Some Sunny Day

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This link shows the closing scene of Dr. Strangelove.  Why are atomic bomb blasts so fascinating to watch? Of course, the movie was a satire.

But when you see the next one, it becomes much more sobering.  It is a clip from a BBC documentary with CGI enhancement on Hiroshima. Part of the responsibility of having civilian control over military forces in the USA entails that at least some fraction of the civilian population retain a bit of knowledge of topics like this.

I think that when queried, most people will think of an atomic bomb blast as primarily a nuclear radiation calamity. To be sure, there is a healthy gamma pulse and the dispersal of a large variety of troublesome radionuclides, with long lasting contamination issues.  But much of the prompt destructive effect is from the immense heat pulse followed by the blast wave. 

Mutual assured destruction (MAD) as a nuclear strategy was arguably successful because parties on both the NATO and Soviet blocks were more desirous of long life than of the need for the delivery of nuclear hellfire at any cost.  The cold war was a time of opposing political and economic doctrines. MAD was essentially a secular concept.

In the present era of religious theatre, movements citing supernatural endorsement of earthly doctrines are in ascendancy.  The calculus of MAD fails when parties practice nuclear policy under the influence of supernatural euphoria.

Lotsa TSCA

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One of the banes of life for a scientist in fabulous industry is having to deal with regulatory compliance.  And, in my opinion, one of the thorniest to contend with is TSCA– Toxic Substances Control Act. Now, for those people who make the same thing day-in and day-out, TSCA is practically invisible. In this mode, your product is either on the list and therefore approved for manufacture, or management has applied for and received some exemption from the EPA.  But for those intrepid characters who are in the business of making new stuff or just lots of different stuff on a regular basis, the question of TSCA compliance is an ongoing minefield concern. 

TSCA is promulgated by the EPA.  Basically, TSCA regulates what isn’t already covered by food, drug, agrochemical, cosmetic, and nuclear material regulations.  TSCA covers chemicals and formulations used in R&D and in general manufacturing.  The TSCA inventory is maintained by Chemical Abstracts Service. With certain exceptions, what is on the TSCA list can be manufactured freely and in any quantity.  The TSCA inventory has a group of listings for public viewing and a confidential group of listings. The balance of chemicals in the universe are those that are not on the TSCA inventory. These are problematic for manufacturers.

One important complication for chemicals that are on the inventory is the SNUR– Significant New Use Rule.  Even though a chemical may be on the list, certain uses may be restricted. So if you plan on manufacturing a product that is on the TSCA inventory, you really should look for SNUR’s.

A chemical product that is not on the public or confidential TSCA inventory cannot be sold for commercial use in the USA. Perversely, you can manufacture for export only.  Products that are not on the inventory can be sold at any scale for R&D use only, however. 

Let’s say that something is on the confidential inventory.  Unless you know this, you would conclude that a chemical is not on the inventory. Well, guess what? You can’t just call the EPA to find out if a chemical is on the confidential inventory. You have to submit an application as if you were going to file for real. If it is confidential, then the EPA will notify you on the normal application timeline.

In order to manufacture something for commercial use that is not on the TSCA inventory, you either have to get it listed by filing a PMN (Premanufacturing Notice) or you file for an LVE (Low Volume Exemption).  Also, any raw materials and isolated intermediates in the process have to be listed. If not, you have to file for those as well. So, initiating the manufacture of new chemicals is complicated by the requirement of performing numerous filings.

LVE’s have a 30 day evaluation period. If you screw up the application, you have to resubmit it and the clock restarts at zero again. The EPA folks look at the chemical process and all of the chemicals and evaluate the potential for harmful exposure to people and the environment.  They use numerous modeling programs to estimate toxicity and potential environmental insult.

In parts of the physical world like the lab or a production area, it is possible to have a physical disaster like a spill, fire, or explosion. In the regulatory world, you have administrative disasters.  And these administrative- or compliance- calamities can be just as costly and career threatening as an actual disaster in the plant. Fortunately, in an administrative disaster the body parts lying around are just metaphors.

[Note: I am not a regulatory specialist.  I acknowledge that I am a mere laboratory wretch and therefore deeply marbled with imperfections and inhomogeneities.  As god dog is my witness, I am prostate prostrate in supplication before those with superior understanding of this topic. I welcome- nay, beg- corrections, comments, and lashings from those with superluminal understanding of this most sacred codex.]

Processing on Demand as a Business Strategy

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Process development is one of the jobs I do.  Take an existing process and find ways to make a compound faster, better, and cheaper. The matter of condensing multiple steps into fewer steps is called “telescoping”.  One of the most desired outcomes of process development is to find a way to execute a reaction with fewer labor hours and maybe even higher yield.

My comments are in the context of specialty chemical manufacture. In this domain of industrial activity, it is not unusual for a specialty chemical to be campaigned for production on demand (POD).  That is to say, instead of building an inventory and letting it sit for some time period, it might be more desirable to make material when an order comes in.  This is a valid strategy for products that have a poor shelf life or for compounds whose demand is sporadic. 

But, there are economic arguments for and against POD. On the negative side, the lack of inventory can cause customers to go elsewhere for orders that have to ship immediately. Not every customer can wait until the next hole in the production schedule for a shipment.  Also, unless one has confidence in projected demand patterns and has made a successful business case to management for excess production, POD esentially dooms one to a perpetual cycle of smaller scale production runs with the concommittant smaller economies of scale. 

On the vendor side, getting an accurate picture of demand can be very difficult. The reason is that the manufacturer of a specialty chemical is not often connected to the “final” end use of the product, so timely and accurate market data might be considered proprietary information that the direct customer is not willing to share.

On the positive side, POD assures that the dollars invested in inventory are kept to a minimum.  Management has to be watchful of inventory levels.  It is possible to accumulate large dollar investments in inventory.  Having a million dollars of slow moving inventory is equivalent to having a milllion dollars of working capital sitting on pallets that you can’t use for other applications.  But for POD to work well, the plant must have some excess capacity. And one of the reasons we have sales people is to fill up that excess capacity. So, POD may not be a strategy that works all of the time.

A fair question might be the following- why should an opportunity for process development even exist on an current process? In other words, why wasn’t it done to begin with?  Fair question.  There are a few answers. 1) In the race to get a product to market on schedule, there usually isn’t time to explore all of parameter space. Often, to meet obligations that our friends in the sales force have made, the development timeline can accomodate only a certain amount of R&D activity before something has to go to the pilot plant for scaleup.  2) The reality is that any given R&D group is likely to chose certain favored synthetic approaches from their particular tool bag.  The solution to a scaleup problem is not automatically a global solution to the problem.  A great many syntheses have alternative approaches that may find favor in a particular group. Especially if the literature search was truncated in some way.

In science it is always good to reevaluate your fundamental assumptions, and in manufacturing it is the same.  No process is perfect and every one can be tweaked in some way to optimize the economics.  Some companies have special staff to do just this thing.

Many of us have joked that it is possible to make anything in a single step if only you had the right starting materials.  True enough.  But manufacturing as a profit generating activity requires that value be added to raw materials to produce profitable finished goods. This forces manufacturers to vertically integrate a process to some extent so as to allow for sufficient added value in the finished good. In other words, the more art you can apply to the manufacture of a product, the greater the chance that several of the steps may be highly profitable. 

One way to think about high $ per kg boutique products is as follows.  A product that requires considerable art (skill) is likely to be one that has a mfg cost driven by labor costs.  Products whose costs are driven by labor are products whose costs can be driven down more readily than those driven by raw material costs. A labor intensive product stands a better chance of cost improvements than does a raw material cost intensive product.  The reason? Improved throughput in units per hour already cuts unit labor costs.  You get the picture.

Atavism

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More snow. It’s like winter in the UP of Michigan.  It’s a Colorado up-slope storm, so the mountains aren’t getting much of any snow. Low pressure to the South with it’s counterclockwise flow is pumping moist gulf air up slope where it snows out on the eastern plains before it can get to the mountains. The usual scenario.

I’m feeling this atavistic urge from near my brainstem to go out and toil in the cryosphere like my Scandinavian ancestors did. Maybe go out and hunt down a reindeer for meat and sinew for my stone axe. Gotta get ready for a season of boating with my Viking neighbors this spring.

Sigh.

Space MAD

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The astronomer who taught my intro astronomy class years ago once joked that the shortest meaningful time was the “jiffy”; the time it took a photon to pass the diameter of a proton. He was also fond of referring to the “erg” as approximately equal to the energy required by a ladybug to crawl up on a piece of cardboard: thus 1 erg = 1 bug cardboard. [Hey, take it easy. It was a class for non-physics majors.] That astronomers name is John McKim Malville. He wrote a book called “A Feather for Daedalus: Explorations in Science and Myth in the New Physics”. Here is a quotation from Malville-

 SCIENCE – this precocious child we do not exactly know how to live with – can be used for more than the construction of warheads, the design of rockets, or the invention of technological marvels. As we shall attempt to demonstrate, the insights of science can be used in the same manner that we use our religious and artistic symbols – as evocative devices to lead us beyond that which is merely said. We have to a certain extent been guilty of misusing our SCIENCE in the production of unholstered gadgets [italics by Gaussling] and computerized wonders, thus neglecting it as an aid for mankind’s larger journey. It is as though after hacking our way through the forest we have reached the shore of a great river which prevents us from proceeding further. The water’s edge contains many beautiful and fascinating pebbles. Their colors and shapes are extraordinary! Never before on our journey have we seen such marvellous pebbles. They are, in fact, so captivating that we have completely forgotten about our journey. Instead we spend all our time gathering these brightly colored rocks – the facts with which we have become so infatuated of late. Into higher and higher piles we gather these facts, never wanting to stray too far from them for fear that someone might take them from us. And so we remain, trapped by our pebbles, unable to EXPLORE THE REST OF THE WORLD. We could, it is true, use our rocks to continue on our journey by tossing them into the stream ahead of us and using them as stepping stones. Shall we?

I like his term “unholstered gadgets”.  The 20th century was a period when many unholstered gadgets were developed and used with more technical skill than wisdom.

I picked up a book called “Edward Teller: The Real Dr. Strangelove” by Peter Goodchild.  It is an unauthorized biography of a brilliant, though irrascible character who participated in nuclear weapons design in the Manhattan project.  After WWII, Teller went on to solve the problem of how to configure a fission explosive to achieve a thermonuclear detonation. He was an influential supporter of many nuclear programs well into the Reagan years. As a student, Teller studied under Werner Heisenberg and went on to spend a year working with Bohr. Teller was one of the very earliest theorists to work on what chemists now refer to as quantum chemistry.  He and Jahn published a paper in 1937 predicting what is now called Jahn-Teller distortion, a phenomenon found in degenerate octahedral metal complexes.   Teller also helped produce many unholstered gadgets.

So, in this vein, it is interesting to note that the Chinese have just “fired a shot heard round the world”.  They were successful in hitting a retired satellite in what is reported as a ~600 mile orbit with a ballistic missile.  This event has twittered many governments in a jiffy or two, including the US gov’t. It has been reported that the US recently had a chance to sign a treaty that would ban aggressive action against satellites, but refused to do so. I don’t have a primary source for this assertion as yet. And for the first time in a long while, news outlets are referring to “Red China”.

I wonder how many young Tellers are out there, urging their government to develop offensive weapons under the guise of defense?  Perhaps this is Chinese arm twisting, or maybe it is the first step in a new type of Mutual Assured Destruction in space- Space MAD? There is a catchy name.

Gastronaut

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I’ll admit to being a “Gastronaut”- someone who is driven to seek out and explore new dining and food experiences.  I enjoy the fine and unusual restaurant experience. I like good service and exquisite food. One of my favorite foodies is Anthony Bourdain. He wrote a book a few years ago called “Kitchen Confidential“, the gastronomic biography of a hard working, hard drinking cook and graduate of the CIA. Bourdain understands food and what motivates people to seek an unusual dining experience. He is a gastronomic cognoscenti who can cuss and spit like a sailor. 

Having been in the sales game, I have had the chance to dine in some really fine restaurants all over the northern hemisphere.  I’ve dined in a fantastic Georgian restaurant in Moscow featuring armed guards and metal detectors, London’s Indian restaurants, steak houses in Houston, BBQ joints in San Antonio, haute cuisine in New Orleans, Las Vegas (yeah, baby!!), & Tokyo ($$$), perogies in South Bend, god-knows-what in Taipei, pork tenderloin in Iowa, salmon in Seattle, cheese in Holland, really expensive Cognac in Paris, vodka in Perm, pastrami in Manhattan, and on and on.  My god it’s been a great ride.

I’ll never forget the transcendental gastronomic experience I had on Bourbon Street in New Orleans. It was a dish featuring a hard boiled egg with the cap sliced off exposing the yoke, nestled on a slice of toasted bagette with truffle shavings and a truffle sauce. With it I had a glass of a fine Merlot.  I can still recall the comingled flavors of truffle and the smokey/woody/currant aspect of the Merlot.  Jesus, I’m drooling on the keyboard …

But what I really miss when I travel and what I crave when I get home to Colorado is some good, hot & sassy Mexican food.  The kind that is titrated with jalapeno and crinkles your cheeks like hot cellophane when you eat it. If you don’t have sweat running down your forehead and you’re not suckin’ down icewater like a fiend, you haven’t hand the full experience.

Chemical Pricing

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I never cease to be amazed at how the market can drive down pricing on even the oldest, most venerable products on your product list. I’m not talking about the prices in the Aldrich or Strem catalogs.  Catalog prices are basically of a retail nature and are set in an atmosphere of open information. That is to say, pricing can be set against a background of easily available competitive intelligence. If you want to be competitive, you can match or undercut your competitors pricing. 

This discussion pertains to specialty chemicals, as opposed to commodity chemicals. There is a large difference in the pricing approaches in these two market domains. Commodity chemicals are the domain of high volume, low margin.  Raw material costs tend to be price drivers.  Commodity chemicals are frequently made with continuous flow processing and the economy of scale has been maximized to the fullest.  Many commodity chemicals are actually economic indicators- sulfuric acid, superphosphate, hydrocarbons, etc.

There are several ways to set prices of a chemical product.  One way is to calculate your unit costs and add your profit by applying a predetermined multiplier for the markup.  This is the cleanest way from the accounting point of view. It allows for easier sales forecasting too.  If you can estimate the unit sales for the year, you can estimate the expected profit as well.  This helps immensely if you need to plan for capital expenditures with your future cash flows.  And if you are in a growth period, this can be critical.

In a rational setting, pricing is optimized to afford maximum profit.  Pricing needs to be low enough to attract a maximum of orders, but high enough to afford a maximum profit. Notice the use of the word “maximum”.  Profit is about extrema on curves.  You seek to find the cost minima and profit maxima. Sounds straightforward enough.

But pricing is rarely a purely rational decision. In the commodity arena, raw materials are also commodities and their rough pricing is readily available to all players.  Their negotiated prices may not be, though. But by and large, commodity raw material costs are fairly well understood by all.  In the commodity arena, pricing should be most “rational”.

In the chemical specialty arena, that is, the arena of non-commodity chemicals, there is a greater chance that pricing may not be entirely rational. That is to say, absolute or global cost minima may not have been found and profit maxima may not have been realized. 

Specialty chemicals are for the most part lower volume, higher margin, products where labor costs are often the driver. They may be “Fine Chemicals”, which I’ll define as public domain products that are above what you might call a “technical grade”.  Public domain products are those products that are free in composition to any and all buyers. However, while many chemicals are public domain in composition of matter, they may be severely restricted in “use”.

A specialty chemical, by it’s nature as a lower volume domain, is subject to pricing complications that commodity chemcials may not be.  Many chemical catalog companies have a bulk chemicals division that isn’t easliy visible to the R&D scale consumer.  While their bulk product list may be generally available, pricing is often obtained only through a quoting process.  In other words, bulk pricing isn’t posted for all to see. To get a bulk price you have to ask for a quote, which means revealing your identity and how much of what product you need. Bulk specialty chemical business tends to be fairly secretive about pricing. One way around having to disclose yourself to a vendor is to use a sourcing firm.  But this comes at a price. Minimally you’ll spend ~7 % or more to do your purchasing this way.

Here is some insight into the process.  Specialty chemicals are frequently used in proprietary processes by a customer.  There is an understanding that a vendor will not disclose the details of who inquired about what.  Mainly, it is because the vendor does not want the competition to court the potential customer and take away the business. Another reason is that the customer regards secrecy as important because costs and volumes can be a giveaway to their competitors as to intimate details of their business. You just don’t blab about who wants what.  It is a silo effect.  It is quite difficult to find out who is buying what.

The secretive nature of bulk pricing means that a company is often poorly informed about the competitive pricing picture of its products. In order for a market to be rational on a short time frame, there needs to be prompt feedback, particularly on why a bid was not won.  This seems obvious, but in practice, a sales group may be quoting many more bids than that can follow up on.  It is easy to fall into the trap of being more busy chumming the waters with bait than hauling in the fish. A properly operating sales force is busy sending out quotes and doing follow up communications to see how the quote was received.  This allows the sales people to adjust prices and terms on the fly.  This is absolutely critical to maximizing sales. And a really good sales manager is one who insists on followup data to energize the feedback loop.

Bureaucratic Stem Cells

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In some ways a company in it’s early years is like a stem cell.  It has the capacity to grow into many types of organizations. At some critical juncture a signal comes along that points it one direction or another. It can grow into a free form organization like the legendary Silicon Valley startups where imagination is expected, there are free cokes in the fridge, and there are open spaces where employees can toss Nerf balls. On the other extreme are organizations that wear a more grim decorum.  My experience has been that the petroleum and automotive industries are a little tighter in the puckerstrings.  Companies evolve in response to their circumstances and in response to the people who run them.

As a company grows, it has to take on more people to manage the workload. But a bigger head  count means more degrees of freedom; that is to say, there are more nodes in any given decision tree; more ways of doing things; more preferences to be managed.  A bigger head count means that more failure modes are possible. More ways of having a disaster.  More ways of having people problems.

In response to this, even the most well intended business founder must develop systems to contain and direct the energies of its people. Some people naturally pitch in and contribute to the good of the whole. Others specialize in gaming the system to their advantage.  But the overall tone of any organization is set by the leaders.  Some are old testament and others are new testament.  Some require stonings and blood sacrifice and others use the redemption approach.

Business isn’t just an math exercise. There is a lot of anthropology to it. Unfortunately, anthropology isn’t on the curriculum of most MBA programs.  MBA’s worry me. They seem to be hustling the rest of us into an Orwellian future with methodologies taught by faculty that may not have actually been business people. 

Readers may doubt the merits of this conclusion.  But, wait until you take a personality profile test to qualify for promotion or a job.  The examiner will sit you down afterwards and tell you that the numbers say that your path has already been determined by this profile.  What do you think the psychology graduates have been doing the last 30 years? Not all of them have been doing marriage counseling all this time. Many have been developing these test “instruments” for consultants and HR departments.  It’s a scary world.