Procuring R-Active at Abbott 1

Company: Abbott
April 2005

Brian, a manager at Abbott was faced with a dilemma. Abbott had previously contracted with a third-party for the final crystal and drying steps for the R-Active Pharmaceutical Ingredient.

There were safety concerns regarding the employee exposure limits from this process (~4 micrograms per cubic meter), and this employee exposure limit required special engineering containment levels. On the one hand, Brian was pleased that this safety issue was a third-party manufacturer's responsibility and not theirs. On the other hand, his engineering group had presented a compelling cost justification for bringing this step of the process in-house. Completing the filtration and crystallization steps at the third-party manufacturer had cost approximately $484 thousand annually. The engineering group estimated that the capital and installation costs required to install the necessary filter (the Aurora filter) into an Abbott plant would be $112 thousand and that each production run of the process would costs $31 thousand with five runs expected per year.

This cost justification represented a significant savings that Brian could not ignore. But what about the employee exposure risk?

Procuring R-Active at Abbott (B):

The engineering group at Abbott designed the installation of the Aurora filter using a product bag-out system that successfully lowered employee exposure potential to below one-half of the employee exposure limit. Operators received information and training on the equipment, the installation of the filter, the use of the bagging system, and the use of the filter itself. Also, all operators were given the opportunity to question the vendor about the use of the bagging system.

The filter was clearly justified on a cost basis with an expected savings of $217 thousand in one year, but the safety organization had to develop a process that allowed the work to be performed safely in house. In addition to the cost savings, having this capability in-house allowed for the future processing of small volume products, thus improving the division's ability to obtain new products. Therefore, without the success of the safety organization to develop safe processes, Abbott could not have taken advantage of this strategic opportunity.

Procuring R-Active at Abbott Teaching Notes:

Many corporations want to outsource or transfer risk to other parties. In this case, the company contracted a process to a third party, which had the necessary additional containment equipment and engineering controls to safely manufacture the active ingredient. In return, the Third Party charged a significant premium for the use of its high-containment processing equipment. Insurance is another mechanism to transfer risk (generally financial risks) to other parties.

At Abbott, at least for the case example, the corporation found that they could incorporate the filter process into their product well within the safety thresholds defined and thus benefit from the cost savings. This was only possible because of their commitment to safety.

Key learning: providing a safe workplace can be a key to meeting the strategic business objectives of a company.

1This case is based on information provided by Abbott in 2003. This case was prepared as part of an Alliance between Georgetown University's Center for Business and Public Policy, OSHA, and Abbott. Participation in an Alliance does not constitute an endorsement of any specific party or any party's products or services. This case was prepared as the basis for class discussion in the "The Business Case for Safety." The decision maker and his associated thoughts and actions are fictionalized.