Think of a supermarket--many products from different manufacturers, the opportunity to pick and choose, and a cashier to help complete your purchase. Now put it in cyberspace. While you can't actually handle the products or immediately take them home, you can pick and choose, place an order, pay, and have them shipped, 24 hours a day, seven days a week.

"Virtual markets," such as Amazon. com and e-Bay, are renowned. In the world of research supplies and chemicals, a few Internet sites acting as "virtual distributors" are emerging. They offer electronic catalogs for multiple suppliers and ordering systems to conduct transactions. Beyond building sites for individual consumers, these companies are offering procurement systems to entire companies and organizations.

Scientific supplies are roughly a $10 billion-per-year business. According to analysts at PaineWebber, more than 20 million transactions are processed each year, with an average order size of $500. The typical cost to process paper orders is about $50 to $150 each. Internet marketplaces believe that they can reduce this cost by more than half.

Chemdex, created in September 1997 and based in Palo Alto, Calif., focuses on the life sciences research market. More than 160 companies--including such major suppliers as VWR Scientific Products, West Chester, Pa.--have signed on with Chemdex for electronic commerce. Genentech, Roche's Palo Alto research organization, and the University of California, San Francisco, are having Chemdex create customized in-house ordering systems.

VWR and Genentech hold equity interests in Chemdex as part of their agreements. For the three months ending March 31, Genentech accounted for 82% of Chemdex's $165,000 in revenue; Chemdex reported a net loss of $6.81 million. Supported largely by prominent biotechnology and computer technology investors, Chemdex is preparing for an initial public stock offering.

In late May, the Biotechnology Industry Organization (BIO) chose Chemdex as its preferred supplier of e-commerce procurement solutions. Under a five-year exclusive agreement, Chemdex will offer pricing discounts and customized connections to more than 850 BIO members. BIO also holds shares in Chemdex.

BIO solicited proposals from several e-commerce providers, as well as major suppliers VWR and Fisher Scientific. Until recently, the "BIO Marketplace" link on BIO's home page allowed for searching of product listings at SciQuest.com, a Chemdex competitor.

SciQuest.com was created in late 1995 and also is funded by venture capitalists. Based in Research Triangle Park, N.C., it offers a catalog and ordering system for scientific supplies; the BioSupplyNet biomedical sourcebook in collaboration with Cold Spring Harbor Laboratory; and LabDeals, a trading site for surplus and discontinued laboratory equipment and supplies. SciQuest.com says it will soon offer products online from more than 200 suppliers.

Last month, SciQuest.com, IBM, and Johns Hopkins University launched the "Core Store." Johns Hopkins ranks first among U.S. research universities in terms of R&D spending, and the private e-commerce site will be used by its 625 research laboratories to purchase products online. SciQuest.com also is creating an Internet-based procurement system for Hoffmann-La Roche.

Another competitor is Anderson Unicom Group (AUG), which offers its "webalog" for life science, maintenance, repair, operation, and office supplies. Set up in January 1996, AUG calls itself a "supplier-neutral aggregator of product information" and not an online distributor. Its system, it says, facilitates connections between buyers and suppliers, but the actual orders are routed to the manufacturers, suppliers, or their distributors.

Major scientific product suppliers--such as Sigma-Aldrich and Fisher Scientific--compete with their own customer-oriented web sites against the not-yet-proven virtual business models. Fisher says it was among the first to have electronic ordering in the 1960s, then dedicated terminals at customer locations in the late 1970s, and that it created some of the first electronic catalogs with the advent of the Internet. Fisher's 1998 sales were $2.25 billion.

Even VWR runs its own catalog and ordering site despite its marketing alliance with Chemdex. Internet sales grew more than 10-fold in 1998, VWR notes, and they have been doubling every three months. Merck KGaA of Germany, which has $1 billion in annual laboratory product sales, intends to acquire the 50.1% of VWR that it does not already own. VWR's sales were $1.35 billion in 1998, and the acquisition will place Merck above other market leaders.

Sigma-Aldrich expects to have at least 8% of its sales on the Internet this year and about 50% within five years. About 74% of the St. Louis-based company's $1.19 billion in total 1998 sales--which include metals and fine chemicals--were research chemicals.

"It's our intention always to lead with our own strengths," says Paul Patek, president of Fisher Research, the company's core business unit based in Pittsburgh. Among these he lists Fisher's integrated catalog and electronic databases as well as established customer relationships. "But in circumstances where customers prefer and select virtual distributors as their purchasing interface, we fully intend to sell our products through them."

The relationship with such distributors "is not intended to be competitive," Patek adds. "It should be incremental in that they might be able to get to customers that perhaps we're not. But when you talk about my beachhead--the big pharmaceutical companies, the big universities--you can bet I'm going to be the person leading."

Patek and other lab suppliers believe that connections to customers are critical and that their companies offer much more than the consolidated ordering and invoicing that is a main feature of the virtual providers. The features that suppliers bring, they say, include product handling, distribution and logistics, technical support, and customer service. "We consider ourselves an integrated solutions provider," Patek notes, "and that includes products as well as services."

"That's how we differentiate ourselves," agrees John Custer, electronic marketing product manager at Sigma-Aldrich. "Not only can we match the e-commerce part of it, but we are also a manufacturer and owner of the information that goes along with our products, whether it's a specification sheet, a certificate of analysis, [a material safety data sheet], or application notes on how to use a product." E-commerce is just a tool, he adds, in serving as an information source for customers.

"At minimum we have to match the functionality that the customer receives when they pick up the phone and place an order," comments Bradley M. Johnson, Sigma-Aldrich's manager for market research and analysis. "That's important and that's very difficult to do, and the web interfaces that have been built are not able to match that." To achieve this, companies are linking to their own enterprise systems or inventory databases.

"Most of the slick front-end interfaces you see today in e-commerce create a file that a human being accesses and then rekeys into an order management system," Johnson explains. He points out that some virtual distributors don't have an operational interface between their web sites and the many back-end fulfillment systems of suppliers. SciQuest. com, however, reports that it now uses software that directly integrates buyers' and sellers' procurement and inventory systems.

In August, Sigma-Aldrich will launch a system that gives real-time information on product availability; order confirmation, status, and tracking; and shipping and product handling. It also will deploy a great deal of additional information--such as chemical structures, spectral data, and protocols--that the company collects and believes will be of use to researchers.

"If e-commerce grows and is built in a way that is useful to customers, the web will be the order channel of choice," Johnson believes. "And the communication channel of the future."

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Copyright © 1999 American Chemical Society