Reversible reaction: Even chemicals can be leased
At least 140,000 chemicals are used globally in a wide variety of products and processes. While they largely contribute to the economy, they expose human health and the environment to major risks.
For a long time, organisations have undertaken incremental measures to marginally reduce those risks, but are often bumping up against the limits of what they can accomplish using a traditional approach. However, an innovative model may help to drastically reduce the consumption and environmental impacts of some of their chemicals.
A growing number of chemical companies offer to sell not their chemicals, but the service those chemicals provide. DuPont sell paint per number of painted parts; AkzoNobel invoice surface coatings per square metres treated; Henkel propose adhesives per number of labelled bottles; Ecolab provide detergent per square metres cleaned, and Nalco offer chemicals for water treatment per volume of water purified.
Not every chemical can be invoiced per use. The pay-per-use model is usually applicable for speciality chemicals used not in a product, but by a manufacturing process. It is especially relevant for processes such as coating, cleaning, lubricating, glueing, water cleaning, or painting. When applicable, pay-per-use models present great advantages compared to traditional ones.
Reduce chemical costs
Pay-per-use chemicals offer significant savings opportunities. In a traditional model, the vendor revenue is based on the volume of product provided. The vendor is thus incentivised to sell more chemicals to increase revenue. In a pay-per-use model, the customer pays for the service rendered by the chemicals. The volume of chemical used becomes a cost driver for the supplier, who is then incentivised to reduce the amount of product consumed.
The supplier has several levers to reduce the amount of chemical used, such as improving the performance of their product. AkzoNobel has reviewed the formulation of its paint coating to reduce loss at an ABB plant in Egypt, saving ABB USD 68,000 per year.
Suppliers can also increase the customer’s process efficiency by leveraging their expertise on chemicals, including monitoring and adjusting chemical quality on site.
Finally, they can collect and recycle their products for end of life reuse. Castrol, for example, clean and reuse the lubricants they rent to customers.
The cost reduction opportunity can be significant. By switching to a pay-per-use model, Renault reduced the total cost of ownership of its cutting fluids by approximately 20%.
Reduce resource consumption and waste
Pay-per-use chemicals reduce resource and energy consumption, and waste emissions. According to a study conducted for the German Federal Agency for the Environment, some pay per use models reduce chemical consumption by 10 to 20%.
Safechem, a Dow Chemical subsidiary, rent solvents. For that purpose, it manages them in a closed loop, using two specially designed steel containers for the supply of fresh solvents and the return of used ones. Used solvents are recycled to be used again. Safechem also helps customers extend product life by monitoring and adjusting quality on site. By managing the solvents in a closed loop and extending the lifecycle, Safechem reduces product consumption by 99.5%, waste by 98.7%, and polluting emissions by 99.8%.
Pay-per-use chemicals also help to eliminate the use of toxic substances. Having low toxicity and being non-volatile, ionic liquids are a great alternative to traditional solvents. However, they remain expensive due to the difficulty of producing them. IoLitec, a German company, rents ionic liquids to its customers. After use, the company collects the used solvent, purifies it, and sends it back to the customer.
Models to implement pay per use chemicals
A vendor can choose from three main models to offer pay per use chemicals.
First, the supplier can keep the ownership of its chemicals and sell the services they provide. For example, the French company CVP sell the usage of corundum, a mineral used for its abrasive properties. The company delivers corundum to its customers, collects the used corundum back, and recycles it into a new high performing abrasive. The United Nations Industrial Development Organisation (UNIDO) has promoted this model, known under the name chemical leasing, for more than ten years. The organisation has a successful track record of dozens of projects, mainly in emerging countries.
Equipment manufacturers can also sell pay-per-use chemicals. For example, Pero, an Austrian cleaning parts equipment manufacturer, partners with chemical suppliers to deliver cleaning services. Their customers neither pay for the equipment nor the chemical, but for the cleaning service. By working together, the equipment manufacturer and the chemical producer can often drastically improve the process.
Finally, a chemical supplier can offer to manage the chemicals of its customers, regardless of whether they or their competitors produce them. For example, PPG has managed most of the chemicals for a Ford Motors plant. Against a fixed fee per vehicle, the supplier takes care of chemical purchase, delivery, storage, monitoring of emissions, risk management, quality measurements, disposal, and recycling. This model, known as Chemical Management Services (CMS), is widely adopted in North America by the automotive and electronic industries. The cost of traditional chemical management is indeed usually high, much higher than the purchasing price alone. According to Haas, a CMS vendor, a company that spends Eur 1 to buy a chemical will spend between EUR 1-10 to manage it during its lifecycle (supply, storing, testing, using, disposal, etc.). By consolidating chemical management to one supplier, CMS allows some significant cost reductions.
A stronger support for a faster adoption
Pay-per-use chemicals help chemical users improve their competitiveness. They assist chemical producers to exit the everyday larger commodity trap by switching from the sales of products to the sales of services. However, in Europe, the adoption of this process remains low – perhaps because chemical producers require new business models that will redefine their relationship with chemical customers.
While they may remain as niche markets initially, to take off, pay-per-use chemicals need much stronger support from governments, such as Austria, Germany and Switzerland, who have recently signed a Joint Declaration of Intent on Chemical Leasing. The Declaration aims to increase awareness of chemical leasing at the political level and strengthens the cooperation of the partners in global chemical leasing promotion.
Industrial companies cannot continue to take, make and dispose of large quantities of chemicals. They need to assess alternative models and pay-per-use chemicals are definitively one of them.