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— As
printed in Vol. XI, No. 12 of Business and the Environment
The substitution of services for products dubbed the “servicizing
of industry,” appears to be a profitable alternative for chemical
suppliers and their customers. But even though they hold out the
promise of significant cost savings and environmental benefits,
chemical management services (CMS) contracts are best viewed as
a good idea according to a new survey by the Chemical Strategies
Partnership.
The Chemical Strategies Partnership is a nonprofit
organization launched in 1996 with funding from the Pew Charitable
Trusts and with additional support from the Heinz Endowments and
the US Environmental Protection Agency (see BATE, August 1997 and
May 1999). Under the CMS model, chemical suppliers shift away from
traditional contract relationships involving the delivery of bulk
products. The vendors forge strategic alliances that require them
to optimize their customers’ processes. A combination of compensation
mechanisms reward efforts that lower lifecycle costs and reduce
toxic chemical use.
Chemical Management Services Industry Report 2000
released by the Chemical Strategies Partnership, is based on interviews
with 15 CMS providers, including some who have been in business
for more than 10 years. It also surveys 15 CMS customers from industry
sectors CMS has penetrated the most: automotive, metalworking, aerospace/airlines,
and electronics. The respondents are DaimlerChrysler, Delta Air
Lines, Ford Motor Co., General Motors, General Dynamics Corp., GE
Transportation Systems, Honeywell International, Motorola, Navistar
International, Nortel Networks Corp., Northwest Airlines Corp.,
Raytheon Co., Texas Instruments, Toppan Electronics, and United
Technologies Corp.
The partnership’s three-month survey of the
CMS industry, which ended in September, finds that, across the board,
customers are enthusiastic and claim a number of financial benefits
leading to net savings of 5%- 25% per year. They cite improved data
management and reduced chemical purchase costs. They are also “keenly
aware” of some environmental benefits.
But driving the choice of a CMS provider is the desire
to reduce costs. Information from the customer about environmental
performance is often absent or anecdotal.
As the Ford assembly plant in Chicago, Illinois, USA,
where a CMS relationship with PPG/Chemfil exists for most chemicals
used at the facility, emissions of volatile organic carbons fell
57% in 18 months and wastewater sludge generation dropped 27% for
an annual savings of more than US $50,000 a year. Delta Air Lines,
which has a contract with Interface LLC Chemical Management and
began its CMS program in 1995 targeted at hazardous materials management,
says it has cut material use by 25%-30% year after year and avoided
$200,000 in risk of insurance in the first year.
“Every place we have put in a chemical management
program, the total chemical usage reduction averages around 30%,”
says Raj Mishra, environmental services manager at General Motors
(GM). “In some cases, it is more, in some it is less. But
an average chemical usage reduction of 30% is a very achievable
goal. Additional continuous improvements, though at much smaller
increments, are possible. There is also the {benefit’] of
substitution of chemicals by using less harmful chemicals.”
Mishra is credited with starting the CMS movement
about 12 years ago when he set about managing emissions and wastewater
treatment at GM facilities. At the time, GM used “probably
more than half a million different chemical products,” Mishra
tells BATE. For example, GM bought about 50 different products from
each of 1,200 lubricant suppliers. “That’s 60,000 lubricant-type
materials alone,” Mishra recalls. “I said, no way can
I manage this as an environmental emissions issue.”
CMS contracts cover an estimated 50%-80% of the market for chemicals
in the automotive sector, the survey concludes. CMS may have garnered
up to 40% of the electronics market. But the estimate for aerospace
manufacturing ranges from 5% -15%, and textiles and apparel, paper
and allied products, and primary metals industries purchase a large
amount of chemicals and are considered to be prime candidates. But
CMS has made little or no headway in these sectors.
“Reducing chemical use and chemical management
costs is generally not a corporate priority,” the survey states.
The cost of purchasing and managing chemicals is often calculated
as comprising less than 1% of a company’s operation costs.
However, the Chemical Strategies Partnership believes that conventional
accounting systems do not reveal chemical management costs that
can range up to 10 times the purchase cost of the chemicals.
“Most customers do not know their total chemical
lifecycle costs so they have difficulty valuing a contract. In many
cases, customers cannot even provide an accurate list of all chemicals
currently purchased,” the study says.
CMS providers are not clear what the role of e-commerce
will be or how it will be applied in the context of their contracts.
They have begun to explore the question. Other means to expand on
the current base of 253-300 corporate CMS customers involves education
and better tracking of financial and environmental results from
the CMS program.
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