Eastman E Business example essay topic

Eastman Chemical Company located in Kingsport, Tennessee is in an industry that produces basic and immediate chemicals, specialty chemicals, agricultural chemicals, petrochemicals, plastics and fibers, and paints and coatings. Eastman also manufactures over 1200 chemicals, fibers and plastics; as well as being the largest supplier of polyester plastics. Currently Eastman employs over 15,000 people in 30 countries with manufacturing sites tactically located in 17 countries, with Asia Pacific Region Office being one of their key offices. Eastman is known in the chemical industry as a world leader in the e-business. They are the first chemical company to provide their customers with e-business, which allowed them to do business in a much easier and efficient manner. Eastman e-business specializes in an online storefront and transactional Customer Centra; Web-enable auctions; alliances and investments in digital business, along with system-to-system ERP connections.

The main focus of Eastman's e-business was: 1. Creating customer-centric solutions 2. Portfolio of option, along with providing solutions for customers via electronic means 3. Invest in technologies / capabilities that bring value to customers 4.

Be externally focused 5. Form partnerships 6. Build an e-brand, which attract customers, suppliers and technology partners 7. Leverage its intellectual capital, industry knowledge, network of contacts, credibility, brand and customer base By implementing the e-business, Eastman's customers were able to view products, check status of orders, access certificates of analysis, material safety data sheets, etc. The only problem Eastman originally saw with the e-business model which they have worked so hard to implement was that only 22 of the companies, which they do business with, are connected.

And it's very important to get all the companies connected into their infrastructure, which will provide all their customers with the seven foundational principles. Knowing the importance of getting the industry knowledgeable and connected to the e-business, Craig Knight, the Asia Pacific Digital Business and Customer Service Manager of Eastman Asia Division was tasked to sell the Eastman's philosophy. Knight made a two-week trip to Tokyo, Shanghai, and Malaysia to sell Eastman's integrated electronic supply chain, known as the Integrated System Solution (ISS), to business partners in the industry. He was able to sell Nagase & Co., Ltd, a company in Japan on the ISS, but they had some concerns regarding the system. Knight truly understood their concerns, and made every effort to ease the process by providing the long-term benefits of the ISS to Nagase & Co., Ltd and other business partners. According to George Eastman, "business as usual can put you out of business".

(Eastman). Eastman Corporation thrives on visionary methods and was formed on ideas. Eastman Chemical and the e-supply chain's main focus is the customer. "Being customer focused, meeting customer needs, serving customer in new ways, convenience for the customer, and delivering customer solutions".

(Eastman). E-commerce offers the customer convenience, security, information and expert help when they want it. Customers can obtain product and technical information and account data. The e-supply chain benefits existing customers but also has the capability to attract new customers. Eastman's competitive / corporate strategy consists of five components in 2002: "Create value-added growth, improve gross margins, sustain social responsibility, build capabilities for future growth, and maintain financial discipline". (Annual Report).

The e-supply chain formed by Eastman Chemical supported all components of the strategic plan. Their premise was to transform the chemical industry by using the e-supply chain. The strategic plan of the e-supply chain was: "by digitizing business processes it creates new sources of revenue, significant cost reductions and utilizes lower working capital, building transparent and collaborative supply chains, developed a new way to do business and different offering that captures the customer". (Eastman). According to Eastman's 2002 Annual Report, it was a strong year for cash flow. The operating activities generated more than $800 million, which more than doubled from 2001's of $397 million.

Their sales volume rose eight percent over 2001 with Asia Pacific sales increasing 25 percent due partly to the new agreement with Nagase & Co., Ltd of Japan. Eastman was able to maintain SG&A and R&D expenses to 11 percent of sales with the low cost of overhead due to the e-supply chain. They reduced debt by $350 million and were able to maintain for the third year a strong dividend. Use of the e-supply chain had a positive impact on their business, not only did it improve cash flow, it increased, increased sales volumes and had a positive effect on stock share. The following table gives an overview of financial highlights for 2002. Operating Results 2002 2001 2000 Sales in dollars $5,320 mil $5,390 mil $5,292 mil Operating earnings 208 mil (120) mil 562 mil Net earnings 61 mil (175) mil 303 mil Net earning per share.

79 (2.28) 3.94 Cash dividends per share 1.76 1.76 1.76 Cash flows from operating activities 801 mil 397 mil 846 mil Capital expenditures 427 mil 234 mil 226 mil Depreciation & amortization 397 mil 435 mil 421 mil Selling, general & administrative exp 407 mil 407 mil 316 mil Research & development exp 159 mil 160 mil 149 mil Driver's of Business Performance Statistics: 2002 2001 2000 Sales Volume % Change 7.8% 3.5% 7.0%Volume increase in Asia Pacific 24.3% 7.8% 4.6%Productivity (millions of kg per employee). 290.286. 285 Order-to-delivery cycle time Reduced it from 5 to 4 days Improved data integrity to 0% defect Customer satisfaction Since 1982 received 97 awards from customers 70% of world-wide customers ranked Eastman as their #1 supplier Last 5 years rated outstanding for product quality, product uniformity, supplier integrity, correct delivery, and reliability Innovation 22% of their sales are from new products, industry standards are 11% As seen in the above numbers a well-executed e-supply chain can drive significant business improvement across the entire value chain, reducing costs, increasing profits, and enhancing competitive advantage through dynamic collaboration among partners. To stay competitive and ahead of others Eastman has facilitated the use of the internet to fulfill their strategic goals.

This has not only benefited Eastman but also the suppliers and their customers as each now holds the power to be in charge of their part of the manufacturing / selling /buying process. Fortunately, Eastman had the foresight that e-commerce was the best strategy to increase their market-share, reduce costs, minimize inventories, improve profits, shorter cycle times and better customer service. An effective and well developed e-supply chain can do the following: . Reduce paper work and eliminate redundant data entry positions. Reduce costly time factors in a "manual" order processing system. Compression of cycle time.

Lower inventories. Improve decision-making quality. Reduce overhead costs. Introduce more streamlined and efficient processes. Increase the speed of order-to-delivery. Support a highly competitive environment.

Timely transfer of relevant demand and supply information. Puts customer in the "driver seat". Allows suppliers to integrate with their customers instead of just interfacing. Allows for a quick response to customer needs.

Synchronized material flow. Cost efficient with improved operating results. Effective supply chain management The e-Supply chain has allowed customers and suppliers to be linked together seamlessly, throughout the world, exchanging information almost instantly. Other companies that have been successful with business-to-business e-Commerce are: Dell Computers and General Electric.

Jack Welch, the CEO of GE has stated "that within 18 months, all of our suppliers will supply us on the Internet or they won't do business with us". That is a bold statement but it shows the power of e-Commerce. R. Michael Donovan, a management consultant, projects improvements when adopting the use of e-supply chain management of the following: costs down 20-50 percent, on-time performance of 99 percent, lead-time decreased by 50 to 90 percent, cost of quality reduced by 60 percent, overall cycle time decreased 60 percent and more, floor space reduced 30 to 70 percent, inventory down 50 percent or more, and material costs down 5 to 10 percent. With statistics like this Eastman has a larger potential on capturing the effects of e-supply chain and achieving their strategic goals over time as their processes mature. According to R. Michael Donovan, "what management defines as critical success factors at the strategic level must be linked clearly to the business process and activity level.

Successfully linking the real drivers of business performance is a prerequisite to effective performance measurement". He continues to say that effective performance measurement is what guides management in the right direction to produce meaningful results at the process level, results that will tie directly to the company's goals. The factors to track are: order-to-delivery cycle time, inventory levels, operating expense and customer satisfaction. Financial results are the end of all measures but they are not the drivers of business success. Specifically, Eastman's e-supply chain strategy was an integral part of their corporate / competitive strategy by the following examples: Create Value-Adding Growth 1. Expanded into new markets - Asian Pacific (Nagase & Co Ltd of Japan) 2.

Leveraged technology across the different product platforms 3. Leveraged opportunities because of their broad product line - customers were offered a one-stop shopping venue 4. Developed new products to stay competitive (R DFW, Dura Star, Embrace & Pro vista). New product innovation to meet customer needs. 5. Tapping into the potential of Asia Pacific not only with sales but also joint ventures, for example, Sin opec Q ilu Petrochemical Co in China.

Improve Gross Margins 1. Process improvement - sales have increased over 50 percent while it takes 30 percent less engineers to support manufacturing facilities than a decade ago. 2. Facilitating the use of software to monitor and expedite their processes, for example, SAP system, ERP, APO system, VMI, and ISS 3. Cost efficiency throughout the supply chain as seen in the financial data Sustain Social Responsibility 1. Continue being accountable to everyone they serve - stockholders, customers, employees and the communities where they operate.

By being a world leader in e-supply chain development they compliment their philosophy of being a role model for corporate responsibility. Build Capabilities for Future Growth 1. Expanding beyond the core business of chemicals and plastics manufacturing to develop less capital-intensive service businesses that allow it to take advantage of its long-term customer relationships, operational skills, and technological capabilities. 2.

Use of Stage Gate and Portfolio Management software to monitor the profitability potential and progress of new ventures. 3. Develop a new service model - Coal Gasification Service - an alternative clean technology for producing electric power. 4.

Acquired in 1/2002 Ariel Research Corporation to manage product safety and regulatory compliance for workplace and environment. Maintain Financial Discipline 1. Held SG&A plus R&D costs at 11 percent of sales 2. Reduced debt by $350 million 3.

Maintained dividend of $1.76 for three years 4. Increased sales volume Per CEO Brian Ferguson, the common theme for Eastman's new business is to "get paid for what we know, not just what we make". Eastman is rich in chemical and information technologies and other functional capabilities. Taking advantage of these assets to build higher-margin, technology and service oriented businesses is critical to stay competitive, to be profitable, and to continue to grow. Nagase & Company, Ltd. of Japan is a major distributor of Eastman Chemical. Since Japan is Eastman's single largest market in the Asia-Pacific region, the potential value of integrating the supply chains of the two companies is immeasurable.

Nagase represents Eastman in the Japan market in almost all business segments. Annual purchases from Eastman by Nagase total around $25 million U.S. dollars. Eastman and Nagase transact an enormous number and a wide cross-section of business interactions. They have conducted business together for almost 53 years.

The business needs of Nagase are: order fulfillment status (for customer relationship management); shipping details (for just-in-time inventory management); and inventory status (for inventory control of perishable items). The business needs of Eastman are: order forecasts (for production planning and scheduling); inventory status (for production planning and scheduling; materials and capacity requirements planning; just-in-time inventory management and coordinated replenishment); logistics requirements (for shipping consolidation; and distribution requirements planning); payment status (for cash flow management). Several systems and business processes would require re engineering on the part of Nagase and they are as follows: 1) For production planning and scheduling a stand-alone system for order forecasting is needed. This means that forecasts would need to be manually generated from the system and passed to Eastman for input into its production planning system. Automating this process would allow Eastman to respond to changes in forecasts in a timely manner.

2) For production planning and scheduling etc. an APO (Advanced Planner Optimizer) is used to manage Nagase's whole inventory. Eastman needs to be able to tap into this database and both companies must agree to minimum inventory levels at which automatic replenishment requests are triggered. 3) For shipping consolidation and distribution requirements planning the FINE (accounting system used by Nagase) is used to coordinate logistics. Data from this system should be sent with orders to Eastman. Since Nagase operates out of many locations in Japan, such information would be useful for shipping consolidation and distribution planning.

4) For cash flow management the FINE system handles payments. It would be useful for Eastman to know the status of payments by being able to log into Nagase's payment system. The ease of being able to do so online would eliminate the time and manpower needed for communicating by conventional means. The systems and business processes that would require re engineering on the part of Eastman Chemical are as follows: 1) For customer relationship management Nagase would be able to respond to customers quickly and with timely information on the status of their orders. The re engineering would involve eliminating manual means of communication, which are costly and inefficient. Nagase could pull information from Eastman's SAP (Enterprise resource planning system).

2) For just-in-time inventory management the transportation planning system within SAP would feed information about shipments to Nagase to ensure scheduled delivery dates are met. 3) For inventory control of perishable items. As most chemicals are perishable, Nagase would not want to hold large stocks of perishable chemicals. Having access to Eastman's inventory status would ensure that it could confidently commit to customer requests. Having this information online would improve Nagase's response time to customers. Eastman Chemical is driven by customer focus, accountability and efficiency.

The e-information Systems enable Eastman to connect employees with customers, suppliers and other business partners. Aggressively implementing e-business capabilities will enhance a competitive position in the market place for Eastman Chemical.

Bibliography

Stevenson, W.J. (2005).
Operations Management, 8th Edition. Boston, MA: McGraw-Hill Irwin". Customer Success Story: Eastman Chemical Company", Mercury Business Technology, 2002"European case study: How Rotterdam serves Eastman Chemical's goal of serving Europe, the Middle East and Africa", Schansman, Thomas, Jan.
1995".
Constructing and e-supply Chain at Eastman Chemical Company" Ng, Pauline, Centre for Asian Business Cases, September, 2002 web "Performance Measurement: Connecting Strategy, Operations and Actions", R.
Michael Donovan, April 22, 2005 web April 22, 2005 Eastman 2002 Annual Report web "E-Supply chain and Logistics: the Partnership Dance", April 22, 2005 web "E-Supply Chain Management: Prerequisites to Success", R.
Michael Donovan, April 22, 2005 web "E-Supply Chain Management: Managing the Extended Enterprise", R.
Michael Donovan, April 23, 2005 web "The e-Supply Chain is coming.
and fast", R. Michael Donovan, April 23, 2005 web "Flow Manufacturing is Essential to Competitive Supply Chain Management", R.
Michael Donovan, April 21, 2005.