Case Study 1.1 e-business and B2B-integration to sourced warehouse at STOKKE, Norway Abstract Stokke AS designs and creates products for children in three product categories: seating, nursery, and transportation. Stokke is located in the west coast town of Aalesund in Norway. The company has an export share of 95 % and in the past three years its annual turnover has grown by 25%-30%. Stokke s production and warehouse logistics activities are outsourced; 90% of the value added activities are created abroad. This case study focuses on Stokke s implementation and improved e-business solutions, experiences with implementing and improving sourcing strategy, especially within the area of warehouse and outbound logistics. Improvement in the sourced e- business value-chain over the last years is one of the important success factors for the development for Stokke. Case study fact sheet Full name of the company: Location (HQ / main branches): Stokke AS Skodje, Norway Main business activity: Manufacturing of products for children: high chairs, stroller, beds Year of foundation: 1975 Number of employees: Turnover in last financial year: 140, 2/3 employed outside Norway 750.000 euros Primary customers: Retailers, large chains and mom & pop shops, - special stores for children Most significant geographic market: Main e-business applications studied: EU, US, Japan Benefits of ICT and e-business Drivers of ICT and e-business ERP Enterprise Resource Planning e-sales ICT and e-business impacts on work processes
1.1.1 Background and objectives About Stokke The company s business goal is to be the world's leading baby furniture manufacturer within selected products; the company sells and distributes highchairs, strollers and beds to specialised retailers in the area of special stores for children. Stokke s products are designed for children from 0 to 10 years. The most important markets are EU, US and Japan. Stokke is one of the leading suppliers in the highchair market in EU and has recorded an annual sales growth rate between 25 and 30% in the past three years. Because of the increasing competition on Internet sales, at the end of the nineties Stokke started to focus on e-business development, both B2B and B2C. Implementing integration strategy towards Sourced Warehouse: objectives Taking into consideration the fact that B2B markets are mostly oriented towards reducing costs in the value chain, and on the ease of doing business with, Stokke has developed a consistent sourcing strategy within production, logistics and warehouse. Since 1998 the e-business strategy and solution towards sourced warehouse has been improved in several steps. The market growth in this period has been around 400%, and has thus demanded improved efficiency in the internal and external value chains. From 1998 to 2000, Stokke changed its distribution strategy from 80% sales through furniture stores and 20% children special stores, to 20% furniture stores and 80% children special stores. In the same period the product line strategy changed from covering the general need to sit to covering children s basic needs. Product materials changed from wood to be function-oriented, production changed from partly in-house to outsourced and the number of warehouses, from the existing 16, was limited to one. By organising warehouse operations into one outsourced location, the first warehouse solution was implemented by focusing on the reduction of time from order to delivery in all the major markets. It was considered to be strategically important to build a new position within the market, by shipping the goods from the warehouse at latest on the day after the receipt of the order. Several limitations in the sourcing partners IT-resources and possibilities to integrate different system-platforms were identified; hybrid solutions were chosen as the optimum cost-benefit-solution. From 2000 to 2006, a period characterised by a considerable business growth, several areas of improvements at and towards the sourcing partner were identified and actions were taken to implement the existing solutions. 1.1.2 e-business approach Project description Stokke s project aimed to implement the integration towards sourced warehouse. The strategic goal was to reduce the time from order to delivery in all the main markets concentrating warehousing operating within one location thus reducing costs in the value chain, to efficiently manage constantly increasing business volumes and to increase warehouse efficiency and effectiveness.
Implementing BIT branch-standard MRP-system (Movex), 1997-2004 Between 1999 and 2005 Stokke outsourced and centralized warehouse operations at one location (from the existing 16 warehouse locations). One of the major achievements was to link services based on Stokke s infrastructure and systems with the warehouse sourcing partner and this objective required change in the working process, organization, systems, technology and quality of data. The combination of both upgrading into a new ERP system and the major change into one warehouse operation was a complex task. Implementation required more resources and time than planned. Planning was done together with the warehouse-sourcing partner and the ERP-vendor. The sourcing partner had no or limited possibilities to exchange EDI-files (this was restricted by proprietary systems). In 1999 Stokke upgraded to the latest version of Move ERP system. This enabled Stokke to receive orders from decentralised customer service-offices on 5 locations in EU into one central order handling module. Sales orders allocated items at warehouse and picking and shipping list was sent as EDI-files to the warehouse. Warehouse and logistic partners imported the EDI-files into their logistic planning system. The sourcing partner s warehouse system could not be integrated with Stokke s ERP system; due to the lack of integrationpossibilities, it was decided to implement Stokke s own infrastructure at the warehouse. This included broadband, firewalls, local server, printers, scanners and WLAN, linked together as an online solution towards Stokke s ERP system. Stokke organised users training and chose local and external service providers and helpdesk. A considerable effort was required over a long time and in the end Stokke managed to achieve the Service Level Agreements (SLA) goals set for the whole warehouse and logistic operations One way EDIFACT messages from Stokke to sourced warehouse, 2004-2006 From 1999 to 2006 the turnover had tripled and the need for further improvement became necessary: higher warehouse capacity, improved inbound and outbound logistic and higher efficiency, reliability and flexibility in the warehouse operation. In October 2005 Stokke chose a new sourcing partner and moved the whole warehouse operation to new locations. Prior to the move, new and improved e-business solutions were implemented. This was basically a one-way EDI from Stokke to the warehouse system, for both distribution planning and warehouse pick and pack. Return messages were manually handled by the outsourcers own ICT directly into Stokke s ERP system. One of the technical goals was to eliminate the need to place Stokke s own infrastructure at the warehouse. The move of the warehouse to a new location was completed between October 2005 and April 2006 and included workshops, SLA levels definitions, EDI communication protocols and EDI contents. Solutions were tested and approved prior to the implementation. Both the physical moving of goods and implementation of the e- business-solution were done more or less over night. Even if errors related to technical IT-equipment were eliminated with the new solution, errors may occur and are basically due to human errors when entering warehouse picks and warehouse balance. Full two-way XML integration, 2007-2008 With the goal to double Stokke s turnover to 1 billion NOK (125 million euro) in 2010, higher efficiency within all areas of the warehouse operations is required. The need for full 2-ways EDI and more seamless system integration has been identified and will be
finally implemented within April 2008. Stokke also identified the need to upgrade the ERP system, to achieve the new e-business goals. Stokke s goals are to reduce human errors, to implement a more online e-business warehouse solution and a seamless online integrated solution that will be the base for new third parties warehouse solutions at other locations in the world. Exhibit Fehler! Kein Text mit angegebener Formatvorlage im Dokument.-1:Core product value chain at Stokke Core product-value-chain Stokke Suppliers Sourcing Production Assembling Production Warehouse Retailer Consumer Product specificcomponents Sourced Warehouse Europe Delivery Retailers Finished articles to Warehouse Source: Stokke AS 1.1.3 Impact The successful integration towards a sourced warehouse enabled Stokke to achieve higher warehouse efficiency and effectiveness, thus reducing time from order to delivery and consequently meeting the market needs: ETDBW (Easy To Do Business With) and RCAP (Reduce Cost Adding Processes). To attain the company s goal to double its turnover between 2006 and 2010, further improvements of the warehouse operations are therefore of outmost importance, as well as the improvement of information quality and operation efficiency for all aspects of Stokke s business relations. Stokke has planned and organised these implementations in a project named Moving, a business development follow-on project as much as an upgrade to a new version of Movex. In this early stage of the project the goals are to increase sales volumes (thanks to the retailers perceived experiences: It is easy to do business with Stokke ) without an equal increase in administrative employees costs and to ensure a low cost growth in existing markets and in new geographical markets. Low cost e-business portals to both chains and moms and pops-shops perceived to be efficient reducing existing cost and increasing efficiency - are planned. To achieve these goals internal changes are required: New employees with new responsibilities; Owner of system basic data, Responsible for internal training; Responsible for integration towards retailers; Defined super users within area of customer service, and closer coordination and interaction between internal departments. New business relationships with retailers; new contact persons, and new relations towards retailer s e-business centres.
1.1.4 Lessons learned The main business decision in Stokke is to buy or produce, depending on the known cost for products and services. An outsourcing decision also introduces a third cost element: the cost of communication, transaction and control of quality of outsourced products and services. The outsourcing transaction cost is difficult to calculate beforehand. Stokke has experienced that outsourcing generates new costs within new areas: Costs of using the price mechanism and the operations of the economic system are mainly information and communication costs. Costs related to contracts: information seeking, negotiation costs, contract design, control costs, managing agreements, error adjustment costs, binding costs. Post-contract related costs: Adjustments of transactions in case they are not processed as planned, negotiation costs to correct deviation from goals, start-up costs and managerial costs of new solutions, costs of Intellectual Property Rights, human behaviour cost because human is limited rational and opportunistic. Finally, Stokke experienced that specific investments are needed towards the warehouse sourcing partner. These types of Investments have low or no value outside the relation and create high control and negotiations costs. To increase the value of such investments Stokke chose international standards for communication-content and communication interface. The goal for Stokke has been to find an optimum e-business solution balancing the cost of control with the cost of potential losses, as shown in Exhibit 5-4. Exhibit Fehler! Kein Text mit angegebener Formatvorlage im Dokument.-2: :Stokke learning points: Minimise transaction costs Source: Stokke AS When answering the question: What would we have done different? ICT Manager Per Henning Vågen at Stokke identifies several learning points:
Spend more time together with the sourcing partner, defining the scope of the implementation process, and the importance of Stokkes business process. A lot more training of sourcing partners employees, to avoid misunderstanding or lack of action to correct errors. Even a more in depth work with contracts prior to signing, and developed a better contract design. Establish more binding continuous improvement plan for the business-interaction for both parties. Establish better and earlier a tool for common benchmarking of sourcing partners services and costs. Besides that, technology has opened up new opportunities for the integration of value chains. Earlier limitation in systems and infrastructure is replaced by open standards and open interface for collaborative business development. Today there are less constrains and limitations in technology. Stokke learned that changing the business process requires changes in the organisation, data, system and technology not only within the company, but even more in the relation with the same areas of the sourcing company. Integrated business processes require data integration, system and technology integration and new and closer relations between people in both organisations. 1.1.5 References Research for this case study was conducted by Baard Krogshus, on behalf of the Sectoral e-business W@tch. Sources and references used: Interview(s) with Per Henning Vågen, December 2007, Oslo Internal strategic documents Moving-project-doc Strategy plan 2010 Information to allmoete, January 2006 Public presentations Stokke s annual report 2006 Stokke case ebsn 2007 General info about Stokke: www.stokke.com
About this document This case study was initially published as part of a comprehensive Sectoral e-business Watch study report on the furniture industry (2008). The European Commission, Enterprise & Industry Directorate General, launched the Sectoral e-business Watch (SeBW) in late 2001 to monitor, study and assess the implications of ICT for enterprises and sectors. The results support policy formulation, notably in the fields of industrial and innovation policy. All study reports and further resources such as data on ICT adoption in enterprises are available online at the SeBW website (www.ebusiness-watch.org). For further information, please contact European Commission Enterprise & Industry Directorate-General D4 "ICT for competitiveness and innovation" e-mail: entr-innov-ict-ebiz@ec.europa.eu Sectoral e-business Watch c/o empirica GmbH Oxfordstr. 2, 53111 Bonn, Germany e-mail: info@ebusiness-watch.org