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Chemical Management

Mission Impossible?

— Jim G
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.

Hidden Costs

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 they achieve.

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.

Supplier’s Forum

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,” she says.

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.”

Critical Juncture

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,” she says.

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.

What the Service Providers Say

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 says.

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 manufacturers.”

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.”

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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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