• Lessons in supplier risk management: How polluted groundwater forced Swiss chemical company Rohner AG to file for bankruptcy

    26 June 2019

    On June 21, Swiss chemical company Rohner AG sent an internal memo to its workforce to inform them that the company was forced to halt production and file for bankruptcy, about four months after an allegedly minor wastewater leakage was discovered at its site in Pratteln in northwestern Switzerland. The shutdown of Rohner AG highlights the increasingly disruptive impact that environmental pollution can pose to supply chains and is a case in point for why companies should proactively monitor their suppliers to reduce response times and avoid costly supply shortages.

    Source: Resilience360; publicy available information

    Founded in 1906, Rohner AG produced intermediates such as formic acid, active pharmaceutical ingredients, liquid crystals, and functional polymers for a wide range of customers in the pharmaceutical, agrochemicals, and lithographic material industries. Even after initial allegations were made against the company earlier this year, Rohner AG still expected to make a profit in 2019 and announced full order books as recently as March 2019. However, when authorities discovered that the supposedly small leakage was in fact much larger, local media and politicians began to call for the plant’s shutdown, causing key customers to cancel their orders. As revenue streams dried up, salaries and bills remained unpaid, sparking protests among workers and causing a local gas provider to halt supplies that cut production output by more than 80 percent.

    It turned out that Rohner AG had concealed the initial leakage as well as its scale, which involved 15 million liters of wastewater reportedly leaking into the city’s groundwater between November 2018 and February 2019. Local authorities refrained from closing the company in March 2019, giving it an ultimatum to repair its sewage system and provide a feasible maintenance concept for its wastewater system until April 30. After the company failed to fully comply with the instructions, the Swiss Office for Environmental Protection and Energy ordered the complete shutdown of Rohner AG’s sewage system in early June, which effectively halted its production lines and accelerated its bankruptcy filing.

    Supply chain risk professionals should take away three lessons from this case:

    1. Proactively monitoring your suppliers can significantly reduce the response time needed to activate mitigation measures. Rohner AG has a poor record in safety and health incidents that could have served as early warning signs. For example, an explosion at the plant injured two workers and damaged large parts of the production hall in February 2016.
    2. Environmental contamination by a supplier poses an increasingly important threat that can be the source of a supply chain disruption. As this case shows, it can first lead to a public outcry before local authorities decide to order a temporary or permanent shutdown of production that can eventually cause bankruptcy.
    3. Organizations should be mindful of using dual-sourcing strategies for key materials. As certifying alternative suppliers can take 1-2 years in industries such as pharmaceuticals, firms should consider undertaking a cost-benefit as well as risk impact analysis of key suppliers to assess if the added cost of sourcing from a second supplier at a different geographic location can be worthwhile to prevent future shutdowns.
Tagged in: