1 of 28

Vitamin C

Supply Chain Maps & Models

Clayton Birkes, Olga Parvin, Claire Stamborski

2 of 28

Ascorbic Acid and Sorbitol Overview

Value Chain and Map

Stakeholder Systems Diagram

Supplier Engagement Model - Theory and Practice

TABLE OF CONTENTS

01

02

03

04

3 of 28

Ascorbic Acid and Sorbitol Overview

01

4 of 28

Vitamin C: The Basics

Why is Vitamin C so important?

How is it made?

Major Industries?

Antioxidant
Supports immune health
Anti-aging & regenerative
Food preservative

Naturally
Synthetically (Ascorbic Acid)

Food & beverage
Pharmaceuticals
Cosmetics
Animal Feed

5 of 28

Ascorbic Acid: Industry Recap

Ascorbic Acid market valued at $1.3 B USD, expected to reach $1.8 B by 2027
Food & Beverage dominates 60% of industry
Pharmaceutical sector expected fastest growth, target 31% share by 2027
North America has highest demand of Ascorbic Acid
China manufactures 80-95% of world’s Ascorbic Acid

6 of 28

How is it Made?

Reichstein Process

Two-Step Fermentation

Highly energy consuming and relies on use of environmentally hazardous chemicals, like acetone

Lower cost and less ecological problems
Preferred method for today’s manufacturers

Figures 7.3 and 7.5: https://www.researchgate.net/publication/301763006_Industrial_Fermentation_of_Vitamin_C

There are two methods of producing Ascorbic Acid - Reichstein process which was invented in 1933 or the more widely used method today: the two-step fermentation method that was invented in 1975.

Both of these methods start with glucose and deriving sorbitol, which is the key ingredient that we’ll focus on in terms of supply chain. However, the biggest difference between these two methods is that the two-step fermentation calls for bioconversion in the second step with a bacteria rather than chemical conversion with acetone.

Reichstein process is highly energy consuming and relies on some environmentally hazardous materials. Acetone, while not hazardous in smaller doses, can be hazardous in large quantities. It can be toxic wildlife. Exposure to moderate or high levels of acetone can irritate the eyes and respiratory system and lead various health issues. The two-step fermentation method is lower cost and safer which is why it is the preferred method.

Sources:

https://www.researchgate.net/publication/301763006_Industrial_Fermentation_of_Vitamin_C

http://www.npi.gov.au/resource/acetone#:~:text=Acetone%20has%20caused%20membrane%20damage,in%20plants%2C%20animals%20or%20humans.

7 of 28

What is Sorbitol?

Sugar alcohol found naturally in some fruits & veggies
Commercially manufactured from corn-syrups for use in packaged food, beverages and medications
First ingredient in Ascorbic Acid fermentation
Agriculture & chemical focus

8 of 28

Value Chain and Map

02

9 of 28

Ascorbic Acid Map

Ascorbic Acid Manufacturers

CSPS Pharma Group (China)
DSM (Scotland)
Foodchem Intl. Corp (China)
Luwei Pharma Group (China)
Northeast Pharma Group (China)

Sorbitol Manufacturers

Archer Daniels Midland (USA)
Cargill (Indonesia)
Ingredion (Mexico)
Roquette (France)
Tereos (France)

Ascorbic Acid Sales Regions

120+ Countries

Corn Production

US, China, Brazil

For our map, we focused on including locations of the top producers of corn, sorbitol and ascorbic acid, so this is not inclusive of ALL locations of production of these items.

Sorbitol production starts with corn production, which can be found in countries like the US, China, and Brazil produced in the amounts of hundred of millions of metric tons. Corn is then shipped to Sorbitol Manufacturers. The 5 Sorbitol companies that we focused on are Archer Daniels, Cargill, Ingredion, Roquette and Teros, which produce Sorbitol in the US, Indonesia, Mexico and France. In fact, Cargill just invested $100 M in a Sorbitol Plant in Indonesia. Sorbitol is then shipped to many Ascorbic Manufacturers in China, which produce up to 95% of the world’s ascorbic acid and to DSM, which is the only Western producer of ascorbic acid. Ascorbic Acid is then shipped to over 120 countries in B2B or B2C forms.

Ascorbic Acid is truly a global industry with materials being shipped all over the world.

__

Key Takeaways:

80-95% Ascorbic Acid Produced in China
Cargill just invited 100M in a sorbitol plant in Indonesia
Corn grown in US, China, Brazil
Shipped to Sorbitol Manufacturers in US, Indonesia, Mexico, France
Sorbitol Shipped to Ascorbic Acid Manufacturers back in China or Scotland
Ascorbic Acid sold in regions all over the world in over 120 countries
Truly a global industry with materials shipping all over the world

Sources:

https://www.investopedia.com/articles/markets-economy/090316/6-countries-produce-most-corn.asp

https://www.cargill.com/2020/cargill-invests-us-$100-million-in-facility-lotus-final-eng

10 of 28

Ascorbic Acid Supply Chain

Little to no transparency in ascorbic acid supply chain
Linear supply chain
Vitamin C life cycle ends with consumption
Could focus on circularity more in the packaging of the product
Covid impacted supply chain: increased demand, delays in shipment, production shutdowns

As we have mentioned, there is very little transparency into the ascorbic acid supply chain, but we mapped out the basics which happens to be very linear. It starts with growing the crops for sorbitol production, which is then shipped to ascorbic acid manufacturers, transformed into various forms of ascorbic acid, and then shipped to other retailers to use in their products. This supply chain ultimately ends with the end-consumer as a product that is consumed. However, much of this packaging at various stages is plastic packaging, so there are some opportunities for a more circular supply chain with that. Covid has impacted the supply chain as it has increased demand of ascorbic acid, which requires more sorbitol and corn, but as with everything else there were delays in cross-world shipments and transportation as well as production shutdowns.

__

Issues in the Supply Chain:

Really hard to find info on supply chain of Ascorbic Acid because mostly produced in China, where they do not publish this type of info

Includes supply chain issues or any transparency on info

Covid had increased demand for vitamin C
Covid has caused a lot of shipment and delivery delays impacting Sorbitol & Ascorbic Acid
Covid has caused production shutdowns
Corn in China/US > Shipped to other countries for Sorbitol > shipped back to China for Ascorbic Acid

Sources:

https://www.databridgemarketresearch.com/covid-19-resources/covid-19-impact-on-sorbitol-market-in-food-and-beverage-industry

11 of 28

Supply Chain

ADM - Sorbitol

DSM - Ascorbic Acid

Sorbitol Map (ADM): https://www.adm.com/sustainability/responsible-sourcing Ascorbic Acid (DSM) Map : https://www.dsm.com/corporate/sustainability/resources-circularity.html

Although the current supply chain is very linear, we did find some examples that we’d like to call in as good benchmarks for the industry. One is from Archer Daniels Midland, a Sorbitol Producer and the other is DSM, an Ascorbic Acid producer. These diagrams were found on their respective websites and represent their company as a whole, and they produce other things than sorbitol or ascorbic acid, but still provide good examples of what the ascorbic acid industry should aspire to be.

On the left, we have ADM. As you can see, they are still a linear value chain, but are incorporating important goals into their business practice like supporting grower communities, reducing transportation impact, reducing the environmental impact of processing and packaging.

On the right is DSM’s circular model, which would be the ultimate model. They want to focus on “sourcing renewable and recycled materials; and designing products that are more durable, and easier to repair, re-use and re-purpose.” That would look like:

Replace fossil-fuel materials
Replace finite resources with recycled ones
Reduce waste with more efficient recycling methods
Reduce use of hazardous materials

Now that we have the value chain map in mind, lets look into the systems diagram.

Sources:

Sorbitol Map (ADM): https://www.adm.com/sustainability/responsible-sourcing

Ascorbic Acid (DSM) Map : https://www.dsm.com/corporate/sustainability/resources-circularity.html

12 of 28

Stakeholder Systems Diagram

03

13 of 28

Stakeholder Needs and Wants

Many groups are impacted and want to impact the value chain of Ascorbic Acid

Many parties

Many priorities

Use different means to drive certain behave and outcomes

14 of 28

Stakeholder Systems Diagram

15 of 28

Supplier Engagement Model

04

Theory and Practice

16 of 28

What is the purpose of a supplier engagement model?

Protect against financial loss

Right to operate
Reputation loss
Fines
Access to raw materials for production

Civil Society Organizations, Non-Profits, and Governments look to insert human and environmental needs amongst Brand desire to be profitable

17 of 28

Theory I

18 of 28

Standards

Pharma/ Chemical Regulations

Government Regulations

Practice - Regulation, Laws and Policies around Pharma, Sorbitol & Vitamin C

01

02

03

European Association of Polyol Producers

USP
US Food and Drug Administration
EPA

FDA
Clean Water Act
Consumer Product Safety Commission
UK Modern Slavery Act
CA Transparency in Supply Chain Act
Uyghur Forced Labor Prevention Act
Tariff Act of 1930

01

EPA: European Association of Polyol: aims to monitor the regulatory developments surrounding polyols and to provide scientifically-based information about polyols to any interested parties including consumers, health practitioners and regulatory bodies.

02

That’s because since 1994, dietary supplements have been regulated as a category of foods. This means, except for new ingredients, they are presumed to be safe and they do not require FDA approval or review before they are marketed. The dietary supplement manufacturer (not the FDA) is responsible for making sure the supplements they sell are of high quality and safe to consume.

The USP, US Food & Drug and EPA all work to verify supplements:

Contains the ingredients listed on the label, in the declared strength and amounts
Does not contain harmful levels of specified contaminants
Is made according to FDA and USP Good Manufacturing Practices, using sanitary and well-controlled processes
Supplement will break down and dissolve within a specified amount of time so the active ingredients can be released and absorbed by the body

03

FDA: Monitors the ingredients during the manufacturing process that is used in food at levels not to exceed good manufacturing practices. Current good manufacturing practice in the use of sorbitol results in a maximum level or maximum concentrations of sorbitol. Ex: 99 percent percent in hard candy and cough drops. 75 percent in chewing gum and 98 percent in soft candy�
Clean Water Act: In 2010 under the clean water act, sorbitol, which is an ingredient used in some pesticides. However there was an approved request for an exemption from the requirement of establishing the need to establish a maximum permissible level for residues of sorbitol.�
UK Modern Slavery Act and the CA Transparency in Supply Chain Act: both far reaching pieces of legislation to ensure slavery and human trafficking are absent from the business and supply chain�
Other legislation that affects the multiple industires are: Uyghur Forced Labor Prevention Act, Tariff Act of 1930 (violation of antidumping laws in France), Consumer Product Safety Commission (vitamin c recalls of soft chews because of Iron and violating the Poison Prevention Act),

19 of 28

Theory II

Now that Brands have set expectations, they will now work to understand and monitor risk within their suppliers.

Three main mechanisms are used to assess and monitor risk - self-assessments, auditing, and grievance mechanisms.

The self-assessment is an initial assessment done by suppliers and provided to the Brand to give an initial risk rating of their operations and supply chain.

This assessment can help brand’s prioritize their finite time, energy, and money.

The next mechanism is an audit - where either the brand or a third party goes and does a comprehensive in-person assessment of the operations and processes.

Audits can validate the true, current state much more than a self-assessment.

And finally, grievance mechanisms, whether managed by the Brand, supplier, or a third party - if trusted, can give the truest experience of how policies are implemented.

20 of 28

Practice: Self Assessment, Auditing, Grievance Mechanisms

4

1

2

3

Self Assessment / Audits / Grievance Mechanisms

A trend you’ll notice in the next few slides around companies, you’ll see much of the information is more in depth around Cargill than other organizations, due to access of information.

Cargill:

Self Assessments/ Third Party Assessments:

Cargill participates in the SAI: Silver Level, Farm Sustainability Assessment (third party)
Cargill sources certified corn and wheat, benchmarked at Silver level according to the SAI Platform’s Farm Sustainability Assessment. This industry-recognized benchmark system supports good agricultural practices in key sustainability areas�
Cargill also works with industry groups, farmers and our customers to improve sustainability across our corn supply chain – including Field to Market: The Alliance for Sustainable Agriculture, the Midwest Row Crop Collaborative and the Sustainable Agriculture Initiative – is helping to improve transparency and increase sustainable practices.
In Europe, Cargill has developed the Waxy Corn Promise™ program, to ensure a long-term sustainable crop supply for food starch and drive positive change throughout the European starch supply chain.

ADM:

Had less information available than Cargill, but has policies to Protect Forests, Biodiversity and Communities and a target date to eliminate deforestation in our supply chains, which has resulted from farming practices in the past.
Other self assessments and auditing programs that ADM participates in are ADM Responsible Soy & Corn, Round Table for Responsible Soy and Corn, International Sustainability and Carbon Certification, Food Alliance, and Fair Trade.

The other main companies listed on the slide had little to no information on programs outside of ISO & FSSC standards

21 of 28

Theory III

As Brands have set expectations and assessed the current state, Brands can now use three mechanisms to continuously improve supplier performance

First, if a supplier is found to be out of compliance with a Brand’s code of conduct, policies, or regulations CAPAs can be developed.

True root cause must be established and corrective and preventive action plans must be resourced, with diligent timelines.

It should be noted, if a supplier is out of compliance and a worker has been impacted, their rehabilitation and reintegration should be the focus of these activities.

Second, even without a compliance issue, capacity building, in the form of trainings, webinars, or working groups can help build skills and knowledge within the supplier.

And finally, as we’ve discussed and Bonnie has really emphasized, financial incentives, whether it be prioritizing high performing suppliers, or leaving poor performing suppliers, can be one of the biggest behavior drivers in a brand’s tool belt.

22 of 28

Location of Grievances

Grievances Logged

Labor/ Human Rights

86%

89

48%

Cargill Practice: Corrective Action & Training

Indonesia
Malaysia

Direct vs Indirect

Currently under investigation or plan being developed

Cargills appears to hold themselves and their suppliers accountable and requires responses to grievances. They have a set time-bound action plans to ensure progress and close the grievance in a timely manner

Cargill investigates all grievances raised through engagement with their suppliers. Grievances that fall outside the scope of Cargill’s Grievance Procedure have been disclosed to provide transparency to grievance raisers.

ADM claims to have similar grievance procedures, but findings are not made publicly available as Cargills is.

For Ingriedion corrective action was last mentioned in their 2019 annual report when they had three injuries at their mexico manufacturing facility, resulting in 1 death. Quote: “We have identified the root causes of these injuries, worked to implement corrective actions and shared the associated learning across our organization in an effort to prevent a future recurrence.”

23 of 28

Theory IV

24 of 28

Practice: Internal & External Reporting

Internal

External

Supplier Reporting

Supply Chain Reporting

ESG Scorecard

Procurement

Annual Reports

Sustainability Reports

Responsible Sourcing

Corporate Responsibility

25 of 28

Conclusions, Suggestions for Improvement

Transparency

Regulations

Scandals

Not a regulated Pharma Product

(or lack thereof)

Supply Chain
Locations

26 of 28

27 of 28

Sources

28 of 28

Sources