E-commerce: New opportunities for the chemical industry
EDI, ERP, and extranets are all tools that chemical companies must use if they are to be competitive in the electronic world of the future.
The majority of chemical companies made their debut in the new economy by putting a page on the Internet to establish a Web presence. These companies soon realized the potential beyond a brochureware site and shifted their focus rapidly to e-commerce. The chemical industry has adopted a two-pronged strategy. First, chemical companies have started their own initiatives, mainly in the B2B area, by using extranet- and Internet-based electronic data interchange (EDI) systems for their larger customers and suppliers. The major advantages are automated order processing and billing and better customer service. A few companies have also built enterprise resources planning (ERP) connections between themselves and their biggest customers and suppliers.
Second, many chemical companies have joined a third-party online marketplace to gain access to the new markets. A third-party marketplace offers dynamic pricing, access to more suppliers and customers, and the ability to dispose of excess inventory and exchange information. Now, electronic exchanges are shifting their focus to address the supply chain inefficiencies among the business partners.
Opportunities for chemical companies
Second, besides providing information, chemical companies can use the Internet for business purposes. Online exchanges, also called vertical portals, industry exchanges, or e-marketplaces, were among the first to offer this capability. Designed primarily to serve the spot market by matching sellers with buyers, electronic exchanges add value by offering access to more suppliers and customers than they could reach otherwise and by providing information. CheMatch (3) and ChemConnect (4) are two examples of nearly three dozen chemical third-party online exchanges. The revenue for these exchanges is based on a transaction fee and ranges from 2 to 5% of the value of the transaction.
Recently, the chemical exchanges have moved toward a slightly different model. Exchanges such as Elemica (5) and Envera (6) have created electronic hubs with support from major chemical companies. Instead of connecting buyers and sellers, their focus has shifted to become an application service provider (ASP). The main focus of this new breed of exchanges is to link chemical companies back-end systems with those of their partners, which in turn helps to maintain the established relationship among the business partners. The hub typically uses a translator to exchange data among various platforms such as ERP and EDI, and allows seamless transaction among the parties.
Most large chemical companies are participating in electronic hubs. For example, Envera is backed by a consortium of companies that includes Enron, Lyondell, Occidental, and Solutia, among others, whereas Elemicas members include BASF, Dow, DuPont, BP, Bayer, and Shell. The revenue for these exchanges is based on an annual subscription fee, which depends on the size of the company.
As chemical companies move forward, two major activities, customer relations and procurement, will benefit from e-commerce. To improve business functions, many companies have implemented or are in the process of implementing ERP systems. The main focus of such a system is to control business processes, such as product delivery systems, keep track of sales and revenue, and perform human resources functions. Although very useful to control business, one of the main limitations of an ERP system has been that normally it does not extend outside the boundaries of the company.
E-commerce has addressed this limitation successfully and has made it possible to extend the organizations reach to its customers and suppliers. In some instances, companies have connected their ERP systems directly to the ERP systems of their largest customers and suppliers. For example, OxyChem has linked its ERP system to that of PolyOneone of its biggest customers. Since each ERP system is unique, connecting two of them is not easy. A private company-to-company connection makes sense for the largest suppliers and customers; it would be too costly and time-consuming for a company to join its back-end system directly to those of all of its suppliers and customers.
Linking directly to customers using EDI or an extranet is a cost-effective and fast way to share information and data. Before the advent of the Internet, a value-added, network-based EDI was the most popular way for companies to connect to their major customers and suppliers. EDI helps in automating and creating electronic documents that are sent over a private network platform. Because of lower costs and common standards, Internet-based EDI and extranets are now becoming the preferred way of conducting business over the Internet. Web-based applications support the delivery of the online purchase orders, shipping notices, and invoices to virtually any business with a PC and Internet access. In addition to the lower cost compared with traditional EDI, Internet EDI offers broad connectivity and a platform-independent means to exchange information.
Extranets, in addition to their EDI capabilities, provide additional benefits such as real-time information exchange and inventory management. Because users can customize extranet user interfaces, it is easy for the customers to find information and conduct business. Once on the extranet site, customers can check product availability, order products, track the status of their orders, and receive invoices. Customer data from an extranet site can be sent directly to the companys ERP or the billing system, eliminating the need to process invoices manually. It is possible to automate the whole process from ordering a product to receiving the payment.
There are other benefits, too. For example, many industrial gas companies use telemetry systems to monitor the liquid level of tanks at their customers sites. This information can be displayed in real time on the extranet site along with the usage pattern and a reminder to schedule the next delivery if the level goes below a predetermined limit. The biggest advantage of an extranet site is the single-point contact for all of a customers needs, which helps in forming an alliance between the customer and the company. MyAccount@Dow, an extranet site for Dow Chemicals customers, provides registered customers with secure online access to transactions such as account information, order status, repeat orders, and payment history, resulting in a one-to-one collaboration.
The greatest opportunity is in the procurement of non production items because current ordering processes are cumbersome, and maverick buying is common. Current processes involve finding items in catalogs, obtaining authorizations and PO numbers, ordering the items, notifying the accounting department when the items are received, and arranging for payments.
The whole process can be simplified greatly. Chemical companies can use their own intranet sites to list items, along with company-negotiated discounts, or use the vendors extranet sites customized for the purchasing companies employees. An employee needing to order a product can go to the company intranet, order the product, enter the department number (or any other form of identification), and receive the product. If required, an automatic e-mail can be sent to the employees supervisor, providing purchase notification. The invoice can be sent directly using EDI or other means, eliminating the need for paper-based orders and invoices.
Companies can also use Internet-based technologies for internal communications. The company intranet is a valuable tool for providing information ranging from price lists to details of employee benefits. The intranet can be used for discussions, joint product development, e-mail, and announcementsthe list is long. One of the biggest advantages of intranets is that information can be updated instantaneously, which is especially useful for time-sensitive materials such as price lists and product brochures. Employees can access the companys intranet site from anywhere in the world using the Internet.
What the future will bring
Rajat Agrawal is a development associate with Praxair Inc. (7000 High Grove Blvd., Burr Ridge, IL 60521; 630-320-4218; email@example.com). He joined Praxair in 1993 in the Applications Research and Development department. He received his B.Tech. from the Harcourt Butler Technological Institute, Kanpur, India, Kanpur, and his M.E.Sc. from the University of Western Ontario, London, both in chemical engineering. He recently received an M.B.A. with an e-business concentration from DePaul University, Chicago. Since 1999, he has been attracted to e-commerce and the opportunity it provides for the chemical industry.