Fine on-line!

05 June 2000 00:00  [Source: ICB]

It is no longer just commodity chemicals being sold online, now fine and speciality products are on offer over the 'net, reports Helen Carmichael

We have already seen the launch of an array of Internet service providers channelling their energies into e-commerce for commodity chemicals. But in recent weeks there has been the launch of ChemPoint.com, an e-distributor and subsidiary of Royal Vopak focusing on speciality, fine and semi-commodity chemicals, and of ChemSource.com, a web-based broker dedicated to the online procurement of custom fine chemicals. But many fine chemicals suppliers and customers remain sceptical about whether e-commerce web sites can really deliver the benefits they promise.

A recent survey by Arthur D Little on e-business and IT in fine chemicals found that very few companies use the Internet for online ordering or selling. Instead, IT is used for competitive analysis, searching for potential suppliers and communicating with customers via e-mail. The vast majority of fine chemical companies have active Internet sites and internal and external e-mail systems. But companies are focusing IT tools on shortening lead times, meeting customer expectations and reducing costs. The amount of paperwork required to process an order has not been reduced.

According to ChemPoint, speciality and fine chemicals differ from commodities in that they tend to have longer selling cycles, often involve a product qualification process, and require extensive technical support. The company aims to be 'a closer extension of the producer's own sales organisation than is a traditional distributor'.

'However, whilst e-business has been widely embraced by bulk chemicals and lab chemicals, its impact on fine chemicals is still relatively limited,' according to Enrico Polastro, vice president and senior industry specialist in pharmaceutical and fine chemicals at Arthur D Little. He identifies the issues peculiar to fine chemicals that raise questions when it comes to e-commerce:

• The degree of tailoring often associated with each product, making its substitution difficult - namely lack of standardisation

• The substantial regulatory barriers (eg Drug Master Files) associated with several pharmaceutical fine chemicals

The degree of intimacy associated with activities such as custom synthesis - namely high service content: you buy trust and image, not an off-the-shelf item.

These issues echo some of those mentioned by ChemPoint. The company is clearly prepared to do business in the fine chemicals arena, but it remains to be seen whether a large part of the market will decide to take part.

ChemSource says it provides a neutral market for buying and selling custom chemicals. 'For buyers, it is like having a chemical manufacturing plant on your desktop, while sellers gain instant access to thousands of new customers and a new global shelf space,' the company claims. The idea is that buyers are in an improved bargaining situation and so will see prices drop as suppliers vie for business. Producers reach more customers and gain access to global markets.

Many companies agree that e-commerce offers greater efficiency for both parties involved. This also translates into greater accuracy (ie less translation between buyer, order taker and input) and the hope is that improved efficiency will look good on the balance sheets and keep shareholders happy.

At the outset of the Internet explosion, some commentators suggested that it would be a great equaliser. The idea was that all companies, large or small, would be able to set up a web site and thus have a fair chance in the marketplace. But while the Internet is a useful tool for smaller companies, the customer is faced with such a vast array of sites that they cannot possibly visit them all. The result is that customers find, and repeatedly visit, the sites that are of the greatest value to them - those that offer the widest range of products, the fastest delivery times, the greatest amount of additional information or value-added services. The more functional the site, the greater its use. But a large part of successfully attracting customers in the first place is down to branding and reputation, and this is where larger companies often take the lead.

For many fine chemicals companies, sticking to core competencies means concentrating on manufacturing fine chemicals and not developing complex web sites. With an array of Internet marketplaces springing up, it seems sensible to outsource where possible and simply ensure that the right links to e-commerce are in place. But others have an infrastructure already in place that is well-suited to development of a range of in-house e-commerce services, as well as linking to external providers.

Strategic partnerships are going to be an increasingly crucial issue when it comes to trading chemicals and fine chemicals on the Internet. For example, an employee at a pharmaceuticals company might already have the ability to search his or her own company's inventory to see if the chemical they require is available, and where to find it. The next stage would be to link the inventory systems of the company's suppliers to the search - effectively grafting of a supplier's system onto a customer's site.

One such e-research supply chain has been created by the integration of the Ariba, Sigma-Aldrich, and EMAX Internet capabilities. This will enable users to search large catalogues of research chemicals remotely and to transmit automatically the unique chemical and safety characteristics of each. As a result, users will gain realtime access to chemicals available from Sigma-Aldrich, as well as their own local inventories, with a single search that significantly reduces the time and cost of securing materials.

If this type of partnership becomes commonplace, it will break down the barriers between suppliers, buyers and service providers. The real question is whether those in the fine chemicals supply chain are ready - or willing - to embrace the brave new world of e-commerce.

One success story in the world of research and fine chemicals is US-based Sigma Aldrich. The company's web site (www.sigma-aldrich.com) recently won the 'e-commerce innovator of the year award' of Network World magazine. According to the magazine's executive editor, Beth Schulz: 'Sigma-Aldrich stood out not only for its successful up-front e-commerce site, but also for its successful integration of its back-end order processing system.'

When Sigma-Aldrich asked its customers if they wanted to do business via the Internet, they got a cool response. But today 5% of the company's business - some $3m/month in sales - is conducted via the company's web site. Because of the success of the e-commerce venture, Sigma-Aldrich now predicts it will conduct a large percentage of its business online in the next few years, and is developing its own site as well as seeking links with other e-commerce sites to keep up with demand.

'Sigma-Aldrich is targeting 50% of our sales captured via the web by 2003,' says Doug Wagner, electronic marketing product manager at Sigma-Aldrich. 'You can already see the trends. The question becomes "are our customers really ready to embrace e-commerce?". Our customers told us no, but we have built it, and many are already are using it.' And as for those who are not? 'We'll be there when they are ready. It is only a matter of time.'

The company's first web site went live five years ago, and consisted of a few marketing pages for each of the company's brands. Three years ago, it added a catalogue of products and the ability to order online. In 1999 the company integrated its web catalogue and ordering infrastructure with its back-office ERP (enterprise resource planning) to bring realtime availability, pricing and order status to customers via the web.

Customers were initially wary of e-commerce because they appreciated the long internal paper trail involved in the procurement process. But one of the key steps in the procurement process is that a human being must pick up the telephone and contact the supplier. If a web site is well designed, this process can be reached at the click of a mouse, and all future information regarding the order can be confirmed, without the need for follow-up phone calls. Indeed the more services offered on a web site the better, as far as the customer is concerned.

In actual fact, the smaller the product quantity ordered, the greater the saving using e-procurement. So although commodities have been the first to hit the headlines when it comes to e-commerce, a significant amount of fine chemicals business is soon likely to be done on the desktop too.

The company began as a mail order business over 50 years ago. 'We've seen the switch to the telephone, facsimile, then EDI. Now it is the web,' explains Wagner. 'Where we have an advantage over the dot.coms that are popping up is that we have a bricks-and-mortar business to build this new technology on top of. Our distribution systems are intact and well established. We manufacture products as well as distribute them. We have the service and knowledge to support the products and their delivery. So, you see, we've been around the block a few times, and we are embracing this new technology.'

Pricing is linked to Sigma-Aldrich's internal system. If the purchaser has an existing contract arrangement, the ERP system will display the pre-arranged price via the purchasing site. The system displays local currency, and if special pricing is available for a given product, a 'list price' as well as 'your price' is displayed.

The Sigma-Aldrich site is versatile for chemicals from the research scale up to the early development stages at present. 'Any types of products are sellable via the web. However, the ones that are regulated or extremely hazardous create obstacles for safety and screening reasons. This is understandable and most of our customers recognise this,' says Wagner.

For Sigma-Aldrich, some 60% of the company's sales are of research chemicals, with fine chemicals making up around 15% of total revenues. There are distinctions between the two markets when it comes to e-commerce. 'The fine chemicals world is different - auctions are a bigger issue here,' says Brad Johnson. At present about 20% of online sales are of fine chemicals, and a significant number of these sales are in 'mini-bulk' quantities.

A typical order size dealt with using e-commerce is generally for one or two products and costs around $200. E-commerce can accommodate up to 50 items at a time now, but Sigma-Aldrich has plans to increase that. The purchasing agents who are placing large orders can sometimes group together many products on one order. However, often they must create one order for one (internal) customer's products, then another for the next, etc.

The service is only different from catalogue ordering in that the customer is actually directly accessing the company's ERP rather than having a customer service representative do it for them. 'The customer is in control. They can access order status, history, package tracking, availability, pricing delivery methods and so forth at their own pace rather than that ofa customer service representative,' says Wagner.

Although the technology used on each company's web site is similar, every instance is a custom solution. 'There are no "sites for $19.95 deals" which will solve a large company's real business objectives,' Wagner explains. 'We also participate in e-procurement solutions such as Ariba and others. This ensures that our customers, who have chosen to implement one of these solutions, can expect the same level of functionality they have come to expect from Sigma-Aldrich.'

Sigma-Aldrich's next project is to build auction space online to better cater for the fine chemicals customer. The service will be largely automated, and will provide for customers wishing to purchase large quantities of chemicals that Sigma-Aldrich already holds in stock. This will have a positive impact on inventory levels, and will ensure that plants keep running at an optimum level.

Other companies will not be invited to participate on the auction web site. Instead Sigma-Aldrich hopes to develop its own software so that this will be compatible with other vertical marketplaces on the Internet, such as ChemConnect and FOB. This strategy is strictly for fine chemicals and not for the research chemicals market.

Sigma-Aldrich already maintains its own large sourcing database (known as Chess), for raw materials and unusual chemicals that it does not make itself. This database is now embedded in the company's web site, so that Sigma-Aldrich can both sell its own chemicals and source others for its customers online. This sourcing infrastructure has potential to be scaled up for bigger lots of fine chemicals in future.

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