Title: 16 June 2000
1 16 June 2000
E-Business in Steel Energy Industry
- Jaesoo Shim
- Principal Consultant
2E-Business in Steel Energy Industry
Agenda
1. What make steel/energy players get into
e-sales? 2. What is characteristics of e-
business in steel/energy industry-Chemical
industry case? 3. Evolution stages of e-sales in
steel/energy industry 4. Value of e-sales in
steel/energy industry 5. Cases
3e-business is the Megatrend driver on sales
aspect of steel/energy industry. It brings
challenges with opportunities to steel/energy
players.
Megatrend Driver on Steel/Energy Industry
Challenges
Opportunities
Changes on Purchasing Pattern
Steel/ Energy Industry
High growth potential on e-sales
4Steel trading companies using cyber channel,
which are Metalsite and e-steel, trades10 of
steel products in global market using
e-business.
??
Entry of Cyber Channel
Generally, Steel buyers prefer long-term
relationship with steel makers. In this
situation, spot market will cover less than 10
of total market But, the fact steel is traded
through internet gives important implications to
manufacturers
80Trillion Won(10 Of Total Market)
Spot Market
Long-term Contract base Market
760 Trillion Won
Source Gartner Group
5Auto industry which is a major customer of steel
industry confronts 2 major changes - Merge
Strategic alliance with internet companies. This
trend stimulate auto companies buying their raw
materials throughinternet
Changes on Purchasing Pattern
This trend impact steel industry on the following
aspects Steel players will become suppliers for
global sourcing companies Online trading of
steel products will continuously increasing
6Maximizing asset utilization has been CSF in
steel/energy industry. But, industry CSF for the
future is effective customer management. One of
the core elements of effective customer
management is building superior customer contact
point trough e-business
Change of Industry CSF
From Products to Customers
ILLUSTRATIVE
70s - 90s
Power Shift
Power Shift
Customer
Retailer
Enabling Technology
Enabling Technology
PCs, Internet
Bar Codes, Scanners
Application Approach
Application Approach
Management Information Systems
DW/ DM Decision Support
Information Access
Information Access
Functional Business Silos
Egalitarian
Value Measurement
Channel Equity
Customer Equity
7Customer profitability increases as the customer
stays with the company over time. E- business
makes companies build effective customer
relationship
Change of Industry CSF
Customer profitability
The sources of Customer Value
Gain customers at lower cost
Referrals
Satisfied customer are less price sensitive
Margin increase
Cross selling
Awareness of value proposition breeds more buying
Turnover with new products
Turnover
Operating cost saving with scale and scope
Development and retention costs
Acquisition costs
Customer lifetime
Customer profitability increases as the customer
stays with the company over time
(From Frederick F. Reichheld "The Loyalty
Effect" - Harvard Business School Press, 1996)
8Currently, e-sales in steel/energy industry is
relatively inactive. But, growth potential is
the highest among the industries.
High growth potential on e-sales
- Forrester Research estimates that inter-company
trade of hard goods using the Internet - will grow from 109 billion in 1999 to 1.3
trillion worldwide in 2003. - Online B2B is becoming a more and more integral
part in the buying and selling of steel - products.- Lawrence Kavanagh, vice president
of the American Iron and Steel Institute - Buyers who plan to purchase on the Web in the
future indicate that they hope to procure - materials that run the spectrum of industrial
products. About 31 say they will look to buy - metals 6 are buying metals today.
9E-Business in Steel Energy Industry
Agenda
1. What make steel/energy players get into
e-sales? 2. What is characteristics of e-
business in steel/energy industry-Chemical
industry case? 3. Evolution stages of e-sales in
steel/energy industry 4. Value of e-sales in
steel/energy industry 5. Cases
10E-business enable companies to integrate
customers and enterprises through building
effective customer relationship. The final goal
of e-business is creating Extended Enterprise by
extending value chain outside enterprise. e-Sales
focus on sales and marketing aspects of e-business
Scope and definition of e-Sales
Extended Enterprise
Scope of e-Sales
Customer Care
Manufacturing
Logistics
Invoice
Invoice
Supplier
Contracts
Leads
PO
Sales Order
11E-business model is segmented by market
fragmentation and process/product complexity.
Base on characteristics of steel/energy industry,
ITE model is the adequate model for steel/energy
industry.
On-Line Trading Community Segmentation
4
High
Affiliated-Based Model (Horizontal)
Independent Trading Exchange
(Vertical)
Seller
Seller
Buyer
Buyer
Affiliation
ITE
Buyer
Seller
Buyer
Seller
Seller
Seller
Market Fragmentation
Buyer
Buyer
Hub-Based Model
Highly Disintermediated
Trading Partner
Trading Partner
Trading Partner
Buyer
Seller
Hub
Trading Partner
Trading Partner
Trading Partner
Low
Low
High
Product/Process Complexity
12Many players in Chemical/metal industry have
built e-business based on ITE model
Major ITEs in Chemical and Metal Industry
13External Environment of Chemical industry
In the B2B chemical environment, pressure for
economies of scope (new, customized, integrated
service) and pressure for economies of scale
(more, bigger, powerful alliance and regional
expansion) exist .
New Entrants Cross-Industry trading sites-now 155
serving industry application that includes
chemicals On / Off-line alliances
Potential Entrants Taiwan Korean Chemical
firms - Own Trading Zone Each new entrant has a
clear value proposition for their market segment
- Competition
- Fast Growth Regional Expansion
- Companies will strengthen relationships
- with suppliers and customers
- Companies will increasingly compete as part of a
community
Suppliers Major Oil Chemical Company - Chevron,
Shell - Procurement Exchanges Strategic Alliance
between On/Off-line More choice, getting more
difficult to attract
- Customers
- Power shift towards customer due to
- - Greater trading site choices
- - Pressure of consolidation
14 Implication on chemical industry
therefore, the market demands vertical integrated
community incorporating transactional platform
and informational community.
- Joint RD
- Joint New Product Development
- Sharing of capacities, production plans, demand
forecasts, and cost structures - Sharing of real-time information such as
inventory and order status - Sharing risks, logistic, and financial
arrangements
Vertical Integrated Community
- Real-time access to
- Industry-relevant discussions
- Latest technical papers
- Forums by topic of interest
- Product and vendor directories
- Product technical specifications
- Common Customer Extranet
- Knowledge Community
- e-distributor
Informational Community
Transactional Platform
15Business Model of chemical industry
Virtual community is the plausible models for B2B
e-business in chemical industry
16 Critical Success Factors
- Speed
- Agile talented resources with strong
initiatives ownership can make a difference in
getting the job done. - Market expertise
- Domain expertise and relationships are the key
barrier for entrance into a vertical/functional
B2B community hub. - Appropriate market formats and mechanisms with
technology - A variety of models to mediate and facilitate
transactions between participants. - Fixed-price oriented (as in most catalogs) or
- Dynamic pricing mechanisms such as sell-auction,
bid-auction, exchange, and agora mechanisms. - Achieving critical mass
- Understand Metcalfes Law and develop a critical
mass of enthusiastic users. - Promote relationship among customers, adding to
exit barriers - Reduce customer support costs as customers help
each other - Stay ahead of Issues and trends
- Increasing depth and breadth of relationships
with participants. - Finding complimentary services that create
switching costs making it difficult for
participants to go elsewhere.
17E-Business in Steel Energy Industry
Agenda
1. What make steel/energy players get into
e-sales? 2. What is characteristics of e-
business in steel/energy industry-Chemical
industry case? 3. Evolution stages of e-sales in
steel/energy industry 4. Value of e-sales in
steel/energy industry 5. Cases
18There is 4 stages of e-business evolutionary
stage.
Evolution stages of e-Business
Convergence Value Chain has become more complex.
Barrier between industries are gone away
Convergence
E-Business Transformation All the functions are
outsourced except core capability.
IndustryTransformation
Degree of supply chain transformation
Value ChainIntegration
Value Chain Integration Linking suppliers and
customers. Various integration has happen between
customers, channels, manufacturers, and
suppliers.
Channel enhancement
Transactional
Transformational
Channel Enhancement Channel enhancement by
introducing E-business
Nature of change
19Successful e-business can be achieved by
harmonizing industry transformation and
e-business maturity
Evolution stages and E-Business Maturity
Convergence
Strategic/organizational change
Opportunities and risks
Industry Evolution
Channel Enhancement
On-line Presence
On-line Business
On-line Integrated Business
On-line Advanced Business
Full E-Com
E-business Maturity
20PwC evaluate E-Business maturity base on 5
evolutionary stages.
E-Business Maturity Model
Full E-Business Seamless integration on core
process between end customers and suppliers
Full E-Business
Advanced online business E-Business
infrastructure creates new Business processes and
entry barrier
Advanced Online Business
Integrated online business Internet channels
are integrated with suppliers channels
Integrated Online Business
Online Business Internet is one of the
independent channels
Online Business
Online Presence Using internet as a information
channel between suppliers and customers
Online Presence
21Convergence Example
Business Boundary Expanding model
Memorizing the fantasy
Indulging the fantasy
Assessing the fantasy
Theme Park
Golf
Environment Development
Horizontal Integration
Shopping
Performance
Lodging
Vertical Integration
22To achieve digital convergence revolution,
industry players should first resolve business
issues .
Business issues in steel/energy industry
Business Issues
Strategic Options
- Enlarging current share
- Acquiring large account in global market
- localization
- Increasing brand equity
Gaining competency in current market
- Selecting new target customers
- Effective serving for large account
- Establish broader international footprint
Enlarging Customer basis
Achieving Digital Convergence Revolution
- Hiring more sales/service staffs
- Enhancing channel productivity
- Expanding channel programs
Increasing channel capacity
- Defining/implementing solutions model
- Developing Field Expertise
Enhancing channel capability
- Improving Services
- Enhancing delivery capability
- Financing
Becoming Reliable supplier
23E-Business in Steel Energy Industry
Agenda
1. What make steel/energy players get into
e-sales? 2. What is characteristics of e-
business in steel/energy industry-Chemical
industry case? 3. Evolution stages of e-sales in
steel/energy industry 4. Value of e-sales in
steel/energy industry 5. Cases
24e-Sales creates value to suppliers and buyers
equally
Benefits of e-Sales in steel/energy industry
25E-Business in Steel Energy Industry
Agenda
1. What make steel/energy players get into
e-sales? 2. What is characteristics of e-
business in steel/energy industry-Chemical
industry case? 3. Evolution stages of e-sales in
steel/energy industry 4. Value of e-sales in
steel/energy industry 5. Cases
26Metal Site - Alliance with Metal Suppliers Online
METAL SITE - www.metalsite.com
- Founded August 1998
- Partners 35 sellers including Weirton, LTV,
Steel Dynamics and 7,000 users from hundreds of
companies - Purpose Online exchange for surplus and some
prime sheet steel products. - Key Features
- Offers both information resources and a
marketplace for steel sales. - Buyers must get credit approval before bidding or
negotiating a price for the steel. - Registered buyers purchase metals with negotiated
deals or B2B auctions or at fixed prices. - Charges only sellers a 1 to 2 transaction fee.
- GM has selected MetalSite as the official steel
marketplace for its online supply-chain
management site.
Metal Suppliers Online - www.metalsuppliersonline.
com
- Founded 1998
- Partners
- Purpose Maximize the value of material,
otherwise being scrapped for a loss, or hold onto
indefinitely. - Key Features
- Sells stainless steels, nonferrous, and other
specialty metals. - Sells excess inventory of metals distributors,
producers, machine shops, fabricators, and OEMs
alike. Registered buy - Sells materials by auction.
- Search for and order from approximately 17,000
metals from 90 suppliers.
27E-Steel - Alliance with Material Net
e-STEEL - www.e-steel.com
- Founded 1998
- Partners BroadVision, Computer Sciences
Corporation, Metal Bulletin, Modern Metals,
Quote.com, and Silknet.Weirton - Purpose Web-base neutral marketplace for buying
and selling primary and secondary steel
worldwide. - Key Features
- Prices are determined not by auction, but by a
buy-sell transaction between company. - Standardize the sellers product classifications
for the online catalog. - Sellers pay 7/8 to 1 of transaction value.
- Personalized buyers interaction with e-Steel,
prime and surplus steel search, product and order
detail viewing, product bidding and on-line
negotiation.
Material Net - www.materialnet.com
- Founded October 1999
- Partners Lehman Brothers, Hudson River
Partners, Global Crossing, Goldman Sachs,
Netbank, 24/7 Media,etc. - Purpose B2BInternet Marketplace designed
specifically for the procurement of raw
materials. - Key Features
- The world's first business-to-business Internet
Marketplace designed specifically for the
procurement of raw materials. - Auction 15 different metals including brass,
copper, titanium, and steel. - Plans to auction other raw materials that may
include rubber, plastic, and paper, depending
upon the interests of its buyers
28ChemConncect
ChemConnect - www.chemconnect.com
- Founded 1995 (Started online transaction
between buyers and sellers in 1997) - Partners Andersen Consulting, Chemical Week
Ventures, CMEA Ventures, Dow Chemical, Eastman
Chemical, Goldman Sachs, Highland Capital
Partners, IVP Technology, Rohm and Haas, Weiss,
Peck Greer - Purpose Providing an open neutral and web-based
market for manufacturers, buyers, and
intermediaries to conduct real-time transactions
for all types of chemicals and plastics products. - Key Features
- Offers a wide range of chemical categories
- Supports anonymous positing and audit trail
- Transaction consummated offline between two
parts
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