This Issue ...
- Chemical Industry News
- Adaptive Pharmaceutical Trials Gain Popularity: Pharmaceutical manufacturers are increasingly embracing trials based on "adaptive design," which allows them to change a trial's set-up to adapt it to the information being received. This contrasts with the more popular approach, which revolves around the double-blind test and is controlled with a placebo. Read more.
- Plastic Wine Bottles: Glorified Juice Boxes or the Future of Packaging? More and more restaurants and wineries are embracing the environmentally friendly — and potentially profitable — plastic wine bottle trend without sacrificing taste. Read more.
- Guidelines for the Next Generation of Chemical Safety: Released in August, American Chemistry Council's guidelines for the modernization of the nation's chemical safety laws are designed to help assure that the business of chemistry continues to serve as a critical American asset. Read more.
- New Initiative Promotes Clean Energy Use: Industry advocates assert that low-carbon propane is critical for making immediate environmental gains. Read more.
- Feature Article
- Prepare Your Supply Chain for Cap-and-Trade: The need to address carbon as an environmental risk and important resource is clear. Uncertainty about the legislative outcome means that producers will need flexible plans that can be adjusted and phased in as the regulatory picture becomes clearer. Producers who think beyond tactical efforts such as measurement, reporting and compliance declaration to address market analysis, risk mitigation and public advocacy will secure greener outcomes for themselves. Read more.
- Market Report
- Utilities Industry Benchmarking Results: A recent CAPS Research benchmarking report spotlights the utilities industry — in particular, supply management process ownership; professional development; financial data; supplier relationships; procurement management responsibilities; and performance metrics. A summary of a few of the key metrics includes total spend per supply management employee; total operating expense per supply management employee; managing maverick spend; measuring the performance of key suppliers; supplier qualifications and approvals; and best practices. Read more.
- Announcements: Institute for Supply Management™ (ISM) has released the much-anticipated CPSM® Diagnostic Kit, Web version. It is designed to help candidates focus their study efforts by identifying areas of supply management that need strengthening — right from their computers. Read more.
- Additional Resources: Check out these links to additional resources from the ISM Web site. Read more.
- Contact Us about ISM eDigest: Chemicals
|Chemical Industry News
Adaptive Pharmaceutical Trials
Pharmaceuticals: Adaptive Trials Gain Popularity
Web-based science, research and technology news service portal PhysOrg.com reports that pharmaceutical manufacturers are increasingly embracing trials based on "adaptive design," which allows them to change a trial's set-up to adapt it to the information being received. This contrasts with the more popular approach which revolves around the double-blind test and is controlled with a placebo. In these types of pharmaceutical trials, not even those conducting the investigation know who is receiving which treatment.
By contrast, "adaptive design allows for data to be continuously captured and analyzed," the site explains. "It also implies that the investigators know exactly who is taking the pill under observation, and who is taking the placebo."
Additionally, adaptive design allows for pharmaceuticals to test the effectiveness of different dosing arrangements at the same time. Data is looked at in the interim — between phases of the trials — and unblinded at that time. According to the site, companies estimate that they could save as much as 50 percent if they could adjust drug trials, or drop them altogether, by studying this interim data.
However, as the site points out, late-stage trials present problems. Top-of-mind concerns include the fact that multiple repetitions of a statistical test can increase the chances of a false positive. Additionally, tweaks to tests and statistical measures — looking for best possible results — are more likely to show what the investigators want them to, biasing the final result. Finally, bias can also be introduced as subjects and investigators look at the changing design. (Both might make assumptions based on the adaptations and act accordingly, biasing the results.)
Read the full article online.
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Plastic Wine Bottles
Plastic Wine Bottles: Glorified Juice Boxes or the Future of Packaging?
In a surprising — yet environmentally friendly and potentially profitable — trend, more and more restaurants and wineries are embracing plastic bottles. As evidence, Jonathan Bender, blogger for The Pitch: Kansas City, refers to a recent Chicago Tribune article that discusses the potential cost savings (and avoidance of broken glass) purchasing wine in plastic bottles offers.
"Although wine in plastic containers has an expiration date, the lower price is making consumers wonder whether the taste is really different," Bender writes.
It turns out, it's not.
As wine educator and Wine Skewer blogger W.R. Tish points out, the wine doesn't know what package it's in. "It tastes the same whether it's in a plastic bottle, a plastic bladder inside a box or a glass," he told Chicago Tribune writer Jerry Hirsch.
Plastic bottles' lighter weight also makes a case for environmental friendliness: as they are more efficient to ship.
Drawbacks and Payoffs
Despite these benefits, glass bottles carry a "use by" date, whereas plastic doesn't provide quite the same seal as glass, Hirsch points out. While plastic bottles do have a special layer designed to keep oxygen from permeating the container and destroying the wine, it's not the iron-tight seal that glass provides. As such, plastic bottles aren't likely to find their way into the cellars of serious wine enthusiasts, no matter how eco-minded these consumers might be.
For budget-conscious restaurant operators, however, plastic bottles make "cents." One Napa Valley, California bistro owner told Hirsch he would soon be pouring a cabernet sauvignon out of plastic bottles for wine-by-the-glass customers because his wine supplier sells him 1-liter plastic bottles for the same price as 750-milliliter glass bottles. "That means he can sell two extra glasses for about $7 to $8 each," Hirsch explains.
To this end, winemakers are also embracing the trend. For example, a winery operator Hirsch spoke to began selling 1-liter plastic bottles this summer to a major hotel chain for sale by the glass. A hotel spokesperson reported that the wine holds its own with regard to quality: "If it didn't taste good, no one would buy it," she said.
And, as the winemaker points out, more than half the wine sold in the U.S. is consumed within months, if not weeks or even hours. Additionally, most wine sells for less than $12 a bottle, making the added expense of handling and shipping glass bottles less defensible.
"Plastic will become the future of a big portion of wine packaging," he predicts. "The economics are amazing. It maintains the quality of wine, and it's environmentally friendly."
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Chemical Safety Guidelines
Guidelines for the Next Generation of Chemical Safety
In August, American Chemistry Council (ACC) released its specific guidelines for the modernization of the United States' chemical safety laws.
"The chemical industry is committed to the safety of our products," said Cal Dooley, president and CEO of ACC, upon the guidelines' release. "Any effort to modernize our nation's chemical management system must start with consumer safety as its highest priority. Current law is more than 30 years old, and the law must be updated to keep pace with science."
Mark Rohr, president and CEO of Albemarle Corporation, added that properly modernizing the federal chemical management system will also help assure that the business of chemistry continues to serve as a critical U.S. asset. "A strong law is crucial to consumer safety, but so is industry innovation," he explained.
Further, Rohr pointed out that the industry provides products that meet the needs of our society, supporting more than 850,000 U.S. jobs and contributing nearly $700 billion to the American economy.
Highlights of the principles include:
- Chemicals should be safe for their intended use.
- The EPA should prioritize chemicals for safe use determinations to focus on chemicals of highest concern.
- The chemical industry should continue to provide robust information in a transparent manner on chemicals it produces.
- Potential risks faced by children should be an important factor in safe use determinations.
- Companies and the EPA should work together to enhance public access to chemical health and safety information.
- The EPA should rely on scientifically valid data and information, and should have the resources it needs to ensure the safety of chemicals.
- A modernized TSCA should encourage technological innovation.
The full list of chemical management principles is available online.
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Clean Energy Advocacy
New Initiative Promotes Clean Energy Use
Recently, the Propane Education & Research Council (PERC) launched a nationwide education effort to promote the ways propane can help cut greenhouse gas emissions, improve air quality, lower energy costs and reduce the United States' dependence on foreign oil.
PERC was authorized by the U.S. Congress with the passage of Public Law 104-284, the Propane Education and Research Act (PERA), signed into law on October 11, 1996. PERC's mission is to promote the safe, efficient use of odorized propane gas as a preferred energy source.
According to PERC officials, the effort is designed to inform the country of how expanding the use of propane could immediately begin cutting emissions of greenhouse gases. "Significant and swift progress toward environmental goals is within reach," explained PERC President and CEO Roy Willis. "The key is to more fully embrace the clean alternative energies — wind, solar, natural gas, ethanol and propane — that are already used across the country."
Propane's environmentally friendly profile, as well as its robust nationwide infrastructure (bigger than that of any alternative fuel), makes it extremely appealing to people looking for clean energy options for transportation, commercial, and agricultural uses, Willis added.
For more information, visit propane.com.
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Prepare Your Supply Chain for Cap-and-Trade
How to Prepare Your Supply Chain for Cap-and-Trade
By Paul Lord
Cap-and-trade legislation is on the horizon. In June, the U.S. House of Representatives passed the American Clean Energy and Security Act — otherwise known as the Waxman-Markey Bill — by a narrow vote, bringing the United States one step closer to a regulatory environment.
The ambition and complexity of this bill (all 1,500 pages after the final amendments) are being analyzed, debated, cursed and celebrated all at once. If passed in the Senate, it will lead to the measurement and trading of carbon. Is your organization ready?
A Closer Look at Greenhouse Gas
The roots of this legislation stem from efforts to reduce greenhouse gas (GHG) emissions. Environmental Protection Agency (EPA) reporting assigns greenhouse gas emissions to one of five economic sectors: industrial, transportation, commercial, residential and agricultural.
GHG emissions have increased 17 percent since 1990, but only 2 percent since 2000 (see Figure 1 below). All the increases are attributable to the residential, commercial and transportation sectors of the economy. The Waxman-Markey Bill doesn't limit its scope to these sectors, though. Its impact will be felt by the process industries and those that rely on them.
A closer look at the data reveals three significant trends:
- Industrial emissions are flat. Lower activity in metals and mining has been balanced by small increases in cement and energy consumption. Industrial use of electricity has increased only 3.5 percent since 1990.
- Emissions from transportation are rising. More automotive drivers and longer commutes have pushed emissions up 30 percent since 1990.
- Residential and commercial use of electricity have skyrocketed. Electricity consumption in these sectors increased 45 percent and 54 percent, respectively, since 1990. The combined share of total GHG emissions has increased from 31 percent to 37 percent.
The statistics are in line with consumer trends: larger homes and more second homes; aggressive commercial expansion, including restaurants, banks and hospitals; and digitalization of the home and office. However, the stressed process industry has already reduced emissions, albeit not by design:
- Steel emissions fall as the U.S. industry decays. Meanwhile, process industries like steel have been affected by low-priced supplies coming from China and the emergence of "mini-mill" operators like Nucor, which recycles scrap metal. More than 20 U.S. steel companies have gone bankrupt in the past decade. Reduced GHG emissions from the steel industry have been a byproduct of this market transformation.
- Ammonia emissions decline as factories close. Another example is ammonia, which provides nitrogen content to fertilizers used in agriculture. A 300 percent increase in natural gas prices in the past decade has led to the closure of more than 15 production plants, reducing domestic capacity by 40 percent. This led to imported volumes and the market price paid by farmers doubling. GHG emissions from ammonia production have been reduced, however.
Cap-and-trade winners and losers
Who will be winners and losers from the legislation if it passes through the Senate? Here's a look:
- Clean technology providers — Companies with industry experience and available clean technology will win, such as Fluor, Schlumberger and Air Products. Other standouts include Air Liquide with its carbon-capture technology, Johnson Controls' building-efficiency business unit and solar technology initiatives underway at Dow Chemical and Dow Corning.
- Diversified global producers — Global chemical companies like BASF, ExxonMobil Chemical and Dow Chemical, with vertical integration and the ability to shift production capacity to other regions, will fare better than smaller competitors that cannot gain access to lower-cost energy and feedstocks enjoyed by foreign producers.
- U.S. railroads — Higher diesel prices will expand the cost per ton-mile between rail and road transportation options, encouraging greater substitution of rail intermodal for trucks in the United States.
- Carbon consultants and traders — Operating companies will be busy complying with regulations and operating safely. Financial houses that have carbon desks are being handed an opportunity: Consultants that can help organizations with reporting carbon content and optimizing the value network will be needed.
- U.S. refiners and motorists — Refiners will be required to purchase allowances that account for downstream fuel combustion emissions. Pressure from imports will emerge as these costs are passed to the market. Domestic refining capacity will consolidate, with fuel prices increasing.
- Industrial users of electricity — Add industrial gas companies, chlorine producers and mini-mill steel companies to this list. Expect to see a continued shift of capacity to foreign oils. As a result, their domestic customers will be faced with fewer supply options and higher prices.
- U.S. manufacturers, consumers and investors — Industries that rely on the chemical and process industries for raw material supply will experience a reduction in supply options, which will impact both price and reliability.
Taking Control of the Carbon in Your Value Chain
The process industries are energy-intensive and vulnerable to the impact of the Waxman-Markey Bill. While this legislation is being debated in the Senate and converted into law and regulations, here are things you must do to prepare for an ever-increasing focus on your carbon footprint:
- Improve carbon cost visibility and translate into price. Prepare yourself to report and analyze direct and indirect emissions to satisfy legal requirements and maintain your credibility and reputation. Develop pricing mechanisms and messaging that conveys the impact of energy price and compliance to help recover cost and shape demand toward lower value chain cost.
- Include the cost of carbon in asset life-cycle planning and network design. Review asset profitability estimates for various carbon value scenarios to prioritize maintenance and capital spending plans. Include carbon considerations in make-versus-buy evaluations and network design modeling.
- Update commodity market analysis and review asset plans for key suppliers. Commodity supply managers who rely on raw materials from the process industries should review supplier carbon reporting and evaluate asset viability for reasonable carbon values. Develop alternative sources of supply or reformulation alternatives if your company is purchasing a co-product or byproduct that might be affected by dramatic changes to production economics.
The need to address carbon as an environmental risk and important resource is clear. Uncertainty about the legislative outcome means that producers will need flexible plans that can be adjusted and phased in as the regulatory picture becomes clearer. Producers who think beyond tactical efforts such as measurement, reporting and compliance declaration to address market analysis, risk mitigation and public advocacy will secure greener outcomes for themselves.
Paul Lord leads research in the chemical and process industries — also concentrating on transportation and inventory optimization, manufacturing and SC excellence — for AMR Research in Cambridge, Massachusetts. To reach this author, please send an e-mail to firstname.lastname@example.org.
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Utilities Industry Benchmarking Program Results
A CAPS Research report gauges supply management process ownership, professional development, financial data and more.
By D. Steven Wade
Here at CAPS Research, the benchmarking team is frequently asked a handful of questions:
- How are "best practices" defined?
- What does "world-class" really mean?
- Is my supply management organization as efficient as my competitors' organizations?
- How does my supply management organization stack up against others?
- How large should my supply management organization be?
- How can I compare my organization with others to ensure we have the right combination of skills and seniority?
- Am I paying the right prices for my MRO products?
While our team might not have the answers to these queries readily available, we do provide a mechanism that enables companies to make their own performance assessments. What makes our process even more valuable is the fact that we give utility companies opportunities to participate in different benchmarking surveys. The results of these benchmarking exercises provide information about their own performance against which they can compare their operational performance against others within the same industry sector.
During the last 12 months, CAPS has released 11 different surveys on a variety of topics, including topics of importance to utilities companies. These surveys have included a variety of market baskets (for prices comparisons) and focused topic surveys on supplier environmental sustainability, investment recovery operations, shared services centers, services and commodities spend management and the cross-industry survey of standard benchmarks. There is also an industry-specific survey that focuses on questions of interest to the utilities industry. Of course, we don't expect all the utilities companies to participate in all these surveys, but we do make sure there are a variety of key metrics available that are of importance to some — if not all — utilities.
Utilities Industry Benchmarking Report
Every other year, CAPS publishes a benchmarking report that is specific to the utilities industry. The report published in 2009 is now available on the CAPS Research Web site. The companies that participated in the report had an opportunity to see the results before they were released. Some participating companies also received more detailed information, including scatter plots and trend charts, as well as a comparative look at their data alongside the aggregated data of the other survey participants. This year's report focused on supply management process ownership, professional development, financial data, supplier relationships, procurement management responsibilities and performance metrics. A summary of a few of the key metrics includes the following:
Total Spend Per Supply Management Employee
When calculating the total spend per supply management employee for utility company participants (see above), the survey clearly stipulates that "spend" should exclude power generation fuel products. Otherwise, spend reported should cover all other supply management spend categories that are touched (sourced, managed, controlled, approved, etc.) by the supply management organization. The average spend per employee is US$24.08 million, which is a 9 percent increase over the report published in 2007.
Total Operating Expense Per Supply Management Employee
Operating expense is a broad, defined metric because there is no explicit process to measure operating expenses across different organizations and industries. We asked that total operating expenses include salaries, benefits and related expenses that are apportioned across the organization (see above).
For the 2009 industry report, the average supply management operating expense was US$115,392 — a 9 percent increase over the data provided in 2007. In comparing the utilities industry against all other industries measured, the operating expense favorably compares to the overall average of US$122,900 per supply management employee.
Managing Maverick Spend
None of the utility companies reported increased maverick spend. In fact, about 40 percent reported that maverick spend has decreased, and 60 percent reported there was no change in maverick spend. Some of the steps that companies reported taking to reduce maverick spend included more oversight of p-card purchases, implanting electronic catalogs, and making the noncompliance process more difficult. One company reduced spot buys and leveraged its spend where possible.
Measuring Key Suppliers' Performance
Most of the survey participants (62 percent) reported having a formal system in place to measure key suppliers. This increase has been noted in other industry sectors. There are a number of reasons to continuously measure key suppliers, but the most frequently mentioned reasons reported this year were risk assessment and risk analysis (financial, operational, etc.). Most of the utility companies reported still needing performance management systems, and continued to see value in regular performance assessments; more than half reported they have increased their use of performance measurement.
Supplier Qualifications and Performance Metrics
This year was the first time the utilities industry included information about different qualifications and approvals required of key suppliers. Not surprisingly, technical capabilities topped of the list. It is interesting to note that only one company listed supplier environmental sustainability as a qualification. Along with technical capabilities, safety and risk assessment were topics most frequently mentioned.
At the beginning of this article, I mentioned that the CAPS benchmarking team is frequently asked about best practices, and more important, how to adopt them. Different definitions exist for best practices, but the one our benchmarking team uses is from the ISM Glossary of Key Supply Management Terms — a leading-edge activity, operation or process that is innovative and successfully implemented and thus provides a more efficient and effective means of conducting business, helping an organization to reduce its costs, and improve quality and customer service.
Even so, one organization's definition of a best practice — and how an organization implements that best practice — will likely result in different observations. There is no one-size-fits-all definition, and there are no assurances that any operations or processes that are successful at one organization will be successful at another.
There are, however, common practices and activities that can be applied across different organizations that, when successfully implemented, can result in best practice results. For example, the utilities-industry working group that helped CAPS build the survey that corresponds to the 2009 benchmarking report identified 13 best-practice characteristics. Survey participants were asked to indicate the level of importance associated with each measure, degree of implementation or maturity, and noticeable value-added results.
From the utilities industry survey results, it was clear that some utilities companies understand the importance of employing best-practices performance measures, while others have yet to fully implement the best practices characteristics that were identified. For some, these characteristics are currently in place; for others, they are still an opportunity.
The following chart shows the relative importance and implementation of the best practices, and the percent of survey participants who reported these best practices have resulted in added value to their organizations.
As indicated in the chart, the top five practices observed were budget planning and execution, sourcing effectiveness, customer service, cost savings, and risk assessment/management programs.
Additional information on CAPS benchmarking programs and related research activities is available by request.
D. Steven Wade is Director of Benchmarking Programs for CAPS Research in Tempe, Arizona. To reach this author, please send an e-mail to email@example.com.
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CPSM® Diagnostic Kit Helps Focus Your Study
Institute for Supply Management™ (ISM) has released the much-anticipated CPSM® Diagnostic Kit, Web version. It is designed to help candidates focus their study efforts by identifying areas of supply management that need strengthening — right from their computers. The Diagnostic Kit provides a sample test for the CPSM® Exam(s) with automatic scoring and correct answers, including justifications and references for further study. The Web-based CPSM® Diagnostic Kit more closely simulates the test-taking environment than its print equivalent and is used along with the CPSM® Study Guide.
The Certified Professional in Supply Management® (CPSM®) gives supply professionals a career edge as well as an enhanced ability to see the big picture to impact their organizations' supply operation. The CPSM® surpasses the demands of the international marketplace with multifaceted skills in areas such as supplier relationship management, commodity management, risk compliance issues and social responsibility.
For questions on the CPSM®, visit the ISM Web site.
Strategic Sourcing Summit & Showcase
Mark your calendar for the Strategic Sourcing Summit & Showcase, November 4-5, 2009 at the Hyatt Regency Hotel in New Brunswick, New Jersey. Keep an eye on the ISM Chemical Group Web site for upcoming details.
The ISM Sustainability and Social Responsibility Conference
The ISM Sustainability and Social Responsibility Conference is scheduled for November 5 and 6 at the Marriott Inn and Conference Center UMUC — a LEED-certified facility — in Adelphi, Maryland. Attendees will learn how to get past the hype to the nuts and bolts and the bottom line; discover best practices in sustainability and social responsibility; and follow the trail as you discover how organizations have taken sustainability and social responsibility from concept to execution.
The conference is designed to meet the needs of supply management professionals engaged in developing and supporting corporate social responsibility and sustainability initiatives. However, supply management professionals might also want to invite those outside of supply management to gain buy-in and to build the foundation for organizational success. Corporate sustainability and social responsibility initiatives are holistic strategies that involve the entire organization, from the CEO to administrative support.
For complete conference information, the agenda and registration information, visit the ISM Web site.
Complete All C.P.M. Exams by December 31, 2009
Keep yourself on schedule to complete all your C.P.M. Exams, including retakes, before the deadline on December 31, 2009. Make sure to leave time in case you need to retake an exam module. Don't risk getting caught in the year-end rush. Seating is limited and will fill up fast.
Test candidates have found that scheduling their C.P.M. Exams helped them maintain a focus on studying to "just get it done" and not procrastinate. Also, find a study partner to keep each other focused on your end goal — becoming a C.P.M. Don't miss this opportunity to earn a globally recognized credential that boosts your competitive edge in today's tough job market.
Schedule your C.P.M. Exams now at www.prometric.com/ism. For questions on the C.P.M. program, call ISM Customer Service at 800/888-6276 or e-mail firstname.lastname@example.org.
On-Site CPSM® Exam Review and Testing
Get a group of your members certified for the CPSM® at your affiliate's location (minimum number required). On-site exam review and testing gives you control of the schedule while you reduce test anxiety and increase networking opportunities among your members.
You choose if you want to offer your members on-site exam review, on-site testing or both. Both computer-based testing and paper-and-pencil testing is available; you decide the best option.
Schedule your on-site exam review or testing now with Kathy Braase or Trish True by calling 800/888-6276, extension 3061 or 3086.
Save the Dates!
This February, mark your calendars to join ISM for three informative summits at the Omni San Diego Hotel in San Diego:
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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:
- Out in Front discusses how a great corporate culture pays off with a happier, healthier and more engaged workforce. Author Marc LeBaron, chair and CEO of Lincoln Industries in Lincoln, Nebraska, talks about how this approach has paid off for this award-winning company and provides real-world examples you can apply within your own organizations.
- A recent ISM article, Under the Microscope: Cargo Theft, details what thieves are taking, when and from where based on the findings of a 2008 study of incident information provided by 1,500 users representing nearly 600 different companies across 42 states. The study identifies the highest-theft locations, busiest days of the week for thieves and more.
- Examining the 10+2 rule is the focus of a September 2009 Inside Supply Management® article, Cargo Security — New Regulation Compliance. Written by Rick Pranitis, managing director at Tigercat Productions LLC in Detroit, and a former director of sales for Con-way Freight, the article examines how a looming January 2010 cargo security initiative could significantly impact the cost and flow of the inbound supply chain.
- After the Storm, a July/August 2009 eSide Supply Management article, spotlights key tenets for mitigating disastrous supply chain disruptions. Author Gary Stading, an associate professor of supply chain management at the University of Houston — Downtown, details the supply management concepts crucial to helping provide relief to damaged areas, organizing information coming from those damaged areas and facilitating repair efforts.
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