24 September 2001 00:00 [Source: ICB Americas]As the e-commerce learning-curve graduates from crawling to walking and in the wake of the dotcom fallout, a new approach to chemical e-commerce has emerged with ChemXL, a Houston-based company, which is self-advertised as a "no-frills" site for the chemical and plastics industries.
ChemXL, headed by chairman and acting CEO Vijay Goradia, went live September 4. Prior to activation, it merged with ChemB, an Asian B2B company, which offered a storefront model that included cataloging, auction capability and a hosting exchange with a few thousand members and 107 storefronts of companies based in Asia and other international locales.
ChemXL's decision to develop a no-frills approach comes at a time when companies are placing increasing importance on demonstrating a return on investment (ROI) on e-business initiatives. In a recent, unrelated teleconference on enterprise portal ROI, the Meta Group, a Stamford, Conn.-based IT research and consulting firm, pointed out that virtually every new information technology project expenditure must be justified on a business case basis. Specifically, if the expenditure is not cash-flow positive, meaning if it is not shown to increase revenues or reduce costs, it must satisfy some strategic purpose, such as achieving post-merger integration goals or maintaining competitiveness. At the very least it must show evidence of productivity gains.
"Portal costs per user per year might range from $250 to as much as $2,500," says Mike Gotta, the Meta Group's web and collaboration strategies director. Therefore, he concludes, the business benefit to justify portal development should directly or indirectly positively affect revenues and costs, favorably promote corporate culture and communication channels, improve the efficiency of business processes or facilitate integrating or leveraging assets already in place in the IT department of a given company. At present, however, "only about 10 percent of companies make any serious attempt to measure their portal ROI," says Mr. Gotta.
Public information on measuring enterprise ROI is scarce because measurements are somewhat vague, given the relative limited history from most companies' e-business activities and a reluctance to disclose information that may be considered proprietary.
Given this rather austere market environment, ChemXL has come up with a model that fosters free membership and no investment. The service bills itself, in effect, as a low-cost, browser-based, outsourcing function and as a "fairly cheap" alternative for purchasing and selling chemicals and plastics raw materials as well as other products and services, such as packaging and MRO (maintenance, repair and operations) items on the web.
ChemXL's Mr. Goradia agrees with the characterization that his company is in effect a web hotel (with small conference rooms or large ballroom facilities), especially designed for the chemical industry. The marketplace host can rent or lease space to conduct business for a modest fee and invites those at the company's discretion. The fee structure is bound in the fraction of a percentile range, says Mr. Goradia, depending on dollar volume and the duration of event, "from .05 percent to 0.7 percent," he says.
Mr. Goradia stresses that a participant can buy or sell multiple products simultaneously, numbering from one to 200, and the cost to the host (whether a buyer or seller) is a function of the "number of hours on our system and number of bidders engaged as well as the dollar volume transacted," he says. The host defines the terms and conditions for bidders, filling out the details in less than ten minutes.
If the host chooses to first ask for a request for information or a request for quote, he can configure that information in the system as well and collate and analyze the data in the form of graph and spreadsheets, saving time and improving efficiency.
Flexibility is Crucial
"People can meet online, communicate in confidentiality, complete a transaction quickly and log off," explains Mr. Goradia. "Price is not the only concern in the pharma and chemical industries. Reliability, payment and delivery terms, and other contractual flexibility are also crucial. We have qualitative as well as quantitative logic tools built into our system for the host to custom tailor, according to its own preferences, its configurations for weighing the different components in bid appraisal," he emphasizes.
The soundness of a multi-variable approach is boosted by the parallel finding of the Meta Group, which somewhat surprisingly concludes, "price considerations register as only a 30 to 40 percent factor in surveying decision-making criteria."
"We're not standing in the way of buyer and seller," Mr. Goradia maintains. "Instead, we're a convenient, pay-as-you-go online solution that essentially derives benefits and yet preserves existing procurement and sales relationships and processes."
Whether buying or selling commodity, semi-commodity or specialty chemicals or related services-such as packaging and MRO items-customary transaction partners or prospects meet by invitation at the ChemXL site at a designated time to engage in a competitive bidding transaction. The dynamic sale or procurement event can involve spot or contract business. The ChemXL solution and service staff handles all of the event paperwork and coordination. Business, presumably, can be transacted with greater dispatch than on the larger exchanges.
ChemXL also points to the value in its revenue model. Some exchanges require either up-front fees or commitments, and others charge connectivity expense. Some service only a limited number (15 to 20) of real commodity products, and some are "too transparent and too anonymous" for the taste of many large producers. Some retain proprietary ownership over the data intelligence gathered, not, as is the case with the ChemXL model, which automatically reverts it to the domain of the host. Mr. Goradia asserts the value of the ChemXL model-"no hardware or software expense, no IT staff involvement. You're not spending any money. You're saving time and improving your bottom line. You're leasing the service on an 'as-needed' basis."
While the ChemXL model seems geared to the medium, intermediate and larger independent firms, the product could also be used by connectivity hub members as a special-purpose facility option.
ChemXL will also, for an additional fee, develop, host and manage "private" exchanges for chemical manufacturers and distributors that are seeking an immediate online e-marketing presence without spending, in the words of Mr. Goradia, "millions of dollars" developing and building their own e-commerce branded storefronts and establishing their own direct links. ChemXL he says, "will seamlessly" interface the client's dedicated space with the client's existing website. "We're offering connectivity as well," he says.
"We have the same webMethods XML-engine that Envera has, following the same XML standards and translation. We also actively participate in the development of CIDX standards for affording this connectivity to the industry, yet we don't see ourselves as being in competition with the integration hubs such as Elemica, but rather complementary to them," he says.
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