Chemical
Big Supply-Chain Benefits for Midsize Chemical Companies
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On This Page
 | Executive Summary |
| Supply Chain Payoffs |
| Formula for Increased Profits |
| Easing Integration Effort and Expense |
| About the Analysts |
Executive Summary
The substantial lifting of market barriers and import tariffs worldwide offers new opportunities for midsize chemical companies—but only if they can integrate processes and information across geographic boundaries. That's why, for many such companies, effective supply chain management can be such a breakthrough application. According to consulting company Frost & Sullivan, the biggest chemical companies depend heavily on the specialty chemical manufacturers that supply them. Yet smaller companies often lack the resources to automate their own operations and connect efficiently to others.
What the industry needs is a way to enable the efficiency of an automated supply chain beyond the largest companies while keeping the cost to something the smaller can afford. Fortunately, this need has been at least partially filled by Elemica, a popular marketplace and portal developed by an industry consortium. Elemica uses a special version of XML for processing transactions among all chemical companies. But until recently, small and midsize companies had to log in manually through a time-consuming data entry process. It was better than nothing, but still fell short of the real automation needed to quickly address supply chain constraints.
For example, a small company would have to enter an order into its own enterprise resource planning (ERP) system—whether a Microsoft Dynamics application such as Axapta, Great Plains, or Navision, or even a Web-based service like MySAP—and then manually key the order into Elemica. This alone could add 15 to 20 minutes to each transaction. Also, the license fees were prohibitively high for many companies.
Supply Chain Payoffs
Seeing an opportunity to automate last year, SoftMatrix (a Microsoft partner company now called AgreeYa Solutions) approached Elemica with an idea. AgreeYa offered to develop an affordable trading partner solution that midsize chemical companies could use to automatically connect to Elemica and integrate, to any degree they wanted, with their own systems. Elemica agreed and AgreeYa began work on a solution based on the Microsoft Application Platform.
Incorporating technologies such as Microsoft BizTalk Server, Microsoft SQL Server, Microsoft Visual Studio, Microsoft SharePoint Portal Server, Microsoft Office, and Microsoft Office InfoPath, the integrated solution makes it possible for midsize firms to run smarter and concentrate on their core business. Smaller companies can connect to Elemica without human intervention, and larger ones can provide direct connections to trading partners using Web portals or even Microsoft Office applications as front ends to supply chain transactions.
The foundation of the solution is BizTalk Server and AgreeYa's own BizTrade, a BizTalk toolkit for Elemica. According to Manohar Sridharan, a director of strategic accounts at AgreeYa, automating supply chain transactions provides significant benefits. "It can significantly reduce the time and cost of order management, shipping and receiving logistics, invoicing, and payments," he says, adding that for midsize chemical companies in search of efficiency, business-to-business automation can spell the difference between profit and loss.
How chemical supply chains can become revenue generators
| • | Improve service levels to customers. |
| • | Accelerate to market times for new products. |
| • | Stimulate market penetration. |
Source: Frost & Sullivan, 2004
Using BizTrade, for example, midsize companies generate transactions in their own business systems with the data output going to BizTalk Server. From here, the business data from such everyday transactions as customer orders, purchase orders, and invoices is translated into XML without rekeying. BizTrade next changes the XML code into CIDX (the standard Elemica transaction format) which it then forwards automatically to the hub. Microsoft SQL Server acts as an intermediary database, allowing BizTalk Server and BizTrade to store data during this process.
Using this approach makes the entire experience more attractive for midsize chemical companies. One reason is that BizTalk Server and BizTrade are relatively easy to implement and do not require the extensive IT support that custom integration between companies might require. Elemica also changed its pricing structure for smaller companies using this approach, charging only for each transaction and not some umbrella fee as well.
Formula for Increased Profits
BizTalk Server provides additional benefits. One benefit is better or faster decision-making as a result of using the Business Activity Monitoring (BAM) feature, which keeps detailed records of all transactions. This form of real-time monitoring also combines with automated business rules to determine the stage of any transaction.
For example, AgreeYa wrote its own orchestration that knows every step of every transaction type. If one company sends a purchase order, then BizTalk Server will look for the expected acknowledgment from the other party. If that acknowledgment does not arrive, the first party will be alerted that something went wrong. Another advantage is the enhanced security that results from using a digital signature for authentication and automated transaction authorization. This helps ensure the identities of transaction participants and that the business has the needed sign-offs. "Not only does this take the inefficiency out of the whole process, it reduces the possibility of errors, issues, and the dependencies on individuals," says Ajay Kaul, AgreeYa's managing partner.
Potential supply chain ROI for chemical companies
| • | Profitability improvement of 20 to 35 percent |
| • | Inventory level decreases of 20 to 30 percent |
| • | Increased delivery performance of 5 to 10 percent |
Source: AgreeYa Solutions, November 2005
Supply chain–related roles in midsize chemical companies are often numerous and varied, typically involving people in purchasing, sales, manufacturing, and operations. In one real-world scenario, a midsize supplier integrated with a large enterprise through the Elemica trading hub and BizTrade. Since then, the smaller company has shown a 27 percent increase in profitability, 22 percent lower inventory levels, and 10 percent greater delivery performance—reason enough to justify the effort to automate and integrate.
AgreeYa's clients are not limited to working through the Elemica hub. In addition, they can use their Microsoft Application Platform–based solutions to directly connect between chemical companies when there is enough interaction between them to justify it. In particular, AgreeYa regularly uses BizTalk Server to connect to a wide variety of applications as well as databases such as Oracle and Microsoft SQL Server. Its software also supports many communications protocols, from EDI to HTTP-based electronic transfer, providing a firm foundation for such customized work.
Easing Integration Effort and Expense
The biggest challenge in moving to automated supply chains for smaller chemical companies is not ultimately the technology. The larger issue, according to AgreeYa's Kaul, is change management. Small to midsize companies often perform much of their work manually. Purchasing agents, salespeople, and manufacturing planners, as examples, become accustomed to these ways of work and often resist a change to new systems. Successfully moving them to business automation takes significant work, and if a company does not provide the necessary training and handholding, it may fail.
"If people aren't using the system, it goes down the drain and you're not going to see the ROI you expected to see," says Kaul. Not only does the smaller firm lose its potential gains, but the larger companies they supply do not get the supply chain improvements they need either.
Advantages in using BizTalk Server for partner integration
1. | Using Microsoft Office as a front end for smaller partners reduces integration cost and complexity. |
2. | BizTalk Server can integrate back-office applications, eliminating redundant data entry and its inefficiencies. |
3. | Reducing manual entry eliminates a significant source of human error that can lead to supply chain inefficiencies. |
4. | Business Activity Monitoring (BAM) enhances decision-making and increases trading partner visibility. |
5. | Each partner can use a single communications process, no matter what other partners use. |
6. | Digital signatures for authentication and automated transaction authorization boost security. |
Source: AgreeYa Solutions, November 2005
This is another area where BizTalk Server's technology can improve acceptance through custom solutions, created using Microsoft Visual Studio as a programming workbench. One approach AgreeYa takes, at the request of larger companies, is to connect smaller companies using Microsoft Office InfoPath forms. Users can create and read documents in familiar applications such as Microsoft Word or Excel and then use them to exchange data with Elemica. Another way of connecting smaller chemical companies to larger ones is to use Microsoft SharePoint Portal Server, creating a custom portal for the larger company through which it provides access to its trading partners.
It's a winning approach for all partners. The smaller companies benefit from working in environments that are familiar to them, making it more likely their employees will make use of new yet familiar systems. The larger companies (typically with 2,000 to 5,000 suppliers worldwide) also find it easier to get their smaller trade partners running on the software, so they can actually get the greater efficiencies they need to effectively compete in a global market.
So even with the difficulties caused by the disparity in size of trading partners in the chemical industry, supply chain automation is possible—and a lot easier than companies might think. It just shows that if the chemistry is right, the profits will flow.
About the Analysts
Frost & Sullivan
Frost & Sullivan employs consultants, market analysts, corporate trainers, account managers, and customer support staff globally. The company works as a team providing growth consulting and corporate training solutions to clients in more than 50 countries around the world.
AgreeYa Solutions
AgreeYa Solutions was founded in 1999 and is a fast-growing business and technology solutions provider, headquartered in Folsom, Calif. A Microsoft business partner, AgreeYa is a leading provider of business and IT consulting services nationwide to public sector entities, private companies, and the Fortune 500. AgreeYa was recently named the fifth fastest-growing company in the Sacramento metropolitan area by the Sacramento Business Journal.
Brian Mulvey is a senior writer for Triangle Publishing Services Co. Inc. with extensive experience describing how to optimize supply chains for various manufacturing industries. Triangle provides articles for BusinessWeek, CIO, CFO, Managing Automation, and other publications.
For More Information
The following links provide a more in-depth look at how BizTalk Server supports supply-chain issues.
| • | Read why IT matters for the competitive advantage of your business |
| • | Learn about the benefits of using BizTalk Server in manufacturing |
| • | Review the supply chain case studies with BizTalk Server |