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Chemical Management Services (CMS) is a business model
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.
Traditionally, suppliers' profits are tied to chemical
volume-the 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. 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.
Fig. 1: Aligning incentives
With CMS, chemical service providers offer a range
of services across the chemical lifecycle (fig 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 1000 circuit boards
cleaned). Thus, the chemicals themselves become a cost center which
the supplier has an incentive to minimize.
CMS is far more than leveraged purchasing. It is focused
on optimizing processes, continuously reducing chemical lifecycle
costs and risk, and reducing environmental impact.
Fig. 2: The Chemical Lifecycle
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 partnering.
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 sector-and, if so, how can its
environmental benefits be maximized?
In 1996, the non-profit Chemical Strategies Partnership
(CSP) was founded to explore these issues — to 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.
Towards 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 sectors. Major efforts of CSP to date include:
CSP has collaborated in-depth with 10 companies to
help develop their CMS programs. Initial collaborators were Nortel,
Raytheon Company, AMP, Inc., and a coalition of small and medium
sized enterprises in Western Pennsylvania.
CSP assistance ranged from chemical cost baselining
to RFP development, contract negotiation, and implementation tracking.
(The collaboration with Raytheon resulted in a $200mn, 5 year national
contract, one of the largest to date in the industry.)
Currently, CSP is conducting a regional pilot program
in Silicon Valley funded by the U.S. EPA. Partners include Seagate
Technologies, Analog Devices, IBM, and the Stanford Linear Accelerator
Center.
A key barrier to CMS is poor understanding of the
actual costs of chemical management. CSP's baselining studies indicate
that manufacturers typically spend an additional $1 to $10 to manage
every dollar of chemical they purchase. Most management accounting
systems do not attribute these costs.
In an effort to address these barriers and disseminate
the CMS model more widely, CSP developed its how-to manual, Tools
for Optimizing Chemical Management. The manual includes CSP's costing
methodology, spreadsheet costing tool, and presentation material
for educating colleagues and upper management about CMS.
Other barriers to CMS include confusion in the marketplace
and lack of standards. To address these issues, CSP and a number
of CMS providers came together to create the CMS Forum (www.cmsforum.org).
The Forum is a membership coalition of chemical management service
providers, their customers, Tier II chemical suppliers, and other
stakeholders focused on growing the awareness and practice of economically
and environmentally beneficial CMS.
Chemical Management Services: Industry Report 2004
is the first-of-its-kind CMS industry report. Based on an extensive
survey of CMS providers and customers, the Report provides a profile
of current CMS practices, estimates potential market size on current
CMS penetration, and details industry structure.
is a 501(c)(3) nonprofit project of the Tides Center.
Initial funding was provided by the Pew Charitable Trusts and the
Heinz Endowments.
CSP is staffed by California Environmental Associates
(CEA) and the Tellus Institute. San-Francisco based CEA (www.ceaconsulting.com)
is responsible for overall management of the CSP program and houses
the CSP head office.
CSP is on the web at www.chemicalstrategies.org
Principal contacts are:
Jim Kauffman Johnson
Executive Director
423 Washington Street, 4th Floor
San Francisco, CA 94111 USA
+1.415.421.3405
+1.415.421.3304
jill@chemicalstrategies.org
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