Auto manufacturers generally do not think of themselves as experts in chemical management.
That is the reason that, nearly 20 years ago, General Motors contracted out the management of its chemicals, including metal removal fluids, metal forming fluids, lubricants, greases, adhesives, paints, and compressed gases to a practitioner of chemical management services.
GM’s chemical management services provider was responsible for purchasing, delivering and inventorying the chemicals the automaker needed, and facilitating all environmental reporting and data tracking.
By sticking to its core business of manufacturing vehicles and allowing its chemical management services provider to take on the task of managing chemicals, GM realized a 30 percent reduction in chemical use and a 30 percent reduction in its cost of purchased chemicals and associated management activities. Chemical management services have been implemented in nearly 90 percent of GM’s plants worldwide.
What are chemical management services?
Chemical services are a range of chemical management activities that are contracted to a chemical service provider, or Tier 1 supplier.
A chemical service provider may be a chemical supplier, waste hauler, or environmental engineering firm that offers a range of services to manage a company’s chemicals. They may purchase and deliver chemicals, maintain the inventory, and track material safety data sheets.
They also may provide a broader range of services, including process efficiency improvement, data collection for environmental monitoring and reporting, and waste collection. These chemical services often are performed more effectively and at a lower cost than companies can do by themselves.
The chemical service model delivers results by aligning the incentives of chemical suppliers and their customers.
The supplier’s profitability is independent of the volume of chemicals sold. In other words, the suppliers no longer get paid based on how well they can sell, but how well they can manage.
This is accomplished by establishing supplier compensation on performance-based metrics and fees. This is what makes chemical service a “service-based” model (see Figure 1).