Although not yet two years old, myToys has already experienced several fundamental changes in relation to its product range, the addressed target group and the corporate vision.
Background
myToys was founded in August 1999 in Osnabrück. Within just under ten weeks the entire business system, including shop and inventory control system, was set up. The launch date was 14 October 1999, just in time for the upcoming Christmas business. The number of employees grew in the first three months from 5 to just under 50. In addition, strong partners were acquired. In November the ProSieben Group acquired a 10% stake in the company in return for a share of media performance and in March 2000 Otto Versand also acquired an initial interest of 20%. In order to increase the attractiveness for marketing and IT professionals, the company moved to Berlin with its administration department in April of 2000. Shortly afterwards the warehouse was relocated from Lotte in Osnabrück to Löhne/Westfalen, a logistics centre of Otto Versand. In the course of the year Otto Versand increased its share to 40% initially and then to 74.9%; all the former co-partners left with the exception of the founders.
Industry
myToys initially established itself as a purely toy retailer in 1999, a saturated and stagnating market in Germany overall. Due to the high proportion of brand products, this product category – similar to books and CDs – is comparatively well suited to online selling. Another factor is the predominant number of gift purchases where customers are pleased to accept suggestions and help with where to look when selecting products. In contrast to the industry as a whole, the online toy selling segment is posting significant growth rates.
Product range
In order to persuade the acquired customer to make a quick purchase in other product categories too, and to increase total turnover per customer accordingly, the product range was considerably extended in 2000. myToys now offers almost all relevant products for the target groups small children, children and young people up to the age of 16 years. A further expansion to the target group “Young Family” is also in progress.
Consequently, in addition to the approximately 6,000 toy articles it started with, myToys now offers a good 30,000 children’s books, baby articles ranging from dummies to prams as well as children’s outer clothing, PC video games, audio/video products and school articles. Altogether, the assortment includes more than 40,000 articles; however, only the latest articles that are available are offered on the website.
Target group
Products are sold exclusively to private customers (B2C). Customers are predominantly women shopping for their own children or other children.
To be precise, the fulfilment solution is part of the e-business concept. The essential fulfilment steps are carried out by the company itself within the e-business model of myToys. Appropriate partners (DebiTech and Paybox, E-Score, Deutsche Post and Hermes Versand) are only incorporated for certain individual functions, such as payment, credit scoring and delivery.
The fulfilment process
The fulfilment service of myToys starts with the acceptance of an order via the website (see Fig. 3.1). Various checks for the customer’s credit worthiness are already carried out at this stage. This is carried out by an internal negative list and an external credit worthiness check by E-Score. The checked order is finally transferred to the order module of Oracle Applications (1). Here further processing may be carried out by the customer service department if required.
Fig. 3.1: myToys fulfilment process
Within the order module the batch generation is then activated, the key element in the myToys fulfilment process. myToys now receives goods from four different delivery sources in the order picking area; from its own warehouse and from the Just-in-Time (JIT) suppliers Hoffmann toys, Hoffmann Interaktiv and KNO (a book wholesaler). The batch generation carries out a summary of customer orders according to delivery source for order bundling. At the press of a button e.g. only myToys own warehouse batches, Hoffmann toy batches or any desired combination can be generated.
In this way the various delivery dates of the suppliers can be allowed for with regard to further processing. A myToys own warehouse batch can, e.g., then be generated as a gap filler if the timed goods are processed by the JIT suppliers. In the case of a batch generation all the customer orders which are in the system at this time and have not been processed are checked and summarised into groups (batches) of approximately 80 orders according to the stated criteria. At the same time an automatic order call-off of the articles contained in the customer orders is carried out at the respective supplier’s premises (2).
It is easy to see from the automatically assigned batch number how many and which sources are required to complete the batch. The respective batch is only released for order picking when the delivery from all sources has arrived at the myToys warehouse. For this, the printed order documents are laid out in a special shelving system and the articles from all sources are directly additionally picked for the orders. These are also already affixed with a special myToys label, which contains the reference to the customer order and to the storage number. Order picking is followed by packaging and dispatch (3). Parallel to this the invoice is handed over to the accounts receivable department (4) where the customer account is kept.
Enquiries from customers about their orders like all other enquiries are accepted by customer service, which has access to all relevant order and customer data, including dispatch status (order tracking) via special customer service masks. The processing of returns is also carried out in Oracle Applications (5). Depending on the condition, the goods are normally restored, returned to the JIT supplier or given to a sponsoring warehouse.
Solutions of fulfilment partners
myToys works with selected partners in fulfilment. These include:
- E-Score: execution of an address and credit worthiness check based on the customer address on the website.
- Paybox: processing of payment transactions via mobile phone online on the website.
- DebiTech: processing of credit card payments online on the website.
- Hermes Versand: dispatch of independently packed parcels. Hermes Versand took over from the post office in summer 2001 as the standard forwarder for my-Toys.
Costs
The aim of implementation was to find the maximum cost effective solution for the entire fulfilment area. The proof that the myToys business model works was to be achieved with the minimum amount of investment. In this connection two essential side constraints had to be taken into account: firstly a high scalability requirement for the whole system had to ensured and secondly high flexibility in order to be able to react quickly to market changes and to take on further product ranges.
The most important measures that were implemented in the fulfilment to achieve this goal are:
- Close JIT cooperation with suppliers: basic agreements were concluded with wholesalers for books, toys and audio/video products and systems were created within which myToys sends combined customer orders electronically one or several times a day in order to be supplied on the same day or the next day with products for further stock picking.
- Flexible cooperation with Otto Versand. Through cooperation at the Löhne location, it is possible to adjust staffing capacities very flexibly to meet requirements. By means of temporary staff an increase in personnel resources from approximately 10 to just under 140 warehouse workers could be achieved to cope with peak loads for Christmas business in 2000.
- Low investments in infrastructure: Costly logistics systems are lacking at the myToys warehouse, as it would not be worthwhile given the seasonal fluctuations in demand. Instead investments have been made in systems that can be flexibly scaled with additional employees.
Implementation of the new systems followed, in addition to the cost target mentioned above, an additional very tough time schedule. The new, integrated and much more efficient platform had to be in operation by October 2000 at the latest, in order to guarantee undisturbed operational performance during the Christmas period. Accordingly initial discussions about the new platform already took place after the Christmas period in January 2000; the project launch was in March. Thus, a good half year was available to implemented a complete ERP system with order management, purchasing and financials functions and a new shopping platform.
Process design [Order to shipment]
The most important main process in the mail-order business is order-to-shipment, and is shown in Figure 2. As was already the case in the first myToys IT solution, this process had to be reproduced as efficiently as possible in order to accommodate a high transaction load with no errors and at low cost. Tried and proven functions from the first platform, such as the JIT cooperation with wholesalers and the generation of batches at any time of day were taken over. Various sub-processes were then optimised in the new solution:
- Allocation of goods to the customer order: the first myToys solution provided an incoming goods booking function and a customer order stock picking function for JIT products by means of a scanner. Owing to the limited scalability of this solution, the problem of allocating JIT products to customer orders has now been solved by means of extra printed labels on all delivered products, which contain the reference for the customer order and the defined shelf number within an order batch.
- Warehouse optimisation: with the support of Otto Versand strategies were developed for optimising channels within the warehouse, supplies of consumables such as boxes and filling material, provision of supplies etc. Separation of the incidental processes such as fault handling and returns management from the main process in order to increase throughput.
- Investments in automation technology: transport, packaging and labelling processes were automated to the required level.
- Expansion of JIT delivery: Other supplies were included in the JIT cooperation. The ERP system was expanded for this so that it can process and combinations of JIT sources in freely definable batches.
Fig. 4.1: Main order-to-shipment process
In addition to the main process, all other necessary company processes, such as assortment planning, purchasing, warehousing, customer service, finance, accounts receivable management and statistics were reproduced in Oracle Applications. The main attention was however - especially until the end of the Christmas period - directed at the error-free and efficient processing of the standard transaction customer order: No child should be without a present on Christmas Eve because myToys could not deliver!”
Software solution/programming [system architecture]
The key elements of the software solution are the shop based on Intershop Enfinity, the ERP system based on Oracle Applications and the customer, order and product interface between the two standard applications.
Due to the high level of functionality already achieved in the first shop, the Intershop Enfinity standard shop had to be extended in many places with new functionalities. These include, for example, a product review tool, birthday calendar functions and an extensive tolerant search function. There are also backend-related shop functions, such as a stock updating process, address and credit checks and the like. Most functions have been developed in-house or in cooperation with Intershop Consulting in JAVA. The deviations from the standard in the ERP system are considerably smaller and are mainly restricted to the order administration process in the warehouse and actual batch handling. All other functions were initially implemented very close to the standard; a few adjustments were also made in areas crucial to performance, such as, e.g., accounts receivable management, in order to guarantee an efficient and highly automated operation.
As performant interfaces between Enfinity and Oracle Apps were not available on the market, the interfaces were also developed in JAVA. Linkage is carried out constantly but offline in order to make the systems independent of each other for safety reasons.
The following table gives an overview of the software used and its versions.
Tab. 4.1: Utilised software
Technical platform
The shop and ERP system run on a semi-cluster consisting of four SUN E3500 and jointly used fibre channel RAID system. Three computers are available for Intershop Enfinity and one for Oracle Applications. Redundancy in the case of a fault is achieved through the possibility of manually mounting and starting all applications on the desired computer. The system is located in the Internet Solution Centre of the company Colt and is connected to the Berlin plant and the warehouse location in Löhne via a virtual private network (VPN).
Architecture
Fig. 4.2 gives an overview of the myToys system architecture:
Fig. 4.2: System architecture of myToys.de GmbH