Wiping the floor with the e-competition?

Pergo, the $360 million chemicals to laminates group based in Sweden, is in the early stages of rolling out an innovative, interactive web-based visualisation system for buyers of its timber laminate flooring which, it says, is already improving its customer and retailer relations, its brand image and its profitability. And the firm expects costs of sales to fall by up to 12%, with take-up reaching “55—65%” soon. Pergo has been making what it calls ‘floating floor solutions’ since the mid-80s, and has main distribution hubs in the UK, Ireland, France, Spain, Portugal, Italy, South Africa and Sweden for its products, which it sells primarily through multiples, department stores and independent retailers. Back in 1998, with the e-revolution starting to hot up, the firm decided to harness the opportunity to involve consumers directly and interactively in designing and specifying their product requirements over the web – while still directing consumer sales back to its retailers. Andrew Harris, Pergo’s UK e-business manager, says: “Rather than just buying a laminate floor, we wanted customers to be able to change colours … play with sizes and styles, positions of furniture all on the web … and then generate a shopping list, print it off and place an order.” It was popular thinking at the time – and although the emphasis of web value in manufacturing is largely shifting to collaboration now both in engineering design and across supply chains, with business-to-consumer out of the limelight, it still has its merits. Pergo’s UK arm, based in Abingdon, was the guinea pig, and has now been up and running on-line since May last year. Sweden, France and Germany have also now gone live and more are due to follow soon as the system is rolled out were it can be across the rest of Europe. Initially, Pergo faced a problem most manufacturers can relate to: its legacy systems (an ageing Sigma Integra ERP suite in Sweden and various other legacy systems) was not web-enabled. As it happens, the firm was then considering, and indeed is now implementing, a new end-to-end Movex ERP (enterprise resource planning) system from Swedish enterprise and e-business software developer Intentia, which is web-centric. But rightly or wrongly, at the time Pergo’s managers felt they couldn’t wait for it: the market was growing fast, competition was fierce and Pergo had to differentiate itself as fast as possible. Pergo UK has a 50% annual growth record that has taken it from a standing start four years ago to £13 million now, with 700 retailers placing 800 orders each week, and a contract business that’s supplied flooring for the Madjeski Stadium and 80 branches of Lloyds TSB. Annual supply has risen from almost 8.5 million square metres in 1998 to 17 million last year. So the firm found a solution in the form of web portal technology, also from Intentia, that could interface with its legacy systems, would ultimately hook into the new ERP system – and would provide a foundation for its e-commerce without major disruption. Pergo went for an early version of Intentia’s ‘plug and play’ collaborative trading portal, which provides the framework for a private web trading exchange and operates effectively above existing ERP systems. Intentia’s latest version, not in use here, also has integrated business logic, with intelligence and functionality comparable to ERP systems. But in this case, the portal technology was linked directly to Pergo’s legacy system logic. Portals work for Pergo “The portal solution was ideal because it gave us a quick entry into the digital economy, avoiding the need to build complex web solutions,” says Henrik Malmrup, manager of new ventures and the man responsible for driving the project. “It’s also meant we’ve been able to continue using familiar systems and at the same time eliminate any risk to the business while the new enterprise system was implemented.” With the portal up and running, consumers have direct Internet access to Pergo’s full product range through a screen-based product selector. Most impressively, customers can select and apply any product to the room setting – kitchen, bathroom, living room, bedroom – and get a 3-D static view of the end result with furniture and appliances, etc in place using Flash software (Harris says dynamic visualisation will be next). And it’s not just the flooring: there are other pages on the portal allowing them to select from Pergo’s accessories – underlay, skirting boards and the rest. When a customer is satisfied with his or her design selection, the system calculates approximate costs based on room size and including installation, on screen. It allocates each virtual project a user name and password and saves it ready for confirmation. Which is where the retailer comes in: because that’s where this has to happen, with customers selecting their nearest off screen from a database of 4,000. “It’s not a professional estimating tool,” says Harris. “You’re back to traditional methods for that.” So on visiting the retailer, the customer’s project is called up using the passwords and displayed on screen ready for final mods and detailed costing, then final order confirmation. And then the rest of the back-end system swings into action: “We expect all orders to be delivered to the consumer from the factory in Trelleborg, Sweden within one week from the date of order confirmation,” says Malmrup. And Harris explains that the system also allows retailers visibility of correct order processing, and the progress of shipping and invoicing. “In the future,” he adds, “the goal is tracking and tracing of stock and products throughout the supply chain and in transit.” For now however, “retailers, particularly the smaller ones, see this as the best of both worlds,” says Malmrup. “They have access to the whole product range without having to tie up valuable cash in stock.” However, this is just the beginning. Malmrup wants to build more value for his retailers by also giving them market updates, details of business events, special promotions and so forth on the portal. And in the next couple of years, he says, there’s the possibility of a new focus on the supply chain too, developing the portal towards supply chain fulfilment – sharing forecast information, net demand and so on, which could ultimately be fleshed out to cover most interactions. But that’s for the future. The system so far has cost Pergo of the order of £1 million, so what about the tangible benefits? Malmrup says: “It’s still too early to measure in quantifiable terms the benefits we’re getting.” He concedes however they’re more likely to be incremental than radical, although he says, “the benefits will grow in the longer term.” And he adds: “Anecdotally, we believe we are much more efficient. And as we build awareness of our Internet service we are beginning to attract not only more enquiries, but a higher level of conversion to tangible sales. I think we’ll also see the cost of sales reduce, both for ourselves and the retailers. And we’ll all be in a much stronger position by having up-to-the-minute market and management information that will keep us several paces ahead of competitors.” As for take-up, Harris says: “It’s still early days: people are still very cautious about the Internet.” Nevertheless, he expects “55—65%” in due course. So far 60% of Pergo’s independent retailers in the UK have got the system, and Harris believes 80—85% of their orders will move over to the web. To date, he says “13—14% of the independent market are placing order this way.” But he adds that national groups, like Allied Carpets, have yet to get involved. “It’s a bit of a risk for them,” he explains. “If they’ve got 234 stores and they need four people in each store to have access, that’s 1,000 Internet connections and the cost does go up.” A final word to Malmrup: “The system is living up to its expectations. The problem is the process of getting the retailers and sales reps – the whole chain – to use it.” Commenting specifically on the UK he says business needs much faster, ‘always on’ Internet connections, like those in Sweden, to really succeed.