Acetonitrile Case Study 12 14

Uncovering Hidden Risks in the Life Sciences Supply ChainLessons from the Acetonitrile Shortage Perfect StormDecember 10, 2014

UNCOVERING HIDDEN RISKS IN THE LIFE SCIENCES SUPPLY CHAIN: LESSONS FROM THE ACETONITRILE SHORTAGE

© Resilinc, Inc. All Rights Reserved.


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Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

The Co-Product Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Manufacturing Locations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Mapping Your Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Supply Chain Event Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

About Resilinc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Table of Contents

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IntroductionOne 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.

BackgroundAcetonitrile 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 RelationshipIn 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 LocationsIn 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 LearnedIn 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 ChainA 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 MonitoringWhile 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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ConclusionThere 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.


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About ResilincResilinc 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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ResourcesAuto 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.

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Acetonitrile Case Study 12 14