Varying The Tech Formula

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Varying The Tech Formula
Business is good, so chemcos are investing heavily in technology

By Frank Hayes
Issue date: Sept. 18, 1995

imes are good in the chemicals industry, and chemicals companies are making the most of their good fortune. After several years of downsizing, companies in the sector are making ma jor investments in information systems--not just in new technology, but also in dramatically different ways of using it.

Driving the new formula to a great extent are the joint ventures that are fueling much of the prosperity in the chemicals business. To penetrate new markets in developing countries, especially in Asia, large U.S. chemical makers are partnering with local companies to be able to take advantage of opportunities more quickly--in weeks or months. To adequately support these ventures, chemical companies are opting for pre-architected business practices, and for prefab information systems to go along with them.

"Because of global relationships, companies are trying to come up with a sort of computing lowest common denominator that they're identifying in technology terms," says Tom Nolle, president of CIMI Corp., a technology consulting firm in Voorhees, N.J.

The joint ventures have other requirements besides fast setup time. The local startups are typically supplied by a chemical comp any's other divisions. That takes tighter integration than approaches like electronic data interchange (EDI), a formal system of computerized purchase orders and other business documents that has previously been used by Dow Chemical Co. and other chemicals makers. Instead, Dow and Monsanto Co. are driving deeper into the technology, specifying networking, E-mail, and transaction-processing standards for their divisions and joint ventures.

"There's a move toward a more consistent architecture while still moving toward client-server and distributed computing," says James Nisbet, chief information officer and corporate VP for IT at Monsanto in St. Louis. "Companies have ended up with four or five electronic-mail systems and wide area networks that won't work well together. They may be fine for the individual business, but they won't allow you to move information around the company."

Monsanto is launching major information technology projects in several areas, all aimed at putting its information systems at the disposal of the company's business reengineering plans. Monsanto's IS budget will approach $250 million this year, up from $220 million in 1994.

But the standard architecture reaches beyond the technical to include business practices in areas such as workflow.

"It's not only a technology issue, it's also a people issue," says David Crow, worldwide managing partner of Andersen Consulting's chemicals industry practice in Dallas. "It's organization, positions, business practices, rewards, and measurement, as well as technology architecture and applications standards."

'Buy Instead Of Build'
That standardization also is driving a "buy instead of build" approach that began several years ago, when chemical companies began adopting SAP AG's financial and operations software. SAP is now the de facto standard. "The vast majority of the chemical companies have embraced SAP," says Crow. Though Oracle and other competitors are introducing their own process software for manufacturing plant s, "there's frankly a limited number of options available," he says.

For other functions, chemical companies are casting a wide net and experimenting. "That's one of the challenges," says Dave Kepler, director of global IS at Dow. "Other than EDI, there are not really a lot of industry-specific standards."

Though Dow in Midland, Mich., is still pushing down its IS budget--to $300 million in 1995--the company also is investing in a new set of standards that will allow it to knit its business units together more tightly.

"To be able to share information at a transaction level is extremely important," says Kepler. Such tight integration makes it much easier to ship products among Dow divisions and joint ventures, and also provides more consistent information for decision support, he says, "whether it's a procurement system or an integrated supply chain, order entry, maintenance, or engineering."

Taking a packaged-software approach for such large systems wasn't possible until a few years ago, whe n software vendors began to recognize the manufacturing market. But the product trend has dovetailed nicely with the need to get new corporate information systems in place much faster than before.

"They can't afford to do a long-term development," says CIMI's Nolle. "They're taking as much third-party applications software as they can get and doing minimal customization, or supplementing them with custom applications on a much smaller scale."

Whether the shift to buying represents a change in thinking or just a tactical approach is open to debate. "The general view now is: make the software industry aware of what your needs are, and assume that your competitive edge is not going to be in the hardware and software but in how you implement the system and manage it," says Monsanto's Nisbet.

But Nolle disagrees. "I haven't seen any reduction in commitment to in-house applications," he says. "Organizations haven't really changed their philosophy."

Nor has Nolle seen any waning in chemicals makers' commitment to large proprietary computers, including IBM MVS mainframes and Digital Equipment VAX minicomputers. Despite the widespread use of Unix workstations and servers in the industry, big iron is still central to the infrastructure--though some companies such as Dow have slashed their mainframe fleet by as much as 80%.

But many new products and technologies are being considered for their potential to help in global standardization or communications. Microsoft's Windows 95 and NT are under consideration almost everywhere because they could standardize complete information functions. For example, Dow will be moving rapidly to Windows 95 for virtually all employees, including both PC and Macintosh users, says Kepler.

Monsanto's Nisbet sees Windows 95 more as a stepping stone to NT, a full-scale 32-bit operating system that Microsoft is pushing as an applications server to compete with Unix. Nisbet says he expects a decision on a potential move to NT by next spring.

Networking technologies high on the list for careful consideration include asynchronous transfer mode, frame relay, and Fiber Distributed Data Interface (FDDI). The issues are capacity and compatibility, says Nisbet; whatever is chosen will probably become a worldwide standard for the company, as well as for its joint ventures.

New networks also will have to handle the increased volume generated by concurrent engineering, says Nolle. In order to shorten time to market for new products, chemical vendors are designing plants for manufacturing new chemicals while the products are still under development.

That can lead to a raft of complications, says Nolle. "The whole sequential workflow model is being replaced by a parallel model, and that's intensifying the computational relationships between the workers," Nolle says. In fact, "any time anybody makes a substantive change anywhere, they've got to notify everybody else that's in the process."

But the industry is already on notice for one substantive change: The good times won't last forever. "This year, the profitability of the chemical industry is outstanding, but they all know that, at some point, the cycle's going to turn down again," says Andersen's Crow. "They know if all you've done is reduce costs--which is very important--you've just lowered the cost structure equally for you and all your competitors." As a result, chemical makers are making investments both to upgrade and to follow up on their first round of reengineering. "We're trying to be continually more productive but also to come up with some areas of competitive advantage," says Dow's Kepler.

Major Commitments
Meanwhile, Monsanto is investing in key initiatives in finance, environmental safety and health, and data architecture. The company has committed to SAP as the core of its financial system, and is searching for packaged software to help it track health and environmental requirements.

Not surprisingly, the largest IT project in the industry is at DuPont, whose $800 million IS budget dwarfs the budgets of its competition. The retraining project's goal is to standardize the way DuPont's IS people work.

DuPont recently announced a major initiative to retool its IS operations. The company has hired Andersen Consulting to train 1,400 DuPont IS staffers--nearly a third of the total--in Andersen's Method/1 and Design/1 CASE (computer-aided software engineering) systems. Although DuPont won't say how much the retraining will cost, it expects to see a 100% net annual return on the retooling investment, according to Cinda Hallman, VP of IS at DuPont.

Hallman says partnering with an outside organization should reduce political and cultural resistance to the new approaches. Other chemical companies hope their similar formulas will also produce results.

(To view the IW 500 Chemicals Chart in PDF format click here)

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