Chemunity - Pragmatic Procurement of Chemicals

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	A neutral procurement platform that really works? Arnhem, The Netherlands - July, 2000 -Purchasing managers can now alert suppliers worldwide to their requirements and within 25 hours receive the best offer available on the market. If you are a buyer of chemical commodities by the truckload, ChemUnity's site is worth a look A straw poll of managers across Europe asking the question 'what do you lack most in your job?' is likely to produce a resounding response of 'time'. New developments in technology notwithstanding, most managers these days are busier than ever, but are still required to focus on keeping their costs under control. Tell a purchase manager, for instance, that there is a new site on the web that allows him to let the whole market know his purchase needs, in literally a few minutes, and he is likely to give it a try. Tell him he is guaranteed to get notice about the best offer from the market after 25 hours and he will probably be quite impressed. That is the ChemUnity proposition. If you are a buyer of commodity chemicals by the truckload, it seems this platform is worth a look. After registering online, signing a participation agreement and having your credit application approved, ChemUnity will activate your account. You can then set up your profile, in which you can detail all the business rules you normally apply, such as excluding undesired suppliers and indicating the acceptable delivery hours. You can even quantify your preferences for specific suppliers by indicating a percentage change in the so-called 'hurdle-rate' used when comparing prices of different suppliers. Once the profile is ready, you can proceed to your first inquiry. Start by selecting the appropriate product and specifications, such as grade, concentration and type of packaging required. Indicate when you need the product to be delivered and to which delivery address. Last, but not least, in the inquiry comes the pricing issue. Buyers indicate two numbers, the buyer's price indication (or BPI) plus a deviation range, representing the percentage above the BPI that the buyer still finds acceptable to pay. ChemUnity has patented this selection mechanism, which works by informing the seller about the level of the BPI but not the deviation range. 'It's very much like a classic negotiation, where the buyer mentions a price but doesn't show the back of his tongue,' explains chief executive officer Herman Rijks. 'Imagine you were buying a second-hand car. You already made up your mind what you'd be prepared to pay but you'd always start with a lower number first, wouldn't you?' he remarks. Suppliers who can meet the buyer's specifications will receive the details of the inquiry. Here the unique role of ChemUnity comes into effect; on one hand, no qualified suppliers should be forgotten since the proposition to the buyers is to get their requirement known in the whole market. On the other hand, suppliers that cannot meet the required product specifications should be excluded. 'Creating a level playing field is ChemUnity's top priority,' explains co-founder Mark-Jan Terwindt, 'so non-compliance is strictly monitored and repeat offenders are simply removed from the system.' All inquiries have a standard expiry time of 25 hours. 'We didn't want to design a system where busy product managers had to remain glued to their screens all day to avoid missing out on a deal. With the 25-hour expiry, sellers need only check for inquiries once a day, making it a very time-efficient tool,' explains Rijks. After 25 hours, if the best offer is within the buyer's price range, it becomes a confirmed transaction. To a certain degree, the ChemUnity model is simply a new tool for purchasers, replacing faxes, phones and e-mails. Instead of requiring drastic changes in the rules of the purchasing game, it does in a few minutes what buyers would normally do - inform the whole market of their exact requirements. Besides the obvious time savings, ChemUnity can reach a broader market, avoid misunderstandings about product specifications and reach producers directly instead of through intermediaries. Also, the inquirer remains anonymous until the best offer is confirmed. Multiple delivery dates per inquiry are possible (up to three months in advance), and since all payments are insured by ChemUnity's partner Swiss Re, sellers need not worry about receiving their money. For buyers using ChemUnity is free of charge, even when an inquiry results in a confirmed transaction. Sellers pay a commission of between 1.5-2%, but only when they win the deal. 'It's their cost of channel to market,' says Terwindt. 'It's cheaper than a salesforce and a lower percentage than any third party would charge.' ChemUnity's model also offers another big advantage to sellers - buyers must take delivery if the inquiry was successful. This stands in sharp contrast to some other chemical web sites where buyers often misuse quotes to extract better prices from their current suppliers. 'Since we only work with pre-defined product grades, buyers know exactly what they'll be getting. That's why we can demand they take delivery,' explains Rijks. 'Open exchanges cater to a far broader range of products and grades and therefore require free-text input, which always leaves room for various interpretations.' Automated efficiency It is the same pre-defined product grades that give ChemUnity a huge head start when it comes to automating inquiries and integrating confirmed transactions into the order entry modules of users' enterprise resource planning (ERP) systems. Indeed, it is hard to imagine a free-text posting transformed automatically into a standard digital order entry form; computers require uniquely defined grades and standards. But by taking industry standards, such as USP for propylene glycol or membrane grade for caustic, and linking them to specification sheets with clearly defined minimum requirements, ChemUnity makes a high degree of automation possible. 'Everyone is talking about linking ERP systems,' says Terwindt. 'We're taking it two steps further upstream: first, automated inquiry and offer generation, then automated selection of the best offer, and then automatic confirmation of the order into the buyers' and sellers' ERP.' But how are sellers reacting to this new tool? 'Far above expectations,' says Rijks. 'We thought the large producers would be scared by the transparency our platform creates, but apparently most of them realise that with the advent of the Internet, transparency will come anyhow.' Because of the level playing field it creates, some of the larger multinationals might even gain competitiveness from such platforms as ChemUnity. In the 'old economy' they had to compete against small niche players which sometimes sported lesser goods. 'Clients have a way of forgetting details whenever it suits them,' says Rijks. 'I used to sell Dow and BASF products and clients would often pressure me with the prices of some local producer. We both knew their specs were rarely on par but they would simply shrug their shoulders. In ChemUnity our top priority is to make sure we compare apples with apples.' The efficiency also pleases most suppliers. One quick review per day is sufficient, and ChemUnity notifies of pending inquiries by e-mail and by SMS to the product manager's mobile phone. Furthermore, undesired buyers or even whole countries can be excluded, or inquiries can be re-routed to the local agent or distributor. Then there is the WAP phone. 'Imagine you're at the airport, waiting for your next plane without any Internet connection around. Your phone beeps, a new inquiry just came in. You pop open the screen and read that an approved buyer somewhere in Europe requires eight trucks of MEG to be delivered in three weeks' time. You type in your unit price and your password and submit your offer. That might just be enough to make your day,' exclaims Rijks. Although it sounds quite far-fetched today, with the current pace of change, it might be commonplace in just a few years' time. Source: European Chemical News, 'IT In Chemicals' - July 2000