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Defining The Business Value Of Technology
September 27, 1999
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IT Opens Doors For Chemical Makers
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Most chemical manufacturers are still using electronic data interchange technology for billing customers and for delivering product information to them. But companies are exploring ways to leverage the Internet as a low-cost vehicle for these services. That's critical, according to several industry IS executives, because as chemical products become commodities, information and services to help customers use the products are becoming as valuable as the products themselves.
Chemical manufacturers are also just becoming aware of the growth of E-commerce and its potential implications. "I'll bet that at this time last year, no one [in the chemical industry] had heard of E-commerce," says DuPont's Ridout. "E-commerce is starting to emerge in the chemical industry, and it's bringing new opportunities and new threats." DuPont has several E-commerce initiatives under way, Ridout says, declining to give details.
The Web might provide chemical makers with new, more economical ways of selling products, especially to smaller customers. Like many manufacturers, Eastman Chemical created a Web site earlier this year to book orders. But while that will result in lower costs for both buyers and sellers, there could be a downside, says Lynn Sorrell, manager of IT planning, quality, and training. "We at Eastman like to build customer loyalty. And we wonder whether that loyalty will go by the wayside if customers can buy commodity products off any company's Web sites." The trick will be developing the right channel for each customer, he says.
"E-commerce is clearly coming into its own in the chemical industry," says Stitely at Rohm & Haas. "I think we're all still in the learning curve as far as business-to-business is concerned." He sees the Internet more as a vehicle for chemical makers to provide customers with technical information about chemical products, rather than a way to conduct sales transactions.
But AMR Research senior analyst Pierre Mitchell thinks the impact could be greater. While most commodity chemicals are sold through long-term contracts, he says chemical products will increasingly be sold on a spot-market basis as E-commerce catches on. Online distributors will be the middlemen, he says.
Online chemical distributors such as Chemdex, E-Chemical, and Chemical Connect are already selling products via the Web and may present a competitive threat to established companies, IS executives say. Chemdex, for example, sells life-science chemicals for the pharmaceutical industry. "We're not exactly sure where all this E-commerce is going in our industry," Sorrell acknowledges. "This E-business stuff could turn specialty chemicals into commodities."
Although chemical companies have been somewhat slow to get into E-business, they are quick to use data warehouse technology for managing costs. Praxair, for example, is assembling what Hill calls a "spend" data warehouse, which will be used to track all costs associated with the procurement of goods and services from the company's vendors. The system will let Praxair spot trends in the prices it pays for raw materials and take action when necessary. "Managing costs is critical," Hill says. "For every dollar we reduce in costs, that's a dollar increase in net income. It goes right to the bottom line."
By year's end, Rohm & Haas expects to give its customers and suppliers access to its data warehouse to let them check production and delivery schedules, order status, and check inventories. And by adding financial data to the system, Rohm & Haas managers will be able to calculate the profitability of individual customers.
Chemical companies are also exploring ways to leverage newly emerging knowledge-management technology. Eastman is working with a handful of customers to use knowledge management to manage supply chains. Even more ambitious is an effort by the Chemical Information Technology Association to study the use of knowledge management to capture chemical industry expertise as baby boomer engineers and scientists approach retirement. "We're a pretty knowledge-intensive industry," says Eastman's Sorrell.
The chemical industry also appears to have the year 2000 problem well in hand. Most companies report that they've finished inspecting and fixing all IT systems and components-a massive task given the number of industrial controllers and other embedded technology, in addition to administrative and operational computer systems, that had to be checked. DuPont says its Y2K projects covered some 150,000 technology items and cost between $350 million and $400 million.
The focus now is on making contingency plans such as locating alternative sources for critical supplies or maintaining telecommunications with operations in Third World countries should system failures occur outside chemical companies' control. "We think we're in pretty good shape," says Stitely. "Our concerns are more external than internal. If a communications line isn't working in Indonesia, how do we handle that?"
At Praxair, Y2K work has caused a backlog of development projects. But Hill says it has also helped accelerate the adoption of IT standards throughout the company. His department now has a more complete inventory of all IT assets. He also has more experience with global project management. Says Hill, "Even though Y2K was costly, it had a silver lining for us."
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