Eastman Chemical

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 productivities, 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 ofkg per employee) .290 .286 .285

Order-to-delivery cycle time Reduced it from 5 to 4 daysImproved data integrity to 0% defect

Customer satisfaction Since 1982 received

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