[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.
Brandel says the biggest impact has been felt in terms of time efficiency and quality. The amount of time invested in locating suppliers, products and providing communications for specifications is being reduced by those companies that are dedicating their efforts to these B2B markets. Another hidden benefit is quality. Market transparency makes it possible for companies to buy higher-quality goods and services more efficiently, which then offsets the price margin for higher-quality goods.
What Runyan believes will hold for the chemicals and plastics industry could well be extended to almost any industry. Technologies are slicker and the pace of change is faster, but the fundamental principles of business remain. Runyan says the successful strategies will employ new developments while respecting established relationships: If you try to rip and replace relationships or various other things that have been established for years, that won't succeed. According to him, what is needed is not a reinvention of business, but a better way of doing business, including collaborating and sharing information with customers and supply chain partners. As he puts it, the key is getting information into and out of the enterprise.
As could be expected, some of the smaller companies, bound by inherently smaller budgets, are lagging behind in e-commerce adaptation. Rick Opatick is director of Marketing and Membership for the Synthetic Organic Chemical Manufacturers Association (SOCMA), which represents the interests of more than 300 small- to medium-sized member companies. His organization is presently setting up an e-commerce committee. He says, Over the past two years, a lot of the large chemical companies have organized these various chemical trading consortia, and obviously they have the resources of being able to provide the technology and the people and do the e-commerce, but they were left wondering how they fit into e-commerce, and if it was too late to get involved.
Opatick explains that the SOCMA committee will attempt to clarify the nuts and bolts of e-commerce for its members, including where member companies fit and explaining that it isn't too late to get involved. The committee will define terms, which is a huge concern when dealing with the highly specific content that must be exchanged between chemical manufacturers. Opatick says companies have to deal with the standardization of such things as whether to use lbs or pounds when specifying weight, for example. Things of that nature seem pretty subtle and small but in the standardization process they become a bigger issue.
Opatick goes on to say that SOCMA's goals are getting an understanding of the process, the procedures and the technical requirements ... That's what SOCMA's trying to do right now.