[From iSource Business, May 2001] In December, the chemicals and plastics segment of the economy experienced an ignominious failure when marketmaker Ventro announced it was shutting down Chemdex. While the life sciences portal was hardly the only one to run smack into the harsh realities of an oversold market, it seemed to take more than its share of a beating in the press. Following the announcement, the barometer of public opinion for markets seemed to overcorrect viciously from blind optimism to cold-hearted pessimism.
The truth lies somewhere between those two extremes of isms. Yes, the introduction of reality into the market was inevitable, and some exchanges will still be lost, but the promise of B2B for chemicals and plastics is as valid as it's ever been.
Chem-testing the Waters
Greg Runyan, senior analyst at the Yankee Group, says the chemical/plastics industry is, for the most part, taking small steps toward becoming e-enabled. Some are limiting their initial involvement to indirect procurement, for example. Runyan explains, The large Fortune 500/Fortune 1000 companies are implementing procurement packages to get better control of their indirect purchasing across the business and industry units. Runyan believes this is because of the lack of suitable tools. The procurement process for these types of goods is an area that has escaped cost-cutting measures up until this point, by and large, because there weren't really information systems available to bring efficiency and better processes to the whole procurement procedure.
Aberdeen Group's e-business research director William Brandel agrees with this statement. He says that companies are purchasing mostly indirect goods, as those have been the easiest to set up for procurement. SciQuest [one of the major exchanges, along with CheMatch.com] has done a decent job of addressing the equipment and instruments part of the equation.
Runyan also believes the contraction of the tech market is actually a good thing, in that a roster with fewer players means it's easier to spot the pretenders. I think, if anything, the downturn has added more clarity to the situation, which I think is going to help accelerate the investment in both the buy side of B2B, as well as the sell side of B2B technology.
According to Runyan, the future for chemical exchanges won't be centered on exchanges that exist off transaction fees. Not that those exchanges are doomed, however. As he explains, It's incorrect to say the transaction-centric model is not sustainable and is going to fade away. It's not. But in terms of where this is going, a lot of the collaborative-centric models are gaining momentum.
Runyan goes on to say that by collaborative-centric, he means exchanges that allow companies to work with their existing business partners or customers in collaborative ways, all with the aim of accelerating the decision-making process. The role that a technology provider is going to play isn't simply going to be enable the cash register to ring.' The role is going to be, enable the exchange of documents, and workflow and logic, in order to make these extended enterprise processes happen.
Of all the sections of the chemicals and plastics industry adapting to e-procurement systems, the fastest are the ones that realize they have to do something join a Net market or start their own to realize the cost savings that are required to offset the price erosion in this industry. According to Brandel, there is a high-dollar method behind this madness. The online marketplaces are adopting the 80/20 rule: By signing up the top 20 percent of their suppliers, they will lay claim to 80 percent of the buying activity. As a result, they are all clamoring to get the big players on board (Dow, Dupont, etc.), as these companies represent billions of dollars in purchases through their respective supply chains.