Powerful chemicals

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“Dow has weathered the times, and now we’re positioned well for the upturn. So how we leverage technology within our industry and with our customers is extremely important to us,” says Kepler who is also the company’s CIO.

CTO-level leaders in the chemical industry are focusing on creative collaborative projects, such as developing cybersecurity measures to extend standards for communications and transactions, and remaining giants in a global marketplace.

Much is being demanded of these top-level IT executives. Bob Steele, senior vice president of chemicals and natural resources at consultancy KPMG, says chemical-industry CEOs are asking CTOs to find ways to lower costs. “Cost take-out continues to be an issue for any project. People often think of the chemical industry as a sleepy little industry, but [it] is right there with everybody else implementing the newest technology,” he says.

Security leadership

The chemical industry has traditionally placed a premium on the physical security of its plants, processes, and shipping activities. But Sept. 11, 2001, spurred a push for development of data security mechanisms. “The industry is spending money on internal and external systems and on hooking databases together,” Steele says. “It’s just beginning, but clearly, with the rise of the [proposed] Homeland Security initiative, there is great interest in making sure these materials don’t get into the wrong hands.”

Dow Chemical’s Kepler is spearheading an industrywide, cybersecurity risk-management project endorsed by 2,000 companies. The project, coined the Chemicals Sector Cyber-Security Information Sharing Forum, has Kepler leading executives experienced in information security, process control security, physical security, supply chain and logistics, IT strategy development, standards development, and telecommunications.

Through this forum, Kepler aims to establish an information-sharing network and to encourage adoption of new technologies. “This [project] gives us a chance to look at issues about information sharing and to define standards for security and to define and manage risk,” he says. “We’re looking at how to authenticate people and how to develop intrusion detection.”

The anticipated information sharing among companies on data security will further strengthen the ongoing movement to standardize industry business procedures, Kepler adds. He is getting assistance on cybersecurity throughout the industry, including from Diane Strickler, director of technology integration at DuPont. “We are very involved and have a person dedicated to working on the effort to establish standards for participation in the security process,” she says.

Defining standards

The need for communications among chemical companies for trading, security, shipping, and the like has fostered a strong push for the development of standards, says Gary Gannon, CTO of Houston-based SourceXL, which runs an online auction for the chemical industry. “As the chemicals market becomes more integrated and competition increases, this fosters the need for more sophisticated transactions, which in turn encourages the application of technology in this arena as an opportunity to reduce costs,” he says.

The industry has already achieved agreement on developing methods to improve the ease, cost, and speed of electronic business transactions by standardizing data and business processes, says Leif Eriksen, research director for manufacturing strategies for AMR Research in Boston.

Dow’s Kepler has been a strong proponent, calling for continued work on XML-based standards, which already define more than 50 business messages used by chemical companies to carry out secure transactions. Dow, DuPont, and more than 20 other companies now participate in Elemica, the chemical industry’s leading e-marketplace. Other marketplaces include ChemConnect and SourceXL.

In addition, chemical companies are pursuing development of Web-based portals extending inside and outside the company. Kepler says ecommerce, with its portal infrastructure and its marketplaces, has grown in value for the chemical industry despite the technology’s ups and downs in the 1990s. He points to MyAccount@Dow, a secure e-commerce connection for registered customers that provides transactional e-commerce capabilities, order-entry account status, and customer information sharing. “We have a significant strategy built around relationships with our customers,” Kepler says.

Strickler is overseeing DuPont Direct, a private e-commerce system that allows existing customers to order products online, and DuPont.com, a central portal that provides linkages so the chemical giant’s many diverse business groups can communicate with each other. “We promote flexibility and agility,” Strickler says. “With the rapid rate of change in our company, the key is being able to respond to dynamic business change.”

Eye on costs

Still the chemical industry, like others, is facing problems in the current economy. Industry analysts see the global market as mixed but have relatively positive outlooks for some U.S. giants. In early July 2002, DuPont stock traded above 2001 levels but lower than May 2002 prices.

Dow has its own issues. As a result of the 1999 merger with Union Carbide, it is now the world’s largest chemical company with leading market share in several commodity segments. While Dow’s stock price is higher than last year, debt levels remain high.

This all means the industry’s chief technologists are looking for cost-cutting as well as innovative measures. Much of the savings incurred is due to outsourced services, both Strickler and Kepler say.

Strickler says DuPont has cut IT spending from $1.2 billion to $545 million a year since outsourcing much of the company’s IT operations in 1997. Also, outsourcing has allowed DuPont to adjust to business cycles without forcing managers to lay off workers and cut operations during downcycles. “When you outsource, you get a greater level of flexibility,” she says.

The complex nature of the chemical industry, including its diverse and exotic product set and its shipping and handling issues, may actually make it a better outsourcing candidate than some other industries, Gannon says. “This is an industry that is accustomed to specifics and precision,” he says. “And to the extent you can define something well, there’s a better opportunity for outsourcing.”

DuPont contracts with Computer Science Corp. (CSC) and Accenture. CSC manages parts of DuPont’s global information systems and technology infrastructure, including mainframe, midrange distributed computing, telecoms, and cross-functional services, as well as 60,000 desktop units and disaster recovery functions. It also handles more than half of all current applications work, including SAP systems specific to the company’s 23 strategic business units.

The work also covers more than 50 percent of DuPont’s business applications, such as payroll, finance, and human resources. Accenture is developing a companywide ERP (enterprise resource planning) system. Also, using IBM’s Websphere platform, DuPont is designing Web services applications, which Strickler says are being strategically developed. “We reserve the responsibility for managing IT internally,” Strickler says.

Likewise, Dow’s Kepler has a strong outsourcing relationship with Accenture, which has led to completion of 800 projects, including the implementation of Dow’s first global reporting application based on data warehouse technology tightly integrated to Dow’s companywide SAP systems. He also has forged relationships Microsoft, IBM, and Compaq Computer (now merged with Hewlett-Packard).

“We are very focused on return on investment, where every project has economic value around it,” Kepler says. “Since 1995, we have achieved about $2 billion in targeted returns, or the value of improvement and more effective utilization.”

Correction

In this article, we misreported the name of Dow Chemical’s vice president of electronic business and CIO. He is David Kepler.