Constructing an e-Supply Chain

at Eastman Chemical Company

introduction
Craig Knight, Asia Pacific Digital Business and Customer
Services Manager of Eastman Chemical Company, was given
a mandate to sell Eastman’s philosophy for an integrated
electronic supply chain( integrated System Solution (ISS)
to its business partners in the region, and to encourage
adoption.
Having invested in a state-of the- art technical architecture
that would support interconnectivity with all parties along the
supply chain, Eastman was keen to realise the full benefits to
be gained from an integrated e-supply chain on a global scale.
we only have 22 companies connected at this stage. We have
an infrastructure that would allow us to connect with
hundreds of strategic partners
 June 2002.

• heading out of his Singapore regional head office on

another two-week trip to Tokyo, Shanghai and Kuantan in
Malaysia.
• Japan had agreed to adopt ISS connections with Eastman,
but had some reservations regarding the extent of
integration.
• benefits of integration were proven, suppliers, customers,
distributors and other interested parties were faced with
numerous limitations and considerations that would have
significant implications on their established business
processes and even the shaping of their corporate strategy.
Exhibit 1 The chemical industry: materials and product flow.
 Process Operation
• semi-continuous and batch processes operated 24/7.
• materials was transferred automatically from one stage to the
next
• with monitoring and self-adjusting flow and quality forming
part of the automated process.
• The only human intervention involved checking the system.
• The enormous capital investment meant that maximising
operating time was a major concern for manufacturers.
Furthermore, the nature of the processes was complex and
procedures for shutdowns and start-ups were costly. Hence,
the manufacturing cycles were more or less fixed and
measured in weeks or months.
 Process Operation Con’t

• Unexpected fluctuations in demand or unexpected

problems with equipment created or ‘optimal transition
wheels . For example, a paint manufacturer might make
green paint only once every 45 days due to product
sequence restrictions.
• Eastman employed 15,800 people in more than 30
countries, with manufacturing sites strategically located in
17 countries
• Sales in 2001 amounted to US$5.4 billion , 29th by
innovation in the US$1.7 trillion global industry
 E-business strategy
• To focus on creating customer-centric solutions.
• To hold a portfolio of options, choices and solutions for
customers via electronic channels.
• To invest in technologies/capabilities that bring real value to
customers.
• To be externally focused.
• To form partnerships (‘‘We cannot do it alone’’).
• To build an ‘‘e-brand’’ to attract customers, suppliers and
technology partners.
• e-Supply chain at ECC B Yen et al
• To leverage its intellectual capital, industry knowledge,
network of contacts, credibility, brand and customer base.
Eastman’s e-business initiatives and capabilities.
• Launched Customer Centre on its Website in North America. enabled 1999
registered /access product /check orders/access certificates …etc
• Eastman’s equity investment in ChemConnect, the largest global
Internet exchange/ making the first charter Member/ open neutral
environment/buyers and sellers from around the world met in real time

• Established relationships with Dell Computer Corporation and UUNET /

help customers who did not have computer
• Launched EastmanMarketPlace.com, online solution to quickly
liquidate certain materials
• Launched Customer Centre globally.

• first B2B pilot programme to provide a direct link via the Internet from 2000
Eastman’s backend systems to the IT infrastructures of its customer
• Announced a strategic alliance with SESAMI.com to pioneer ecommerce
for the chemical industry in Asia/ provided a comprehensive online
catalogue, auction services, information and e-procurement for direct and
indirect goods an services.
• Eastman’s largest distributor in Asia Pacific, began placing orders online
through eastman.com.
MISSION :
• Eastman’s largest distributor in Asia Pacific,
began placing orders online through
eastman.com.

GOALS :
• change the way the Company interacted
with customers and other business
partners, and to transform its internal
business processes
 SAP
ERP application developed by SAP
AG, a German software company.
ERP - Enterprise resource planning -
integrates internal and external
management information across an entire
organization, embracing
finance/accounting, manufacturing, sales
and service, etc.
 What are the benefits of using ERP?
• Allows easier global integration (barriers of currency
exchange rates, language, and culture can be bridged
automatically)
• Updates only need to be done once to be implemented
company-wide
• Provides real-time information, reducing the possibility of
redundancy errors
• May create a more efficient work environment for
employees
• Vendors have past knowledge and expertise on how to best
build and implement a system
 XML
• XML can be used to describe and identify information
accurately and unambiguously
• XML allows documents which are all the same type to be
created and handled consistently and without structural
errors
• XML provides a robust and durable format for information
storage and transmission.
• XML provides a common syntax for messaging systems for
the exchange of information between applications.
• XML information can be manipulated programmatically and
it’s free
 What Eastman wanted?
Eastman’s mission was to make it easier for
business partners to do business with Eastman
and to invest in technologies that would bring
value to customers. The goals were to change
the way the Company interacted with customers
and other business partners, and to transform
its internal business processes.
Linking the fronend to the backend
To manage information throughout the Company
across the supply chain, including bringing raw
materials into the plants, operating the manufacturing
processes within the plants and fulfilling customer
orders Eastman implemented SAP ERP.

Later Eastman deployed advanced planner and

optimizer (APO) architecture in order to control intra
and inter company planning of the supply chain and
scheduling and monitoring various processes.
SAP architecture for APO
• Early versions of SAP were designed for batch and
repetitive manufacturing. Eastman worked with SAP in
an attempt to apply ‘‘discrete’’ logic to a continuous
manufacturing environment. In R/3, additional
functionalities such as continuous display of inventory
consumption and output were incorporated, but the
continuous Available-to-Promise function was not yet
available.
• The Production Planning and Detailed Scheduling
(PP/DS) functions would select best manufacturing
sequences to minimize costs and/or time and/or other
‘‘penalty factors’’.
• Variable supply sourcing could be handled by having
multiple R/3 production versions for manufactured
items, or if necessary, multi-vendors could be set up
with associated transportation lanes to offer selection
options for sourcing raw materials.
 Forecasting
Forecasting was performed by Logility voyager, which
creates a single forecasting process based on real-time
sales data collected from worldwide sales force over
internet. This wasn’t based on historical trend or
guesswork.
 Previously the forecasting was performed by department
wise, Logility Voyager enabled Eastman to dynamically
combine all those individual forecasts. (it was difficult to
anticipate market requirements as chemical manufacturing
and electronic manufacturing were very different. Some
product takes 4/5 steps to be manufactured.)
The integrated solution
B2B solution
Linking the chain
- The ISS concept took off much faster in
the US
- The Asia Pacific region presented some
challenges

 Not sufficiently integrated system infrastructure

 Some wanted to undertake the project as part of their
broader business strategy
 And others were planning to implement ERP layer
before considering the Eastman connection.
 Linking the chain
In spring 2002, Nagase agreed to go ahead with the
XML connection with Eastman. As an international
trading company, Nagase had thousands of
customers and suppliers worldwide. XML technology
was considered to be the key to engaging in e-
business with these business partners.

Challenges
• Nagase did not have ERP system.
• Nagase has to customize its system and work
processes.
• Language difficulties.
 NAGASE’s System

Nagase had an information system consisted two separate

components to handle export/import orders and domestic
orders.
 PRONENTS – import/export system
 APORO – domestic order management system
 The objectives of this case are

1. To show that e-supply chain strategy is integral

to a company’s competitive strategy.

2. To identify the underlying technical

requirements of an e-supply chain.

3. To enhance students’ appreciation of the

systems and business process re-engineering
and integration issues that form the broader
picture of what implementation of an e-supply
chain entails.
1. What is the significance of an integrated supply-chain for
Eastman?
2. What are the options available to Nagase for connecting with
Eastman?
3. What are the underlying requirements for integration and what
could the limitations be?
4. Identify the business needs of each company (Eastman and
Nagase) and the systems and business processes that would
require re-engineering and integration.
5. Evaluate the full benefits that could be gained by both Eastman
and Nagase through ISS, and present this as though you were
writing an independent consultant’s report to Nagase.
 What is the significance of an integrated
supply-chain for Eastman?

• In the past, chemical companies have relied on traditional strategies for

growth and competition, such as extracting additional value from existing
assets. So, in 1980s they focused on the functions of sales and operations.
• In the 1990s they focused on consolidations and restructuring to reap
economies of scale and capture synergies to realize cost savings.
• However, in the 21st century, such traditional strategies are no longer the
means for creating shareholder value. Knowledge is becoming an
increasingly important part of a company’s capital. The Internet has become
a tool or channel for exchanging knowledge, all with the ultimate goal of
satisfying end customers.
 What is the significance of an integrated
supply-chain for Eastman? Con’t
The single greatest efficiency to be gained from Internet technology
is value chain integration.

1. To achieve facilitates optimization of information flow at each transaction

point of the chain.
2. It allows for substantial improvements in profitability and efficiency by
affecting multiple factors altogether (such as cost-savings, better
inventory management and reduced trade-cycle times)

This ability to share information beyond geographic and corporate

boundaries for the benefit of all parties in the supply chain in fulfilling
the customer’s requirements in a timely, efficient and cost effective way
is what Eastman sees as its potential competitive advantage.
What are the options available to Nagase for
connecting with Eastman?
 What are the options available to Nagase for
connecting with Eastman? Con”t

1. Eastman Online Storefront

This approach allows Nagase company to log in to Eastman’s website
to , place orders, check the order fulfillment status and so on.
However, this was a manual process of ordering, which had its
limitations. The manual process was slow and prone to human error.

2. e-Ventures
Industry solutions are available to Nagase, providing online services
by ChemConnect that connect buyers to sellers using XML
technology have many advantages:
• Subscribers do not have to be too concerned about
implementation, as ChemConnect handles the customisation of
information systems for them.
• Subscribers also gain access to a ready pool of trading partners
with which they can transact online.
 What are the options available to Nagase for
connecting with Eastman? Con’t

3. System-to-system Integration (ISS) integrated solution system

ISS, based on the CIDX (Chemistry Industry Data Exchange ) standard, and this
would enable Nagase to communicate with other companies, besides
Eastman, that also use the CIDX standard. Nagase’s back-end
systems, although simplistic, are good enough for applying ISS.
Nagase can make use of the web Methods services and tools, but the
extent of integration will be dependent on:
• The extent to which it is willing to re-engineer its business
processes
• The amount of financial investment it is willing to make
• The commitment of senior executives to adopting electronic
means of doing business
• The technical capabilities of the company
What are the underlying requirements for integration
and what could the limitations be?
*
It’s hard to play a team game without teammates, and the supply chain is
definitely a coordinated activity. The whole chain suffers if one link is slow
to provide information or access.

Edward Cone

Becoming e-connected with poor quality data from lower IT systems will
do nothing to improve efficiencies in the supply chain or reduce costs.

As Ted McDermott
 What are the underlying requirements for integration and
what could the limitations be? Con’t

The true benefits of the e-supply chain can only be realized when the systems
that manage the supply chain reach right back into the systems that manage
the manufacturing and back-office processes.
In order to integrate technical and business processes, large trading partners
are having to assess the value that may be gained from various collaborative
business scenarios across the supply chain. Such as:
• engineering project collaboration,
• customer order and inventory collaboration
• distributor– reseller collaboration
• supplier and procurement collaboration
• demand planning collaboration
• Warehouse management and freight collaboration.
The opportunities that await them are immense. However, before they can realize these
opportunities, there needs to be technical and business process integration across enterprises
and across heterogeneous applications that reside in the different enterprises.
 Identify the business needs of each company (Eastman and
Nagase) and the systems and business processes that would
require re-engineering and integration.

Nagase is a major distributor for Eastman. Since Japan is Eastman’s single

largest market in the Asia-Pcific region.

• The potential value of integrating the supply chains of the two companies is
immense. Nagase represents Eastman in the Japan market in almost all
business segments. Annual purchases from Eastman total around US$25
million.
• The two companies transacted a huge number and a wide cross section of
business interactions, which would make the integration effort a good test
case for the technology under a complex business environment.
shows the information Eastman would like to pull from Nagase’s information systems on
a real-time basis, and the re-engineering of systems and business processes that would
be required to enable this:
 summarises the information Nagase would like to pull from Eastman’s
information systems on a real-time basis and the necessary re-engineering of
systems and business processes to enable this:
Thank You

Q&A