||This article needs attention from an expert in business. (August 2009)|
In the chemical industry, chemical leasing is a business model in which the chemical company supplies a substance for a specific service, but retains ownership of the chemical. It is intended to shift the focus from increasing sales volume of chemicals towards a value added approach. It may lead to more efficient use of chemicals, and to quality, environmental, and economic benefits.
The producer mainly sells the functions performed by the chemical and the functional units, such as the number of pieces painted, are the main basis for payment. It 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 chemical and related services. This model has been practiced by the paint industry for decades. For example, the painting of roads or sidewalks are often charged on the basis of the number of kilometers to be covered, rather than on the litres of paint consumed. This concept is referred to by several different names, such as "eco-efficient services", "product-service systems", "chemical servicizing", "chemical management services", and the "product service system".
Chemical leasing promotes the sustainable management of chemicals. By shifting the focus from increasing the sales volume of chemicals towards a more value added approach, it is an illustration of extended producer responsibility. The chemical company supplies a substance for a specific service, such as powder coating, dyeing or painting, but retains ownership over the chemical, and also advises the user on its best use. The producer owns the machinery, and maintains responsibility over the manufacturing process. As a result, it is in the interest of all parties to use the substances as efficiently as possible.
At the Earth Summit 2002 on sustainable development, the international community agreed on the goal of ensuring that, by the year 2020, chemicals will be produced and used in ways that minimize significant adverse impacts on human health and the environment. As a consequence the United Nations Environmental Programme (UNEP) decided to develop of the Strategic Approach to International Chemicals Management (SAICM) in 2003. In 2006 at the International Conference on Chemicals Management (ICCM) in Dubai, the signing countries committed themselves to promote the sound management of chemicals and hazardous wastes at all levels.
The Austrian government has played an important role in promoting chemicals management based on resource efficiency and precaution. When Austria held the Presidency of the European Union during the first half of 2006, chemicals policy was on top of the environmental agenda. Austria continues to promote chemical leasing.
Chemical management services
Integrated chemical services, also called total chemical management or CMS, include the development of chemicals according to customer requirements, the provision of logistics solutions, administration, process development, chemical application, and waste management. The majority of chemical management services in Europe are large international chemical companies such as Dow, Castrol, Quaker, PPG, and BASF that were able to broaden their market share or become the sole providers of CMS by extending the range of their chemicals and adding information management and technical services to their chemicals business.
CMS customers in Europe and America are primarily large, multinational Fortune 500 companies in the automotive, metalworking, aerospace, and electronics sectors. Automotive companies such as Volkswagen, Daimler Chrysler, Volvo, Ford, Toyota, and General Motors have been outsourcing the management of their paint shops in Europe and some of these facilities are now also moving toward total outsourcing of chemical management. Prominent companies in the semiconductor industry, such as STMicroelectronics, Micron Technologies, and Motorola, have also been using chemical management services for many years. New areas of CMS growth in Europe include the pulp and paper industry and the life sciences industry.
In 2004, the United Nations Industrial Development Organization (UNIDO) and the Austrian Ministry of Environment decided to jointly support chemical leasing through a number of global projects. In partnership with National Cleaner Production Centers, UNIDO has implemented chemical leasing projects in Austria, Egypt, Mexico and Russia. PERO Innovative Services GmbH together with SAFECHEM Europe GmbH, a subsidiary of The Dow Chemical Company, have supported Automobiltechnik Blau in metal cleaning to use cost efficient machines, lower the energy consumption and chemical usage.
Akzo Nobel Powder Coatings S.A.E has supported the chemical leasing of powder coating in Egypt to ABB ARAB. Environmental benefits are said to include recycling of powder waste, compliance with environmental regulations, and enhancement of supply chain management. General Motors Egypt has tied up with the Dr. Badawi Chemical Work to lease hydrocarbon solvents used in metal finishing. Elsewedy Electric, the Egyptian market leader in hot dip galvanization, has partnered with Zinc Misr to manage the use of flux chemicals and reduce waste discharges.
Mepla–Alfit and Tiefenbacher GmbH in Austria are cooperating in the chemical leasing of de-lacquering agents and paint strippers. IKEA and the Huntsman Corporation are cooperating in India to secure the colouring process in textiles.
The sugar mill Fideicomiso Ingenio San Cristobal in Mexico has implemented chemical leasing for the machine lubrication with the help of Shutz Oil and SUMAT. Henkel-ERA in Russia is using the services of ERG for industrial waste water treatment.
A Joint Declaration of Intent on Chemical Leasing was signed between UNIDO, Austria, Germany and Switzerland in November 2016.
The reversal of the burden of proof is a key component of the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) system leading to a "no data – no market" concept, obliging producers or importers of substances to deliver documentation regarding properties of chemicals and possible risks during their application as a pre-condition for market access. The OECD Conference in Vienna in 2003 Nov. reiterated that, "... The new EU chemicals policy (REACH) will require a new relationship between provider and user ...." According to Thomas Jakl, Chairman of the European Chemical Agency (ECHA), chemical leasing paves the way to comply with REACH obligations.
Chemical leasing and REACH share the same philosophy of ensuring compliance with a duty of care (REACH recital 16), as a tool to demonstrate adequate control (REACH para 60). They are mutually supportive in developing rules for sharing costs, and ensuring that chemicals are handled properly. Both are involve several different stages of the supply chain. There is a strong effort by the Austrian and German Governments to bring chemical leasing within the purview of EU Chemicals policy and regulations.
Chemical leasing projects are divided into planning, implementation, evaluation and dissemination stages, based on a Deming Cycle. The planning stage consists of a preparatory phase, a process optimisation phase and a design phase. In this stage, discussions around the leasing model, its cost implications versus quality and environmental benefits, commercial terms, and conditions begin. A baseline audit is performed, and a report presented to the factory management. This audit outlines the potential for improvements and forms the basis of defining the key performance indicators (KPIs). The resources needed to fulfil improvements are also defined.
The implementation stage starts with the signing of a chemical leasing agreement that defines the scope and conditions, unit of payment, KPIs, roles, and responsibilities. The chemical company supervises the chemical process, transporting and managing the inventory, laboratory management, improving process controls, record keeping, and training workers. Periodic checks and inspections are carried out independently to verify that the implementation is proceeding on expected lines. At the end of the implementation phase, progress is evaluated, often by an external party to secure objectivity. Finally, any project benefits are quantified and learning is documented, to provide input for future projects.
Global Award for Chemical Leasing
The Austrian government and UNIDO have instituted the Global Chemical Leasing Award to recognize successful chemical leasing implementation, publication and promotional activities. The winners of the First Global Chemical Leasing Award were announced at Prague in March 2010, those of the 2012 award in Frankfurt in June 2012.
- United Nations Industrial Development Organization
- Chemical Leasing Goes Global – Selling Services Instead of Barrels: A Win-Win Business Model for Environment and Industry, Eds Thomas Jakl and Petra Schwager, (Wien : Springer – Verlag, 2008).
- M Stoughton, T Votta, Implementing service-based chemical procurement: Lessons and results. Journal of Cleaner Production 11(8) (2003) 839– 849.
- Anurag Priyadarshi, The Colourist, 1 (4) (2009) 8.
- Chemical Leasing Unburdens Environment – UBA presents sustainable chemicals concept, UBA Press Release 14 (Umwelt Bundes Amt, Germany, 2009).
- Oksana Mont, P Singhal, Z Fadeeva, Chemical Management Services in Sweden and Europe, J. Indl. Eco., 10 (1) (2006) 279.
- Case Study: General Motors, Navistar, Chrysler Neon, Ford Taurus, Delta Air Lines, Chemical Strategies Partnership, San Francisco, USA (2000) (available at www.chemicalstrategies.org).
- C Weigel, Service strategies for value enhancement in the chemical industry. Paper read at OECD conference Experiences and Perspectives of Service-Oriented Strategies in the Chemicals Industry and in Related Areas, 13–14 November (2003) Vienna.
- IKEA's Sustainability Report 2008
- P Schwager, Chemical Leasing: Interregional Promotion and Implementation of Closing-the-loops Cooperation and Business Models in the Chemical Industry (Vienna: United Nations Industrial Development Organization, 2008).
- P Schwager, F Moser, The application of Chemical Leasing business model in Mexico, ESPR, 13 (2) (2006) 131.
- "Joint Declaration of Intent on Chemical Leasing signed between UNIDO, Austria, Germany and Switzerland".
- Chemical Leasing Goes Global – Selling Services Instead of Barrels: A Win-Win Business Model for Environment and Industry, Eds T Jakl and P Schwager, (Wien : Springer – Verlag, 2008).
- Anurag Priyadarshi, Chemical Leasing in Colour and Environmental Management – theoretical framework, implementation methodology and future outlook, paper read at UNIDO – GCPC Chemical Leasing workshop, 2009.
- "Global Chemical Leasing Award". Retrieved 28 September 2012.
- Jakl T, Joas R, Schott R, Windsperger A (2004), Chemical Leasing: an intelligent and integrated business model with a view to sustainable development in materials management, Springer, Vienna
- Jakl T, Schwager P (2008) "Chemical Leasing goes global – selling services instead of barrels: A Win-Win model for Environment and Industry." Springer Wien New York
- Jakl T, and Schwager P (2011) "Global Chemical Leasing Award 2010", Technology and Investment, 2011, 2, 20-26; Scientific Research
- United Nations Industrial Development Organization (2016) "Global Promotion And Implementation Of Chemical Leasing Business Models In Industry"
- Strategic Approach to International Chemicals Management[permanent dead link]
- United Nations Industrial Development Organization - Cleaner Production Programme
- Chemical leasing at the United Nations Industrial Development Organization
- Chemical Leasing