Mitigating Disruptions in API Supply: Building Resilient and Redundant Sourcing Strategies

Global active pharmaceutical ingredient (API) supply chains continue to face persistent challenges from post-pandemic disruptions, shifting geopolitical dynamics, and evolving regulations. Longer lead times, raw material shortages, and manufacturing capacity limits threaten supply continuity, while emerging tariff policies and regional uncertainties further heighten risk. These pressures demand more resilient, forward-looking sourcing strategies.

This article explores practical approaches to safeguarding API quality and availability. Key considerations include rigorous supplier qualification—emphasizing on-site audits, comprehensive quality agreements, and thorough operational due diligence—along with expanding supply chains via geographic diversification and alternate-source qualification. It also examines the role of strategic supplier partnerships, data-driven forecasting, and safety-stock planning in mitigating the risk of single points of failure. By aligning quality assurance, regulatory compliance, and strategic sourcing, organizations can build the operational strength needed in an increasingly complex global marketplace.

Introduction

Creating a finished pharmaceutical product requires extraordinary coordination. It involves managing various raw materials, consumables, and an increasing reliance on bioproduction. Many of these materials come from limited geographic regions, creating a global supply chain vulnerable to single points of failure. Sourcing the active pharmaceutical ingredient (API) is a vital step in manufacturing a finished pharmaceutical product, whether in the generics market competing for share, or for a new molecular entity (NME) that needs to scale up supply to meet predicted or actual demand. For decades, small molecule drugs produced through batch chemical synthesis or fermentation have dominated pharmaceutical manufacturing. Advanced therapeutic modalities (ATMs), including cell and gene therapies (CGT), nucleic acid therapies such as RNA vaccines, and antisense oligonucleotide therapies, are more complex to make and now represent at least 20% of pharmaceuticals.¹

Sourcing APIs is where the fragility of the pharmaceutical supply chain truly comes into focus. The global COVID-19 pandemic disrupted nearly every aspect of the pharmaceutical industry, and API sourcing was no exception. Gone are the days when suppliers could compete solely on price and provide just-in-time fulfillment; now it’s more critical to build a supply line that is resistant to shocks, whether those shocks come from international trade policy, geopolitics, quality issues, or acts of nature. Drugmakers, both in NMEs and generics, have shifted from just-in-time cost-driven sourcing toward strategies that prioritize resilience and quality over line cost.  Price alone doesn’t differentiate a supplier anymore, but quality, reliability, and regulatory compliance do.

Disruptions shaping the modern market

Many disruptions brought about by COVID-19 have become a persistent part of life. Longer lead times, shortages of raw materials, and logistical delays have become common. Against that backdrop, further disruptions from a volatile global marketplace—driven by uncertainty around tariffs and other potential levies—have deepened the instability. A key factor here is a lack of foresight: Tariffs are not new, but 2025 saw an additional 20% tariff on all imports to the U.S. from China.² As of August 2025, the U.S. and European Union agreed to a 15% tariff cap on branded pharmaceuticals imported from Europe and an “effectively zero” tariff rate on generics and APIs that apply to Most Favored Nation (MFN) tariff practices.³^–⁵ It remains unclear how sectoral tariffs on APIs and finished pharmaceuticals may evolve, particularly as national security concerns are investigated under Section 232 for pharmaceuticals.⁶ If tariffs are applied unevenly—for example, if imports to the U.S. are tariffed at different rates for China and other regions—we may see geographical winners and losers for API sourcing. Beyond simply raising costs, uneven tariffs could potentially make a product uncompetitive overnight, leading manufacturers to exit markets.

The API manufacturing market is very geographically concentrated, and disruptions to U.S. imports from China or India could shake up the particularly competitive generics market, potentially leading manufacturers to discontinue certain products. This uncertainty is driving sourcing teams to identify and strengthen single points of failure in their supply chains and identify cost-effective strategies to de-risk their manufacturing pipelines. We’re already seeing companies diversify their manufacturing and sourcing, from large pharmaceutical players like AstraZeneca and Roche investing in U.S. manufacturing, to global CDMOs investing to diversify their material suppliers across regions.⁷^,⁸ This is one of several levers that sourcing teams can use to insulate against risk. In addition to diversifying sources, companies can increase their safety stock levels and form strategic agreements with suppliers to ensure continuity of supply and production.

Shifting sourcing strategies

Just-in-time inventory management used to be standard. However, with more complex supply chains and the need for coordination, this approach to API sourcing is now mainly limited to large companies that control reliable verticals. The rest of us must weigh the benefits of a stable environment for business continuity against the higher costs that come with the strategies to build redundancy. Sourcing strategies include increasing safety stock levels and diversifying supply sources. The attractiveness and cost-benefit of these approaches will vary between manufacturers of NMEs and generics, where markets, approval processes, supply security concerns, and profit margins differ. Geographic and supplier diversification help lessen the impact of raw material shortages, regional tariffs, and geopolitical shocks.

Increasing safety stocks

Many companies have proactively increased the sizes of the safety stocks available to them. Three-to-four-month safety stocks are no longer enough, and many companies are moving toward six-to-nine months (or more) to safeguard against shortages and market shifts. A larger safety stock provides insulation against market disruptions, such as raw materials shortages or shipping delays. Safety stocks take the form of API stockpiles, finished product, and visibility into suppliers’ safety stocks—and these three pools need to be strategically managed. The obvious drawback of holding more safety stock is the cost. Each extra month of inventory ties up working capital and drives up the cost of goods. No matter your market, money locked in inventory is money unavailable to use elsewhere, such as making strategic investments or process improvements. Companies have started to take a more sophisticated look at their products and lifecycles to proactively determine what is worth continuing to keep on the market. In addition to capital planning, shelf-life limitations must be factored into safety stock strategies, ensuring inventory remains both financially viable and commercially usable.

Diversifying supply

Increasing your safety stock can get you through short-term disruptions, but how do you handle longer term shakeups such as tariff uncertainty, which could span years? A more long-term strategy is to build redundancy in the supply chain. Some players are diversifying their geographic footprint to reduce reliance on a single country or region that could be targets for tariffs. As disruptions are often regional, having comparable and qualified sources from different regions can provide security against more than tariff considerations, such as regional raw materials shortages or shipping delays. Strategic geographic diversification can also create opportunities for cost savings and increased reliability in shipping and logistics, especially for cold-chain materials. However, increasing the supplier pool isn’t as simple as just picking a supplier in India to supplement your supplier in China. Each new source needs to be vetted and qualified, which takes time and adds cost.

In my experience, the willingness to make that investment depends on your market. For a high-value NME, it’s easier to justify qualifying a second supplier because the upside of having reliable access to the APIs is so large. On the other hand, for generics operating on razor-thin margins, tariffs or a sudden policy change could wipe out competitiveness despite diversification. In those cases, companies might decide that the cost of qualifying and maintaining a second source doesn’t add up.

For companies that do decide to qualify additional suppliers, it’s critical to be proactive and to identify opportunities and threats. During the qualifications process, an often-overlooked task is examining multi-tier risk: where are your API suppliers sourcing their raw materials? When the goal of qualifying additional suppliers is to eliminate single points of failure, having two different suppliers rely on the same source for raw materials is going to limit any strategic advantage. Two suppliers aren’t truly diverse if they both depend on the same upstream source. This reinforces the importance of vetting your entire supply chain for potential chokepoints and bottlenecks—and it is a big undertaking. For smaller companies, especially small startups that may have a limited or no quality group, there are third parties that can help with inspections. You should ensure that the inspection team focuses on quality first and performs the audits with your product needs and lifecycle in mind. You want a supplier that will provide quality APIs in volumes that will support your product. 

Identifying and qualifying suppliers is a long-term investment that takes time to establish. The time to seek a new supplier is precisely not when you’re having supply issues. Qualification takes time and money, so this is infrastructure that must be established before a crisis occurs. In addition to the time needed to perform inspections, establish agreements, and submit to regulators, the regulatory approval alone can add months—or even years—to this timeline. On the other hand, the strategy of qualifying an additional supplier will depend on the company’s market space. An NME manufacturer might be more inclined to make the investment when a multi-billion-dollar market is at stake, whereas a generics manufacturer working on tight margins may be more sensitive to changing trade regulations in a specific market and change their market focus instead. In addition, timelines for prior-approval supplements (PAS) required for a supplier change are lengthening, adding to the urgency of qualifying suppliers well before a crisis hits.

Securing supply prioritizing quality and compliance

Quality is the top priority in any API sourcing pathway, whether generic, NME, or compounding pharmacy. Suppliers must offer quality levels that sufficiently meet or exceed the standards for the target market and assurances that they can deliver the required API stock. We recommend that every negotiation with a potential supplier starts with a strong quality agreement. It’s important to get this document in place as soon as possible so that clarity is set on the responsibilities of the buyer and supplier. What is the supplier’s responsibility to tell you if they receive a 483 from the FDA or a similar notice from another regulatory agency? How do they notify their clients? This should be laid out in the quality agreement in order to avoid surprises.

During the COVID-19 pandemic, we had to rely on paper-based and virtual audits amidst national and regional lockdowns. While remote communications have been an overall boon to the industry, quality inspection is not a domain that should continue to rely on them. Relying solely on remote audits can be risky. It can be easy for inspection details and incidental findings to be missed and for less reputable suppliers to control what you or regulators see. A paper audit should look at regulatory history with any global regulators—even those outside your target market—to understand potential risks in a partnership. If you’re looking to manufacture for the US market, keep in mind that even reputable companies may not have had an FDA inspection recently if they haven’t supplied the U.S. in some time. It’s prudent to go beyond recent regulatory history and review import alerts and warning letters, especially for U.S. regulatory checks. 

Quality isn’t guaranteed over time, even with an established supplier. Periodic requalification is important for maintaining quality, and we use a risk-based approach to determine when and how it’s done. Many companies requalify in a 2–4 year inspection cycle, but we recommend continuous monitoring between physical inspection cycles. The thoroughness of a requalification inspection is also risk-based: if your supplier has been in the space for a long time with no regulatory actions, then a paper-based audit may be sufficient. But as with the initial inspection, you want to be sure that quality is top of mind.

Building strategic partnerships

Sometimes, especially in niche product markets, you may want to use financial and other incentive levers to secure your sources. There are risks in relying on single sources for niche APIs, especially in the generics market, and it reiterates the need to understand your supplier’s market as well as your own. If you’re not the major buyer for an API supplier, a change in their buyers can impact your supply security. For example, I’ve seen situations where a supplier lost a major account, and they decided the API was not worth continuing to produce, even though other smaller entities were still buying. In these situations, you can’t afford to be the small player in a single-source relationship. Increasing Generic Drug User Fee Amendments (GDUFA) fees compound the risk of failure when relying on a single source.

Even a slowdown—not just a full shutdown—by your API supplier can disrupt your business. Reduced production by your API supplier will make your shipments unreliable. To avoid these situations before they arise, financial incentives can help shield you from these market risks. Like diversifying supply, this requires a proactive approach. You don’t want to have a supplier threatening to stop supply at a crucial point and then not having any cards to play. That’s the reality for generics: your supply can disappear because of someone else’s market decision. This is why you can’t afford to be the small player in a single-source relationship. It’s best for both parties to have assurances through initial negotiations and quality agreements to keep the supply lines running.

We’ve seen success with niche or single-source APIs by treating the supplier as a true partner. That can mean giving them better visibility into buying forecasts, committing to volume, or forming exclusivity agreements. Some of these agreements can be financially beneficial to both parties, such as volume discounts in exchange for guaranteed purchases. Other tactics we’ve seen success with include royalties and profit sharing to secure continuity or paying a premium to the supplier. 

A reliable supplier relationship goes both ways. Keeping the supplier informed of needs and expectations is strategic. Many companies provide their suppliers with 12- to 18-month forecasts to give them security in their product movements and to reduce the risk of underproduction or delays. It’s also crucial to understand your suppliers’ markets to protect your own. Some APIs are produced in limited campaigns rather than continuously. Transparency with your supplier can help coordinate production runs with bulk purchasing to add to your safety stock. Once again, proactive action is key: early engagement and long-range forecasts can secure API production slots and avoid missed production windows.

Future trends

Fulfilment delays have become normalized, with on-time in-full delivery as low as 30-40% and 6-month inventory hold-ups becoming increasingly common.⁹ Beyond investing in larger safety stocks and geographically diverse suppliers, larger pharmaceutical companies are building predictive artificial intelligence (AI) tools in-house, using real-time data to anticipate shortages and risks months in advance. The organizations that can balance these tactics—avoiding costly overstocking while maintaining readiness to face potential disruptions—will be the best positioned to succeed in a competitive market.

Regulation is also shaping the landscape. The U.S. is aiming to reshore API sourcing and manufacturing through several policy changes. An executive order signed in May instructed the FDA to shorten approval times for domestic manufacturing while upping fees and inspection requirements for foreign facilities, driving up costs and increasing complexity in qualifying new sources outside the US.10 The new PreCheck and EQUIP-A-Pharma programs incentivize US-based pharmaceutical manufacturing by accelerating construction of manufacturing plants through coordination with regulators and investing in public-private partnerships to advance API manufacturing technologies, such as point-of-care manufacturing and AI-augmented processes.11,12 These regulatory shifts, supported by advances in predictive technology, strengthen the case for reshoring and rebuilding a more resilient US-based API supply chain in the years ahead. The winners will be those who treat supply chains as strategic assets rather than routine functions, using their resources and data to improve handoffs, quality oversight, and overall resilience throughout the product lifecycle.

References:

1. Vadas, A., Holder, J., & Siebert, A. (2024, February 27). A new generation of drug therapies requires new business strategies. Harvard Business Review. https://hbr.org/2024/02/a-new-generation-of-drug-therapies-requires-new-business-strategies

2. Swanson, A., Austen, I., & Romero, S. (2025, March 4). Trump’s tariffs on Canada, Mexico and China snap into effect. The New York Times. https://www.nytimes.com/2025/03/04/business/economy/trump-tariffs-canada-mexico-china.html

3. House, T. W. (2025, August 21). Joint Statement on a United States-European Union Framework on an Agreement on Reciprocal, Fair, and Balanced Trade [Government]. The White House. https://www.whitehouse.gov/briefings-statements/2025/08/joint-statement-on-a-united-states-european-union-framework-on-an-agreement-on-reciprocal-fair-and-balanced-trade/

4. Questions and answers on the EU -US Joint Statement on Transatlantic Trade and Investment. (2025, August 20). [Text]. European Commission. https://ec.europa.eu/commission/presscorner/detail/en/qanda_25_1974

5. Kansteiner, F. (2025, August 21). UPDATED: Trump locks in 15% pharmaceutical tariff rate for EU, while generic drugs get a pass. Fierce Pharma. https://www.fiercepharma.com/manufacturing/trump-locks-15-tariff-rate-europe-confirming-separate-most-favored-nation-duty

6. Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of Pharmaceuticals and Pharmaceutical Ingredients. (2025, April 16). Federal Register. https://www.federalregister.gov/documents/2025/04/16/2025-06587/notice-of-request-for-public-comments-on-section-232-national-security-investigation-of-imports-of

7. Banker, S. (2025, July 23). Pharma companies pour billions into US manufacturing to avoid tariffs. Forbes. https://www.forbes.com/sites/stevebanker/2025/07/23/pharma-companies-pour-billions-into-us-manufacturing-to-avoid-tariffs/

8. Dubin, C. H. (2025, June). SPECIAL FEATURE—Outsourcing formulation development & manufacturing: CDMOs are making their supply chains more resilient & secure. Drug Development & Delivery. https://www.contractpharma.com/company-profile/lgm-phama/

9. Bhattacharya, R. (2023, October 3). How to achieve N-tier orchestration in upstream pharmaceutical supply chains. Supply Chain Beyond (The Network Effect). https://supplychainbeyond.com/multi-tier-visibility-collaboration-in-pharma-supply-chain/

10. The White House. (2025, May 8). Regulatory Relief to Promote Domestic Production of Critical Medicines (Exec. Order No. 14293, 90 FR 19615). Federal Register. https://www.federalregister.gov/documents/2025/05/08/2025-08267/regulatory-relief-to-promote-domestic-production-of-critical-medicines

11. Administration for Strategic Preparedness and Response. (2025, May 15). Equip-A-Pharma. U.S. Department of Health and Human Services. https://aspr.hhs.gov/newsroom/Pages/EQUIP-A-Pharma-15May2025.aspx

12. U.S. Food and Drug Administration. (2025, August 7). FDA announces new FDA PreCheck program to boost U.S. drug manufacturing. [Press release] https://www.fda.gov/news-events/press-announcements/fda-announces-new-fda-precheck-program-boost-us-drug-manufacturing

Hamilton joined LGM Pharma in 2018 and leads the company’s business development and marketing efforts as the Chief Commercial Officer. He has more than 20 years of experience in the drug development sector, with leadership roles spanning the US, Europe, Japan, China, and India. His background covers small molecules, biologics, peptides, and oligonucleotides, with prior positions at CPC Scientific, Nitto Denko Avecia, and Neuland Laboratories. He holds a bachelor’s in chemistry from DePaul University, a master’s in biochemistry from Northwestern University, and an MBA from Florida International University.