Supply industry veterans get set to launch on-line materials sites

The supply chain will soon get a little shorter and a lot less costly. Several veterans of the suppliers' side of the semiconductor industry are set to launch on-line ventures which they believe will start a revolution in the $60 billion electronic materials industry.

Geoff Wild, former president of both AlliedSignal's electronic materials division and Johnson Matthey Electronics, says his new venture, TheSupply.com, expects to complete its first electronic transaction by early April. The e-commerce site "began to take shape" in the middle of 1999. The venture secured first-round financing of $15 million from Crosspoint Venture Partners, an investor in advanced communications and Internet projects.

The new company hopes to streamline procurement by bringing buyers and sellers of materials such as chemicals, gases, and "routine maintenance spares" closer together through an Internet hub. The net market is an open systems­based operation that should improve both the visibility and access of materials suppliers, according to Wild. The site's welcome page calls the company "the only neutral enterprise dedicated to and focused on automating the supply chain for materials and components in the semiconductor, printed circuit board, and assembly industries."

The e-commerce concept had been on the minds of Wild and his colleagues for a couple of years, he recalls. "There was this debate whether the Internet was going to enter business-to-business life. We reached a point in our minds where we knew it was." He calls the idea "unstoppable."

The executive need not look far to prove that point. Another e-commerce Web site called SemiSales.com announced in February that it was closing on a first round of funding in preparation for launch during Semicon West in July. Paul Miller, the former founder and manager of Kobe Precision's silicon services division, is the president and CEO of the new company, which became a corporation in January.

In addition to standard catalog purchases, Miller's "neutral marketplace" will also handle custom orders and auction transactions. It will target the fab and packaging materials markets "and selected segments of the equipment market." Asked whether the other site is a direct competitor, Miller says that there will be "some overlap with them."

Wild acknowledges that the obvious appeal of the idea will attract competition. "It's a $60 billion space. That's why we're moving fast. We've got to move at Internet speed."

It's not hard to see why the concept is an idea whose time has come. Wild sees "huge benefits for linking up people electronically." There's a problem with the existing model, where customers order from individual supplier sites. "Even with just 40 buyers and 200 suppliers, you have 8000 links," Wild points out.

Initially lacking venture capital funds, Wild and his five-member management team "just worked on a shoestring" as the business plan evolved from simply "putting a hub up" to adapting their concept in recognition of the money chipmakers have spent on enterprise resource and planning, or ERP, systems.

There are five main systems used by buyers and suppliers, says Wild. "We linked those in to provide extra benefits. That kind of shows how our vision changed over time," he says. "I think it's a pretty compelling vision. It's been done in the steel industry. There's an e-steel site, but nobody had done this for the chemicals supply chain." The executive finds irony in the fact that semiconductors are essential to the operation of virtually every other industrial segment in the world, but the chip industry itself is only now recognizing the benefits of such a streamlined supply chain.

Dave Anderson, the director of supplier relations for International Sematech, shares Wild's sentiments. "As a driver of the electronics industry, we're always slow adopters," says an amused Anderson, who is on the advisory board of SemiSales.com.

In the semiconductor industry the materials supply side "is pretty fragmented, really, which helps a model like this," asserts Wild. "In the auto industry you don't need a hub like this because there are basically three big manufacturers."

Of TheSupply.com, Anderson notes: "I think the concept is a very dynamic one and something the industry needs, especially in their area of focus, which is electronic materials.... It really seems to me that's a great use of the whole e-commerce concept...and one that will ultimately be successful.

"For e-commerce it's really beneficial to the supplier that they have more access to customers. It's also beneficial to customers because they have a direct line to what's available." He also believes that device manufacturers have quickly cottoned to the concept because it "will ultimately provide them benefits, too." Such as cost savings? "Oh, yes," Anderson replies, "they wouldn't do it without cost savings."

A tenuous link ties the streamlining concept to yield-related benefits, but the link may be real nonetheless. Dean Strausl, executive director of the Semiconductor Supply Chain Group and a member of TheSupply.com's advisory board, says chipmakers should be able to lower their costs by reducing "the amount of time you use or the amount of purchasing you do."

The concept could free up staffers in purchasing to put their skills to use elsewhere in the chip plant, Strausl believes. "That's a huge benefit. Of course, we have the fabless phenomenon and now more extensively the outsourcing phenomenon in the electronics industry in general. One of the things that is driving the discussion about supply chain management is: as you outsource, the more you outsource, the more you start to say to yourself, 'what are my core competencies, what am I good at, and what is my company really about?' Seldom is that purchasing."

Strausl likens the one-stop aspect of the concept to something like Travelocity.com. "It's the airlines reservations system. You want to fly, you know where you want to go, and you try to find a flight on a carrier that suits you."

If supplier performance, including SPC charts and ISO qualifications, is offered, it will allow on-line buyers "to take quality considerations into account in making purchasing decisions on a real-time basis. It's not often quality's an issue until it's not there. Here, quality can be an issue for you as a proactive part of the decision-making process." He says the site could also provide information on "not just the lots but on how the supplier's factory is performing. Obviously, the purity and quality of consumables and chemicals have a major impact on yields."

A demonstration tour of the TheSupply.com site shows how it works. There are two methods of searching for product. One is to type a specific criteria of product. There are up to seven different criteria to select for. The other is to type in a supplier's name or product category. You place an order by creating a purchase requisition, which is automatically routed through the necessary approval cycle.

"Often engineers are looking around for different materials and that can take a lot of their time," notes Wild. "I imagine this will be of prime service for them." He adds that the very concept "levels the playing field" for all suppliers, whether they be Air Products and Chemicals or a small specialty chemicals vendor.

With the software operations running smoothly, TheSupply.com is looking for four to five beta site partners who can configure their catalogs so that the company can, as Wild puts it, "put a compelling offer together. We're currently at the demonstration stage. Nobody is going to sign up and commit their entire purchasing engine just yet."

The company hopes to begin transactions "on a limited basis in April." Wild, who developed the AlliedSignal electronic materials unit into a $1 billion business, says of his start-up, "We wouldn't have done it just for the money." The company expects to make money by charging a small transaction fee. "It's a bit like using a credit card."

Strausl appreciates the risks that Wild and company have taken to launch the first such venture. "Nobody expected this," Strausl emphasizes. "That's the beauty of it."

Strausl believes the reputations of Wild and management executives such as Atle Fjeld inspire industry confidence that the venture is on solid footing. Fjeld most recently served as CIO and vice president of information technology for Siebel Systems, described as the world's leading provider of applications software. He is TheSupply.com's senior vice president of engineering and its CIO.

"I've known Geoff for a long time," Strausl says. "I have a lot of confidence in him, and I think he's put together a dynamite staff, by the way. You couldn't have found a better group of people who have the mix of experience and capabilities to make this happen."

Realizing he is gushing, Strausl stops himself. "This sounds like I'm patronizing them, but I don't get involved with everybody that comes along."