Constructing an E-Supply Chain at Eastman Chemical Company - Essay Example

The chemical industry needs big capital investments to operate a successful business structure. It faces some problems of supply and demand imbalances due to continuous and semi-continuous manufacturing processes. Most of the processes are automated, but there is a need for human intervention for checking the system. This translated into a scenario where unexpected demand or troubles with the equipment caused inventory management and customer service problems. The year 1999 was very difficult due to weak international economies, a shortened demand, over-capacity, and a squeeze on prices and margins. So the people at Eastman Chemical Company set the goal of better customer service, lowering operating costs, improving plant performance, and reducing inventory costs. There was a clear need for improving the supply chain planning processes. The solution for Eastman Chemical Company was to implement agile demand planning, agile production scheduling, and efficient distribution of inventories. (Ng, 2002: pp. 1-3).

Eastman was the first chemical enterprise to do business online. Eastman was an early adopter of the Internet as an excellent medium of information for leveraging its capabilities. Eastman, headquartered in Kingsport, Tennessee, United States, manufactured over 1,200 chemicals, fibers, and plastics. It was one of the top 10 global suppliers of custom-manufactured fine chemicals for pharmaceutical, agricultural, chemicals, and other markets for a wide array of consumer products. On December 5, 2001, the publication Chemical Week placed Eastman worldwide as 43rd by sales, 59th by profitability, and 29th by innovation in the global industry. As a pioneer in e-business, Eastman had the following online strategy:

-Focusing on creating customer-centric solutions.
-Holding a portfolio of options, choices, and solutions for customers along electronic channels.
-Investing in technologies/capabilities that could bring real value to its clients.
-Being externally focused.
-Forming partnerships.
-Building an “e-brand” to attract customers, suppliers, and technology partners.
-Leveraging its intellectual capital, industry knowledge, network of contacts, credibility, brand, and customers. (Ng, 2002: pp. 3-4).

In July 1999, Eastman launched its Customer Center over the Internet at eastman.com. At the core of Eastman’s e-business strategy, there was the Integrated System Solution (ISS) as the technical architecture for implementing the necessary interconnectivity at the supply chain level. By the year 2001, Eastman was making about 30% of its sales through eastman.com, eastamanmarketplace.com, online marketplaces, EDI, and ISS as its electronic channels. It also made 20 system-to-system connections with strategic partners and it had 3 digital business ventures: paintandcoatings.com, Cendian Corporation, and Asia BizNet, linking the front end with the back end of its operations and logistics. In 1992, Eastman had already implemented SAP (Systems, Applications, and Products) as its Enterprise Resource Planning (ERP) system. Its operation was deployed with Advanced Planner Optimizer (APO) architecture (demand, supply, and inventory) and XML integration as its technological strategy along with R/3 (Real Time Data Processing) and Logility Voyager Solution (forecasting). This way the supply chain started with demand planning and ended with fulfillment (transportation planning). (Ng, 2002: pp. 4-6).
The ability to link up together the supply chain computing systems allowed all of Eastman’s trading partners to re-engineer their business processes through Eastman’s ISS logistics infrastructure.

This customer solution had 4 dimensions in the practical sense:
1.- System-to-system integration.
2.- eVentures.
3.- Online Store Front.
4.- Eastman Web Portal. (Ng, 2002: pp. 6-7).
The purpose of the ISS was to take advantage of the Internet and XML technologies for the integration of the e-supply chain among all stakeholders. In 1999, Eastman invested in the following XML technologies: APO for transactions, web methods for Business-to-Business integration, and SAP. The ISS architecture was designed by Eastman to integrate the customer and the suppliers with their ERP system. The webMethods solution has an integration layer, an ERP system, and its infrastructure with the following characteristics:
1.- Sales channels.
2.- Fulfilment channels.
3.- Logistics services.
4.- Financial services. (Ng, 2002: pp. 7-8).

ISS consisted of a webMethods Server, Trading Network, and CIDX Adapter. It gave new scope to the concept of a collaborative supply chain. At first, most of the strategic partners were more interested in order-to-cash transactions. In June 2002, the ISS structure was almost ready. It had Cendian as a partner as a logistics service provider, and FedEx and UPS for the air freight services. The Asia Pacific region was very important for Eastman as it represented 25% of revenues. ISS was implemented faster in the United States, so the Asia Pacific region was a challenge for Eastman. The most crucial factor was the labor-reducing costs. (Ng, 2002: pp. 8-10).

In 2002, Eastman had very few partners through their ISS structure taking into account the hundreds of potential partners on a global basis. Craig Knight, Digital Business and Customer Services Manager for Asia Pacific at Eastman Chemical Company was very busy in mid-2002 trying to convince Nagase & Co., LTD, an Eastman distributor for 50 years, to make the connection with Eastman. Nagase didn’t have an ERP system. Knight proposed to Nagase a system composed of PRONETS (Sales Department (purchase entry), Logistic Planning Office (logistic input), and Customs Clearance), APORO (Sales Department –inventory update-), and FINE (Finance Department –payment-). This way, Eastman and Nagase & Co., LTD would integrate their technical systems and business processes with ISS. But it is important to notice that Eastman’s ISS structure is available for web browser-based interfaces to enhance the process automation and to add value for all of the partners. Read More