Implementing service-based chemical procurement: lessons and results

Abstract

Chemical use reduction is strongly desirable for environmental and public welfare reasons, and is a critical element of moving towards more sustainable consumption in the business-to-business economy. However, the fundamental economic relationship between chemical supplier and chemical customer creates supply side incentives for increased chemical use. Chemical management services (CMS) is a business model that aligns economic incentives in the chemical supplier–customer relationship towards reduced chemical use by making chemical services rather than chemical volume the basis of supplier compensation. CMS thus ‘servicizes’ the chemical supply chain and is a Product Service System with significant potential environmental benefits. CMS enjoys high penetration in the US auto and semiconductor sectors, and is emergent in other sectors. The paper synthesizes lessons learned from hands-on work with 15 chemical-using firms over 5 years in all aspects of CMS program implementation. Key points are that poor cost accounting and chemical information management form significant barriers to making, understanding and evaluating the CMS business case. The details of contractual compensation mechanisms are critical to achieving in practice the potential environmental benefits of the CMS model.