As printed in the JAN - MAR 2000 issue of CareLine
Imagine you’re a chemical manufacturer and are presented
with the objective to sell less chemicals. Crazy concept? Not in
the eyes of the Chemical Strategies Partnership (CSP) which seeks
to help companies reduce their use of toxic chemicals in manufacturing
through incentive-based contracts with their chemical suppliers’.
The chemical producer enjoys a bottom line benefit,
too. And that is by becoming a good supplier of chemical services.
The growing trend for chemical manufacturers to offer services to
customers can provide an effective tool for Responsible Care companies
to enhance their product stewardship activities. CSP’s aims
are closely linked to many aspects of the Product Stewardship code.
CSP was set up in 1966 by a US foundation known as
The Pew Charitable Trusts* with additional support from the Heinz
Endowments. Many environmental organizations are policy-driven and
will seek to achieve their objectives by extending the scope of
regulations, for example. But CSP is “an attempt to promote
a market-based program. It’s a different approach for an environment
group,” notes Jill Kauffman Johnson , CSP Project Director.
CSP aims to help redefine how chemicals are used and
sold. Traditionally, chemical suppliers sell customers a given volume
of chemicals: the greater the volume, the greater the profits. CSP
supports a current trend to change this transaction from a volume
and sales orientation, to a service orientation. Instead of purchasing
chemicals, a manufacturer purchases chemical services: assistance
in purchasing, managing, and tracking chemicals. CSP does not provide
chemical services, but is an independent third party advocating
the chemical service business model due to its proven track record
of reducing chemical use, reducing costs, and improving efficiency,
and improving environmental performance. Johnson says that as a
non-profit, third party, “we can help sell the concept, but
we are not naïve- we understand there has to be a financial
benefit, even though our interest is in the environmental benefits.”
Having successfully completed a pilot program in the
electronics sector lasting around three years, CSP now wants to
promote chemical services in other sectors that are major users
of chemicals. “Companies that participate in our pilot programs
are generally progressive companies willing to try something new.
We are trying to test a new idea. They receive free analytical assistance,
but they are risking the time and energy it takes to initiate change
internally-it’s a new way of doing business,” says Johnson.
The true cost of a chemical reaches far beyond the
purchase price paid to a chemical supplier, notes CSP. Hidden costs
of chemical use include data management for compliance, inventory
carrying costs, safety, disposal, and floor space. According to
CSP, the cost of chemical management can range from $1.00-$10.00
for every dollar of chemicals purchased. So a facility purchasing
$7 million in chemicals may be spending an additional $7 million
-$70 million managing those chemicals. In the new service model
promoted by CSP, chemical service providers begin by offering a
range of chemical management services. They might cover purchase
and delivery of chemicals: inventory management and Material Safety
Data Sheets: provision of data for some environmental reports: research
for chemical substitutes: and implementation of process efficiency
improvements. Service providers are compensated in a number of ways.
They may receive a management fee or get paid through the cost savings
In a more mature relationship, says CSP, the service
provider may be paid a fixed fee for each product successfully produced
(per 100 toaster ovens produced, or 1000 circuit boards cleaned,
for example). This gives the supplier an incentive to reduce the
costs and use fewer chemicals to yield a higher margin on each product.
By aligning the incentives of suppliers and customers to produce
more products at a lower cost, both achiever bottom line benefits
via reduced chemical use, costs, and waste.
CSP recently turned its attention to suppliers and
establish a chemical management service (CMS) provider ‘forum’.
The Forum’s mission is to ‘grow the awareness and practice
of economically and environmentally beneficial chemical management
services’. There are four founding members: Haas Corp., Radian
International, Ashland, and Great Western. “We became aware
of suppliers as we worked with manufacturers,” explains Johnson.
“We realized we needed to reach out to suppliers and understand
where they are coming from.” “The CMS Forum is being
formally launched this month (January). A communications program
will also be initiated this year to promote the benefits of CMS
as well as the results from our pilot program,” Johnson says.
Through the communications campaign and a special section on its
website, information about the CMS Forum will be available and chemical
service providers are invited to participate.
It is not easy to define a real chemical service provider.
In its literature, CSP describes them as ‘leading suppliers/providers
who have made the business decision to offer a range of chemical
management services to the marketplace; have capabilities to provide
these services to customers in various industries; and have established
numerous service based contracts with these customers.’
All too often, a company claims to offer a full range
of chemical services, which on closer examination turns out to be
simply an integrated purchasing policy. “Strategic purchasing
in itself is fine, and it brings out financial benefits for the
customer, perhaps for a couple of years,” says Johnson. “But
it stops there. A lot of companies are positioning themselves as
offering chemical services, but they actually have no expertise
except in purchasing…”
According to Johnson, “We want to see it go
way beyond integrated purchasing. A real chemical service program
looks at the whole life cycle, at material usage, and effects, and
so on. Making changes based on this strategy can offer savings over
four or five years, even up to ten.”
Because the concept is relatively new, there’s
a real fear at CSP that the chemical services strategy may simply
get “shanghaied by those just doing strategic purchasing.
A supplier needs to be on site to learn what is going on at a customer’s
facility otherwise they will never realize the environmental benefits,”
However, there are considerable pressures on those
businesses trying to develop a true chemical services operation.
“A lot of them are ‘renegades’-they have to justify
internally as to why the service factor is so important,”
explains Johnson. “At the end of the day, they are going to
sell fewer chemicals. So often they have to struggle within their
own companies to find the support they need.”
The trend towards being a service provider is at a
critical juncture believes Johnson. It is a national business trend
to offer more and more service with your product. But she reiterates
her earlier warning that the “threat is this service stops
at purchasing…It could kill the whole thing. It’s very
difficult to predict what it is going to look like in the future,”
Key requirements for success including good, well-trained
staff, and having the ability to supply a range of services that
will ultimately result in both cost and chemical use reduction.
Staying power is also a ‘must’. According to Johnson,
“It needs a five year contract to be successful. That takes
commitment on both sides, there has to be a true partnership between
the two companies.
CSP has developed a manual, Tools for Optimizing Chemical
Management, outlining a step-by-step process to help interested
companies determine their total chemical costs and develop a chemical
service program. The manual and other resources are available on
CSP’s website” www.chemicalstrategies.org
* A major component of the Pew Charitable Trusts’
$30 million environmental program is aimed at encouraging the design
and implementation of cost-effective state and federal environmental
policies, regulations and reporting programs, as well as exploring
new ways of working with business to develop market-based solutions
to environmental problems.
Haas Corp is one of just a handful of firms that derives
100% of its revenue from chemical management services. According
to Thad Fortin, President Haas is ‘dedicated to the process
as we have committed the financial resources necessary to grow our
business.’ The company is the largest and most diversified
chemical manager in Canada and Mexico. Adds Fortin, “We are
also the largest chemical manager for General Motors in the US for
their assembly operations. We are one of only two companies to do
chemical management in China. And we were the first company to receive
Ford’s Total Fluid Management Contract.”
Fortin notes that chemical management is “a
very new concept and its definition is confused in the marketplace.
The CMS Forum is an effort to sort through the confusion and clearly
define what [we] believe to be true chemical management.”
He says that,” As a first step, a group made up of providers
administered by an objective third party is a great way to define
the industry and add value to our customers and the environment.”
Fortin describes chemical management as “an
excellent strategic management tool which encourages outsourcing
and provides economic and environmental benefits for any end user
of chemicals. This message needs to be communicated to the marketplace.
Rather than a promotional sales piece by individual providers, collectively
and with CSP we can achieve this objective.”
Haas expects to see both financial and performance
benefits from the CMS Forum. “On the financial side we hope
to attain reach in the marketplace which will translate into more
users and more opportunities. On the performance side, our goal
is to improve the services and benefits for our customers.
Hopefully [Forum members] will be able to share some
ideas, particularly those that have a significant impact on the
environment and the health and safety of workers,” Fortin
Leigh Hayes,Senior Vice President of Radian International
and Director of Total Chemical Management, believes there is “great
potential in the growth of chemical management services” and
says the companies prime motivator for participating in the forum
is “one of an ‘abundance’ mentality. In other
words, [we] work with other service entities to gain broader market
reach to grow awareness and acceptance of chemical management in
the global marketplace.” Hayes also comments that the move
will help Radian “understand better how to drive environmental,
health and safety obligations and chemical efficiency opportunities
into core business processes.” He adds that Radian’s
Total Chemical Management approach makes the company a good candidate
for the forum.
He explains: “We take a ‘lifecycle management’
approach in that we use technology and optimize work processes to
better manage each element of the lifecycle for the end users, according
to their priorities.
“In this world of relentless pressure to reduce
costs, most chemical users will eventually look to their chemical
lifecycles for ways to improve their operational efficiency. Radian
wants to be there to help and learn all the ways to do it.
Great Western Chemical has been providing various
chemical manangement programs to metal manufacturing, semiconductor,
and the printed circuit board industries for over 10 years. “As
an industry-focused distributor we feel we bring a unique offering
to the chemical management marketplace,” says Dan Zinman,
Manager Strategic Development. “As a distributor we can truly
be a third party when it comes to chemical selection and supply.
We also bring logistics and procurement expertise found within many
Like other forum members, Zinman says, “With
an emerging technology such as chemical management, there is a lot
of trepidation in the marketplace to implement this type of program.
There is a real need to educate industry on the value and benefits
of chemical management. The CMS Forum enables us as a group to provide
a third party education versus the ‘selling’ of a program.
As founding members, we each bring our own perspective and expertise
to Chemical Management. Through our background and experience with
chemical management programs, our motivator in joining was to become
one of the ‘voices’.”
The other member of the forum, Ashland, is a large
CMS provider to the semiconductor market and the largest chemicals
distributor in the US. Mike Pregent, Business Manager, Chemical
Management Services, North America, echoes Zinman’s point
about educating the customer: “We feel the education process
that customers go through is very important to their ultimate decision
making process. The CSP is a non-sales environment for customers
to see the possible benefits, some of which the customer may not
have thought about, in becoming a CMS customer.” Ashland sees
the primary benefits of its participation as “a more extensive
education process for customers- from a neutral third party-so they
understand what CMS is and what it isn’t; and exposure to
other groups of potential customers.”