Through our annual E-comm Innovator Award, Network World honors companies with extraordinary business-to-business e-commerce initiatives. These innovators have carefully considered business plans, intimate knowledge of the target customer base and, of course, strong technology underpinnings. This year, we honor chemical industry old-timer Sigma-Aldrich Corp.
Sigma-Aldrich wins the award for its PipeLine e-commerce site, which currently handles $2 million in orders monthly with aplomb. Atypical of most e-commerce sites, PipeLine is intertwined with corporate back-end order-processing systems. Sigma-Aldrich customers - research chemists in academic, government and corporate labs - can shop, obtain up-to-the-minute pricing and product availability information, confirm orders, and check status and shipping information all in real time.
Loaded with tons of product data, safety information and innovative features such as a specialized molecular search engine, Pipeline is a winning e-commerce experiment.
Old-line chemical firm Sigma-Aldrich Corp. is heading into new-world e-commerce with its beakers blazing. And it's hoping it has all the right elements to best its young, but well-funded, dot-com competitors at their own Web experiments. Last fall, the $1.2 billion company wrapped up a massive two-year project that brought five brands into a unified, back-end order-processing system in the U.S. On the heels of the final site rollout, Sigma-Aldrich joined an elite group of companies that have managed to integrate Web sales functions into the process.
Nonetheless, its battle against the dot-coms won't be easy. Sigma-Aldrich may own a huge database of research chemists as customers and may have amassed years of experience working the 1.3 million names on that list, but online aggregators such as Chemdex have the glory and glamour of dot-com. That means lots of press attention and gobs of venture capital flowing their way - not to mention the perception that they're hip, highly valued members of the new Internet economy.
Sigma-Aldrich is lumped in with other corporate old-timers. Right or wrong, it's easy to cast such companies as dinosaurs, mired in traditional business practices. This chemical concern is determined to break out of that quicksand - it's Internet-based e-commerce or extinction, says Larry Blazevich, vice president and chief information officer at Sigma-Aldrich in St. Louis.
He's not talking about a Web site front end with snazzy product shots, a helpful search engine and an electronic order form that turns into paper once the customer hits "Submit." Anybody can do that, and most do. For Sigma-Aldrich, only the real, integrated e-thing will do: end-to-end e-commerce. For that, it's earned our second annual E-comm Innovator Award. It's one-upped the build-from-scratch dot-com competitors with a system that stays "e" from order to fulfillment. And it did so while retrofitting its existing infrastructure, all the while not interrupting the flow of its billion-dollar business.
Testing the waters
Sigma-Aldrich's Web efforts date back five years. In July 1995, the marketing department launched www.sigma-aldrich.com, state-of-the-art at the time but really nothing more than a venue for electronic product brochures, says Brad Johnson, director of electronic marketing at the company.
For the next two and a half years, the site languished in cyberspace. But in March 1998, the company pulled together an 18-member team of senior marketing, operations and technology people to devise a Web strategy. Led by Johnson, team members surveyed customers about Web usage and business needs; analyzed Web activities of competitors, industry players and companies in other lines of business; commissioned an outside evaluation; and investigated technology and application development requirements.
EDI lives on
Sigma-Aldrich Corp. has embraced Internet-based e-commerce, but good old electronic data interchange still has its place.
EDI is a widely used commerce technology for conducting business with the big pharmaceutical companies, says Larry Blazevich, vice president and chief information officer at the St. Louis chemical company. While a chemist in a university lab might order one or two chemicals at a time, a corporate R&D facility that employs 500 chemists might order 50 items at once, he notes.
Last year, EDI-based orders accounted for $40 million, or roughly 10% to 12% of business, Blazevich says. Phone sales, now supported by a new, state-of-the art virtual call center, account for the bulk today.
Bear in mind, of course, that Sigma-Aldrich?s Internet-based e-commerce experiment is really just beginning. It became abundantly clear to the team that Sigma-Aldrich wasn't capitalizing on the chemical data it had gathered over the years and the knowledge of the more than 1,900 employees with Ph.D.s in chemistry. "We realized that information is our cornerstone. We are chemists. We make and test the products - we know them. That's what separates us from the people who buy and resell products," Johnson says.
Sigma-Aldrich needed to unlock access to its information stockpiles. It needed to show off its chemical expertise with more detailed product data. It also needed to present its five brands - company names from previous acquisitions - in one site, with customized views.
Through merger and acquisition in the previous few years, Sigma-Aldrich had rapidly turned into a multinational company selling more than 130,000 research chemicals under the Sigma, Aldrich, Fluka, Supelco and Riedel-de Haen brand names. Prior to having an integrated back-end system, chemists had to call St. Louis to order Sigma-branded chemicals and Milwaukee to order the exact chemicals bearing Aldrich labels, for example. If the Sigma versions were not in stock, call-center operators in St. Louis had no way of fulfilling the orders using Aldrich products. Each of the five brands had been running on its own back-end system, and no interplay among those systems was possible.
Blazevich's mission-critical challenge had been to present a single, integrated front to customers: research chemists working around the world in academic, corporate and government labs. Drawing in the disparate businesses had discombobulated Sigma-Aldrich's IS infrastructure. "Everybody had run their own order-processing systems on AS/400s, VAXes, Cobol - you name it. We had one Cobol system that was probably 30 years old," says Blazevich, who is the company's first CIO.
With or without the 'Net's arrival, Sigma-Aldrich's order-processing and information systems needed fixing. Yet the inevitability of e-commerce weighed heavily in Blazevich's mind. He decided to bring in SAP AG's SAP R/3 enterprise resource planning (ERP) software and - atypical of most IS executives - opted to attack the tricky back-end order-processing systems first, starting with the SAP Sales and Distribution (SD) module.
"It was a hard decision, but we couldn't operate effectively without a solid back-end system," Blazevich says. "We were a clunker of automation trying to move into the 21st century."
Despite Blazevich's conviction about e-commerce, customers were cool on the idea in 1998. As many as 96% of Sigma-Aldrich customers used the Web as an information resource, but most said they weren't interested in using it to buy products. Through focus groups, the Web team learned that the research chemists did not think they'd be able to get the go-ahead to buy online. Most of the buyers were dealing with their own legacy order-processing systems and figured procurement officials wouldn't be open to the Web-ordering concept. "Customers told us, 'You guys can go ahead and do e-commerce, but we can't use it yet,'" Johnson says.
But why not test the waters? Online ordering would nicely complement the enhanced multibrand content, developing the order form would be easy, and inputting the orders into its disparate legacy systems would be fairly routine. If customers used the online ordering, great. If they didn't, no big deal.
Admittedly, having to print out orders and enter them into legacy systems did give the team pause. Although the move to SAP R/3 was already under way, it wouldn't be completed in the U.S. until late 1999. Nevertheless, Sigma-Aldrich added a first-generation e-commerce facility to the company's revamped Web site in September 1998. "We figured, we'll do full e-commerce later, but if we can emulate it now, why not?" says John Custer, electronic marketing product manager at Sigma-Aldrich.
The company was not prepared for the reaction this initial e-commerce site would trigger.
The problem was, despite what customers said in surveys and focus groups, they did use the online ordering facility, and plenty. That first month, Sigma-Aldrich rang up $300,000 in chemical sales from its Web site. By January 1999, it was doing $700,000 per month in Web business. It reached the $1 million per month mark in less than six months, and the company now does nearly $2 million in monthly online orders.
The volume was staggering. A typical order, for two chemicals, only costs $200. That means by April 1999, approximately 5,000 orders per month were coming in via the Web from 100,000 registered users. And it wasn't a simple matter of plugging the order in to the legacy back ends; the orders invariably required someone in customer service to call the chemist who had placed the order. Selected products might not be in stock, for example. Sigma-Aldrich soon discovered that processing a Web order was one-and-a-half times more resource-intensive than handling a phone sale.
Sigma-Aldrich is also challenged by the need to process orders at lightning speed. Research chemists order chemicals on an experiment-by-experiment basis, rather than in bulk. Some customers literally place as many as 1,400 separate orders each month, Blazevich says. Providing quick delivery is paramount - 95% of the three million orders placed yearly are shipped the same day as received. That speaks to the absolute necessity of an integrated back-end order-processing system, he explains: "At our volumes and requirement for getting orders out quickly, we can't afford to take an order, print it out and input it in one of our legacy systems."
Good thing the SAP deployment was now well under way.
Actually, Sigma-Aldrich began the SAP deployment in November 1997, prior to the work of the Web strategy team and after a major network overhaul. Before any new ERP software could be deployed, Blazevich had to migrate the company from its terminal-based environment. So he rebuilt the corporate WAN using frame relay and deployed client/server LANs. With that done, he could begin rolling out the SAP software in the U.S. and Europe.
While SAP rollouts continue on the other side of the Atlantic, by October 1999, Sigma-Aldrich had all U.S. chemical sites in production. This opened the opportunity for full-scale integration with Web ordering.
Sigma-Aldrich wasted no time. When members of the company's e-commerce team sat down for their Thanksgiving dinners, they did so comfortable that the Web integration was complete. Thanks to the Web/SAP integration, accomplished using middleware from Haht Software, based in Raleigh, N.C., research chemists coming to www.sigma-aldrich.com now get multibrand product information, customized pricing and product availability information. Of course, they can also place and confirm orders and verify shipping data, all in real time. The former is accomplished via the Haht Shop software and the latter with Haht Track; both are part of the vendor's Commerce e-Scenarios applications suite.
The Haht software runs on two mirrored Windows NT servers. That's not the case for all Sigma-Aldrich's e-commerce-related software:
The SAP application runs on an AIX server and smaller NT servers.
Much of the content is served via Notes Domino Web server software running on three IBM AIX machines.
Other content, specifically some 90,000 Material Safety Data Sheets (MSDS) and two million certificates of analysis, is delivered via Netscape Application Server software running on another two mirrored Windows NT servers. The MSDS and certificates of analysis, which provide lot-specific breakdowns of each chemical, are stored in an Oracle8 database.
The product data search engine, from Verity, runs on three Sun Solaris servers. Sigma-Aldrich isn't banking on this architecture, though. Brian Lawrence, applications development manager, says he'd prefer Unix alone. "It's more stable than NT," he explains.
However, Lawrence is tied to the dual operating system architecture for now because the Haht software currently uses Microsoft Common Object Model objects to communicate with the SAP application. Upcoming Haht versions will support Sun's Java 2 Platform and use Enterprise Java Beans instead, so they won't have to run on NT.
Sigma-Aldrich's e-commerce experimentation seems to be paying off. In late 1999, the industry publication Chemical & Engineering News named Sigma-Aldrich's PipeLine as the preferred solution for buying chemicals over the Internet. It came to that conclusion based on a random sampling of 1,000 subscribers, who evaluated five online chemical providers on quality, on-time delivery, follow-up service and technology leadership. Other sites in the survey were Chemdex, Fisher Scientific, SciQuest and VWR.
Despite its busy and apparently fruitful 1999, Sigma-Aldrich isn't resting on its laurels. In early January, the company established a multifaceted partnership with Ariba. It will make its products and information available through Ariba's e-marketplace (see "Auction Action"), collaborate on continued development of the Commerce XML specification and establish an end-to-end research supply chain with Ariba and EMAX Solutions Partners. This latter company hosts inventory databases for research chemists.
Lawrence describes how this relationship comes into play in a chemical hunt. Say a research scientist is conducting an experiment and realizes he needs a particular compound. The first thing he'd do is call up his Ariba desktop (that presumes the corporate procurement office has standardized on Ariba). From there, he'd punch out to his company's inventory database managed by EMAX. Discovering the chemical isn't available in-house, he'd then punch out to Sigma-Aldrich's site and place the order. Order processing would flow seamlessly through Sigma-Aldrich's and his firm's back-end procurement systems.
Sigma-Aldrich also intends to work with mySAP.com and other e-marketplace vendors. It has further partnered with Haht for additional site development, including personalization, localization, management of e-mail campaigns and the ability to cross-sell and up-sell based on past orders placed, type of customer, geography and even site traffic patterns.
In fourth-quarter 1999, Sigma-Aldrich captured more than 5% of its U.S. chemical sales from the Web site and expects that figure to grow to 50% by year-end 2003, Custer says. That would mean more than $200 million in revenue.
Not bad, given that the company estimates it has spent $5 million on e-commerce to date. That cost includes hardware, software, internal people resources and consulting, Custer says.
However, that doesn't include the cost of the critical SAP piece. All said and done, Blazevich says he expects to spend between $30 million and $50 million on the worldwide SAP rollout alone. (Sigma-Aldrich is one of largest users of SAP's SD module.) He breaks down the overall budget: 10% for training, 20% for software, 30% for hardware and 40% for consulting.
Fortunately, Blazevich says, Sigma-Aldrich is a financially sound and profitable company capable of providing all the resources needed to do this undertaking right. Proof of the company's financial health is its presence on the 1999 Forbes Platinum 400, a list of the best-performing, big U.S. companies in terms of growth and profitability, he adds.
And now that the Web is integrated with back-end order processing, Sigma-Aldrich is ready to give the dot-com chemical companies a run for their money. "We're going to start playing the game a little more, try to tell people more about what we're doing," Blazevich says. "People have been valuing 'Net companies more than traditional companies, and now we want them to know that we know what we're doing on the Internet."