- If you were a small chemical company, what concerns would you have about joining Elemica?
- Elemica provides a community for participants where they can transact, coordinate, and cooperate to produce products for less. Yet these firms also compete with one another when they sell chemicals to end-user firms in the automobile, airline, and manufacturing industries. How is this possible?
- Review the concept of a private industrial network and describe how Elemica illustrates many of the features of such a network.
It may seem unusual to refer to an entire industry as a community, a word reserved typically for collections of people who more or less know one another. Trade associations are one example of an industrial community. Trade associations form in an effort to pursue the interests of all members in the community although usually they do not include customers in the community. Elemica is a B2B cloud-based, supply chain platform aiming to revolutionize the entire supply chain of the chemical, tire and rubber, energy, and other process industries worldwide. Elemica’s purpose is not just to foster cooperation on a one-to-one inter-firm basis, or just to foster collaboration on multi-firm projects, but instead to lift all boats on an industry tide by providing an inter-firm platform for communicating B2B information, and thereby making all firms more efficient. Elemica calls itself a supply chain operating network ecosystem. Elemica is one of the few survivors of the early B2B e-commerce years. Elemica today processes approximately $350 billion in annual transactions across more than 7,500 process industry trading partners. Clients include BASF, BP, Continental, The Dow Chemical Company, DuPont, The Goodyear Tire & Rubber Company, LANXESS, Michelin, Shell, Solvay, Sumitomo Chemical, and Wacker.
Elemica was founded by 22 leading corporations in the chemical industry (including oil and industrial gases) to provide cloud-based order management and supply chain applications and services. A single platform provides one-stop shopping so that companies can buy and sell products to one another through their own enterprise systems or using a Web alternative. It also helps companies automate all of their business processes, creating efficiencies and economies of scale that lead to an improved bottom line.
How does Elemica achieve community among a diverse, global collection of firms where firms are often both customers and vendors to one another? It unites community members by linking together their enterprise systems. This is the “social glue” that sets Elemica apart. This “super platform” permits companies to communicate with one another and to conduct transactions, handle logistics, and keep the books. The Elemica commerce platform has effectively standardized industry business transactions for all network members regardless of the type of enterprise system they have, and it’s leveled the playing field for trade partners who are less technically sophisticated. This neutral platform facilitates millions of transactions for industry suppliers, customers, and third-party providers. In this sense, Elemica is one of the most sophisticated technology platforms in the B2B space.
One of the largest investments for a company is its enterprise system. Despite these investments, intercompany relationships—the backbone of its supply chain—are often left to outdated and unreliable processes. These shortcomings cost billions in lost productivity, revenue, and profit. Elemica’s eCommerce platform changes that. It helps its clients leverage their enterprise system investment by incorporating transactions to external trade partners. Elemica’s QuickLink ERP connectivity enables companies to link their internal IT systems through a neutral platform so that information is moved into each company’s database while maintaining confidentiality and security. The chemical and oil industries were among the first users of enterprise systems (referred to in the early years as manufacturing resource planning systems). These large-scale systems were developed by single firms in order to rationalize and control the manufacturing process. They achieved this objective by identifying the outputs, inputs, and processes involved in manufacturing and automating key elements including inventory control and planning, process control, warehousing and storage, and shipping/logistics. If a company needed to produce 10 tons of polyethylene plastic, its enterprise system could tell it precisely how many tons of petrochemical inputs were required, when they should be delivered to manufacturing, the machinery and labor force required to manufacture the product, how long it would take, where it would be stored, and sometimes how it would be shipped. The systems can estimate the cost at any stage.
Elemica facilitates transactions of all types including order processing and billing, and logistics management. However, unlike some other companies in the field, Elemica does not buy, sell, or own raw material products. Instead it acts as an intermediary, or network, linking companies together to automate confidential transactions. Like eBay or a credit card company, Elemica’s revenue comes from charging transaction fees on a per-transaction basis. Its network of clients opens the door for companies to do business with all other connected buyers and sellers.
Elemica offers a variety of services for suppliers, customers, and logistic partners, enabling them to automate both their business processes and internal purchasing. A modular, cloud-based solution simplifies sales, procurement, and financial processes; integrates supply chain partners to diminish communication barriers; and reduces overhead and errors.
Elemica integrates information flow among global trading partners using a cloud-based business process network called the QuickLink network. This is often referred to as platform as a service (PaaS). Each client needs only a single connection to Elemica, and Elemica manages the connections to that company’s external trade partners. That means a company needs only maintain one connection to Elemica(important when it’s time for enterprise system maintenance or upgrade) rather than maintain a variable number of connections and infrastructure to all its trade partners. Once a company connects to Elemica, it can have access to thousands of other trading partners, including suppliers, customers, and logistics firms. Clients are charged for the service based on volume of usage. This is much more efficient than older EDI solutions to inter-company transactions. Elemica provides the platform for collaborative commerce through a fully automated integrated network of suppliers, customers, and third-party providers.
Elemica offers cloud-based solutions for four areas: Logistics Management, Customer Management, Supplier Management, and Sourcing Management. Using these solutions, companies can automate ordering, invoicing, shipment tracking, and day-to-day business operations. Companies can sign up for one or more solutions depending on their needs. The software applications are software as a service (SaaS) applications residing on Elemica cloud servers, and therefore do not require participating firms to buy any hardware or software. Firms are charged on the basis of how much of the service they use, on a demand basis.
Here’s an example of how Elemica works. Let’s say you need to order vinyl acetate from one of your suppliers. You put the order into your internal enterprise system, the order is automatically routed to Elemica’s QuickLink network, Elemica routes the order to your supplier’s internal enterprise system, and you get a confirmed receipt of the order. Elemica’s QuickLink Network ensures the accuracy of the item number and purchase order number and sends an alert if there’s an issue. Once an order is confirmed, Elemica’s platform can be leveraged to plan and coordinate delivery and automatically send an invoice and submit payment. For small or medium firms that may not have an enterprise system, Elemica has a Web portal with online software that allows firms to participate in the community with suppliers and customers. The platform offers a closed-loop process, end to end, from the purchase order, to acknowledgments, load tenders and responses, carrier status updates, and dock scheduling. All of this takes place in a few seconds with little or no human intervention. Elemicahas even developed a solution that allows a customer to send a purchase order via e-mail or a print driver (alleviating fax processes) that is then routed to Elemica. The company then routes it to the supplier in its preferred format, integrated with its enterprise system as though it were a true electronic order. This holistic approach to order management allows suppliers to automate the process with both strategic and core customers, without asking its customers to change their processes. It’s a win-win situation for suppliers and customers. Elemica’s QuickLink Network is sometimes referred to as Come as You Are network because it allows firms to use whatever communication tools they currently use, such as EDI, XML, and even e-mail, or formats associated with their enterprise systems.
Unlike the automobile industry or the airline industry, where a few companies dominate, the $5 trillion global chemical industry is made up of many companies of all sizes. In addition, unlike many other industries, chemical companies often buy the output from other chemical companies to use as raw materials for their products. Thus, chemical companies are often customers of one another as well as competitors.
Senior leaders at some of the larger chemical companies were aware of changes in technology that made the adoption of information technology and the tools of e-commerce more appealing. The questions were how to best use these advances to benefit their businesses and how to establish industry standards for electronic transactions to make them accessible and attainable for all. Leaders from companies such as Dow Chemical and DuPont began discussing this subject and determined that a cooperative alliance would be the most efficient way to move forward. They were met with initial skepticism by marketing and sales staff, worried that online procurement would negatively affect relationships. Further, senior corporate leadership wasn’t sure that e-commerce would have any use in the chemical industry at all. And companies were cautious about the expense of investing in the infrastructure necessary for e-commerce.
However, there were compelling opportunities that were impossible to dismiss, including lowering costs, creating closer connections with customers and suppliers, and differentiating companies on something other than price. At the same time, new start-ups like e-Chemicals and PlasticsNet were making traditional chemical companies nervous. What would happen if their efforts to use information technology to streamline an inefficient supply chain helped them capture market share? In other words, if the more traditional companies didn’t move forward, they might end up losing the revenue race.
When Dow began looking at start-ups that were using e-commerce and talking to their customers, they found that customers were concerned about making an investment to establish online connections with multiple firms. Dow and DuPont decided that the best and most economically efficient option was to offer customers the choice of a neutral one-to-one link. This would remove the obstacle of multiple connections. A strong, third-party network addressed the community concern about loss of control. The two companies decided to create and invest in a neutral e-commerce company, partnering with other companies to create the critical mass needed to make it viable.
In 1999, the corporate boards of Dow and DuPont agreed that there were major advantages to online transaction processing and additional online connections among buyers and sellers. Because time and cost considerations made multiple connections unattractive to customers, a hub concept was adopted. It was also decided that a neutral community was the best approach.
All participants shared the common goal of creating a neutral platform to facilitate inter-company transactions and enhance business processes. Dow and DuPont also reviewed the concept with the relevant regulatory agencies and received up-front approval. Ultimately, 22 global chemical companies were involved in the launch of Elemica.
When Elemica opened its doors in 1999, there were around 50 start-up B2B e-commerce companies in the chemical industry. Nearly all of these B2B companies were third-party-owned Net marketplaces suitable at best for short-term sourcing of some direct inputs. In 2016, only a handful of these Net marketplaces for the chemical industry remain. Elemica focuses on building longer-term business relationships by creating committed and contractual supply chains. The company acts only as a facilitator of business transactions and does not directly buy and sell chemical products.
Elemica’s business model has been successful primarily because it addresses the needs of chemical, tire and rubber, energy, and selected process companies of all sizes. It does this by offering multiple options for connecting to its hub system, multiple products that can be used alone or in combination, and by ensuring that only one connection integrated with a client’s enterprise system is needed for all transactions. Customers can use Elemica, and take advantage of the technology it offers, without purchasing an additional internal system.
With Elemica, companies benefit from improved operational efficiency, reduced costs due to elimination of redundant systems and excess inventory, and a much higher percentage of safe and reliable deliveries. The flexibility of Elemica’s solutions and network combines simplification, standardization, and efficiency. And clients have increased their profitability and improved cash flow through faster payment.
A number of very large companies use Elemica’s platform. In Europe, Shell Oil started using Elemica after recognizing that it had ongoing problems with the coordination of paperwork processing and deliveries. Truck drivers would arrive at delivery sites and wait up to two hours while paperwork was filled out. These delays were costing Shell money. Once Shell began using Elemica, things improved. Today, paperwork is processed 24 hours a day, and truck waiting time has been cut from an average of two hours to an average of 15 minutes. Given this success, Shell continues to expand its relationship with Elemica.
Dow Chemical began to transition to full procurement automation with Elemica in 2007. More than 300 of their MRO suppliers are now linked to Elemica’s platform. Errors are down 75%, and Dow has achieved economies of scale that have led to meaningful financial savings. Elemica helped Dow unify multiple, disparate business processes, reduced the cost of getting contracted items from suppliers, and increased efficiency in procurement, operations, IT, and accounts payable.
Air Products & Chemicals, Inc. is a global provider of gases and chemicals with 22,000 employees worldwide, and $10 billion in revenue. A major customer asked them for online ordering, but the initial method proposed would have required considerable additional work for both parties. Because both companies were connected to Elemica, there was a better option—the Elemica Supply Chain Hosted Solution.
Elemica has also developed a sustainability program. In 2015, Elemica received the Food Logistics 2015 Top Green Provider Award for its efforts in promoting sustainable supply chains. Elemica automated all inbound and outbound invoices for a global chemical company, eliminating over one million paper invoices. Elemica also eliminated the costs of archiving and storing paper records, saving additional costs.
Elemica has added social tools to its Supply Chain Operating Network (SCON). The idea is to give clients the ability to discover, create, and build social business networks—just as Facebook provides its users the ability to build online social networks. SCON provides its clients with a cloud-based network for establishing business relationships and SaaS (software as a service) applications to carry on trading once the relationship is established. Instead of creating hundreds of one-to-one EDI connections with partners, and then building their own software applications, firms can now more easily just connect to the network and find all the tools they need to trade with many partners. And in May 2014, Elemica introduced its Process Control Tower, a graphical interface that offers a consolidated view of transactional data across all a customer’s business partners. Based on the metaphor of an airport control tower, the idea is to give managers a near real-time view of their entire supply and logistics systems. In the past, and still in many firms today, this kind of supply chain information comes in many different forms, from faxes, to e-mails, spreadsheets, and EDI messages. The Control Tower eliminates these difficult-to-interpret messages, and greatly enhances supply chain visibility.