Chemunity - Pragmatic Procurement of Chemicals

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	ChemUnity pursuing 'ecosystem' functionality Arnhem, The Netherlands - January, 2001 - ChemUnity, a European e-marketplace that matches buyers and sellers of chemicals, is developing its second-phase functionality with 8 million Euros of new investment from 3i and Gilde IT fund. ChemUnity (www.chemunity.com) expects to launch the new offering in April The project is significant not only because it involves a dot-com company getting second-round financing - something virtually unheard of since the Nasdaq stock market plunged 50% and took most pure-play Internet companies with it. It's also significant because of the glimpse it offers into how the next phase of e-business may evolve. ChemUnity's current offering is unusual. When the marketplace receives an inquiry from a registered buyer, it sends the information to every registered seller by e-mail or to their mobile phone by SMS or WAP and gives them 25 hours to respond. At that time, the lowest-priced, qualifying offer is forwarded to the buyer by e-mail. Under terms of their agreement with ChemUnity, buyers are obligated to accepted the lowest bid received when it is within their indicated price range and to pay on time. Sellers are obligated to provide products that fully meet the specifications, delivered on time. Any deviation that cannot be resolved through ChemUnity's internal standard procedures leads to arbitration. Rijks said the service has proven popular with its approximately 250 registered buyers and 100 registered sellers of about 20 chemicals. But he also knows ChemUnity is meeting only its users' needs for spot supply and new relationships - perhaps 10% of their spend. "Chemicals is more about existing relationships than new ones," Rijks said. "Our users tell us that they enjoy the fact they get the results they want from ChemUnity, but that in the long run they don't want to be using 20 different e-procurement tools. What we're trying to get to is the point that our buying customers can log onto our site and then they only need that tool to communicate with all their external partners." To accomplish that, ChemUnity needs to achieve seamless links to every company that any of its users might want to trade with - even something like an office supply vendor or a supplier of factory parts. Signing up each participant individually is a prohibitive undertaking, so marketplaces like ChemUnity are organizing themselves into what Rijks terms "ecosystems." Ecosystems involve linking a number of web markets together so that everyone connected to any participating market is connected to every participating market and, through them, to every participating member. "Each market supplies bits of the Internet and as you connect them, larger and larger groups of suppliers and buyers are connected together," Rijks said. "Our feeling is that within the next 12 months these ecosystems will become more and more commonly available." CommerceOne's Global Trading Web (GTW)is one such emerging ecosystem, and Ariba's Commerce Service Network (ACSN) is another. By linking to such ecosystems, Rijks said, ChemUnity greatly expands the functionality it offers its members, but profoundly changes its value proposition. Rijks anticipates that ChemUnity will continue to offer its matching service, which will remain its primary attraction for users. But as part of an ecosystem, users also will be able to link through ChemUnity to their existing, contractual business partners as part of an ecosystem. "That means we will migrate from being a middle man to being a procurement tool," Rijks said. "We will be migrating more to monthly subscription fees than to transaction fees." In such a model, each participating company will choose a portal into the ecosystem, similar to the way individuals choose Internet Service Providers (ISPs) today. They will pay a monthly membership fee to the on-ramp of their choice - either a marketplace like ChemUnity, an industry hub like Elemica or Envera, or another net market linked to a network like GTW or ACSN. Once connected to the ecosystem, participants freely exchange purchase orders and other transactions with other ecosystem members as often as necessary at no additional charge. In addition to facilitating these transactions and any special services - such as ChemUnity's matching service - the portals will provide their members access to lookup functions, including order histories, order status and delivery tracking capabilities. In addition, however, each portal will provide its members with value-added services. For example, buyers who have pre-arranged contracts with testing services would not pay additional fees to communicate with them. But ChemUnity members who make a purchase might have a window pop up on their screen, offering them the chance to buy testing services through ChemUnity partner SGS. If the buyer takes advantage of that offer, ChemUnity would earn a fee. Members who wanted to transact with companies that do not participate in any ecosystem still could do so. The ecosystem would fax or e-mail transaction information to non-participants, who could respond by pointing their web browser to the appropriate site and entering the needed information. Such an arrangement allows members to keep all of their transactions online while still facilitating the needs of small companies that do not wish to become e-enabled or that cannot justify the investment. ChemUnity is working with Esperanto to enable the ChemUnity architecture to provide a full range of connectivity, including deep ERP-to-ERP links for its members and their trading partners. Esperanto (www.esperanto-ecommerce.com) describes its software as providing any-to-any connectivity without expensive custom programming. Rijks predicts a period of frenzied recruitment as the various ecosystem members scurry to sign up members. "As a community, we will be competing in terms of acquisition of users, but once you have the users you won't be competing, you'll be cooperating," he said. "If all 300 of our users would migrate to this new system, we would be very happy and successful," Rijks said. "We know that a portion of those 300 will migrate, because a large percentage of those 300 have chosen ChemUnity as their market. But some portion will choose only to use a browser and so will never be a member of any market." ChemUnity therefore is focused on introducing its new concept to its members and working with them to sign up other members of their supply chain. The company is focusing on sub-Fortune 1000 companies for whom chemicals is a meaningful portion of their total spend. "That group already knows us and has been visited by us," Rijks said. "We believe we have a good position already with that target market." Creating ecosystems will take time, however. ChemUnity is asking each member to identify its top 10 trading partners. Those companies then become ChemUnity's top priority for recruiting and achieving connectivity. "We can't do everything at once, but we can start somewhere, and the place to start is with the 10 most important suppliers in terms of the numbers of transactions per year," Rijks said. "Working with Esperanto, we believe we can be a good solution for helping our members achieve complete ERP integration," Rijks said. "We will analyze our users' needs on a case-by-case basis, and we hope to reach a point that we can offer a fixed quote for integration. We'd like to be the player who will guarantee specific functionality for a specific price. If we can achieve this, we believe it will be very attractive in the marketplace." Author: Bernadette Hearne, Editor, e-business Chemicals Newsletter