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Chemical Management

Changing the Links in the Supply Chain

— As printed in the September, 2000 issue of Semiconductor Magazine
Moore’s Law (and other major belief systems) predicates progress on change, and change is certainly afoot in the chemical supply chain. Chemical users, suppliers, regulators and environmentalists are taking notice of how chemical suppliers can cut costs, reduce liability, optimize chemical use and improve environmental performance in a wide range of manufacturing sectors. A new trend in chemical management services—otherwise known as CMS—is changing the way companies purchase and manage chemicals. But isn’t chemical management just another way to outsource? What’s the new story here?

Case studies from the semiconductor to automobile manufacturing sectors are revealing a profound transformation in the way chemicals are managed—a change due to their adoption of chemical management services.

A semiconductor facility initiated a chemical service program with one of its chemical suppliers. During a two year period, the facility reduced chemical consumption by 50 percent, reduced hazardous waste by 8 percent and made other efficiency improvements resulting in more than $175,000 a year in savings.

General Motors and its chemical suppliers reduced costs, chemical diversity and associated risks. One GM assembly plant achieved a 43 percent reduction in the number of chemicals used and total savings of more than $750,000 a year. One facility of an aerospace company saved $1.1 million in chemical management costs in the first year of its chemical services program.

These examples are only a few of the success stories documenting cases of the significant savings manufacturers have experienced by implementing a chemical management services program. Chemical services are often performed more effectively and at a lower cost than companies can do by themselves. This is, of course, a basic tenet of outsourcing. However, a mature CMS program will go beyond outsourcing and can involve a much more long-term beneficial partnership.

What is CMS?

Chemical management services is a strategic, long-term relationship in which a customer contracts with a service provider to supply and manage the customer’s chemicals and related services. Under a CMS contract, the provider’s compensation is tied primarily to quantity and quality of services delivered, not chemical volume. CMS goes beyond invoicing and delivering product to optimizing processes, continuously reducing chemical life cycle costs and risks, and reducing environmental impact.

CMS also moves beyond simple leverage supply, where chemical purchase costs can be lowered by purchasing a higher volume of chemicals through a central vendor. A CMS provider can, on the contrary, endeavor to sell less chemicals. “The linchpin for realizing the far-reaching benefits of CMS is for firms to decouple volume profitability,” says Tom Votta of the Chemical Strategies Partnership (CSP, a non-profit organization promoting CMS as a means for reducing chemical use). “The chemical management service model delivers results by aligning the incentives of chemical suppliers and their customers. The supplier's profitability is independent of the volume of chemicals sold. In other words, the suppliers no longer get paid based on how well they can sell, but on how well they can manage. This is accomplished by basing supplier compensation on performance-based metrics and fees, not chemical sales. Process efficiency improvements and waste reduction are two of the most effective ways CMS providers are reducing chemical costs and getting to share in the savings,” says Votta.

CEO Thad Fortin of Haas Corp., a leading chemical service provider, agrees. “We are just one of the few firms that gets 100 percent of our revenues from chemical management services. This is achieved by aligning our profit incentive to help our customer get finished product out the door. If we keep their product volume constant, and do it by using less chemical, we get a cut of the savings.”

Successful CMS providers become, therefore, much more than just chemical vendors—they become partners in the manufacturing process.

CMS In the semiconductor industry

“The semiconductor industry is a special case,” states CSP’s John Claussen. “Having spent more than two years in the environmental health and safety (EHS) world working with Intel, I understand the need for extreme purity requirements with a high diversity of chemicals. Working in semiconductor fabs takes exceptional chemical management skills and resources to manage chemical’s properly.”

Because the big driver in the semiconductor industry is higher yields, the need for the right chemical to do exactly the right thing at exactly the right time is omnipresent. It is not a core competency of the chip manufacturer to manage chemicals, but they are forced to do so in order to manufacture their product. By working with a chemical service provider, the semiconductor manufacturer can get its chemicals when and where they are needed. The manufacturer can concentrate on its core competency—manufacturing.

Ashland Chemical’s Mike Pregent concurs. “Semiconductor firms,” says Pregent, “are particularly concerned with proprietary issues around their technology. They also seldom believe that an ‘outsider’ can do things as well as they can—otherwise known as ‘not-invented-here’syndrome. Likewise, they feel that once they start to outsouce, they lose control. We like to emphasize that, on the contrary, using CMS will allow them to focus on their core competencies and actually reduce risk. And, if a company is interested in pursuing ISO 14000 certification, a CMS provider can help.”

Linda Vickers, GW International’s fab development manager, understands the concerns that managers may have with bringing in a CMS provider. GW International sees its role as an objective logistics manager—acting in the best interests of the whole facility. “We go in to problem solve—we try to understand the internal cause and create a scope based on the particular problems the facility is encountering,” explains Vickers. GW’s Tamie Mainero agrees. “The key for us and what we strive to convey to our customers is that it is necessary to think strategically about whole processes instead of product by product,” she said.

Many firms already see the advantages, since approximately 35 percent of the semiconductor industry uses CMS. One Motorola facility has been implementing CMS for nearly ten years. The primary drivers for initiating a CMS program are to lower costs, improve efficiency and yields, and outsource non-core activities. According to CSP’s John Claussen, while trouble-shooting in established fabs will always create opportunities for CMS, perhaps the greatest strides for CMS in the semiconductor sector will be made during the establishment of new fabs. “The best situation is when a CMS provider is brought into the process of setting up a fab, in order to capture processes on the front end instead of trying to fix inefficiencies later and playing catch up,” says Claussen.

And how many new fabs can we expect to see in the next five years? George Burns of Strategic Marketing Associates says, “According to the Quarterly Spot Report on Semiconductor Fab Projects, between the beginning of 1995 and the end of 1999, our fab data base lists 195 fabs that came online.” Without hazarding a guess at growth factors, around 200 more should come online in the next five years. CMS providers are poised to meet this need.

True costs of chemical use

Pockets of interest about CMS are forming among business researchers, pollution prevention advocates, and academics around the country, but the far reaching potential benefits to chemical users has yet to be fully understood and embraced in an overt way. Industrial systems researcher Tom Bierma of Illinois State University believes that “prospective customers have yet to become aware of the benefits of CMS. First, there are those companies that have never heard of the CMS concept. Those that do know about it and begin to investigate it often to do not have the support of upper management nor enough information to make the internal sell. Often, in those companies that do investigate whether to pursue CMS, they have an extremely inaccurate view of the total cost of their chemical use and don’t see the benefit of pursuing it further,” Bierma explains.

“Yes, chemical costs are much more than just the chemical buy,” agrees CSP’s director Jill Kauffman Jonson. “This is one of the key points we are driving home to chemical users. Traditional accounting systems do not capture the total cost to manage chemicals. Research and experience reveal that for every dollar spent on the chemicals alone, an additional $1 to $7 is spent on managing those chemicals through the entire chemical life cycle. That’s everything from the time and money spent in purchasing, point of delivery, MSDS management, inventory, floor space and disposal, along with issues around liability, reporting and public relations.” CSP has developed a simple life cycle accounting tool to help a facility capture its chemical management costs.

CSP Pilot with nortel semiconductor

“Our pilot with NorTel taught us a lot about the unique variables involved with semiconductor manufacturing,” says CSP’s Tom Votta. “We begin by evaluating the fab’s photolithography process, mapping out material inputs and outputs. Material flows were then checked against the company’s internal tracking system. We then categorized chemical usage at each step in the process. In the end, we discovered that NorTel’s internal tracking system was underestimating the waste factors on some of the automated machinery. They were underestimating the waste because the variability in wafer throughput was not thoroughly considered.”

CSP followed up at NorTel with a facility-wide cost accounting analysis that provided baseline chemical management life cycle cost information. CSP then developed and recommended a cost-per-wafer pricing scheme for contract negotiation with NorTel’s chemical service provider. CSP will be working with other semiconductor and electronics firms in a new pilot project beginning this fall in Sillicon Valley.

Enter the CMS forum

This year, CSP has teamed with four leading chemical service providers to found the CMS Forum. The purpose of the CMS Forum is to promote economically and environmentally beneficial chemical management services. Radian International, Haas Corp., GW International and Ashland Chemical have taken the lead in promoting this effort. Recent new members of the Forum include SEMATECH, SEMI, the University of California Lab Administration, and service suppliers Interface and Ecolink. Membership is open to all entities—customers, suppliers, government, academic institutions, trade associations—who are interested in promoting this new model.

Alliances abound in semiconductor manufacturing today, in ways that are beneficial not only for the immediate bottom line, but in other positive ways as well. The strategic relationships being forged by manufacturers and their chemical service providers are producing tangible results in improving production efficiency while reducing environmental impact. CMS is emerging not only as an important link in the chain of supply, but is changing the way all the parts are linked.

About the Author
Lauren S. Johnson works with the non-profit Chemical Strategies Partnership (CSP) in San Francisco. She conducts public outreach and assists in managing the CMS Forum program at CSP. She is currently working on CSP’s upcoming pilot program with electronics manufacturers in Sillicon Valley and researching design models for a CMS certification program.

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What is Chemical Management Services? Chemical Management Services (CMS) is a business in which a customer engages with a service provider in a strategic, long-term contract to supply and manage the customer's chemicals and related services... more »

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