Chemunity - Pragmatic Procurement of Chemicals

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	Clicking your way to a better deal Arnhem, The Netherlands - December, 2000 You can make real savings by shopping around for your raw materials, but who has the time to make dozens of phonecalls and work out who will provide the best option for your paint? A new e-commerce initiative is making buying speciality chemicals easier and less time consuming. The purchase manager of a paint manufacturing plant has enough to worry about without having to make dozens of phone calls to find the best deal on raw materials, negotiate the contract and then chase up the order to make sure it arrives on time. That is the belief of ChemUnity, an e-commerce site that has been set up to relieve buyers of this chore. 'The head of purchase is charged with 1001 chores and has to remember everything from ordering the new tyres for the delivery fleet to buying the correct quantity of the best value chemicals,' says ChemUnity CEO Herman Rijks. The latter is one area that can be fully automated by the ChemUnity system, and although the initiative is active in speciality chemicals, the textile and leather, and food processing industries, it is keen to focus on the paint industry. 'Paints and coatings is an area where we can really make a difference and save money, so about 25-30% of our business activity is focused on this sector,' says Rijks. Focusing on the small to medium-sized buyers Though the chemical market is said to be worth about US$1.7 trillion, ChemUnity knows that making a success of its e-business initiative will pay off by concentrating on the small to medium-sized buyers who place orders for a few truckloads at a time. 'We are not targeting buyers who are bigger than that because they will have regular negotiated deals already set up.' In fact, ChemUnity sees itself as something of a champion for the smaller buyer because it can eliminate the prejudice that sometimes queers the pitch for potential buyers. 'We offer buyers the opportunity to remain anonymous when we circulate their orders to potential suppliers, which means that the suppliers will treat all the orders equally and fairly.' ChemUnity will represent the smaller buyer who is often unable to get a good deal from larger suppliers and consortia. However, if a buyer feels its name will carry some weight and get it an even better deal, it can waive its anonymity. Despite its obvious potential, the ChemUnity project started in January of this year, and took the best part of half a year to get off the ground. 'We started out life modestly - by knocking on doors and asking customers to sign up,' says Rijks. 'The watershed event for the company, though, was the European Petrochemical Association's (EPCA) get-together. 'It was great for us because we managed to speak to 120 customers all in one place. The European chemical industry really came on board at this event this year,' says Rijks. It was the hard evidence that persuaded them. 'What made the difference for the 3000 attendees at this event is that they actually got to see the business model and to see how it works.' The system works by a buyer submitting an enquiry, which includes details of the product they want to buy, the grade, concentration, delivery place, time and price. This enquiry is immediately forwarded to ChemUnity's extensive database of suppliers. Suppliers are listed on the database according to the product and grade they supply. The supplier selection can be influenced by the buyer, so they can exclude certain suppliers, on the basis of where they are or who they are, for example. Alternatively, they can only include certain suppliers. Buyers can also decide to favour certain named suppliers so that their offers get a specified advantage compared to the prices of the rest of the suppliers. The buyer can also decide to exclude suppliers by country of origin for instance. Rijks says that any supplier is welcome to join the database provided they can deliver the correct product on time. The value to the suppliers is that they can attend hundreds of additional mid-volume users efficiently, and they will not be disturbed by enquiries for irrelevant products. Suppliers can even place their offers on a WAP phone if there is no internet connection nearby. Like the buyers, suppliers can exclude undesired buyers or buyers from certain regions. Impact of the internet The initiative could not work without the internet because post or faxed information would not have the same immediacy. Suppliers are contacted by email, SMS or WAP (on their mobile phones), and a message is posted on their web sites. 'We try to make it easy for suppliers to react with an offer within 25 hours,' says Rijks. 'After that time, our computer can then select the best offer on the basis of the buyers' selection criteria, meaning the buyer remains in control the whole time. The key to the system working is that it automates all routine work, with the enquiry, offer, offer selection, order confirmation and fulfilment all automated. ChemUnity believes that within a few years this routine work will seem unbelievably outdated. Just like with vendor managed inventory (VMI) the initial enquiry will be triggered by a tank sensor and the transaction will be confirmed into the buyers' and sellers' ERPs. Unlike VMI however, the buyer is no more restricted to single-sourcing. The fulfillment will be completely automated with delivery and payment all automatically scheduled and checked up on. Buyer benefits There are large advantages for the buyers. According to Rijks, buyers are in a 'win-win' situation. 'Either ChemUnity may not be able to improve upon the quote the buyer gets through traditional methods, in which case they can stick with that, or they can get a better quote,' he says. Whereas suppliers have to pay a small percentage commission, there is no charge for buyers, the service is completely free to them. But the gains are more than financial. 'The buyer can reach all of the potential suppliers of a product in five minutes. They can reach say 20 companies - including some they may not have previously known of - with five mouse clicks instead of having to make 20 phone calls and they know they will get a next day answer.' It is it more efficient, but it also enables buyers to get a lower price. 'If a buyer is reaching more suppliers, the chances are they will get a lower price than if they contact just a few.' They may also be lucky enough to come across a trader who needs to get rid of stock so there is more chance of getting a good deal on the chemical supply.' The real cost savings, though, are in the reduced administration costs, 'Users do not have to retype and resend their orders, we keep their preferences on file and we can prompt them for their new orders when they are due,' says Rijks. Safe and secure The benefits of the system are manifold but the company says that initial reaction to the project was cautious. 'People are scared about the internet, and with some of the scare stories around they are right to be concerned, but our site is as safe as it can be. We use 128-bit encryption technology, and we audit it regularly to ensure it is secure. Suppliers do not have access to buyers' confidential information. 'Peter Vogtländer is the chairman of the supervisory board, and this ex-CEO of the world's largest polypropylene factory would never link his name to anything that had dubious intentions,' says Rijks, who is confident that the site can protect those who are using it to buy or sell. 'People often do not want to dive into a cold lake without putting their toe in first to test the water, so our site offers them the opportunity to dip their toe in,' he says. 'Suppliers have to ensure they comply with the required product quality and ensure that they deliver on time. Though the traditional methods to place a claim are maintained, we have added the back up of the International Arbitration Institute, located in Rotterdam, not that we have ever had to use it.' ChemUnity is staffed by 35 people, with 22 from the industry, which means that they understand the needs of the chemical industry. We also have a fair understanding of who the serious players are and who can deliver on time. We make a point of visiting everyone before we accept their registration,' says Rijks. 'We have insisted on avoiding equity participation by large producers from the chemical industry, to avoid any perception that we our operation is not a fair level playing field for all.' According to Rijks, his business has been modest so far, but interest is definitely on the rise. It is no surprise when you consider how much time and labour it saves for both buyer and supplier, and how much the e-commerce perspective on business could change the way the industry operates. Buyers have everything to gain from using the system. Rijks says it is better for everyone because they target the small to medium-sized user, 'There is no threshold so suppliers can give the system a try by ordering even just one truckload. You may get a better deal on your present contract and if you do not, you have lost absolutely nothing. Source: Polymers Paint Colour Journal, December 2000