new business model is emerging that is designed to reduce chemical
use, waste, risks and cost through the transformation of the chemical
supply chain by redefining the way chemicals are used and sold.
The Chemical Management Services (CMS) model calls for a customer
to engage with a service provider in a strategic, long-term contract
to supply and manage the customers chemicals and related services.
The CMS Model
The key to this new chemical services model is a change in the traditional
relationship between chemical suppliers and their customers: instead
of providing chemicals, suppliers provide the function of the chemicals,
or chemical services. Thats a major shift from current practice
with major implications. The model is compatible with many emerging
business management trends: strengthening a companys core
business, outsourcing support functions and building strong alliances
Heres how the shift works. Traditionally, suppliers
profits are tied to chemical volumethe more chemicals sold,
the more profit generated. Under CMS, the providers compensation
is no longer based on volume, but on the quality and quantity of
services delivered. This shift to chemical services often aligns
the incentives of the supplier and their customer to reduce chemical
use and costs. (See Figure 1.) Results to date indicate that the
CMS model lowers total chemical costs, and both parties achieve
bottom line benefits via reduced chemical use, costs and waste.
With CMS, chemical service providers offer a range of services across
the chemical life cycle. (See Figure 2.) For example, a chemical
service provider may purchase and deliver chemicals, manage inventory
and MSDSs, provide data for environmental reports, research chemical
substitutes and implement process efficiency improvements. By sharing
cost savings, the chemical service provider has an incentive to
continuously reduce costs and chemical use.
In a more mature relationship the service provider is often paid
a fixed fee for each product successfully produced (e.g., a fixed
fee per 100 car doors painted or 1,000 circuit boards cleaned).
Thus, the chemicals themselves become a cost center that the supplier
has an incentive to minimize.
CMS is far more than leveraged purchasing. It is focused on optimizing
processes, continuously reducing chemical life cycle costs and risk
and reducing environmental impact.
CMS began in the auto sector in the 1980s as a supply chain management
strategy. Today, approximately 50 to 80 percent of the auto sector
uses CMS due to the strategic and cost benefits of the model.
In other chemical-intensive sectors (e.g., electronics, aerospace,
metal finishing), penetration is lower. However, CMS is growing
quickly in these sectors, and the CMS industry expects strong growth
in all sectors to continue. The growth projections reflect the close
linkage between CMS and key management trends, including: outsourcing
based on core competency, supply chain management and strategic
The environmental and cost benefits realized by initial CMS programs
in the auto sector raised two questions: is the CMS model applicable
outside the auto sectorand, if so, how can its environmental
benefits be maximized?
In 1996, the non-profit Chemical Strategies Partnership (CSP) was
founded to explore these issuesto investigate, through demonstration
and application, the utility of CMS as a business model for continuously
reducing chemical use and waste in a variety of industry sectors.
Toward these ends, CSP has pursued a varied program rooted in hands-on
collaboration with manufacturing firms. Having demonstrated the
business and environmental value of the model, CSP is increasingly
focused on disseminating the model and introducing CMS into new
Chemical management begins with procurement and extends through
use, treatment and disposal. These activities make up the chemical
life cycle within an organization.
At each stage of the life cycle, a company incurs quantifiable costs
of labor, materials, equipment, liability, safety training and compliance
efforts. Unfortunately, design, production and management decisions
regarding chemicals are typically made without consideration of
all these hidden costs. Talking with several companies, CSP has
seen the cost of chemical management range from $1 to $10 for every
dollar of chemical purchased. That means for a facility purchasing
$7 million in chemicals, the additional cost of using chemicals
could be $7 million to $70 million. These costs are often higher
than expected due to the concealed expenses behind chemical use,
such as compliance, safety and inventory carrying costs.
Aside from lowering costs, some of the primary reasons companies
launch a strong effort to improve their chemical management include:
* Freeing up floor space for manufacturing
* Improving staff productivity by eliminating chemical
management tasks from their overall responsibilities
* Increasing employee safety
* Reducing chemical use to drop emissions below environmental
* Leveraging the knowledge resources of a supplier
* Reducing the number of accidents on site
* Reducing liability
Several companies within the automotive and electronics industries
have effectively implemented chemical service programs. Some examples
* General Motors (GM), together with its chemical service
provider, reduced cost, chemical variety 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.
* Navistar International and its chemical service provider
developed opportunities for reducing, cutting and grinding fluid
waste. The chemical service provider installed a process to clean
and reuse the fluids, reducing new fluid use by 50 percent. This
lowered the cost of fluid waste by 90 percent.
* The chemical service provider for a semiconductor manufacturing
facility helped cut its chemical consumption by 50 percent over
two years and instituted changes resulting in savings of approximately
$200,000 a year.
* One facility of an aerospace company achieved total savings
of $1.1 million in chemical management costs during the first year
of its chemical service program.
A New Tool
CSP has developed a new manual to help firms measure the real cost
of using chemicals in their manufacturing operations. This information
can then be used to reduce both chemical costs and use.
The manual, Tools for Optimizing Chemical Management, explores
whether implementing a chemical management service programa
program that puts supplier expertise to work in reducing total chemical
costs and volumesmakes sense for a firm. By real
and total chemical costs, CSP includes all the costs
tied to chemical use, including: procurement, compliance, inventory,
training, delivery and disposal of chemicals.
These costs are significant and often hidden. Several studies have
revealed that chemical management costs can range from 1 to 10 times
the purchase cost of chemicals. Few companies realize and track
these total chemical management costsand fewer utilize supplier
know-how to reduce chemical related costs and volumes.
The CSP manual provides guidance on developing a chemical service
program. A chemical service program involves strategic partnering
with a chemical service provider (Tier 1 supplier) who performs
some or all of the chemical management activities for a facility.
A chemical service provider may be a chemical supplier, waste hauler
or environmental engineering firm that offers a range of services
to manage your chemicals. Some of these services include:
* Purchasing and delivering chemicals
* Maintaining inventory
* Improving process efficiency
* Collecting data for environmental monitoring and reporting
* Waste collection and disposal
A chemical service approach helps to shift the suppliers profitability
motive from sell more to manage better.
That translates into decreased chemical use, costs and liabilities
for any company. (See Figure 3.)
The manual outlines the CSP approach and provides step-by-step guidance,
as well as specific tools, to help companies develop and implement
their own chemical service program. It will help a company answer
* What do chemical management services include?
* Should the development of a chemical service program be
* What baseline information is necessary?
* What are total chemical management costs? (See Figure 3.)
* How can the environmental and cost justifications for upper
management be developed?
* What services are providers capable of providing?
* What steps are needed to successfully implement a chemical
If a company does not already engage in outsourcing or strategic
partnerships with some of its suppliers, implementing a chemical
service program will likely constitute a major cultural shift. In
addition, initiating a chemical service program takes an investment
of time and resources, but in the majority of cases, the benefits
significantly outweigh the costs.
Information for this section was provided by the Chemical Strategies
Partnership, a non-profit organization based in San Francisco, CA,
founded by the Pew Charitable Trusts with major support from the Heinz
Endowments. For information, call
415-421-3405; e-mail: email@example.com;