Cisco Helps Otto Group Link the World on the Web

To improve service performance and cut costs, Otto - the world's largest mail-order retail company - decided to complement its front-office operations with back-office networks linking the suppliers, logistics companies, and banks the company works with each day.

Background
With a presence in 23 countries, Hamburg-based Otto Group is the world's largest mail-order retail company. Increasingly, Otto's business is being conducted over the Internet, making the company second only to Amazon in global online sales volume. Otto's Internet sales totalled approximately US$2 billion in the fiscal year 2003, and the company's aim is to have online sales contributing some 20 percent of turnover by 2010.

Challenge
Otto focused much of its previous e-business development activity into establishing an online presence and has invested some US$250 million in Internet-related projects. The Internet channel is supported by Otto's own distribution operation, which provides 24-hour delivery to help ensure class-leading order fulfilment. The company wanted to reinforce front-office activity by Web enabling back-office functions, leading to improved communications and shorter lead times to customers.



Solution
Beginning in 1999, several departments had begun implementing projects to Web enable business processes or functions. Otto recognised the need to pull the different efforts together to avoid replication and help ensure standardisation. The executives created a coordinating body to oversee the different initiatives.

Otto's relationship with Cisco Systems® began as a normal infrastructure supplier relationship. Cisco® then carried out an Internet Capability Assessment Tool (ICAT) survey covering eight different functions within Otto, which led to a number of follow up workshops. It enabled Otto to complement its own understanding of its internal Internet capabilities with a valuable external perspective.

At an operational level this led to the introduction of SAP self-service tools for the Human Resources (HR) department, increasing productivity for HR staff. An initial calculation revealed that an annual US$110,000 has been saved when reduced SAP license costs were factored in. A best-practice exchange on network management with Cisco also resulted in service level agreement (SLA) monitoring and business continuity measures being introduced.



Results
Otto has driven forward an electronic business-to-business (B2B) strategy - to help build a worldwide set of supporting partners to guarantee uniform service levels across its many different markets. This strategy has connected nearly all of Otto's suppliers to its German operation, with rollout to the United Kingdom, France, and the United States well under way.

Otto already has 1,000 of its suppliers connected in Germany. By the end of 2003, some 90 percent of all German suppliers will be connected and the vast majority of transactions will be carried out online. The rollout to other group companies abroad is being taken step by step. When completed, all 40 of the company's sourcing markets—from China to Brazil—will be connected online to Otto Group companies.

An investment of US$8 million into this B2B platform will see Otto realizing substantial gains of initially US$4 million per annum, achieving a complete return on investment (ROI) in year two and large recurring ROI in subsequent years. This ROI will increase further as more Otto business units are brought onto the platform.



Next Steps
Otto realised its e-business ambitions should not be limited to suppliers, despite the obvious benefits in this area. It has already been pursuing other e-commerce benefits through its leading role in the Bolero project.

Bolero is an umbrella organisation that is driving down the time and cost of international trade by electronically linking importers, exporters, banks, customs bureaus, and shippers. A number of cross-industry organisations ranging from exporters and importers to banks and shippers jointly own it.

Otto has a leadership role within the project and recently launched a trade platform in Hong Kong, called Tradelink Otto Bolero Interface, that streamlines the entire international trade cycle by facilitating electronic business transactions between all parties. Processes that once took up to three weeks to complete can now be finished in three days.

Furthermore, a sweeping logistics function is also in the process of being rolled out. This includes the ELOG (electronic logistics) project tracking and tracing system that allows Otto to know where goods are in the shipping process. Transportation companies involved in forwarding goods input status information, giving Otto an airport-to-dockyard view of when goods are due to arrive.

With the projected increase in Internet sales, logistics is set to become ever more important. To this end, systems and processes have been built that not only interact with other projects such as the Bolero project and the B2B marketplace but also help ensure the company is deploying technology to promote growth, improve communication, and cut costs. These infrastructure projects are designed to overlap, yielding further gains.



What Cisco Offers
Cisco has set the standard for using Internet technology to transform business processes. Its Internet Business Solutions Group (IBSG) has vast experience helping companies make the transition to e-business. From helping companies determine their "Net Readiness" through an assessment tool to installing networks for the integration of voice, video, and data, the experience and expertise of Cisco can help a business interested in any level of e-business implementation. Cisco offers:

  • Internet-powered business methodologies
  • Internet-powered application frameworks
  • Networking reference architectures
  • Alliances with best-of-breed companies with proven experience in building e-business applications and solutions.

Christoph Dyballa, Vice President IT Systems Logistics, Otto Group, values the relationship with Cisco. "Working with Cisco has helped our focus and provided new ideas. And something that is more valuable than you can imagine is the chemistry between Cisco and us. We can jointly explore concepts that lead to vast business improvements."

Further Reading

Otto Group Snapshot

  • Otto operates in 23 countries through 90 catalogue and store retailers.
  • Well-known brand names under the Otto umbrella include U.S. catalogue company Spiegel, Eddie Bauer, and Grattan, one of the United Kingdom's largest home-shopping retailers.
  • The company generated US$22 billion in revenue in its last financial year.
  • Headquartered in Hamburg, Germany, it employs almost 80,000 people.
  • Otto owns Actebis, one of Europe's largest and most established computer distributors.
  • Recent online sales have accounted for US$2 billion of total revenue.
  • Otto expects to generate 20 percent of its turnover from Internet shopping by 2010.

September 18, 2003