E-commerce Early Bird

March 10, 2005
One of the first industries to adopt electronic commerce tools, chemicals continue to refine their uses.

At the height of the dot.com bubble, it seemed every type of manufactured goods eventually would be sold on an Internet exchange -- with public, real-time competition driving down prices and con necting suppliers on one side of the world with heretofore-unknown buyers on the other.

It was a vision that didn't come true, entirely. Instead of using public exchanges with free-for-all pricing, today's manufacturers are using a variety of e-commerce tools, mixing the old and the new, to reduce costs among value-chain partners. Nowhere is this more true than the chemical industry, an early adopter of e-commerce tools and one that continues to refine their uses.

According to Colin Masson, research director for chemical and process manufacturing at AMR Research, Boston, chemicals were the first industry to prove the value of enterprise resource planning (ERP) software and an early user of Electronic Data Interchange (EDI). Both technologies still are widely used by the industry.

"We saw EDI really becoming significant because a lot of chemical transactions are sold in contracts, and not on the spot market," Masson says. "There's not a lot of value in reviewing an order for accuracy when that's something that can be automated."

Ken Hutcheson, Chem eStandards initiative director for the the Chemical Industry Data Exchange (CIDX) and a former DuPont employee, says chemicals moved to EDI commerce early out of necessity -- many chemicals are commodities with low margins, so cutting the cost of transactions was not only attractive, but also essential. Additionally, many chemical companies sell their goods to other chemical companies that make finished chemicals. This environment lends itself to easier adoption.

This year, CIDX celebrates its 20-year anniversary. The industry-standards group, which is on its fourth version of Chem eStandards, the international standards for chemical electronic commerce, was integral in the adoption of EDI and subsequent e-commerce technologies in the chemicals industry. "It takes an enormous amount of cooperation," Hutcheson says. "I've always been pleased by the amount of cooperation."

Hutcheson says within chemicals, an auto industry mandate got the ball rolling on EDI, the beginning of electronic commerce. "They made a decision that they would get into EDI in a big way," says Hutcheson, who was one of the first to work on EDI at DuPont. "That caused the CIO of DuPont to start an initiative to find out what this was and what to do about it."

Today, most of the selling at chemical companies is still being done with EDI, albeit a large chunk of that is Internet-based EDI as opposed to the original model, which used Value-Added Networks to traffic transactions and was more expensive. "They [chemical companies] made significant investments in EDI," Masson says. "That's the main hold-out for companies that have resisted joining Elemica."

Elemica is an industry-funded exchange that was founded in the early 2000s using Chem eStandards. According to AMR Research, exchanges such as Elemica account for about 10% of sales within chemicals. Additionally, about 35% of sales are through private portals or electronic formats other than EDI, portals or exchanges.

One of the newest technologies, XML (Extensible Mark-up Language), is not being widely adopted by chemicals, mainly because of EDI's stronghold, according to Hutcheson. He says even though it's viewed as better technology by some, it will take a while for it to infiltrate the industry.

"The only way XML -- or we sometimes say daughter of XML -- will supplant EDI is for companies to say, 'Well, it's costing us too much to use EDI.'"

Another challenge to using new e-commerce tools is integration among chemical value-chain partners. Hutcheson says all chemical companies are using EDI, but small and medium ones are less likely than large to have investments in XML and other newer technologies. A widely used solution for this dilemma doesn't exist, but, according to Masson, the sector's e-commerce tools eventually will be morphing again for the same reason they were adopted in the first place -- pressure to take out more costs.

"Downstream customers want more flexibility," he says, "and to take inventory out of the supply chain."

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