Achieving Success in Collaborative Commerce

May 15, 2002
Collaborative commerce has become an integral part of many chemical companies' core business strategies. However, sometimes the paths to its execution are flawed, producing unwanted results. Many chemical firms might find themselves asking: Where is the real value? How and when can it be realized? What are the common pitfalls of implementation?

Reaching new customers

The ability to reach new customers in once unknown markets is an appealing one. After all, a prospective customer needs only a computer and a modem to find either a company catalog or one of the many electronic exchanges and auction sites. Despite the best intentions, however, many independent chemical exchanges and auction sites have shut down or lost business. The downfall of these sites can be attributed to several factors, including: The lack of standardization in chemical product codes. Listing products on electronic channels based on specifications makes it harder for customers to search and find what they are looking for. The close tie between procurement and transportation in the chemical industry. Regardless of price competition, the lack of transportation and logistics options might render some sales impossible. A potential wariness on the customer's part of quality and service levels. Different legal procedures and documentation required for chemical sales in different regions and countries. The nature of the industry. Let's face it ," selling in the chemical industry always has been a relationship-based business, often through a network of manufacturers and distributors. That culture cannot and perhaps should not be replaced. So where is the value for a chemical processor? Two areas have shown promise. One of these constitutes spot markets for commodity chemicals and off-grade material. Many of the aforementioned downsides do not apply to this market. Product codes are fairly standardized, as are packaging and transportation options. Although this area might have a relatively lower level of focus on quality and service levels, it typically does not constitute high sales volumes.The second source of value applies very well to contract markets that have higher sales volumes, but here the value is much harder to achieve.

Serving existing customers

Collaborative commerce can be used to serve existing customers better ," allowing a chemical firm to achieve cost efficiencies at the same time. Once a company has established contracts and blanket purchase orders with its large customers, it can use Internet technologies to automate transactions such as order entry, response, status or changes, invoicing, payments, load tenders and shipment notices. In essence, company information systems are linked to those of its customers, automating all the manual and fax-based tasks in those processes. At the next level, a company can exchange demand forecasts, demand plans and inventory levels with its partners. At the highest level, the company can use all this information to optimize its supply chain with that of its business partners.

Facing challenges

Many of us know from our experience with electronic data interchange (EDI) that establishing an industrywide communications protocol is always a challenge. Companies must choose among multiple messaging options such as ChemXML, iDOC, xCBL and EDI. Moreover, transactional documents such as purchase orders, invoices and load tenders vary in form and content, requiring either standardization or translation capabilities. Finally, without a facilitywide or corporatewide integrated information system to provide consistent data, systems and processes, chemical firms might find it difficult to collaborate with external business entities.The previously mentioned scenarios also apply to collaboration efforts with suppliers. This time, chemical firms reap the savings as a customer instead of a supplier. Procurement savings might be available in the form of lower prices in spot markets, while transactional cost savings might be achieved in the contract buying process. By sharing information such as inventory levels, demand forecasts and production schedules with suppliers and toll manufacturers, chemical manufacturers can achieve supply chain and production efficiencies.

Realizing goals

To find success in collaborative commerce, chemical firms are urged to: Drive toward an integrated system within the company, either through an enterprise resource planning (ERP) implementation or through the development of common databases and interfaces for disparate internal systems. Participate in the standardization of communication protocols in the industry. Identify large customers and suppliers, initiate collaborative processes, drive consistency in data fields and documents, and establish connectivity with their systems through the Internet. Play in electronic exchanges for spot markets ," and for small portions of the contract market ," to identify best prices in the market. Use a phased approach to implementation.Prakash is a manager in Deloitte Consulting's New York offices. Contact him at [email protected].

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