BUSINESS 2004, ACC estimates that more than 17% of global sales, or $382 billion, will be through electronic channels, making the chemical industry a leading adopter of ebusiness. Among recognized leaders is GE Plastics and its GE Polymerland site. In 2000, GE's plastics business alone had $ 1.5 billion in Internet sales, about 19% of its total sales. This online sales figure is up from just $98 million in 1999 and heading toward an anticipated $4 billion this year. Other active companies, such as Eastman Chemical, Bayer, Dow Chemical, PolyOne, andTicona, also have rising online sales.
REACHING OUT TO E-CUSTOMERS E-business traffic is building, but chemical companies wrestle with measuring returns ANN M. THAYER, C&EN HOUSTON
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the hot summer months, and the environment for chemical industry electronic business is no different. Amid the rise of third-party dot-coms 18 months ago, chemical companies started scurrying to launch e-business initiatives. Now that many of the dot-coms have fallen, these same chemical firms are reevaluating their e-business investments, looking at what will strengthen customer links and reap tangible rewards. 'As the perceived threat of third parties abated, it allowed a little more breathing room," says R.JohnAalbregtse, partner in the global chemicals practice of the consulting firm Accenture. 'And the economy, where it is, has forced a bit more priHTTP://PUBS.ACS.ORG/CEN
oritization of the full breadth of e-business initiatives. "The pace has slowed, probably to a more realistic pace, but progress continues," he adds. "In the chemical industry ebusiness basically has become business." T h e American Chemistry Council (ACC) reports that the "impact of e-business is clearly being felt," despite data indicating that only 0.8% of global industry sales, or about $ 13.6 billion, went through electronic channels in 2000. These channels include electronic data interchange, integrated direct systems between companies, company Internet sites, and thirdparty marketplaces. Although low, the adoption rate is 10 times higher than it was two years ago and is expected to nearly triple this year. By
CHEMICAL PRODUCERS have experimented with approaches that range from investing in start-ups to setting up business-related websites to joining industry networks. "The leaders, and even the mainstream, of the industry have tried some of this and that, and now are deciding what they think is going to create the most value," Aalbregtse says. "There is value in leveraging e-business to both improve customer interactions and strip out costs, as well as to improve the procurement of goods and services," he adds. Compared with third-party dot-coms, chemical companies have an edge in closer and longer customer contact. As experience in interacting online builds, companies are adapting and expanding their sites to meet specific customer needs and are working hard to draw in customers. Customer acceptance can be a challenge, however. A recent study by Accenture may provide an explanation: It found that the chemical industry is dominated by customers it classifies as "e-skeptics," who like brand familiarity and longevity, privacy, and service. They also can be slow to accept change and need to be shown that there are benefits from going online. "Traditional marketing strategy and customer service principles still apply," Aalbregtse explains. "It's not a matter of taking away the salesman and from now on going through a website—that's going to be an abysmal failure because the personal touch or the ability to reach a live human being to help is still critical." Many companies were surprised initially to learn from focus groups how their customers viewed them. E-business managers are responding by trying to make it easier to do business with their firms around the clock. Thus, company or business unit websites have evolved into secure, customizable, and increasingly functional locations. These initiatives need to be customer driven, says Bill Gaughan, vice president C&EN
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BUSINESS
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Auctions Alter Traditional Buy-Sell Relationships
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lthough customer relationships and service are being emphasized today in e-business, one electronic permutation—the online auction—is upsetting the customer-supplier apple cart. Particularly troubling to suppliers are reverse auctions, in which a single customer pits multiple suppliers against each other. The experience at Lonza Inc. is that online auctions are nasty, brutish, but ultimately worth their while. Dick Palin, vice president of operations at Lonza Group's U.S. headquarters in Fair Lawn, N.J., described his firm's early efforts at buying and selling chemicals through Internet auctions at the May annual meeting of the Synthetic Organic Chemical Manufacturers Association. Palin says Lonza's first foray—in which it was a seller in an existing customer's reverse auction—was sobering. "The opening bid was 30% below our selling price," he said, and it went downhill from there. There was an upside, however: Although Lonza was already the customer's major supplier, it picked up enough additional business to offset the lower price. Online auctions differ from traditional deal making in virtually every regard. For starters, negotiation times can be cut from weeks to just minutes. On top of that, they upset traditional
relationships nurtured over many years of face-to-face contact. "The auction atmosphere is stressful," Palin said. Suppliers are reluctant and sometimes must be coerced into participating. However, the buyer-seller relationship needn't suffer and can even improve because of the transparency of the auction process. Although their format is fairly rigid, auctions can accommodate creative transaction terms like volume rebates, product bundling, swaps, special payment terms, and guarantees of business to certain suppliers, Palin noted. Third parties such as ChemConnect and CheMatch are offering auction services that include preparing and training the participants, running the auction, and providing feedback and analysis. Palin said that ChemConnect, for example, charges "in the midfive figures" to host an auction, so contracts being put up for bid must be substantial. Palin said Lonza will conduct six to 12 auctions on ChemConnect this fall. Yet because of the fee involved, "the concept can't go on forever," he said. Instead, he sees an evolution from hosted auctions to online requests for quotes to exchanges in a company's own trading room to, ultimately, direct connectivity.— MICHAEL MCCOY
Edmonds explains. This is largely to avoid of e-business and information technology deal of skepticism and uneasiness" about retyping orders through a website that cusfor Bayer's polymers and chemicals dividealing with money electronically, but he tomers already entered into their own sion, which runs a website called believes that both sides ultimately will enterprise resource planning (ERP) sysBayerONE. 'As we come out with new change. tems. The catch is, he adds, that "probably releases of BayerONE, at least half the things we add have to be tied into a direct MANY E-BUSINESS managers say they be- only 20 or 30% are actually capable of doing ERP-to-ERP links at this time." customer request." gan with an emphasis on order entry and "We're trying to make our site as attracThese linkages are developing—either have since discovered that customers are tive as possible and get as much customer directly or through industry networks— more interested in information surroundfeedback as we can," says Nick Edmonds, but they have turned out to be a bit ing an order. However, the underlying issue, e-commerce leader for Dow's customer tougher, more time consuming, and more commonly called "dual entry" isn't rooted interface initiative. The firm's MyAccostly to set up than originally anticipated. in skepticism, but rather within the procount@Dow site, like those of other e-busiTransaction standards, developed by chemcesses customers use to create and place ness leaders, provides information ranging ical firms along with the Chemical Indusorders. "What 70 to 80% of our customers from order placement through fulfillment, try Data Exchange (CIDX), are a critical want is a direct connection for ordering," such as product and technical data, step forward, e-business managers order status and tracking, and believe. Meanwhile, they suggest GLOBAL LINKS account and payment information. that customers begin by entering U.S. chemical industry outpaces other regions orders and accessing information There also have been surprises in e-commerce online to familiarize themselves about what customers really want, with electronic channels. two of which concern ordering and % total region sales online paying online. Kevin Cronin, On the supplier side, not every 25 • U.S. Ticona's global e-business director, company is fully prepared either. • Canada & Mexico • Western Europe admits that "getting people to place Many have not finished the sub>s Japan orders has been a little slower than stantial effort to become back-end M Other initially predicted." Ticona has creintegrated with their internal ERP • Total industry ated BuyTiconaDirect. systems. Nor are all comfortable with having automated systems The other surprise is that "there's rather than people control sensitive not been a great clamoring from cus99 00 01 02 areas such as pricing, availability, tomers" for invoicing and paying SOURCE: American Chemistry Council and production scheduling. online, Cronin says. "There's a great
"It's not a matter of taking away the salesman and from now on going through a website." 22
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Another lesson learned is that makes sense and will be a preferred one-size-fits-all approaches don't methodology for placing orders. CATCHING ON work. Different customers, or 'And we're sure that customers Specialty chemicals lead in adopting employees in various functions at a haven't made up their minds about e-commerce in U.S. single customer, will want different what is the best value proposition," % total U.S. sector sales online features or information from a suphe continues, "so it's probably not a 40 I good business practice to put allyour plier's website. They may also simuleggs in one basket." taneously want different ways of interacting, such as through direct The growing realization that busilinks and third-party marketplaces, ness and market strategies should along with the company websites. drive e-business has led managers to try to measure the success of their Leif Eriksen, chemical and initiatives and gain support for furprocess industry research director 00 01 02 ther investment. However, creating at AMR Research, explains that the SOURCE: American Chemistry Council the needed metrics is a major chalchemical world can be mapped out lenge, they say by combinations of market profile "It is a revenue-generating area for Eastand product type, 'Acompany needs to take efficiency At the other extreme, such as a into account both the market—in other specialty producer with many customers man, where you try to move as much of your words the makeup ofits customers—as well and small orders, companies and customers volume through the online storefront," says as its products," he says. Many large pro- will want more interaction because they John B. Cobick, Eastman Chemical's online ducers will have multiple scenarios requir- base transactions more on collaboration manager. 'And when customers get their own information online, there is a cost-saving multiple approaches and e-business and higher levels of service. ings component in reducing the workloads channels. For example, when a company has a few "ULTIMATELY, the marketplace is going to for customer service representatives." Cobick says about 8 to 9% of Eastman's customers with large orders, as in com- tell us which channels are of most signifimodities, machine-to-machine connectiv- cant value," Cronin believes. "For now, we're sales, or about $425 million, are through its ity makes the most sense to exchange infor- pretty sure that the Internet is not going customer website and more than 15% of its mation directly, reduce costs, and increase to go away and that purchasing online sales are through all electronic channels.
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Graduate Education Sessions of Interest ACS Fall National Meeting August 2 6 - 2 8 , 2001, Chicago I n a d d i t i o n t o t h e m e e t i n g ' s r i c h t e c h n i c a l s y m p o s i a , t h e f o l l o w i n g m a y b e of i n t e r e s t .
SUN., AUGUST 8:30-10:30 a.m.
MON., AUGUST 9:00 a.m.-noon (Session 1) 1:00-3:30 p.m. (Session 2)
Graduate School Recruiter's Breakfast Society Committee on Education Chicago Marriott, Undergraduate Hospitality Center
R e p r e s e n t a t i v e s from g r a d u a t e schools will answer y o u r questions about their prog r a m s a n d a p p l i c a t i o n p r o c e d u r e s . (Also on Monday.)
1:15 p.m. Coordinating Large General Chemistry Programs Dividion of Chemical Education McCormick Place T h i s s y m p o s i u m will a d d r e s s t h e i n c o r p o r a t i o n , a s s e s s m e n t , a n d c o o r d i n a t i o n of m e t h o d s t o e n h a n c e t h e effectiveness of large general chemistry p r o g r a m s .
3:00-6:30 p.m. Diversity in the Top 5 0 Universities: The Challenge To Lead Committee on Science McCormick Place, South Building, Rm. 105A
T h i s p r o g r a m focuses o n t w o i m p o r t a n t questions: W h y are w o m e n a n d some minorities underrepresented o n university c h e m i s t r y faculties? W h a t c a n b e d o n e a b o u t it? A n i n f o r m a l r e c e p t i o n will follow the program. (Cosponsored b y W C C , CMA, YCC, S O C E D , CPT, CCR, AIChE, DivPROF, and NSF.)
Preparing Future Faculty Symposium Dividion of Pro/eddional Relationd McCormick Place, North Building, Rm. 230A G r a d u a t e faculty a n d s t u d e n t s will d e s c r i b e h o w they have incorporated research, t e a c h i n g , a n d service c o m p o n e n t s i n t o t h e i r d o c t o r a l e d u c a t i o n p r o g r a m s for s t u d e n t s i n t e r e s t e d in t h e p r o f e s s o r a t e . (Cosponsored b y Y C C a n d W C C . )
11:30 a.m.-1:00 p.m. Graduate School Preparation Seminar and Panel Discussion Society Committee on Edtœation Chicago Marriott M o r t o n H o f f m a n of B o s t o n U n i v e r s i t y will d i s c u s s e v e r y t h i n g y o u w a n t t o k n o w a b o u t g r a d u a t e s c h o o l s in t h e c h e m i c a l scie n c e s : H o w t o g e t in, h o w t o s t a y in, a n d h o w t o g e t o u t . A p a n e l of g r a d u a t e stud e n t s will also d i s c u s s life a s a g r a d u a t e student.
^CK^t
T U E S . , A U G U S T 28 Morning and Afternoon Survival 101 for N e w College Instructors Dividion of Chemical Education McCormick Place T h i s t w o - p a r t s y m p o s i u m will e x a m i n e t h e problems that n e w chemistry instructors face a n d will a t t e m p t t o p r o v i d e s o m e g u i d a n c e from e x p e r t s a n d e x p e r i e n c e d mentors. (Cosponsored b y Y C C . )
Afternoon Educational Awards for Graduate Student Travel Dividion of Agrochemœald
Afternoon Graduate Fellowdhip Award Sympodium Division of Medicinal Chemistry McCormick Place T h e research of five M E D I fellowship a w a r d e e s will b e highlighted. Also included in t h e p r o g r a m is a historical s y m p o s i u m c o s p o n s o r e d w i t h t h e Division of t h e H i s t o r y of C h e m i s t r y a n d organized in conjunction w i t h t h e 125th A n n i v e r s a r y of A C S .
3:00-4:00 p.m. C P T / S O C E D Open Meeting Sheraton, Huron Room A n o p e n session will b e h e l d t o d i s c u s s "Perspectives on Graduate Education". R e p r e s e n t a t i v e s from b o t h c o m m i t t e e s , a s well as t h e G r a d u a t e Education Advisory B o a r d , will b e p r e s e n t .
The^e event** have been compiled by the Office of Graduate Education. For additional information, please contact Alicia Chamber** at 202-872-6176 or
[email protected].
C A R E E R
S Ε R V
I C E S
T h e following a r e s o m e of t h e c a r e e r d e v e l o p m e n t p r o g r a m s t h a t will b e h e l d a t t h e C a r e e r R e s o u r c e C e n t e r , M c C o r m i c k P l a c e . P l e a s e s e e t h e C a r e e r S e r v i c e s section of t h e final t e c h n i c a l p r o g r a m for a c o m p l e t e list o f activities.
M O N . , A U G . 27 9:00 a.m.-noon Academic Jobs: A P h . D . Is O n l y t h e Beginning T h i s w o r k s h o p is s u g g e s t e d for t h o s e c o n s i d e r i n g a c a r e e r in a c a d e m i a . I t will c o v e r all a s p e c t s of p r e p a r i n g for s u c h a career, identifying j o b opportunities, a n d landing t h e perfect offer.
T U E S . , A U G . 28 2:00-3:00 p.m.
4:00-5:00 p.m.
1:00-4:30 p.m.
Employment Trends and Marketability W h a t is t h e j o b m a r k e t like for c h e m i c a l professionals t o d a y ? H o w will it e v o l v e in the next decade? Learn about the c u r r e n t trends a n d h o w to m a k e t h e m o s t of t h e m t o
Global Employment Opportunities A r e y o u i n t e r e s t e d in w o r k i n g a b r o a d ? If so, t h i s is t h e ses sion for y o u . E x p l o r e o p p o r t u n i t i e s for o v e r s e a s e m p l o y m e n t , t h e a d v a n t a g e s of w o r k i n g in a n o t h e r c u l t u r e , a n d how to succeed as a nonn a t i v e professional.
Writing Excellent Research Proposals This hands-on, participatory w o r k s h o p will i n t r o d u c e y o u t o t h e i n s a n d o u t s of g e t t i n g y o u r proposals funded. (Cosponsored by Y C C and the A C S Petroleum Research Fund.)
BUSINESS Electronic sales don't always represent new business, but simply a shift of existing customers to new channels. Since customers are using the websites more for information gathering than order entry and purchasing, Eastman and others are gauging more than just sales volumes. "New measures have helped us drive a new set of behaviors internally," as in customer service, Cobick says, "and so we're focused on the transaction, which is not only dollars, but all the other aspects as well." Website visits, the number of registered companies and users, and Web pages viewed are tracked. More than 800 companies have registered to conduct business through Eastman's online customer center.
bility," Ticona's Cronin says. Companies may have redundant costs because they are operating old systems in parallel with new systems undergoing development. "In the long run, you start to realize the efficiencies and cost savings," Cronin says. "The hard part is creating the metric that can show it, but we are making E-CHANNELS some strides. Intuitively we know it's Most e-business is through company-tothere." Ticona is targeting 15% of sales company links through e-channels, to jump to 45 to 50% next year, and 65% by 2003. Third-party Integrated marketplaces direct Analysts and e-business managers 25% systems agree that there may not yet be enough a 40% of a track record to really know how well the measures are working, especially when they relate to intangible Company Internet sites benefits such as customer relationships 35% or satisfaction. BAYER REPORTS 3 0 0 active eus a Includes electronic data interchange and enterprise system "I would recommend that compalinks. SOURCE: American Chemistry Council tomers using its BayerONE site in the nies be patient," AMR's Eriksen says. U.S. and Canada. Although more than "Return on investment hasn't come yet, 10% of its sales volume is through the site, and the main reason is that chemical manmillion per month in the early part of the "the key for us is customer satisfaction, ufacturers don't have the critical mass of year to more than $40 million today usability and transactions," Gaughan says. customers online to start eliminating some "Cost-to-serve analysis, for instance, has Success—in fewer customer calls, fewer of their people resources to reduce costs. shown that initially some of the e-channels hand-offs, positive feedback, and even trafIt will happen. It's just a matter of time." might actually be slightly more expensive fic from Pacific Rim customers—has been because you have to build up a lot of capaMeanwhile, he adds, the opportunity a driver to expanding the site into other regions. Dow says its has more than 4,600 external users from 2,080 organizations signed up. Order volumes have been steadily increasing, Edmonds says, from about $20
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BUSINESS Ε-PROCUREMENT
Being The Customer Is Important, Too
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ot only are chemical producers sell ing their products online, they are also working at being customers. The procurement of materials and supplies through electronic channels is actually the most advanced aspect of chemical industry e-business, according to market researchers Frost & Sullivan. Online pur chases of indirect and maintenance, repair, and operational supplies are expected to soar from just 1 % of such purchases in 2000 to 60% in 2005. For raw materials, 40% of companies say they are testing direct links with suppliers. "Strategically, purchasing should be involved with vendor selection, pricing, and commercial terms, and then let the people who need the items go buy them directly and not get into the middle of the process," says Jeffrey Heller, procurement process manager at Rohm and Haas, about indirect purchases." Other goals of online purchas
ing include reducing "maverick spending," capturing purchasing information across the company, and eventual cost savings, for both customers and suppliers, through streamlined processes. Rohm and Haas set up its e-procurement system for indirect supplies about eight months ago. After making several acquisitions, the company had gone through a strategic sourcing initiativecreating a single internal process, as well as identifying and contracting with major suppliers around the world—so it was well prepared to then move the process online. Another measure of success is simply getting people to use the system; however, that's been a challenge for everybody involved, Heller says. Vendors were not as prepared as expected to address the added demands of online transactions. And for customers and suppliers alike there has been a reluctance to change, he adds.
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exists to reduce costs and create compet itive advantage by learning more about one's customers and providing added serv ices previously not possible. "Even in the commodity chemicals business, where buy ing decisions are often based on a quarter cent per pound, customer service becomes the tie breaker," he says. Some chemical company e-business managers don't envision cutting sales or customer service staff, especially in spe cialty areas. They talk instead about reduc ing the routine tasks and redeploying peo ple into activities that can help maintain and build business. Dow's Edmonds describes the potential shift in customer service from "reactive to proactive." Others admit that e-business and its effi ciencies have allowed them to make nec essary cutbacks in the current economic environment yet maintain service levels. And yet others say they have handled the additional business from acquisitions or growth without having to add resources. "We are looking for hard numbers for no other reason than the tougher business sit uation compared with a year ago," Bayer's Gaughan says. Chemical companies made initial strate gic investments a year or more ago in order to gain experience in the rapidly develop ing e-business arena. With a shift in mood, and possibly the need for more tactical investments, showing senior management a return on investment has become more important. "It takes a lot more discussion and debate now as opposed to 12 or 18 months ago," Aalbregtse says. "Because of the more trans formational aspects of e-business—the potential to reduce costs and improve value—it continues to be a topic for senior executives, but it is one of many/' Companies have only begun to move into e-business, he warns. "If you look at the full definition of what e-enablement means—such as transforming a variety of processes and getting more customers linked—there's still a considerable invest ment that will have to be made over the next few years." Still, e-business managers are excited about the future as they envision expanding interactions with their customers. Most efforts so far have focused on serving and linking with existing customers, which is not surprising since about 92% of chemical transactions are contract deals and 93% are with existing customers, ACC reports. Companies hope that improved customer service features will help bring in new busi ness as well. "Vendor-managed inventory (VMI) is HTTP://PUBS.ACS.ORG/CEN
the most exciting option/'Bayer's Gaughan says. A year ago, customers seemed inter ested in collaborative production schedul ing and forecasting, he says, but "we found very little traction in the industry on being able to do it." Today's uncertain business environment may also contribute to cus tomers' apprehension about sharing such information. VMI, in contrast, focuses in on the more straightforward subject of material move ment—inventories, usage, and reorders. "It's an opportunity to get more involved with our customers and their processes and gain a wealth of information, not so much on buying, but on how they are using our materials," Gaughan explains. "Inventory and receivables are huge asset numbers for us, so anything we can do to improve han dling those would be great." Eastman also is looking for opportuni ties. Starting in January 2002, it will increase its effort to develop new business, Cobick says. 'And it will not be around exist ing Eastman products, but complementary products and services, such as technical solutions orpotentiallycreatingstorefronts for partners." It already offers interactive technical support "wizards" and foresees online seminars and training as well.
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DOW PLANS to roll out Internet meeting capabilities to all its MyAccount@Dow users in early fourth quarter. These will let customers connect with Dow customer or technical service people to share informa tion on computer screens, transfer docu ments, and discuss ideas or problems in product use and design. Compared with order entry, Ticona's Cronin sees online, real-time collaborative product design and development moving ahead faster because of quickly demon strable results. "There is a lot of power in speed-to-market and shortening the prod uct development cycle," he says. Ticona just recently invested in and began working with Conferos to offer collaborative product development and design tools on BuyTiconaDirect. In the rush into e-business, most com panies quickly threw up sites in the hope that customers wouldflockto them. Now that the fervor has subsided, they are as sessing where they stand. "We were worried about third parties coming in and taking our customers because they built slick and accessible web sites," Cronin says. "The realization is that e-business really is about business process excellence. A company will be successful by applying all the tilings it did well to begin with and then e-enabling them." • HTTP://PUBS.ACS.ORG/CEN
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