Are Chemicals Corroding Your Supply Chain? – Part I

New York — March 13, 2007 — With procurement organizations focused on managing big-ticket line items that gobble up large percentages of an enterprise's spend, low-cost chemicals could be eating away at a company's bottom line and raising the business' overall risk profile, according to a leading expert on chemical supply management.

Mark Wysong, author of "The Nontoxic CEO: Protecting Your People, Planet and Profits through Better Chemical Management," notes that American industry spends tens of billions of dollars each year complying with government-mandated environmental health and safety (EHS) regulations. But Wysong believes that procurement organizations typically are ill-equipped to handle the challenges of managing a company's full chemical spend while also helping to ensure EHS compliance.

"It's true that purchasing organizations are set up to deal with supply-side solutions," Wyson says. "But those tend to focus on the largest chemical vendors, volumes and financial impacts. If a large company has 40,000 chemical products enterprise-wide, a supply-side solution would only be set up to look at 10 percent to 20 percent of the largest volume chemicals, say."

Meanwhile, enterprises frequently have many thousands of potentially dangerous and costly smaller chemical volumes and purchases. "We're talking about individual chemical purchases that might average from $100 to $5,000 on an individual transaction and an individual site," Wysong continues. "Those transactions don't tend to be handled through central purchasing. They don't carry enough weight to assign a purchasing manager at headquarters to deal with them."

The Problem with P-cards

Some companies have approached the chemical conundrum by mandating purchases at the local level through a purchasing card. But while these p-card transactions can lower the transaction costs of acquiring the products, they can also contribute to the broader chemical management problem.

"What it actually does is create hundreds and thousands of 'purchasing managers' who may be unknowingly adding to toxicity [and] product redundancy, and who certainly aren't getting enough aggregated volume to get price discounts," Wysong explains. "Central purchasing can't really 'see' what all these thousands of purchasing points are buying. You end up with thousands of products that are intended to do similar functions within a company, but the products are not really that similar."

As an example, Wysong cites a utility that was buying 1,000 different types of oil through mostly unmonitored p-cards. From an EHS standpoint, that's a significant problem because the individual components of those products will be different, some may be more dangerous than others, and the EHS personnel are not aware of what's coming on site.

But the problem is equally great from a spend management standpoint. "We find that 20 percent of the chemical products — which constitutes thousands of products from thousands of vendors — in the aggregate, represent tens of millions and hundreds of millions of dollars for some companies," Wysong says. "Better control can bring literally millions of dollars to the bottom line."

NEXT: Part II of this series examines "Compliance-Side Total Chemical Management," an alternative approach to managing chemicals that puts equal emphasis on the bottom-line and EHS benefits of getting better control of your chemical spend.


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