Reality-Based Programming Heralds New Direction in Chemical E-Business

25 June 2001 00:00  [Source: ICB Americas]

"Reality-based programming" has reached the chemical industry's current implementation stage for Web-based projects. This was the prevailing sentiment expressed by participants at the Chemicals Online Conference, sponsored by the International Quality & Productivity Center, held in Philadelphia, earlier this month. Speakers and delegates shared practical viewpoints, along with their respective fledgling electronic business-to-business (B2B) experiences.

There is a general consensus that the challenges of onboarding, channel mix selection, outsourcing, return on investment (ROI) measurement and reaping supply chain benefits have eclipsed the earlier phase of unfettered hype and inflated expectations of e-business.

The conference confirmed four key issues surrounding e-business strategies: the need to have enterprise resource planning infrastructure in order, the difficulty and importance of implementing change in an organization, the ongoing process of tweaking value-propositions to bear fruit and the importance of having a customer-centric approach.

Corollary themes expressed from various speakers and delegates at the conference included "out of box solutions often don't meet customer needs," "business priorities trump technology," and "segment customers by behavior." While there was general consensus that ROI is hard to measure and near-term results are proving elusive, observers say that the industry has migrated from revenue generation to a productivity-based metric as a benchmark for project evaluation. Also, delegates pointed to the need to "aggregate and leverage," in moving an e-business model forward.

A case study of the various issues encountered in implementing an e-business program was presented by Greg Soltwisch, global electronic business manager at Sigma-Aldrich. As a large supplier of research chemicals, Sigma-Aldrich's task involved establishing a portal that could enable custom purchasing in a universe of 80,000 catalog items sold in 250,000 SKUs (product-package size combinations), where millions of end-users require technical information, and where products, prices and inventory all have great variability. Using a Haht Commerce application to handle the variety of front-end procurement engines (Ariba's punch-out, Commerce One's Roundtrip, EMAX, SAP), the company notes its success to date includes 7 percent of sales worldwide handled via the Web, 25,000 orders per month, with 600,000 monthly visits and 178,000 registered users. The company has determined that 60 online orders per day equates to the output of one calling center representative.

Other chemical producers shared their experiences and current focuses in e-business. Allen Jezouit, Praxair's director of e-business, has centralized request handling and is using behavior-based customer segmentation (voluntary and mandatory) to drive adoption rates.

Another industrial gas executive, Fulton Wilcox, director technology business development at BOC Gases, has focused his attention on supply chain process improvement and the use of Palm Pilot technology in vendor managed inventory (VMI). In addressing process, the goal has been to reduce customer's cost of ownership by using an Advanced Cylinder Control System (ACCS). It was determined that 47 percent of product cost fell to distribution, inventory carrying and transaction costs. With OBI (open buying on the Internet), BOC Arrowhead provides buy-side capability plus ACCS-equivalent functions through an IBM server in Schaumburg, Ill.

Ashland Distribution Co. (ADP) serves 50,000 customers in 30 industrial markets, from 80 distribution centers. Recently, ADP "went live" on SAP 4.6. For indirect materials (MRO), it implemented SourceXplorer in November 2000. The customer segmentation approach of ADC, according to Tom Fannon, director of e-business, is to enable a one-to-one relationship for all accounts on a "self-serve" basis through go2ashland.com. It already has a "standard offering" catalog and supplier/customer ERP-enabled options. In the past year, Web orders have increased from 1,000 to 4,700 per month and from 6 to 11 percent of sales. The Web initiatives have been costly and Mr. Fannon admits that so far they "can't find [significant] ROI."

Bill Gaughan, Bayer Corp.'s vice-president, e-business and IT, is another executive conceding they "haven't realized savings" yet, and, like so many others, they are still "searching for the appropriate metrics," despite high customer acceptance of their "cornerstone" private exchange BayerOne. Mr. Gaughan sees a growing trend away from simple B2B ordering to a VMI solution. BayerOne also intends to make its MRO hub (cc-chemplorer) catalog available through its storefront on a selected basis.

Richard Flanagan, director, e-business technology at Rohm and Haas, was faced with critical infrastructure challenges, owing to a multiplicity of business models and back-end platforms. The company's transformation program has leveraged ERP and other systems "wherever possible" and adapted "complementary applications with core SAP." Outsourcing infrastructure is a growing preference, and so is the search for "unique solutions with fast payback," which points to the need to having information technology serving the business proposition, not the other way around.

DuPont's global e-business leader Lisa Boothe cites well over a hundred projects underway aimed at brand awareness and "cross-selling," supply chain efficiencies and product information. Since channel mix selection is business-driven by each of its diverse end-user industries, she is unable to project how much volume will be funneled through Elemica, where, says Ms. Boothe, "the efficiency savings available [could] exceed $6 billion in North America."

The major supply chain marketplaces, Elemica and Envera, are learning that the road to hub heaven is paved with speed bumps. Adequate levels of liquidity and value proposition offerings are the two acid test hurdles that have to be met. Connectivity is easier said than done, notes observers, since communications protocols (the language), transaction sets (the message), data interpretation and business process mapping all have to be XML-synchronized no matter what legacy ERP system is involved.

However, hub companies contend that the cost structure of point-to-point or direct XML connectivity between two firms is running higher than expected in the range of $250 per transaction (based on 1,000 transactions). In the future, Elemica expects 34 percent of transactions will travel through an ERP-connected solution, 23 percent through a Web-hosted solution, 10 percent through a branded storefront, only 3 percent through one-to-one connections and 30 percent through traditional telephone and fax hookups. The hub value proposition will be aided by the availability and proficiency of logistics, supply chain optimization and multi-customer collaboration services. Elemica figures there is a 2.5 to 3 percent savings potential in the $600 billion North American supply chain market.

To infuse the hooked-in, buyer-seller pool, Elemica is absorbing Elasto-merSolutions, an online trading community for the elastomers industry and one of Elemica's targeted markets.

Not to be outdone, Envera is being acquired by ChemConnect to bolster its financial position and tap into the "30,000 suppliers" available through the World Chemical Exchange, thereby providing a buyer and price discovery platform that dovetails with its transactions connectivity attributes as a supply chain hub.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly