must go beyond a two-page SRO and put together teams, consultants, and business community.

Cost of Materials

Serious challenge #2 is cost of materials. Cost of all pharmaceutical related materials escalated greatly during COVID19. The factories in China and India were closed like all other businesses which required physical presence of staff. The demand did not rise, but the supply was diminished; obviously, the prices rose. For some time, the shipments were stopped altogether because flight stopped, and when these resumed, the freight cost went crazy. The import duty is levied on ‘C&F Price’ – Cost & Freight Price; high cost of materials plus a high cost of freight, leading to high import duty, created a major problem for pharma materials. The supply was not certain even after all this. It took about a year to normalize supplies and rationalize freight cost, but both did not return to the previous level.

Exchange Rate Variations

Serious challenge #3 is exchange rate variations. Under normal circumstances, exchange rates keep fluctuating within a narrow range on day-to-day basis. Pakistan currency followed the same pattern till our money management went berserk and the rupee started losing value uncontrollably. Let us say you ordered a material at an exchange rate of 200 rupees to a dollar and opened the Letter of Credit accordingly. When you received the shipment, the exchange rate had become 250 rupees to a dollar. You cost jumps up 25%. Then the import duties are also applied on the new rate, and it also goes up by 25%.

Pakistan is an importing country; from small and large essentials to unnecessary, hugely expensive luxury goods, we import everything. It is not just about industry, we even import onions, garlic, ginger, apples, fruits, and some vegetables, besides huge number of snacks; the list is endless. Exchange rate changes affect us instantly and seriously.

Foreign Currency Shortage

Serious challenge #4 is foreign currency shortage. Whatever happened to our foreign exchange reserves is better known to the money managers of the country, we only know we had never seen it before. The imported goods are lying on the ports for months because the payment cannot be made to release the shipment. The banks do not have dollars, the most used currency, to pay for the LCs they had established for import. Even if you are willing to buy at a higher price for the reasons mentioned above, you will not be able to do so.

Whither Inventory Management?

Serious challenge #5 is managing supply chain and inventory. Inventory cost is always a seriously major cost in all manufacturing industries. Therefore, lot of concerted efforts have been put in to keep the inventory cost at the most rational level. All progressive companies have worked diligently on this subject over many years; and it is so around the world. Japan has stood out for a long time for its just-in-time – JIT – method of supply chain, which is a system of inventory management of working with zero inventory. The supplies come exactly when these are needed and are used immediately, (JIT in Pakistan is still Joint Investigation Team in which no one takes responsibility). No country has matched the precision of Japanese, but great developments have taken place in the area of inventory management, thereby freeing the money for other purposes. Supply Chain Managers plan procurement, buy judiciously, apply a range of metrics to understand the performance of supply chain, and juggle with many challenging factors on daily basis. But what can they do with the situation in Pakistan now?

It is extremely tough, to say the least, to manage supply chain in present times. All factors mentioned separately above converge at the supply chain. As it is said, ‘the buck stops here’. They must follow all parameters of inventory management and still keep the manufacturing operation going.

The manufacturing units are a great liability. Even when they stand idle due to non-availability of materials, or power, or strikes, or law and order, they will keep incurring cost, the biggest of which will be staff cost. Skilled labor cannot be switched off and on for two reasons: one, these are always in short supply and if you let them go, they will be picked up by the other firm and you will not get them back; two, the manufacturing people work in teams handling various stages and if team members are shuffled frequently, the output suffers. Keeping the staff, bearing the cost of utilities, and other running costs is only viable when the plant is running at least at the optimum capacity. Working at maximum capacity should be the target to improve profitability. Uncertain availability of materials is a not just a challenge, it is a threat.

To be Concluded……

Disclaimer: Most pictures in these blogs are taken from Google Images and Pexels. Credit is given where known; some do not show copyright ownership. However, if a claim is lodged at any stage, we shall either mention the ownership clearly, or remove the picture with suitable regrets.

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