E-commerce solution of Derendinger AG
Derendinger AG, an automotive spare parts supplier that is well established in Switzerland, has broken new distribution ground with its online shop ottomobile.de. At the moment, it is still exclusively aimed at the German market where it addresses a different customer segment in the B2C sector from the home market of Switzerland (B2B sector). When adding the new internet distribution channel, Derendinger had the major advantage of being able to fall back on existing B2B IT solutions so that the required investments and overhead costs for the new distribution channel were kept within reason. Both the existing IT solution and the new internet channel that is built on it were developed by Derendinger AG itself. In fulfilment, this expansion made it necessary to cooperate with new partners in the areas of logistics, payment handling, and credit assessment for the German market.
1. The company
Derendinger AG is the leading provider of automotive spare parts in Switzerland. Derendinger is established in the B2B sector there, but not yet in Germany and Austria.
The company was founded in 1930 and has operated in the legal form of a stock corporation since 1987. In 2000, the company achieved a turnover of CHF 140 million. In addition to the headquarters in Dietikon, near to Zurich, there are 26 branch offices in Switzerland, which supply spare parts to motor vehicle workshops across the entire country within two hours. For this purpose, Derendinger maintains a service fleet of 210 vehicles. The company presently has a workforce of approximately 650.
Derendinger is expecting the demand for automotive spare parts to stagnate in the Swiss market within the next few years. The number of passenger cars in Switzerland will no longer grow and simultaneously, the service life of spare parts is increasing. In addition, lower prices are expected since the prices for spare parts in the neighbouring EU countries are lower than in Switzerland. These forecasted developments have sent Derendinger looking for any other possible new lines of business.
Derendinger markets a wide range of parts for passenger cars, which are subject to wear (e.g. exhaust, brakes, clutches, windscreen wiper blades, bumpers). More than 100,000 spare parts for 22,000 different types of vehicle are offered. It is important to Derendinger to only offer high-quality spare parts from well-known suppliers (e.g. Bosch, Sachs, Valeo, Walker). In addition to spare parts, special tools are also offered accordingly (e.g. sheet metal cutters).
Besides pure spare parts marketing, Derendinger will also operate as an IT service provider for workshops at their request. With the Internet-based â€śDerendinger-Netâ€ť (D-Net), workshops have the ability to order spare parts from Derendinger online, among other things.
Customers that are supplied with spare parts from Derendinger include independent motor vehicle workshops (or â€śgaragesâ€ť) in particular, which have no contractual tie to a particular automobile manufacturer. Approximately 10% of these workshops are already connected to Derendinger via D-Net and have the ability to order spare parts online. However, the majority of the workshops still continue to be supported by â€śtraditionalâ€ť sales. Private customers are not serviced by Derendinger in the Swiss market.
The online subsidiary of Derendinger AG has been operating since May 2000. In contrast to the Swiss parent company, ottomobil.de only services the German end customer market (B2C sector). Here, particular attention is paid to the price-sensitive do-it-yourself customer segment (â€śhobbyistsâ€ť). According to a market study by the German Automotive Trust, this market segment accounts for 15% of all end customers (DAT-Veedol-Report 2000).
In contrast to the parent company, this online spin-off is aimed at different target group in another country; however it essentially markets the same assortment of products. There are no plans to expand B2B operations into Germany. Swiss customers are not able to order products using ottomobil.de if they enter a Swiss address on the order. Derendinger views Germany as a trial market for direct marketing outside of Switzerland. There are currently studies being conducted to evaluate expansion into other European countries, Austria for example.
2. e-business Vision and e-business Strategy
The Derendinger e-business concept consists of using the Internet to distribute automotive spare parts to a specific group of end customers. The product range of ottomobil.de is aimed at satisfying all the automotive needs of the target group of do-it-yourself customers. Besides ordering spare parts, the customers are also given the possibility of ordering suitable tools. Repair guides and â€śTips & Tricks" are part of the Internet offer and provide added value to the target group in question. Here, Derendinger is relying on the "first mover effectâ€ť, and hopes that it will be difficult for potential competitors to copy the ottomobil.de concept in the short term.
Derendingerâ€™s vision is to use ottomobil.de to establish a brand, which do-it-yourself customers immediately think of in case of need.
An important motivation for establishing ottomobile.de was the opportunity to operate in a new market, with a new distribution channel, with a relatively minimum amount of effort, and without having a negative effect on existing business operations in Switzerland.
The supplierâ€™s e-business concept
ottomobil.de purchases spare parts from the manufacturer and forwards them directly to the end customer. Due to this direct path, parts of the traditional value chain, which includes the manufacturer, wholesalers and retailers, workshops and end customers, can be omitted (disintermediation). As a consequence of this, ottomobil.de can offer spare parts to the end customers for 20 to 25% less than the competition. Figure 2.1 illustrates this interrelationship:
Scope of Services
From the customerâ€™s perspective, ottomobil.de is a typical e-commerce solution. In the context of a web shop, automotive spare parts can be selected from an online catalogue (more details about the part identification process are given further down) and placed in a shopping cart. When ordering the selected articles, forms are used to record the customerâ€™s address and the method of payment. The articles ordered by the customer are shipped within 48 hours (24 hours for express orders) with no shipping charges for orders of DM 300 or more. All articles that are ordered can be returned with no charge for shipping. An order history is created, but it canâ€™t be viewed by the customer.
Both D-Net as well as the Internet presence of ottomobil.de were completely developed by Derendinger. Derendinger doesnâ€™t work together with partners in the areas of ERP and Internet. Fulfilment partners are only involved in the sectors that Derendinger canâ€™t cover itself. Specifically, fulfilment partners are used for logistics and payment handling. They include German Parcel, CC-Bank, Fiducia and Quelle.
German Parcel Paket-Logistik GmbH & Co is based in Neuenstein (Hesse) and came into being in 1989 as a network of 25 medium-sized forwarding agents. In 2000, it delivered 110 million parcels and achieved turnover of DM 780 million. Derendinger AG makes use of German Parcel's "Cash Service", in which shipments are delivered C.O.D. within Germany. The Cash Service amount must not exceed the value of the individual packet (maximum DM 5,000).
CC-Bank AG, which was founded in 1957, is a consultant bank in the motor vehicle sector. Its customers include more than 8000 motor vehicle dealers with whom it cooperates for the purpose of financing used vehicles.
Fiducia AG is an IT service provider and describes itself as the â€ślargest computer centre in Germanyâ€ť. One focus of its operations is in the area of bank software and the provision of associated equipment (e.g. ATMs, account printers).
Quelle AG is one of the largest German mail-order companies and has a very extensive customer base. The cooperation with Quelle covers credit assessment for end customers, for whom Derendinger has no data and who are also Quelle customers.
During its search for suitable fulfilment partners, Derendinger was advised by the Swiss Post Office and DG Bank. Contact to Quelle first arose at a conference.
3. Fulfilment Solution
Type of Fulfilment Service
Logistics [order process]
As soon as an order arrives through ottomobil.de, it is entered electronically in Derendingerâ€™s warehouse information system. Derendingerâ€™s collective point is at the companyâ€™s headquarters in Dietikon, near Zurich. Another 26 warehouses are distributed across Switzerland. All warehouses are managed by Derendinger itself, which means that there is no warehousing partner. Usually, all products ordered by customers are available in the collective point and any missing articles are obtained from other warehouses. Derendinger's warehouse information system establishes the fastest possible route for the article to get to the collective point. When the last article arrives, the warehouse information system automatically generates the delivery note (barcode). Depending on the method of payment selected by the customer, other documents are generated and attached to the delivery note.
For exporting to Germany, Derendinger prepares any necessary customs VAT paperwork and encloses it on paper with the shipment. A list of all shipments to Germany is sent to Swiss customs in electronic format each month.
The Swiss Postal Service is responsible for transporting the shipments to the central distribution warehouse of German Parcel in Neuenstein/Germany. There is no electronic interface between the Swiss Postal Service and Derendinger. Completed shipments are picked up daily at 13:00 by the Swiss Postal Service. If shipment from the collective point has been initiated, then the customer is informed by email (including the German Parcel packet number). German Parcel makes the delivery to the end customers in Germany.
Payment handling/ credit assessment [payment solution]
ottomobil.de offers its customers four different ways to pay for the ordered articles. The desired method of payment is noted by the customer when the order is made:
- C.O.D. payment (cash on delivery): The customer pays directly to the German Parcel delivery representative. An appropriate payment form is enclosed with the shipment at the collective point. Afterwards, German Parcel transfers the amount of the invoice to Derendinger.
- Credit card payment (Visa, Euro/MasterCard): In this case, the fulfilment partner is Fiducia. An appropriate note for the customer will be attached to the delivery note.
- Bank loan and instalment payments: For purchase values greater than DM 500, customers may pay the equivalent value of the goods in monthly instalments. In this case, the fulfilment partner is CC-Bank, which will also take responsibility for performing the required credit assessment for the customer.
- Invoice: If the purchase value is not more than DM 200, it is possible to pay by invoice. The cooperation with Quelle is used for the credit assessment for new customers. The customer data is sent to Quelle electronically. After the assessment, Quelle makes a recommendation as to whether the customer should or should not be allowed to pay by invoice. Quelle only makes a recommendation and doesnâ€™t pass on any of the customer data that it has.
In each of the last three cases, the respective fulfilment partner performs a credit assessment of the customer. In each case, the necessary customer information is passed to the partner via secure https connection, which the partner also uses to return the results of the credit assessment. The customer only receives an order confirmation by e-mail after the fulfilment partner assures the credit rating.
The time required for a credit assessment varies. While Fiducia now and then replies within seconds, processing by the CC-Bank can take several minutes and even several days in exceptional cases.
The fulfilment partnerâ€™s solution
For payment handling, Derendinger AG had to develop interfaces to the partnersâ€™ individual credit assessment systems (CC-Bank, Fiducia, Quelle).
German Parcel gave Derendinger a programme that prepared the route plan for German Parcel based on the postal codes of the German customers. The customerâ€™s delivery address is used to establish a route number for German Parcel, which is then attached to the delivery note in an electronically readable format (barcode). When a shipment leaves Derendingerâ€™s collective point, the customer is informed by an email message, which also includes the shipment number. With this shipment number, the customer can use the German Parcel website to find out where the shipment is at any time ("Tracing & Tracking").
Besides overhead costs for the operation, Derendinger incurred development costs for implementing the web shop and for programming the interfaces to the fulfilment partners. All interfaces that were necessary for data communication with the fulfilment partners were developed by Derendinger itself.
Costs that are incurred through the cooperation with fulfilment partners are calculated exclusively on a transaction basis, which means that the respective partners issue invoices for specific amounts for each credit assessment or each shipment that is delivered. The accrued costs are settled later in a monthly invoice.
The only cost that the end customer incurs is essentially the cost of the order. If the value of the order is less than DM 300, then shipping costs are added. Financing costs arise if the customer pays in instalments (fulfilment partner is CC-Bank).
ottomobil.de and the underlying Derendinger-Net were developed by Derendinger AG's own IT department. With the exception of standard products such as an Oracle database and elementary programming tools, no external software was used. The web shop in particular is the companyâ€™s own development.
The database for Derendingerâ€™s various distribution channels is identical. â€śTraditional" sales, D-Net, and ottomobil.de access the same data, and the only difference is the user interface (GUI). Prices for the different regions (Switzerland or Germany) and customer groups (B2B or B2C) are saved in the common database.
When the new distribution channel ottomobil.de was added, Derendinger AG had the advantage of not having to take existing processes in traditional sales into consideration. The processes shown in the solution are mainly identical to the ones that already existed in D-Net. Starting in 1992, Derendinger AG redesigned its processes, which led to an electronic product catalogue replacing the existing paper catalogue in 1995, among other things.
In November 1996, D-Net was put into operation as an Internet-based ordering system for free workshops based on the already developed electronic product catalogue. Work started on the design of the D-Net based B2C solution in January 2000. After creating a business plan and after the official start of the project in February 2000, the ottomobil.de solution was implemented in four months. It was implemented by the staff of Derendingerâ€™s IT department.
Technical Platform [system architecture]
At the heart of the solution is an Oracle database with approximately 900 tables, which contain all the product and customer data. Almost all the pages of ottomobil.de were generated dynamically from the database. The database runs on Hewlett-Packard computers under the UNIX operating system.
The actual web shop was implemented by four employees within four months. Here, an Apache server running in a LINUX environment was used. An Oracle Application Server 9i was used to allow the web server to access customer and product data in the Oracle database. The server forwards the necessary data to the Apache server where the web shop is running. All access to web servers is protected by a firewall. Sensitive data is exchanged with fulfilment partners using a secure https connection. Customers transfer confidential data using SSL 128-bit encryption.
The following illustration shows the interaction of the hardware and software components. The ottomobil.de solution doesnâ€™t include workshop access to product data as shown in the upper right section, whether it is directly through D-Net or indirectly through Derendinger's sales department. It is only shown for reasons of completeness.
Figure 4.1: The ottomobil.de architecture
The additional costs incurred by Derendinger from operating ottomobil.de are too negligible to be considered. An important feature of the ottomobil.de solution is that it is built on the existing D-Net.
ottomobil.de is maintained by Derendinger itself, as is D-Net. Derendinger is also responsible for maintaining and evaluating article data and customer data as well as for inputting additional information for customers (e.g. repair guides).
Before implementing the solution, Derendinger carried out solid financial planning. The overhead costs of operating ottomobil.de are negligible according to information from Derendinger, because the D-Net infrastructure can be used. Since Derendinger didnâ€™t want to give any information about the actual amount of the investment or the turnover, it is not possible to make any statements about profitability. In any case, there is profit potential in the disintermediation already described above, i.e. from bypassing additional dealers and workshops. As can be seen in Figure 2.1, only part of the difference between the "traditional" and "shortened" creation of value chain is passed on to the end customer as a price advantage. The other part of the difference remains with Derendinger as income.
6. Success Factors
Specialities of the Solution
As a special feature of the solution, it must be pointed out that the end customer is supported when searching for and identifying the specific spare part. It is often the case that customers canâ€™t articulate their needs clearly enough since, for example, they donâ€™t know the exact name of the required spare part. Here, the solution from ottomobil.de provides adequate help. By entering the registration number from the vehicle registration certificate, a vehicle can be clearly identified. If the registration number is not available, then the possible â€śsolution spaceâ€ť is reduced step-by-step by means of appropriate questions. Thus, after entering the spare parts category (e.g. outside mirror), the type and model of the vehicle is asked and the number of articles that come into question is thereby greatly reduced. After only a few additional questions, the system ultimately identifies the spare part that is being searched for.
In the D-Net solution, which is based on the same database, another input mask is used to search for spare parts, because the target group being addressed â€“ motor vehicle mechanics â€“ is more familiar with technical spare parts specifications.
Unique Selling Proposition
Besides the ease of ordering over the Internet, which eliminates the need to go to a motor vehicle workshop or another parts supplier, and the parts identification process discussed in 1.6.1, the favourable prices that end customers pay for spare parts must be stressed in particular. The price for the spare part is an average of 20 to 25% below list price. Offering customer-specific, supplemental information such as repair guides is another relevant additional benefit.
Since the ottomobil.de solution is purely an Internet solution, and the end customer segment has never before been serviced by Derendinger, the discussion of this point for the case study is being omitted. However, it is still worth mentioning that in the meantime, D-Net, which is the basis for ottomobil.de, is being used by several workshops at their own request as their exclusive ordering channel.
Derendinger has certainly gained positive experience in the implementation of ottomobil.de:
- The IT solution was put into operation according to plan.
- The cooperation with the logistics partner German Parcel works smoothly.
- Still, Derendinger didnâ€™t take some situations into consideration or it incorrectly estimated some of the facts prior to the implementation.
- Although in an international comparison, German customers are known to have an affinity toward mail-order companies, the caution exercised by customers in ordering spare parts over the internet was underestimated.
- In particular, the problem of how to reach the relevant market with an internet company was underestimated. The target group that was addressed, the do-it-yourself customers, only slightly overlaps the group of Internet users. Consequently, following an article about ottomobil.de in the magazine â€śComputer Bildâ€ť, many website visitors were registered, but only a few of them resulted in orders. On the other hand, following an article in the magazine â€śAuto, Motor und Sportâ€ť, there were indeed fewer visitors to the website, but the rate of ensuing orders was considerably higher.
- When designing the ottomobil.de solution Derendinger initially assumed that all involved processes could be automated and implemented without manual intervention; however, this proved not to be the case. In particular, the work involved in the cooperation with fulfilment partners and the definition of the interfaces to them proved to be more complex than originally expected.
- The greatest challenge for Derendinger was to increase awareness of ottomobil.de in the Internet (brand recognition). The objective was to guarantee that a potential customer in need would immediately think of ottomobil.de. In order to cover this point better, Derendinger started working together with a well-known automotive accessories supplier, which was announced at the end of the third quarter of 2001.