March 02, 2001, 12:59 PM — A dirty little secret exists in industry today: In this age of e-business, most business is not electronic at all. Most businesspeople still buy and sell goods via methods that have been around for decades. They write a contract and shake hands. They pick up the phone and send a fax. The truly enlightened might communicate via e-mail.
This is particularly true in the $507 billion North American chemical industry, where most companies have long-standing, contractual relationships with their suppliers. That's why the founders of Envera, a Richmond, Va.-based startup, think their idea of providing an electronic hub through which chemical companies can forge links with each other will strike a chord in the industry.
Consider a typical transaction: After a bidding process, chemical companies generally enter into annual contracts to buy a certain quantity of chemicals at a certain price from a certain partner. A purchasing agent from the buyer then calls the seller's toll-free number to confirm price and quantity and schedule the shipment of an order. The seller's representative keys the order into his company's system -- perhaps making an error or two -- and then faxes back the order acknowledgment. The method works, but it is hugely expensive. All told, it costs between $50 and $100 to process a single order.
Clearly, the way chemical companies conduct transactions is in need of an overhaul. The question remains whether a marketplace such as Envera -- using XML as the linchpin -- can provide the answer.
Looking for an Easier Way
Chemical companies have long searched for a way to automate the procurement of production goods. Twenty years ago, many pinned their hopes on electronic data interchange (EDI), which had been used successfully in the automotive industry, but that effort failed to catch on in the chemical industry for lack of standards. Along came the Internet. At the end of the '90s, companies such as Ethyl began to build Web-based connections to many of their best customers. Using these private, company-to-company connections, the partners could obtain order information, submit orders, and find information on product descriptions and shipping details. The problem was, each connection took months and hundreds of thousands of dollars to build. There was no way companies could afford to create a one-to-one connection for each of their suppliers. Bob Mooney, then chief financial officer at Ethyl in Richmond, Va., an $843.7 million maker of petroleum additives, remembers thinking that a better way to go would be to create a central platform -- an electronic clearinghouse or hub -- that would link chemical companies' back-end systems with those of all their suppliers. The hub would translate business documents such as a purchase order from a company's ERP system into standard XML data and send it to the partner, where it would be translated into the format preferred by the partner's ERP system. Having a centralized electronic hub would eliminate the need for companies to forge individual connections to every trading partner, in theory saving loads of time and money.
Last March, Mooney, Mike Giesler, then Ethyl's CIO, and two other cofounders began knocking on colleagues' doors, talking about creating an electronic hub for the chemical industry they called Envera (roughly translated from Latin, envera means "in truth"). Envera would differ from other electronic trading exchanges that were then making headlines, such as the chemical industry's CheMatch.com and the auto industry's Covisint, in that it would not attempt to match sellers with buyers. Rather, it would serve only as an electronic platform on which already-established business partners could conduct their transactions. Envera would not take a piece of each transaction that it hosted but instead would charge members an annual subscription fee of between $5,000 and $300,000, depending on company size. Mooney and Giesler got a warm reception from their peers, snagging funding from 11 companies. Things moved quickly after that. Giesler and Mooney left Ethyl in July and by the end of the summer Envera had hammered out XML document definitions for eight basic business processes in conjunction with an industry standards group. By the fall, the initial phase of Envera was up and running, with partners such as Lubrizol and Occidental Chemical beginning to conduct business online. To date, only a tiny number of transactions have taken place on Envera. Giesler expects business to jump once Envera's 40 trading partners come online this spring.
