Evolution of B2B Species

Second-Generation marketplaces tackle supply chain automation

September 30, 2000 -- InternetWeek - CMP via COMTEX -- The key to survival, Darwin said, is specialization. This week, a new chemical-industry exchange will put that theory into practice as it launches a package of supply chain integration services-without auctions, sourcing or catalogs.

Envera, a B2B exchange funded by eight midsize chemical companies, is designed to create supply chain efficiencies among trading partners that already have contractual relationships. It will enable participants to gain access to many partners, including other exchanges, through a single Web site.

But unlike most of the estimated 700 B2B e-marketplaces currently in operation, Envera will offer no spot buying. "This is an exchange for the other 80 to 90 percent of the business in the chemicals industry, which is contractual in nature," said Robert Mooney, CEO of Envera.

Envera is part of a new wave of chemical-industry exchanges that is separating itself from the first wave by focusing on supply chain automation and partner-to-partner application integration, not commodity procurement.

"There are more than 30 different exchanges already in the chemicals and plastics industries, but they account for only a small percentage of the transactions because a lot of the trading is done between companies that have long-term relationships, where it's not just a question of price," said analyst Leif Eriksen at AMR Research. These new exchanges are automating long-standing relationships.

Other chemicals exchanges are preparing to begin operations that follow a similar model. The founders of B2B plastics exchange Omnexus.com include BASF AG, Bayer AG, Dow Chemical Co. and DuPont. Next month Omnexus.com will begin beta testing contract-oriented procurement services, including partner-to-partner integration, according to a spokeswoman. And Elemica, a contract-oriented chemicals exchange founded by those same four companies and four others, is planning to begin testing services in December, according to member officials.

And the growth of supply chain-focused exchanges won't be limited to the chemicals industry, experts said. "There are a lot of industries that do more business by long-term contract than by spot purchasing, and we will probably see supply chain-focused exchanges in all of them," Eriksen said. Exchanges in services industries such as food and hotels have already begun moving in this direction.

Mooney agreed. "In the near future, we will focus on the chemicals and petroleum industries, but we have looked at taking this concept horizontal as well," he said. "It's applicable to other industries."

Unlike most of the current exchanges-which provide a forum for buyers and sellers to find each other and complete online transactions-Envera supports trading partners that have established relationships. Since the partners already are working under contract, they have no need for functions such as auctions or sourcing.

What Envera does provide is a single forum for all trading partners in a supply chain to interconnect via the Web. Instead of building hundreds of one-to-one connections bilaterally, chemical companies can establish a single link to Envera, which then provides B2B integration and translation to tie partners' disparate e-business applications together. Fees are charged on a subscription basis, rather than per transaction.

"Where e-marketplaces link any business to [another one] and generate transactions, our goal is to provide integration between one company and all of its trading partners," Mooney said. "We call it B4B-business for business, rather than B2B."

While e-marketplaces typically are built atop procurement applications such as those from Ariba or Commerce One, Envera is built on B2B integration software from webMethods and XMLSolutions, as well as database and transaction software from Oracle and IBM. The Envera platform will help translate information between disparate trading partners and allow partners to execute machine-to-machine transactions without human intervention.

On the participant's end, most large companies will likely use their own B2B integration tools-such as those from webMethods or Extricity Inc.-to link with Envera, but the exchange also will offer a browser interface for smaller companies that do regular contract work with large chemical firms but cannot afford B2B integration tools, Mooney said.

Once on the exchange, which opens for business this week, trading partners will be able to exchange documents, such as purchase orders and inventory information, and complete transactions through third-party logistics and financial services, including logistics supplier BDP International Inc., First Union Bank and trucking company Miller Transporters Inc.

"In the future, we will also offer interfaces to MRO and indirect procurement systems and to commodity exchanges," Mooney said.

Although Envera will be the first consortium-funded chemicals exchange to go online with a supply chain orientation, it probably will not be the largest. Elemica, which has the backing of such powerhouses as Dow and DuPont, will offer some of the same B2B integration capabilities when it opens for business at the end of this year.

"Envera is not giving us anything that we can't get from Elemica, so we don't see it in our future," said Andy DuPont, director of electronic channels at Dow.

Supply chain-oriented exchanges likely will carve out their own markets according to the partnerships maintained by their founding members, said AMR Research's Eriksen. "Elemica will be the exchange for the big gorillas in the chemicals industry, and Envera will be the exchange for the midtier," he said.

The Bigger Picture
The emergence of contract-oriented exchanges means that most chemical companies will soon be using different online communities for different types of e-business.

Three distinct types of exchanges are emerging in the chemicals industry, said Kevin Wenta, vice president of business development at CheMatch.com, which matches buyers and sellers of commodity chemicals in a real-time exchange. "There's the traditional exchange, like CheMatch.com, which is geared toward commodity materials. There's the supply chain-focused exchange, like Envera or Elemica. And there's the e-marketplace, like Omnexus, which is aggregating buying power of companies in a fragmented industry," Wenta said.

Eriksen agreed that each of these three categories will be used by chemical companies.

But as exchanges become more specialized, there is a greater need for interconnection and integration between them, experts said.

"At CheMatch.com, we're already doing that," Wenta said. "We're working with fobChemicals.com on the e-marketplace side. We plan to tie into Envera, so that CheMatch.com can be accessed through their exchange or so that the two exchanges can be viewed on the screen at the same time."

CheMatch also will offer links for chemical investors through a new link with the Chicago Mercantile Exchange.

But most companies will have to narrow the field so that they have one or two preferred exchanges in each category, DuPont said. "You can't do everything with one exchange, but if we had to enable 40 different channels, we'd never get any work done," he said, adding that his company is using four exchanges today: ChemConnect for commodity procurement, Elemica and Omnexus for interaction with contractors, and Trade-Ranger for MRO and indirect materials.

And chemical companies probably won't be the only ones making such decisions. Other industries, such as petroleum, are already seeing a bifurcation between commodities exchanges-such as AltraNet -and e-marketplaces such as PetroCosm.

Source: CMP Media Inc

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