Chemical Management Services

DefraBIS Conference Centre

15th July 2009

Ralph Gerrard

Yorkshire Chemical Focus

What we do:

We work with member companies and partners from across the industry supply chain and with the public sector to encourage growth and increase competitiveness

Promote economic and environmental benefits of improved chemical and resource management

Organisation and Funding:

Independent, non-for-profit company

Funding from RDAs, member company contributions and other sources

No commercial interest in service delivery

Process

Improvement

A

Process

Improvement

B

Process

Improvement

C

3

CMS and Chemical Leasing compared

In CMS, a supplier conducts chemical management across an entire facility or company.

In Chemical Leasing, chemicals are applied and managed by suppliers who conduct process

improvements at an individual process or tool.

Purchasing

Receipt

Inventory

Delivery

Use

Waste

Purchasing

Receipt

Inventory

Delivery

Use

Waste

Purchasing

Receipt

Inventory

Delivery

Use

Waste

Process

Improvement

A

Process

Improvement

B

Process

Improvement

C

CMS Definition

A Strategic, long-term relationship in which a customer contracts with a service provider

to supply and manage the customer’s chemical and related services

What Is CMS?

A strategic, long-term contract to provide chemicals andservices to manage the ‘chemical lifecycle’

Goes beyond selling and delivering product to optimising processes and systems for reduced cost and risk

Low cost, high performance expert system designed for continuous improvement

Aligns incentives for efficiency improvements that reduce chemical volume and costs:• From ‘more is more’ to ‘less is more’• Contractual performance and savings guarantees

6

Customer Tier 1 Supplier

Relationship

Tier 2 chemical supplier

Tier 2 chemical supplier

Tier 2 chemical supplier

Tier 2 chemical supplier

CMS aligns formerly

conflicting incentives

Traditional relationship:

Conflicting incentives

Material Cost

(price, volume)

Supplier

wants to

increase

Buyer

wants to

decrease

CMS model:

Aligned incentives

CMS provider

wants to

decrease

Buyer

wants to

decrease

Changing the supply chain model to align supplier-buyer

incentives results in cost savings and environmental gains.

Total Lifecycle Cost

(material, labour, waste, inventory)

Reduced Cost, Risk, Environmental Impact

Improved Strategic Sourcing

Reduced mgmt

costs, chemical

volume, and pricing.

Allows focus on core competencies

Incentives to

continuously reduce

volume

Reduced mgmt

costs, chemical

volume

Reduced mgmt,

transaction and

carrying costs

Rationalised supply

base

National leverage

for lower pricing

Negotiated

lower pricing

BenefitsUser convenience

Provider manages

continuous

improvement, gate

keeping, MSDS,

regulatory and cost data

Provider suggests

process

improvements &

product

substitutions

Provider owns

&/or manages

inventory

Contracts

negotiated by

national buyers

Contracts

negotiated by

site/regional

Buyers

DescriptionAd Hoc Purchasing

TCO + Chemical Management Services (CMS)

PMI + Total Cost of Ownership (TCO)

NC + Provider Managed Inventory (PMI)

National Contract (NC)

Local or Regional contracts

Individual or non contract Purchases

Increasing Provider Value

The chemical lifecycle’s unique requirements

Unlike other purchased materials, chemicals require specialised procedures and data at every lifecycle stage

The Chemical Lifecycle

Environmental, Health, and Safety Management

Data Management

Procure

ment

Receipt

Inventory

Delivery

UseWaste

CMS providers improve

lifecycle managementA CMS Provider not only supplies chemicals, but also delivers services and continuous improvement, often at lower total cost.

– Best price

purchasing

– Supplier

management

– Review and

authorisation

– ‘Green’

substitutes

– Physical

inspection

– Quality

control

– Labeling and

re-packaging

– Inventory

tracking,

reduction

– Min/max

level

monitoring

– Shelf-life &

scrap mgmt

– JIT

systems

– Point-of-

use

delivery

and

cabinets

– Inter-site

transport

– Usage

monitoring,

control,

reduction

– Process

efficiency

improvement

– Waste

collection,

mgmt,

transport

– Disposal

oversight

– Recycling and

source

reduction

EHS and Data Management

Procure

ment

Receipt

Inventory

Delivery

UseW

aste

– E-purchasing,

inventory & waste

tracking system

– Environmental

permitting/reporting

– Training

services

– Emergency

response

– Exposure

monitoring

– MSDS

management

Hidden risks and costs offer

opportunities for savings

These management costs can be large: up to £3 for every £1 spent on chemicals.However, they are often overlooked because they are hidden among many department budgets

Lower purchase and management costs

Faster delivery with fewer errors

Lower inventory cost and scrap

Improved operations, reduced downtime (right chemical, right time, right place)

Reduced chemical volume and risk

Reduced air emissions and hazardous waste

Improved EHS compliance and reporting

Better data management

CMS benefits reported by

CMS CustomersAligned incentives and contractual commitments lead CMS providers to deliver a range of benefits to their customers:

25

38

63

63

75

75

88

88

100

Additional CMS benefits

reported

Improved data management

Reduced purchase costs

Improved inventory management

Improved delivery

Reduced inventory scrap

Reduced labour costs

Reduced overhead costs

Decreased process downtime

Benefit % of Customers Reporting Benefit

Source: CMS Industry Report 2004, Chemical Strategies Partnership

Reduced chemical use

100%

88%

75%

75%

66%

63%

38%

25%

88%

Reported Cost Savings

– 5-30% savings in Year 1

– 30-60% savings by Year 5

Cumulative Savings Reported

(% of total purchase and management cost)

0

10

20

30

40

50

60

70

Year 1 Year 2 Year 3 Year 4 Year 5

Source: CMS Industry Report 2000, Chemical Strategies PartnershipNote: Fewer Year 4 and 5 respondents due to recent program launch.

CMS Providers

CMS Customers

Savings reported by:

70%

60

50

40

30

20

10

0

Other

Source of Emission Reduction

Source: CMS Industry Report 2004, Chemical Strategies Partnership

Environmental benefits: waste and emission reductions

Chemical substitution

Technical process improvements

Recycling/reusing chemicals

Reduce amount of chemical applied

% Customers Reporting Reduction

25%

31%

31%

46%

54%

Source: CMS Industry Report 2004, CSP industry surveys and estimates.

CMS Adoption by Industry (North America)

CMS is an emerging best

practice in many industries

0%

10%

20%

30%

40%

50%

60%

70%

80%

Autom

otiv

e

Air Tra

nspo

rt Ele

ctro

nics

Auto

Suppl

yAer

ospa

ce

Steel

Hea

vy E

quip

men

t

Energ

y/U

tiliti

es

Man

ufac

turin

g

Food/

Bever

age

Labo

rato

ry

2000

2004

%In

dustr

y U

sin

g C

MS

CMS UK Case History

Water Treatment Industry Pilot Completed in 2006, funded by Yorkshire Forward and supported by CSP and International eChem

Achieved;

• Sludge volume reduced by 15%

• £44K saving on the one pilot site

• Significant energy savings drying the sludge

Additional Benefits;

• Reduced storage,

• Reduced transportation

• Lower disposal costs

• Achieved regulatory requirements

Now negotiating new contacts to include CMS process at up to 300 other sites

Raytheon Case Study

Streamlined Operations (~20,000 chemicals, 1000 waste profiles)

Automated ordering, chemical gate-keeping, consolidated sourcing

On-line MSDS and EHS data for reporting

Chemical use and waste generation tracking

Procurement and inventory management

Improved Service and Quality

On-time delivery rose from a base of 82% to an average of 91% in the first 5 months

Scrap rate reduced by 250%

Reduced Costs

Payback of the program in the first 6 months

10-20% net savings in the first 2 years

Expected savings over the 5 year contract is 30-40%

Seagate Technology Case

StudyBenefits realised in first twelve months at one facility

Aligned incentives and guaranteed savings – supplier generates no profit from volume sales

Reduced onsite chemical inventory/handling (JIT)

- Reduced 10,000 sq. ft. of inventory by 50%

- Reduced £500,000 in carrying costs of chemicals

- Eliminated chemical scrap – approx. 7% of inventory

Improved chemical processes/shared best practices

- Photo-resist process: substituted more benign product and extended bath life 3-5 times, resulting in savings of £33,000/month

CMS Target Sectors

Water utilities

Food

Electronics

Aerospace/defence

Personal Care

Local Authorities

Others…….