Workshop Chemical Leasing

1. Workshop Chemical Leasing Promotion and Implementation of Closing-the-Loops Cooperation and Business Models UNIDO, VIC, Vienna March 2, 2005 Dr. Reinhard Joas, BiPRO GmbH, Munich

2. 1 Introduction to Chemical Leasing

3. Service oriented business strategies: Basic ideas user of a chemical Does not pay to own a chemical, but spends money for the benefits provided by a chemical producer of a chemical Sells the function of a chemical, including know how on efficiency and risks, adding management services like production management and logistics

4. Service oriented business strategies: Basic ideas amount of produced chemicals will decline as chemicals volume turns from a factor for earnings (“the more you sell the more you earn“) to a cost driver (“less is more“) added value can be shared among the involved partners

5. authorities others producers of chemicals users of chemicals disposal companies plant constructors recycling companies pollution that ceases to exist added value Costs producers of chemicals air pollution waste load Costs others Costs Users water pollution Chemical leasing : Basis for a sustainable development Economy: win-win situationwith added value that can be shared Environment: lower emissions and risks due to higher efficiency of chemicals use players:

6. Chemicals Serve... … to fulfil customer needs, e.g. cleaning tasks in industrial applications  Customer benefit consists in function, not ownership of the product: • Optimum problem solving wanted Offer customer specific solutions: • Value from application knowledge

7. Chemicals Cost... … 5-10 times as much as their price: users incur lifecycle cost, e.g.storage, handling, risk management, disposal • Customer benefit increases due to efficient material flow management: • Product & process know-how wanted Offer Management Services: • Value added from knowledge transfer

8. Chemicals Perform... … differently in different contexts, depending on process design, equipment, and sequence of operations • Customer benefit increases by matching product and process design • Integrated Planning wanted Offer Joint Development Activities: • Value added from long-term business relations

9. Chemicals Are Paid... … in reward of customer benefit, which is independent of chemicals volume used • Willingness to pay increases with quality of outcomes, not input • Utility based compensation wanted Offer Payment per unit, e.g. fixed price per parts cleaned • Common interest in process efficiency: Value added from co-operative conduct

10. A Shift from Product Supply to Performance Delivery Why Chemical Leasing can foster trust and efficiency: Source: Chemical Strategies Partnership

11. Requirements of Service Partners • Important legal requirements: • Liability • Contracting • Waste classification • Plant permission • Occupational health responsibilty • Important economic requirements: • Quantifiable Output • Cost improvement in outsourcing • Network and service management competencies

12. Stakeholders Involved • Customers • Business partners (especially traders) • Plant constructors (Motivation for co-operative strategy • Pro: Extended Customer BasisCon: Co-ordination cost, bad experiences in service remuneration • Investors (High investment intensity, esp. with leasing of installations) • National / international authorities as potential supporters • Internal stakeholders • (employees, management, reporting & accounting)

13. 2 Cooperation and Business Models in the Chemical Industry based on CL

14. Model A Model B Chemical fulfilsproduct specifications Producerof chemicals Producerof chemicals Producerof chemicals Solution Jointventure User User User other partners supplierof plants supplierof plants used chemical Different approaches for service-oriented business models Model C • The user pays for the benefit of the chemical • Material flow is closed • Examples:- active carbon- solvents • The user pays for the complete solution • Examples:- abrasives • A joint venture bunches all interests of partners and generates synergies • User has one responsible partner and pays for the complete solution

15. Practice Example: Abrasives Abrasive fulfills product specifications Model A User Producer of abrasives Abrasive does not fulfill product specifications Inputs from other users Recycling and disposalcompany Abrasive/abrasive corn recycled partial stream for other uses or disposal Model B Producer of abrasives User Model C Producer of machinery Machinery Joint venture User job can be done at the location of the joint venture Producer of abrasives Recycling and disposalcompany

16. How to Make It Work For Efficiency: Funnel Competencies • Optimum Integration of • product design • process technology • logistics • equipment • personnel training • in production and recycling • allows for optimal material efficiency • (closed loop cycles).

17. How to Make It Work For Efficiency: Funnel Competencies • Task allocation according to core competencies • Leverage value by strategic partnership with specialists in • logistics (JIT) • risk management • marketing • processing Contracting Strategies

18. How to Make It Work For Efficiency: Create Incentives • Profits should correspond to partners‘ contributions  reward for efforts to increase process efficiency and for the generation of customer benefits • Share earnings within the network according to • decisions taken • cost incurred • risk accepted • by each partner Compensation Concepts

19. How to Make It Work For Efficiency: Communicate systematically • Profitable co-operation depends on linkage of organisational structures and information flows • Develop organisational framework ? External Coordinator Joint Venture Focal Company to hub information flows

20. How to Make It Work For Trust: Establish rules of the game • Common use of resources and know-how • calls for rights and deliverables to be clear among partners • Develop concepts to handle responsibility ? Control mechanisms Contract Design Negotiation Strategies

21. How to Make It Work For Trust and Efficiency: Share your Vision • Stringent action within networks needs • clear intentions and plan of actions • Communicate concepts to potential partners reflecting • motivation: show advantages • realisation: indicate steps to take • adaptation: elaborate implications • for industries of concern

22. How to Make It Work For Trust and Efficiency: Share your Vision Case Studies ? Internet Presentationsto find new partners and customers Vision Statements Industry Benchmarks Pilot Partners Workshops

23. 3 Practical Experience in Introducing CLto industry

24. Experience 1 Integrate chemical leasing in marketing and network development strategies: Company choices STEP 3 adapt business model for further clients adapt business model for further countries adapt business model for further products STEP 1 select appropriate partners for chemical leasing (strategic decision) STEP 2 establish a successful business model in one country and for one type of benefits

25. STEP 3 adopt business model for further clients adopt business model for further countries adopt business model for further products STEP 1 select appropriate partners for chemical leasing (strategic decision) STEP 2 establish a successful business model in one country and for one type of benefits Experience 2 Authorities and federations can support the process supportto find partners (information provider) support research and development activities support the establishment of a public platform to communicate success stories

26. Experience 3 Essential partners are suppliers of plants/machinery individual efforts to realise potentials of chemicals is often difficult Chances of chemical leasing • better use of existing know-how • more efficient research and development • balance with respect to acces to the client Optimisation potentials of chemicals and machinery individual efforts to optimise potentials of machinery is often difficult

27. Producerof chemicals User recycling company Experience 4 Recycling companies often strengthen a chemical leasing concept • ecological benefits of a recycling concept • it is not the intention of chemical leasing to find an exclusion of waste law

28. Experience 5 Take care of know how protection and don‘t neglect internal communication! • Communicate the business model to your staff. In many cases they are afraid to give away their competence and to loose their job (what is neither the intention nor the consequence of chemical leasing concepts). • Establish clear contracts with your partners on intellectual property rights.Try to find a good balance between necessary protections and communication of know-how. • Check pros and cons of models A / B / C

29. Producerof chemicals Experience 6 Don‘t stick too close to chemicals!Use synergies between internal and external chemical leasing! STEP 2: synergy to optimise production processes STEP 1: external activity Users inseveralbranches producer of abrasives business model A business models A,B

30. Producerof chemicals User + network ofknow how Other partners Supplierof plants Recycling company Experience 7 Chemical leasing can be an opportunity for joint research activities • better products and technologies • new concepts • environmental advantages • sustainable development examples for possible support: 6th EU Framework Programme on Research national programmes (initiatives of Austrian ministries)

31. Pero’s visions towards chemical leasing • MACHINERY PRODUCER: • holds share in the joint venture • gets its money not for the machinebut for the benefit of the machines • is involved in R&D Local Centre of Excellence for metal cleaning(joint venture) • CHEMICAL PRODUCER: • holds share in the joint venture • gets its money not for the chemical but for the benefit of the chemical • is involved in R&D • CLIENTS: • cleaning at the client or at the centre of excellence • do not pay for chemicals • do not pay for machinery • payment for the benefit:cleaned work pieces

32. 4 Obstacles and Success Factors

33. Producerof chemicals User Other partners Supplierof plants Recycling company Need for co-operation defines chances and obstacles chances: • better products and technologies • combined know-how as a specific resource • environmental advantages • sustainable development obstacles: • cost of business reorganisation • confidentiality • quality standards • fair allocation of benefits + network

34. What implementation difficulties are expected? • confidentiality • intensified know-how exchange needs new rules • confidentiality agreements with suppliers required for user information on chemical applications • competitiveness problems related to know how sharing and intellectual property • fair allocation of benefits • enhanced visibility of value contributions • communication structures for clear targets and gain-sharing often do not exist yet

35. What implementation difficulties are expected? • quality standards • shift of responsibility causes need for more and higher internal standards • environmental benefits can only be achieved with compliance with standards related to the risk of chemicals(“less is more but less can be more risky!“)

36. What Can be Gained ? Customer Specific Solutions and Joint Development Activities • Avoid cost of unnecessary product features • Cut prices • Reduce complexity for customers • Enable optimisation of material flow • Value added • Enhanced customer loyalty • Barrier to market entry for competitors

37. What Can be Gained ? Chemical Management Services and Utility Based Compensation • Realise optimised material flow • Reduce complexity for customers • Value added • Provide revenue sources apart from product sales • Motivate common interest of supplier and customer in process efficiency: Conflict of interests solved • Increase trust • Reduce threat from knowledge transfer

38. 5 Requirements for a Plan of Action

39. Draft Action Plan • Selection of companies (deadline: end of March) • Exchange of necessary information (checklist 1.1) • Suggestions for branches, chemicals, applications (checklist 1.2) • Selection criteria (checklist 1.3) • Use of already existing contacts (CP and CL activities) • Preparation of visits for selected companies • Business models and economic issues (checklist 2.1) • Technical details, innovation (checklist 2.2) • Administrative support (checklist 2.3) • Program for the visit in the countries • Preparation • Company visits (checklist 3.1) • Conference (checklist 3.2)

40. Checklist 1.1 Exchange of information • Type of company (producer, user, products, position on the market) • Size of company (employees, financial key figures) • Technologies, processes, chemicals used • Potential partners (willingness to participate in CL) • Already existing loops, waste treatment, CP measures • General: Country specific information • Legal aspects • General obstacles for CL • CP Strategies, Official / national programs • Classification of industrial sectors • If necessary: main international suppliers

41. Checklist 1.2 Suggestions for Chemicals, Processes Solvents Cleaning agents Chemicals for galvanic processes Pickling Extraction Cooling, Heating Textile finishing Waste water treatment Process additives NOT: Chemicals that become part of the final product

42. Checklist 1.3 Selection Criteria The industrial application for which the respective chemical is used must yield a quantifiable product. Process design must ensure, or allow modifications as to ensure that the respective chemical is not completely emitted during the use phase. 3. All involved business partners should be able and willing to enter reliable cooperation contracts, share know how and contribute to communicate CL. 4. The top management should support the new approach. 5. There should be a potential for multiplication of a pilot project 6. Scope of application, regional feasibility

43. Checklist 2.1 Economic Issues Added value (elements, first calculation) Economic arguments (direct and indirect) for the partners Necessary investments Arguments and calculation scheme for banks (in case of necessary investments) Possibilities for additional funding Monetarian and non-monetarian benefits

44. Checklist 2.2 Technical Issues Higher efficiency of processes Technological innovation, new technologies Necessary technical measures Quality criteria Necessary testing

45. Checklist 2.3 Administrative Issues • Confidetiality declaration • Issues to be covered in contracts • Basis for payments • Quality criteria and specifications • Liability • Legal compliance • Intellectual property rights and sharing of know how • Mutual obligations • Schedule (testing, pilot phase, full implementation) • Training and external support • Development of networks

46. Checklist 3.1 Company Visits Agenda for the day Involved managers and staff Clear tasks of national and international experts Clear expectations on the outcome (committment to start!) Sufficient time for discussion and questions Creation of “own ideas” = better identification

47. Checklist 3.2 Conference • Agenda for the Conference • Invited participants • Companies (supplier, user, technology provider) • Associations • Authorities • Banker, representatives of funding institutions • Clear expectations on the outcome (generation of additional candidates and supporters) • Sufficient time for discussion and questions