The changing face of e-commerce

E-commerce was supposed to change the way that everyone did business. User-friendly and all-pervasive, computer-based trading would see companies interacting with their clients in new ways, with repercussions across the entire process sector.

Of course, it hasn't happened quite like that. Most companies are still struggling to understand the implications of the Internet, intranets and extranets on their business, while others, although taking an active part in the development of e-commerce systems, have not yet seen them make a significant impact. However, as a variety of chemical industry executives told the Chemical Industries Association's recent business outlook conference in London, the e-commerce world is now beginning to show different faces to different parts of the industry — and the effects, although maybe not living up to the hype, are still likely to be considerable.

There's a great deal of activity in e-business, as can be seen from the lists of portals which have been set up (and, in some cases, collapsed) over the past year. However, according to Des McNamara of AT Kearney's chemicals and energy practice, there's very little sign of them actually creating any value.

New purchasing portals, formed as consortia by industry players, are manoeuvring for position, but have not yet started delivering, McNamara says. The sites set up as business exchanges, such as ChemConnect and CheMatch, are already consolidating and are not trading large volumes; and what they are trading is usually offspec production or surplus volume. Moreover, although they have many alliance partners, most do little business within the exchange itself.

Several companies are now taking the option of developing a universal IT framework which allows them to link directly into customers' and suppliers' systems, and vice-versa. This is promising, but very expensive, and has not yet been rolled out extensively.

Myth conceptions

It's surprising how fast myths have grown up around e-business, says McNamara. For example, it isn't true that being fast into the area is essential to ensure success — on the contrary, he said, it may be a disadvantage.

The trend for companies moving into e-business is certainly continuing, with announcements such as AspenTech's acquisition of e-Chemicals, one of the first developers of on-line sales and procurement software. Aspen intends to embed the e-Chemicals technology into its AspenMarketplace system, an off-the-shelf product to enable companies to set up private trading networks. 'Now that major chemical manufacturers are recognising the limitations of public net marketplaces, we believe that many will adopt e-business strategies based on the private marketplace concept,' explains AspenTech chief executive Larry Evans.

The concept is already proving attractive to the chemical majors, with BP among AspenTech's clients. It is using AspenMarketplace at a butanediol plant in Ohio, to allow its customers to place and track orders.

It's not only large companies that can have e-business strategies, comments Peter Fields, managing director of Chance & Hunt. C&H specialises in sales, marketing and distribution of chemicals, and was part of ICI until Fields led a management buy-out in 1999.

Even while part of ICI, C&H was pioneering e-business techniques, Fields says. In 1996, it was the first UK distributor to introduce an active web site, and was the first European chemicals supplier to offer web-based secure credit card in late 1999.

Unlike many firms, C&H specified and designed its own e-business infrastructure. 'Before we started, we looked at the characteristics of the chemicals market,' says Fields. 'People had said that e-commerce would mean that chemicals buyers would automatically use the cheapest supplier, but as a mature industry it prefers a steady source of consistent feedstock. In part, this is because chemicals are rarely 100 per cent pure, and companies get used to the quality they get from their favoured sources. New sources often need trialling and tweaks to processes, and companies are naturally reluctant to do that.'

Moreover, maintaining a long-term relationship with a trusted supplier fits in more with the movement towards 'just-in-time' integrated supply chain business models. 'There's reduced scope for delays in delivery,' Fields comments. And low price doesn't translate to low cost — labelling, packaging and transport regulations can add to the bill.

'Because of these factors, we decided that a chemicals hub or trading exchange is unlikely to meet the full range of customers' needs,' Fields says. 'We focused on developing integrated partnerships to reduce the total cost of purchasing, and developed a market-focused portal which would differentiate specialities from commodities.'

Even once the strategies were set, C&H's e-commerce structure had to fit stringent criteria. The company realised that the system would have to fit in with its customers' ERP platforms, so that they could schedule deliveries and control inventories at their end, and also ensure that C&H could meet their requirements. Therefore, the system had to be able to integrate with a wide range of ERP (enterprise resource planning) platforms, and fit with both large and small budgets.

The system works by tailoring access to the C&H website according to customers' requirements. They have access to the site via a password, and their order screens show only the chemicals they order, rather than the full range of hundreds of products handled by C&H, at pre-arranged prices. They can also set the site to reorder automatically when inventory levels reach a preset target limit.The issue of differentiation between commodities and specialities is an important one, and was at the forefront of the minds developing Laporte's e-commerce system.

'At Laporte, we defined e-commerce as an electronic link to our customers to enable them to link into our systems on a real-time basis, so they could become involved with inventory management, production scheduling and to place and track orders,' says Clive Rankin, the company's business development director. There are three ways of achieving this, he says: a company website, 'probably the easiest but at the same time least effective way, unless you are selling 'off the shelf' products'; a third-party portal, which risks lack of control over the buying and selling processes and dilution of brand name; and a one-to-one extranet route linking the customers directly to the selling company.The third option is becoming increasingly popular, and was the one preferred by Laporte, Rankin explains.

Spare parts at the ready

Sales and acquisitions are not the only uses for e-commerce. The UK company Sparesfinder, as the name implies, allows its subscribers to source and buy spare parts for machinery and equipment on-line. Its users, which include BP, Shell, Texaco, AMEC Process and Energy and Mobil, upload their spares inventories into an on-line database, which they can search when they need to source spares. The system provides an automatic email facility so that buyers can contact sellers to negotiate prices and delivery.

The system could cut costs dramatically, especially for large companies with many sites. It would cut down on the number of spares that need to be kept in stock, and storage cost can be up to a quarter of the item's value. It also allows companies to realise dormant value — what might be an old, outdated item to one company could be a rare and vital item to another.

While e-commerce is clearly still in its infancy, it is mutating fast to meet the varying demands of users. Whether it will truly change business beyond recognition is moot, but it's already opening up new possiblities, and changing attitudes as it goes.