Chemicals: The Formula For Cost Management

For the chemical industry, it's been another year of slow sales, rising raw-material costs, and narrowing profit margins. That translates into lower business-technology budgets, which have been dropping as much as 10% to 15% a year in an industry that already spends a relatively paltry 2% of revenue on IT, according to the InformationWeek 500 report.

Operational efficiency and innovation in the areas of distribution and customer service are the IT priorities. "Cost management is the name of the game. It's as tough as I've ever seen it," says Ken Smith, CIO at PolyOne Corp., a manufacturer of chemical polymers and elastomers. As many chemical products become low-margin commodities, more chemical makers are trying to gain a competitive edge by developing value-added services that go with their products.

Eastman Chemical Co. has reduced IT expenses by 25% over the last several years, VP and CIO Jerry Hale says. It has done so by standardizing IT infrastructure throughout the company, such as implementing a single, global instance of SAP enterprise-resource-planning apps and installing standard manufacturing-execution IT systems in its 40 plants. But Eastman has also built E-commerce systems, a data warehouse, and a corporate portal on top of the simplified IT foundation.

PolyOne is likewise standardizing on specific applications, such as SAP and purchasing apps from Ariba Inc., to improve IT return on investment. The company has reduced the number of deployed systems from more than 30 to fewer than 10 and lowered annual IT operating costs by $5 million. Like other chemical companies, PolyOne has also been outsourcing more of its IT work, including data-center and help-desk operations. PolyOne's overhauled IT system has helped it cut raw-material costs by $45 million and save $30 million in operating costs through business-process redesign and $40 million through better use of plant capacity.

Even the roles of IT managers in the chemical industry are changing. More of them are brought into the business decision-making process at tactical levels, such as finding ways to cut raw-material costs. Some wear two hats: Smith is also head of PolyOne's human resources.

INDUSTRY LEADERS Rank Company Revenue in millions Income (loss)
in millions IT
employees 9 Lubrizol Corp. $1,984 $119 196 71 PolyOne Corp. $2,498 ($59) 110 113 Air Products & Chemicals Inc. $5,401 $525 772 133 PPG Industries Inc. $8,067 ($69) 680 144 Dow Chemical Co. $27,609 ($338) -- 197 Eastman Chemical Co. $5,320 $61 500 199 Praxair Inc. $5,128 $409 450 241 Sigma-Aldrich Corp. $1,207 $131 200 342 Bayer Corp. $9,425 -- 856 367 DuPont Co. $24,006 ($1,103) 1,675 379 Engelhard Corp. $3,754 $171 -- 401 Noveon Inc. $1,069 $35 62 423 Ashland Inc. $7,543 $117 425 438 Millennium Chemicals Inc. $1,554 ($284) 109 455 Cabot Corp. $1,557 $106 -- 478 ICC Industries -- -- 20 496 Valspar Corp. $2,127 $120 -- Financial data is from public sources and company supplied.
Revenue is for latest fiscal year.
Employee data is from InformationWeek 500 qualifying survey.

SNAPSHOT INSIDE COMPANIES Average portion of revenue spent on IT 2% Average percentage of industry applications and business processes that have Web-based front ends 22% Companies with real-time business processes in place 73% HOW COMPANIES DIVIDE THEIR IT BUDGETS Hardware purchases 15% Services or outsourcing 21% Research and development 4% Salaries and benefits 26% Applications 20% Everything else 14% INDUSTRY FINANCIALS Average year-over-year revenue change -5% Average year-over-year net-income change 20% DATA: INFORMATIONWEEK RESEARCH
See year-over-year shifts in business-technology practices for this industry. Compare and contrast this year's data with last year's.

Return to the 2003 InformationWeek 500 homepage