Former Director General, UNIDO
“Chemical Leasing is continuing to revolutionize the way we do business with chemicals, and address the urgent need to reduce the impact of chemicals production and consumption on the environment, water and human health.”
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The Chemical Leasing business model is intended to generate a sustainable business and to support long-term working relationships between the partners. It is therefore important to consider modifications and corrections if the business develops differently to expectations. It is also important to be flexible enough to adapt business activities continuously based on results.
Task 10 aims to manage this process, facilitating corrections and further optimizing chemical use in the company’s production process.
Monitoring is in principle a continuous process that needs to be performed once a Chemical Leasing contract is established. It provides both partners with data on:
Table 4 on baseline data collection can be extended and adapted for the recording of monitoring data (e.g. some companies might need to add process parameters such as temperature and pressure).
Monitoring activities should be agreed between the partners and the results should be shared in a transparent way in order to maintain trust and facilitate joint decisions on modifications.
The supplier should be able to confirm whether the producer’s report on the number of units to be paid corresponds to the real situation, e.g. if the company pays per cleaned pieces, the number of pieces cleaned should be verified.
Monitoring results must be well documented and communicated between the partners as they might form the basis for later contract modifications.
The evaluation should compare the baseline data (before implementation of the Chemical Leasing model) with current data to assess real achievements. The evaluation should answer the questions:
The result of the evaluation can be:
An evaluation schedule must be agreed between the contractual partners. A three- to twelve-month evaluation period is recommended. (Shorter periods require excessive effort and the results might not be stable. Longer periods might cause corrections to come too late.)
The company might want to present its achievements after a certain period of applying a Chemical Leasing model: this could be useful, for example, for the company’s annual report; for speeches and meetings with stakeholders; for ISO 9001, 14001, EMAS and CSR reports; for corporate news, leaflets and presentations; and for meetings with the supplier to discuss contract extension.
The results can be presented in different formats, e.g. in a “before and after” comparative table and photograph (see Figure 5) or in a short summary of the results achieved, as shown in Table 5.
Picture 5. The same packaging line before and after implementation of Chemical Leasing for conveyor lubrication
Table 5. Sample summary table of results
| Economic figures | Environmental improvements | Safety and health improvements |
|---|---|---|
| • Savings planned and achieved • Change in product output • Return on investments/Payback period |
Change in pollution intensity: Reduction in: • Consumption of chemicals • Hazardousness of chemicals • Water consumption • Waste water generation • Energy consumption • Waste generation |
• Reduction in accidents related to the handling of chemicals • Reduction in adverse health effects in workers due to exposure to chemicals |
| Intangible benefits (For example, The company can better control and predict the costs related to the target process.) |
||
Very often partners start by implementing the Chemical Leasing model in one particular line or area. With time, if the cooperation between the partners is positive and the user’s expectations are met regarding the costs, the results, and the quality of the products and services, the user can decide to extend the model to other production lines and areas.
Having finished Task 10 you are aware of results achieved and have developed a basis for continuous improvement.
In Task 1 you identified potential chemicals and processes for Chemical Leasing. Now, you need to pre-assess them to determine whether the Chemical Leasing business model would be relevant. This is the objective of Task 2.
Keep in mind that the change from your existing business model might require additional efforts and resources; therefore, it is important to determine whether there are economic or other reasons that justify implementation of the new model.
Also keep in mind that the decision to implement the Chemical Leasing model should be grounded on the following criteria for sustainability:
One company might have several processes and chemicals which could be “suitable” for Chemical Leasing implementation. For example, if the company is a beverage producer, it might use chemicals for lubrication, cleaning, disinfection and bonding, all of which are suitable/relevant for Chemical Leasing. Furthermore, different chemicals can be applied in the same process. These chemicals need to be pre-assessed individually.
Picture 1: Conveyor lubricationSome chemicals have hazardous properties and can have negative impacts on human health and/or the environment. You should consider these, as well as economic factors, when pre-assessing the chemicals. Each chemical should be analyzed (“pre-assessed”) based on three parameters: quantity consumed, cost and hazardousness.
Parameter 1 – Quantity consumed
Define the amount of the chemical consumed annually in a given process and assign the chemical “points” as shown in the chart below. The greater the quantity of a chemical used, the higher the general suitability for Chemical Leasing.
| Quantity of chemical X applied | Recommended criteria | Points |
|---|---|---|
| High | More than 100 tons/year | 5 points |
| Medium | More than 10 tons/year | 3 points |
| Low | More than 1 tons/year | 1 points |
Parameter 2 – Cost
Check the annual purchasing cost of the chemical and assign the chemical “points” as shown in the chart below. The higher the cost, the higher the general suitability for Chemical Leasing.
| Cost of chemical | Recommended criteria | Points |
|---|---|---|
| High | More than €100,000/year | 5 points |
| Medium | Between €100,000 and €10,000/year | 3 points |
| Low | Less than €10,000/year | 1 points |
Parameter 3 – Hazardousness
Most chemicals present some degree of hazard, such as toxicity, flammability, or corrosiveness. The greater the hazard associated with a given chemical, the greater the need to optimize its use or to consider substitution with a less hazardous/lower risk alternative. Identify each chemical’s hazardousness and assign the chemical(s) “points” as shown in the chart below. Information about a chemical’s hazardousness can be found on the product label. The detailed information can be found on the product Safety Data Sheet (SDS), which can be obtained from the supplier.
| Hazardousness of chemical X | Relevance | Points |
|---|---|---|
| High | Hazardous chemical of high or potential concern | 5 points |
| Medium | Chemical that have hazardous property(is) (for example, chemical is corrosive, flammable etc) | 3 points |
| Low | Non hazardous chemicals | 1 points |
Calculating the final score
Add up the points in the three charts to give each chemical a final score.
A company with a lubrication process consumes lubrication chemicals in high volumes, the costs are estimated as medium and hazardousness as low. The final score will be: 5+3+1=9
You may repeat this procedure for other chemicals and processes.
With this Task done, you have completed the pre-selection and pre-assessment of chemicals and processes which can provide you with promising Chemical Leasing cases.
Continue with Task 3 – Pre-defining the unit(s) of payment
The third task is to identify possible units of payment based on the services rendered by the chemicals.
As previously noted, Chemical Leasing is based on a shift from a volume based payment (e.g. $/t of chemical) to a benefit oriented payment (e.g. $/m2 cleaned surface). Table 2 provides examples of possible units of payment in different industry sectors and processes.
Table 2. Possible units of payment for different processes
| Categories of chemicals | Processes | Possible unit of payment | Sectors/Subsectors |
|---|---|---|---|
| Adhesives | Packaging/Bonding | • Number of bonded pieces • Bonded square meters |
• Food and beverage sector • Construction of buildings (e.g. for bonding of windows) • Manufacture of footwear • Manufacture of wood products |
| Labeling | • Packed (labeled) bottles • Bonded square meters of label |
Food and beverage sector | |
| Detergents, disinfection materials | Cleaning/ Washing |
Occupied room | • Accommodation (Tourism) sector • Healthcare sector |
| Number of cleaned (disinfected) bottles | Food and beverage sector | ||
| Solvents and detergents | • Cleaned pieces Cleaned area • Working time /operations (see note below) |
• Manufacture of fabricated metal products • Automotive industry |
|
| Detergents, disinfection materials | Laundry | Kg of laundry | • Accommodation (Tourism) • Healthcare sector |
| Oils, greases | Lubrication | Working hours | Mining and quarrying |
| Other types of lubricants | Lubrication of packaging conveyor | • Working hours of conveyor • Packed product |
Food and beverage sector |
| Powder coatings, solvent- and water-based paints, chemicals for phosphating | Surface protection | • Square meters of treated area • Number of pre-treated/painted products |
Manufacture of: • fabricated metal products • vehicles and machinery • wood products • electrical equipment • rubber and plastic products |
| Inks | Printing | Printed copy | Publishing and printing |
| Coagulants, Flocculants, defoamers | Waste water treatment | Cubic meters of treated water | Different sectors |
| Bore hole chemicals (Calcium bromide, zinc bromide, caesium formate) | Oil drilling | Daily fee | Oil and gas field services |
| Catalysts | Chemical reactions | t of synthesized product | Manufacture of chemicals and chemical products |
As the table illustrates, in some cases the unit of payment may be based on the operating hours (working time) of equipment rather than on the direct services rendered by the chemicals. For example, in the production of metal parts, there are many parts with different shapes and sizes. It would be difficult to apply as a unit of payment the number or surface area of cleaned parts, and would make more sense to relate the unit of payment to operating/working hours.
Picture 2: Different sizes and shapes of metal parts
Once the chemicals and units of payments are pre-defined, it is essential to check which measurement devices, equipment, and/or information are required to measure, monitor and verify these units of payment. In some cases, several options are possible. The supplier should be able to check whether actual results/outputs correspond to reported figures.
Example
For the lubrication process of a packaging conveyor, the unit of payment could be the number of working hours of the conveyer but also the number of packed bottles. To monitor the number of working hours, the supplier could install a counter on the packaging line (see Picture 3). To monitor the number of packed bottles, the supplier would need to have access to the production company’s database, to check how many bottles were produced.
Picture 3: A counter on the production line
Continue with Step 2 – Development and implementation
Task 4 is to create a committed internal working group that will develop and implement the Chemical Leasing model and will become a driving force in all of the developmental changes.
The group should at a minimum include members from the company’s production and purchasing departments. Ideally it should also include members from the R&D department, the quality assurance department, the legal department, the financial department, the health and safety and environmental department, and potentially members of the management board.
The importance of the working group cannot be overestimated. Success in modifying and optimizing the company’s processes will depend on the efforts of these people and their knowledge, efforts, and understanding of the company´s strengths, weaknesses and potential problems. A skilled team that collaborates well is an absolute necessity for successful implementation of a Chemical Leasing business model.
As soon as the internal team is established, it is essential to set-up the core Chemical Leasing team which should include the supplier(s) and eventually other partners. This will facilitate the further development of the Chemical Leasing model and the exchange of know-how.
Continue with the Task 5 – Establish a core Chemical Leasing team
As soon as the internal working group is established, task 5 is to set up a core Chemical Leasing team that includes the supplier(s) and possibly other partners. This team will facilitate the further development of the model and the exchange of know-how.
The role of the core Chemical Leasing team is to:
The process of creating the core team should begin with a discussion of the Chemical Leasing model with the supplier(s) of the chemicals and processes selected in Step 1. During the discussion you should present your ideas about possibilities for optimizing chemical use and also ask the supplier(s) for their ideas. If a supplier does not have the necessary knowledge and skills to support chemical optimization or is not willing to accept a Chemical Leasing business model, you might consider changing suppliers for the target process.
Under the Chemical Leasing business model, the supplier is intricately involved in process optimization, providing not just the chemicals but also know-how on how to optimize their consumption and/or replace hazardous chemicals with less hazardous/lower risk alternatives. Often the supplier can provide training on site and can recommend equipment changes, upgrades and/or installation.
When selecting a supplier for the core Chemical Leasing team, be aware that you may have the possibility of choosing between several partners (chemical manufacturers or distributors) in the supply chain. In addition, if your company has a procurement department, be sure to apply its internal policy, which might require you to initiate an individual or public bidding process for potential suppliers. Also be aware that other partners could be included in the core team, such as equipment and plant suppliers, recycling and disposal companies, and financial institutions.
Three models of interaction between different numbers of partners are shown in the diagram below. Model A illustrates the basic form of Chemical Leasing, with an intensified collaboration and knowledge exchange between a chemical supplier and user. Model B includes the equipment supplier in this exchange (and the option of “classical” leasing of equipment). Model C extends the collaboration to further partners such as recycling companies or financial institutes. As the leadership of such a group becomes more and more difficult, in practice joint ventures or consortia are typically formed.
Picture 4. Models of cooperation
Once the work plan is defined and concrete ideas have been developed for process optimization and/or substitution, the team should begin to collect data and define the baseline.
Continue with the Task 6 – Collect data and define the baseline