A tale of two commodities: Metals, chemicals buyers eye e-commerce
By Tom Stundza -- Purchasing, 4/22/1999
What a difference the commodity makes--when it comes to electronic commerce. The results of Purchasing's latest survey on e-commerce show a great difference in Web buying activity among chemicals and plastics buyers versus metals buyers.More than 20% of the chemicals and plastic resin buyers just surveyed by Purchasing already buy products offered on supplier's Web sites. Of those who don't yet source on the Internet, 75% expect to do so soon. That's because several commodity and specialty chemicals, and some plastic resins, can now be purchased on the Net from a growing number of producers, distributors, and third-party marketers. Also note that chemicals and resins can be shipped relatively easily and cheaply, as long as they are packaged properly.
Patrick Lamberton, PM at Norton Packaging in Hayward, Calif., is typical of the chemicals buyers surveyed who already use the Web to develop new sources of supply for plastic resins, and who see the Internet as another usable buying channel. Also typical is the comment by buyer Irena Maret at Litton Laser Systems in Apopka, Fla., that she is looking for an easier way to place orders for chemicals. "Using the Net allows me to order the correct specialty chemicals for my needs at a time convenient to me, from quality suppliers at competitive prices," she says.
However, among a similar number of metals buyers surveyed, only 5% use the Net to buy, although 70% of those who don't say they would if they could. One problem is that those few producers or distributors who sell directly on the Web, sell only steel and then only a small portion of steel products available in the marketplace. The same holds true for products from third-party marketers. Also, metals are heavy, bulky commodities that can incur substantial freight costs and handling charges. Plus, there is a history of face-to-face sales for production metals to resolve sometimes-prickly technical issues.
Buyer Barbara Wilson-Steiner at FSI Filter Specialists in Michigan City, Ind., points out that "all too often, the specific material I need--especially the high-performance nickel alloys--aren't listed in stock by firms with Web pages, or the firms contacted don't respond."
Typical was the comment that "e-commerce will never replace, just supplement, traditional purchasing procedures" from buyer Kirk Giroux at the LPG Container division of Trinity Industries in Dallas. Laurence Petfield, PM at Mack Trucks in Allentown, Pa., contends that "e-commerce via the Internet will have to co-exist with the telephone and facsimile machine." Reason: "Metals buyers will continue to require human intervention in placing orders because of the nature of the products made and the types of processed metal products required."
Most of the metals buyers surveyed say it would make e-commerce easier if more producers, service centers, and processors were on the Net. That's because less than 300 of the 2,200-plus metals companies in Purchasing's just-updated database of metals suppliers indicate they have Web sites. Fewer than 300 also indicate that they have e-mail capabilities. Not surprisingly, a survey by Andersen Consulting recently found only 4% of more than a legion of executives understood e-commerce's potential at carbon, alloy, and stainless steel mills, and metals service centers recently surveyed by the research firm. A full 35% of these senior execs respond that they don't know anything about e-commerce. "We have a huge educational process ahead of us," says Lou Pahountis, associate partner in Andersen's Pittsburgh-based Global Metals Practice.
In chemicals, it's not totally a different story. According to industry insiders, almost 85% of all chemical producers and distributors communicate corporate and product information through Web pages, e-mail, or electronic data interchange systems of some sort. "But when it comes to selling chemicals on the Web, the industry is in the Kitty Hawk era of electronic commerce," acknowledges Robert Rubin, VP of Elf Atochem North America.
For the most part, the Web sites of commodity producers tend to function as a tool of the marketing and communications divisions, notes Ross Henderson, senior account representative at e-Commerce, a Toronto-based developer of corporate Web sites. The Web addresses, he says, have been designed to act as the first electronic interface with such various "publics" as customers, business researchers, investors, financiers, and the media. While Henderson maintains the future will see a rapid increase in Internet commerce by metals and chemical companies, he admits it hasn't happened yet.
According to Elf Atochem's Rubin: "By selling through the Web, we can see squeezing time and money out of the selling process. Imagine a situation where your customers have online access to your order-entry systems. We can see increased incentive for customers to buy from us. We can see the ability to ensure the customers don't run out of our products." Through the use of computer networks, Rubin continues, "eventually we are going to see product costs go down, customer relationships build, and increased profit opportunities."
But, for now, Elf Atochem is one of those suppliers that use a third party to sell some of its products. Only a few chemical producers--Dow Chemical (www.dow. com), Arco Chemical (www.arcochem.com), and PPG Industries (www.ppg. com)--have detailed product specs on the Internet so buyers can look at the products and place orders. Also, BOC Gases Americas (www. boc.com/gases/index.htm) and Air Products & Chemicals (www.apci.com) sell industrial gases and provide technical support on the Internet.
Up and running is an e-commerce listing of surplus and slightly out-of-date chemicals available at a discount from distributor Van Waters & Rogers of Kirkland, Wash. Located on a special Web site (www.pricedtomove.com), the connection displays hundreds of chemicals available from the company's nationwide system of distribution centers. Actual sales still are made, however, via e-mail or phone.
However, Van Waters & Rogers has aggressive future plans for its Web site (www.vwr-inc.com), including order entry and material safety data sheet (msds) functions, certificates of analysis, order tracking, purchasing histories, and price books.
Mainly for information
Most chemical companies still use the Web mostly to provide information. Typical is the comment from Dan Teer, VP sales and marketing at Chemicals Inc., a specialty chemicals producer, who says: "We have a Web site (www.chemicalsinc.com) that keys people into our manufacturing capabilities, but we are just beginning to appreciate selling some of our own chemicals on our Web page." Ashland Chemical of Columbus, Ohio, is another firm that provides product information through catalogs and technical data on the Web at www.ashchem.com.
"Obviously, we want to sell our commodities via the Internet, but we have to educate the senior executives," says Ashland's CIO, Gloria Keesee. "To develop all the internal systems among the company's different divisions doesn't happen quickly, and it needs top-level support, so we have had outside experts talk to our senior executives about what the Internet can do from a business perspective and a transactional perspective."
Dow Chemical execs acknowledge that electronic commerce eventually will transform how companies interact with customers. So the company is developing an e-commerce strategy to take it beyond e-mail and electronic data interchange. "Without eliminating face-to-face or telephone interaction as a means of traditional customer service, Dow eventually will use the Internet and other electronic tools to provide new ways of doing business," says a spokesman for the Midland, Mich., company. She points out that Dow's customers are demanding faster 24-hour access from anywhere in the world.
"As customers become more comfortable with using the Internet, they are demanding communication and service from Dow via the Web," the Dow spokesman says, adding that "competitors also are moving quickly to create e-commerce tools to meet customer demand for this electronic interaction." Dow's marketing personnel acknowledge that e-commerce can reduce costs by automating transactions, reducing errors, reducing or eliminating extra work, and working to enhance the firm's position as a valued supplier. However, the spokesman says that "rather than a 'one-size-fits-all' approach, Dow's e-commerce team is taking a business-by-business approach." Thus, each of the global business units is determining which e-commerce capabilities and features it wants to offer based on customer needs and market segmentation.
In turn, Dow's Information Systems organization is developing a set of common "smorgasbord" of options to offer to the global business units. "The buffet line will be filled with various tools and capabilities that the businesses have agreed they want," the company spokesman says. "Each business unit is analyzing its customers' buying behavior, needs, and preferences and will be choosing the right tools for its business needs based on the value the technology offers."
Metals: slow in developing
Since the metals industry "is a rather conservative, blue-collar industry, it will be a little slow in using the Internet to its fullest," notes Alan Gamble, president of Salem, N.H.-based Alloy Tech Inc., a metals service center that has branched out into the Metal Suppliers Online information site at (www.suppliersonline.com ). The Web address has a huge database of chemistry, mechanical, and physical properties for virtually all ferrous and nonferrous materials. Gamble says that, in time, the metals industry will grow more comfortable with the Net, but no major mill sells much prime metal on it just now.
Handling product sales over the Web site may be the goal of metals-producing firms, but one of the few actually doing it is processor USS-Posco Industries in Pittsburg, Calif. On the site (www.uss-posco.com), marketing managers have included stock lists, pricing calculations, order entry, and order status.
Michael Petersen, president of Petersen Aluminum Corp. in Elk Grove Village, Ill., and current president of the National Association of Aluminum Distributors, is convinced that some leading metals distribution firms "eventually will take the leap into some form of e-commerce." The problem is that metals distribution is so capital intensive that it is an inventory-heavy, location-rich business with heavy additional investment in processing equipment.
Thomas P. Conley, executive director of the Steel Service Center Institute in Cleveland, insists that there will be a "mixed reaction to electronic commerce from service centers, as they have spent years marketing value and customer service, and electronic commerce appears to be based primarily on price."
However, Bruce J. Farmer, president of Farmer's Copper & Industrial Supply Inc. in Galveston, Texas, and current president of the Copper and Brass Servicenter Association, thinks that metals distributors will get more involved in e-commerce "as customers push them to provide that bit of extra customer service that makes the difference in getting the order." Farmer contends that "the standard process of business is constantly looking for ways to improve, and technology is always evolving into specialized processing equipment and information systems, so that e-mail is growing in use and Internet e-commerce will come along."
Suppliers like third parties
Third-party Internet firms, not producers or distributors, are leading the way in chemicals and metals e-commerce. In chemicals, for example, e-Chemicals of Ann Arbor, Mich., has established online catalog sales operations for industrial chemicals at www.e-Chemicals.com. Chemdex of Palo Alto, Calif., is selling laboratory chemicals (www.chemdex.com).
In metals, Weirton Steel joined with LTV Steel and Steel Dynamics to sell prime steel through MetalSite (www.metalsite.com). a secure Web-based site, that also has news provided by Cahners Business Information (parent company of Purchasing Magazine) and online forums. "The Net is a new communication tool that can reach around the world instantly and is many times more efficient and effective than the phone or fax," notes Patrick Stewart, president. "It can use video, audio, and animation, as well as text and drawings to help convey lengthy or complex information very clearly and succinctly."
David Perry, CEO of Chemdex, says the online company has agreements to act as a middleman for 100 catalog marketers of laboratory chemicals. The suppliers set the price for chemicals sold through Chemdex, and none has set prices higher than what is charged in their catalogs. Perry contends the Internet market for lab chemicals has the potential to grow to $4 billion in annual sales. "And, while I'm concerned about what we're teaching potential competitors, e-commerce is a very fragmented market with no big gorillas," Perry says.
E-Chemicals sells and delivers industrial chemicals in small-quantity orders through strategic agreements with such suppliers as DuPont Specialty Chemicals, Elf Atochem North America, Noranda DuPont, Scheel, Sybron Chemicals, and Witco. The firm's commerce-enabled Web site is electronically linked with Yellow Freight to provide logistics services and reliable deliveries. SunTrust Banks processes credit, collections, and accounts receivable. At present, e-Chemicals sells salts, scale inhibitors, sealants, silicates, solvents, stabilizers, surfactants, terpenes, thermal fluids, and thickeners.
According to James P. Alampi, president of e-Chemicals, purchasing these industrial chemicals over the Internet reduces inventory costs and concerns about shipping liability. It is also a convenient system for placing orders. "Buyers log on, pull up a catalog, and search by chemical category, product name, and manufacturer," Alampi says. "Then they enter the order and the price is displayed. We pick up the product, deliver it, and do the billing." Alampi, former president of chemical distributor giant Van Waters & Rogers, says his new job is "to help develop the most efficient and cost-effective method of buying and selling chemicals through the combination of 24-hours-a-day/seven-days-a-week availability, Internet technologies, advanced logistics, and integrated direct marketing to benefit chemical buyers."
Alampi says there are some key advantages to buyers who make use of e-commerce sites such as e-Chemicals. He says buyers can be assured of value because Web-based distribution keeps supplier overhead low, yet the site is always open. "So you'll always be able to order the chemicals when they are wanted and also have the same level of access to material safety data and product data sheets," he says. "Because orders are placed online, which are transmitted to suppliers electronically, they always are accurate. " And there's also online order tracking.
Another site of interest is ChemConnect (www.chemconnect.com), where commercial chemical buyers can read messages about available products from sellers seeking to establish trading contacts and partners worldwide. The site contains a Suppliers Directory that allows buyers to make chemical supplier searches for company information via corporate Web sites.
Just recently, MetalSite initiated a "QuickBid" auction service providing authorized buyers with a more expeditious method for purchasing hot-rolled, cold-rolled, galvanized, and tin mill sheet products. The company also released an enhanced version of its "Advanced Catalog" with new features that make it easier for buyers to get product information.
MetalSite's Stewart is lobbying other mills to make more use of the Web site as a sales vehicle. He maintains that "whether it's production capabilities, specifications, product availability, or order status, the Internet allows prospects and customers to access crucial information as they need it. Satisfying this demand for immediate information can help mills forge even stronger ties with customers."
Stewart points out that buyers no longer are content playing phone tag or waiting for faxes. "They want information when they need it and how they need it," he adds. "Customers today want to work at their pace, not that of their sellers." MetalSite has commitments to receive 100,000 tons of steel per month from its three supplier mills. "We also expect to double that number before the end of 1999, which adds up to more than a half billion dollars worth of business annually," says Stewart.
Some 'almost-there' sites
Another metals-for-sale vehicle called MetalShopper recently went online at www.metalshopper.com. This site features listings of prime and excess metal provided by mill producers, service centers, machine shops, fabricators, and importers. Marc Stolfi, marketing director, says the site "has been designed to give large and small buyers a simple, efficient way to locate and buy a wide range of metal products." MetalShopper offers a place where service centers and others can list and potentially sell excess and prime material. It has listings for aluminum, brass, copper, nickel alloys, steel and steel alloys, stainless steel, and titanium secondary materials.
Yet another metals site is e-Steel (www.e-steel.com), based in New York, which bills itself as "a true marketplace for the exchange of steel on the Internet." Through e-Steel's "SteelDirect" feature, buyers may send inquiries to one supplier, several preferred suppliers, or to a universe of potential suppliers. They can search for product that meets their requirements and enter into direct one-to-one negotiation with the supplier online. When both parties are satisfied with the terms, a deal is concluded.
More of an information Web site is MetalSales at www.metalsales. com, which allows users to tell potential suppliers what they want to buy in various grades--rectangular tube, pipe, angle, coil, square tube, plate, flat bar, round tube, wide-flange beams, channels, bar grating, round bars, The site also provides a hard-to-find location system of overstocked, damaged, or discontinued items. Product listings include both prime and secondary material. Buyers interested in more information about a specific product can call an 800 number or send a fax or e-mail with the specific product number.
MetalWorld is an online information-trading site at www.metalworld.com, offering free buy/sell/ trade listings in various categories such as copper, brass and bronze, aluminum, magnesium, zinc, tin, lead, iron, steel, and exotic metals. Listings are carried for 15 days in bulletin-board style. If interested, a buyer or seller can use e-mail to receive more information or negotiate a sale.
Also note, however, that Online Metal Market, one of the earliest Web-based third-party sales sites, recently closed. Founder Jason Hall had several years of sales experience at a metal distributor before starting the service. During the time www.onlinemetalmarket.com was live, Hall found steelmakers reluctant to put prime product inventory and prices online. "What the buyers wanted, the mills wouldn't provide," he says.
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