E-business evolution

03 June 2002 00:00  [Source: ICB]

Many companies are still in the early stages of using the Internet, viewing it principally as a means of automating business transactions. John Baker looks at how e-business has been evolving in the chemical industry
Stephen Doyle
The chemicals industry has been looking at e-business for half a decade. Much of the basic manufacturing IT hardware is in place, after an intense period in the late 1990s introducing ERP systems. Much of the software for Internet-based commerce is also available and Internet standards for the chemicals sector are close.

But still many players are at first base, unsure about which way to go, and perhaps more importantly, how to achieve quick financial returns on e-business investments.

The collapse of the Internet bubble and failure to attract liquidity to open exchange spot markets has seen a consolidation in companies using this model. ChemConnect has emerged as a leader after mopping up many other exchanges.

The much vaunted industry consortia model, whereby e-business is transacted by linking to a service provider established by the producers and distributors themselves, is making slow advances. Work progresses at Envera, Omnexus and Elemica, for instance, but there are reports of slower than expected progress and tension within some consortia.

Many producers and distributors are keen to get ahead, and having put a foot in each camp, are also taking direct initiatives themselves, either through establishment of private exchanges or through one-to-one projects to link up with major suppliers and customers. ICI and DSM have both been using this approach in their businesses, to secure a conversion to online transactions.

The perception now amongst a great many adopters is that the Internet is largely an enabler in automating business transactions and cutting costs. Vendor managed inventory (VMI) is also in range for many companies, but the days of seeing e-business as a new, all-conquering channel to market, a new way of conducting bulk chemicals business, or even as a method of far-reaching supply chain integration are gone, or seem still far off.

Speaking at the recent SmartChemicals Forum's 'deep customer integration' summit in Brussels, Stephen Doyle, senior vice president of Aspentech's Internet business group, emphasised the practical steps taken by ICI Paints to use the Internet for raw materials procurement and VMI in the US. The two firms signed an agreement last June, with ICI opting to use Aspentech's Aspen Buy private e-procurement solution.

The aim at the outset was to improve supply chain efficiency between ICI and its suppliers, to reduce inventory and lower transaction costs. ICI Paints operates eight plants and has 400 suppliers in the US and by April this year had signed up 37 to use the Internet-based system, with around two suppliers/ week being added. Transactions are running at around 1500/week, said Doyle. ICI hopes to cut the number of suppliers to around 70.

Commenting on the public versus private e-marketplace approach, Doyle earlier this year stated that, although most of its customers were looking at both, 'we strongly believe that private Internet markets are what our customers want to do today'. But, he added, Aspentech feels that much of the industry's learning is still ahead of it. 'If the industry's e-business evolution is split into four stages - online presence, basic commerce, advanced commerce and collaborative commerce - then most companies are through stage one and working on stage two. But are just starting to evaluate the costs and benefits of advanced and collaborative commerce.'

Also at the SmartChemicals Forum summit, DSM gave an insight to its approach to e-business. It has essentially established the infrastructure required for e-business, linking its various ERP systems across the business units - SAP, JD Edwards and others - using an enterprise application integration (EAI) software platform from webMethods. This acts as a 'message broker' between the ERP systems and DSM's e-business offerings, such as its DSM.com site, its position as a member of Elemica, and other B2B presences.

The task now, according to Jaco Fok and Ton Geurts, programme managers for DSM's corporate e-business initiative, is to get individual business units within DSM to implement the technology with their suppliers and customers. This is, they stressed, now largely a change management problem, a process they are managing by giving specific targets to employees involved.

Purchasing and sales manages are encouraged to approach their main clients and on a case-by-case basis negotiate bringing the business between DSM and the client online. At the same time, says Geurts, other aspects of the contract and way of working can be discussed and improved on, say by introducing VMI or information exchange, so that the payback is not just in terms of automated processing, but also derives from more efficient business practices.

Both ICI and DSM have taken distinct initiatives in e-business, getting the first part of the supply chain on board, either upstream or downstream of their own operations. Further supply chain integration, past immediate transactional partners is still a very long way off in the chemicals sector, as the SmartChemicals Forum discovered.

Examples from the retail sector, where major players such as Walmart are active in pulling along information all through the supply chain, were regarded as just too far out of range at present. Indeed, many questioned whether the model was even applicable, given the lack of a powerful leader in the chemicals chain, and the fact that so much buying is done amongst the industry itself.

The question of trust and reluctance to share planning information transparently is also a major obstacle.

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