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Information Technology

With the advent of Internet-based system architectures, chemical producers get ready to plug and play

by Rick Mullin
September 11, 2006 | A version of this story appeared in Volume 84, Issue 37


Information Technology

Vendors of business management software appear poised to finally deliver on their promise of "robust solutions for the enterprise space," according to information technology (IT) managers in the chemical industry. Software analysts are also uncharacteristically positive in their assessment of next-generation products based on emerging standards that they say will steer IT investment away from monolithic, single-source software systems costing hundreds of millions of dollars. Some chief information officers (CIOs) are even comfortable with the idea of a coming "golden age" for IT in the chemical industry.

Chemical companies, however, remain loathe to jump in as first adopters of any software that is fundamentally new. Nor do

The New Frontier
Chemical companies have tried for years to forge an elegant link between the kind of digitally automated manufacturing plant shown above and corporate financial IT systems. New software and vendor partnerships are purported to offer the solution to a puzzle that has been characterized as the holy grail of systems integration.
Chemical companies have tried for years to forge an elegant link between the kind of digitally automated manufacturing plant shown above and corporate financial IT systems. New software and vendor partnerships are purported to offer the solution to a puzzle that has been characterized as the holy grail of systems integration.

they have to. A new round of IT investment in the chemical industry is likely to be directed at adapting the large systems that companies installed over the past 10 years to new areas such as logistics management, regulatory compliance, and intellectual property management by means of relatively low-cost software adaptations.

SAP, the supplier of enterprise resource planning (ERP) software used by nearly every chemical company, continues to generate new versions of its R/3 software. Many chemical makers have already converted to the latest version, mySAP, which incorporates an Internet-based data conduit called Netweaver.

Although Netweaver was yet another major investment for most companies, IT managers agree that the Internet will provide a gateway to their existing SAP systems for a wide field of software from specialist vendors that, like SAP, have adopted standard protocols for interoperability. SAP has even stated that its new Internet architecture ensures that mySAP will stand as the last major R/3 revamp.

The future of mix-and-match software programs, according to vendors and chemical industry users alike, is now.

IT standards play a big part in linking disparate software, and the chemical industry has been pooling its standards expertise for more than 20 years. The Chemical Industry Data Exchange (CIDX), a committee formed prior to the Internet to coordinate electronic data interchange, ramped up its mission in the mid-1990s with the advent of Web-based XML programming. "For the last six years we have been working frenetically on developing XML standards," says JoAnne R. Norton, executive director of CIDX.

The group has also generated standards for communicating across ERP systems within a company. The focus now, according to Thomas Fannon, CIDX chairman, is on standards for external communications. "Houses are in order, and companies are looking beyond their four walls," Fannon says, noting the shift in emphasis from simple order-to-cash management to the kind of customer and supplier relationship management that will require links between disparate ERP systems.

CIDX has made connections with standardization efforts in other industries served by chemical companies, such as the electronics industry's Rosetta Net, the Automotive Industry Action Group, and the Petroleum Industry Data Exchange.

Credit: Air Products & Chemicals
Credit: Air Products & Chemicals

Communications protocols and standards will allow users to customize their business software and automate business processes in a stepwise fashion with only incremental investment, Norton says. The days of business software projects costing hundreds of millions of dollars are behind for most chemical companies, she predicts.

According to Colin Masson, an analyst with AMR Research, the chemical sector is increasing its IT spending on an absolute basis, although it is rising only slightly as a percentage of sales. AMR's recent survey of 64 U.S. chemical companies found that 65% of firms will increase budgets next year and that budgets on average will rise by nearly 13%. The number one goal of CIOs surveyed, according to Masson, is improving the utilization of data throughout their organizations.

Credit: Dow Chemical
Credit: Dow Chemical

Masson says most chemical companies are shifting their focus to logistics and regulatory issues ranging from compliance with financial reporting and auditing laws to environment, health, and safety. He notes that only a few vendors offer software comprehensive enough to meet all of the needs of an average chemical company, especially in environment, health, and safety, although SAP may come the closest.

SAP is trying to fill the gaps through marketing partnerships with software specialists such as Vendavo, a pricing management software firm; TechniData, a specialist in environment, health, and safety; and, most recently, Linx/AS, a vendor of intellectual property management software.

Credit: Dow Corning
Credit: Dow Corning

One of SAP's most significant partnerships is with Microsoft. The two big software companies introduced a joint product this year called Duet that merges their desktop operating products for certain functions. For the most part, though, Masson and others see Microsoft as a major competitor to SAP as the latter reaches beyond basic financial management functions and strives to make its R/3 product easier to use for rank-and-file employees, the majority of whom already use Microsoft Office software.

For its part, Microsoft has made inroads into plant control systems, an area SAP is anxious to conquer. "They're feeling out the battleground on portal technology and the desktop of the future," Masson says of SAP and Microsoft.

Although SAP is relying increasingly on partnerships with other software developers, the company will continue to work closely with chemical industry customers on product design, says Greg Peterson, vice president for process industries at SAP Americas. Indeed, SAP was started by former IBM employees who developed software for ICI. This relationship, he says, has led to new products in areas such as pricing and margin management that meet specific process industry needs.

In addition, SAP has been developing links between R/3 and manufacturing plant process controls via manufacturing execution software through various means. For example, SAP recently acquired a manufacturing systems portal company called Lighthammer in an effort to build a link from plant floor to front office. It has also formed a partnership with Pavilion Technologies and Wonderware, software firms with products for linking real-time data from process controls to transaction-based business management software.

The Wonderware partnership is significant in that Wonderware is owned by Invensys, a leading supplier of plant automation systems to the chemical industry. Invensys, which introduced systems integration software called Archestra in 2002, this year debuted InFusion, an IT infrastructure for its plant automation systems not unlike SAP's Netweaver.

Masson recently praised SAP's cooperative approach. SAP's chemical industry business unit has "pioneered a brave new world of co-invention, codevelopment, and comarketing" through its partnership drive, an effort undertaken at the behest of users, he said in a report in May. Similarly, he sees Invensys' InFusion as a breakthrough in creating the plant-to-office IT continuum. "Cynics take notice," Masson wrote in an April report on InFusion. "This is far more than a rebranding or a repositioning exercise. Invensys is decidedly breaking rank with its peer group by redefining, or blurring, the application boundaries that have traditionally hindered the shop-floor-to-top-floor information flow."

Linking financial and plant systems poses not only technical hurdles but cultural hurdles as well, CIDX's Norton and others note. Control systems have traditionally been the purview of engineers, and IT departments were happy with that arrangement. Over the past decade, however, IT has moved pervasively into the plant. The shift has been spurred by the spread of distributed intelligence in plant control software and the rise of management interest in controlling manufacturing costs and tying production into an enterprise-wide supply and financial management scheme.

Christopher Boothroyd, senior product manager at Honeywell Process??Solutions, a major control systems company serving the chemical sector, says the demand for a link between ERP and plant control systems has "gone from asking questions to writing proposals." He notes that the technical link is only part of the problem. Manufacturers also must figure out what to do with an ERP system that reaches a plant's pipes and valves. "Companies need to understand the information requirements of two very different domains," he says.

This relationship is being worked out not only by individual companies but also by international standards organizations. The International Society for Measurement & Control has a standards committee, SP95, assigned to the task of identifying data to be shared and codifying a protocol transmitting the data.

Nevertheless, extending IT into the manufacturing plant is still in the preliminary stage, according to AMR, and the majority of spending today is still on ERP systems. And although almost all chemical companies use SAP's ERP software, no two firms implement it in the same way. Investment decisions revolve around the realities of business and are heavily influenced by acquisitions, geography, the congruity of business units, and by upper management's views on IT and how to run the company.

Firms contacted by C&EN say they are positioning themselves for a future of low-cost, targeted investments in commercial software. With in-house financial management IT in place, they are hoping to customize their approach, reach out to their global supply chain, and turn IT into a competitive advantage.

Dow Chemical, which has notoriously avoided abandoning its SAP R/2 system, an early 1990s version of SAP's software, is beginning to migrate to mySAP with Netweaver, according to David E. Kepler, the firm's CIO and senior vice president of shared services. He maintains, however, that Dow is not embarking on the kind of wholesale ERP system replacement that it successfully avoided all these years.

"This is not like moving out of one house and into another," Kepler says. "It's more like city planning." The R/2 system will remain in place, but subsequent projects will introduce mySAP software. Work to bring new joint ventures in China and the Middle East into the Dow system is a case in point, he says. The objective is to progressively convert the existing system to a "service oriented" architecture that allows modular installation of new software programs. "Netweaver allows us to do this," Kepler says.

Dow, one of the world's largest chemical companies, was one of the first to claim it had a single SAP system for its worldwide operations. Installing a "single instance" of SAP, in fact, was the stated purpose of most chemical companies in the 1990s. Many are still working on it.

These days, however, they are not replacing a multitude of software from various vendors or a tangle of homegrown systems. They are replacing multiple installations of SAP with a single system. Kepler says such dispersed applications resulted from the sheer magnitude of installing SAP five or 10 years ago. Most companies could garner the resources to install the software in just one business or one geographic region at a time.

According to Kepler, ERP architecture has evolved to the point where companies can more easily extend one system or add functionality to a system already in place. "Getting from the vendor's first PowerPoint presentation to scaling it up is a seven- to 10-year journey," he says. "The Netweaver architecture has matured enough to go into development."

Nova Chemicals has adapted its SAP system to the service-oriented architecture by employing Netweaver, according to CIO John L. Wheeler. This move created a "plug and play" methodology for bringing on new software, he says, accommodating the quick evolution of business software in areas such as customer and supplier relationship management. "Projects that used to take years and cost millions of dollars can now be done at a low cost in a matter of months," he says.

Air Products & Chemicals, a comparatively late adopter of SAP software, the company started to install R/3 worldwide in 2001, is finishing its first upgrade, according to Bradley F. Hahn, Air Products' director of SAP solutions and delivery. At this point, 75% of operations have been converted to mySAP and Netweaver. The rest, primarily in Asia, will be converted to the new system by the end of next year, he says.

Hahn says Air Products took on an SAP installation only when then newly arrived Chief Executive Officer John P. Jones III decided to establish company-wide business processes for its gases, chemicals, and equipment units. Hahn says the three units had operated as if they were separate companies with an absolute jumble of IT around the world, whereas Jones envisioned IT as a shared network of practices centered on customer service. "We had to simplify and standardize in order to provide our customers better service," Hahn says.


He says a system-wide SAP revamp five years after the initial project began is not unusual. "It's the nature of software. It changes and you need to upgrade." He says the Netweaver architecture will set the stage for more routine expansions and extensions of the SAP system in the future.

Rohm and Haas, another late adopter of SAP, wrapped up a $300 million initial installation of R/3 two years ago. The company is not planning an upgrade to mySAP, but aspects of the system it has are Netweaver-compatible, according to Tony D'Alessandro, director of global systems and information services. He says Rohm and Haas sees no disadvantage to sticking with its current architecture, noting that SAP's partnership initiative is still at an early stage. "Nothing there is so compelling that we would undertake an upgrade in the short-term," D'Alessandro says.

At Chemtura, a major IT project was launched two years ago in order to consolidate several SAP systems brought into the company via acquisition. CEO Robert L. Wood looked outside the chemical industry when he hired Kenneth L. Donahue, vice president and CIO, to head the project. Donahue, formerly CIO for systems analyst Meta Group and second vice president of information technology at insurance company General Re, says opportunities to improve on IT at the former Crompton Corp. were abundant. "From outside, the chemical industry is looked at as an information technology laggard," Donahue says. "We had to fix 20 years of neglect."

Donahue says Chemtura has nearly completed a two-year project to centralize its IT operations, bringing disparate releases of SAP R/3 together into a single SAP R/3 Version 4.7 system that incorporates Netweaver. Like Dow, Chemtura will convert the system to mySAP over time with subsequent, application-specific software adaptations.

Going forward, the project will keep employees up-to-date with the latest software. "Before the conversion, people had software that was five to eight years old on their desktops," Donahue says. "R&D's software was totally antiquated. Now we've implemented a replenishment program where all software is replaced every 36 months."

Donahue says he is also basing his strategy on service-oriented architecture, implementing off-the-shelf software where needed. "I'm totally against customizing anything," he says. Most of the new applications he will pursue are available as part of the current SAP implementation. "They're not even bolt-ons. They're inherent in the system," he says.

At Dow Corning, CIO Abbe Mulders says the company is involved in several projects, including a conversion to Netweaver and a replacement of a Siebel customer relationship management system with an SAP system. Yet, she contends that the firm is not "abandoning" what it installed in the 1990s. The goal is to introduce greater standardization across business processes and garner more value out of the installed IT base.

"It's not really a new round of investments," she says, adding that projects under way are pursued under the regular IT budget, which amounts to 1.8% of sales. "We're trying to keep that constant," she says.

According to Mulders, Dow Corning is also beginning to work on calculating its return on investment in IT. She says companies have tended to neglect this calculation, justifying the installation of ERP systems as a cost of doing business. She says the rate of return on ERP applications ranges between 50 and 80%.

As the role of IT expands, it will be expected to do some heavy lifting, Mulders says. "There is a lot more emphasis on adding value to the business, and business is changing," she observes. "Companies are looking to do business differently in different parts of the globe. That makes you have to change culturally and adopt new ways of doing things. IT has to be involved and sometimes even has to be ahead of it all."

Sharing Industry
Credit: Chemtura
CIOs have identified improving the utilization of data throughout their organizations as their top priority. And desktop computing is shaping up as a battlefield for software giants—and partners—SAP and Microsoft.
Credit: Chemtura
CIOs have identified improving the utilization of data throughout their organizations as their top priority. And desktop computing is shaping up as a battlefield for software giants—and partners—SAP and Microsoft.

Xiameter, Dow Corning's online silicones marketing venture, is part of the current SAP revamp. "We are investing in projects that will allow us to better match demand against capacity," says Mike Papa, Xiameter operations manager. "When the customers visit the website, they will get a more reliable date for delivery on their order."

The Xiameter project was prompted partly by changes in Dow Corning's business. "When we launched we had lots of excess capacity," Papa says. "And we didn't want to carry inventory. So we established standard lead times for these materials." When customers placed orders, they could accept a minimum lead time, which was basically the time it took for Dow Corning to convert intermediates and raw materials to the finished silicone, or they could order delivery up to 90 days in the future.

"When we had a lot of capacity, that was a pretty simple exercise," Papa says. "But in the past couple of years, global demand for silicone has increased, and our capacity has been filled up." The company will employ a Web-based SAP application to generate real-time demand and capacity information, and that information will be available to customers.

On the emerging subject of connectivity between business and manufacturing software systems, most CIOs say they are looking for guidance from SAP and partners like Invensys and Lighthammer. They are also working on getting their companies behind the investment and commitment to new work processes. "We've been talking to SAP about this for a while," says Rohm and Haas's D'Alessandro. "And we are trying to build a business case for doing it."

Wheeler says Nova has moved to connect plant and ERP systems through the Lighthammer portal and Pavilion software. Getting both business and engineering management on board for such a project is not easy, though. "People still view process control as irrelevant to the business world," he says. "It's difficult to get people to work together." On the other hand, cost savings in production and energy alone can create a compelling business case. "The industry as a whole has to wake up on this," he says. "It's struggling."

Mulders says Dow Corning has been in touch with SAP about its needs in linking to plant systems. "Are vendors doing a better job?" she asks. "Well, they are listening to customers more and working together to help us deliver faster. But as far as their keeping up with our requirements, there is still a struggle to deliver in a timely manner. They are all struggling with that. It's an elusive thing that I don't think we'll ever totally conquer."

There is also the sense that IT will only go so far, that it is only a tool, and that companies will distinguish themselves by how they use it. Intellectual property management is a case in point; it is an increasing concern as the amount of data that companies maintain multiplies exponentially. Software is part of the solution, but companies will manage intellectual property more through policies and training.

IT, in fact, has changed fundamentally in the past 10 years, according to Chemtura's Donahue, and one big change is that business is no longer the source of its own new technology. "Entertainment is what's driving transformational change in the technology," he says. "People are used to new technology from what they're using at home." It's the application of such technology in a business environment, Donahue says, that will hone a competitive edge.


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