Volume 5, Number 3, July 2007
This newsletter is published in cooperation with the ISM Chemical Group.  

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In This Issue ...
  • Chemical Industry News
    • Railway Safety: According to a recent study, the government allots $671 million for rail security compared to $15.8 billion for aviation security. The federal government must assist the private rail industry with efforts to protect the public from a fatal event.   Read more.
    • Europe's Biodiesel and Feedstock Market: Europe's desire to be less dependent on oil imports has revived interest in alternative fuels. This need to be self-sufficient has also induced encouraging legislation from individual European Union (EU) member state governments for the biodiesel market.   Read more.
    • Pharmaceutical Best Practices: A benchmarking report from Best Practices, LLC, compares structure, staffing, roles and responsibilities. These insights are designed to provide executives with specific direction for marked improvement and will aid organizations in making informed budget, resource allocation and process improvement decisions for quality function.   Read more.
  • Feature Article
    • Survey Says!: The Future Is Looking Green: Sustainability is considered by most executives to be a top-line opportunity to enhance brand promises, and build goodwill with the consumer in an age where global warming and concern for the environment are at an all-time high. Far from being a mere trend with the public or a passing buzzword, sustainability can carry tangible economical benefits for forward-thinking firms.   Read more.
  • Commodity Report: A recent report released by the National Coal Council suggests a series of near-, mid- and long-term actions that the coal industry needs to address in order to keep greenhouse gases to a minimum as energy consumption increases.   Read more.
  • Announcements: The Institute for Supply Management™ will hold its inaugural Hispanic Executive Supply Management Summit from August 23-24, 2007, at the Scottsdale Marriott at McDowell Mountains in Scottsdale, Arizona.   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

Railway Safety

Study Reveals Recommendations for Railway Safety

The concern over railway safety and the call for legislative action was echoed in a recent Penn State University study detailing the improvements made upon the country's railways, while highlighting glaring holes and therefore opportunities for terrorism. The study, Securing and Protecting America's Rail System: U.S. Railroads and Opportunities for Terrorist Threats, was unveiled by the Citizens for Rail Safety, Inc. (CRS) and gives recommendations to help ensure the safety and security of the American railways.

A key issue that the study uncovers is the delegation of responsibility for terrorism response training and security, and the importance of the role of the federal government. According to Penn State, "Congress needs to pass comprehensive rail security legislation and allocate adequate financial and administrative resources to enhance security efforts." Presently, the government allots $671 million for rail security compared to $15.8 billion for aviation security. The federal government must assist the private rail industry with efforts to protect the public from a fatal event, says the study.

Congressman Stephen F. Lynch, member of the House Subcommittee on National Security and Foreign Relations, says it is time to take common-sense steps to secure and monitor the country's rail stations and train platforms, and train its rail workers adequately in terrorism evacuation and HAZMAT response. "I'm proud that the Democratic-led 110th Congress has made rail security a national priority," says Lynch. "By passing comprehensive rail security legislation in March, we have already taken a significant step towards safeguarding America's rail systems and ensuring that our rail workers receive adequate security training."

Among the list of key recommendations in the report is the fact that information sharing among state, federal and local leaders needs to be more open and available; and when appropriate, this information should be shared with the public. The study states that another vital issue that needs to be resolved is the increase in terrorism preparedness training for rail workers.

The strategy for a response to a terrorist attack or the derailment of hazardous materials must include responsive official coordination and public dissemination of information about evacuation procedures. CRS executive director Patricia Abbate says citizens have the right to know what travels through their communities. "The time of disaster is not the time to start devising plans," says Abbate. "There should be practices in place that facilitate a coherent and efficient response plan."

For more information about the study, visit the Citizens for Rail Safety, Inc. Web site.

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Europe's Biodiesel and Feedstock Market

EU Regulations Fire Up Biofuel Market

Natural disasters, such as Hurricane Katrina and mechanical failures at pumping stations, have highlighted the limited availability and unstable supply of fossil fuels. Europe's desire to be less dependent on oil imports has revived interest in alternative fuels, according to Frost & Sullivan's European Biodiesel and Feedstock Market Analysis 2007. This need to be self-sufficient has also induced encouraging legislation from individual European Union (EU) member state governments for the biodiesel market.

Industry analyst Robert Outram says the biodielsel market has enjoyed excellent European Commission support by way of the Kyoto agreement and Directives 2003/30/EC and 2003/96/EC, which specifically seek to promote biofuels and establish indicative targets for their use in the transport industry. These regulations are expected to encourage biofuel use and make them cost-competitive with mineral fuels.

Encouraged by the EU legislation, individual member states have implemented their own incentives, such as tax relief, renewable transport fuel obligations and blending mandates. In general, blending mandates have particularly aided the biodiesel market and the fuel industry. This legislation requires oil companies to blend a set percentage of biofuel in all its fuels, presenting them with a huge logistical challenge. Outram says oil companies will require large volumes of biofuel to meet the mandate levels, even though percentage levels are usually low. "This means the oil companies are likely to team up with biofuel producers in long-term agreements or even invest in their own plants," says Outram.

Such helpful mandates, however, are expected to contribute to escalating feedstock prices. Because the production of vegetable oil in Western Europe has touched full capacity and has remained constant over the past decade (between 11 and 12 million tones), the intensely competitive biodiesel market is hard pressed to procure feedstock at competitive prices.

Even with the new EU member states contributing an additional one million tones, approximately 9.5 million tones of biodiesel will be required to meet EU Directives that aim to make biodiesel account for 5.75 percent of all transport fuels. "Assuming a 1:1 conversion of vegetable oil to biodiesel by volume, more than 80 percent of all the vegetable oil currently produced in Europe would be required for the biodiesel market, observes Outram.

The overwhelming demand for finite commodities, such as feedstock, will inevitably hike biofuel prices to a level where producer margins will start thinning. As feedstock costs account for 70 percent of the total plant operating expenditure, biodiesel producers will rely heavily on an effective feedstock procurement strategy and reduced logistics costs. To this end, biodiesel manufacturers will team up with agricultural concerns and look to achieve downstream integration, as well as leverage-related business activities to lower costs and increase profit margins.

For more information on this briefing, please visit the Frost & Sullivan Web site.

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Pharmaceutical Best Practices

Best Practices for Pharmaceutical Manufacturing FDA Compliance

New guidelines have been released by the Food and Drug Administration (FDA) recently to improve pharmaceutical product manufacturing quality and safety, and a new report was published in June 2007 to help manufacturers understand best practices to stay within FDA compliance.

Best Practices, LLC's benchmarking report The Quality Function: Structure, Staffing and Execution reveals strategic best practices in quality taken from survey responses and in-depth interviews with seven top pharmaceutical and medical device company leaders. The report compares structure, staffing, roles and responsibilities. These insights are designed to provide executives with specific direction for marked improvement and will aid organizations in making informed budget, resource allocation and process improvement decisions for quality function.

Some of the executives surveyed were from Abbott, Lilly, J&J, GlaxoSmithKline, Wyeth and others, and they shared wisdom and key insights for honing elite quality functions within their organizations. For example:

  • Successful companies use process quality checks on an ongoing basis. One company created documented procedures for its main quality processes to reduce the need for managers to monitor tasks on a daily basis.

  • Quality auditors can prevent internal issues from becoming external problems for a manufacturer. All manufacturing employees at one company annually complete 12 standard training modules, regardless of job position.

Some of the best practices included in the full report include:

  • Staffing and professional development. This chapter of the report includes information about methods of forecasting and managing staffing needs, all to help executives develop key skills in quality employees.

  • The quality mind-set. Practices related to developing a quality-oriented culture within the quality organization and the manufacturing function in general, including practices related to goal setting and performance measurement.

  • Integrating audit and improvement efforts. This section includes practices examination methods for tracking audit findings and improvement efforts.

For a complimentary excerpt of this benchmarking report, including sample findings and a detailed table of contents, visit the Best Practices LLC's Web site.

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Feature Article

Survey Says!: The Future Is Looking Green

By Lisa Cooling

Kermit the Frog had it right when he said, "It's not easy being green." While it might have been difficult for the popular amphibian to deal with his olive-hued skin, it can be equally challenging for corporations to transition everyday supply management practices to new sustainability standards that benefit the environment, society and the economy.

The question is: Are companies doing what they need to in order to support green practices? What are the major issues that still need to be addressed in terms of supply management?

In today's competitive market, every organization is aware that the benefits of "going green" are significant for product differentiation, profitability and stakeholder value. Sustainability, defined by the Institute for Supply Management™ (ISM) as "the ability to meet current needs without hindering the ability to meet the needs of future generations in terms of economic, environmental and social challenges," is a hot topic in supply management. However, studies have shown that many organizations are lacking formal processes and direction to develop sustainability purchasing programs that will perform according to the needs of the company.

Sustainability is considered by most executives to be a top-line opportunity to enhance brand promises, and build goodwill with the consumer in an age where global warming and concern for the environment are at an all-time high. Far from being a mere trend with the public or a passing buzzword, sustainability can carry tangible economical benefits for forward-thinking firms. Financial organizations and individual investors want to invest in well-run companies committed to sustainability practices, because by voluntarily adhering to green policies, it demonstrates the company's commitment to managing risks and taking advantage of opportunities to bring innovative practices and materials into the business.

A supply management strategy is crucial in order for a company to ultimately deliver on green promises. Recently, 25 Fortune 100 companies across North America, representing a variety of industries, were part of a study conducted by A.T. Kearney in conjunction with ISM. A majority (almost 60 percent) of the companies in the survey have a documented corporate-level sustainability strategy, yet just more than one-third (36 percent) have a formal sustainability strategy for the supply management organization.

Performing an assessment of the organization to identify areas of concern is one method to improving — and drawing attention to — supply management's role in the sustainability strategy. The Global Reporting Initiative (GRI), an international network collaborating to provide standards in sustainability reporting, has seen an increase in the number of organizations utilizing GRI guidelines to track and report their own economic, environmental and social performance factors. Turning a spotlight on suppliers is a large component of these reports. In April 2005, Nike released its first corporate responsibility report in three years, which courageously disclosed facts on all Nike suppliers, along with information on workforce diversity, socially responsible investing, the environment and community programs. In turn, Nike was able to compile a thorough blueprint of its company's impacts in several areas of sustainability, which appealed to a broad cross section of stakeholder groups.

Supply Chain Is the Enabler

Choosing to work with suppliers that have corporate policies and standards to support sustainability is at the core of a well-executed sustainability strategy. Just as it's important to track your own company's performance, it's equally crucial to develop a way to track the performance of the suppliers themselves. The key lies in finding those organizations in the first place, and then determining just how green they really are in practice.

In the A.T. Kearney and ISM Sustainability Management Survey, about 60 percent of companies reported deselecting suppliers for failing to meet sustainability criteria. That number has jumped from five years ago, when only 17 percent of companies dropped a supplier for this reason. In order to choose the suppliers needed to support sustainability, a comprehensive tracking system to evaluate certain metrics should be in place.

Just over half (52 percent) of the companies surveyed said they currently track what the study refers to as "classic" metrics for their suppliers. These metrics include:

  • Supplier labor practices;
  • Usage of recycled materials;
  • Impact of material waste;
  • Material toxicity.

That's a strong start, but it still leaves a large number of companies that are not tracking these important sustainability actions. When it comes to more "advanced metrics," the numbers are even lower. Only an average of 28 percent of companies reported monitoring supplier performance on the following additional metrics:

  • Use of sustainable sources;
  • Supplier wages;
  • Energy usage;
  • Greenhouse gas (GHG) emissions.

The goal of sustainability purchasing on the whole is to move away from goods and services that negatively impact society and the environment, and instead foster a marketplace that embraces ethical and environmental principles. The more companies purchase from green suppliers, the larger the impact. Such activity stimulates the supply chain to take proactive measures that will increase their chances of working with responsible, economically viable organizations.

For instance, according to the Sustainability Purchasing Network (www.buysmartbc.com) and its 2006 Guide to the Business Case & Benefits of Sustainability Purchasing, organic cotton farmers around the world are feeling the benefit of the 2005 commitment by Wal-Mart to acquire 6,800 metric tons of organic cotton for its goods in 2006 alone. In the five years prior, global organic cotton production totaled only 6,400 metric tons. By requesting such a large "order" for organic cotton, Wal-Mart assured the farmers that there will be a market for their crops. Not only did Wal-Mart commit to buy organic for the next five years, but the high profile of the retail giant's actions will likely encourage other retailers to consider similar changes within their supply chains.

What the Leaders Are Focused On

Currently, 40 Fortune 500 companies are participating in the Environmental Protection Agency (EPA)'s Fortune 500 Green Power Challenge, a 13-month campaign to encourage purchases of green power. The EPA is challenging these organizations to double their current level of green power purchasing, with a goal to exceed 5 billion kilowatt hours (kWh) of green power purchasing among the participating companies by the end of December 2007. According to the EPA's Green Power Web site (www.epa.gov/greenpower), this amount would be paramount to the amount of electricity needed to power more than 400,000 average American homes annually, and would mean the avoidance of CO2 emissions equivalent to 680,000 passenger cars. This project is poised to bring awareness to the possibilities of green power, and the EPA hopes it will spur innovation and construction in new power resources in the future.

No matter the size of the organization, supply executives will need to face some difficult questions within the next 12 months. In the A.T. Kearney and ISM study, those responsible for making supply management decisions are encouraged to consider the following:

  • The creation of a viable supply management strategy that will correspond with the corporate sustainability strategy;

  • Modeling potential future supply/demand imbalances in critical input materials such as water, packaging and chemicals;

  • Planning your sustainability product technology so that it can be fulfilled by the capabilities of your major suppliers;

  • Developing a process that will systematically and formally leverage the supply base — as well as secure access to — for sustainability innovation.

  • Closely examining the total life cycle input cost implications of major upcoming green product changes;

  • Formally investigating the environmental and social implications and risks of your global supplier and low-cost-country sourcing footprint.

The drivers for change will be clear direction, set priorities and systems to track and monitor both the organization and the suppliers for adherence to sustainable practices. While it may result in some high implementation costs, friction in long-term supplier-buyer relationships or confusion at the initial onset, sustainability is a worthwhile goal as the profits will benefit the economy as well as the world we all live in — today and in the future.

Lisa Cooling is a writer for Inside Supply Management®. To contact the author or sources mentioned in this article, please send an e-mail to author@ism.ws.

As printed in the July 2007 issue of Inside Supply Management®.

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Commodity Report

More Funding Needed for CO2 Management Technologies

On June 14, 2007, the National Coal Council (NCC) released its results of a study that outlined the promising technologies being developed to manage carbon dioxide in the face of sustained growth in global coal demand. The report suggests a series of near-, mid- and long-term actions that the coal industry needs to address in order to keep greenhouse gases to a minimum as energy consumption increases.

According to the report, Technologies to Reduce or Capture and Store Carbon Dioxide Emissions, coal must continue its vital and growing role in energy production in the United States — supplying the energy for more than 50 percent of the nation's electricity production. Reducing carbon dioxide emissions presents a significant technological challenge, but the report makes note of the fact that "the coal industry has a proven record of successfully meeting such challenges," due to a combination of the right research and technologies implemented on specific timetables.

The study also notes that it was important to move quickly on a portfolio of technologies to reduce or capture carbon dioxide emissions, and public-private support for these methods is critical to the nation's energy independence and energy security interests to accelerate the commercialization of these technologies.

NCC study chair Mike McCall says that last year, the organization identified enormous societal and economic benefits from converting America's most abundant energy resource into clean electricity, natural gas, transportation fuels and hydrogen. "This year, our report demonstrates that America can continue to increase its coal use while meeting long-term carbon dioxide challenges through increased efficiency of new advanced combustion and gasification plants, retrofitting existing units to increase efficiency, and development and deployment of new carbon capture and storage technologies," says McCall.

The year-long study recommends efficiency upgrades at existing plants; development of new, higher-efficiency supercritical, ultra-supercritical and integrated gasification combined cycle plants; and development of promising carbon capture and sequestration technologies. It was conducted by NCC members following a request by U.S. Secretary of Energy Samuel Bodman. The council identified a number of conclusions and developed a suite of proposed policy, fiscal and legislative recommendations to address these conclusions.

Preparing Coal for the Future of Energy Consumption

The nation will increase its energy consumption dramatically by 37 percent over the next 25 years, according to the study. However, renewable energy sources such as wind, solar and biomass will be unable to meet the projected electricity production needs of the economy and provide the reliability the nation requires. The study predicts that the bulk of the country's near-term electricity demand will continue to be fueled by coal, nuclear and natural gas, with coal providing about half of the nation's electricity well into this century.

Coal also comes into play regarding national security. The report says coal is domestically available in large quantities, can be safely transported around the country and is less subject to foreign market pressures in terms of cost or availability. In addition, its use has become increasingly cleaner with innovation and technology development. While its use has doubled over the past 35 years, coal emissions such as SO2 and NOx have markedly decreased. According to the U.S. Environmental Protection Agency's Annual Trends Report, this country's air is the cleanest it has been since the end of World War II.

Coal is not the only source of greenhouse gas emissions, nor is it the only source for electricity in the nation. Therefore, the study says that any framework for mitigating greenhouse gas emissions must involve the full energy spectrum. Given the projected energy growth, the country will need every ton of coal, cubic foot of natural gas, pellet of uranium, wind turbine, solar panel and Btu it can produce. A framework for mitigating greenhouse gas emissions is simple in conceptual terms, but becomes more difficult when it comes to marshalling the requisite financial commitments, resolving legal and regulatory uncertainties, and instituting appropriate risk-sharing mechanisms.

The study says the following necessary actions are required:

  • Near-term. Efficiency improvements at existing plants should be expedited. This can be achieved both technically and economically, but regulatory barriers must be addressed, including modifying the new source review (NSR) process. In such cases, NSR will not be triggered for plant efficiency improvements that reduce CO2 emissions with no subsequent increase in SO2 or NOx emissions.

  • Mid-term. Advanced clean coal technologies, such as integrated gasification combined cycle (IGCC) and ultra-supercritical combustion, must be given public policy support in the form of cost and permitting incentives and financial support for initial demonstrations so they can succeed in the marketplace. Sure-footed and steady progress on the FutureGen project is very important.

  • Long-term. Technology for carbon capture and storage (CCS), including storage sites and related infrastructure, must be developed within the next 10 years. Several major CCS projects must be started as soon as possible in order to achieve commercialization within the next 15 years. Oxygen-firing technologies are designed specifically for carbon capture, and will not develop independently of storage and infrastructure.

The study recommends that a suite of carbon-capture technologies and storage facilities must become commercially available and affordable within the next 15 years. When this happens, the coal-based electricity generation industry will be able to retrofit these technologies at existing plants where appropriate and will have the capability to build them into the new plants that will be needed.

There are global implications to developing and implementing these technologies as well. "When these technologies become available in the marketplace, other nations using coal can access them at reasonable cost," according to the study authors.

For more information about the report, visit the National Coal Council Web site.

Source: National Coal Council

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  • Hispanic Executive Supply Management Summit
    August 23-24, 2007
    Scottsdale Marriott at McDowell Mountains
    Scottsdale, AZ
    For more information and to register, visit the ISM Web site.

  • Global Supply Management Conference
    September 20-21, 2007
    Hilton Phoenix East / Mesa
    Mesa, AZ
    For more information and to register, visit the ISM Web site.

  • Hospitality Supply Management Conference
    October 9-11, 2007
    Hilton Atlanta
    Atlanta, GA
    Registration opens July, 2007
    For more information, visit the ISM Web site.

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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:

  • Is your company considering an expansion of its operations in an emerging country? If so, will your executive team rely on expatriates or local leadership to manage those operations? Identifying and growing local leadership may be more challenging than executives realize. In her article, Filling the Leadership Void, Mary Siegfried discusses why this difficulty exists, as well as methods for U.S. companies to grow local leadership and the qualities of a good leader in an emerging country.

  • With the economies of China and India maturing, companies are surveying the globe for the next emerging market. However, as is often the case, an emerging market means an underdeveloped supply chain. In the article Taming Emerging Markets, overcoming that challenge lies in market knowledge and product adaptation. With such countries as South Africa, Brazil, Vietnam, Bangladesh and Ghana identified as potential new markets, executives will need to speak with local suppliers and customers to understand their market needs and adapt products accordingly.

  • Ten years ago, a groundbreaking research study, undertaken by a joint partnership of CAPS Research, A.T. Kearney and ISM, revealed the five- and 10-year forecast of the purchasing and supply profession. A decade later, the same parties completed a new forecast based on a comprehensive survey. In the article, Succeeding in A Dynamic World, the survey results and expected industry trends are identified. Divided into three sections, the forecast explores: 1) the influence of the external environment; 2) corporate change; and 3) critical supply strategies. Because of the volatility occurring in the environment and economy, there is a sense of immediacy in implementing the identified strategies.

  • In May, BP was recognized with the R. Gene Richter Award for Leadership and Innovation in the People category for its step-change program designed for new university recruits. The article An Ambitious Training Program explores how BP's procurement organization developed the Rapid Sourcing Team, a program to develop and train new university recruits into the organization in support of long-term succession planning.

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