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.

The vision of the e-business solution corresponds to the corporate vision, as it represents the company’s core. Admittedly, the company is experimenting with other distribution channels to complement its product range, such as, for example, catalogue sales, but the online business will always be the focal point due to its efficiency advantages.

At the end of 1999 the initial aim was to introduce customers to the basic idea of shopping for toy products online. Consequently the first myToys claim was “People buy toys on the Internet now”. Since then this claim has been extended several times. After “What children really want”, it’s now “Children’s world in the Internet”. The actual vision of myToys can be expounded further, namely myToys wants to be the solution provider for all product and service needs with respect to the target group of the young family, regardless of the channel via which communication takes place.

For the technical conversion of this vision into an e-business infrastructure flexibility and scalability are the prime requirements.


Strategy
The following section describes the basic concept of the e-business solution, the scope of services and the partners involved in the conversion.


e-business concept
The e-business infrastructure which is in use now is already the second generation. As everything had to be done very quickly when the company was launched, in order to be able to fully cover Christmas business in 1999, a shop based on the Intershop 3 software was implemented. A self-programmed Perl script which accepted the orders, scheduled processing by the customer service department, arranged printing of the invoice and controlled further processing served as an inventory control system.

After successfully concluding the Christmas business, the aim was to replace this system both in the frontend and the backend area with a more professional, scalable solution. The chosen systems were Intershop Enfinity as the shop and Oracle Applications as the ERP system.

Both generations of the technical infrastructure followed the same principles, namely the focus is on customer benefit. Through high service quality in the shape of high delivery speed and outstanding customer services and through a website geared to functionality and simplicity a positive shopping experienced is achieved. A product review tool, birthday calendar functions and a comprehensive tolerant search function with relevant limitation possibilities, e.g. according to price, age and brand are instrumental to the quality of the online purchase. From a technical point of view optimisation was carried out for all browser generations from Version 3.0 upwards and JavaScript was largely avoided. The website therefore allows very easy and intuitive navigation and dispenses with a lot of gimmicks.


Scope of services
The following description applies to the service scope of the new generation of myToys system infrastructure.

Frontend
The website pursues the goal of attracting Internet surfers, converting them into customers through the right offer and giving them enough reason to come back (retaining strategy). The website is the primary tool for all three tasks, with other business processes playing a supporting role. A high service level and the right customer approach by newsletter also, for example, contribute to customer loyalty. Internally the website is also used by customer service to mail orders which customers place by email, fax or telephone. Owing to the low processing efficiency these ordering channels are only second choice in the view of myToys.

Backend
In the backend a completely integrated ERP system has been implemented from one source with Oracle Applications. All business processes from order acceptance and processing, purchasing and disposition, warehouse management through to finance and accounting as well as controlling are reproduced in the system. In doing so special importance has been attached to a lean overall structure which is optimised for maximum throughput. The great challenge facing the system lies in the smooth day-to-day processing of many thousands of individual transactions with all their data.


Partners
Owing to the young history of myToys sufficient internal resources were of course not available to convert the systems. The realistic assessment of the core competence required for the business led to the website being developed largely in-house as a basis for business, whereas external partners were used to build up the ERP system.

Website (Intershop Enfinity)
Although myToys had already had mixed experience with the first product of Intershop, the Intershop 3, the decision was made in spring 2000 to choose Intershop Enfinity as the new shop system. The decision was made due to the modern technological components(Java, Enterprise Java Beans, XML) compared to the competition and the convincing overall architecture of the system. As many integration partners have at best limited experience with Enfinity, the project was carried out jointly with Intershop Consulting. Responsibility for the project quickly lay with myToys. In order to continue to offer myToys customers the usual shopping experience and in order to further distinguish itself through market leadership in the range of innovative customer-related functions, large parts of the standard shop were re-implemented or additionally programmed.

ERP system (Oracle Applications)
As regards the backend there were essentially two different alternatives. On the one hand the customizing of a standard ERP system into an integrated mail order solution, on the other hand the acquisition of an outsourced mail order inventory control system. The latter had the disadvantage that most systems ran on mainframe operating systems and therefore the acceptance of both end users and those in IT was small. These systems were also not internationally applicable as a rule. As on the one hand small ERP standard systems were according to the manufacturer not able to reproduce the required transaction figures, myToys finally decided on the Internet-compatible, highly scalable and established e-business suite of Oracle Applications.

As the internal know-how did not exist and was also not to be developed, the project was carried out with Oracle Consulting from Berlin. Within five months an inventory control system therefore evolved which was optimised to the special needs of the mail order industry.

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

Although the areas of system operation, customer service, warehouse and fulfilment do not have to be part of the core competence of an e-commerce company, myToys now operates large parts of the business independently. The reason for this strong internal commitment lies in the high demands on flexibility.

The business of myToys is subject to very strong seasonal fluctuations. On peak days during the Christmas period with 10,000 to 20,000 orders per day easily twenty times as many trans
actions are dealt with as in the summer months. The biggest challenge facing the company is the management of these peak periods with regard to computer, warehouse and staffing capacities. Through the high personal deployment of its own staff peak order volumes which are difficult to plan can also be processed comparatively flexibly. An external provider would probably scarcely have cooperated in the first Christmas period when the expected maximum figures were surpassed fivefold. By controlling processes, staff and systems itself, resources could be added quickly and flexibly.

With the growing experience in the business, it has been possible to build up increasing planning security and considerable know-how over the last 18 months. The improved predictability is reducing the need for flexibility. For this reason it now appears possible to assign clearly defined functions to external providers or the majority shareholder Otto Versand. It is expected to be able to realise considerable synergy potentials with the holding group in this way in the coming years.


Maintenance
The maintenance costs for the infrastructure are made up of depreciations on the investments made and the ongoing staff and consulting costs. There are also communication costs (ISP) for the computer centre and data traffic.


Viability
In order to achieve the target rate of return, it is important to find solutions for the strong seasonal fluctuations; myToys pursues two strategies in this case: the first is the consistent expansion of the product ranges with non-cyclical or alternative cyclical categories. This means the daily transaction volumes in the annual business approach the Christmas business. In addition further attempts are being made to flexibly cushion the few days of the Christmas peak volume through temporary contracts for staff and technical resources.
A crucial factor in the success of B2C business is marketing efficiency. Assuming realistic progress is achieved in this area, myToys will be able to reach the break-even point within a few years.

A distinction would be made between the success factors of e-commerce business as such and the success factors for developing the described technical solution. The essential success factors for myToys as a business are speed, partners and the team. Speed is absolutely critical in the Internet. The business follows the rule that “The winner takes it all”. Accordingly competitive advantages must be achieved quickly as a “First Mover”. Without its partners, above all Pro-Sieben, Otto Versand and Hoffmann toys, the company would never have come so far. The success so far has been made possible by a committed team of approximately 70 people who are enthusiastic about and driven by the idea and who have sacrificed a lot of their free time for myToys over the last 18 months.

Success factors regarding the implementation of the project include the will and ability to improvise and the right prioritisation. In a fast-moving business like e-commerce the ability to react and flexibility are crucial for survival. Improvisation is frequently much more successful than exaggerated precise advance specifications. And a focus on the essential core ensures that processes critical to the business are available quickly enough. Even if some topics take second place from time to time.


Specialities of the solution
The myToys infrastructure and fulfilment solution has various features which are very advantageous for the business.

• JIT cooperations: By closely integrating suppliers into supply chain management, thus guaranteeing a delivery date for customers of 48 hours, considerable advantages can be achieved in the warehouse and in the area of logistics. In doing so, myToys ties up significantly less capital in inventory stocks, bears no inventory risk, has less handling costs and can nevertheless offer a range of 40,000 articles.
• Batch generation at all times: there is no dependency on a night time batch operation to prepare orders. This means orders can be prepared for processing at any time and are in the best case supplied for delivery within a few hours.
• Higher level of automation: A good 95% of all orders run through the system full automatically. Manual follow-up work and controls can be reduced to a minimum through a variety of automated checks.
• Group synergies: In contrast to a lot of Internet start-ups, myToys has a partner in the Otto group with unsurpassable experience in the mail order business.

Unique Selling Proposition
The two essential unique selling propositions for myToys from the customer’s point of view are:

• Convenience, i.e. the ease with which a purchase is possible from a domestic computer and
• Speed and quality of the shopping experience from visiting the website to delivery.

The majority of myToys customers looks for a certain product on the website. The available range must therefore be offered in a well structured way, with a special focus on the quality of the search. The customer expects to find the desired products and have them delivered quickly and conveniently. The processes at myToys are geared to fulfilling this customer requirement.


Lessons learned
When realising business models in B2C e-commerce speed is above all crucial.

The company on the market who is the first to offer the right services and links up with the right partner has clear advantages. In the case of myToys the following lessons were learnt:

• Prioritisation: Without clear prioritisation of all demands on a new system, speed cannot be developed. As a first priority the following questions must be answered: What must work first to develop the business? What can be added later?
• 80/20 rule: in many case 80% of the solution can be achieved with 20% expense. The lacking 20% then requires a disproportionately large outlay and is often not necessary.
• Build, then optimise: The mail order business is a mass transaction business which has to run efficiently. Nevertheless it is necessary during the build-up stage not to target the final most efficient solution sometimes, but to develop less economic interim solutions to start with. The benefit which is thereby achieved is time and flexibility and a much greater learning experience that will in turn benefit the final solution.
• Planning: In spite of or precisely because of the high implementation speed which is aimed for, planning that is targeted and geared to the result is indispensable. Planning and specification cost time and must therefore be subordinated to other goals and must on no account become an end in themselves, although there are mostly dire consequences in the later stages of the project if a minimum amount of ideas and concepts is not set down in writing.