PHILADELPHIA (Oct. 29, 11:30 a.m. EDT) — Three years ago, Dutch resin supplier DSM NV thought that doing business on the Internet was going to be easy.
With a mandate from Chairman Peter Elverding to conduct all transactions online by the end of 2003, the $8 billion-a-year chemical and resin company was one of the early suppliers to explore that then-mysterious Internet cavern.
It adopted technology to launch an in-house purchasing site. It joined with several Web marketplaces, including Omnexus, Elemica and ChemConnect Inc.
But while DSM board member Felke Sijbesma said Web plans still are on track for the Heerlen, Netherlands-based company, attitudes have changed. DSM found the work more difficult than expected.
Processors were not moving in lockstep to embrace Internet values. And just because a company had a Web site did not mean customers would flock like gnats to a barbecue.
Meanwhile, with business getting tougher, DSM and other resin suppliers have started to ask how much a Web site is adding to tougher-to-attain profit. They are not ready to give up, they are just looking for answers beyond the sweeping but vacuous Internet-is-everything approach of the past.
“You have to have traffic and trading on your site, not just people looking, or you'll come into problems,” Sijbesma said. “The new economy is fully dependent on the old economy.
“We don't believe anymore in the new economy; we believe in the real economy. The new economy is such bullshit."
Those strong words underlie conflicted emotions for many resin suppliers who spoke Oct. 2-3 at the EyeForChem USA conference in Philadelphia. Those multibillion-dollar companies all have invested mightily to gain the online edge in material purchases done digitally.
Now many of them are performing a mea culpa for the lack of serious traction to date. One finger points to technology itself and whiz-bang functionality, used as a crutch to show progress. That might have been a mistake, said Clemens Kaiser, president of global e-commerce for Bayer AG.
Customer benefits might have been forgotten in the rush to put information online, Kaiser said. Meanwhile, both customers and resin-company managers are demanding greater results.
“E-business as we see it is a very practical thing,” said Kaiser, based in Leverkusen, Germany. “But the key issue is that e-business only works if we are all successful in establishing a network. Nothing can run on its own, or you don't have e-business.”
The focus now is on finding real advantages for customers. Not to mention making a short-term profit from Web tools.
The end game still is huge: All those companies believe the Web eventually will help them gain a larger share of the $1.6 trillion chemicals and resins market worldwide.
But technology alone will not drive processors to the Web, Sijbesma said. Neither will the promise of transaction savings be the carrot stirring the customer, added John Wheeler, senior vice president and chief information officer of Pittsburgh-based Nova Chemicals Corp., a large polystyrene and polyethylene producer. Instead, product development with customers must be the beating heart of a Web site.
“We have to look for new business models in a world where most customers are buying only one to two products from us once a month,” Wheeler said.
No company, though, plans a complete makeover. Millions were spent on technology as companies attempted to capture what consulting firm Forrester Research Inc. said would be $2.7 trillion in online business-to-business sales by 2004.
Some have succeeded. Distributor GE Polymerland of Huntersville, N.C., said it plans to do more than $3 billion in online transactions this year. Others, including suppliers Ticona, Eastman Chemical Co., Dow Chemical Co., BASF Corp., and Bayer AG, also were fed by corporate mandates to move online.
And it has not been a failure, said David Kepler, vice president of e-business and chief information officer with Midland, Mich.-based Dow. Many early customers have tried the Web and stayed with it, he said.
Yet, the hard work is just starting, Kepler said. Getting additional processors — those customers more conservative or less eager to shift their purchasing nexus — will be a tougher sell, he said.
For starters, resin manufacturers must focus on less-glamorous items such as purchasing efficiency, logistics or product development.
“We have to change the way we work inside a company,” Kepler said. “Generally, we had inflated expectations on how fast technology could be implemented. We've faced a trough of disillusionment that has made us rethink and retrench our business. Now, we have gotten back into a mind-set of interacting with customers.”
Dow has attempted to do that by spreading its tentacles to many areas of the industry. Besides its basic [email protected] Web site, it is attempting to connect directly with suppliers' computer systems through Elemica, to connect with injection molders through Omnexus, to connect with epoxy users through its www.e-epoxy.com site and to trade off-spec or over-stocked materials at ChemConnect.
The future for Dow and others is in connecting directly to a processor's computer system, Kepler said. That process —which makes it easy to purchase resin, adjust inventory and transport it to plants — is at least 18-30 months away, Kepler said.
One burden is cost, said Frank Doorley, principal consultant for the chemicals and plastics industry with New York-based PriceWaterhouseCoopers Inc.
“There are no guarantees that companies will pay the investment costs,” Doorley said.
One resin supplier, who wished to remain anonymous, said at the conference that an internal study showed that more than 60 percent of plastics processors have not moved to Web-based, internal computer systems for purchases.
Value must be proven, said Roger Mowen, a senior vice president at Kingsport, Tenn.-based Eastman. That company's vaunted Web site was one of the first to allow processors to place orders online and use Internet tools for logistics and shipping.
Now Eastman wants to interact with customers on the Web through “wizards,” or online software to help in product development. They include tools to select materials by properties, calculate the volume of resin needed and provide e-rooms to collaborate on product design.
About 25 of those technical wizards will be rolled out by the year's end, Mowen said. And the company plans to invest in other dot-com businesses that help with procurement or development, he added.
“We've learned that we're paid for what we know as opposed to what we make,” Mowen said.
The financial mood is different, too. Mowen mentioned the pressure by top management at Eastman to show a return on the millions invested in the Internet. Other companies face those same pressures now. At chemicals and resins giant Bayer, top management is starting to ask “Where's the beef?” Kaiser said.
Last year, it was a no-brainer to get $10 million from Bayer's board for e-business development. This year, tangible savings must be demonstrated before a similar check can be cut, Kaiser said.
“We have to treat a total e-business solution just like a product launch,” Kaiser said. “We've overpaid on technology and underpaid on marketing over the last 18 months. It is easy to get derailed into an [information technology] tunnel.”
At resin producer Equistar Chemicals LP, that has meant focusing on Internet tasks that produce greater, tangible returns to customers, said Jeffrey Hemmer, vice president of supply chain for the Houston company. That includes digitizing such areas as order status, shipping dates, credit information and inventory planning.
Equistar is putting hard numbers to its new Internet order center, launched in June. Numbers include an initial return on investment of 22 percent and customer savings projected as high as 55 percent in back-office personnel savings, and 25 percent in transaction efficiencies, Hemmer said.
Currently, the system has only 60 online customers. But, unlike Dow, Equistar does not expect to take 18-30 months for customers to move online.
“You have to focus on urgent things,” Hemmer said. “We're all flooded with data [online]. What customers want is more knowledge to use that data to make effective decisions.”