There are many challenges that operations and plant managers face in the ethanol industry today. Managing chemicals and the associated activities in the chemical lifecycle shouldn't be one of them. Chemical management services (CMS) is a growing business model in many other industries that could be leveraged by ethanol producers. In a CMS relationship, an ethanol manufacturer would contract with a CMS provider to supply chemicals and associated services. The CMS provider focuses on managing chemicals, allowing plant management to focus on core activities required to produce ethanol. In addition to being able to shift focus from non-core activities, a CMS program can generate substantial savings for the ethanol producer. Savings occur as a result of optimizing the chemical supply chain and the associated chemical management lifecycle activities. This article will describe the concept of chemical management services and explain how the business model can specifically benefit the ethanol industry. 
 
 What is Chemical Management Services?
 
 CMS is a business model where a company contracts with a CMS provider to manage its total chemical use across the entire chemical lifecycle. For example, an ethanol plant uses chemicals in many parts of the plant. These include process chemicals, cleaners, specialty water treatment chemicals, and laboratory and maintenance chemicals. In a CMS relationship, a provider would manage these chemicals through each step of the chemical lifecycle, allowing the ethanol producer to focus on producing ethanol. 
 
 Essentially, an ethanol plant would outsource their chemical supply chain with the overall goal of becoming more efficient while lowering the total costs associated with managing chemicals. In many cases, the CMS provider can find optimization opportunities in each area, resulting in savings for the ethanol producer. At each stage in the chemical lifecycle, a company incurs costs. These costs can include labor, materials, equipment, liability, safety training and compliance efforts. These lifecycle costs are estimated to range from one to three times the purchase cost of chemicals.1 A CMS provider would be responsible for optimizing these costs and reducing the total cost of operation for an ethanol plant—the value proposition of CMS.
 
 Another important characteristic of the CMS business model is that it changes the relationship between a customer and chemical supplier. The CMS provider is typically motivated to sell the customer more chemical to grow profits. Instead, through a variety of compensation options, the CMS provider and customer become partners in optimizing chemical lifecycle activities. The CMS provider is compensated for the services provided, and often rewarded for additional savings generated. Both parties are aligned in achieving and growing the same value proposition. 

 
 Which Markets are Utilizing the CMS Business Model?
 
 Companies pursue CMS arrangements for one basic reason: to reduce enterprise costs. The CMS model originated in the automotive industry, and has since expanded to include the industries shown below, along with an indication of activity in each sector. 
 
 According to the Chemical Strategies Partnership, a non-profit organization that advocates the CMS model as a strategy to reduce chemical use, waste, risks and costs, "the CMS market has grown roughly 50 percent from 2000 to approximately $1.22 billion (fiscal years 1999-2003) and all indicators point to continued steady growth. CMS is consistent with other larger business trends including outsourcing and shifting to service-based business models to realize greater profitability. We estimate the potential U.S. CMS market to be $17 billion to 19.5 billion."2
 
 Why Chemical Management Services?
 
 So why are so many companies looking to implement CMS relationships? The answer is that the strategy is used for one major reason: to reduce costs. And it has paid off. The average savings for a company entering a CMS relationship is 5 percent to 20 percent each year.3 This savings could come from reductions in the purchase price of chemical; it could also result from reduction of labor associated with managing chemicals. In addition, savings are achieved through optimizing chemical storage, inventory and usage, and reducing waste. In the cases where the CMS provider (Tier I supplier) is not the application expert of a particular chemistry, the company would work with the Tier II supplier to derive potential savings. Companies have also seen additional benefits through the implementation of a CMS program. These include improved data management, improved inventory management, improved delivery and reduced process downtime.4 The following graph depicts the overall reduction in costs before and after a typical CMS program implementation.
 
 Finally, companies are continuing to drive improved focus on their core businesses, whether that business is manufacturing car parts or producing ethanol. Managing a supply chain for chemicals is typically a non-core activity that can become more efficient and effective if outsourced to a provider whose expertise is in supply chain optimization and management. 
 
 What Does a Typical Scope of Services Look Like?

 
 In a CMS agreement, a scope of services is outlined in the contract between customer and supplier. The scope of services provided could vary greatly depending on how the relationship is structured. CMS programs most commonly include purchasing, inventory, data management services, environmental, health and safety services, and value added activities, including process efficiency improvements. The program may or may not include personnel to be placed on-site. The scope of services defines the "how" behind the value proposition that will be delivered. 
 
 Is a CMS Relationship Right for Your Facility?
 
 To determine if CMS would be a fit for your plant, a suggested approach is outlined below. This methodology is adapted from Tools for Optimizing Chemical Management, a manual created by Chemical Strategies Partnership in 1999. 
 
 Step 1— Determine Objectives and Build a Team
 
 If supply managers are thinking about CMS, the first things to consider are the company's objectives, available resources and upper management interests. A recommended team would include representation from supply management, engineering, operations, and environmental health and safety. Once the team decides that a CMS relationship should be seriously evaluated, a champion in upper management should be identified and tapped. This may also be a good time to engage a capable CMS provider to assist with the ensuing steps.
 
 Step 2 — Establish Total Cost of Ownership
 
 The team will need to evaluate the total cost of using chemicals in the company's facility. While this may sound like a simple task, the details can be difficult to determine. However, this cost analysis, coupled with a characterization of the team's chemical management needs, is critical in establishing a successful CMS program. This may be the time to consult with a knowledgeable CMS provider to help determine the proper path to calculating total cost of ownership. The data gathered in this step serves several purposes: 

 &nbsp;&nbsp;&nbsp;1.To estimate the true lifecycle costs of current chemical management practices
 &nbsp;&nbsp;&nbsp;2.To identify specific data deficiencies and management information system needs that a CMS program may fulfill
 &nbsp;&nbsp;&nbsp;3.To provide a baseline of chemical costs and use that can be used to evaluate a CMS provider's proposal
 
 Step 3 – Design a Program
 
 Determining the initial scope of a CMS program involves two key decisions: first, deciding which chemicals should be included, and second, determining which aspects of management are likely to be more effectively handled by an outside provider.
 
 Step 4 – Selecting a Provider
 
 Once the team has evaluated the cost data, determined the scope of the program and addressed the logistical and managerial issues involved in making the transition to CMS, the team is ready to pursue a CMS provider. The important key is that the company selects a provider that is knowledgeable in its business, in addition to being a capable CMS provider. 
 
 CMS is a business model that is gaining momentum, especially in the food and beverage industry, as companies pursue an increased focus on their core business. The ethanol industry could greatly benefit from a CMS relationship where a provider with industry expertise is tapped to provide value in supply chain management, environmental health and safety services, and process efficiency improvements.
 
 Tony Stanich is Nalco Company's industry development manager for the grain ethanol industry. Reach him at astanichiii@nalco.com or (630) 305-1901. Monica Keil is Nalco Company's market development manager for chemical management and services. Reach her at <a href="mailto:mkeil@ondeo-nalco.com">mkeil@ondeo-nalco.com</a> or (630) 305-1878. 

 
 Citations:
 1-Chemical Management Services: Re-Designing the Chemical Supply Chain, Jill Kauffman Johnson and Jeff Cole.
 
 2-2004 CMS Industry Report, Chemical Strategies Partnership.
 
 3-CSP/CMS Forum workshops 2000, 2001, 2002, 2003, 2004.
 
 4-Chemical Management Services: Innovations in the Chemical Supply Chain, Lauren Johnson and Jill Kauffman-Johnson.

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Chemical Management Services an Benefit Ethanol Producers

Chemical Management Services an Benefit Ethanol Producers

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Upcoming Events

2024 International Fuel Ethanol Workshop & Expo

Biodiesel Summit: Sustainable Aviation Fuel & Renewable Diesel

Carbon Capture & Storage Summit

North American SAF Conference & Expo

2025 International Biomass Conference & Expo

Chemical Management Services an Benefit Ethanol Producers