Safe & Sustainable Chemicals Series
Chemical Management Services
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Published: September 2011
Chemical management services—or CMS—is an evolving business segment of the chemical supply business.
In essence, CMS is providing a cradle-to-grave management of chemical inputs to (generally) a nonchemical company so that the following benefits are provided:
- Minimum volumes of chemicals are used
- Minimum waste is produced
- Waste produced is dealt with effectively
- Regulatory actions are fulfilled and regulatory entities are satisfied
- Technical know-how is provided
- Inventory is minimized
- Paperwork is minimized or dealt with by the supplier as much as possible
- Chemical flows and financial results are regularly monitored and reported to the customer
And the overall effect of these services is:
- Bottom-line chemical costs are lowered
- The risks of dealing with chemical materials, especially hazardous chemicals, are minimized
- The supply of critical materials—or moreover, the function the material provides—is assured
Virtually every supplier of chemicals would claim to provide these services and benefits. And in reality, most do supply some or many of these services. This is what competition is often based on, especially in the specialty chemical businesses.
The avenues by which products get to market have always been several. The differentiation of these ways is many, but useful criteria include the level of involvement of the supplier of goods with the user of these goods.
Effective use of different types of products—or in this case, chemicals—requires different levels of interaction between suppliers and users. There is a spectrum of interaction intensity levels in the chemical industry and one's placement in this spectrum depends on the sophistication of the supplier, the user and the complexity of use of the product.
It is that last point—the product and all the issues surrounding it—that has been a major factor in the rise of a new group of companies that are increasing their share of chemical sales—and service—at a high rate.
Many factors are contributing to increasing sales for CMS providers. Perhaps chief among them is the increasing complexity of regulations concerning the use of chemicals and especially regulations concerning the disposal of used chemicals and any by-products that might arise from their use. While chemical companies as a necessary requirement of doing business must deal with these regulations and the paperwork/documentation that is ultimately required, companies that consume small amounts of chemicals find these regulations especially burdensome. The chemical materials are essential to their business but require time and effort to meet legal requirements sometimes out of proportion to the volume of use. CMS companies can provide substantial alleviation of these burdens.
Avoidance of such burdens is hardly the only motivator. Small volumes of chemicals can have a profound impact on the quality of the products that the using companies are manufacturing (or even the services they are providing). But broad knowledge—and the research and development necessary to expand that knowledge—is simply not available to these users through their own resources. Some CMS providers focus on a limited number of applications and markets, but provide a wide range of products—and customer service offerings—within these markets. Users can benefit from these endeavors and leverage that knowledge into product performance, low cost and other benefits. Similarly, the CMS provider can bring the expansive expertise of their suppliers as well (except where competition limits such exchanges).
Bottom line cost is also a major factor. Indeed, if this were not so, this business model would not likely exist, and manufacturers and distributors would fill most supply requirements adequately. All suppliers strive to provide the best "bottom-line" cost solution to a customer's supply needs. Indeed, this is what most suppliers of specialty—especially functional specialty—chemicals try to do. But CMS suppliers often extend this to a broader range of products in an industry or application focus and are organized to do so when the customer requires relatively small volumes of chemical products.
The following chart illustrates how the CMS company provides various services throughout the use cycle in the purchasing company.
It is important to note that the level of these services will vary among the various types of suppliers of chemicals, including CMS companies as well. In general the level of supply of these services will increase from the commodity supplier to the specialty provider.
The major differentiator of CMS companies from other chemical suppliers is the intensity of the service, especially during the end-of-use phase, which is recycling or waste disposal.
It should be noted that the CMS market is not limited to suppliers of chemicals. A number of significant players in the market do not supply chemicals. While these companies are of secondary interest to this report, they nonetheless play a significant role in CMS.
Included in this category of suppliers are most notably software suppliers. The role of these companies can be several. They can allow for some companies to essentially be a provider of their own CMS through use of techniques and products that are developed by this set of suppliers.
Another major factor that differentiates CMS companies from other types of chemical suppliers is the nature of the customers. A majority of chemical sales is to other chemical companies. If the value of interplant transfers is taken into account this number rises to a very high percentage. And if the sales of polymers to polymer processors are included, then the amount of chemicals and related materials sold to chemical companies is likely well in excess of 90%.
This new Safe & Sustainable Chemicals report discusses the dynamics of this evolving market, provides a discussion of regulatory factors impacting the chemical industry, and analyzes current and potential markets for CMS. A list of current CMS providers as well as chemical distributors is included. Brief profiles of seventeen major CMS companies are also provided.