What trigger is the company responding to?

In the eighties Navistar was experiencing difficulties through a combination of foreign competition and an economic downturn. In the Melrose engine plant downsizing meant focusing on their core business, reducing costs and improving operational controls.

What was the response?

In 1985, the organisation was approached by a Castrol representative with a novel concept: to make Castrol the sole supplier of coolants for the plant. In return, Castrol would accept a flat monthly fee - at a rate below Navistar's current monthly coolant bill. In addition, Castrol would perform many of the routine monitoring tasks which Navistar staff were struggling to complete, such as testing and maintaining the coolant systems throughout the plant.

Though the chemical management system (CMS) provided Navistar with a variety of benefits, the initial champions of the programme, the plant chemists, saw it as an opportunity to refocus their limited resources on activities aligned closer to the company's core business - production, quality control, health and safety. In addition, Navistar stood to benefit from the stable chemical costs and assistance in reducing environmental discharges.

Bottom line benefits

Castrol's fee was no longer linked to the amount of fluid sold and so there was a financial incentive for them to improve chemical use efficiency at the plant. This resulted in a reduction in coolant usage of more than 50%, and a reduction in coolant waste of more than 90%. But the benefits were not limited to chemical volume. Navistar experienced less production downtime and improved product quality. Potential production, health and environmental problems were identified and resolved more quickly, before they became significant. Compliance reporting was much easier, given the chemical tracking data provided by Castrol. Overall, the opportunity for each company to focus on their core business produced superior performance and profitability.

Wide lessons

CMS is a business model in which a customer engages with a service provider in a strategic, long-term contract to supply and manage the customer's chemicals and related services. Through this model the link between production and profit is broken - a company no longer makes more money by selling more stuff. Thus profitable business can be maintained whilst selling less. The approach requires a deep level of trust between the organisations involved. The tender needs careful attention in order that the environmental, operational and compliance goals of both organisations can be aligned.

Case study sources

Cleaner production from chemical suppliers: understanding shared savings contracts, Thomas J. Bierma, Frank L. Waterstraat, Journal of Cleaner Production, Volume 7, Issue 2, March 1999

Innovative Chemical Supply Contracts: A Source of Competitive Advantage, Thomas J. Bierma & Frank L. Waterstraat (Illinois State University), Waste Management and Research Center - Illinois Department of Natural (http://www.wmrc.uiuc.edu), Sept 1997

Mont O., Pranshu S., Zinaida F. Chemical Management Services in Sweden and Europe: Lessons for the Future. Journal of Industrial Ecology, Winter/Spring 2006, Vol. 10, No. 1-2, pp. 279-292.

Stoughton M., Votta T., Implementing service-based chemical procurement: lessons and results, Journal of Cleaner Production, Volume 11, Issue 8, Product Service Systems and Sustainable Consumption, December 2003, Pages 839-849.