Chemical sector leads e-business

Pipelines, production plants, petrochemicals. Eastman Chemical boasts all the brick-and-mortar assets of an old economy dinosaur. Yet its website, Eastman.com, racks up an average of 3 million hits per month, representing $US200 million in orders last year.

Pipelines, production plants, petrochemicals. Eastman Chemical boasts all the brick-and-mortar assets of an old economy dinosaur. Yet its website, Eastman.com, racks up an average of 3 million hits per month, representing $US200 million in orders last year.

Along with several other would-be rust buckets in the digital economy, Eastman is turning out to be surprisingly swift in transforming into an electronic business.

Analysts rank the $US435 billion US chemical sector as one of the most successful online industries, right up there with high-tech electronics and financial services.

"One reason the chemical industry is somewhat in the lead is that it’s a highly interrelated, complex, fairly fragmented industry, all of which makes it quite ripe for some form of e-commerce," says Leif Eriksen, an analyst at Boston-based AMR Research.

In AMR’s April ranking of the top 20 internet exchanges, six served chemical companies. That’s partly because chemical companies regularly buy their raw materials from other chemical companies, so there’s extra incentive within the industry to cut costs by doing business electronically.

"Most chemical companies are buyers and suppliers to each other. Reliance like this spawns a collaborative mentality," says Glenn MacKenzie, director of chemical industry solutions at WebMethods, a San Francisco-based maker of software to link back-end systems and front-end websites.

IT Tradition

Compared with other manufacturing industries, the chemical industry also has a tradition of using IT to cut costs and drive innovation, like automating at the manufacturing plant level, Eriksen says.

In addition to its website, Eastman has two new internet ventures — Paintandcoatings.com, an online exchange already up and running for the buying and selling of specialty additives, and ShipChem.com, a web-based logistics services company for the chemical industry that’s set to go live this month. Three more electronic-business spin-offs are due to launch by year’s end.

"Our strategy is to get new revenues through new value-added services. Information technology is the value delivery system," says Fred Buehler, director of electronic business at the $US4.6 billion, Kingsport, Tennessee-based specialty chemicals manufacturer.

FMC Corporation, a $US4.4 billion Philadelphia-based chemical company, is enabling one of its largest customers, PQ Corporation, to place "machine-to-machine" orders for soda ash (an ingredient that goes into other chemicals that PQ makes) and other repeat buys directly into its SAP AG R/3 enterprise system via the internet.

By the end of December, FMC will integrate 15 more customers into the automated system, which took less than four months to develop and test.

The big advantage is that employees at both the buyer and seller companies now need to pay attention only to those special orders or ones with which there are problems, CIO Edward Flynn told attendees at a chemical industry electronic-business conference here this week. Previously, employees manually handled all orders sent via fax or placed over the phone.

At Wilmington, Delaware-based Du Pont, electronic business has involved adopting not one but several business models, says CIO Robert Ridout.

For example, the company sells its commodity products on various digital exchanges but sells its wide array of branded materials, such as Tyvek house insulation wrap and Lycra fabric, via 40 separate branded websites.

To jump the online business initiatives, Du Pont seeded each of its business units with an electronic-business leader and an electronic-technology leader and very small but focused electronic-business teams.

The company also has put on more than 50 workshops for business-unit executives who are encouraged to generate new ideas for selling their products over the Internet.

"It’s all about idea generation," says Ridout. "We showed them sites like [online auctioneer] eBay and [online grocery service] Streamline.com and would ask them to apply the ideas to their own businesses."

On the whole, when it comes to electronic-business initiatives, most chemical companies are "still spending far, far more than they’re benefiting," says Robert Koort, a chemical industry analyst at Deutsche Bank in New York. But that will change in the coming year, he predicts.

"Those who are going ahead first [with electronic-business projects] are going to be better entrenched with their customer base to the exclusion of those that don’t act now. To the extent that IT enables them to make connections, we’ll see a differentiation between best-of-class and worst-of-class," Koort says.

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