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Streamlining the Chemical Inventory Process

A cost-benefit case study explains the benefits of implementing material tracking software using bar code technology.

by Darryl Braaksma
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Darryl Braaksma, ChemSW

Darryl Braaksma is a senior business and financial consultant for ChemSW. He has more than 25 years of experience serving a major corporation in research and analytical laboratory, environmental management and financial comptroller roles. Braaksma has implemented and managed financial programs for global service cost distribution and recovery, served as the IT project manager to manage environmental liabilities and reserve forecasts for Superfund and RCRA programs, and served as a lead project chemist for establishing a state-certified testing and analytical laboratory for the testing of hazardous waste and wastewater in California. He has a postgraduate degree in pharmacology from the University of California, Santa Barbara, and an MBA from Saint Mary’s College of California.

In March 2012, Lab Manager Magazine along with ChemSW, Inc. hosted a “Product Spotlight” webinar—“How to Calculate the Costs and Quantify the Financial Benefits of Chemical Inventory Management.” Darryl Braaksma, senior financial analyst at ChemSW, gave a presentation on ways in which laboratories can streamline their processes and manage chemical inventory more efficiently. He presented the results of an indepth survey of customers using ChemSW’s CISProTM chemical inventory system and discussed a cost-benefit case study that explained how laboratories can calculate their own return on investment (ROI). The live webinar was attended by an international audience from diverse industries. Following the presentation, attendees were able to ask questions and voice their concerns. This event provided them with a unique opportunity to interact with ChemSW’s expert and to seek his guidance and advice on various issues related to chemical inventory management. The event was moderated by Tanuja Koppal, Ph.D., contributing editor for Lab Manager.

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Q: What are some of the key challenges of chemical inventory management?

A: Many organizations are tracking their chemical inventories on paper or with basic spreadsheet programs or with legacy in-house solutions. Unfortunately, these solutions are often inefficient and typically cannot provide accurate, real-time information. When a researcher needs materials and the inventory data is incorrect or the material is not available, the lab’s workflows are compromised. Lack of accurate information concerning chemical inventory also affects the organization’s ability to manage chemical costs efficiently, which can lead to underestimating or overestimating the resources required. Getting chemical inventory under control enables the organization to become much more efficient.

Q: What can be done to tackle some of those challenges and make processes more streamlined and efficient?

A: Simply knowing what chemical inventory is on hand and where it is eliminates a lot of management headaches and regulatory scrutiny. This can be accomplished with a best-practices chemical inventory management system, such as CISPro, that employs bar code technology to provide accurate, real-time chemical container data that is integrated with material safety data sheet (MSDS) management and addresses regulatory requirements for chemical management and reporting.

Q: Can you share with us some of the details and key findings of the recent survey that you conducted?

A: Our survey of CISPro users examined the changes in operational and inventory management efficiencies that resulted from CISPro implementation. Quantitative questions were asked about management processes to measure the changes before and after the implementation of CISPro.

The results revealed efficiencies of 14 value metrics in the areas of chemical inventory reporting, chemical inventory management, MSDS management, chemical procurement and disposal, and laboratory operating practices. The study found that CISPro streamlined processes and enabled the organizations to realize savings in labor and resources for using and managing chemical inventories. While all areas examined showed improvement, the most significant benefit was associated with laboratory operations and the time-saving efficiencies gained by the staff.

Q: You mention that two key value areas emerged from your survey. Can you elaborate further on those areas?

A: The survey results are divided into two key value areas: laboratory operations and chemical inventory support. Laboratory operations focused on labor activities, while chemical inventory support focused on management and resource costs.

Figure 1: Lab operations man hour percentages before and after CISPro implementation. The above four activities, when added together, represent an average of 31.8% of the time spent per person on chemical management activities. That amount dropped to 15.8% after CISPro implementation, delivering a time-savings of approximately 15% per person.

Labor costs are known to be the largest expense line item for operating a lab. Thus laboratory processes were scrutinized to determine the time personnel spent on lab operations associated with chemical inventory and information. Our activities were examined: workflow delays attributed to missing inventory, searching for chemicals in the inventory, researching chemical information and properties, and generating chemical order requests.

The chemical inventory support value area was broken down into two subgroups: nonlabor-related cost reductions and labor-related efficiencies. Nonlabor-related cost reductions focused on container quantities, storage space utilization, purchase order quantity, chemical purchasing and waste drum management as affected by the implementation of CISPro. Labor-related cost reductions for chemical inventory support focused on changes in the amount of time needed to perform certain tasks; for example, physical inventory before and after the implementation of CISPro.

Figure 2: Survey participants were asked to estimate changes in total quantity of chemical containers after CISPro implementation. Typically, organizations will clean house of all chemical containers that have expired and foresee no future use. Though a few organizations reported as much as 50% reduction in chemical containers, the average container count reduction was measured to be 11%.

Financial benefits were achieved in both areas.

Q: What were some of the parameters and variables included in your financial benefit analysis for implementing a chemical inventory management system?

A:For a study of this kind, a number of financial assumptions are made. Fully loaded labor rates were applied to the efficiencies as they related to each discipline studied. Nonlabor-related reductions such as costs for storage area, purchase orders and waste drum disposal were also calculated as they related to the study. The parameters and the specifics are disclosed in my white paper. (See link to white paper below.)

Q: Can you go over some details of how lab managers can calculate cost savings and determine return on investment?

A: The survey data provided two correlations to calculate financial benefit: the number of CISPro users as related to the laboratory operations and the chemical container count as related to the resources for inventory management. Based upon the survey results, we discovered that organizations using CISPro are able to enjoy on average an annual financial benefit of $12,900 per laboratory staff user plus $12.50 per container for inventory support.

For example, assume XYZ organization implements CISPro Live, a web-based application, with five concurrent users. The organization fully deploys the application to its 50 chemists and manages 10,000 chemical containers.

Figure 3: Based upon the study findings, the annual financial benefits for a company fully using CISPro is approximately $770K ($645K Lab Staff / $125K Inventory Management) with a five-year accumulative After Tax Present Value of $1,470K (3% Inflation/15% Cost of Capital/36% Tax Rate).

Based upon the study, the estimated annual financial benefit to XYZ of fully using CISPro features is approximately $770,000 ($645,000 from laboratory operations and $125,000 from inventory support management).

Financial metrics for a five-year period calculate a ROI of 1,300 percent with a net present value of $1,370,000 and a payback period of eight months. The opportunity loss for XYZ is approximately $36,000 monthly.

Q: If you were to give some advice and share some best practices, what would those be?

A: Effective inventory management of any kind involves getting the right inventory in the right place at the right time in the right quantity. Chemical inventory management focuses specifically on controlling the activities involved with chemicals used by an organization. A proven way to ensure realtime chemical inventory accuracy is to adopt and implement best-practices software using bar code technology. Procedures for material receiving, moving and closeout are critical steps to ensure that a chemical inventory system is accurate and user adoption is maximized. Research the different solutions available. Learn the industry best practices. Ask for demonstrations. Discuss your specific needs with the vendors. Make a choice based upon the solution that offers the functionality you’ll need today and the sustainability you’ll want in the future.