Collaborative Commerce: Is the Chemical Industry Wired for Change?(Chemical companies' supply chain management)
Cynthia Challener
Sep. 3, 2001
Chemical Market Reporter
Page 3
Copyright 2001 Gale Group Inc. All rights reserved. COPYRIGHT 2001 Schnell
Publishing Company, Inc.
More intimate customer/supplier relations with shared demand forecasts will make the supply chain more efficient, so why are chemical companies holding back? Collaborative commerce is emerging as an attractive and potentially significant new means of decreasing costs and increasing revenues, but before companies can participate they need to evaluate the quality of their IT infrastructure and data, address the cultural and political aspects of sharing information with external partners, and adapt non-traditional views of doing business with customers and suppliers.
The term "collaborative commerce" can mean a lot of different things to different people.
Supply chain collaboration, where information is shared about production expectations and demand requirements, is an aspect of collaborative commerce, notes Leif Eriksen, research director, process industries for AMR Research. So are new product developments, where supplier and customer work together to develop new products, and facility design, where engineers collaborate on a real-time basis. Bruce Gordon, associate partner at Accenture, describes collaborative commerce as "working outside the fence line" in a way that is not just about data or functional optimization but also about improved decision-making. "Collaborative commerce is stretching the thinking, with the emphasis on adding revenue without adding capital (fixed and working)," says Mr.
Gordon. Companies will be running assets more closely aligned with demand and eventually will need fewer assets and still be able to lower working capital, which is another opportunity for value creation.
Collaboration in itself is not new, of course. Assisted by the Internet, though, collaboration takes on new meaning, as it now becomes possible to share data-formulations, forecasts, customer inquiries, shipments, production information, spot opportunities, promotional information, changes, and approvals--accurately, instantaneously and globally, observes Charles C. Poirier of Computer Sciences
Corporation (CSC). Collaborative commerce is therefore an evolution of automated exchanges where participants do more than trade goods--they share forecast and planning data, develop cooperative marketing and strategies, jointly manage issues within the supply chain and share in the benefits. Advantages come from sharing best practices, applying new ideas and concepts before others discover their value, speeding the time from concept to commercial acceptance, and increasing product differentiation through information sharing and service. Benefits, says Mr. Poirier, can come in five key areas:

cost reduction, cycle time reduction, quality and accuracy improvement, sharpened visibility of data and increased asset productivity.
But cultural and political issues must be addressed before these benefits are realized, says
AMR's Mr. Eriksen. Often customers are not keen on sharing their demand forecasts, especially if they use multiple suppliers. Obtaining good information and verifying its quality is also a challenge. Smaller companies may not have a good handle on demand information. Distributors may play a role here in aggregating the demand data for suppliers. Collaborative planning, forecasting and replenishment (CPFR), which allow input and analysis of customer demand, production planning and status, and inventory status data to determine optimum schedules, are key to collaborative commerce, he notes.
Suppliers need good visibility into their own production and inventory status and customers need a reasonable view of demand projections and visibility into their inventory.
Another challenge is finding the value of the initiative--that is, building a business case with real return on investment, says Robert J. Warren, principal at CSC. He offers logistics as an example. "The chemicals industry has spent significant effort in the past around logistics due to safety and transportation issues--which has also led to improved utilization in logistics. These savings may no longer exist to be addressed in a collaborative commerce initiative."
Accenture's Mr. Gordon stresses the need for companies to focus on key partners and build a level of trust that eliminates the use of fudge factors often in play when trust is lacking. Companies should also avoid the one-size fits all mentality and the 800-pound gorilla syndrome, he adds. One can drive transactions that way but not collaboration.
CSC's Mr. Warren notes that trust concerns not only sharing information but also making it available electronically at the discretion of collaborators. The capability of the chemical company's ERP system is related. Some companies are concerned about allowing suppliers or customers to have visibility into their electronic systems due to the "quality" of the information. Potentially significant savings can be achieved by eliminating middlemen; however, the raw information must be accurate, up to date, and readily understandable by the external parties.
Accenture expects collaborative commerce initiatives to play out over a three to five year horizon. Uncertainties of global commerce will come into play, particularly as the Asian market begins to become more self-sufficient. The drive to match supply and demand will increase the importance of balance, and collaborative commerce will become necessary to be successful. According to the Gartner Group, collaborative commerce applications will replace static, web-enabled supply chain/value chain applications as the dominant application model by 2004. Manufacturers that fail to employ collaborative commerce technologies will be 30 percent less likely to be granted preferred supplier status and will be at least 20 percent less competitive over-all than those that do.
AMR Research's Mr. Eriksen believes companies will automatically move to a collaborative commerce solution, and elements will start appearing in the next year or

two. One implication of collaborative commerce is that it changes the relationship with the customer and can create the opportunity to increase business with a given customer because it allows the supplier to source product on a more timely basis at lower cost. But collaborative commerce is not just about reducing cost--in this scenario there is also opportunity to develop a distinct competitive advantage.
Formation Systems is one vendor working to develop collaborative commerce software solutions for new product development and commercialization. According to Peter
Shields, president and CEO, leaders in the process industries have excelled at new product development and have been able to collaborate. In the chemical industry, however, new product development improvement is talked about, but companies rarely make actual investments in IT solutions, As a result, most R&D and product development processes remain manually intensive operations, making the management of product development on a global basis very difficult. "Companies now have the opportunity to differentiate themselves from competitors by implementing a software-based product development infrastructure and extending these efforts to facilitate collaborative commerce," says Mr. Shields.
Formation Systems' product is Optiva, a modern component-based software that manages information and processes essential to product development. The core of the software is a central database of formulas, test results and product information aimed at making the product developer more productive. Tools are also included to find, compare, and get access to the data at a much faster pace. Surrounding the core is a collaborative framework that enables organizations to model work processes, collaborate and manage the development and commercialization of products. In addition, Formation Systems recently developed an integrated stage-gate portfolio management tracking system with
GE Plastics that will give its customers real-time visibility into the product development process.
Formation Systems plans to continue to extend these technologies across enterprises.
Customers can use the stage-gate tracking functionality with suppliers, and joint development projects between companies can be more efficient and effective. According to Mr. Shields, companies need to first automate and digitize their R&D and product development processes before they can truly achieve substantial benefits from collaborative commerce.
ChemDomain, started in the spring of 2000, offers a solution-oriented software application of the same name that is designed to allow suppliers in specialty chemical markets such as personal care, paints and others to assist formulators with selection and design of formulations. The software was based on a general platform with applied industry-specific parameters for decision-making processes. Use of the Internet allows reductions in wasted time and significant opportunities to add value. According to president and CEO Eric Norris, multiple users at disparate locations (suppliers and formulators) can create projects and share information. The software can be used as a data library also and assists in migrating chemists to electronic notebooks while

simultaneously taking advantage of configuration technology. Overall results include cost and time savings that help accelerate development and introduction of new products.
Mr. Norris notes that this type of application is a great future opportunity, but today requires a substantial commitment by both management and chemists to digitize lab data and processes. Due to slowing economic and investment environments, ChemDomain operations are on hold while the board is reviewing various options.
Manugistics, a provider of Enterprise Profit Optimization and eMarketplace solutions based in Rockville, Md., offers an Internet-based communication solution that enables transportation optimization and carrier and customer communication, says Jeff Smith,
Group Vice President. On the planning side, Manugistics' software helps translate supplier information on production scheduling with all aspects of customer demand forecasting, such as raw material components and capabilities to meet demand in specific locations.
On the execution side, the software includes an alerting feature that provides information on changes in production or delivery schedules on a real-time basis. These "collaborative services" can offer a chemical company tremendous advantages and improvements in supply chain efficiencies, says Mr. Smith.
ChemLogix, located in Plymouth Meeting, Pa., offers supply chain management services to the chemical industry. The company has an operations center and provides alerting services and assists companies with shipping and routing changes when necessary. It also designs and implements supply chain planning solutions. According to Steve Hamilton of
ChemLogix, the company will be integrating Manugistics systems to offer a collaborative planning solution that he hopes to have available within six months.
The integrated collaborative commerce model will allow back and forth information between producer and supplier and provide visibility of inventory and production schedules in combination with tactical information, with all of this data tied into its transportation input center.
Elemica, the web-based network for the contract buying and selling of chemicals, is focused on linking up suppliers and customers in order to reduce manual effort in building forecasts and manufacturing plans. According to Linda Dansbury, director of supply chain solutions, a chemical company's connectivity with Elemica will allow real time visibility into material requirements, giving the planner more time to use their knowledge of the key business drivers (intelligence) to build a complete forecast.
Elemica will work with member companies to map their current supply chain processes and develop the best collaborative processes for them and their trading network. The company's overall offering includes collaborative planning, forecasting and replenishment, as well as supply chain and logistics optimization, with supply chain optimization as Elemica's core competency.

Elemica has taken the Manugistics platform and integrated it with its Connected Solution, which allows customers and suppliers to collaborate on product needs via technology, rather than the manual interfaces that take place today, explains Ms. Dansbury. The company expects to release the first phase of its Supply Chain Solutions offerings early in the fourth quarter of 2001.
Eastman is one company investigating collaborative commerce processes and tools that could help make its supply chains more efficient. According to Bill Graham, integrated direct program lead, the company has already piloted automated vendor-managed inventory (VMI) processes with interested customers, and is investigating the applicability of the CPFR process. Eastman is also aware of pilots in the area of collaborative design of processes, equipment and materials to meet customer demand and is watching this space with interest.
"Multiple-tier (customer-supplier-supplier...) CPFR has not established itself in the chemical industry yet, but we are following the work of the VICS (Voluntary Interindustry Commerce Standards) CPFR committee for progress, as well as software providers who hope to help facilitate the process," says Mr. Graham. Hosted collaborative software has some attraction for Eastman since the technology aids are expected to evolve rapidly and leapfrog each other over the next two to three years.
The technology enabling collaborative commerce is currently ahead of the business process development within the chemical industry, Mr. Graham notes. He adds that much work still needs to be done to learn how to effectively collaborate and to share value with trading partners within the supply chain. The n-tier CPFR process is still in the VICS
CPFR committee, with anticipated standards emerging in the next six to 12 months.
Toolsets that can help implement these standard processes will emerge over the next two years. Eastman will follow the development of the process and the tools, looking for opportunities to test the value proposition for CPFR in the same timeframe.
Mr. Graham anticipates that the benefits of collaborative commerce to suppliers like
Eastman could include reduction in customer safety stocks and therefore working capital, decreased premium transportation for emergency replenishments, and more efficient plant operations, through better scheduling of plant maintenance and production changeovers. "CPFR is still very much a concept to be explored and tested, and as such constitutes a major challenge," he says. "Chemical supply chains are typically not linear; they are complex webs of supply and demand driven by both long-standing relationships and cost pressures. There are many factors that will determine if processes like CPFR can successfully be used in our industry: trust, win-win agreements, less than 100 percent sourcing from any given supplier, production strategies, and the availability of affordable tools that can efficiently enable the process. Still, the potential benefits require us to probe for the possibility of CPFR coming upstream from the retai l sector," he explains.
The ideas and promise of collaborative commerce are not new. "Companies and individuals have been collaborating in commerce since the dawn of civilization, bringing new ways to serve customers and lowering supply chain costs to serve. Today, we have

emerging Internet collaboration technologies that could enable complex supply chains to collaborate almost instantaneously, reacting to changing demand and supply patterns. The question is: Are our business processes ready to leverage the capability," says Mr.
Graham.