Chemical Buyers: Heed caution signs on road to e-sourcing
Supplier relationships, compliance issues take center stage when buying chemicals online.
By Rich Weissman -- Purchasing, 4/10/2008 2:00:00 AM
While e-sourcing has found its way into nearly every spend area imaginable today, buying chemicals online requires significantly more attention than most spend areas. A buyer's need for detailed product specifications and regulatory compliance information often outpaces the need for speed in sourcing chemicals, and further emphasizes the need for strong supplier relationships.
Larry Giunipero, the ISM Professor of Purchasing and Supply Management at Florida State University in Tallahassee sees compliance as the major bottleneck in easily purchasing chemicals online. "There is an element of control in the chemical purchase that may not be so prevalent in other online purchases," says Giunipero. "Buyers have to be concerned with material safety data sheets (MSDS), hazmat issues, and even DOT regulations for the transportation and storage of chemicals."
As a result, the direct buyer-supplier relationship is even more important when e-sourcing chemicals. "You need to be sure you're dealing with credible, safe, suppliers that offer end-to-end process controls and that is why I advocate a direct relationship with chemical suppliers," says Giunipero. "Third parties, or direct purchases from supplier websites, may not offer the control that you need to meet compliance issues."
That said, Giunipero sees a steady increase in e-sourcing overall, especially from the younger generation of procurement professionals, which will undoubtedly find its way to the chemicals market. "While more and more buyers are gaining comfort in buying online, I see younger buyers really embracing online applications and that trend will continue to grow," says Giunipero, pointing out that there may be issues around smaller companies buying online as they tend to depend on supplier sites, third parties, and procurement cards rather than applications such as ERP and spend-management tools. "Smaller companies may be at a disadvantage in online procurement and that would especially translate into their online chemical purchases."
The distributor's role
Chemical distributors are continuing to carve out their own niche in the e-sourcing universe. "The business relationship with the customer is the most important part of the sale," says Chris Jahn, the president of the Arlington, Va.-based National Association of Chemical Distributors. "Chemical distribution is complex, and while we see an increase in online transactions, the process is not as simple as buying a book, office supplies or CD online."
And it's that complexity that can give distributors an increased role in e-sourcing, Jahn says, noting that online transactions are a good way to strengthen a business relationship with a chemical distributor. "Chemical distributors play a significant role in supporting the customer in both a technical and business level, and especially with online transactions."
Jahn sees the value in the chemical distribution process as one of managing compliance, regulation, and risk. He notes that chemicals are coming from around the world and it is important to have a strong relationship with the company supplying the product. "Are you really buying what you think you are buying?" asks Jahn.
Buyers' view
Buyers have their own view of e-sourcing of chemicals and it's a cautious one. "I have found that procuring most chemicals is a very volatile operation due to the huge amount of liability put on both supplier and buyer," says Karl Harward, a purchasing and contracts manager for the City of Salt Lake City. "I would not recommend procuring chemicals online unless the buyer has a long-term contract and relationship in place."
Harward recommends establishing long-term contracts with chemical suppliers that would allow for negotiated items such as product quality, price, freight and delivery costs, specialized insurance and any other related product requirements. Harward sees a competitive landscape of chemical suppliers willing to negotiate if responding to a formal bid or contract proposal, but less so in responding to spot purchases online.
"The chemical buy is very complex, which really impacts the online sourcing process," says Harward.
Scott Egdahl, a strategic sourcing buyer with Boston University warns chemical buyers about an occasional lack of accuracy and process controls buying chemicals online can bring. "Purchasing chemicals online is an important part of our procurement process and greatly adds to efficiency, but we often have issues with the accuracy of transactional information [when buying online]," says Egdahl. "I realize that there are a lot of line items to manage that often need to reflect accurate and up-to-date information, but I find I spend a lot of time reconciling contract issues."
Egdahl sees the quality and accuracy of online technical information, as excellent on Boston University's dedicated supplier sites, but pricing often leaves something to be desired. "Our requisitioners often don't know when there is a price variance but I do," notes Egdahl. "The mistakes are often in the supplier's favor and that can be very frustrating. "I still need to police the contracts."
Aloke Bhandia, senior director of product management for Ketera Technologies, the Santa Clara, Calif.-based e-procurement provider, sees online applications mutually exclusive to the buyer-supplier relationship. "You can still have solid supplier relationships and still improve the procurement process with e-commerce tools," says Bhandia, who emphasizes there is no substitute for a strong supplier relationship. "E-procurement should supplement the relationship, not replace it."
"Chemicals can be extraordinarily complex and the Internet has significantly allowed the rapid sharing of information in everything from compounds to molecular structure to images of the chemicals themselves," says Eric Zoetmulder, the director of supplier network services for Cary, N.C.-based e-procurement firm SciQuest, which supports the scientific community. "Some scientists build their own chemicals." Zoetmulder says that one chemical may have 25 related styles and companies need to be able to support information on everything from proper routing to certificates of compliance.
According to Zoetmulder, purchasing chemicals online is much more than just the actual transaction. "Advanced search tools on online supplier catalogs have enabled chemical users almost instant access to the information that they need, eliminating a manual and time consuming process." Zoetmulder also sees the automation of workflow as one of the important parts of online procurement, especially when it comes to a company's regulatory compliance.
"The relationship with our chemical suppliers is the most important part of the purchasing process," says Milan, Italy-based Luca Guzzabocca, director of procurement for GlaxoSmithKline's European operations and a SciQuest user. "We need to make sure there is alignment within the chemical purchase, and that includes R&D, as well as with the buyer and the supplier." Supplier compliance, says Guzzabocca, needs to include GSK's requirements as well. "We depend on our suppliers to support our compliance and regulatory requirements. The actual online transactions are not that big of a deal."
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