Chemunity - Pragmatic Procurement of Chemicals

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	ChemUnity continues rapid growth Arnhem, The Netherlands - December, 2000 Although most dot-com players are restructuring and are pulling in their horns, ChemUnity.com, an online commodity sourcing provider based in Arnhem, the Netherlands, is growing. Founded in late 1999, the company completed its first transaction last May, with DSM the buyer, and Sasol the supplier. ChemUnity expects to reach a generated transaction level of 1 million by the end of the year. The company projects generated transaction levels of 35 million in 2001 and 1 billion by 2005, according to Herman Rijks, the company's co-founder and CEO. The company says its business model is tightly defined. ChemUnity's main focus is on commodities in full truckloads. Its targets are mid sized customers that buy one to 20 trucks per quarter. The company's platform enables suppliers to attend to those medium-sized orders directly, in a time-efficient manner, avoiding third-party involvement there where it adds little value. ChemUnity.com initially handled just a handful of solvents, but the website has already added caustic soda, acetone, DOP, methanol, soda ash, hydrogen peroxide, MEG, MEK and MIBK. Its most recent additions are TEG, VAM and various oliochemicals. The Company is active in eight countries, growing from just two nations six months ago. Most of its business is in the Benelux, France and Germany, although Italy and the UK are picking up and Hungary is showing strength as well. ChemUnity's platform has 100 suppliers and 260 buyers. Mr. Rijks notes that the 260 buyers are graduates of a screening process that entails a review of their credit limits and health, safety and environmental compliance status, as well as a face-to-face meeting. Mr. Rijks plans to expand the buyers list to 5000 by 2003. In addition to protecting customers by channelling their business to approved users, the ChemUnity platform enables potential buyers to list product requirements, including grades, concentrations, and packaging and delivery specifications. A buyer's price limits, including a deviation range, are also fixed. All suppliers are notified of an inquiry, including all of its details minus the deviation range. Suppliers receive one day to react to an offer. If after 25 hours the best offer falls within the buyers price range, the inquiry becomes a confirmed transaction. Mr. Rijks considers his visit to the European Petrochemical Association (EPCA) in Monte Carlo last month a turning point. "There is a very positive attitude outthere," he says, "The bigger suppliers are changing their attitude toward us. Six months ago, they were not interested. Now they are taking a positive stance." He says product managers in multi national chemical corporations want to use the ChemUnity system. "A large majority of the top 20 producers worldwide are actually giving that signal. Suppliers are beginning to realize that buyers really determine the medium for their particular transactions, and our medium is extremely efficient. It takes literally two minutes of work to let a network of suppliers know that you are in a buying mode" Responding to buyer's concerns about product quality, Chemunity.com recently signed a letter of intent with Society General de Surveillance (SGS), the world's largest inspection company, with 30000 employees in 184 countries. SGS will perform annual product quality reviews on all of ChemUnity's registered suppliers. Since many of the suppliers are already affiliated with SGS, the relevant data already exist and ChemUniyu only has to post the information on its platform. ChemUnity will try to have all other suppliers tested between now and the end of 2000. In addition to the annual product reviews, buyers can also order tests on specific deliveries. The site also features credit insurance, a first in e-commerce for chemicals. If an offer becomes a transaction, payment is guaranteed via Swiss Re Insurance, which has screened all ChemUnity.com buyers and which will assume the payment risk. Recently, an alliance was announced with Swiss Re's new online company, e-credible, which will enable real-time credit approvals. The company is moving toward a more sophisticated system of encouraging new suppliers. Instead of "cold-calling" any potential suppliers, it is focusing on enthusiastic buyers who, in turn, inform their suppliers of their decision to use ChemUnity and then ask these suppliers to also "join the ChemUnity." Mr. Rijks says ChemUnity is trying to keep the interests of buyers and sellers well balanced. As a refinement of the exchange functionality, ChemUnity also offers complete buy side solutions featuring automated procurement to multiple suppliers while maintaining the relationships with preferred suppliers by rewarding them with minimum purchase volumes. Mr. Rijks stresses the importance of the preferred supplier option. "A lot of buyers want to be sure they get good market prices," he says, "If there are good spot offers, they want to take advantage of it. But at the same time, they want to be sure they maintain theit traditionally built up preferred supplier relationships. For instance, they may want to guarantee 70 percent of their purchasing volume with one supplier, in return for guaranteed supply in times of shortage." The ChemUnity.com model incorporates such options. As e-commerce advances, the dot com landscape is becoming better defined and specific business models are emerging. Mr. Rijks cites sell-side models, which offer software solutions to help suppliers serve customers. Reverse auction sites are popular but suppliers are starting to boycott them because they are so unbalanced in favour of the buyers. In open-exchange models, buyers' and sellers' postings are free for everyone to view, but there is no guaranteed next-day answer, which makes the model poorly suited for the just-in-time requirements so typical of the chemical industry. Industry consortia are also emerging, and Mr. Rijks considers that these can add a lot of value, eliminating routine work and helping control inventory levels multiple links down the supply chain. He sees their value more in the fulfillment sector than in the price-discovery arena because of the obvious antitrust issues. "If buyers have chosen our platform for its efficiency, we would ask their approved suppliers to respond to their buyers inquiries. This is all we ask for," Mr. Rijks says, "We're simply a very fair price-discovery engine." But with no regard to pricing and e-commerce, many misconceptions still need to be addressed, he says. "E-commerce is not so much about getting a better price as it is about automating the buying process and getting significant efficiencies as a result. The market has not changed. Just because you trade on the Internet does not mean things are suddenly half price. Real savings come from efficiencies created in the supply chain." "It is not our objective to bring prices down, although pricing will change, simply because the front runners who respond to the efficiencies available with e-commerce will be able to offer lower prices." Source: Chemical Market reporter, October 30, 2000