Volume 4, Number 1, January 2006
This newsletter is published in cooperation with the ISM Chemical Group.  
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In This Issue ...
  • Chemical Industry News
    • Pharmaceutical Overseas Investment: Only 37 percent of pharmaceutical executives believe their companies' levels of investment in China and India will reach $150 million or more by 2010. Read more.
    • Plastic Bottle Recycling: Plastic bottle recycling by consumers increased by 247 million pounds in 2004, the largest annual increase in history, to reach a record high of more than 1,900 million pounds. Read more.
    • RFID and Pharmaceutical Applications: RFID in healthcare and pharmaceutical applications markets earned revenue of $370 million in 2004 with projections reaching $2,318.8 million in 2011. Read more.
  • Feature Article
    • Supply Chain Security Q&A: Dow Chemical realized improving its supply chain security required a close collaboration and partnership with its transportation service providers to continuously evaluate vulnerabilities and ensure that safeguards are in place. Read more.
  • Commodity Report: The U.S. soda ash industry is encountering a situation that it has not experienced in nearly 100 years; it is now the second-largest soda ash-producing nation in the world. Read more.
  • Announcements: Find out what Stephen Covey and ISM have in common. Read more.
  • Additional Resources: Check out these links to additional resources on the ISM Web site. Read more.
  • Contact Us about ISM eDigest: Chemicals

Chemical Industry News

Pharmaceutical Overseas Investment

Pharmaceutical Companies Take Caution in Overseas Investments

Cost advantages, a growing, well-educated workforce and enormous long-term market potential are a few of the reasons why large multinational corporations are trying to understand and overcome the complexities of operating in China and India. However, a new survey commissioned by Ernst & Young LLP shows that concerns over leveraging these benefits, coupled with the efforts required to protect company reputation, intellectual capital and customer confidence, are causing multinational pharmaceutical manufacturers to take a more cautious approach to the region than companies in other industries.

The survey, conducted between September and October 2005 by the Economist Intelligence Unit, polled 348 senior executives in both pharmaceutical and non-pharmaceutical business sectors about their companies' operations in China and India. Results indicated that pharmaceutical investment in the two regions remains light. Sixty percent of pharmaceutical executives said that their companies had spent less than $50 million in either China or India. Comparatively, fewer than 50 percent of non-pharmaceutical companies said they had spent less than $50 million. There was also little expectation that investment would increase substantially. Only 37 percent of pharmaceutical executives believed their companies' levels of investment would reach $150 million or more by 2010, while more non-pharmaceutical companies (45 percent for China and 51 percent for India) are planning to spend at least that amount in the next four years.

Carolyn Buck Luce, Ernst & Young LLP's New York pharmaceutical leader, says while China and India hold the potential to become two of the world's most significant drug markets, it's clear that pharmaceutical companies are closely evaluating the risks and benefits of doing business there. "The anticipated cost benefits and allure of potentially huge new demand for medicines could be eroded by required infrastructure improvements, strict reimbursement criteria, a nascent medical insurance industry and the limited progress being made by government compliance with World Trade Organization agreements regarding intellectual property protection," says Luce. Although both countries have entered agreements in recent years to strengthen intellectual property rights, prevent counterfeiting and improve data security, it's unclear how well or how soon their intentions will convert to results.

The outcome of the survey revealed three primary points about pharmaceutical investments in the two regions:

  1. Protecting intellectual property remains a major concern. When asked to rank individual risks, patent protection was the most significant issue for a majority of pharmaceutical companies doing business in China and India. More than 70 percent of pharmaceutical executives said that threats to intellectual property pose a business risk in China, with 62 percent considering patent protection in India an issue.

  2. Other advantages fail to attract. Tax incentives and R&D advantages offered by Chinese and Indian governments are not proving a big enough draw for pharmaceutical companies. A small number, less than 33 percent, of pharmaceutical executives indicated that favorable tax incentives were appealing and beneficial. China and India compete with numerous regions around the world, including Ireland, Puerto Rico and Singapore that also offer financial incentives for pharmaceutical investment.

  3. Less reliance on strategic partnership and alliances. As foreign ownership and investment restrictions subside in both China and India, companies are eager to grow their operations in the region by investing more significantly in wholly owned operations. In China, only 35 percent of executives said their operations were wholly owned today, but they expected that to grow to 50 percent by 2010. India should see similar growth, from 34 percent today to 44 percent in 2010.

For more information about the survey, visit the Ernst & Young LLP Web site.

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Plastic Bottle Recycling

Plastic Bottle Recycling Reaches Record High

Plastic bottle recycling by consumers increased by 247 million pounds in 2004, the largest annual increase in history, to reach a record high of more than 1,900 million pounds, according to the American Plastics Council's (APC) annual Post-Consumer Plastics Recycling Report.

This is the 15th consecutive annual increase in the total pounds of plastic bottles recycled. However, while consumers appreciate the growing availability of plastic recycling, the demand for recycled plastic continues to outpace consumer participation in recycling programs. One bright spot: An increasing number of curbside recycling programs allow households to mingle all recyclable materials (for example, plastic bottles, newspapers, aluminum cans and the like), which often improves recovery of plastic bottles.

The report finds that the increase in recycling continues the historic trend of more pounds collected each year. Numerous factors may have contributed to the 2004 increase, including:

  • New York City's revival of its plastic bottle recycling program
  • Increased value of recycled plastic, which has encouraged recyclers to more carefully extract plastic materials from the waste stream, thereby increasing their financial returns
  • An increase in single stream (co-mingled recyclables) curbside recycling, which has resulted in increased recycling participation and plastic bottle recovery
  • The positive impact of several ongoing consumer and community education programs

The 15th annual APC Plastics Recycling Study, a cooperative effort between APC, the Association of Post Consumer Plastics Recyclers and the American Beverage Association, was conducted by the engineering consulting firm R. W. Beck, Inc.

For more information about the study, visit the APC Web site.

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RFID and Pharmaceutical Applications

A Six-Fold Increase in Revenue Expected for RFID in Healthcare and Pharmaceutical Applications Market

The radio frequency identification (RFID) market is still in its nascent stages within the healthcare vertical. However, according to a new study from Frost & Sullivan, "World RFID in Healthcare and Pharmaceutical Applications Markets," the business case for the healthcare market has immediate perceivable benefits as compared to other verticals that are still struggling to define the potential returns of adoption. In its analysis, Frost & Sullivan reveal that RFID in healthcare and pharmaceutical applications markets earned revenue of $370 million in 2004 with projections reaching $2,318.8 million in 2011.

The study says potential returns and benefits go beyond just efficient supply chains and economic value to more critical issues, such as patient safety and process efficiency. RFID would help improve the process of developing drugs and running clinical trials of drugs, increasing patient safety, managing critical care assets and hospital equipment and cutting down on counterfeiting and diversion of pharmaceutical products.

Priyanka Gouthaman, an analyst at Frost & Sullivan, says the late adoption of bar code technology by the market has meant that the technology is still popular among pharmaceutical and other healthcare applications. "The current price of RFID technology would also suggest that a complete replacement of bar codes is unlikely for the next 10 years," she says. The current use of bar coding technology is required by various regulations such as health Insurance Portability and Accountability Act of 1996 (HIPAA), Food and Drug Administration (FDA), Joint Commission on Accreditation of Healthcare Organizations (JCAHO) and the U.S. Department of Health and Human Services (HHS). In Europe, the U.K. National Health Service (NHS) and individual legislations in countries such as Belgium, France and Italy require similar compliance.

RFID is expected to represent a natural extension of the bar coding technology. "The hype surrounding RFID technology in the recent past has contributed to unrealistic expectations among consumers," says Gouthaman. "The internal assessment of business processes involved is often overlooked by most suppliers and system integrators."

The results of the pilots often do not match with the end-user expectations, thus impeding investments in deployments. The expectations of the technology based on results of early adopters are often too high. The business case of the end user is not thoroughly evaluated in terms of process requirements.

The technology needs to be sufficiently customized and integrated into the manufacturing process of the end user after due consideration to the existing environmental conditions. Challenges include decisions on product make-up, especially in mixed pallet scenarios and tag placement because they affect readability rates. An initial evaluation of the operational process involved and improving consumer awareness about the limitations of the technology would overcome integration challenges.

For more information about the study, visit the Frost & Sullivan Web site.

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Feature Article

Dow Chemical Addresses Supply Chain Security

With supply chain security a major priority for the world's chemical companies, knowing how an industry leader is addressing the issue can serve as a benchmark for others. Henry Ward, director of transportation safety and security for the Dow Chemical Company in Midland, Michigan, answers pertinent questions about Dow's security practices and its collaborative efforts with transportation providers and government agencies.

Q:  How does Dow manage supply chain security?

A:  Dow Chemical is the world's largest plastics and chemical manufacturer, and as you can imagine, we have a very complex and dynamic global supply chain.

We realized improving our supply chain security required a close collaboration and partnership with our transportation service providers to continuously evaluate vulnerabilities and ensure that safeguards are in place. Transportation security involves customers, suppliers, carriers and numerous government agencies — all working together to find better ways to secure lines of distribution.

Q:  Can you be more specific about what Dow has done?

A:  Prior to the terrorist attacks in 2001, Dow had implemented a number of supply chain security measures for high-value and sensitive end-use products. In the wake of those attacks, we worked with various governmental agencies and supply chain partners to evaluate the new threat, conduct chemical transportation vulnerability assessments and implement additional minimum baseline security measures for all shipments. Further, we expanded our traditional business-led Distribution Risk Reviews to include an ongoing focus on potential product-specific terrorism threats for all modes of transportation — worldwide.

Those actions, implemented under the umbrella of Responsible Care®, enabled Dow to achieve compliance with multiple government regulations and security initiatives, including:

  1. U.S. Coast Guard security regulations under the Maritime Transportation Security Act
  2. U.S. Department of Transportation security regulations for shippers and carriers of hazardous materials (49 CFR 172)
  3. U.S. Department of Transportation safety permit rule for carriers of certain high hazard materials (49 CFR 385)
  4. European Union security requirements for transportation of dangerous goods, based on the United Nations model regulations and adopted for each of the modal codes (ADR/RID/ADNR/IATA/IMDG)
  5. IMO International Ship and Port Facility Security (ISPS) Code
  6. Transport Canada security requirements
  7. U.S. Customs — Trade Partnership Against Terrorism (C-TPAT)
  8. Canada Partners in Protection (PIP) security initiative

Examples of transportation security measures that have been incorporated, to varying extent, in our company's multi-level, risk-based Supply Chain Security Plan include:

  • Site perimeter and access controls
  • Special loading/unloading and storage security zones
  • Personnel and equipment screening, inspection and clearance
  • Chain of custody shipment tracking
  • Numbered, high security seals
  • Driver teams and security escorts
  • Background checks and credentialing for transportation personnel
  • Security training and threat awareness
  • Advance electronic notification of cargo information
  • Reporting systems for capturing, evaluating and responding to information about incidents and suspicious activities
  • Security and emergency response drills and audits
  • Information security policies, procedures and standards
  • Supplier and supply chain service provider (e.g., brokers, forwarders, traders, carriers, and terminal and warehouse operators) selection, qualification and review processes
  • Customer screening and qualification processes for security-sensitive products, end-use markets and destinations
  • Consideration of sourcing options (e.g., exchanges, swaps and contract manufacturing) to reduce shipment distance
  • Crisis management planning and business supply chain continuity and communication plans

Q:  You mentioned working with your supply chain partners. What types of things have you done with your partners?

A:  Post 9/11, Dow, along with other industry leaders, worked in partnership with the Association of American Railroads and its member railroads to evaluate vulnerabilities and define security measures to protect hazardous material shipments — the results were incorporated in the AAR's Railroad Security Management Plan.

A good example of our collaboration with government is the U.S. Customs and Border Protection Customs — Trade Partnership Against Terrorism or C-TPAT. Dow was one of the first chemical companies to implement C-TPAT. C-TPAT is a joint government-business initiative to strengthen overall supply chain and border security. Dow has been awarded the highest level of recognition and approval in the program. Only one percent of all companies that have applied for membership in the C-TPAT program have achieved this premier (Tier Three) status.

Q:  Is it difficult to justify the costs of such measures?

A:  Safe and secure transportation of raw materials and products is critical to Dow Chemical's business operations and is integral to the competitive advantage of our company. Ensuring the reliability and security of our supply chain is of the utmost importance. The business case for security is very simple for us. If our supply chain is compromised, our ability to conduct business is compromised.

Q:  You discussed C-TPAT and partnering with the U.S. Government. Has the government done enough to address supply chain security?

A:  The U.S. Department of Transportation (DOT) and the Department of Homeland Security (DHS) have taken positive steps to address chemical security issues. But an issue of concern for us is the lack of authority that DHS has to regulate the security of chemical manufacturing sites. We are encouraged by legislation that is emerging out of the Senate to grant DHS this authority. It's long overdue.

We do not have this concern on the transportation side, because DOT already has the authority to regulate hazardous material transportation safety and security. One issue we would like to see DOT address is the routing of highly hazardous materials by rail. A national solution is clearly needed to prevent a patchwork quilt of potentially conflicting state and local requirements that simply shift the risk from one community to another. We believe it is within DOT's authority to address this issue.

Q:  What do you see looking forward regarding supply chain security?

A:  Technology is certainly going to continue to evolve. One example is chain of custody shipment tracking. We're involved in a number of technology demonstration projects with the government to evaluate the potential role that existing and new technologies can play in addressing our future security needs. We believe a combination of RFID/GPS technologies, for example, can complement our existing practices and further enhance the safety and security of product handling and storage. We also believe these technologies will ultimately improve productivity and reliability throughout our supply chain, potentially giving us a business advantage.

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Commodity Report

Export Market Holds Promise for U.S. Soda Ash Producers

The U.S. soda ash industry is encountering a situation that it has not experienced in nearly 100 years; it is now the second-largest soda ash-producing nation in the world. In 2003, China overtook the United States' lead as the number-one producer. With the world's largest deposit, the lowest production costs and the most efficient infrastructure to transport the product to ports, the United States is competing with a rival that has been rapidly expanding its industry with intentions to promote additional exports to other Asian markets.

In the last quarter of the 20th century, the American Natural Soda Ash Corp. (ANSAC), the export association of the United States' soda ash industry, and Solvay S.A. of Belgium, were the two major soda ash providers in the world. In the early 1990s, China imported substantial quantities of soda ash from ANSAC; however, China quietly began constructing several large-scale synthetic soda ash facilities. By the end of the 1990s, the country emerged as a strong soda ash producer and began competing with the United States in several Asian markets. Low-priced soda ash and favorable shipping costs to neighboring Asian countries gave China a competitive edge. This trend continued through 2005 and is forecast to continue for the foreseeable short term.

Soda Ash Significant Contributor to U.S. GDP

In 2005, soda ash was the 11th-largest chemical in terms of production of all domestic inorganic and organic chemicals, excluding petrochemical feedstocks. Although soda ash represented 2 percent of the total estimated $44 billion U.S., non-fuel mineral industry in 2004, its use in many diversified products contributes substantially to the gross domestic product of the United States (see chart below). For example, soda ash is used to make flat glass and fiber glass, which are both used by the domestic automotive and construction industries. The Federal Reserve Board uses monthly soda ash production statistics canvassed by the U.S. Geological Survey to develop monthly industrial production economic indicators for the U.S. economy.

The Distribution of U.S. Soda Ash by End Use in 2004

United States One of Only Few That Produce Natural Soda Ash

World soda ash production for 2005 was estimated at 40 million metric tons. Of the 31 countries that produce natural and synthetic soda ash, the United States was the world's second-leading producer, accounting for 28 percent of total world output. Only the United States, Botswana, China, Ethiopia and Kenya produce soda ash from natural sources — the remainder manufacture soda ash through various chemical processes, primarily the Solvay process. Total world natural soda ash production represented about 31 percent of combined world soda ash production. The five-leading producers were the United States, China, Russia, India and Germany, accounting for 70 percent of world production in 2005.

Consumption of Soda Ash Declining

Soda ash is considered to be a mature commodity with stable end-use markets that tend to parallel population and economic trends in developed nations. Approximately 60 percent of all U.S.-produced soda ash is consumed domestically; the remaining 40 percent is exported (see charts below). Domestic soda ash consumption has been affected by market pressures and product displacement caused by changing preferences by consumers. Domestic apparent consumption of soda ash appears flat for the past 30 years, fluctuating between 6.1 million metric tons to 6.6 million tons. And the per capita consumption of soda ash has declined significantly from about 30 kilograms per person (66 pounds per person) in 1970 to 21 kilograms per person (46 pounds per person) in 2003.

Based on Export Data from the U.S. Census Bureau, the Percent Distribution of U.S. Soda Ash Exports to 44 Countries, on a Regional Basis in 2004 The 10 Leading Nations for U.S. Soda Ash Exports in 2004

Domestic Soda Ash Supply Finding Buyers Abroad

However, the export market has been the promising future for the U.S. soda ash industry, which is comprised of four companies in Wyoming that operate five plants and one company in California with one plant. The five producers have a combined annual nameplate capacity of 14.5 million tons (16 million short tons). Sodium bicarbonate, sodium sulfite, sodium tripolyphosphate and chemical caustic soda were manufactured as co-products at a few of the Wyoming soda ash plants. The total estimated value of domestic soda ash produced in 2005 was $850 million.

Competition from the lower-priced U.S. product ultimately caused several inefficient, uneconomic synthetic soda ash plants to close in Asia, Europe and South America. Most of these plants were small in comparison to the large, million-plus-ton-facilities in Wyoming. In the past quarter century, several foreign soda ash competitors and consumers have become joint-venture partners in the U.S. soda ash industry. In exchange for permanently closing some of their facilities, these partners export large quantities of high-purity, Wyoming soda ash to their countries.

The rise in global energy costs has affected the majority of the world's soda ash producers. China is heavily reliant on imported fuel resources and raw material feedstocks such as salt, which has become scarce since 2004. Although the U.S. soda ash industry is among the lowest cost producers in the world, rail and ocean freight rates have had an adverse impact on long distance shipments. ANSAC has been successful in increasing its exports to Latin America and North America. As China reexamines its energy consumption requirements and access to salt supplies, the United States may benefit from this situation and recapture some of the Asian soda ash markets that it lost in the past few years.

By Dennis S. Kostick, senior mineral commodity specialist - soda ash, salt and sodium sulfate for the U.S. Geological Survey, Reston, Virginia. To contact the author, please send an e-mail to author@ism.ws.

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Put Your Knowledge Into Action

ISM presents the 39th Annual Supply Management Program, March 6-10 in Tempe, Arizona. This program delivers a complete leadership and education package featuring a hands-on computer simulation that closes the gap between theory and execution. The Supply Management Program demands that you roll up your sleeves and be prepared to work on real-world challenges.

ISM Members $3,195/Nonmembers $3,695. We are currently taking registrations online or call 800/888-6276, extension 401. Seating is limited so register now.

For more information or to register, click here.

Stephen Covey Opens ISM's 91st Annual International Supply Management Conference and Educational Exhibit

We are pleased to present Stephen Covey during our opening keynote session. His program "Leadership is a Choice! Not a Position" offers Dr. Covey's insights into the many opportunities to become a leader. Save $170 when you register for the complete Conference package by February 24. The package includes more than 100 workshops from which to choose, as well as entrance to the Educational Exhibit Hall and many other amenities (Cyber Café, Career Center and Educational Resource Center). Register now!

For more information or to register, click here.

Black Executive Supply Management Summit: Maximizing Influence Through Collaboration

Mark your calendar for this unique program with sessions for senior-level professionals as well as directors and managers. Special events are planned for college students pursuing a career in supply management.

Date: March 1-3
Place: Omni Hotel at CNN Center in Atlanta, Georgia

For more information or to register, click here.

Making Global Sourcing and Supply Management More Effective In Your Organization

ISM will be hosting The Inaugural Global Supply Management Conference, March 8-9 in Tempe, Arizona.

For more information or to register, click here.

New ISM Web Seminar — Introduction to Total Cost of Ownership (TCO)

As an introduction to TCO analysis, this one-hour session addresses the true cost of doing business with your suppliers. Discover how outsourcing and various business processes affect your bottomline. We'll explore several key reasons that make TCO a success and how you can define challenge areas, build the right team and ultimately understand the inherent risks in your final analysis. Register and find how you can incorporate TCO properly within your organization.

Date: February 16
Time: 10:00 a.m. Pacific/1:00 p.m. Eastern
Presenter: Lisa Ellram, Ph.D., C.P.M., A.P.P.
Price: $99 per individual or $179 for two or more attendees per connection.

For more information or to register, click here.

New ISM Workshop — P-Strat Supply Management Strategy Simulation: A Hands-On Approach to Creating and Using Supply Management Strategies (#4335)

Date: February 2-3
Presenter: Anna Flynn, Ph.D., C.P.M.
Location: Tempe, Arizona
Price: ISM Members: $1,295/Nonmembers: $1,495
Save $200 when you register 30 days in advance!

For more information or to register, click here.

Prepare to Celebrate 2006 Supply Management Month

The Institute for Supply Management™ (ISM) will be participating in 2006 Supply Management Month. We have exciting plans to raise national awareness of supply management during the month of March. The theme for 2006 Supply Management Month is:

Supply Management: Maximizing Opportunities, Managing Risk.

You may recall that this theme made its debut in March 2005 when ISM launched the official Supply Management Image Campaign. The image campaign theme is designed to run for several years in order to make a memorable impact on the perception of supply management.

Supply Management: Maximizing Opportunities, Managing Risk.

A unique pullout poster, designed specifically for March 2006 Supply Management Month, will be included in the February 2006 issue of ISM's member publication, Inside Supply Management®.

Limited quantities of 2006 Supply Management Month posters are available to ISM Groups and Forums leadership who submit an e-mail request to ISM Public Relations. Contact Jean McHale, ISM Public Relations at jmchale@ism.ws or 800/888-6276 or 480/752-6276, extension 3143.

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Additional Resources

A Wealth of Information at www.ism.ws

Visit ISM's Web site, www.ism.ws, for more supply management resources. The site provides published articles, conference presentations and reference materials that pertain to supply managers in all industries. Here are some items that might be of interest:

  • Regardless of efficiency levels, there are always supply chain risks. Whether it's sourcing from a single supplier or purchasing a volatile commodity, supply chain disruptions can occur. However, after September 2001, the nature of those vulnerabilities and the magnitude of the disruptions were forever changed. Where a company may lose thousands because of a product shortage, a terrorist incident involving a company's facility or brand could cost billions. In the article, "How Secure Is Your Supply Chain?," learn where the most vulnerable security risks exist and effective methods for closing those gaps within a company and its supply chain.

  • In last April's issue of Inside Supply Management®, the magazine featured its premier Executive Edition where leading-edge topics were explored. That same focus takes the spotlight again in the October issue of the magazine. Enjoy an all-access pass for such topics as the power of influence, assessing global economic performance and the business case for social responsibility. Have you ever found yourself alone in an elevator with your CEO? Learn how to make those 20 unexpected seconds count. There's a wealth of information for any business professional.

  • How often do you find yourself with an overload of information without a way to synthesize it? In his 2005 Conference Proceeding article, "Data Is Queen: Knowing How to Use It Is King," Kevin J. Williams, C.P.M., manager, global technology solutions/Six Sigma Green Belt for American Express Corporate Services, explores different uses for information in areas such as audits for compliance, risk mitigation, supplier negotiations, process improvement and performance tracking. He then examines the available sources of data and specific useful metrics before rounding out the topic with a discussion about how best to assemble and communicate the information gathered.

  • Every month, the Institute for Supply Management™ releases its Manufacturing ISM Report On Business®. The report features a number of economic indicators, including the PMI, which is a composite index based on the seasonally adjusted diffusion indexes for five key indicators by their varying weights — New Orders (30 percent), Production (25 percent), Employment (20 percent), Supplier Deliveries (15 percent) and Inventories (10 percent). To learn more about the Report On Business® and the PMI composite index and their importance to the economy, visit the ISM Web site.

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Contact Us

If you have editorial suggestions or would like to participate in upcoming editorial, contact RaeAnn Slaybaugh.

If you would like to sponsor this e-newsletter, contact Trish True or Kathy Braase, or call 800/888-6276.

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