Integrating the Online Shop with the ERP System at Strack AG

01. September 2003



The young Swiss company Strack AG specialises in developing and distributing medical and rehabilitation technology products. Internet-based distribution and customer relations management are a pivotal component of the Strack AG business model. For this reason, it was considered highly important to develop and integrate an online shop with the company’s ERP system, and a choice was made to use SAP’s ERP system Business One and its online shop Internet Sales.


1. The Company

Background:
Strack AG produces and distributes high-quality products in the field of cosmetics, medical and rehabilitation technology. The company offers a broad range of products, some of which are third-party products that the company purchases under exclusive terms, and other products that it develops and produces in-house in cooperation with partner companies. In addition, Strack AG offers consulting and other services in connection with these products. The services include customer service as well as rehabilitation tool repair and customisation.

As they knew the market and saw a need for inexpensive high-quality products to aid in rehabilitation and help people with disabilities, the founders went into business for themselves in 2002. They used their engineering background to develop their own products and they established distribution channels through which they were able to purchase and offer a broad spectrum of support products.

The company now has five employees in marketing, back office, development, sales and service. Following the start-up phase, the company plans to generate CHF 2 to 3 million (approx. GBP 0.9 to 1.34 million) in annual turnover and grow moderately.

The internet is the main distribution and advertising channel (especially for products developed in-house). Expert consulting services are provided at www.strack.ch, by e-mail and a toll-free telephone number. In addition to the virtual marketing platform, Strack AG runs a retail shop in Schaffhausen, Switzerland, offering products and services for rehabilitation and people with disabilities on 300 m² of retail floor space. The reason why Strack AG maintains a retail shop presence and conducts special online campaigns is to improve customer relations.


Sector, Products and Target Group:
Strack AG purchases the products it distributes mainly from a few wholesalers (about ten) and many smaller local service providers. As its distribution extends beyond the region, Strack AG exclusively distributes some products throughout Switzerland as well.

In addition to the products it buys from wholesalers, Strack AG also distributes a product it developed in-house (in cooperation with partner companies in Korea). The pneumatic alternating pressure device Strackair can be used for automatic massages, improves blood circulation and increases the drainage of the lymphatic system. The device can be used for wellness, beauty, therapy and medicine.

Strack AG’s offering targets both business and private customers. Its business customers include hospitals and nursing institutions. The products developed in-house are also distributed through wholesale merchants; negotiations are underway with other distribution channels, such as shopping TV channels. The resellers also include mail-order companies and department stores.

When it comes to support products, private customers are extremely price-conscious and take time to shop around to find the best deal.
Most companies in rehabilitation technology have a regional focus.

This must be viewed in light of the fact that the products require a great deal of assistance and customisation. The market, however, is not regulated. It is only in segments like the delivery of wheelchairs and accessories that there is a general agreement with FASMED (the umbrella organisation of Swiss commercial and industrial organisations in medical technology), with SVOT (the Swiss association of orthopaedic technicians), and IV (the Swiss disability insurance scheme). Switzerland only authorises individuals or companies to do business as suppliers of wheelchairs and accessories if they have extensive know-how in providing wheelchairs as well as an infrastructure with all the required equipment. Market conditions have led to high product margins for some of the suppliers.

Strack AG’s local competitors are primarily smaller companies with different areas of specialty, e.g., orthopaedics or orthotics suppliers. The company’s objective is to cooperate with these local competitors and to consolidate the product line.


Corporate Vision:
As a specialist supplier, Strack AG wants to offer its customers a broad range of high-quality products at terms that are more favourable than was previously possible. The company intends to reach this goal by purchasing and reselling its products without excessive margins.
For the customer, the purchase process should be as simple as possible. The purchase of products requiring a great deal of assistance can take place directly at the retail shop or at the customer’s home, and the online shop allows customers to easily order replacements or products not requiring much assistance. This combination of online and offline access is key to minimising distribution costs while maximising coverage, which is crucial to keeping selling prices low.

In addition to low prices, easy placing of orders and support, customers are to be offered more added value both online and offline at the retail shop. This is accomplished by offering and combining a broad range of products and – even more importantly – services. For example, at the shop, customers will receive assistance in planning handicapped-accessible furnishings and can view a fully furnished kitchen catering to the needs of the disabled. An even more important goal is to get customers to meet and to foster communication among them. Tools for building a community of potential customers are in the pipeline for both the retail shop and the online platform.

Classic community features like forums, chats and bulletin boards will be provided on the online platform. Plans further entail offering personal e-mail addresses for customers in the strack.ch domain.

To link online and offline activities, customer will have free access to internet terminals at the retail shop.

Both the retail shop and the website are tailored to the special needs of the customer group. In the case of the website, this is shown, for instance, by large, easy-to-read fonts, special navigation tools and a zoom function. Hardly any competitors offer comparable features in their offerings.


2. E-Business Strategy

The Role of E-Business in the Corporate Strategy:



“If you want to be successful nowadays as a sales-oriented SME, you have
to depend on a reliable, user-friendly and cost-effective
solution for your business processes”
(Edgar Strack, Managing Director of Strack AG)


In order to distribute its products as cost-effectively as possible throughout Switzerland and Europe, Strack AG relies heavily on internet advertising and ordering and on the internet shop being fully integrated with the company’s ERP system. This systems integration aspect was the main motivation behind the choice of solution.
The goal is to provide both private and business customers with uncomplicated ways of finding product information, placing an order and accessing support information.
As described in the discussion of the corporate vision above, an important building block of Strack AG’s customer relations management approach is to encourage communication and mutual assistance among customers (knowledge transfer). The internet platform will serve as the hub for this purpose as well.


Areas of Application of E-Business in the Company:

E-Commerce
One of the essential points of the corporate strategy is to provide a simple advertising, information and distribution channel via the internet. This channel is to be fully integrated with the company’s IT and enriched with added value for the customers.

A wide range of functions like order planning and special terms will also be realised via this medium, especially for business customers.

E-Banking, E-Procurement
In addition to including customers through the e-shop, communication with banks may also be integrated for money transactions. This has not been realised yet but should be possible later.

Furthermore, the chosen solution should be expandable in the area of E-Procurement. However, proposals have not yet been submitted by suppliers at this point. So far, individual suppliers have only provided catalogue data in electronic form.


Partners:
Strack AG has opted to use SAP AG’s Business One and Internet Sales solution for SMEs. A local SAP partner, MTF Schaffhausen AG, assisted the company in selecting and implementing the solution. Additional partners handled design and communications. However, Strack AG employees directly handled important parts of the customisation process (particularly design implementation).

IT Service Provider – MTF Schaffhausen AG / SAP
Initially, Strack AG intended for MTF Schaffhausen AG to be the SAP partner providing and installing the ERP solution SAP Business One. The company founders had made contact with this local provider in previous projects with MTF. The main incentive to select MTF as an implementation partner for the ERP system was the company founders’ positive history with MTF and the fact that MTF was a local provider.

MTF Schaffhausen AG is an independent member of MTF Schweiz, a network of system vendors that has established itself in Switzerland as the leading supplier of IT infrastructure (hardware and standard software) and corresponding services for SMEs and public authorities. In addition to these services, MTF Schaffhausen AG also operates as a local internet provider. Three of twenty MTF Schaffhausen AG employees are in charge of providing consulting and other services for SAP products (particularly for Business One).

The contract awarded to MTF was soon extended to cover not only the provision of the ERP solution but also the hardware and network infrastructure. Eventually, MTF was also asked to provide the Business One add-on Internet Sales as a shop solution, to assist during customisation and to maintain the software and hardware.

Design/Marketing Partners
In addition to the IT service provider, Strack AG also partners with Erdmann Design Brugg and Prime Communications in Zürich in designing and implementing corporate communications. These partners provided the design for the shop solution and the shop platform.

However, Strack AG implemented the design on the internet platform itself as it had employees who were qualified to do so.


3. Integration Solution


Fig. 3.1: Integration Solution Overview
Fig. 3.1: Integration Solution Overview



Business View:
The solution realised to date only integrates direct e-commerce functionality for private and business customers. This allows customers to place orders and check the status of orders.

There are usually no special arrangements with private customers, but business customers may have special agreements in terms of purchase quantities and price terms. These agreements must be reflected both in the ERP system and in the E-Commerce interface.


Process and Application View:
The SAP Business One ERP system integrates major company processes:

  • Purchasing, Warehousing, Sales
  • Accounts, Banks, Controlling
  • Business Partner Administration, Product Administration

Business One further covers all central business processes, offering all business functionalities such as multi-currency capabilities, customer-specific terms and integrated order processing.

The Business One add-on Internet Sales allows customers to access ERP system data in order to browse the product catalogues, place orders and check the status of orders they have placed.

The web functionality provides the following uses for private and business customers

  • Accessing the web shop
  • Possibly customer registration (also immediately in the ERP system)
  • Searching for products, which entails access to the product database and (personalised) prices in the ERP system
  • Adding products to the shopping basket
  • Submitting an order (recording the order in the ERP system and triggering the specified process including payment processing)
  • Order tracking (once again with access to the ERP system)

The key feature of the solution (integration of ERP system and online shop) is that it fully integrates the processes initiated by the customer into the E-Shop with the processes controlled by the ERP system. It is no longer necessary to manually or semi-automatically transfer data from the E-Shop to the ERP system. The E-Shop basically serves as a web usage interface for the ERP system. As a result, all distribution channels (internet, telephone, shop) are completely integrated.


Technical View:
Business One runs in a client/server environment and accesses Microsoft’s SQL database. Unlike solutions for big companies like SAP R/3, the processes in Business One are predefined and can be modified only slightly with Visual Basic scripts. Customisation is limited to integrating these Visual Basic scripts into the process, designing the user interface and extending the file structures that are moved in the processes. On the other hand, the system can usually be deployed very quickly.

Any number of external applications can be connected to Business One via the Business One data interface. The external application accesses the Business One database directly through this interface, which gives it access to all the objects of the database. The real-time integration of the E-Shop and ERP system requires a fail-safe connection between the ERP system server (including its database) and the E-Shop server. Because of this requirement, Strack AG decided to put both servers in the company’s service rooms.

Fig. 3.2: Technical View of the Solution
Fig. 3.2: Technical View of the Solution


The internet sales application is based on Java 2 Enterprise Edition (J2EE). Functionality has been realised in the form of Java Server Pages (JSPs) that access the ERP database directly via the SAP Business One adapter object and the SAP Business One data interface API. All catalogue information is loaded directly from Business One. Only product pictures and detailed descriptions can optionally be stored directly in the online shop.

At Strack AG, the system was realised as follows: The ERP system and the database system (MS SQL Server) use a Windows 2000 server with 2 GB RAM. The E-Shop is installed on a separate Windows 2000 server with 640 MB RAM using an SAP J2EE Engine in the Microsoft Internet Information Server (MIIS). The individual subnetworks are separated from each other with firewalls; the entire network is connected to the internet provider using a 512 kbps line. Special care was taken to ensure that the connection was reliable and upgradeable when it was implemented.


4. Implementation

Development History:
When the founders decided to start up the company in the middle of 2002, they began to evaluate possible E-Shop and ERP system solutions.

The first decision was for an E-Shop. Impressed by the performance of several reference installations, Strack AG opted for a specific customised solution and placed the programming order. The solution was to be a standalone E-Shop that, via appropriate interfaces, would work in tandem with an as-yet unspecified ERP system.

As to the ERP system, Strack AG decided in late 2002 to go with Business One. The company picked Business One because of its range of functions, the favourable licensing fees and SAP’s presence as a strong software partner along with MTF as a competent and trustworthy local partner. The negotiation partners discussed not only the range of functions of the ERP system but also the E-Shop, which was being developed at that time and whose connection was made a requirement.

Once the E-Shop was almost completed and the ERP system went into productive mode, the focus shifted to connecting the two components. It then became obvious that the definition and implementation of interfaces would be considerably more expensive than planned. Furthermore, it could be expected that the costs for maintaining the interfaces would be significant.

It was at this stage that SAP AG offered, through MTF, that Stroke AG become a pilot customer for the new internet sales solution that could be seamlessly integrated with Business One. Considering that there was no desire to postpone the goal of going online with the shop in May of 2003, implementation had to take place as soon as possible once the offer was accepted.


Software Solution/Programming:
SAP Business One has only been available from SAP as a business and accounting software package for SMEs since the autumn of 2002. The complete customisation process for local conditions is still ongoing and should be finished in 2003.

Strack AG became a pilot customer for Business One in the autumn of 2002. There were no problems installing the system, and it went online as scheduled.

Eventually, at the end of 2002, a decision was made to use the Internet Sales add-on to Business One. SAP’s assurance that an e-shop would be available after only a few hours proved to be principally correct. However, customising the standard shop turned out to be more involved than expected.

First of all, Strack AG had very exacting requirements: to make the system extremely easy to use, the company required that many functionalities be provided extra. Secondly, the documentation for the shop, in particular the B2C area, was not yet complete. As a result, there were frequently problems during the implementation of the shop design that could only be solved by SAP, MTF and Strack communicating with each other.


5. Operation

Maintenance:
Strack AG runs the ERP system and e-shop servers in its service rooms. Strack is also responsible for customising the shop solution interface and for entering new content, primarily new products, in the ERP system as well as for entering new detailed descriptions and additional information in the shop solution directly.

MTF Schaffhausen AG maintains the software and hardware. MTF continues to provide the internet connection.


Cost and Benefit:
SAP’s ERP solution offers extremely low licensing and maintenance costs. The initial purchase of a Business One license, for instance, costs CHF 3,750 per user. Strack AG purchased two user licenses. An initial purchase also includes the cost for the SAP Internet Sales for Business One license of CHF 3,750 for up to 2,500 orders per year as well as progressive costs for additional orders. In the years following the initial purchase, the continued provision and maintenance of the software incurs an annual fee of 20 to 22% of the licensing costs.

The costs for only the software were increased by hardware (special rooms, redundant systems) and consulting fees. All told, this added up to an investment volume of approx. CHF 120,000 for the ERP system and its E-Shop.


Profitability:
At the time of writing, no specific information can be given as to the profitability of the online shop or the ERP/shop integration.

As explained above, this solution is necessary, however, in order to distribute the products developed in-house as well as the products sold exclusively in all of Switzerland and Europe.

Another point in the web solution’s favour was the fact that expensive printed advertising materials did not offer the same quality as internet-based advertising blitzes and customer relationship campaigns. This is why Strack AG decided to go with the latter.


6. Success Factors

Custom Features of the Solution:
Strack AG’s objective was to use the IT solution to simply involve private and business customers in the company’s core processes and so to minimise order processing expenditure.

There are three main points concerning the custom features of the solution: standard product, real-time integration and pre-release:

Standard Product
One of the main reasons that the company decided to use SAP’s ERP system Business One and later on the corresponding online shop Internet Sales was that these standard products were designed for each other and are being enhanced by SAP on an ongoing basis. The advantage for the customer is that:

  1. these enhancements will continue to be interoperable – it will not be necessary to customise the shop if any changes are made in the ERP system, and
  2. the customisation and adaptation to emerging E-Business standards can be done as part of software maintenance. Emerging catalogue-exchange, E-Banking and E-Procurement standards will therefore be directly available without a great deal of customisation and integration expenditure.

Strack AG abandoned a fully developed shop system and took on the risk of customising the Internet Sales online shop (which was available only as a pre-release) primarily because less maintenance was required for the interface between the ERP system and the online shop.

Nor should one underestimate the fact that a standard solution is less expensive to purchase than a customised solution.

Real-Time Integration
The solution’s greatest (technical) advantage and disadvantage is that it is a real-time integration between the ERP system and the online shop. That means that the ERP system and the online shop are based on the very same database. The shop is therefore not a standalone solution whose data must be synchronised with that of the ERP system. On the other hand, the shop is only available whenever the ERP server is available. Furthermore, any changes in the ERP system have an immediate effect on the online shop.

Experience has shown that one has to be aware of this fact when working with the system. This factor makes special test systems necessary.

Pre-Release
The implemented online shop solution was a pre-release deployed at Strack AG as an SAP pilot customer. This manifested itself in non-existent or error-laden documentation and impacted the customisation of the shop solution.

Nevertheless, the software proved to be very stable for a pre-release – since development and production began, there have not been any system failures caused by the shop.


Lessons Learned:

Standard Products from One Provider
The attempt to integrate a standalone E-Shop solution shows that it is worthwhile, especially for SMEs, to use standard software and get all the components from one provider. In this case, the integration expenditure is passed on to the producer, and the buyer is guaranteed that integration will be preserved in future software versions without having to make any improvements.

The initial assessment of how much it would cost to integrate an ERP system and a shop solution from different suppliers had been much too optimistic. A faster decision in favour of an integrated system would have been advantageous.

Additional Expenditure Underestimated
The implementation showed that the desired solution would not only incur licensing and consulting fees but many other expenses as well.

Having to house the server at the company, for example, made it necessary to equip a professional computer room with professional, redundant hardware.

Problems occurred during the configuration of the components such as firewalls etc. These problems were, however, attributable to the lack of documentation for the Internet Sales pre-release. Most of the problems were quickly solved with the help of MTF.

Customisation Expenditure Underestimated
The changes in the design of the standard solution, necessitated by Strack AG’s special requirements, proved to be rather complicated – on the one hand, because of the chosen technology (JSP), and on the other, because of the lack of documentation. The expenditure required for customisation was underestimated.

The main problems in the implementation of the solution were imponderables concerning deadlines and costs, which to some extent were determined by the prototype status of the project. In the future, Strack AG would push for a clean specification of a functioning turnkey solution with clear costs and deadlines.


Betreiber der Lösung

Strack AG
Edgar Strack, Managing Director
Branche: Gesundheitswesen/Medizin, Medizinal- und Rehabilitationstechnik
Unternehmensgrösse: KleinstunternehmenStrack AG

Lösungspartner

Hansruedi Schuler, Member of Management
MTF AG

Autoren der Fallstudie

Michael Koch
Technische Universität München

01. September 2003
Koch; Michael (2003): Strack AG case study; in: Schubert; Petra; Wölfle; Ralf; Dettling; Walter (ed.): E-Business Integration – Case Studies in Optimising Electronic Bussines Processes; Munich; Vienna: Hanser Verlag; 2003; pp. 179-192.

Zu dieser Fallstudie sind keine Anhänge verfügbar.
1941
strack-en
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