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Chemical Management

Chemical Management: A Quiet Revolution

— As printed in the June 1999 issue of Lubes & Greases
“Chemical management is outsourcing,” Fortin says. “Under chemical management, a single supplier provides all chemicals, chemical services, analytical, inventory control, chemical process and information management services through the supplier’s on-site personnel. It’s a team approach that decreased the supplier base, provides increased supplier involvement, defines accountability and immediately reduces costs.”

Speaking at the Independent Lubricant Manufacturers Association’s Mid-Year Meeting, Fortin - whose company derives 90 percent of its revenue supplying chemical management services - described today’s chemical management market. The automotive industry, including assembly, parts, and metal fabricating plants, “is the most mature industry for chemical management,” Fortin says. “It’s becoming increasingly integrated, with one manager for paints, lubes, solvents, cleaners, waste treatment, all the chemicals”.

“General industry is ripe for chemical management”, Fortin continues, “with less than 5 percent using chemical management. In the electronics industry, less than 2 percent use chemical management. Steel and paper are dinosaur industries for chemical management. It will be at least five years before steel truly embraces chemical management. Paper is a little more advanced, but in the paper industry we’re seeing more single suppliers than true chemical managers.”

Fortin also sees a large market among smaller manufacturing concerns. “At Haas, our smallest account is $300,000, with no full-time person on-site. I believe there is a large market (in accounts) under $1 million.”

Why go to an outside chemical manager?
The overwhelming reason is to control operating costs. But it’s not the only reason. “Chemical management makes your problems someone else’s, and they have the expertise to solve them”, says Fortin.

“The old way companies purchased chemicals,” Fortin says, “was to have a large supplier base supplying a large number of chemicals. With large chemical inventories, the cost of materials in inventory can be as high as five times the cost of materials in use”.

Under this traditional approach, the supplier’s profit is based on the volume of chemicals used. “You also find a lack of supplier responsibility and accountability, resistance to change, and environmental compliance and worker health and safety problems”.

Under the chemical management approach “the chemical manager is your general contractor, and the ‘tier two’ suppliers are subcontractors,” Fortin explains. A single manager supplies all chemicals for a plant, says Fortin, and the customer purchases chemical services, not chemicals. White the chemical manager supplies materials, management, analytical, inventory control and information systems, the customer maintains control since its own employees coordinate overall management.

“The chemical manager becomes a key team player in the plant,” says Fortin. There can be just-in-time inventory of chemicals and more effective use of technology. “The chemical manager is paid a fixed fee, often on a parts-produced bases, and profits are based on service”.

Asked why the major oil companies aren’t more dominant in chemical management, Fortin notes that they do have some chemical management accounts, both as first - and second-tier suppliers. “But chemical management is a usage reduction business, and personally, I see them as pounds-out-the-door refineries. Their core competence is bulk sales. Plus majors have high overhead, and chemical management is entrepreneurial, with a lot of risk.”

Benefits of Chemical Management
The most significant benefit, Fortin says, is “immediate, substantial cost savings, including chemicals, maintenance and paperwork costs, water and energy reduction.” At Haas, he says, “we guarantee cost reductions to our customers.” And Fortin sees a long list of other benefits. “You’ll prevent pollution by reducing chemical consumption. You’ll have a quantifiable reduction of regulatory reporting needs.” With fewer types of chemicals and less waste generation, the user can reduce health and safety risks and liability.

Standardization of specifications, systems and procedures is another benefit. “At General Motors, for example, their initiative is to standardize their chemical management program globally,” says Fortin. “It’s similar to McDonald’s, where the quality and standards are consistent worldwide”.

“Chemical management has a beneficial impact on all environmental systems, including waste treatment,” Fortin continues. “You realize the cost reductions by developing a supplier base focused on providing cost effective services rather than volume sales.”

Tier One/Tier Two
Chemical managers, or tier-one suppliers, look for the second-tier suppliers who offer high levels of service and technical ability above all else, Fortin says. “We look for tier twos who have their corporation product approvals in place and understand chemical management. They must be willing to share the risks and the rewards, and be creative in reducing chemical usage.”

Unlike many chemical management vendors, Haas does not view the manufacturers and sales of its own chemicals as critical to its revenue and profitability. (Chemical manufacturing accounts for less that 10 percent of Haas Corp.’s business, Fortin notes).

“The chemical manager should be the gatekeeper, the filter between the customer and the tier-two suppliers of the chemicals themselves,” Fortin says.

“Tier-two suppliers should look for the tier ones who are willing to pay for the expertise and service” Fortin says. “Look for the first-tier chemical managers who want to reduce chemical usage, not tier-two profits. The chemical manager should provide incentives for achieving mutual goals, and should not offer competing products.”

“Both sides, tier one and two, must view the relationship as a partnership.”

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