How The Chemical Industry Can Adopt Digital Commerce With David Haase

 

The majority of buyers these days are internet-savvy and digitally literate. For the chemical industry to keep up with its changing and rising demands, it must fully embrace digital commerce. Joining Victoria Meyer is David Haase, President of ChemDirect, to talk about the benefits of selling chemical products over the internet. He shares efficient strategies to cope with the people’s need for rapid customer service and convenient information access. David also explains how to address the industry’s issues with online transparency and the much bigger costs of digital adoption, allowing it to survive in a technological future.

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How The Chemical Industry Can Adopt Digital Commerce With David Haase

Before we get started, I want to give a shout-out to our sponsor, NUCO Logistics. Noushin Shamsili, who’s the CEO of NUCO, has been on the show in episode 64. She’s also tuning in here on the audience. We’re excited to have NUCO as one of our sponsors. NUCO Logistics offers innovative solutions in all areas of international transportation including air, ground, and sea. Through its broad international network and team of highly-skilled and dedicated experts, NUCO puts forward a complete solution for all your logistics needs at a competitive and cost-efficient price. Check out NUCO Logistics and episode 64 where I spoke with Noushin. Thanks, guys.

I’m delighted to introduce you to our guest. Dave Haase is the President of ChemDirect, having joined the team in 2021 to complete a Series A. ChemDirect is a marketplace that develops specifically for chemicals. Dave is the president and brings years of experience in consumer goods and startups, including at Eli Lilly and General Mills. He has a real passion for working with teams and disruptors to solving complex problems by building world-class technology. He went from big companies to a lot of startups and brings insight and capabilities into ChemDirect.

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Dave, welcome to the show.

Thank you so much for having me.

What’s your origin story? It sounds like you haven’t necessarily done a lot in chemicals, so how did you get interested in chemicals and startups, and how did you get to ChemDirect?

The origin story for me and the company is pretty interesting. I’m standing in for Tyler Ellison who’s our CEO. Personally, I came across this company in 2021. I was working with startups. Having come from big companies, I love the concept of disrupting and creating more efficient ways to serve customers. At Lilly and General Mills, I dealt with industries that operate through distributors and retailers and are separated from their customers. In both places, I developed a passion for new products and different ways to serve customers. The origin story is what brought me to ChemDirect.

For ChemDirect, the story is even more interesting. We started inside a chemical manufacturer called Nova Molecular that Tyler was running at that time. They developed an online channel to serve their customers. Tyler realized that that concept was a lot bigger than Nova. They spun that out in 2020 as an independent company and broadened the marketplace to serve a number of other suppliers.

It is cool to think about technology starting inside a chemical company and then spinning out and trying to redefine the industry through digital commerce. I know we’ll talk a lot more about that, but that’s how ChemDirect began way back in the day. We’ve re-platformed, built a new marketplace, and expanded our technology in a number of different ways, but we started right inside the walls of a high-purity solvent manufacturer.

I hadn’t made the connection that you had started while trying to solve solutions for Nova itself.

While it’s a B2B market, chemicals have always been very relationship-oriented and a people business. Why do you believe that the chemical industry is ready for digital commerce?

I don’t know that everyone is ready, that’s for sure. We are still in an era where chemical companies tend to be good at a couple of things. One is the chemistry portion of it. It is the science and formulating products for customers. The other is being customer-centric from a sales perspective. I find that many of these companies are customer-centric yet do not use the online channel, which is something that customers want.

If you go look at McKinsey, Bain, or any of the industry studies, you’ll see clearly that customers want the ability to have faster information, more transparency, and information that they need to be successful in price or finding a new supplier. Consumers love the ability to shop online. That’s true even outside of the chemical industry. Even within chemicals, these are still the same people that are shopping on Amazon in their personal lives.

We think that there’s customer demand for having better information. Whether that’s an online third-party marketplace like what we’re building, chemical suppliers having more information on their website about price or ESG outcomes, or the carbon footprint of certain products, we think that the trend is clear. It is strong that more information is going to be going online and there’s going to be a higher demand for that. The companies that are going to be successful are those that are ahead of the curve and that are giving customers what they want.

I would flip the question a little bit in terms of, “Is the industry ready,” into saying, “If this is what customers want, then the industry’s got to get ready.” We’re trying to drive that, but we’re also supportive of folks like you that are doing shows for chemicals. That’s a new thing as well. I feel like you’re a disruptor as well in this industry.

Regardless of industry, people want faster information. We’re moving faster as a world. We’re having Amazon’s impact on the entire world at the moment. People want to be able to order something, get it the next day, know exactly what the price is, what the shipping is going to cost, and be able to move faster. We think that going online is the only way to achieve that. It is to use technology to empower people to make faster decisions.

People want faster information. They want to know the exact price of what they are buying. The only way to achieve that is by using technology to empower them to make faster decisions. Click To Tweet

I’ve had conversations with a couple of people who if you look at the generations that are coming into the workplace are digital natives. They’re used to having everything at their fingertips in a digital format. In fact, they’re maybe not so comfortable with personal conversations if it can be avoided in some cases. Creating that digital platform becomes critical for all businesses. Why do people choose a digital marketplace like you are developing? You’re bringing multiple buyers and multiple sellers onto this platform. When do people choose a marketplace versus having their own solution that’s company-centric?

We think that people will do both in the long run. There are a lot of companies doing great things in terms of building their own digital commerce experiences at times, or at least product listings. Maybe they’re not transactional experiences, but they’re certainly building out their own sites, which is great. We even work with customers to make that a shopping experience. We have people that crosslink to us and they’ll link back so you can buy things in real time, but you start on their site. We are happy to work in that manner as well.

The reason we think a third-party marketplace is going to take some portion of this market is that we centralize things that are difficult to do with 4,000 silos. There are 9,000 chemical manufacturers in the US, so you can imagine that for consumers. The best experience is to be able to shop in one place where you have the best possible technology. The capabilities that we centralize are important as well. If you think about financing, it’s not that easy to qualify people in real-time for trade credit up to $500,000. That’s not a problem that needs to be solved 9,000 times. It’s a problem that should be solved one time and then leveraged across any number of different suppliers, customers, and likewise logistics.

 

Schneider led our Series A, which is one of the world’s best transportation and logistics companies. We are working with them to get real-time pricing for logistics, pricing, planning, and alerts, and then scale the technology there to have the world’s most efficient chemical logistics network. That’s another capability that we think should be centralized.

With the unique challenges with chemicals around financing, logistics, but also even shopping, we think that there is plenty of reason to believe that a third-party marketplace is the best way to solve some portion of this. Not every chemical’s going to be bought online in a marketplace in the long run, but many of them will. That is our belief. We think it is not going to be a small part of the market. We think it will be a significant part of the market.

Some would say that in some ways, the role that you’re fulfilling is similar to a role that a distributor fulfills in terms of having the opportunity to have a very wide range of products, materials, and suppliers available.

That’s exactly right. There are a few analogies that people use, and none of them are perfect. The distributor is one of them. We work with distributors. What we find is that we will enable some suppliers to serve their customers directly. We can maybe do that on a bit more scale, which may overlap with what a distributor does. At the same time, especially our logistics network is something that distributors have brought as a capability to many folks. They do things that we don’t do, like hold inventory, pack down, and create logistics networks. They may have forward-place inventory to create more efficient logistics networks. We’ll partner with them to provide those capabilities.

There’s no doubt that there is some overlap in terms of capabilities between us and a distributor, but there are some important differences as well. We always tell folks that we’re not trying to wipe out distributors. We work with a bunch of them and work very well with them. We’re talking with the distributor about expanding their supplier network with our virtual dropship supplier network. We can partner with them as well. We don’t like to think of ourselves as being specifically competitive, but more of an additive channel for distributors and also for suppliers. Certainly, we will enable suppliers to go direct in certain circumstances, and that may have some overlap with distributors as well.

What have you found to be critical to ChemDirect in developing this platform and engaging customers? What are you finding that customers want in their experience?

We are very biased in this way, but I would say that the most critical piece is having great technology. The way I define that is by providing unparalleled transparency. Let us start with price, for example. Knowing what the price is of a chemical without having to make a number of different phone calls are something that can add an incredible amount of value for both suppliers and buyers.

On the supplier side, what we can help them do is have a consistent pricing strategy because you’re using technology to apply that as opposed to having a salesperson negotiate every single deal. You can have consistent volume discounts, for example, and apply those across all of your customers. Also, you can find higher margin channels for price. At a small volume or small MOQ, which is a Minimal Order Quantity, you can charge more. We can help them find new channels and new customers and be margin accretive in this channel, which is important.

Getting back to your question in terms of what’s most important, I would say it’s using technology to make complex things very simple, like shopping and finding a chemical. That sounds super easy, but anyone who’s in the industry knows that if you’re talking about solvents, for example, they come in 8,000 different tech specs or different purity levels with different additives in them. Digital commerce is incredibly complex.

We have a team that works on search. They’re making it easy for people to find what it is that they’re looking for very quickly. We do things like scrape SDSs and TDSs and make that information searchable. We work closely with Google to make sure that we’re taking that original search that often happens on their search bar all the way through to a great shopping experience and making that entire process seamless. For us, we’re biased, but we think technology is the most important piece of improving customer experience in the chemical industry.

If technology is the critical factor, what else is there? What do you see as the biggest roadblocks or other roadblocks to digital adoption? I can think of a few that I know people would throw up.

If this was easy and there were no roadblocks, it would’ve happened many years ago. People are shopping online for chemicals already. There is reason to believe that there are unique roadblocks in the chemical industry. Everyone who’s been in a chemical company knows that. To me, I would say the biggest roadblock is transparency. There are 1,000 projects that have failed in terms of digitizing some portion of the chemical supply chain.

If you go back, the consistent story that you’ll see across many of them and even some projects that are out there that are not thinking big enough has been transparency specifically around price. If you are not willing to share the price, people cannot shop online. They cannot buy anything if they don’t know what the price is. There are some great companies solving problems in interesting ways, but if they’re not sharing prices, it is not a commerce platform. It’s not an experience that we think is dreaming big enough in terms of disrupting the chemical industry. The number one thing is being transparent specifically with the price.

People cannot shop online if businesses are not willing to share prices. Click To Tweet

Let’s dig into that a little bit. One of the alternate points of view on this is when you have supreme price transparency, you commoditize a business. That value is created by information asymmetry as well as by all the other factors. I talk to a lot of companies and I talk about this a lot. The value that a company brings is not just product and price.

Product and price are very easy to commoditize. If you focus on that, you’re not extracting value for either party. It falls into a variety of different categories of what the overall customer experience is, what you bring to the table whether it’s a supply security perspective or sustainability perspective, etc. I’m sure that you’re having these conversations with people who say, “I’m not showing my price because once I show my price, everybody can replicate everything.”

This is the most important misconception in the industry. I’m very biased on this one. I love talking about it. Sotheby’s, which is the world’s largest auction house selling multimillion-dollar art, half of their sales are online these days. Going online does not mean that you’re going to have an erosion of price. If your value is based on information asymmetry, I would argue that that is a very poor way to differentiate yourself in the marketplace. Differentiate based on quality and your chemistry.

 

The technology around creating high-purity solvents is incredibly challenging. If you look at Nova, Tedia, and some of our suppliers, they differentiate based on their chemical knowledge, their ability to solve problems quickly, and their ability to efficiently manufacture, which does come back to price. At the end of the day, not sharing that information is not a long-term competitive advantage. Someone can call around and find different prices, and they will. There are amazing procurement people that we work with all the time. They know exactly what different suppliers are charging. They just have to call a lot of people to do that. We are certainly going to have an impact on the shopping experience that people have.

I would argue that these great chemical companies differentiate themselves on those other factors, not necessarily on withholding price because people will still get price information no matter what. Making it harder for them to get it is not a great way to build a great company. It’s an important misconception. Many times, it is born from a sales team, and for very good reason, that is proud of the way that they serve their customers. They believe that person-to-person interaction is the most important way. That’s true, but I would say that withholding information is not good for those customers.

People want to have a salesperson that can help them identify the right chemical, but they also want to get information quickly when they’re making a buying decision. It’s a supplement to existing capabilities. It is an important misconception that sharing price is going to be a race to the bottom or disrupt the sales channel.

 

We work with a number of folks to serve their smaller customers. They can move them over to a self-serve channel, and that’s a supplement to what the sales team is doing. They’re still going to be working with those strategic accounts on what the changing needs are for their chemical procurement. They’re going to be empowered by an online channel where there’s information that those folks can get without having to call someone like a TDS or an SDS.

It’s like, “How much time are we wasting giving somebody information that’s being requested hundreds or thousands of times per year and could easily be automated?” We see ourselves as a supplemental channel. It’s important that we don’t go in and say, “We’re going to replace your sales team,” because that’s not realistic. Digital commerce is going to be a supplement to what the sales team is doing.

 

I can tell we’re passionate about this topic. I played into it well.

I’ve been asked that 1,000 times. It’s important as a framing. This industry will not go away. It’s not going to be that these companies aren’t making any money once they go online. There are plenty of folks making a profit and selling expensive things online. You just have to be thoughtful about how you differentiate in the long run.

ChemDirect is doing more than creating this platform in the marketplace. You’ve got a number of other services. I thought you said you just did fulfillment, but it sounds like maybe you’re not doing fulfillment. It is the whole order-the-cash or offer-the-cash piece of the process. Why did you think that was important to be able to bring in some of these other things like this? You have ChemShip. Is that what it’s called?

ChemShip is our logistics product. It depends on what you mean by doing logistics. We do logistics planning. We think that you have to have landed cost. That’s the most important thing. You can find two suppliers and the cost per pound for a chemical. If you don’t know what it takes to ship it to your door, then you don’t have the information you need to make that decision and complete the purchase online.

We think the reason this hasn’t already happened in chemicals, which is the move to a digital channel, is that people haven’t defined the problem broadly enough. We think you have to support the entire end-to-end purchase of chemicals, including the logistics planning that goes into that. With logistics, this isn’t Amazon where something shows up the next morning and it’s free. Logistics is, on average, 30% of the cost of the chemical. If you’re sourcing something in Texas versus New York, it’s going to have a massive impact on your overall cost.

We think that that’s the only way to solve this problem. We do have a very holistic approach to how we think about selling chemicals online. That’s why Schneider coming in was an important part of this because we worked carefully with them. They’re a huge chemical shipper. They can do in intermodal and all the things that are required. It is incredibly complex to ship chemicals. There are hazmat fees and all sorts of charges for where something’s being picked up or dropped off. Some of these chemicals have to be shipped with special equipment and so on and so forth.

There’s an incredible misconception about how easy it is to ship things. We’ve got a powerful partnership with FedEx and Schneider to give us the entire breadth of logistics capabilities of those two companies and then bring it to the customer at the point of purchase. We’re kicking off our first customer where we’re going to integrate with their ERP and do their logistics planning for all of their orders. We’ve got a tool that we’ve built where we can seamlessly, in real-time, take an order for any sort of chemical, identify the right equipment and rates, and give them the real-time cost for shipping and planning as well. We’re building out even more from there the customer experience that goes around that.

Imagine a customer wants something faster or they want it cheaper, or with reverse logistics, they want to plan to send back a recycle container. Whatever it might be, we want to build the customer experience for that to make it simple for folks. That’s also an important capability for suppliers. If you make it easy to order a chemical and get it fast, what you’re going to see is more small orders. Small is maybe a truckload versus a rail car. It might be a pallet versus a truckload. It’s different for every customer, but it’s going to be a consistent challenge.

We think in order to bring these transactions online, you have got to make it easy for the buyer and the supplier. We have been working hard behind the scenes on that. What we have is the point, click, and buy marketplace that’s for primarily smaller transactions like sub-truckload. We are working hard on new products that are going to make any chemical purchase possible online and the logistics and financing to go with those.

 

Most people across the industry would say that logistics is very resource-intensive and requires expertise. As a startup, how are you guys finding those resources and expertise? I’m going to add in, in case people didn’t know. As a startup in Green Bay, Wisconsin, which is not necessarily known as the hotbed of chemical logistics, how are you finding those resources to help create that capability?

We’re leveraging partners. There’s no way for us to build that with a small team. We’ve got to stand on the shoulders of giants. We’re fortunate to have strategic partnerships with Schneider and FedEx who came on early and saw the vision. For those folks, they’ve also watched Amazon and what happened with shipping networks for Amazon. They got commoditized in that space, so they’re interested in being closer to the customer. They were both eager and have been throwing a lot of resources our way, which has been great. We’re drafting on those in terms of their capabilities, and then we’re also pushing them. We’re building the customer experience, but we’re working with them.

I was with the Schneider team talking about what information needs to be passed back and forth so that we can do this effectively. It’s a stretch for them to be able to do that without any humans talking to humans. That’s our vision. It is that this whole thing happens via API in real-time. We’re working with partners to do that, so it’s exciting. It’s going to be great for the chemical industry.

Regardless of what percentage of transactions happen online, we think that in and of itself is going to be a huge problem-solver. It’s hard to find folks in the warehouse for chemical companies. We hear over and over the fact that they are happy for someone else to solve that problem for them. For the buyer, it creates a better experience as well. We think it’s a win-win and an easy place to use technology.

To me, it’s a technology problem. Let me say it that way. Planning shipping should happen automatically. We all know that. It is very far from what the state is in the market. We’ve already got a good solution in place. We’re getting better by the day in terms of being able to plan that and also manage the customer experience around shipping.

What’s been the biggest surprises as you’ve grown ChemDirect? What has surprised you may be in both a positive way but also even in a negative way? What were these bigger costs?

In a positive way, I would say that when we come to people and talk to them about solving problems, it is amazing to see the ways in which a marketplace can enable new things. There are a couple that are interesting. One is waste streams and distressed products. As something comes to the end of its shelf life, what you don’t want to do is go to your sales team and push discounted inventory into your existing customers.

We are launching a product specifically around products that are available that are discounted. We’re calling it daily deals, which is a terrible name. I apologize for using it, but we could not think of anything better. It will enable a new behavior that doesn’t exist in the industry. It was brought to us by a large customer that everyone on this call would’ve heard of. We’re announcing a pilot with them.

They came to us and said, “We want a systematic way of placing these products so that they don’t become waste. As something gets to 60 days, 30 days, or 15 days, we’d like to work with you to develop a capability to place those products with suppliers that can use them quickly. They are motivated by the price discounts and therefore are willing to create a new capability to get something in their supply chain and use it before it becomes waste. We’re super excited about that. We have some ESG stuff we’re working on as well. That’s going to be a game-changer in terms of the information that’s shared with folks at the point of purchase. It is exciting. There are lots of problem-solvers in this industry.

I’ll give you a negative one, too, since you asked about that. With the challenges and perception in this industry, there’s this resistance to change and a bit of fear around what digital is going to mean for folks that work in the industry. That’s been hard to fight that perception. They’re like, “If I go online, everyone is going to compare me to everybody else. They’re going to negotiate the best possible price and I’m going to lose all my margin.” That is something we have to recognize and empathize with, and then also challenge. That’s been the hardest part, for sure. We are fighting against the perception that going online is going to commoditize this industry even further.

Many sellers resist going online because they fear being compared to everybody else, negotiate the best possible price, and lose their margin. Click To Tweet

What’s next for you and ChemDirect? You’ve alluded to a few things, but what do you see happening over the next 6 to 12 months?

Bulk industrial chemicals is an area where we are going to continue to build out our experience. If you have something that’s a truckload, we’ll push you through to a direct salesperson. It’s still a person completing that process. We want to make that seamless and real-time for buyers. At the same time, we’ve got this real-time financing already built. We need to extend that to larger order sizes as we go to larger enterprise customers. A $500,000 line of credit is one order. Somebody said that to me. They were like, “That is one week of our orders for one product.” We’re going to need more than that, so we’re working with a lot of banks to develop a deeper capability there to serve the industry.

Logistics is another piece. We will continue to push on that and work with Schneider and FedEx to continue to build out the world’s best logistics solution for chemicals. Beyond that, it’s growing within the industry. We’ve got 100 suppliers and distributors on board. We call them both suppliers. We need to expand that marketplace. We’re at 500,000 products. That will be doubled or tripled by the end of 2023. It’s all about continuing to build momentum there and getting closer to our suppliers so that we can solve more problems with them for their customers. We’ve got a lot of technology coming and we are excited about that.

Thanks for joining us on the show. I’m looking forward to future conversations.

Thank you for having me.

 

Important Links

• NUCO Logistics
• Episode 64 – Innovative Logistics Solutions with Noushin Shamsili of NUCO Logistics
• ChemDirect

 

About David Haase

Dave Haase is the President of ChemDirect having joined the team in 2021 to complete the Series A. He brings 15+ years of experience in consumer goods and startups, working for nearly a decade at Eli Lilly and Company and later at General Mills. He has procurement and supply chain experience and an expertise in new products, having successfully launched multiple 100 million+ products at both General Mills and Eli Lilly.

Dave has an MBA from Stanford and has spent the past decade working with a number of early-stage startups. His passion is working with teams of disruptors to solve complex problems by building world-class technology.

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