Great Pacific Garbage Patch


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The Great Pacific Garbage Patch is a collection of marine debris in the North Pacific Ocean. Marine debris is litter that ends up in oceans, seas, and other large bodies of water.
The Great Pacific Garbage Patch, also known as the Pacific trash vortex, spans waters from the West Coast of North America to Japan. The patch is actually comprised of the Western Garbage Patch, located near Japan, and the Eastern Garbage Patch, located between the U.S. states of Hawaii and California.
These areas of spinning debris are linked together by the North Pacific Subtropical Convergence Zone, located a few hundred kilometers north of Hawaii. This convergence zone is where warm water from the South Pacific meets up with cooler water from the Arctic. The zone acts like a highway that moves debris from one patch to another.
The entire Great Pacific Garbage Patch is bounded by the North Pacific Subtropical Gyre. An ocean gyre is a system of circular ocean currents formed by the Earth’s wind patterns and the forces created by the rotation of the planet. The North Pacific Subtropical Gyre is created by the interaction of the California, North Equatorial, Kuroshiro, and North Pacific currents. These four currents move in a clockwise direction around an area of 20 million square kilometers (7.7 million square miles).
The area in the center of a gyre tends to be very calm and stable. The circular motion of the gyre draws debris into this stable center, where it becomes trapped. A plastic water bottle discarded off the coast of California, for instance, takes the California Current south toward Mexico. There, it may catch the North Equatorial Current, which crosses the vast Pacific. Near the coast of Japan, the bottle may travel north on the powerful Kuroshiro Current. Finally, the bottle travels westward on the North Pacific Current. The gently rolling vortexes of the Eastern and Western Garbage Patches gradually draw in the bottle.
The amount of debris in the Great Pacific Garbage Patch accumulates because much of it is not biodegradable. Many plastics, for instance, do not wear down; they simply break into tinier and tinier pieces.
For many people, the idea of a “garbage patch” conjures up images of an island of trash floating on the ocean. In reality, these patches are almost entirely made up of tiny bits of plastic, called microplastics. Microplastics can’t always be seen by the naked eye. Even satellite imagery doesn’t show a giant patch of garbage. The microplastics of the Great Pacific Garbage Patch can simply make the water look like a cloudy soup. This soup is intermixed with larger items, such as fishing gear and shoes.
The seafloor beneath the Great Pacific Garbage Patch may also be an underwater trash heap. Oceanographers and ecologists recently discovered that about 70% of marine debris actually sinks to the bottom of the ocean.
While oceanographers and climatologists predicted the existence of the Great Pacific Garbage Patch, it was a racing boat captain by the name of Charles Moore who actually discovered the trash vortex. Moore was sailing from Hawaii to California after competing in a yachting race. Crossing the North Pacific Subtropical Gyre, Moore and his crew noticed millions of pieces of plastic surrounding his ship.
Marine Debris

No one knows how much debris makes up the Great Pacific Garbage Patch. The North Pacific Subtropical Gyre is too large for scientists to trawl. In addition, not all trash floats on the surface. Denser debris can sink centimeters or even several meters beneath the surface, making the vortex’s area nearly impossible to measure.
About 80% of the debris in the Great Pacific Garbage Patch comes from land-based activities in North America and Asia. Trash from the coast of North America takes about six years to reach the Great Pacific Garbage Patch, while trash from Japan and other Asian countries takes about a year.
The remaining 20% of debris in the Great Pacific Garbage Patch comes from boaters, offshore oil rigs, and large cargo ships that dump or lose debris directly into the water. The majority of this debris—about 705,000 tons—is fishing nets. More unusual items, such as computer monitors and LEGOs, come from dropped shipping containers.
While many different types of trash enter the ocean, plastics make up the majority of marine debris for two reasons. First, plastic’s durability, low cost, and malleability mean that it’s being used in more and more consumer and industrial products. Second, plastic goods do not biodegrade but instead break down into smaller pieces.
In the ocean, the sun breaks down these plastics into tinier and tinier pieces, a process known as photodegradation. Scientists have collected up to 750,000 bits of microplastic in a single square kilometer of the Great Pacific Garbage Patch—that’s about 1.9 million bits per square mile. Most of this debris comes from plastic bags, bottle caps, plastic water bottles, and Styrofoam cups.
Marine debris can be very harmful to marine life in the gyre. For instance, loggerhead sea turtles often mistake plastic bags for jellies, their favorite food. Albatrosses mistake plastic resin pellets for fish eggs and feed them to chicks, which die of starvation or ruptured organs.
Seals and other marine mammals are especially at risk. They can get entangled in abandoned plastic fishing nets, which are being discarded more often because of their low cost. Seals and other mammals often drown in these forgotten nets—a phenomenon known as “ghost fishing.”
Marine debris can also disturb marine food webs in the North Pacific Subtropical Gyre. As microplastics and other trash collect on or near the surface of the ocean, they block sunlight from reaching plankton and algae below. Algae and plankton are the most common autotrophs, or producers, in the marine food web. Autotrophs are organisms that can produce their own nutrients from oxygen, carbon, and sunlight.
If algae and plankton communities are threatened, the entire food web may change. Animals that feed on algae and plankton, such as fish and turtles, will have less food. If populations of those animals decrease, there will be less food for apex predators such as tuna, sharks, and whales. Eventually, seafood becomes less available and more expensive for people.
These dangers are compounded by the fact that plastics both leach out and absorb harmful pollutants. As plastics break down through photodegradation, they leach out colorants and chemicals, such as bisphenol A (BPA), that have been linked to environmental and health problems. Conversely, plastics can also absorb pollutants, such as PCBs, from the seawater. These chemicals can then enter the food chain when consumed by marine life.
Patching Up the Patch

Because the Great Pacific Garbage Patch is so far from any country’s coastline, no nation will take responsibility or provide the funding to clean it up. Charles Moore, the man who discovered the vortex, says cleaning up the garbage patch would “bankrupt any country” that tried it.
Many individuals and international organizations, however, are dedicated to preventing the patch from growing.
Cleaning up marine debris is not as easy as it sounds. Many microplastics are the same size as small sea animals, so nets designed to scoop up trash would catch these creatures as well. Even if we could design nets that would just catch garbage, the size of the oceans makes this job far too time-consuming to consider. The National Ocean and Atmospheric Administration’s Marine Debris Program has estimated that it would take 67 ships one year to clean up less than one percent of the North Pacific Ocean.
Many expeditions have traveled through the Great Pacific Garbage Patch. Charles Moore, who discovered the patch in 1997, continues to raise awareness through his own environmental organization, the Algalita Marine Research Foundation. During a 2014 expedition, Moore and his team used aerial drones, to assess from above the extent of the trash below. The drones determined that there is 100 times more plastic by weight than previously measured. The team also discovered more permanent plastic features, or islands, some over 15 meters (50 feet) in length.
All the floating plastic in the Great Pacific Garbage Patch inspired National Geographic Emerging Explorer David de Rothschild and his team at Adventure Ecology to create a large catamaran made of plastic bottles: the Plastiki. The sturdiness of the Plastiki displayed the strength and durability of plastics, the creative ways that they can be repurposed, and the threat they pose to the environment when they don’t decompose. In 2010, the crew successfully navigated the Plastiki from San Francisco, California, to Sydney, Australia.
Scientists and explorers agree that limiting or eliminating our use of disposable plastics and increasing our use of biodegradable resources will be the best way to clean up the Great Pacific Garbage Patch. Organizations such as the Plastic Pollution Coalition and the Plastic Oceans Foundation are using social media and direct action campaigns to support individuals, manufacturers, and businesses in their transition from toxic, disposable plastics to biodegradable or reusable materials.

What are long term threats of plastic in our seas?


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Last summer, when filming for a series to be broadcast next year, a team from the BBC’s Natural History Unit saw first-hand how discarded plastic can end up thousands of miles away from where people live when they visited French Frigate Shoals, an island north west of Hawaii.

There they found turtles nesting amongst plastic bottles, cigarette lighters and toys. And they discovered dead and dying albatross chicks, unwittingly killed when their parents fed them plastic carried in as they foraged for food in the sea.

Some of the chicks die when sharp edges puncture their bodies, others from starvation as their stomachs fill with plastic they cannot digest.

We have known for a while that plastic is a threat to the albatross, but how dangerous is discarded plastic for other wildlife and could it affect us?

Some of the plastic in our oceans has been illegally tipped at sea, or is litter from fishing, most comes from the land, from poorly run landfill sites and industrial waste.

Floating debris is carried to the Hawaiian archipelago by giant rotating ocean systems, or gyres, partly driven by air currents.

Hawaii sits in the midst of a gyre known as the North Pacific Sub-tropical High. The North Pacific gyre is one of five gigantic interconnected systems of ocean currents. Each spirals around a central point, drawing material inwards.

These spirals can also eject material, out towards the Arctic and Antarctic, spreading plastic across the globe over time.

Plastic is made to last, so it decays only very slowly in the oceans, breaking down into ever smaller fragments. These tiny fragments are known as micro-plastic.

Hormonal changes

Dr Simon Boxall is an expert in marine pollution based at the National Oceanography Centre in Southampton, on Britain’s south coast. We took a boat trip with him in the sea near his research centre.

Using a simple net and bottle system, the boat filtered roughly 400 tonnes of water in 10 minutes. With the naked eye we could see mud, twigs and a few feathers, but when we looked at the sample under the microscope in Dr Boxall’s laboratory tiny pieces of plastic became clear.

The sample included small pieces of plastic rope and plastic bag, some fragments were distinctly coloured and some had sharp edges. There were pieces less than a millimetre across, similar in size to the living things in our sample – the phytoplankton, or tiny plants, and zooplankton, or tiny animals.

“There’s been a lot of research in the United States looking at how the plastic gets into the food chain, and certainly it’s been shown that it gets into bi-valves, mussels and oysters on the seabed, and it does have an effect on them,” Dr Boxall said.

“They bio-accumulate the plastic as they filter the water. That concentrates the plastic and effectively turns some of those molluscs into hermaphrodites. Some years ago it was assumed that it was like roughage, and didn’t have a major impact, but we know now that those very small plastic particles can mimic certain things like oestrogen,” he added.

Chemical adsorption?

However, he said the true effects are not yet known:

“These plastic particles are like sponges, they’re a bit like magnets for other contaminants, things like Tributyltin, the anti-fouling material. The tiny plastic particles absorb these materials and effectively become quite toxic. We don’t know yet whether that then has an impact on the human food chain. It’s still very early days to find out how far up the food chains these plastic particles go.”

At the Marine Biology and Ecology centre of Plymouth University they study the impact of pollutants on our oceans and rivers, and the creatures that live in them. Marine scientist Professor Richard Thompson was the first to describe the tiny fragments of broken plastics as micro-plastics back in 2004.

“There are two concerns from a toxicological point of view. There’s the issue that plastics are known to sorb and concentrate chemicals from sea water,” he explained.

“And the secondary question is about chemicals that have been introduced into plastics from the time of manufacture, in order to achieve specific qualities of the plastic, its flexibility, or flame retardants or anti-microbials.

“When we’ve now got plastic not as whole intact items but as small fragments in the environment, is there the potential for any of those chemicals from manufacture to also be released?”

‘More work needed’

Prof Thompson’s team has been examining fish in the English Channel, 500 or so across 10 species – including mackerel, whiting, poor cod and gurnard.

His results have just been published in Marine Pollution Bulletin (Lusher et al, MPB, December 2012). The team found microscopic plastic in the guts of all of the species tested.

“It’s showing that micro-plastics are quite widespread in the environment, not just in the water columns and the beaches, but actually in the creatures that live in those environments,” he said.

Prof Thompson said the plastics had been found “in relatively low quantities – one or two pieces per fish – so this is certainly not a risk from the point of view of the human population, people eating those fish, because of course we don’t eat the guts normally”.

“The question we do want to address is is that a problem from the point of view of the animals concerned, in individuals that are eating plastic, either from the point of view of the physical presence of the plastic, or the potential for chemical transport?”

I asked if that means there is a concern for people who eat the flesh of the fish, if those chemicals have found their way into the animal.

“It’s really an unknown,” Prof Thompson said.

“The next step is to take the information like that from fish and other creatures to understand how much plastic, what are the chemicals that might be of concern… what are the concentrations of those chemicals, what are the quantities of plastic, and how does that vary from species to species in order to understand which particular combinations might create the greatest potential for hazard…

“That’s what our work is trying to establish at the moment – what potential is there for these micro-plastics to actually cause harm in the real world.”

Pricing in the crisis? An empirical analysis


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Ralf Schmidt

In an empirical survey on pricing, team steffenhagen GmbH analyzed the impact of the financial and economic crisis 2008 / 2009 on the chemical industry.
80 pricing managers gave insights into the effects of the crisis, the concernment triggered by the crisis and the counter measures that were employed in the companies.
The analysis uncovers success factors which promise successful pricing in times of crises. These include, among others, a high pricing performance already before the crisis, a clear structure of the pricing processes, a result-oriented alignment of the pricing, a good knowledge of the advantage of the own products in the processes of the customers and in the competitive environment, as well as pro-active pricing approaches. During the crisis, it is vital to gain more information on the financial situation of the customers to substantially invest in marketing and distribution, to limit abatements, and to ensure professionalism in pricing despite the turbulences of the crisis. In summary, these factors denote sufficient reasons for an increase of professionalism of the pricing.


Shortly after the first outcomes of the collapse of prices in the American real estate market in February 2007, it took about 1.5 years until the crisis left perceptible marks in the real economy and with that also in the chemical industry. Sales and profit collapsed, productions were closed down, and reduced working hours were the often documented consequences.
Although it remains unclear whether the crisis is over, many indicators point upwards. As an example, the orders of industries not directly linked to the automotive sector are increasing. Temporarily shut down chemical plants resume production at an increasing rate and the association of the chemical industry in Germany (VCI) expects a 5% production and 6% sales growth rate for 2010.
On the other hand, it is still a long way until the high values of the first half-year in 2008 will be in reach, and there are already new voices who indicate the risk of further bubbles. The weekly German magazine “Die Wirtschaftswoche”, for example, has already warned against a new bubble in the Chinese real estate and share markets – induced by trade cycle policies – in December 2009. Regardless of whether the light at the end of the tunnel is only in sight or already reached, the consequences of the financial crisis on the chemical industry were serious, and reason enough for team steffenhagen to investigate the details.
With regard to the financial crisis 2008 / 2009, team steffenhagen’s target was to identify arising challenges for companies in the chemical industry and to assess their impact on the firms’ pricing strategies. More specifically, the survey illuminated the following aspects in detail:

  • Which pricing strategies did the companies have before the crisis?
  • Which impact did the crisis have on the companies’ pricing strategies?
  • How did the companies react?
  • What can we learn from the crisis in terms of pricing?

The way into the crisis

In February 2007, the break in US-American real-estate prices left its first traces: The HSBC Bank in London had to release the first profit warning in its history because of the multi-million loan default of the US-daughter Household. Two weeks later, US-Boss Bobby Mehta lost his job because of this development. Hardly anybody suspected yet one of the biggest world economic crises was ringed in.
US-Finance Minister Hank Paulson only talked about „limited credit problems“. In May 2007, also the Federal Reserve Chairman of the US Ben Bernanke was sure about the crisis to be limited to the American real-estate market.
How wrong he was became clear in July 2007, when the IKB (Deutsche Industriebank KG) in Germany was hit, and the KfW bank group had to bail for 8.1 billion Euros, while Bear Steams in the USA had to announce two of its hedge funds as worthless. The customers of the British investment bank Northern Rock emptied their accounts in August 2007, until the British government declared to guarantee for the deposits.
In 2008, the crisis reached the real economy, and thus, the chemical industry. On January 21st, the DAX lost seven percent in only one day. Seven months later, also the biggest chemical enterprise BASF SE gave warning of hard times. Contemporaneously with the insolvency of Lehman Brothers, BASF cut back the plastics production to fight against the crisis. Likewise, Rhodia closed a polyamide plant in Italy as part of a huge cost reduction program. Besides Dow that proclaimed the recession in October 2008, several chemical companies in the US reduced their profit expectations.
The financial crisis turned into a world economic crisis. After the automotive sector was hit first, the automotive supplier industry was next. In December 2008, TMD Friction was the first German automotive supplier to apply for insolvency – the new car sales in Germany collapsed by 25%.
To cope with the crisis, the chemical industry sought to cut back labor costs through reduced production, as for example Bayer or Lanxess, or by means of staff reductions, e.g. Du Pont. In January 2009, Lyondell-Basell got into financial difficulties, whereas BASF sent 1800 employers into short-time work. In February, the association of the chemical industry in Germany (VCI) even referred to a catastrophe.
Just after the first glimpses of hope seemed to rise in July 2009 and – in accordance to Financial Times Germany (09.07.2009 and 22.07.2009) – reliance came back to the chemical industry, DSM already called the boom into question in August 2009.  Süd-Chemie confirmed the negative perspective, too.
However, in September optimism became accepted on a broader base. For the year 2010, the VCI, as mentioned in the beginning, expected a production growth rate of 5% and a sales growth rate 6%, even if it has been assumed on a low base level.
The survey was conducted in the chemical industry by team steffenhagen during the summer of 2009, i.e. between the first boom tendencies and the relapse into negative perspectives. So the shock from the crisis was still enormous, but, dependent on the industry sector, the first glimpses of hope were observable.

The survey

In 2005, team steffenhagen was able to uncover many weaknesses in the pricing management of companies, who participated in a first pricing survey focused on the chemical industry. In the current survey, again 80 pricing managers from different segments of the chemical industry gave response to our questions.
The participants of this survey mainly worked in the marketing and sales department, representing companies and departments of all sizes with different application areas of chemical products, such as petrochemistry, plastics, automotive, construction, or nutrition (c.f. Fig.1). Moreover, participating companies were located in different markets, including the specialty market, the commodity market, as well as the so called semi-commodities market (c.f. Fig.2).




It has to be noted that, although the survey indeed covers different segments of the chemical industry, it cannot raise the claim to be representative. It seems obvious that the evaluations presented in the survey show an image which is slightly distorted into a positive direction of the crisis and its consequences.
The following figure highlights the distribution of participating firms with regard to size and business types.

Pricing before the crisis

In their self-evaluation, the participants provide a clear picture in terms of their pricing behavior: About three quarters of them indicated to have implemented both transparent pricing processes and clearly defined pricing strategies.
It is precarious though that nearly 70% of the participating companies (and departments) still gear their pricing towards maximum EBIT.
That implies that the majority of companies are still in danger of taking pricing decisions on the basis of overhead costs.
This apprehension is supported by the survey: For about 50% of the companies the overhead costs are crucial for price decisions to a high degree. This is an approach that verifiable leads to wrong decisions! Only for 12% of the companies the overhead costs play a merited minor role.
One can find a strong orientation towards sales volume or market share within 15% of the companies. As expected, the suppliers of semi-commodities and commodities are overrepresented here.
Furthermore, it attracts attention in the analysis of the survey that the competition orientation comes off badly in terms of pricing. Only 36% of the interviewees claimed that before the crisis they used systematic methods for competition analyses.
Before the crisis, a strong orientation towards the competitors’ prices was crucial for barely a quarter of the interviewees. That would have been plausible for specialties, but it is precari-ous that even with commodities not more than a third of the involved companies are using systematic competition analyses. However, 45% of the commodity providers try to anticipate the reactions of competitors when setting their prices.
Moreover, a quarter of the interviewees revealed no competitor orientation regarding the pricing before the crisis.
In terms of customer orientation the situation was better before the crisis, although further optimization is essential. 60% of the interviewees had a good knowledge of the benefits of their products in the processes of their customers before the crisis. The least knowledge about the value in the processes of the customers could surprisingly be observed in the specialities market (48%).
Because of the weaknesses associated with competitor orientation, only 50% of the interviewees – according to their own statements – had a good knowledge of the customer value at their disposal compared to their competitors.
The orientation of the prices towards the provided customer value was found in 45% of the participating companies. However, only 17% were able to quantify the customer value before the crisis. Regarding the specialty providers, there were only 10% able to do so. Commodity providers revealed – as expected – the lowest orientation of the prices towards the customer value as well as the lowest efforts to quantify the customer value.
In the same way, there was already before the crisis the need to implement the customer value in price negotiations: Less than 50% were able to demonstrate the customer value in price negotiations before the crisis. Only for 38% the customer value was at the core of their price negotiations.
In terms of the price implementation, it is striking that around 60% of the companies were well prepared during the crisis regarding existing pricing competences and argumentation support for the sales people. But despite all that, the targeted price was achieved only by a third of the companies, and particularly specialty providers seem to have difficulties here.
Only 35% of the interviewees reported a pro-active pricing before the crisis. Apparently, this is much easier for specialty providers, of which nearly the half realized a pro-active pricing already before the crisis.
Regarding price controlling more than 85% of the companies used systematic and estab-lished tools before the crisis. When asked about specific tools, interviewees named only rarely established tools like price scatter plots or profitability calculations. They mostly emphasized general analyses and tools, for example data bases and benchmarking.
So it is not very astonishing that only 40% of the interviewees claimed to be able to prepare better price decisions thanks to specialized tools before the crisis. Even the impact of pricing decisions on the own performance is perceived positively only by 56% of the companies.
A kind of oath of disclosure regarding the price consciousness was revealed in the end of the survey. The participants were asked for the biggest lever for the financial result and they could choose between the price, the variable costs, the fixed costs, and the sales volume. Surprisingly, only 35% were right and named the price.
Against the background of these mediocre results in terms of pricing quality, the following questions have to be asked: To what extent did the crisis negatively affect the companies? And, which companies were eminently hit and why?

The impacts of the crisis

Immediate impacts of the crisis

Certainly, the primary impact of the crisis was the customers’ reluctance to buy. Declining demands and quantities of sales are on the 1st place of our survey in the “charts” of the distinct changes contingent upon the crisis. More than a third spontaneously thought of this when they were asked for the clearest changes caused by the crisis. In terms of internal consequences, on the contrary, the focus on costs remains unchallenged on the first place (11%).
Both facts are not very remarkable. Elsewhere it was reported that sales collapsed by 50% (or in single cases even up to 80%) and that cost cutting programs were at the top of any firm’s agenda. Because of this development more than a third of the interviewees assessed themselves as being highly affected by the crisis. A quarter of the participants were on the contrary only weakly affected (cf. Fig.3).




The companies that were according to their statements strongly affected by the crisis likewise felt strongly insecure regarding the own financial situation. About 42% of them noticed in this regard an increase in uncertainty since the beginning of the crisis. Contrasting this, more than 50% of the less crisis-affected companies felt substantially less insecure. The uncertainty has strongly increased since the beginning of the crisis, especially for commodity providers. (Annotation: the subjective concernment was measured as an approval to the statement “Our company is strongly affected by the current economic crisis” on a six-point rating scale. The answers were clustered into “weakly affected”, “moderately affected” and “highly affected”.)
An increased uncertainty in the judgement of the financial situation of the customers, which was detected by nearly all the participants, has to be added. Specialty providers, however, seem to assess the situation a bit better.
Another effect of the crisis can be led back to the considerably stronger fixation of the negotiation processes on the price, especially at commodities and semi-commodities. In this regard increasing efforts are undertaken to convince the customer of the added value of the own products.
The implementation of a successful pricing in and despite of the crisis is therefore achieved especially in companies which were only slightly affected by the crisis: While 75% of the weakly affected companies implemented a successful pricing, the ratio decreases for highly affected companies to a maximum of 50%. In regard to the type of business, it is remarkable that commodity providers reveal the most difficulties. However, 44% of them believe that they have a successful pricing in the crisis.
A vicious circle is initiated. Especially not well-prepared companies regarding the pricing will be affected by the crisis. The concernment is illustrated by greater uncertainty about the own situation and the situation of the customers. If this uncertainty is followed by a stronger price fixation resulting from incompetent acting on the market, the concern will increase even more. Accordingly,  successful pricing will be impossible and, in turn, the sensitivity of firms against crisis-induced threats will increase. Against this background, an accurate overview of the factors, which increase the concernment and in the worst case denote first the step into this vicious circle, are worth it.
Therefore, the question arises which factors lead to a higher or high concernment.




Where and when is the concernment eminently high?

The diversification of the concernment into industry sectors was expectable. We could find high concernment especially in companies which supply the automotive sector as well as the plastic sector. Following the motto “people will always eat“ we find only a slight concernment in companies with customers affiliated to the nutrition industry.
Surprisingly clear was the difference between specialty and commodity or semi-commodity providers. Only 14% of the specialty providers are strongly concerned, while the share runs up to 38% for semi-commodity providers and up to even 48% for commodity providers. Especially a high market transparency and low differentiation ability seem to be the driving factors which make them vulnerable to the crisis.
Since less concerned companies can be found in the less price-driven sectors, we conclude that less price-driven industries denote a solid market even in the crisis.
Which countermeasures did the companies in the chemical industry employ to protect themselves from the effects of the crisis?
This question will be pursued in the following for the different phases of the pricing process (cf. Fig. 5).

Which countermeasures were employed?

Countermeasures related to costs and information procurement

The reduction of costs is one of the first crisis-induced reflexes. The following means to reduce the costs were used intensively:

  • Stronger focus on production costs: 95% of the participating companies have urged their efforts to optimize the production costs since the beginning of the crisis. A third of the interviewees even reported strongly enforced measures.
  • More pressure on the commodity prices: There is no exception here. The crisis induced all companies to increase the pressure on their suppliers to reduce commodity prices. Remarkable strong pressure was exerted by providers of commodities and semi-commodities.
  • More pressure on payment terms: More than 72% also employed shortened periods of payment, which increased the burdens on the suppliers even more. Especially commodity providers are not very willing to compromises.

Contrasting cost related saving effects, investments in information procurement are vital. The following investments were enforced since the beginning of the crisis:

  • More market intelligence / market observation: All participating companies conduct more market observations since the beginning of the crisis to reduce existing uncertainties. There are also no companies which have not enhanced observations of the com-petitors.
  • All interviewees are using more external information sources since the beginning of the crisis to be able to more reliably estimate the financial situation of their customers.
  • More resources in marketing & sales: While a third of the companies are saving their money, two thirds invest more into marketing and sales than before the crisis.

We also detected a polarization of companies with regard to the investments in technical staff. While slightly more than half of the companies tend to reduce investments in technical staff, the “smaller half” tends to expand their investments.

Strategic countermeasures and measures of base price decisions

Due to the crisis, participating companies are now comparatively more oriented towards their competitors, they have enforced the structuring of their pricing processes and they conclude contracts with shorter durations:

  • Increased competitor orientation: Since the beginning of the crisis more than 80% of the interviewees orientated their price decisions more towards their competitors.
  • Enforced structuring of pricing processes: Three out of four companies have enforced the structure of their pricing processes since the beginning of the crisis. Every forth company even indicated a considerably higher structuring.
  • Shorter contract duration (especially at commodities): Overall, more than 85% of the interviewees rely on shortened contract durations. With reference to commodity provid-ers, now even 95% employ shorter contract durations.

Regarding the question, if companies have parted from unprofitable business segments in consequence of the crisis, we once again identified two groups.

Measures at pricing decisions

The following reactions were apparent regarding pricing decisions:

  • In correspondence to the tendency of shorter contract durations, more than 80% implemented more short-dated price alignments since the beginning of the crisis. This tendency is very high for commodity providers and companies with a low pricing performance. (Annotation: The pricing performance was deduced as an indirect indicator out of different questions of the questionnaire.)
  • More than 75% reacted on the crisis by means of more price reductions to keep up the sales volume. Even if this reaction is rarely employed by specialty providers, this reflex has to be scrutinized critically:
  • On the one hand the outstanding importance of the price advises caution.
  • Furthermore, the question arises, if the resulting price wars are grounded on a real demand in times of the crisis-induced decrease of needs. Does it make any sense to fight with reduced prices for a demand which does not exist anymore?
  • Besides that, price reductions can be easily copied by competitors. While price wars are often initiated by price reductions, firms often employ this mechanism without a verification, if there is a realistic chance to win based on the own costs position, and with fatal consequences for the own profitability.
  • On the other hand, nearly 25% of the queried companies are able to enforce higher prices since the beginning of the crisis; even 36% of the specialty providers are able to do so.
  • More than 57% of the companies separate the pricing of service features to a lesser extent. On the contrary, other companies reacted by means of an enforced direct pricing of the services.

Measures of price implementation and price controlling

In order to meet the challenge of price enforcements successfully, 80% of the participating companies are using more and more trainings of their own sales employees.
Nearly a third of the companies do not use variable remuneration models that are in line with the price implementation to incentivize sales people. Within much more than a third of the companies, which work with performance-based remuneration models, the performance criteria have no direct connection with the outcome.
92% of the companies, which use more decision supporting tools, rely on a more intense price controlling. However, the question about the professionalism of these efforts remains unanswered.
With all used measures and reactions on the crisis the question about the efficiency arises.  Which success factors can be derived for a pricing in the crisis?

Success factors for a pricing in the crisis

A high pricing performance is the best prevention for a crisis

Of course a high pricing performance, per definition, provides the best premises to control the most important outcome driver – the price. This is not very surprising.
The survey proves that a high pricing performance is indeed the best premise to survive a crisis like the world and economic crisis which started in 2007/2008. In conformity with the rule „Prevention is better than cure“, a high pricing performance protects from the effects of the crisis. The amount of companies that were only slightly affected by the crisis is as double as high for companies with a high pricing performance (29%) than for companies with a low pricing performance (14%). And you don’t even have to be counted to the best in pricing to prepare well for crisis times. Even companies with a medium pricing performance (26%) are only weakly affected.
A high pricing performance therefore leads to being less affected by the crisis. A low pricing performance before the crisis on the other hand appears to be enforcing the crisis related uncertainties, for example regarding the estimation of the own financial situation.

A high pricing performance allows for successful pricing even in the crisis

Companies with a lower pricing performance are not only hit stronger by the crisis, but they have also more difficulties in or despite the crisis to implement a successful pricing. Accordingly, only 40% of the companies with a low pricing performance are able to  implement a successfull pricing, while 55% of the companies with a medium or high pricing performance  are able to do so.
Moreover, the companies that  reveal a successful pricing even in the crisis are not hit by the crisis that strong. The negative impact of the crisis is further reduced by a successful pricing.

Pro-active and clearly structured pricing strategies are paying off

Our survey emphasizes how important pro-activity is for pricing: With increasing pro-activity the effects of the crisis decline. Highly affected companies claim that their own price behavior is only for 25% distinctly pro-active. Therefore the weakly affected companies indicate a percentage of 45%.
A stronger structuring of the pricing processes during the crisis results in more relief. Only weakly affected companies have more structure in the pricing since the beginning of the crisis. On the contrary, highly affected companies are losing more than 42% of structure in their pricing processes.

Enforcement of the market related activities brings success in the crisis

Companies, which were hit only weakly by the crisis,

  • are using, by trend, more information sources for the assessment of the financial situation of the customers since the beginning of the crisis,
  • invest much more into marketing and sales resources,
  • orient the prices more towards their competitors since the crisis started,
  • are aware of the value of their own products in the competitive environment as well as in the processes of the customers and
  • experience much less increase in the competitive pressure than strongly affected companies.

Price controlling and result-orientation. Even in the crisis.

Companies that were only weakly affected by the crisis, enforce the exit from non-profitable deals more than highly affected companies. Crisis-torn companies use more price reductions since the beginning of the crisis, to be able to keep up the sales.
So, it doesn’t surprise that among the strongly crisis-affected companies, we find a lot of companies with pricing strategies geared towards the maximization of the EBIT (82% versus 63% of less strong affected companies). The overemphasis of not decision relevant fixed costs leads apparently towards wrong decisions.
The companies however, who were well prepared for price decisions with systematic price controlling, until the crisis began, were hit less hard by the crisis: Only 35% of the strongly affected companies used such a systematic price controlling, while 53% of the less affected companies did so, too.

Lessons learned? What we should learn from the crisis

What you should do right now and therefore before the next crisis

The results of the survey give clear evidence on pricing-related needs for optimization that should be taken seriously.
The survey results suggest how to prepare yourself for the next crisis:

  • Care for a high pricing performance already before the crisis! A high pricing performance will substantially reduce the effects of the next crisis.
  • Structure your pricing processes! The stronger the structure of the pricing processes, the smaller the effects of a crisis on your processes.
  • Align your pricing with the results and the really relevant costs! Consequently use a pricing that is orientated towards the marginal income and avoid grounding your pricing decisions on fixed costs, EBIT or market shares. This also offers you further protection on wrong decisions in the crisis (and, of course, already before the crisis).
  • Care for a good knowledge of your own products in the processes of your customers and in the competitive environment! This also will result in less vulnerability in the crisis.
  • Focus on pro-active pricing! Pro-active pricing also leads to less vulnerability in the crisis.
  • Increase the competitor orientation of your pricing! More orientation on the competitors leads to less effects of the crisis on you as well.
  • Focus on a systematic price monitoring and controlling for a better preparation of price decisions! Less problems result in crisis times.
  • Finally, care quickly for a systematic professionalization of the pricing, because after the crisis is before the crisis. No instrument has a comparable direct and strong impact on the result than pricing!

What has to be done in the next crisis?

If the next tangible economic or sector crisis knocks on your door, you can derive the following suggestions from our survey:

  • Use systematic information sources about the financial situation of your customers in the crisis! Fewer problems will affect you in the crisis.
  • During the crisis, invest also or especially more into marketing and sales!
  • Be cautious and conservative in terms of price reductions, also in the crisis! More crisis-induced price reductions lead to more impact of the crisis.
  • Don’t let the pricing performance suffer! Companies, which are even in a crisis able to implement a successful pricing, won’t be hit so hard by the crisis.


It is undeniable that the economic and world crisis had and still has a dramatic impact on the companies in the chemical industry. Decline in sales, shutdowns of production sites, profit setbacks, job cuts and insolvencies didn’t spare the chemical industry.
The survey results suggest that the perceived effects were especially high for manufactur-ers of commodities and semi-commodities as well as for companies who supply the automotive industry.
But the situation is not hopeless at all: Especially a professional price management also in times of crises offers good possibilities to survive the crisis without unnecessary losses.
The survey shows that a high pricing performance indeed protects from fatal effects. The companies, who are able to stick to their pricing even in a crisis, are less affected by it.
A pro-active pricing, a professional price controlling and an enforced supply of the pricing process with information of customers, of their financial situation, and the value of the own products additionally act as a brake on the crisis-related risks.
The consistent optimization of the price management in all stages of the pricing process offers the best equipment for the purpose of prevention to protect yourself from the effects of the crisis, for the purpose of a better and result-oriented steering through the crisis and of course beyond the times of crises, because no other instrument has a comparable effect on the results than pricing.
Therefore implement as quickly as possible a consistent professional price management:

  • Value-driven instead of cost-based pricing
  • Focus on profits instead of volume or market share orientation
  • Pro-active instead of reactive pricing

Unfortunately there are still too many companies – also in the chemical industry – who have not yet implemented these principles and the identified success factors of this survey consistently and consequently. This is also shown by the results of the survey.
The following figure summarizes the systematic pricing process in an overview. At the bottom you can find measures for the different stages of the pricing process.




Strategic alignment

  • Strategic binding of the pricing
  • Clarification of the business model
  • Strategic objectives
  • Price / Value positioning
  • Behavior in cost / performance competition and in the product life cycle

Base price decisions

  • Clarification: Value advantage in the competition (e.g. PSR2)
  • Definition of pricing methods (e.g. Value Pricing, Competitive Pricing, Performance Pricing, price tactics)
  • Price definitions
  • Pricing guidelines
  • Pricing rules

Exact price calculation

  • Definition of the price range and price boundaries
  • Unit price decisions and transaction prices
  • Incoterms
  • Price contracts

Price implementation

  • Price argumentation and price negotiations
  • Pricing and negotiation trainings (incl. MBTI®)
  • Roles & Responsibilities
  • Pricing processes
  • Incentive systems

Price controlling & monitoring

  • Price reporting
  • Tools for price controlling
  • Pricing Toolbox
  • Price -, quantities-, and CM-monitoring
  • CM-simulator
  • Price Scatter Plots (price clouds)
  • Customer Box Plots
  • Cost Development Calculator
  • Waterfall Analyses
  • Customer result calculation
  • Knowledge Toolbox


Global Top 50 Chemical Companies


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Falling oil prices led to lower chemical sales but higher profits at the top chemical makers

Click here for an interactive look at the Global Top 50 that lets you sort by company and year, with complete data going back to 2007. Be sure to also check out our US Top 50 information presented in the same interactive format.

The economic winds shifted for chemical producers in 2014.

The collapse in the price of oil during the second half of the year was good news for European and Asian chemical companies, which enjoyed a reprieve from high raw material costs. But it was bad news for the Middle Eastern and U.S. firms that saw their usual advantage from using gas as a feedstock erode after their oil-based competitors cut chemical prices.

The decline in oil prices shows up as a trend in this edition of C&EN’s Global Top 50, which measures the performance of the world’s largest chemical companies using their financial results for 2014.

Combined sales for the Global Top 50 were $961.3 billion, a less than 1% decline from the $965.1 billion the group posted a year earlier. That’s consistent with declining selling prices for chemicals, although nothing like the 40 to 50% plunge in oil prices.

Profits, on the other hand, rose. The 44 companies in the ranking that publicly report profits combined for $82.7 billion in operating income, a gain of 3.8% from the previous year. Profit margins increased to 9.6% from 9.3% a year ago.

Although the overall changes were modest, this year’s Global Top 50 survey uncovered a lot of company-level volatility. By and large, petrochemical companies, which are closer to the oil barrel, lost ground to downstream specialty chemical makers.

Five firms—Alpek, Eni, PotashCorp, Styrolution, and Total—dropped from the list altogether. Alpek, Eni, and Styrolution make petrochemicals and polymers. Total does too, but it is gone because it no longer reports its petrochemical results. PotashCorp suffered from a decline in potash prices.

Newcomers to the survey this year are Hanwha Chemical, Siam Cement, BP, Ecolab, and Johnson Matthey. BP joined because it is now breaking out its chemical sales in a timely fashion. Siam Cement and Hanwha are benefiting from rising economic fortunes in Asia. Ecolab and Johnson Matthey are both specialty materials suppliers that are seeing strong growth.

Regular readers of the Global Top 50 survey will notice a new presentation this year.

For the first time, C&EN is providing short profiles of each of the top chemical companies. The numbers in the survey don’t lie, but they also don’t tell the whole story. The new profiles complement the data by adding quick strategy reviews of the world’s top chemical makers.



Martin Brudermüller, BASF’s vice chairman, and Kurt Bock, the company’s chairman, presided over the German chemical company’s anniversary festivities.
Credit: BASF

For the ninth year in a row, BASF is the largest chemical company in the world. This year also happens to be the company’s 150th anniversary, so in April it threw itself a party. Attendees were treated to a musical composition, “Symphony No. 8: Water Dances,” written by British composer Michael Nyman for the occasion and performed by London’s Royal Philharmonic Orchestra. The work was inspired by 1,500 recordings made at BASF offices and plants. German Chancellor Angela Merkel was on hand, and in addition to praising the company, she did remind the audience about BASF’s role in supplying chemical weapons during World War I and gas used in the Holocaust. BASF’s strategic initiatives were modest during its birthday year. The company inked a deal last October to sell its textile chemicals business to ­Archroma, the former Clariant textile chemicals business now owned by SK Capital. In May, it agreed to sell its fine chemicals unit to Siegfried, continuing a trend by major chemical firms to beat a retreat out of custom synthesis.

2 Dow Chemical

Andrew N. Liveris, CEO of Dow Chemical, spent much of the past year on the defensive. His company was beset by activist investor Daniel S. Loeb, whose hedge fund Third Point owns 1.9% of Dow. Loeb maintained that Dow’s strategy of integrating petrochemicals with downstream specialty chemicals was counterproductive and that the company, the largest U.S. chemical firm, should be earning $2.5 billion more per year. This marked a stark difference of opinion with Liveris, who once told reporters that a company focused solely on commodity chemicals has “no control of its destiny except the whims of the markets.” But before resorting to a contentious proxy fight, Liveris and Loeb made peace, and Dow allowed two Third Point directors on its board. Dow has since agreed to sell its chlorine and derivatives business to U.S. chlor-alkali specialist Olin.

3 Sinopec

Being the largest supplier of petrochemicals in the country that for a decade now has been the linchpin of global industrial growth has done wonders for Sinopec’s chemical revenues. China’s Sinopec is the world’s third-largest chemical company. A decade ago it was merely the ninth largest with $16.7 billion in revenues. However, Sinopec’s strong position hasn’t guaranteed high profits. Owing to a lack of competitive raw materials, China is one of the most expensive places in the world to make petrochemicals, which shows in Sinopec’s operating loss for 2014.


Mohamed H. Al-Mady, who led Saudi Basic Industries Corp. since 1998, stepped down from the firm in February to accept a post in Saudi Arabia’s defense industry. Al-Mady presided over dynamic growth as SABIC used cheap Saudi ethane to fuel high profits and capital expansions. Knowing its feedstock advantage couldn’t last forever, SABIC has rolled many of those profits into international acquisitions such as its 2007 purchase of General Electric Plastics. Recently, the company has been focusing on technology. It is considering an oil-to-chemicals complex for the kingdom. It is forming a polyethylene joint venture with South Korea’s SK Innovation, and it even has a nanotube venture, Black Diamond Structures, with U.S.-based Molecular Rebar.


Some 4,000 workers are on ExxonMobil’s Baytown, Texas, site erecting an ethylene cracker.
Credit: ExxonMobil

5 ExxonMobil

Unlike major oil companies such as Shell and BP, ExxonMobil never made major divestitures in petrochemicals. “We see the value of the chemical businesses,” former Exxon­Mobil Chemical president Stephen D. Pryor told C&EN shortly after retiring on Jan. 1. “The prospective value of chemicals has only grown over time, and you will see chemicals an ever-larger part of the company.” Indeed, ExxonMobil recently doubled petrochemical capacity at its refining and petrochemical complex in Singapore. It is also building an ethylene cracker in Texas and working on a massive elastomers joint venture in Saudi Arabia with Saudi Basic Industries.

6 Formosa Plastics

After a string of seven serious industrial accidents in 2011, Formosa Plastics made a strategic imperative of upgrading its flagship complex in Mailiao, Taiwan. The company spent $400 million to improve the facility to make it less susceptible to corrosion and easier to inspect. Meanwhile, Formosa is also exploiting shale gas riches in the U.S. At its Point Comfort, Texas, complex, the company is building an ethylene cracker, a propane dehydrogenation unit, and polyethylene and polypropylene plants.

7 LyondellBasell Industries

Bhavesh V. (Bob) Patel, LyondellBasell’s new CEO, has some big shoes to fill. His predecessor, James L. Gallogly, led the company out of bankruptcy and made it one of the most respected names in petrochemicals by the time he retired early this year. Conservatism seems to be the company’s mantra. While more than a dozen firms are building multi-billion-dollar U.S. ethylene crackers to take advantage of cheap shale gas, Lyondell is focusing on incremental expansions of existing plants as a way to boost output more quickly and cheaply.


Peltz addresses DuPont’s annual meeting in Wilmington, Del., in May.
Credit: DuPont

8 DuPont

To activist investor Nelson Peltz and his firm Trian Partners, DuPont CEO Ellen J. Kullman and her management team can’t do anything right. The 2.7% stakeholder in DuPont says the firm’s high overhead hurts profitability and that its R&D spending yields disappointing results. Most other shareholders, it turns out, took Kullman’s side. At DuPont’s annual meeting in May, they voted down the four directors Peltz nominated to the board. Nevertheless, DuPont is making major changes. It just spun off its performance chemicals unit as Chemours, a company which on its own should rank among the world’s Top 50 chemical companies in 2016.

9 Ineos

Ineos is one of the world’s 10-largest chemical companies despite only having been founded only in 1998. Acquisitions, such as the 2005 purchase of BP’s Innovene olefins unit, made Ineos grow up fast. And Ineos hasn’t relented from this strategy. Last year it took over BASF’s share of the firms’ Styrolution styrenics joint venture, and this year it formed a polyvinyl chloride venture with Solvay that it will ultimately take over. Additionally, Ineos seeks to revolutionize the European chemical industry—now struggling with high-cost raw materials—by importing low-cost ethane from the shale-gas-rich U.S.


A Bayer MaterialScience researcher prepares polyurethane samples for analysis.
Credit: Bayer

10 Bayer

The German giant is one of the last major companies to play in both pharmaceuticals and chemicals. But later this year, Bayer’s MaterialScience business will go by a new name, Covestro. The business, which makes polyurethanes and polycarbonate, had $15.5 billion in sales in 2014, a figure that would make Covestro, on its own, the 23rd-largest chemical company in the world. The business hasn’t been earning the same returns as Bayer’s agrochemical and pharmaceutical units. Even without Covestro, Bayer should remain in the Global Top 50 on the strength of its agrochemicals business, which had sales last year of $12.6 billion.

11 Mitsubishi Chemical

With high costs for feedstocks, labor, and just about everything else, Japan isn’t a cheap place to make chemicals. Japanese chemical makers, resistant to the ax-wielding that U.S. and European managers use to cut costs, have avoided consolidation. Until recently, that is, and Mitsubishi, Japan’s largest chemical maker, is helping lead the way. The company recently formed a joint venture with Asahi Kasei to operate a cracker in Mizushima, Japan, so Asahi can close an old cracker there.

12 Shell

Shell’s sales dropped by 42% in 2014, and its place in the Global Top 50 fell from fifth to 12th. Shell officials blame the decline on an extended outage at its facility in Moerdijk, the Netherlands. The company’s most ambitious current initiative is its planned ethylene cracker complex in Monaca, Pa. Unlike similar projects on the U.S. Gulf Coast, the project has advanced little since being announced in 2012, but it is still active. Shell recently purchased the land and has secured air permits from the State of Pennsylvania. Elsewhere during the past year, Shell completed expansions at its complexes in Singapore and Wesseling, Germany.

13 LG Chem

The South Korean chemical firm has been aggressively growing in materials for electronics. Earlier this year, LG unveiled a $100 million investment in liquid-crystal display polarizers in China. It also has been advancing organic light-emitting diodes for lighting. Its Holland, Mich., lithium-ion battery cell plant started up in 2013. But it isn’t all about electronics at LG. The company recently plunked down $200 million to buy the reverse-osmosis-membrane developer NanoH2O.

14 Braskem

Braskem’s second-largest shareholder is the Brazilian state oil company Petrobras, which is enmeshed in a corruption probe. Allegations that Braskem may have improperly benefited from naphtha contracts with Petrobras back in 2009 may rope the petrochemical maker into the scandal. This year, the renewal of an all-important naphtha contract with Petrobras went down to the wire. Additionally, Petrobras may be forced to sell its Braskem stake. But given that Braskem is set to open a multi-billion-dollar petrochemical complex in Mexico, the company may still turn 2015 into a positive year.

15 Air Liquide

The past year has been one of big accomplishments for the French industrial gases firm. In February, the company was tapped to build the world’s largest air separation unit for South Africa’s Sasol. It also won its biggest hydrogen contract ever, in Saudi Arabia. Late last year, Air Liquide announced it is teaming up with Toyota Motor to build a chain of hydrogen filling stations in the northeastern U.S. for fuel-cell vehicles.

16 AkzoNobel

The Dutch paint and specialty chemicals maker has been relatively quiet on the strategic front since 2008, when it purchased ICI for $16 billion. Akzo has, however, been active on the technology frontier, especially in clean technologies. Over the past year, the company has unveiled initiatives to make chemicals from sugar beets, municipal solid waste, and even carbon dioxide.

17 Linde

Linde sees the combination of an aging population and rising life expectancy as a key to growth. That’s why in 2012 the German industrial gases maker bought Lincare and Air Products & Chemicals’ European home care business, both of which supply oxygen and other medical gases to patients. New CEO Wolfgang Büchele, who came to Linde last year after heading Kemira, endorses this strategy. “Our medical gases and services for respiratory therapy not only meet this growing demand, but also—even more importantly—support these patients by significantly improving their quality of life,” Büchele says in the company’s annual report.

18 Sumitomo Chemical

Like other Japanese chemical firms, Sumitomo has participated in consolidation in its home country, earmarking an ethylene cracker and a caprolactam plant for closure. Meanwhile, a weakening yen and lower oil prices lifted its earnings in 2014. A big focus for Sumitomo has been on its agricultural chemicals and electronic materials businesses. For example, it is doubling capacity for lithium-ion battery separators.

19 Mitsui Chemicals

Mitsui is trying to do its part to improve the competitiveness of the Japanese chemical sector through consolidation. After the formation of a polyurethanes joint venture this year with South Korea’s SKC, Mitsui will close a toluene diisocyanate plant in Japan. It is also shuttering a Japanese phenol plant it operates with Idemitsu Kosan.


Evonik is planning a major precipitated silica investment in the U.S.
Credit: Evonik

20 Evonik Industries

Over the past year, Evonik has pursued as aggressive a capital expansion strategy as a specialty chemical maker can. The firm is planning a more-than-$100 million precipitated silica plant in the southeastern U.S. It will plunk down more than $100 million on specialty silicones in Germany and China. And with AkzoNobel, Evonik is building a potassium hydroxide and chlorine plant in Germany. The company also has been pushing new technology. Late last year it launched a silica-based replacement for plastic microbeads in personal care products and invested in Wiivv Wearables, a Canadian company that plans to use three-dimensional printing to produce biomechanically optimized shoe insoles.

21 Toray Industries

Among Japanese chemical firms, Toray has arguably the most aggressive growth strategy. The company bought industrial carbon fiber maker Zoltek last year. Months later, it won a new contract to supply carbon fiber to Boeing, a deal that brings its business with Boeing to $8.5 billion over 10 years. Toray likely isn’t finished investing. The firm plans to invest $1 billion in the U.S. and recently bought a 400-acre tract in Spartanburg County, S.C., where it will build a plant making carbon fiber and its precursors.

22 Reliance Industries

Reliance has long wanted to crack the U.S. petrochemical market. In 2009, the Indian firm tried but failed to buy LyondellBasell ­Industries out of bankruptcy. Reliance then bought into U.S. shale gas production and transportation, fueling speculation that it was contemplating a U.S. ethylene cracker. Instead, the company has decided to import 1.5 million metric tons of U.S. ethane per year to feed its ethylene crackers in India. It already has secured a contract with Mitsui O.S.K. Lines for six ethane-carrying vessels.

23 Yara

Formerly the fertilizer arm of Norsk Hydro, Yara was spun off in 2004 and has ridden the wave of the international fertilizer boom ever since. The company talked merger with U.S. rival CF Industries last year, but a deal didn’t materialize. Perhaps as a consolation, CF is acquiring Yara’s 50% stake in GrowHow, a U.K. fertilizer firm. Yara also will tap cheap U.S. shale gas through an ammonia plant it plans to build in Freeport, Texas, with BASF.

24 PPG Industries

PPG took a big step away from chemicals in 2013 when it merged its chlorine operations with Georgia Gulf to form Axiall. Now PPG is mostly a paint firm, though it retains a sizable silicas business. In cooperation with Goodyear, the company is rolling out high-performance silica for tires. And seeking to secure white pigment for paint, the company licensed its 40-year-old chloride-process titanium dioxide technology to Henan Billions Chemicals, which used the process to build a plant in Jiaozuo, China.

25 Solvay

The Belgian firm has been one of Europe’s most active chemical deal-makers. Solvay sold its pharmaceutical business to Abbott Laboratories for $6.2 billion in 2010 and used the proceeds to fund its purchase of Rhodia the following year. Jean-Pierre Clamadieu, who had led a turnaround at Rhodia, was tapped as Solvay’s new CEO. He has continued Solvay’s restructuring, recently sending its chloro-vinyl assets to a joint venture with Ineos and buying the oil-field chemicals firm Chemlogics.

26 Lotte Chemical

Lotte was known as Honam Petrochemical until a series of acquisitions that culminated in a name change in 2012. By any name, the South Korean firm was rather obscure in the U.S. until last year when it announced that it would partner with Axiall on an ethylene cracker in Louisiana. Lotte also plans an ethylene glycol plant downstream from the unit. However, the ethylene project has been delayed because of low oil prices.

27 Chevron Phillips Chemical

In 2011, Chevron Phillips was the first company in more than a decade to announce a new U.S. ethylene cracker. Since then, about a dozen firms have followed suit, and a few plants are already under construction, including Chevron Phillips’s. Big projects may be a core competency for the company. Chevron Phillips participated in the Middle Eastern petrochemical building boom a decade ago with the establishment of joint ventures in Saudi Arabia and Qatar.

28 DSM

Quick quiz: Name a chemical company being targeted by activist investor Daniel S. Loeb. If you guessed Dow Chemical, you would be correct. And if you said DSM, you would also be correct. Loeb’s firm has been prodding the Dutch chemical maker to focus on nutritional ingredients. In that direction, DSM is putting its polymer intermediates and composite resins businesses into a joint venture run by the investment firm CVC Capital Partners. However, DSM hasn’t charted as bold a course as Loeb might like. It continues to hold onto its engineering polymers business.

29 Praxair

Fractioning the atmosphere has its advantages. The strong margins of the industrial gas business have been the envy of others in the chemical industry for more than a decade. And among industrial gas makers, Praxair is a standout. At 31.8%, its operating profit margin is nearly double that of its closest rival, number 38 Air Products & Chemicals. It also exceeds those of Air Liquide, 15th, and Linde, 17th.

30 SK Innovation

One of South Korea’s leading chemical makers, the company boasts metallocene polymer technology that is the focus of a joint venture it is forming with Saudi Basic Industries Corp. The partnership will include a polyethylene plant already running in Ulsan, South Korea, and possibly another plant to be built in Saudi Arabia.

31 Shin-Etsu Chemical

The Japanese chemical maker has unveiled many capital projects over the past year. Its U.S. polyvinyl chloride subsidiary, Shintech, is moving ahead with plans to build a $1.4 billion ethylene cracker in Louisiana by 2018. The company also has been expanding capacity for vinyl chloride and polyvinyl chloride at its plant in Plaquemine, La. Closer to home, Shin-Etsu is plunking down more than $100 million apiece on projects to expand photoresists in Taiwan and silicones in Thailand.

Huntsman shareholders were so worried about the drop in oil prices late last year that CEO Peter R. Huntsman felt compelled to issue a statement promising that the development is a good thing. The company, he said, would benefit from lower feedstock costs and higher consumer spending. And, indeed, it managed to post solid gains in 2014, with profits climbing more than 17%. Last year, Huntsman bought Rockwood Holdings’ titanium dioxide unit. Now it is combining Rockwood with its own pigments business in preparation for a spin-off.

Syngenta has rejected, twice, a $45 billion takeover offer from rival Monsanto. Monsanto is doing everything it can to capture the Swiss crop protection and seeds firm. It is offering to relocate to the U.K. and to sweeten the deal with a $2 billion breakup fee, which Syngenta could pocket should regulators nix the transaction. Monsanto hasn’t raised the offer, though, and Syngenta claims the price doesn’t reflect the potential of its agrochemical pipeline.


Borealis’s Stenungsund, Sweden, facility, where it intends to import ethane.
Credit: Borealis

Like Ineos, Borealis plans to use ethane extracted from U.S. shale to resuscitate a European petrochemical plant. Next year, its site in Stenungsund, Sweden, will begin receiving ethane deliveries. In preparation, Borealis is installing an import terminal and performing other upgrades at the plant. The company, known mostly as a polyolefins maker, also has been growing its fertilizer business. For example, along with Agrifos Partners, the company is studying a U.S. fertilizer project.


Pigments production in Leverkusen, Germany.
Credit: Lanxess

Lanxess recorded a modest increase in operating profits and a small decline in sales in 2014, but the 2005 spin-off from Bayer believes it can do better. Early last year, the firm parted with its longtime CEO, Axel C. Heitmann. Then late in the year, it launched a restructuring program that will cut 1,000 of its 16,000 employees. The program could eventually entail finding partners for its rubber business.

The Japanese chemical maker is taking a big plunge into battery materials with its $2.2 billion purchase of Polypore’s business of making microporous membranes used in lithium-ion batteries. However, one stock analyst, Jefferies’ Yoshihiro Azuma, complained that Asahi is overpaying by $600 million and that the prospects for electric cars is underwhelming. Separately, the company is rolling out a nonphosgene route to polycarbonate that makes the intermediate dialkyl carbonate from carbon dioxide and an alcohol. The company says it wants to expand the use of the greenhouse gas as an industrial feedstock.

Sasol broke ground on an $8.1 billion ethylene cracker and derivatives complex in Westlake, La., earlier this year. The price came in nearly $4 billion more than originally envisaged. Executives at the South African firm blamed the “heated labor market.” Many big petrochemical projects, after all, are going up simultaneously on the Gulf Coast. Significantly, Sasol has delayed the go-ahead on a $14 billion gas-to-liquids facility it had been mulling. Lower oil prices make turning natural gas into liquid fuels less profitable.


Credit: Air Products

38 Air Products & Chemicals

2014 Chemical Sales: $10.0 billion

Like DuPont, Dow Chemical, and DSM, Air Products has been targeted by an activist investor, in its case Pershing Square Capital Management, which is led by William A. Ackman. Air Products responded last year by ousting longtime CEO John E. McGlade and replacing him with Seifi Ghasemi, former head of Rockwood Specialties. Ghasemi has moved quickly. He is cutting 500 jobs at the company. He also hinted that he may divest chemical businesses should they underperform industrial gases. In April, Ghasemi unveiled a project to create what he called the world’s largest industrial gas facility: a $2.1 billion plant in Saudi Arabia.

39 Eastman Chemical

2014 Chemical Sales: $9.5 billion

The Kingsport, Tenn., chemical maker added a new leg to its chemistry stool last year with the purchase of Taminco for $2.8 billion. The purchase added capability in alkylamines and their derivatives to Eastman’s competencies in acetyl, polyester, and oxo chemistry. Taminco will also bring Eastman more sales in food, feed, and agriculture. In those markets, Taminco has about $700 million in annual sales to Eastman’s $300 million. It hasn’t been long since Eastman’s last major acquisition: The firm bought specialty chemical maker Solutia for $4.8 billion in 2012.

40 PTT Global Chemical

2014 Chemical Sales: $9.5 billion

The Thai chemical maker is planning a project in a most American of places: Belmont, Ohio, where it wants to build a 1 million-ton-per-year shale-gas-based ethylene cracker with Japan’s Marubeni. Although far from the chemical hustle and bustle of the U.S. Gulf Coast, the region could get three ethylene projects if Braskem’s plant in West Virginia and Shell’s in Pennsylvania also get off the ground. PPT’s other strategic initiative, building a biobased chemical empire, stands in sharp contrast to a big U.S. petrochemical plant. Among its U.S. holdings are a 50% stake in NatureWorks and a majority interest in Myriant.

Last year, Mosaic closed on its $1.4 billion purchase of CF Industries’ phosphate mining operations. The mine in Hardee County, Fla., will allow Mosaic to forgo some $1.4 billion in expansions that it had been contemplating. Sales at Mosaic fell by about 9% last year because of slumping potash prices. The slump drove rival PotashCorp off of C&EN’s Global Top 50 ranking entirely.

In 2013, the Japanese company, formerly known as Dainippon Ink & Chemicals, launched a program, dubbed DIC 105, meant to restructure its printing inks business in North America and Europe and expand its “next generation” businesses, such as gas-barrier materials and cellulose nanofibers. The company, which runs U.S. pigments maker Sun Chemical, is seeing strong gains. Its sales improved by 17% in 2014, and profits rose by 7%.


Arkema expanded in thiochemicals with this Malaysian plant.
Credit: Arkema

Only half over, 2015 has been an enormous year for Arkema. The French specialty chemical maker closed its $2.2 billion purchase of the adhesive maker Bostik from its former parent Total. The company also has been investing heavily in organic growth. It recently opened a $225 million thiochemicals plant in Malaysia. It unveiled plans to make the engineering plastic polyether ketone ketone in Mobile, Ala. And earlier this month, it announced it would invest almost $70 million to double its capacity for making molecular sieves in Honfleur, France.

The Japanese chemical maker saw a huge spike in profits, 24%, in its last fiscal year. CEO Kenichi Udagawa credited external factors, such as a decline in oil prices and the weakening yen, for the increase. Looking ahead, Udagawa hopes to improve the efficiency of Tosoh’s petrochemical operations while leveling financial volatility by expanding in specialty chemicals.

The growing South Korean diversified chemical firm was rocked by tragedy earlier this month when six contract workers died in an explosion at its polyvinyl chloride plant in Ulsan, South Korea. The explosion remains under investigation. In the meantime, the plant will remain idle. The company also has operations outside of chemicals, such as biopharmaceuticals.

It is probably appropriate that Siam Cement joined the Global Top 50 in 2015: The Thai firm is celebrating its 100th anniversary this year. It attributes its 18% increase in chemical sales last year to the global economic recovery, which has brought steady growth in its home turf of Asia.

The Thai company was a rather obscure regional polyester maker until a string of audacious acquisitions and capital projects turned it into a global giant. For instance, the company entered the U.S. market in 2003 when it purchased a polyethylene terephthalate (PET) plant in Asheboro, N.C. It grew by building a plant in Decatur, Ala., in 2009 and by buying Invista’s North American PET business in 2011. In March, it agreed to purchase a Cepsa plant in Montreal that makes the PET raw material purified terephthalic acid.

BP was a much larger chemical company before it sold its Innovene olefins and derivatives business to Ineos a decade ago. But the company retained one of the world’s largest acetic acid businesses as well as its purified terephthalic acid (PTA) franchise. BP bought out its partners in an Indonesian PTA joint venture last year.

Once known as an institutional and industrial cleaning firm, the St. Paul company became a bigger player in chemicals in 2011 with its purchase of Nalco. To that acquisition the company bolted on Champion Technologies in 2013 in a $2.2 billion deal. A shale gas play, Champion bolstered Ecolab’s business in services for the oil and gas industry.

The final entry in this year’s Global Top 50 is involved in a deal with direct consequence for many C&EN readers. It is selling its Alfa Aesar laboratory chemicals business to Thermo Fisher Scientific. The sale is part of an effort by Johnson Matthey to place more emphasis on its catalyst business. For instance, the British company sold its gold and silver refining operation to Asahi Holdings.

Startup of new plants and process technology in the process industries: organizing for an extreme event


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Thomas Lager

In the startup of new process plants or in the introduction of new process technology, even minor installation work can cause plant downtime. On the other hand, the increased income from compressing time schedules for the introduction of new process technology or launching of associated new products on the market surely offers an incentive for securing efficient startups, which is the purpose of this study. A review of publications in the area of startup of process plants shows that organizational issues are scarcely discussed. A new conceptual framework has therefore been developed for organizing startups and the modelling of alternative startup organization structures. Four types of organizational models have been depicted, derived from information from the literature survey and the author’s own first-hand experience of startups. They include a “fully integrated” type of organizational model for startups together with a profiling of startup contexts. How to organize a startup is, however, only one aspect that will determine the outcome of a project, and other influencing factors ought to be further explored. The framework must be tested and validated in real-life startup situations and in further empirical research. The information from the literature survey, the alternative types of startup organizational models and determinants can already be deployed by firms in the Process Industries, triggering discussion and providing guidelines in their selection of preferred startup organization.

1 Introduction – preparing for an extreme event

The Process Industries, including many different sectors like minerals and metals, pulp and paper, food and beverages, chemicals and petrochemicals and pharmaceuticals, constitute a large part of all manufacturing industry. To err a little on the conservative side, one can say that about 30 percent of the most R&D-intensive firms worldwide belong to the Process Industries (Lager, 2010  p.23). In the startup of new process plants or in the introduction of new or improved process technology in existing plants, even minor installations or modifications can cause disruption of the process and/or plant downtime. Such disturbances not only result in loss of production volume but often seriously affect product quality from the production unit. Calculations of the cost of process disturbances or unnecessary downtime associated with startup stumbles often give frightening results (Leitch, 2004a). On the other hand, the increased income from compressing the overall project time schedules by excellence in introducing new process technology and/or launching of associated new products on the market surely also offers a strong incentive for securing smooth and efficient startups.

1.1 What is the problem?

Some experience from startups in the Steel Industry can serve as an important introduction to the problems of practical implementation of process technology. Experience from introduction of partly new, novel and untested technology and from startups of large-scale steelmaking projects between 1995 and 2000 was generally dismal (Bagsarian, 2001). Figure 1 shows that none of the plants had reached design capacity within one year, and only one after two years.
These slow startups were mainly attributable to investment in new and untried process technology and other managerial and organizational issues.




Companies that expected startups to last months were still trying to get the mills working smoothly years after the first heat. The more new technologies a mill installed, the longer the startup took. … Some mills also had the wrong people in place. Despite the millions of dollars companies spend on the most modern systems, new furnaces, casters and rolling mills, putting the right people in charge of starting up a new mill is paramount (Tom Bagsarian, 2001).

The experiences reported by Bagsarian are unfortunately not solitary events! In a fairly old but interesting study of 24 steel industry process startups the duration, as measured by the amount of time required to achieve steady-state productivity, varied from 2 to 42 months (Baloff, 1966). Comparable durations were also found in the glass, paper and electrical products industries. In a large case study covering 41 process plants in the area of extraction of base metals, including flotation plants, leaching plants and smelters, the poor startup performance for many of these plant installations was scary (McNulty, 1998). The organizational aspects of those startups were not discussed explicitly, but it was hinted that for the group of low-performing projects, hands-on training of the workforce was lacking, supervisory staff were inexperienced, and technical support during commissioning and startup was inadequate.
A smooth startup is however of interest not only to firms in the Process Industries, but also to equipment suppliers, contractors, consultants and suppliers of raw materials and reagents. Successful introduction of their technology and startup at a customer’s plant is of an importance second to none (Lager and Frishammar, 2010).
Startup of plants in the Process Industries may have interesting similarities with startup of plants in other kinds of manufacturing industry, but there are also many differences. The most important difference is probably that process plants often have continuous (or semi-continuous) material flows which make them not only difficult to start up but also difficult to shut down and restart, e.g. blast furnace operations. From the outset the need for 24-hour shift operation, sometimes also combined with complex physical or chemical reactions of a phase transformation character (e.g. petrochemical crackers, boilers in the forest industry), often makes a startup in the Process Industries an extreme event.
Startups of new process technology and production plants in the Process Industries are consequently very important corporate activities which unfortunately are often discussed simply in terms of “plant commissioning” (Horsley, 2002), and such general guidelines for startups are many (Gans, 1976, Gans et al., 1983). Startup performance in a wider context is only sparingly discussed in the literature, which could tempt the author to draw the conclusion that success depends solely on following such proper startup procedures. However, referring to the previous presentation, experience tells that there are many other factors that influence the outcome of startups. In such a typical engineering startup context, however, the fact is sometimes overlooked that startup is very much about people interacting with technology! Because of that, organizational aspects of startups do not always get the attention they deserve in firms; sometimes, indeed, they are almost entirely neglected. The purpose of this research was thus, focusing on the organizational issues of startups, to develop a theoretical platform for further empirical research.

1.2 Research approach

In the light of this introduction, the following research question was formulated and has consequently also guided the development of the new conceptual framework:

RQ1. In a “work process perspective”, what alternative types of organizational structures can be outlined, and which potential determinants can be identified for their selection in startup of process plants and new technology in the Process Industries?

A literature search was initially conducted with a view to establishing a theoretical knowledge base. Since this indicated that this topic has not been very well researched recently, the author, using his own first-hand personal knowledge of startups, began to develop a conceptual framework for alternative types of startup organizations. The input was based on the author’s own practical experience of starting up base-metal plants and a large iron-ore production plant in West Africa, and additional information from a handful of experienced startup leaders in the author’s personal network.
This approach is in line with Doty and Glick (1994).

“Organizational typologies have proved to be a popular approach for thinking about organizational structures and strategies. Authors developing typologies, however, have been criticised for developing simplistic classification systems instead of theories. Contrary to this criticism, we argue that typologies meet the criteria of a theory”.

The author’s own startup experience gave him a status of not only researcher but informant, inputting first-hand knowledge of startups in the Process Industries into this study (Yin, 1994 p.84). Such a research approach also resembles “innovation action research”, not because of the aspect of implementing research results, but as action research in a conceptualisation of his own hands-on startup experience (Kaplan, 1998). This is also a recommended research approach when theory is nascent or intermediate (Edmondson and McManus, 2007).

“Before collecting extensive quantitative data, the researcher wants to be confident that the key hypotheses are sensible and likely to be supported. This requires extensive conceptual work to develop the ideas carefully, obtaining considerable feedback from others, and refining the predictions before data collection.”

This article is “started up” with an identification of contextual determinants for startups. Afterwards a formal startup work process has been outlined as a processual perspective on startup activities. Using this template, four alternative structural organizational models are afterwards developed, followed by a final review of the startup more relational teambuilding activities. Managerial implications are put forward and suggestions for further research are presented.

2 Organizing for startups – the development of a conceptual frame-work

Organizational matters are usually high on firms’ agendas for achieving good performance. The traditional functional or departmental organization is still most common for production, sales and marketing, and R&D in many sectors of the Process Industries, but is sometimes complemented with cross-functional work processes and networks (Bergfors and Lager, 2011, Mintzberg, 1999). A matrix organization is nowadays still also a fairly common solution that captures the best features of functional and project organizations. Lean production focuses on more efficient resource utilization and eliminating factors that do not create value for the end user (Liker and Meier, 2006). In a similar vein, a “lean startup organization” concept could be defined and utilized as deploying better functioning organizational solutions and work processes for startup, aiming at the creation of more value for the firm for less input of startup resources.
In this context one should not overlook the installation and startup of even minor equipment integrated in large plants because, regardless of size, there is always a potential of major process and production disruption. Consequently, when things do not go according to plan, which is often the case during startup, this may influence not only the internal and external production environments, but customer satisfaction with delivered products. Regrettably, in preparations for the plant startup, the importance of the process and product dimensions are sometimes neglected because of too much focus on the engineering dimensions and commissioning. That is to say, and it is argued, that the final outcome and related success in startups is not the successful plant commissioning as such, but the delivery of products (within or above set specifications) from a well-functioning production process (delivering design product volumes at target production cost).

2.1 Profiling the startup situation – a contextual perspective

Depending on different project characteristics, one could imagine that alternative organizational solutions are more or less functional for startups. That is to say, a small project introducing well proven technology probably requires a different startup organization compared to a startup of a large new production plant using new technology and producing new kinds of products?

Identification of potential contextual determinants

In the selection of a startup organization there are a number of possible determinants that could be considered for the guidance of such a selection. One is the novelty dimension of the selected process technology (Bagsarian, 2001, Leenders and Henderson, 1980).  One tool in the discussion of technology newness  is the “S-curve” concept (Foster, 1986). For further discussion on the newness of process technology see for example (Tushman and Anderson, 1986, Utterback and Abernathy, 1975). The newness of technology was also singled out by Agarwal as one of the most important factors to consider in startups in the Process Industries (Agarwal et al., 1984, Agarwal and Katrat, 1979). Apart from the newness of technology, a number of other potential determinants are also presented in the following.

Newness of process technology

For categorization of the newness of process technology, the dimensions from a process matrix developed by Lager (2002) were selected, where newness is considered in the two dimensions of “newness to the world” and ”newness to the firm”.

Newness of process technology to the world

The degree of newness of a process technology to the world can sometimes be related to whether the process can be patented, but since new processes are sometimes not patented but kept secret, the newness can also be estimated by how well it is described in professional publications.

  • Low: The process technology is well known and proven (can often be purchased).
  • Medium: The process technology is a significant improvement on previously known technology (incremental process technology development).
  • High: The process technology is completely new and highly innovative (breakthrough or radical technology development).

Newness of process technology to the firm

There are several possible ways to define the degree of newness of a process technology to a firm, but before a firm starts a process development project, one of the most important considerations is how easily the process technology can be implemented in the company’s production system.

  • Low: The process technology can be implemented and used in existing process plants.
  • Medium: The process technology requires significant plant modifications or additional equipment.
  • High: The process technology requires a completely new process plant or production unit.

Newness of product(s)

In a study by Booz Allen & Hamilton and further presented and used by Cooper, the newness of products is positioned in a product matrix of which the following scales for the two dimensions have been derived (Booz Allen & Hamilton., 1982, Cooper, 1993).

Newness of product to the world


  • Low: Minor product improvement.
  • Medium: Major product improvement.
  • High: Completely new product that may create a new market.

Newness of product to the firm


  • Low: Existing type of product within an existing product line.
  • Medium: New product within existing product line.
  • High: New product and a new product line.

Complexity of technology

The survey of project management literature provided an important aspect that well suited the classification of the startup context. The system scope dimension proposed by Shenhar & Dvir provided an important missing link (1996). Their original trichotomy has been modified to suit the Process Industry startup context better:

  • Low: Only one process unit operation.
  • Medium: A process system including a number of unit operations,
  • High: A super-system of process systems (large production plant).

Size of installation or process plant

The size of the process installation could also influence the selection of the most appropriate organizational solution. A small installation may thus only require a more ad hoc organization compared to a startup of a very large production plant. Nevertheless, even small startups integrated in a very large production environment may cause serious problems if not prepared and executed well, as has been pointed out in the previous presentation. The following classification is only tentative, and each firm should develop its own scale.

  • Small: < €100 000
  • Medium: €100 000 – 100 000 000
  • Large: > €100 000 000

Supplementary project specific determinant(s)?

For each new installation there may be some project specific aspects that ought to be considered in the selection of a startup organization. Such determinant(s) can naturally be included as well.

Profiling the startup context

In Table 1 the selected potential determinants have been put together and used in a characterization of the startup context. The importance of each determinant can thus first of all be estimated for each project and afterwards the position of the project on each determinant can be made. The resulting “snake plot” can afterwards be used in further discussions related to the selection of an appropriate startup organization.
The results from a profiling of the startup context and the analysis of the contextual situation bring us further to the issue of how startups are carried out; a processual perspective related to a startup work process.




2.2 Outlining a formal startup work process – a processual perspective

There is nowadays general agreement that the development and use of more formal work processes can often facilitate repeatable industrial activities of different kinds. It is often claimed that carefully crafted and continually improved innovation work processes, like a product development work process, are useful tools not only for improved efficiency but also for improved organizational learning (Cooper, 2008). In the framework of such work processes, technology transfer has long been recognised as a weak area (Holden and Konishi, 1996, Leonard-Barton and Sinha, 1993, Levin, 1993). This is a noteworthy fact since successful startups in many instances often rely on efficient technology transfers. In a study of success factors for process development (Lager and Hörte, 2002), the importance of technology transfer was also recognized and “using the results from process innovation” received by far the highest ranking points in that study. A review of late publications in the area of project management literature indicates, however, that focus nowadays is more on the issue of reduction in project cycle time (Hastak et al., 2007, Hastak et al., 2008) rather than on startup organization as such. For further reading about work processes see for example (Hammer, 2007, Malone et al., 2003, Margherita et al., 2007). It has already been pointed out by Leitch (2004a) that an integrated work process and upfront planning for the startup are recommended actions.
Innovation in the Process Industries, be it product or process innovation, will in its final stage often involve modifications of existing production equipment, new process installations or even the erection of a complete new production plant. The product development work process starts with ideation and development and finishes with the launch of the product on the market outside the company (Cooper, 2008). In a similar vein, the process development work process also starts with ideation and development and finishes with the startup of the new process technology, but then inside the company, see Figure 2.
A startup of new process technology in a production plant environment can thus be looked upon as an analogy to a product launch on the market in product innovation. In the development  and implementation of new (and older) process technology, it is thus essential in a work process perspective to secure that startup will not be the weakest link in the long chain of activities and cause project disturbances or even failures.
In a work process perspective, startups could be considered as a sub-work process of the total “construction and erection work process” in which the “startup work process” must be well integrated. This has been the selected perspective for the development of this conceptual framework for the startup and the delineation of alternative organizational models. To initially clarify and operationally define the concepts used in this article, startup will be referred to both as the startup point of time and the startup space of time, see Figure 3. Startup point of time is here defined as the time when pre-commissioning without material is complete and commissioning with material, often on a shift basis, begins. Startup space of time, on the other hand, is defined as the time frame from start of pre-commissioning until the new technology (production plant) has been fine-tuned and tested on completion. Naturally, the startup space of time should always be preceded by pre-startup preparations and followed up by post-startup improvements.
In Figure 3, the overall main phases of a startup work process from pre-commissioning to steady-state operation are outlined in a rather simplified manner and in a time perspective. The three sub-phases included in the startup work process are (1) commissioning without material; pre-commissioning, (2) commissioning with material, and (3) final adjustments and fine tuning of the process and test on completion. Only a small part of an installation is thus illustrated in the figure: pre-studies, design, construction and erection are consequently not included. The inclined lines in the figures symbolize that pre-commissioning, commissioning and even startup often constitute a very much overlapping exercise when different parts of a larger installation are successively brought on stream.
This simplified map of the “startup work process”, was afterwards used as a template for the development of alternative structural organizational models which are presented in the following section.




2.3 Clarifying organizational responsibilities and interfaces – a structural perspective

The startup of new process plants and new process technology, if not carried out entirely within the production organization, is an activity where two different forms of organization meet – where a project organization, normally in charge of such an installation, transfers responsibility for the plant or new installation to an operational line organization. Organizational interfaces often have a tendency to create problems, and the issue of successful startup is thus not solely within the domain of project management but also most certainly within the even larger context of operations management and sometimes also innovation management.
As pointed out, problems often occur in handovers and in organizational interfaces, and this interface is no exception. Sometimes one imagines that management is hoping that startup is just a matter of “pressing the button”, after which everything will run smoothly from the word go and that there is consequently no need for any special arrangements. Referring to the previous presentation, nothing could be more wrong, since startup is and always will be an extreme event which consequently demands well adapted organizational solutions. Referring to the previous section, experience suggests however that the organization of startups is not given proper attention in connection with investments in new products, process technology or in new production plants.




Modelling alternative startup organizations

The need for a separate project management organization before startup is often well recognised, and the consecutive takeover by a production line organization is only natural, but how to manage and organize the “fuzzy-in-between” startup phase?

Organizational model No 1: Production organization fully responsible from “kick-off” to “kick-out”.

The model presented in Figure 4 is most likely feasible only in smaller installations under a limited frame of time, and even then it cannot be done without the assistance of subcontractor/supply chain specialists. One can expect an easy and fast handover after startup with a minimum of paperwork. Nevertheless, this model may possibly also be used successfully even in fairly large installations of well proven technology, if additional project and other expert resources are sub-contracted (Frazier et al., 1996). However, it is not often that a line organization has the necessary resources to manage a large investment project, and there is consequently a certain risk for project mismanagement with this model.

Organizational model No 2A: Project organization is responsible until startup and project handover; production organization is responsible for startup.

A presumably fairly common organizational solution, presented in Figure 5, is a handover from the project organization to the line organization when the pre-commissioning is finished and when it is time to “press the start button” and run the process on a continuous shift basis with material (Bodnaruk, 1996). Such handovers sometimes work, but are often a source of startup problems. Commissioning with material invokes the production organization’s permit-to-work system when systems “go hot”.
If the line production organization has not been involved in the design and commissioning, its people are often not familiar with the new equipment, and the startup may run into problems. At the same time the project organization sometimes has a tendency to disappear too soon after pre-commissioning is finished. The situation has been well described as: “They leave us with an unfinished plant; the voice of production. Production will never let us go and wants us to stay forever; the voice of the project (Eriksson, 2008).”

Organizational model No 2B: Project organization is responsible during startup; project handover when the plant is operating well.

This organizational alternative, presented in Figure 6, relies fully on the project organization during startup, which allows the project manager to assume the role of startup leader. The project organization will then be in charge of plant operation during pre-commissioning, commissioning and subsequent final adjustments and tests on completion. When the plant is operating smoothly, it is handed over to production. The solution of letting the project organization remain in charge during startup is sometimes complicated because of union or other organizational problems with the “ownership” of equipment. In one alternative, plant operators are recruited by the production organization but are “borrowed” during startup by the project organization; in another alternative the project contractor uses his own crew. This is a model often used in some “turnkey” installations. The project usually has some production organization “implants” who can check that their specifications have been complied with. If not, this model may end up in tears. Experience of this model was not very encouraging for IPSCO, and in their lawsuit against Mannesmann it is stated (Bagsarian, 2001):




“Not only was the completion of the project delayed for an extraordinary and wholly unanticipated amount of time, but neither the facility components, nor the plant in general, has the quality, fitness for purpose, productivity, and performance as represented, warranted, and guaranteed.”

Organizational model No 3: An intermediate, fully integrated type of startup organization (project together with production) is formed to assume responsibility from pre-commissioning without material until the plant is operating well.

A study of the transfer of new biotechnological processes from research and development to manufacturing also highlights the importance of a more closely integrated technology transfer team with membership from development, manufacturing, engineering, quality and validation (Gerson and Himes, 1998).  In this model, Figure 7, the two organizational structures, project organization and production organization, are supplemented by a very distinct and formal intermediate startup organization (Lager, 2010  p.256). From the start of pre-commissioning activities, and naturally in preparations long before startup, the intermediate organization takes full responsibility for all startup activities. In such a merger of the project organization and future production organization, the startup leader is fully in charge of an exceptionally strong and well-integrated organization. It is often reinforced with internal and external resources, and there should be no mistake about who is in charge. The team is gradually mobilised before and during pre-commissioning, and at full strength when commissioning with material starts. This startup organization then stays in operational control until the plant is running smoothly. It may take a few days, weeks or even a few months (hopefully not years). When agreed performance criteria have been met, the production organization takes over operation of the plant. After the plant has been in operation for some time and the list of outstanding construction items has been seen to, the production organization finally and formally takes over the production plant from the project.

3 Building a startup organization – a relational perspective

Regardless of whether the production organization or the project organization is fully responsible for a startup situation, or whether handover takes place in the middle, or whether a fully integrated organization is created, a startup team must always be mobilised for this event. In the planning and preparation for startups, the importance of completing a risk analysis before plant commissioning is stressed by Cagno & al. (2002), but one should not conclude that complete risk avoidance is the proper route to follow. When new technology is introduced, preparations before startup can, however, considerably reduce associated risks.

3.1 Pre-startup and post-startup activities

One can recognize, in a work process perspective, that many issues must be addressed well before startup (Leitch, 2004b), e.g. pre-studies and mechanical completion. On the other hand some must be addressed just before the startup, while some must be addressed during or even after startup.  In collaboration between equipment manufacturers and process firms over the life cycle and installation of process equipment, Lager & Frishammar (2010) have recognized the importance of such collaboration well in advance of startup:

The collaborative solutions and selected organizational structures and mechanisms must not only be adapted to the situation but also facilitate management of the technology transfer between the equipment supplier and the process firm. … It is therefore important that both parties agree at a relatively early stage of the procurement phase on how the equipment is to be put on stream .


Good planning before a startup is thus extremely important and has been reported as a success factor of the highest rank (Callow, 1991, Meier, 1982, Leitch, 2004b).
This also emphasizes the fact that success in startups is also related in many cases to decisions already taken during the pre-studies of an installation. The startup leader and startup organization are thus not always to blame if things go wrong; the fault may also be traceable to management decisions which have failed to allow sufficient resources (time and training) for rehearsing the startup of this type of process. Other factors may influence startup performance, and taking new plants, production processes, minor unit operations or even a single item of equipment on stream is not only a production and financial risk, but an activity that is also a safety-critical endeavour (Agarwal et al., 1984).  The importance of post-startup activities is seldom touched upon in the literature. This too, however, is an area that should deserve more attention; the conclusion from the startup of Temple-Inlands’ Paper Mill No. 5 was that they managed the planning and startup well, but they could have done better on post-startup activities (Ferguson, 1995). There may thus be many factors influencing the success and performance of startups. Referring to the quotation from Bagsarian, one factor to consider is how to select and set up a proper startup team.




3.2 Building a startup organization

Preparations before startup like recruitment and training of people, mobilisation of external resources, preparing for efficient communication before and during startup, and selecting a proper startup team are issues that ought to have high priority when successful startups are desired. It is thus not the knowledge of individuals in the firm that counts, but knowledge shared and executed as a joint effort that is the hallmark of a professional and successful startup organization. As such, excellence in startup is a good example of successful corporate organizational learning (Nonaka and Takeuchi, 1995). The importance of building a resourceful startup organization that is well prepared to handle the extreme environment associated with startups appears paramount. The published literature relating to startup organizational issues is however surprisingly scarce, and the issue is only sparsely discussed in some publications (Bodnaruk, 1996, Bowdoin.K.A, 2001, Mueller et al., 2002, Powell, 1999).

Selecting the startup leader(s)

Choosing the chief operating engineer (startup leader) is claimed to be 90% of the successful approach to good startup, since he will be faced with the overall planning for the startup, as well as the day-to-day decisions (Gans, 1976). In the discussion of the roles of the process development group and manufacturing in biopharmaceutical process startup (Goochee, 2002),  the importance of selecting startup leaders is stressed. The recommendation there is to select process development and plant startup leaders nine months prior to startup. The importance of giving new management “ownership” of the facility is often stressed, and it is considered a grave mistake to transfer a manager to the startup and then move him to another facility (Bagsarian, 2001). As leader of the technology transfer team, Gerson (Gerson and Himes, 1998) points out that the project transfer champion is required to take a proactive role. It must also be crystal clear what responsibilities the leader(s) should have during startup, to whom they should report and their availability during startup. Because of the need for quick decisions and action during this period, shift-working startup leaders are sometimes preferred. If the project manager for pre-studies, design and plant erection can later assume responsibility for being the startup leader and afterwards become the plant superintendent, that is often a good organizational solution to be pursued.

Assembling the startup crew

Referring to the quotation at the beginning of the first section, securing the availability of an experienced startup crew is crucial. Forming a startup team well in advance, including mill engineering staff, consulting engineers and chemical suppliers who were able to develop working relations in a low-stress environment prior to startup, was a success factor for the Rainy River plant startup (Frazier et al., 1996). The importance of securing a team including manufacturing, process development, engineering, facilities, quality control and quality assurance is stressed by Goochee (2002), and that the need for individual talent is at least matched by the need for team harmony. It is often also recommended to organise a problem-solving task force (Agarwal et al., 1984), sometimes called a “flying squad”, of very experienced personnel on standby to be used when major problems are encountered during a startup.

Training before startup

Training of plant operators, maintenance crews and supervisors is naturally of the utmost importance, but it is also vital to map in advance the kind of training the startup organization needs for each specific project. Apart from many different kinds of startup training, it is necessary that the operators also gain a conceptual understanding of the new process, so that unexpected problems can be quickly assessed and appropriate responses made (Agarwal et al., 1984). Another matter is how the training should be organised. Traditional classroom training with engineering professionals doing slide presentations does not always work well alone, but may provide the foundation for other associated activities outside the classroom. There are a number of alternative training approaches, the main difference being whether the training takes place on the job or in a classroom in a different environment outside the plant (Agarwal et al., 1984). The opportunity to involve equipment and raw material (reagent) suppliers in these activities should not be overlooked, and the use of dynamic simulation for training is another approach that is gaining stronger and stronger importance (Frazier et al., 1996, Rutherford and Persard, 2003).

In summary

Since the startup leaders’ qualifications and personalities to a large extent will influence the climate during startup, it is recommended to begin all activities by such an recruitment. Because a startup is often an extreme event, it is recommended that both a startup leader and an assistant startup leader initially are recruited. They can, depending on the startup context, either share this responsibility each on a 12-hour shift basis or if the startup period is extended, relieve each other on a weekly or on a monthly bases. The startup leaders are afterwards to select the organization for the startup and, depending on the startup context, build a more or less resourceful team. Experience thus tells that it is not good enough to use the normal number of shift operators and supervisors, but that a “doubling” of operators and supervisors on shift is recommended using resources from the previously mentioned different kinds of organizations. After the structural organization has been set up, the training can be planned and scheduled in accordance with project goals and needs. A proper mix of classroom and on the job training is here strongly recommended when the startup team can begin to establish good personal relations and collaborations.

4 Discussions and two theoretical propositions

In the literature review on plant startups in the Process Industries one finds many important early publications around the seventies and eighties that are certainly still of interest not only to scholars researching this topic but also to industry professionals involved in startups. Interest in the topic seems, however, to have declined during the past two decades, possibly because of a stronger interest in emerging new industry sectors and a stronger focus on non-process industries. This is a rather unfortunate state of affairs, because the Process Industries constitute a large part of all manufacturing industry, and startup of new plants and process technology is nowadays an important part of corporate activities, especially in the further exploitation of natural resources. The influence on startup performance of pre-startup and post-startup activities – pre-studies, technology selection, training, process improvements after startup, etc. – has however only been touched upon in this article. Because of that, a retrospective literature survey of startups has already been initiated, where general aspects of startups will be structured and presented in more detail in a forthcoming article.
In the light of the problem description in section one, the results from the literature survey and the development of the framework two theoretical propositions are put forward:

Proposition 1: In the startup of new process technology or process plants in the Process Industries, the selection of the most appropriate startup organization is one success factor for achieving good startup performance.

Proposition 2: The newness of process technology, newness of products, the complexity of installation and size of the project are important determinants in the selection of appropriate startup organizations in the Process Industries.

5  Managerial implications and further research

The presented information from the literature survey and the alternative types of startup organizational models can already be deployed by firms in the Process Industries in their discussions and their selection of alternative startup organizations. It is first of all strongly recommended that firms initially should profile each startup context in order to build a solid platform for the selection of a proper startup organization. For smaller, not too complex projects using proven process technology the production organization may be the preferred organizational choice. On the other hand, the fully integrated startup model is recommended for large complex startups of new technology. In such an instance the startup organization should be a total mobilisation of all necessary and available resources within and outside the firm. It is not difficult to demobilise such resources if the startup runs very smoothly, but on the other hand, it is very difficult to mobilise more resources during startup if and when problems occur. The alternative use of the other two “in-between organizations” with either a handover before commissioning with materials, or a handover after commissioning with materials and fine tuning, must be carefully considered because of the previously presented bad startup experiences sometimes related to those organizational settings.  Finally, smooth implementation and startup of new or improved process technology or complete production plants is “money in the bank” for any firm in the Process Industries.
In further empirical research it is important to recognise the difference between descriptive and prescriptive research results. That is to say, visiting companies in different sectors of the Process Industries to enquire about what type of startup organizational model they are currently using does not necessarily give prescriptive answers, since the model they are now using may be, more or less, dysfunctional. A more fruitful approach may be to employ this framework for a classification of different kinds of startup contexts and to further enquire which of the different types of organizational model (or suggested alternative models) they believe would provide them with the best startup result and overall success. If such an inquiry were instead deployed in a larger survey, including many different sectors of the Process Industries, a statistical analysis of different sectorial behaviour could be an interesting outcome. Another alternative research approach could be to make in-depth interviews in some selected firms supplying equipment to the Process Industries. Their frequent experience with startup of new installations could then give interesting new perspectives and opportunities for learning. If a firm is testing the fully integrated startup model in a real startup situation, it could naturally be a rewarding exercise to follow such a startup in the form of a single case study. Such a research approach would then also have attributes related to “action research” methodology.

6 Conclusions

When new technology is introduced in the Process Industries, it is first of all important in a pre-startup perspective to ensure that such technology is properly tested in advance in pilot plants or in demonstration plants and that that design solutions are professional and robust. Nevertheless, despite following proper procedures, implementation and startup of new technology will always be an extreme event associated with a degree of uncertainty. It is noteworthy that past experience of startups does not make very pleasant reading, and the reasons for startup delays and stumbles appear to be many and varied. Reviewing publications in the area of startup of process plants and new technology is strangely enough revealing, in that managerial and organizational issues are scarcely discussed at any depth.
As a consequence of this, four types of startup organizations have first of all been depicted, relying on the fragmented information in those publications and on the author’s own personal startup experience. A number of potential determinants for a better definition of the startup context have also been developed. The conceptual framework gives some initial insight and a platform for further empirical research, but can already be deployed by firms in the Process Industries in their discussions of alternative startup organizations. Finally, it is argued that organizational aspects should be more in focus in the planning of startups, and selecting and building a proper startup organization as such could be one important success factor in getting new plants and process technology on stream in a more efficient manner.

7 Acknowledgements

Four expert startup leaders have supplied information during the course of this study; their input from both personal and corporate perspectives is sincerely appreciated. The suggestions and comments from Nick Beesley during the development of an early presentation related to this topic is gratefully acknowledged.






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BOM (Bill of material)


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A BOM (Bill of Material), como costuma ser chamada a estrutura de produtos, é uma técnica onde são listados todos os componentes, montagens e submontagens de um produto, assim como as relações de precedência, relações “pai – filho” entre componentes e a quantidade dos itens necessários à confecção do produto final. Ou seja, BOM é a definição da estrutura do produto em termos de materiais e as conexões entre eles, que constitui a base para a definição da atividade produtiva.

A BOM pode ser usada também como uma instrução de trabalho embora sua função principal seja auxiliar nos projetos de produto e produção. A BOM se divide em alguns tipos diferentes de acordo com o objetivo e aplicação específicas, conforme a seguir:

* BOM Simples: a estrutura de materiais chamada de “simples” é aquela que apresenta apenas dois níveis, sendo o nível 1 composto pelos materiais que compõem o produto, e o nível 0, o próprio produto finalizado.

* BOM Padrão: é a BOM que apresenta vários níveis. Ela é utilizada quando há a necessidade de planejamento e controle de produção de forma a criar itens intermediários que facilitarão ou a estocagem ou a montagem do produto final.

* BOM Modular ou de Planejamento: é usada quando o item que se quer produzir possui muitas opções de montagem ou combinações possíveis. Para facilitar, cria-se uma BOM Modular, ou seja, os itens serão agrupados por módulos, assim quando alguma variação for necessária basta apenas ajustar um ou mais módulos, sem a necessidade de se ajustar a BOM toda. Outra situação onde a BOM Modular pode ser implantada é no caso de haver a necessidade de manter estoque do tipo assemble-to-order. É feita a produção e a estocagem dos módulos, e, quando o cliente fizer o pedido, basta fazer a combinação necessária para se obter o produto final conforme o pedido do cliente.

* BOM Genérica: este tipo de BOM não pode ser usada diretamente para o planejamento da produção ou manufatura, pois trata-se de uma representação genérica de uma família de produtos. Ao invés de se fazer uma BOM para cada um, faz-se apenas uma BOM genérica que representará toda a família de produtos para fins de controle da configurações dos produtos.

* BOM de Manufatura: a BOM de manufatura é como se fosse uma instrução de produção. Nela, além da estrutura do produto e dos materiais é relacionada também a ordem das operações, tal qual um guia para a fabricação do produto.

* BOM para Informação: este tipo de BOM pode ser “indentada”, quando se usa uma alternativa à representação gráfica onde os níveis mais altos da BOM são postos à esquerda de uma tabela e vão decrescendo para a direita, incluindo os itens do processo de montagem/manufatura; a BOM de informação “de onde é usado”, é quando se relaciona os “itens pais” num primeiro nível de relação direta e em seguida os “itens pais” nos quais os componentes são usados de forma indireta (chama-se este tipo de “BOM de informação” de “implosão”); a BOM de informação “custeada”, ocorre quando se adiciona os custos dos itens à BOM indentada; BOM de informação de “matriz”, é quando se utiliza um gráfico para indicar os itens comuns em uma mesma família de produtos; e a BOM de informação “resumida”, quando se listam todos os itens apenas uma vez (mesmo que determinado item seja usado mais de uma vez) com suas respectivas quantidades.