Original article available at: https://www.linkedin.com/pulse/chemical-leasing-solution-managing-chemicals-12-things-grineva/
Q1. Is your company already implementing Chemical Leasing?
You may be wondering if your company already has experience with Chemical Leasing but has called it by a different name.
If your company implements any sustainable or green business model such as eco-efficient services, product-service systems, pay-per-use, circular-economy, performance-based, functional-based, service-oriented, chemicals-as-a-service or even chemical management services, it might be worth checking the definition of Chemical Leasing to find out if your business case meets that definition. What really matters is how the business is done and not the name that is used.
Example
Ecolab, an international supplier of chemicals, applies a flat-fee agreement or active-based price model in its relations with chemical users. Safechem has called its Chemical Leasing operations “COMPLEASE™”. Both arrangements meet the definition of Chemical Leasing.
Q2. Does Chemical Leasing mean the leasing of chemicals?
Definition of “lease”: A lease is a contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, also known as the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor face consequences if they fail to uphold the terms of the contract “. Definition from Investopedia.
Under leasing, the chemical remains under the ownership of the chemical supplier and the chemical user pays for its use. However, in Chemical Leasing ownership is usually taken by the user. The term Chemical Leasing is the name of a business model and is NOT the same thing as leasing of chemicals, although it may include leasing operations.
The term Chemical Leasing is the name of a business model and is NOT the same thing as leasing of chemicals, although it may include leasing operations.
When is leasing possible under Chemical Leasing?
Leasing is possible when the chemicals are not consumed during the production process. See the examples below.
Example 1: Chemical Leasing without leasing
The chemicals are consumed during the production process and therefore cannot be leased and returned to the supplier: examples are adhesives that become part of a product (such as shoes) or packaging (such as confectionery).
Example 2: Chemical Leasing with leasing
The chemicals do not become part of a product. They deteriorate through use and this chemical waste can be returned to the supplier for recycling. Such chemicals could be leased. A good example would be the chemicals used in the oil and gas industry (such as chemicals for well construction and well intervention).
Q3. What is the purpose of Chemical Leasing?
The Chemical Leasing model aims at a more efficient use of chemicals in the production process by redefining the business relationship between the chemical user and the supplier.
The “chemical user” is a company that uses chemicals and the “chemical supplier” is an entity in the supply chain such as a manufacturer of chemicals and/or a distributor or trader of chemicals.
The conventional business model assumes that the more you sell, the more you earn. However, in the Chemical Leasing model the supplier does not sell quantities. The supplier sells the function of the chemical. This is the service rendered by the chemical or the purpose for which the chemical is applied.
However, in the Chemical Leasing model the supplier does not sell quantities. The supplier sells the function of the chemical.
For example, the function of the chemical could be to clean or degrease metal parts, or to protect a surface. Payment is then made according to functional units, that is, the number of pieces cleaned or the extent of area coated.
Example 1
A producer of automotive parts needs solvents to clean and degrease them. The company pays the chemical supplier for the functions performed by the chemical, that is, the cleaned metal parts. The company does not pay according to the amount of solvent used.
Example 2
A car producer needs surface protection for its cars. This includes car body pre-treatment, surface activation and the application of a system of coatings. Under Chemical Leasing the company pays per car body protected. It does not pay according to the amount of chemicals used.
Q4. How does Chemical Leasing change business relationships?
In Chemical Leasing, the supplier no longer measures success according to the volume of chemicals sold. The supplier and the user both benefit because less chemicals are used when payment is linked to the functions performed. By aligning the interests of supplier and user, the volume of chemicals used is reduced, costs are cut and each party increases profit.
The supplier and the user both benefit because less chemicals are used when payment is linked to the functions performed.
Q5. What are the roles and responsibilities of the supplier and user under Chemical Leasing?
Role of the supplier
In Chemical Leasing the supplier does not simply provide chemicals but also value-added services. The supplier’s responsibility is extended and may include management of the entire life cycle of the chemical.
The supplier provides experience and know-how on operating with chemicals effectively, efficiently and safely. The supplier partners with the user to optimize the way the chemicals are used in the user’s plants and prevent excessive use.
The supplier partners with the user to optimize the way the chemicals are used in the user’s plants and prevent excessive use.
The supplier could optimize chemical use by advising on chemical substitution to reduce health and safety and environmental risks and/or process optimization.
Role of the user
The Chemical Leasing model allows users of chemicals to concentrate on their core business while benefiting from the services and know-how of the supplier.
The user is responsible for monitoring the process, documenting records on units to be paid and respecting the process parameters defined by the supplier.
In the event of changes to process parameters and/or equipment failure that may affect chemical consumption, the user is responsible for reporting to its partner supplier.
Role of other parties
Other partners may also be also involved. Their roles should be defined on a case-by-case basis. For example, when the supplier and user seek to optimize a process, an equipment provider could be called in to replace obsolete technologies with resource-efficient ones.
Q6. What are the essential aspects of Chemical Leasing?
The basis of payment should be linked to the function of the chemicals and not to the quantities used.
Chemical Leasing should adhere to the following sustainability principles:
Go to Chemical Leasing Sustainability Criteria for more information.
Q7. What are the benefits of applying the Chemical Leasing model?
By aligning the interests and motivations of the chemical user and the supplier, Chemical Leasing helps achieve a win-win situation for them and the environment. The life cycle of the chemicals is prolonged, waste is minimized and resources are used efficiently. This contributes to the achievement of circular-economy goals.
The Chemical Leasing model encourages partners to exchange experiences and develop strong cooperation. It helps achieve economic, environmental and social benefits.
Benefits for the supplier
• Improved competitiveness
• Greater market share (more clients)
• Higher profits
• Longer-term business relationships as the supplier and user develop a strong mutual understanding
• Greater facility in complying with international legislation such as REACH
• Improved environmental profile/image
Benefits for the user
• Lower operational and maintenance costs
• Improved productivity
• Increased resource and energy efficiency by optimizing the use of chemicals and other resources related to a process
• Improved handling and storage of chemicals
• Reduced risk and improved health and safety conditions (through substitution, process optimization, new equipment or improved handling of chemicals)
• Continuous improvement and compliance with international regulations
• Precise calculation of activity-related costs
• Elimination of downtime
• Improved image as an innovative company
Q8. Which industries and processes are best suited to Chemical Leasing?
Chemical Leasing can be applied in many industries and processes, ranging from food processing to car manufacturing and even agriculture.
Processes that are part of a Chemical Leasing plan are usually non-core processes.
Processes that are part of a Chemical Leasing plan are usually non-core processes in the company, such as:
• Conveyor lubrication in the beverage industry
• Water treatment
• Cleaning and disinfection in hotels and hospitals
• Surface protection and treatment in metal finishing or car production
• Bonding of packaging in the food sector.
In agriculture, however, plant protection and feeding are core processes.
Examples
Q9. What factors are necessary for the success of Chemical Leasing?
For Chemical Leasing to be successfully implemented, the following factors are necessary:
• Employees of the supplier and user need to be committed to the new way of working.
• The chemical is not part of the user’s core processes (such as glue for packaging in the food industry, washing chemicals for laundry in hotels).
• The supplier must have experience and excellent know-how in order to be able to recommend chemical and/or process changes and provide value-added services.
The supplier must have experience andexcellent know-how in order to be able to recommend chemical and/or process changes and provide value-added services.
• The supplier and user must enjoy a relationship of cooperation and mutual trust
• The unit of payment must be correctly defined
• It must be possible to measure, record and demonstrate units of payment (such as number of bonded boxes or cleaned parts)
• Benefits must be shared fairly between supplier and user
• Quality standards must be maintained at a high level
• The legal agreement between supplier and user must clearly define terms, such as quality of chemicals, units of payment, terms of payment, the liability and responsibility of each party, etc. An example is available here.
Q10. What can assist the successful implementation of Chemical Leasing?
The implementation of Chemical Leasing can be assisted by:
• Trusted third parties. Consultants and experienced industry partners can act as initiators and catalysts for the Chemical Leasing project and can help in case of disputes. UNIDO has successfully acted in this role in a number of international projects. There are also independent consults and consulting companies working in different countries
• Economic incentives. These are the driving force of Chemical Leasing, but environmental strategies and regulations can also help. For example, one company was encouraged to change its business model because an EU law restricted operations with chlorinated solvents
• Partnership with other experts. Process engineers, for example, can help to optimize processes, or waste recycling firms can help prolong the life of chemicals
• Competition on the market. Companies strive to find new approaches such as “green” PR and innovative strategies to win clients.
• Acknowledgment and public recognition of best practices by national and international communities. One example is the Global Chemical Leasing Award, which promotes the Chemical Leasing business model and rewards cases of excellence around the world.
One example is the Global Chemical Leasing Award, which promotes the Chemical Leasing business model and rewards cases of excellence around the world.
Q11. What are the obstacles to implementing Chemical Leasing?
Some factors that make implementation of Chemical Leasing difficult are listed below:
• Certain processes and chemicals are not suited to Chemical Leasing. Chemicals that are involved in chemical reactions to produce a product are not suitable. Chemical Leasing is only applicable to non-reactant chemicals that are indirectly used in processes
• Suppliers must have additional process expertise to offer. Without such expertise, they are unlikely to succeed with Chemical Leasing
• Sufficient numbers of users must exist. If users are few or do not consume large amounts of chemicals, it can be difficult for the supplier to achieve economies of scale
• Small companies are unlikely to be candidates for Chemical Leasing implementation. Service cost per functional unit could be too high and not acceptable for small companies
• Chemical users could become more dependent on their suppliers, particularly if longer-term contracts are signed or special equipment is installed
• Developing a sufficient level of trust between supplier and user can be challenging. Although collaboration is a prerequisite for Chemical Leasing, sharing information can present difficulties, especially when confidential data are involved.
• Suppliers might be reluctant to commit efforts and resources. Implementing Chemical Leasing requires an investment of effort and resources by the supplier. The supplier will want to take into account the risk that the relationship with the client might break down.
Q12. What tools are available to support implementation of Chemical Leasing?
UNIDO has developed the Chemical Leasing toolkit to support the implementation of Chemical Leasing. A Chemical Leasing website, a Chemical Leasing Facebook page, books and articles, and case studies on Chemical Leasing are also available. A worldwide network of consultants, many trained by UNIDO, is available to advise on applying the model to industry. Contact the UNIDO Chemical Leasing Helpdesk for more information by sending an e-mail to ChemicalLeasing@unido.org.
Authors: Vojislavka Satric and Maria Grineva
Vojislavka Satric: An experienced chemical engineer, international expert on sustainable chemicals management and Chemical Leasing, author of scientific articles on green chemistry and Chemical Leasing, the winner of several Chemical Leasing awards.
Maria Grineva: An external consultant (UNIDO), experienced in coordination of industrial development projects, PR and communication solutions. Conceptualized and developed the web-version of the Chemical Leasing toolkit and IAMC toolkit. Communication manager for the Global Chemical Leasing Award 2018. Co-founder of Athenea International.