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Introduction
We have largely completed our description of product design.
So far, we:
Discussed the customer’s need for a product
Saw how this need could be converted into quantitative
specifications.
Described the generation of ideas.
Outlined and edited the ideas, using matrix screening methods.
Selected the best product using detailed scientific and engineering
calculations of the alternatives.
If the product is a chemical, we can manufacture it in batch,
using generic equipment.
If the product is a device, we can use manufacturing techniques
established by mechanical engineers.
But we have not talked about money!
Introduction
We have mentioned that costs and prices are important, but we
have not included them in a systematic way.
Those with business training may find this omission
overwhelming.
They may argue that chemical product design must include
detailed discussions of financial issues.
They are correct to stress this, but the goal of this course is to
focus on the chemistry and engineering central to chemical
product design.
Making detailed financial projections for technically infeasible
products is clearly folly.
If the product does not work, what good is it?
Anyway, several excellent sources exist for product economics
than for the technical aspects of product design.
Introduction
Here we will give the briefest outline of the finances of chemical
product design.
This will give chemists and engineers a flavor of the financial
arguments likely to be made.
We surely need to know the language of the financial people.
Also, the economics of chemical products is phrased in different
terms than the economics of chemical processes.
We will begin with a discussion of the differences between
products and processes.
These differences are important in accurately assessing the
economic potential of chemical products.
Product versus Process Design
The growth in the chemical industry depends on new products
as well as new processes.
This is reflected in most current corporate strategies.
With few exceptions, the large chemical companies are tending to
deemphasize the commodity chemical business.
They are tending to focus on specialty chemicals and other
chemical products.
Some companies have left the commodity chemical business
altogether.
Other companies planning to make commodities have become
private.
Presumably because they can handle the market cycles better.
In still other cases, public companies plan to continue
manufacturing commodities though with increased commitment to
specialty products.
Product versus Process Design
What is the difference between specialty and
commodity products – from the financial point of
view?
We will focus on specialty chemicals rather than
other specialty products.
This is because specialty products provide the most direct
and obvious comparison with commodities.
Commodity Products
Let us look at three criteria:
How much is made? Commodities are normally
made in quantities greater than 10,000 tons per
year.
What equipment is used? Commodities are
normally manufactured in dedicated equipment
that is operated continuously.
Which producer makes the most money? As a
general rule, the one with the lowest
manufacturing cost will be the most profitable.
These generalizations deserve discussion.
Commodity Products
The choice of 10,000 tons per year is the rough consensus of
those in the chemical industries.
Many of these chemicals are made from petroleum.
Ethylene, butanol and vinyl chloride are examples.
To make commodity chemicals, we must be prepared for a huge
capital investment.
The capital investment per employee is larger in commodity
chemicals than in other industry.
This is why we are forced to operate continuously – we cannot
afford to have so much expensive equipment sitting idle.
We will normally be most profitable if we operate all day,
everyday of the year.
Commodity Products
Chemical commodities have been made for decades, using technology
that does not change much from one year to the next.
Moreover the commodities are chemically well defined.
There is no difference whatsoever between propylene made by Exxon or by
Hoechst.
There is no difference between urea made by W R Grace and Cargill.
Hence very large, dedicated chemical plants must be run efficiently to
make a profit.
Hence process optimization and computer control are very important to
the commodity chemical business.
We are faced with a mature technology in a huge but competitive
market – we have very limited options for growth.
Even small incremental advantages (discovered with computers) have
been so important.
Specialty Products
Again let us look at three criteria:
How much is made? Most specialties are made in
quantities less than 10 tons per year.
What equipment is used? Specialty chemicals tend
to be made in generic equipment.
Which producer makes the most money? The
company that first markets the product tends to
get 70% of the total sales.
Again these generalizations merit discussion.
Specialty Products
Small amounts made usually imply manufacture in
batch process, not continuous processes.
These batch processes will not run 24 hours a day,
and rarely run all year.
Production is usually in “campaigns” in which the
product is made for a few weeks, and then stored as
inventory.
In drug industry, for e.g., inventory may never
exceed a few hundred grams.
When the inventory gets smaller, another campaign
is started.
Specialty Products
The small amounts of specialty products are made in
generic equipment used for several different
products.
In the pharmaceutical industry, the same equipment
may be used for as many as twenty different
products.
The generic equipment consists of stainless steel
reactors, stills, extractors and holding tanks.
They are not optimized for any one specific product.
Instead, they are designed for flexibility, for many
different chemistries.
Specialty Products
The generic equipment often mimics the original lab
equipment used for product discovery.
The reactors, for e.g., tend to be large scale analogs of
round-bottom flasks.
Different reactions do not use several different reactors, but
rather one pot, cooked again and again.
Such things make engineers react with horror.
They immediately see many ways to make process
improvements.
These changes are rarely welcomed, because the
complex reactions may be difficult to control.
Specialty Products
Especially in the drug industry, improvements may be
legally difficult to implement.
This is because of the conservative FDA regulations.
When clinical trials for a new drug prove successful,
the FDA will approve the drug, but only for the
process used to make the original material.
The fact that the drug can be made in another way,
more efficiently and without carcinogenic solvents,
does not matter.
If we change the process, we must again petition the
FDA for a new approval.
Specialty Products
Note: the producer who makes the most money is
usually the first to market, not necessarily the low
cost producer.
Specialties tend to be high value-added products.
E.g., antibiotics made from agricultural waste
streams can be sold in excess of $ 100/kg.
In conventional B.Tech courses, we teach economic
tools that imply continuous dedicated plants.
The economic tools for specialty products are
different.