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Volume 1, Number 6, January 2005
This newsletter is published in cooperation with the ISM Chemical Group.  



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In this issue...
  • Chemical Industry News
    • Chemistry Jobs Outlook: For the fourth consecutive year, the employment picture for chemists is not optimistic, albeit considerably better than the nation as a whole. Read more.
    • Promoting Product Stewardship: As part of its product stewardship program to promote the safe and environmentally responsible use of solvents down the supply chain, the American Chemistry Council's American Solvents Council has published a technical guide. Read more.
  • Chemical Supply Chain Security Feature: What proactive security measures are at chemical companies' disposal? Read more.
  • Commodity Report: To achieve a successful business transformation, chemical companies require integration of people, processes and technology. 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

Jobs Outlook

Chemistry Jobs Outlook Dim for Fourth Consecutive Year

For the fourth consecutive year, the employment picture for chemists is not optimistic, albeit considerably better than the nation as a whole, according to the November Employment Outlook section in Chemical & Engineering News (C&EN). C&EN is the weekly news magazine of the American Chemical Society (ACS), the world's largest scientific society.

In preparing the special section, the publication looked at the annual ACS salary survey, job placement efforts, employer demand for adding employees, and unemployment trends, and concluded that all indicators point to continuing difficulties for chemists looking for full-time jobs. For example, C&EN reports a record-high unemployment rate of 3.6 percent among chemists, up slightly from 3.5 percent last year, according to the 2004 ACS salary and employment survey. This compares favorably to a higher unemployment rate of 5.4 percent for all parts of the U.S. economy.

As recently as 2001, chemists were essentially fully employed, with only 1.5 percent out of work. ACS surveys also show that a declining percentage of new chemistry graduates are finding full-time employment. For Ph.D. graduates, this number has dropped from 45 percent for the 2001 class to 37 percent for the class of 2003.

The survey also found that full-time salaries for 2003 Ph.D. graduates had increased to $68,500, up $500 from the previous year's class, but down from $70,000 for the 2001 class. While the rate of raises has been declining slightly in recent years, the ACS survey reports that increases still remain higher than inflation.

With regard to demand for chemists among employers, C&EN reports that 2003 was disappointing. The problem: while industrial employers increased recruitment programs, they did not offer many jobs. The number of job openings available at ACS national meeting employment centers remains lower than in recent years, according to the publication. The number of potential positions offered by employers at these meeting employment centers has declined from a high of 1,628 at the 1999 ACS meeting in Anaheim, California, to 271 at the 2004 Anaheim meeting. Most recently, at the ACS national meeting in Philadelphia last August, employers sought to fill 303 positions.

Overall, industrial hiring is stagnant and recruiters generally predict few new positions for the coming year. A key reason is that although pharmaceutical companies have been fairly resilient despite a soft economy, the traditional chemical sector has had its problems, says C&EN. Despite the gloomy industrial picture, a number of academic employers expressed that they were cautiously optimistic about next year's prospects for chemists, biochemists and chemical engineers. Some predict a stronger academic hiring year for 2005, with the number of faculty openings returning to normal levels as universities make up for the reduced hiring pace in 2002 and 2003.

For more information about the survey, visit the ACS Web site.

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Product Stewardship

American Solvents Council — Promoting Product Stewardship Down the Supply Chain

As part of its product stewardship program to promote the safe and environmentally responsible use of solvents down the supply chain, the American Chemistry Council's (ACC) American Solvents Council (Council) has published a technical guide, "Working with Modern Hydrocarbon and Oxygenated Solvents: A Guide to Flammability," that provides information about the safe use of those oxygenated and hydrocarbon solvents that can pose flammability hazards.

Nigel Sarginson of the ExxonMobil Chemical Company, and chair of the American Solvents Council, says that the Council promotes the safe and environmentally responsible use of its products and believes the guide will be an important tool for industrial users of modern hydrocarbon and oxygenated solvents. "We plan to make it available widely to customers and distributors so that users throughout the supply chain can benefit, including in particular small- and medium-sized companies," he says.

The guide provides detailed information about the safe use of modern hydrocarbon and oxygenated solvents in industrial settings, with particular emphasis on flammability hazards. Examples of topics discussed are potential ignition sources, flash point, autoignition temperature and static electricity.

The American Solvents Council represents producers of oxygenated and hydrocarbon solvents and is committed to the safe and environmentally responsible use of these products. The Council addresses health, safety and environmental issues that affect producers, distributors and users of modern hydrocarbon and oxygenated solvents. The Council supports scientific research, participates in regulatory activities pertaining to solvents products, and works to ensure that solvents continue to be recognized as important components of a wide range of products that help make our lives safer and healthier, yet meet the challenges of today's environmentally conscious world.

For more information about the Council and to download a free copy of "Working with Modern Hydrocarbon and Oxygenated Solvents: A Guide to Flammability," visit the American Solvents Council's Web site.

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Chemical Supply Chain Security Feature
Improving Chemical Supply Chain Security, Part Two

As the pursuit of chemical security legislation continues, chemical companies and organizations are instituting their own security standards.

In part one of "Improving Chemical Supply Chain Security," federal and state regulations proposed following September 11, 2001, remained mostly on the table, with the states making slightly more progress. At the same time, however, the American Chemistry Council (ACC) successfully developed and adopted its Responsible Care Security Code, a mandatory, comprehensive security program for its members.

In part two, proactive security measures will be discussed. What can chemical companies do to prevent or minimize the effects of a terrorist attack, and what implications do these safety practices have for buyers of chemicals?

Chemical Companies Can Take Proactive Security Measures

In place of waiting for legislation to make its way through the system and in line with the ACC Code, chemical companies can institute their own security standards and practices, including assessments, which can help quantify risks, assist in developing a plan to address them, and assure regulators and the public regarding an organization's safety practices. The following is a series of security implementation strategies for chemical companies.

Improving communications with local authorities. Companies need to share their safety, evacuation and emergency response proposals related to both terrorist attacks and chemical accidents with the appropriate government authorities. In the event of an emergency, the initial reaction from first-responders and law enforcement personnel will likely be much more effective if they have this information, in addition to knowing the plant layout, number of employees at the plant, types of chemicals being used, etc. Understandably, local and state governments believe that if they were armed with more and better information, they could work with the private sector to more effectively plan for contingencies if a terrorist attack occurred at a chemical plant.

Using up-to-date technologies. Safer technologies would also help chemical plants mitigate the effects of a deliberate attempt at large-scale sabotage. For example, plants could use ozone as a disinfectant instead of chlorine. Manufacturers could switch to making water-based paints to avoid a need for flammable organic solvents. In addition, instead of making large batches of pesticides in open vats, manufacturers could use a continuous-flow process in a closed system. Knowledge that particularly hazardous materials were removed from a plant could discourage potential saboteurs altogether.

A comprehensive plan to transition to safer technologies is likely to be an important part of any major federal legislation. While many chemical firms are making these changes, the use of best-in-class safety technologies throughout the industry would help firms to enhance their reputation with customers, shareholders and regulators, and reduce the threat of a terrorist incident.

Focusing on deterrence. Highly evident chemical plant security is another major deterrent. These efforts can include: a significant security force presence on the perimeter of the facility; concrete barriers that would stop a truck or other vehicle filled with explosives; dynamic barriers like roll-down doors and pop-up bollards, visible signage noting that areas are frequently patrolled; and rigorous access control.

Deterrence can also be exercised via firms' recruitment and hiring practices. Companies can institute a comprehensive program of background checks on prospective hires, and thereby reduce the possibility of infiltration.

Raising awareness of security guidelines and procedures. Chemical firms must instruct their plant employees to understand their duties in the event of a breach of security, plant accident or act of terrorism which results in the atmospheric release of a toxic substance. Firms should formalize the process and ensure that their guidelines for plant perimeter and interior security effectively address potential terrorism exposures, and that employees are fully aware of any adjustments in emergency procedures that may be necessary to enhance security or address a potential incident. In addition to the deterrence measures previously mentioned, effective basic anti-terror measures to be instituted include: 24-hour security personnel, monitoring by remote cameras, frequent inspections to ensure fencing is secure, and strong and carefully placed locks to prevent intrusion.

Employees and managers need to be trained to fully understand how to carry out security and safety activities, and participate in terror-attack scenario exercises where everyone acts out his or her part in responding to such an emergency. Creating a culture of security and safety should reduce the possibility of a successful terrorist attack or, at the very least, mitigate the harmful consequences of one.

Implications for Buyers of Chemicals

As companies along all the links of a chemical manufacturing and distribution supply chain implement these and other safety practices, there may be several implications for the buyers of chemicals.

They may include higher costs as a result of pass-throughs for investments in increased security, as well as potential legal issues. Depending on the structure of the purchasing contract, ownership of chemicals can technically occur as soon as they leave the supplier's facility. This means that the transportation of chemicals — a possible target of terrorists' planning (for example, through a hijacking or blowing up a train) — is potentially fraught with risk for buyers. One way buyers are attempting to manage this risk is to insist on a contract that establishes ownership when materials arrive at their premises.

Chemical buyers must understand and comply with state and local regulations for chemical transport. Some state legislators have discussed restricting trucks and trains transporting potentially hazardous materials from routes that pass by densely populated areas. That could affect buyers in several ways, ranging from longer delivery times, to higher product costs, to increased chances of accidents and spills due to more vehicle time on the road.

A potential implication of an attack of some sort — whether on a plant or mid-transport — is that chemical buyers might need alternative suppliers. Buyers who have not examined the security of their supply chain, and the possibility of alternative suppliers, might consider doing so.

Conclusion: Security in an Uncertain Time

In a recent statement, ACC President and CEO Greg Lebedev said, "Security lapses at chemical facilities are unacceptable. To help ensure safety and readiness, the federal government must oversee and support security at all of the thousands of facilities across the nation that handle chemicals, including those that are not ACC members and have not yet adopted a strict security code."

Times have changed and there are numerous potential exposures. In light of this change, firms that produce, store or purchase hazardous chemicals need to take significant measures to strengthen their chemical plant security and safety efforts in order to protect their company, as well as the general public.

By Gary Salmans, practice leader for the Critical Incident Planning practice of the Risk Consulting Practice at Marsh Inc., New York. To contact the authors or sources mentioned in this article, please send an e-mail to author@ism.ws>.

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Commodity Report
Trends for the Chemical Industry: Strategies After the Long Downturn

Emerging from the most difficult period in more than 20 years and looking ahead to a period of prosperity, the chemical industry is contemplating its future in a new light. It is addressing what has changed and is starting to conclude that some fundamentals of markets, regions, technology, trade and operations have changed permanently. To map out a course of action, it's important to understand these key changes and determine how to cope with them.

Previous Trends

Chemical companies grew throughout most of the 20th century by inventing new products and services their customers wanted. Sometimes these products created entirely new markets like plastics. However, when growth slowed as certain segments matured, companies turned to two other growth strategies.

Strategy one. In the 1980s, mergers and acquisitions (M&As) were a favored growth initiative. This continued into the 1990s and still continues today. Overall, the results have been disappointing. Numerous articles in business publications like Fortune and Business Week show that 70 percent of most mergers and acquisitions failed to meet the stated financial objectives and 50 percent of them failed outright.

In the 1990s, globalization was an important strategy for those companies that had global customers and whose products were sold around the world. By the end of the decade, most companies that needed to be global had achieved it. For example, the multinational companies invested $2 trillion in globalization since the end of the Cold War (1990-1997). The growth rate in investment during this period was roughly three times greater in developing countries (29 percent versus 10 percent) than that in developed countries.

Strategy two. Entering the 21st century, chemical executives were presented with a performance challenge again. Since M&As and globalization had run their course, what was next? Looking back over the past 50 years, chemicals growth rates had fallen from nearly two times the gross domestic product (GDP) to significantly less than the GDP. Where were growth and innovation to be found?

The advisory board for Invensys' Centre for Hydrocarbons Business Innovation met in mid-2004 to consider long-term implications and strategies for the industry. Drawn together to discuss the changes that may impact the chemical industry down the road, this diverse group of leaders — industry, academia, media, suppliers, associations and consultants —considered fundamental changes that could radically affect the industry.

After considering a long-term look at the industry, the board turned its focus to the impacts on chemicals today and centered the discussions on the changing characteristics of existing plants and the changing geographic concentration of new plants.

Key conclusions for the chemical industry include:

  1. The United States has experienced a huge shift in international trade —from being a large net exporter of chemicals to being a large importer.
  2. All major investments are being made in areas with abundant feedstocks and in high-demand growth areas like China, India and the Middle East.
  3. New, high-growth technologies are likely to be at the intersections of the basic sciences like biotech (e.g., chemistry, biology, agronomy and nanotechnology), chemistry and physics.
  4. There is limited growth in the large chemical markets in Europe and the United States.
  5. Research and development is shifting to biotech.
  6. Pure chemical companies are concentrating on internal, organic growth while petrochemical companies are growing more traditionally in developing geographies.
  7. Energy and feedstock costs have risen dramatically and are likely to remain high for some time to come.
  8. Volatility in supply, demand and prices has increased greatly since 9/11 and companies are struggling with this unstable environment.

These ideas are illustrated graphically below. (Used with permission by Invensys)

U.S. Chemical Industry: Death of a Market?

To be successful, companies need to focus on reliability, sustainability, flexibility and ingenuity. The board explored the future technology and methodology of how chemical plants can be operated, and it is able to translate that back to today. Through its research and its interaction with executives in the industry, the board has developed a central strategic theme for existing businesses: optimizing existing plants through business transformation.

Business Transformation

In recent years, technology has given business executives access to unprecedented amounts of information. However, many still feel that electronic tools haven't been used to their full potential. The key to doing so is ensuring that a firm's transformation is not just through technology but also through the people and processes on which technology depends. There are three operational strategies that can be implemented in the current supply environment:

  1. Agile operations
  2. Real-time operations
  3. Energy optimization

Agile operations. A senior executive stated recently, "I want to make 10 decisions a month that could add to our profitability, but we do not have that capability today. We can make one-month decisions and maybe one-week decisions, but we cannot make daily or hourly decisions." He mused that he hoped seven of the 10 decisions would be good ones, recognizing the inherent uncertainty in making them. The scenario he described can be summed up as "agile operations," a Holy Grail of sorts in today's volatile plant operating environment. But is it attainable?

Today's computers, combined with advancements in optimization solvers, make it possible to enhance capabilities to reflect both the actual operational capability and the constraints of chemical plants. By extending traditional optimization techniques to include nonlinear and mixed-integer optimization, large complex problems that were previously not feasible can now be robustly solved with the additional mathematical processing and advanced solver technologies.

For example, advanced chemical plant optimization will improve planning and scheduling, and result in better feedstock selection, operational planning and target setting. Integrating these tools with real-time operational, scheduling and pricing information in order to provide continuous advisory alerts can help key decision makers add significantly to bottomline performance.

Real-time operations. A real-time operation needs to be end-to-end, starting with feedstock purchases and carrying through to the end customer. To achieve this type of operation, a philosophy must be developed on how a company wants to shape its business for maximum performance. The spectrum of philosophies can range from one that is driven by customer needs to one that is based on operational excellence. Once the philosophy is set, it drives the design of business process to achieve the goals of the organization. Then an integrated system can be put in place that connects plant information and data to the business processes and work flows of the people. It is now possible with today's technology to build real-time systems that have features like adaptive collaboration, adaptive security, the four rights (the right information, for the right person, at the right time and in the right context), event recognition and treatment, and all the characteristics of the agile operation.

Energy optimization. Energy optimization is not a new idea, but there is a new context to consider. Following the first energy crisis in 1973 caused by the Arab Oil Embargo, industry embarked on an emergency program to reduce energy consumption in their plants. The results were often spectacular and energy usage was reduced significantly. However, that early success has not advanced much in the past 20 years. The dramatic rise in energy costs has renewed interest once again in decreasing energy consumption.

Simplistically, this cannot be achieved traditionally and must result from the innovative application of advanced modeling and optimization tools. The good news is those tools are available and can yield considerable savings. It is now possible to optimize energy usage by simultaneously optimizing energy consumption and the process variables.

Conclusion

New and uncharted courses have become a way of life in the chemical industry. Supply managers usually can't control all the factors along the way, so they need to adapt to them. The concept of building adaptive business processes that transform the way supply managers do things today affords them a path to increased performance of the current assets and increasing growth through new product introductions.

Calvin B. Cobb, Ph.D., is vice president and general manager for Invensys plc, Houston.

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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:

  • Since the recession in June 2000, the U.S. economy has rebounded slowly. While manufacturing productivity increased, there's been slow growth in the employment sector. However, manufacturing continues to be and will remain an important sector in the economy. In the article, "Integrated and Vital: The State of Manufacturing," find out the trends in manufacturing productivity, employment and sourcing, as well as the effect of foreign currency rates on sourcing trends.

  • Knowledge management is a popular term with many definitions. How can an organization capture and transfer the know-how of the best technician or the best commodity manager? In her 2004 Conference Proceedings article, "Knowledge Management Process: The Care and Feeding of Knowledge Workers," Anna E. Flynn, Ph.D., C.P.M., addresses characteristics of an effective knowledge management process.

  • As the manufacturing industry tries to regain its footing after the June 2000 recession, it's the services industry and its diverse offerings that are helping to fuel the economy. In her article, "Growing Services Industry Fuels Economy," Mary Siegfried describes the shift to a services-oriented economy, the role the industry plays in the nation's employment, and the challenges faced by supply managers in the services industry. Specific sectors such as information technology, finance and biotechnology are examined.

  • While traditional value analysis can be a lengthy, technical process, the solution for supply management organizations could be the "mini value analysis." In her article, "Improving Products and Processes With Mini Value Analysis," Kimberly Harris, C.P.M., discusses the essential elements to make this new approach successful.

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