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UNCOVERING HIDDEN RISKS IN THE LIFE SCIENCES SUPPLY
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Introduction
One of the risks in the bio pharmaceutical supply chain is having single sourced
materials. In some cases, single sourcing cannot be helped, due to proprietary materials
or custom formulations. However, with commodity chemicals like acetonitrile, it should
be a simple process to put in place several alternative sources in the event of a supply
interruption. In fact, companies that depended on the chemical acetonitrile in 2008
attempted to mitigate their risk by approving several supplier brand alternatives.
However, in that same year a lack of visibility to and understanding of the unique
characteristics of the acetonitrile supply chain, combined with economic and weather
events, created a “perfect storm” for those dependent on acetonitrile supply. Looking
back, the lessons learned from the resulting shortage represented a turning point in the
life sciences industry’s approach to supply chain risk management. A new appreciation
for the complexity and hidden business vulnerabilities has resulted in the recognition
that a more disciplined and sophisticated approach to supply chain planning, analysis
and risk mitigation is needed.
This white paper will provide an overview of the acetonitrile supply market and its role in
the life sciences supply chain, an analysis of what went wrong for the acetonitrile supply
in 2008, and then conclude with risk mitigation strategies specific for acetonitrile that can
be applied more broadly across the life sciences supply chain.
Background
Acetonitrile is a common HPLC (High Performance Liquid Chromatography) solvent used
in quality control. While there are nuances to every supply chain, acetonitrile has two
unique factors that influence its supply. First, acetonitrile is a co-product of acrylonitrile.
And second, 90% of the US acetonitrile is manufactured in two locations. Below are
explanations on how these factors impact acetonitrile supply.
The Co-Product Relationship
In chemical manufacturing, it is pricey to dispose of the chemical waste. To cut down
on expenses, many manufacturers often look for markets for their “co-products” to
avoid disposal costs. In the co-product relationship, one product functions as the
manufacturing driver. This means production is based on the demand for that product
only, regardless of demand for the co-product. In the acrylonitrile (polymer)/ acetonitrile
(solvent) relationship, the polymer is the economic driver and primary product due to
the large demand for the polymer by the automotive industry. Meanwhile the solvent,
acetonitrile, is not made on demand and is only packaged and sold if available (IHS
Chemical, 1991).
In 2008 the automotive industry crisis hit and demand for vehicles from consumers
dropped dramatically. Manufacturers of acrylonitrile suddenly found themselves with
excess inventory of the polymer. In response, the manufacturers cut their production
rates for the polymer, which impacted the co-product production of the acetonitrile
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solvent. However, the demand for the acetonitrile co-product remained steady, and
soon, demand was greater than supply—thus, creating a shortage.
Manufacturing Locations
In the US and across the globe, there are many manufacturers of the acrylonitrile
polymer and the acetonitrile solvent. However, most of these manufacturers produce
“dirty” acetonitrile and choose to burn the solvent rather than refine it into an HPLC
grade. There is only one manufacturer in the US who produces a solvent that can be
further distilled for use by our life science customers. This manufacturer has two US
locations: one in the Midwest and another on the Gulf Coast.
In the summer of 2008, the US was experiencing some tough times, both with the
economic downturn and a slew of natural disasters. In June and July, the Midwest
experienced storms and flooding that impacted many manufacturers, including one of
the acetonitrile plants. The one location was struck by lightning causing an unexpected
shutdown. And in September, the second plant on the Gulf Coast was hit by two
hurricanes causing another shut down. Suddenly, the two sole US manufacturing
locations of HPLC grade acetonitrile were unavailable. During normal economic times,
repairs would have been prioritized with overtime pay and emergency crews. But during
this particular period of economic downturn, things were different. Since the polymer
remained the primary manufacturing driver for the company, and because there
was already excess polymer on the market, implementing drastic measures to regain
manufacturing capabilities was not as urgent as it would have been in better economic
times. And without demand for the polymer, the co-product acetonitrile is not produced.
This was a perfect storm for an acetonitrile shortage: both acetonitrile manufacturing
sites down at the same time in a depressed market (Tullo, 2008).
Lessons Learned
In Zurich’s Supply Chain Resiliency 2014 report, they uncovered that 51% of the
respondents report having a disruption below a tier 1 supplier, however only 27% of the
respondents monitor below tier 1 (Business Continuity Institute, Zurich, 2014). While
most companies strive to have sub-tier visibility, companies must prioritize how to tackle
the task.
In the case of acetonitrile, most supply chain managers viewed the material as a
QC solvent, not a critical raw material. This meant that most supply chain managers
mitigated their risk by having several brands of acetonitrile approved, without knowing
the context of where they were produced and at what locations. They had simply not
prioritized mapping the sub-tiers. As a result, many customers were unaware that all
their brands could be mapped to the two Midwest and Gulf sites.
A month after the hurricanes, the acetonitrile supply chain began to unravel. By
November, acetonitrile supplies had dried up, and users were unable to attain enough
solvent to QC their product. This caused backlogs in shipping their finished goods to
“This was a
perfect storm for
an acetonitrile
shortage: both
acetonitrile
manufacturing
sites down at
the same time
in a depressed
market.”
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customers. Ultimately, what was considered a non-critical solvent shut down many
manufacturing sites and hurt their bottom line.
The summer of 2008 was a turning point for many in the life sciences market causing
many companies to rethink their supply chain risk exposures and risk mitigation
strategies. Many risks, not just acetonitrile, were exposed. As a result, customers began
to build out programs to help them mitigate risk, and they continue to use them today.
However, in many cases these programs rely on a combination of Microsoft Excel, Word
and ERP systems for information sharing and analysis.
Mapping Your Supply Chain
A relatively recent development in supply chain risk management technology is
interactive mapping and supply network analytics. This enables organizations to map
the supply base end to end and expose vulnerabilities deep in a multi-tier supply chain.
Analytics can then be applied to prioritize vulnerabilities. Below is a map showing the
dependencies of a tier 1 supplier on sub-tier suppliers. Potential issues and bottle necks
such as several tier 1 suppliers sourcing from the same sub-tier are evident.
Supply Chain Event Monitoring
While mapping is a critical part of building a resilient supply chain, the supply chain must
also be monitored continuously for potential disruptions. This poses resource issues
for many customers who must take into account human factors such as man hours
required, languages, time zones and vacations. Events and natural disasters do not take
holidays, as such is evident in the 2004 Christmas Tsunami. In addition, events may be
first reported in languages other than that of the monitor.
Global supply chain event monitoring and analysis services may provide targeted email
notifications and reports with meaningful business impact insights from supply chain
disruption events such as natural disasters, factory fires, and labor stoppages. It may be
integrated with virtual War Room capabilities for mobilizing a focused and coordinated
crises response and recovery strategy.
“Ultimately, what
was considered
a non-critical
solvent shut
down many
manufacturing
sites and hurt
their bottom
line.”
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Conclusion
There are many ways to approach supply chain risk mitigation, and it can be
overwhelming to decide where to start. However, the first steps are to map your supply
chain with as much detail as possible and develop a rigorous monitoring program. These
two action alone will help you to sense and respond more quickly and intelligently to a
supply chain event. In the case of acetonitrile or any other critical supply “part,” having
your supply chain already mapped is a prerequisite for prioritizing risk mitigation plans
and taking pro-active steps to eliminate critical vulnerabilities. Further, acetonitrile
is an example of why prioritizing risk mitigation should not be based simply on the
Bill of Materials. In this case, prioritizing actions based on revenue at risk would have
shined a brighter light on the acetonitrile risk and potentially avoiding a crises situation.
Fortunately, the lessons learned have not been lost on the supply professionals in the life
sciences industry. Steps are being taken to mature their risk management strategies and
execution capabilities, including investing in state-of-the-art cloud technologies for risk
management intelligence, pro-active analytics and event monitoring.
7. UNCOVERING HIDDEN RISKS IN THE LIFE SCIENCES SUPPLY
CHAIN: LESSONS FROM THE ACETONITRILE SHORTAGE
PHOTO PLACEMENT
Page 6
About Resilinc
Resilinc is a leading cloud provider of supply chain resilience and risk management intelligence and analytics. Industry
leaders like Amgen, GM and EMC rely on Resilinc to mitigate risks and address compliance challenges, while achieving long-
term competitive advantage, and building brand and shareholder value.
Resilinc’s flagship SupplyIntel™ solution platform and services deliver a Best-in-Class capability with the fastest Time-to-
Value and Lowest Resource Impact. It accomplishes this by providing:
>> The world’s largest repository of supplier and part intelligence leveraging the power of our “LinkedIn” supplier
community
>> Turnkey solution enabling services to ‘project manage’ your deployment from supplier on-boarding to resiliency
institutionalization success
>> The most robust set of dashboard visualization and patent-pending analytic functionality for pro-active planning and
risk quantification
>> The only solution that personalizes your impact analysis by automatically connecting incidents with your supply
chain map so you don’t have to
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Resources
Auto Data Corporation. (2014). SAAR Data. Motor Intelligence, http://www.
motorintelligence.com/.
Business Continuity Institute, Zurich. (2014). Business Continuity Institute Supply Chain
Resilience 2014: An international survey to consider the origin, causes &
consequences of supply chain disruption. Business Continuity Institute, p. 5.
IHS Chemical. (1991). Acetonitrile Recovery in Acrylonitrile Manufacture. IHS Chemical,
http://www.ihs.com/products/chemical/technology/pep/reviews/acetonitrile-
recovery.aspx.
Tullo, A. H. (2008). A Solvent Dries Up. Chemical & Engineering News, p. 47.
