NEW ORLEANS — A growing number of Web trading forums are spending millions of dollars to woo plastics processors and suppliers to buy and sell products online. The market makers are creating Internet sites that are easy and inexpensive to use, chock full of features, and rich in content.
But skepticism remains high among many potential customers.
Maureen Steinwall, president and owner of Steinwall Inc., a Coon Rapids, Minn., injection molder, thinks e-commerce is the next Y2K — which, despite all the hype, turned out to be a bust.
Her firm uses a facsimile order process now, while at least one major resin supplier wants an automated system. Steinwall, interviewed at the recent molders e-business conference in Las Vegas organized by the Society of the Plastics Industry Inc., objects to the plastics industry spending "$15 million to obsolesce the fax machine."
You might expect processors who attend a forum devoted competely to e-business would be enthusiastic participants in online commerce. But even among those who attended Plastics News' recent e-business briefing in New Orleans, signs of reluctance were obvious.
At one point, for example, a panel of executives from well-known companies, including Nypro Inc., CertainTeed Corp. and Portola Packaging Inc., was asked whether any of them had ever purchased resin on the Web.
All said no.
Later, a question-and-answer session with a panel of market makers nearly became fixated on processors' complaints about their experiences with or perceptions of online auction sites.
Several processors complained they had either lost business through Web auctions, or managed to keep contracts only by accepting huge price cuts.
The market-maker panelists who sponsor online trading and auctions were prepared for the complaints.
"The Internet is not going away," said Brad Hafer, vice president for corporate development at SupplierMarket.com in Burlington, Mass. "As we all know, the plastics industry is highly fragmented. The buyers clearly do have the power.
"It will be those of you who understand the dynamics and understand the rules who will be successful suppliers in the future."
Jim Zuffoletti, director of market making and diversified manufacturing for FreeMarkets Inc. in Pittsburgh, offered examples of how processors have used online auctions to their advantage.
"An injection molder to the medical industry in the Midwest found out about a business opportunity in electronics, and ended up with $3 million or $4 million in new business," he said. "I've seen that happen again and again."
Zuffoletti added that when FreeMarkets started five years ago, some original equipment manufacturers told him they were worried their suppliers would bid projects to ridiculously low profit levels. That has happened, he admitted, but he advised processors to be fully informed about any project before submitting a bid.
"If you feel you have a lack of information so that you can't accurately quote, make sure you make noise," he said. "Prior to participating, know your bid. Don't go below your bottom line."
Other market makers that don't concentrate totally on that sort of bidding argued that the plastics industry isn't always the right place for online auctions.
"People still value relationships in this industry," said Jim Morelli, vice president of sales for Commerx Inc. in Chicago, developer of the PlasticsNet.Com e-marketplace.
Morelli said Commerx has tried to create a procurement system to facilitate existing relationships among suppliers and processors, not replace them.
"There are not generics yet, I don't believe, in this industry," he said.
Nevertheless, several sites that concentrate on buying and selling chemicals, including plastic resin, are working hard to develop a market for trading commodity plastics.
"We have developed a liquid market through certain grades, but believe me, it's missionary work," said Don Churchman, vice president for plastics at CheMatch.com in Houston. He added that some plastics resins are already commodity products.
Churchman also addressed concerns that Web exchanges will make resin distributors obsolete.
"In our opinion, the distribution function in the food chain is a very important one," he said. "I think the distributors will still flourish. I think the distributors need to focus on the best e-commerce models for them."
Churchman and other market makers emphasized the new features that they're constantly adding to their e-commerce Web sites.
"We're trying to design a platform that is user-friendly and will bring you value. If it doesn't bring you value, at the end of the day, you won't use it," he said.
Bruce Gordon, an associate partner in the chemicals practice at Andersen Consulting's Cleveland office, pointed out to processors that the Internet market makers have access to millions of dollars in venture-capital and investor money right now. In a sense, those investors are wagering that the plastics industry will embrace electronic business.
Indeed, three of the panelists' companies — Commerx, CheMatch and SupplierMarket — have filed registrations for initial public offerings in the past eight weeks. FreeMarkets went public last year, and an IPO from ChemConnect is anticipated.
George Avdey, vice president for plastics sales at ChemConnect Inc. in Houston, echoed Gordon's sentiment about the cash available to market-maker companies. He noted that the market makers have "huge dollars that they can tap into now."
Avdey urged processors and suppliers to try online trading and to suggest ways to improve the Web marketplaces.
"We're making the investment in order to make these marketplaces liquid, and then scale up fast," he said.