Type: Process Essays
Sample donated: Manuel Wagner
Last updated: April 17, 2019
ChemUnity.com is an online sourcing solution for full-truck-loads of chemical commodities: Buyers define what they want, when and where, and ChemUnity.com forwards that inquiry to all the suppliers of that specific product.ChemUnity is providing e-procurement software and services for chemical buyers. They closed there online marketplace. ChemUnity has added four modules to its Sourcing Portal portfolio.
The new Inventory Monitoring Module handles automatic replenishment triggers, fulfillment supports multiple delivery purchase orders, integration links and an intelligence module supports optimal purchase decisions.In the future instead of hosting individual sourcing portals of all its customers, ChemUnity would sell software to customers wanting to own and install it internally.According to ChemUnity, through the modular approach, companies would grow from the practical web-browser-based sourcing portal to a completely XML-integrated procurement suite where all routine processes throughout the entire direct-goods supply chain are automated. The portal is capable of saving time and money by integrating the information scattered throughout the organizations.
This would help people to focus more on strategic issues rather than running around routine activities such as order replenishing.ChemUnity’s sourcing portal is being taken seriously in Europe. According to Huntsman, they are testing this portal in several countries in Europe and if it is successful, they will use it within Europe.
ChemUnity says that, by transferring all the correspondence with its approved suppliers into a well-structured digital environment, Huntsman hopes to improve the insight into its purchase options while maintaining the necessary face-to-face supplier interactions where relevant.1. What is the value proposition for suppliers and buyers?Electronic marketplace included increased source and supply chain efficiency, lower prices and access to new markets. ChemUnity had to convince both the suppliers and buyers in the marketplace that chemunity.com was the place to come for the needed products.ChemUnity, differentiated itself as a proactive site. This proactive approach meant that the site took an active interest in making the trade and informed the suppliers when new requests occurred.ChemUnity started with a focused approach in eleven Western European countries, all of which use a common currency, the Euro.
The common currency makes cross border transactions easier and reduces the currency exchange risk. Through the Euro, suppliers and buyers spoke the same monetary language.ChemUnity’s approach was that suppliers and buyers could match their interest and agree on trades. Thus, improving the efficiency of buying and selling.
For Buyers:Increase profit through savings.Savings are generated by:* Automating routine work (replenishment triggers, generating requests, reviewing offers, etc.). This allows buyers to concentrate on more strategic issues.* Improved access to information (improves negotiation power radically by having quotes, historical data & reports readily available instead of lost in fax archives).* Complete exposure of the supplier-base (no “last-minute ordering” from the local distributor without reviewing the other options from all approved suppliers.
)* Systematic workflow (the system imposes best-business-practices from the outset)(www.chemunity.com/procruementsuite/benefitsforbuyers.asp)Others:* Negotiating prices all day to find the most feasible was very high in pressure and it was felt to be inefficient. Through chemunity.com the buyer has no hassles and only has to type one e-mail to receive the best price for what they are looking for.
Instead of calling, faxing, and continuously e-mailing to find the best price. As they say time is money, and what’s the point of employing purchasing assistance if you can save money and the process is hassle free.* All inquiries were proactively forwarded to all potential suppliers, offer returned in 25 hours. In this way it wanted to make the buying and selling easy.* ChemUnity pre-selects the suppliers per product.
Therefore the buyer does not have to go through hundreds of pages of product descriptions.* Able to source from new companies more efficiently and at lower prices.* Buyers could compare prices of suppliers to other suppliers and see what best meets their needs.For Suppliers:Make existing business practices more efficient through application of new technology.Made more efficient by:* Decreasing routine work* Easing Communication lines with approved suppliersFor suppliers who have installed e-commerce initiatives, an advantage of using ChemUnity’s Procurement Suite is that it provides an e-environment to link with.
For suppliers who have not installed e-commerce initiatives, involvement allows them to increase their e-commerce experience without putting too much unsustainable pressure on their customer-supplier relationships.In addition, similar to the buyers, they can enjoy the benefits of managing the information from all customers into one single environment rather than different web-environments for each online customer.Others:* ChemUnity provided Credit Insurance; suppliers were assured that they would receive payment.* Contact person for supplier was notified by both e-mail and SMS.* Bid for deal could only be made once to avoid price erosion.* As ChemUnity targeted the middle segment of customers in volumes sense. It provided large suppliers the possibility of reaching the lesser known customers.
Thus, suppliers would be able to serve new markets and customers.2. Would the 2% transaction fee revenue model work?Before Herman Rijks and Mark-Jan Terwindt began to run their start-up company ChemUnity.com, an electronic marketplace for the chemical-industry, they had to think about various important things.
One of the most important issues was the strategic decision about a revenue model that would make the venture profitable and would save its long-term existence. But not only the revenue model itself was significant, even the targeted market, the chosen partners and the costs for personal, marketing and IT were important for the success of the new company.ChemUnity did not target a large segment of the European chemical market.
It tried to follow a kind of Niche-Strategy. From the whole value of annual ï¿½ 330 billion, it targeted a costumer segment with small quantities of goods and less strategic buyer and seller relationships. This market was estimated at ï¿½15 million and ChemUnity expected that it could have approximately 7% of the transactions in this segment. This meant ï¿½1 billion of transactions agreed through ChemUnity. In the beginning, this start-up company charged a transaction fee of 2%. Based on these estimated figures it could expect annual revenues of ï¿½20 million while the break-even was expected by ï¿½10 million.
However, this was only one possibility of charging revenues. Because of the much focused group of customers, their needs and the visiting of 3000 people daily, advertising on the Web site of ChemUnity was another possibility. In addition to these revenue models the two founders of this venture thought about additional services, like e.g. market research or transportation services as a third one. These should be initialed after the base business was up and running.ChemUnity expected the costs mainly related to marketing, people, and IT. In the beginning, the costs for marketing were extremely high because suppliers and buyers first had to get aware of this new electronic marketplace.
During initial-phase, the estimated marketing costs took up 60% the costs for employees 30% and the costs for IT 10% of the total costs. Later the costs for marketing were expected to decrease while the costs for people were expected to increase.ChemUnity had good partners who participated in the venture and thus enabled it to negotiate unorthodox deals with e.g. Compaq. ChemUnity would only have to pay if it succeeded.One advantage of the 2% transaction fee revenue model is that ChemUnity did not have to charge a membership fee.
The costumers could try the service and paid only if they made an exchange. Thou the entry barrier were low and ChemUnity was able to get enough suppliers for starting exchanges. The fee for the costumers’ transactions was not too high, because the buyers and sellers would save money while using this service.The 2% transaction fee offered good profit possibilities in case the amount of customers increase as estimated. Annual ï¿½ 20 million would lead to a positive cash flow witch would cover the initial costs as well as the costs for personal, marketing and IT.A problem with that revenue model is that it depends strongly on the number of costumers using this service. The estimated figures were very uncertain and if there were not enough companies using this portal, the cash flow could stay negative.
This could cause partners to leave the venture and this could mean the end for this start-up company, because the capital would leave as well.Another problem that could occur is if the volume of trading transactions is staying small, the costs for personal could be higher than the revenue out of these. The average size of a deal was estimated to be ï¿½5.000 to ï¿½10.000. Therefore, 2% of this would mean an income of ï¿½100 to ï¿½200 for each deal. However, if there were only many small deals ChemUnity were forced to employee more people.
As they were all paid well, the earnings could shrink enormously.The 2% transaction fee could lead in a high fluctuation of costumers. In the beginning, it was a good possibility to get costumers. However, ChemUnity needed to get regular costumers, because that would guarantee fix revenues and could cover a share of the costs for personal.
A monthly paid membership fee could be a way of reaching this aim.ChemUnity.com does not work with a transaction fee model anymore. Buyers have to pay subscription fee of ï¿½995 per month.
At implementation a license fee and set-up fee will be applicable.Suppliers do not have to pay anything.3. What were the future challenges, and how should Chemunity anticipate and respond to them?The future challenges that surround chemunity.
com are the challenges that concerns with its long term and urgent challenges. Challenges on its IT sector, in which they are trying to improve its performance, since the start of the company, that was not so smooth because of its problem.The need to promote their name and services so that they can increase the awareness of the suppliers and their buyers are essential in this case, with the awareness of the suppliers, ChemUnity can have a better offer from the supplier for their products and so the best supplier are chosen for each territory.The need to practice more of their virtual company rather than just employing more staff on the ground.
They need to test the technical business model and recruiting more staff with background in chemical industry and also in IT.ChemUnity also has to manage their department to be more efficient and to be more decentralized and to focus on one product and segment to test if it’s going well or not.The need for an expansion of the company in the longer term is essential, not only to access more market but also to gain more capital that can be raised by registering the company in the stock exchanges around the world.ChemUnity need to attract more investors to expand its business, the need to have partners in other countries that are not so easily accessible.