Business

Analysis Capstone Project

ELTRON DIGITAL
TRANSFORMATION

MTAT.03.310
University of Tartu
Background
Eltron began in Germany with one store. They offered high end electronic products. They sold
TVs, surround systems, mobile phones, home appliances and all other electronic products but
only the brands that were of superior quality. For instance, they sold speakers but only had
brands such as Bose and Sonos Wireless Speakers. They did not only sell electronic products
of the best brand, but also offered personalized service. While they sell for example TVs, they
prefer to sell the whole experience of TV watching. As such, they will sell you a package of TV,
wireless speakers with surround system, and Apple TV. In addition, they choose the color of the
products to match the interior of the customer’s home and install the complete system. The
installation is not a simple plug and play but rather, with advanced equipment, they measure
where it is optimal to place the speakers, the TV and so on. In essence, they don’t sell you their
electronics but the full package of products and services that together gives the customer the
best possible experience.

Eltron began their business with one store in Hamburg, Germany. Their concept was well
received in Germany and they expanded their business to Frankfurt, Stuttgart, Berlin, and other
major cities in Germany (14 in total). Following their success in Germany, they opened stores in
the Nordic and Baltic markets (Oslo, Gothenburg, Stockholm, Copenhagen, Helsinki, Tallinn,
Riga, and Vilnius). Their business has been successful but they face competition from an
unexpected competitor. Eltron has a stable business but they have realized that they need to
adapt and take advantage of the digitalization trends to enable business growth. Eltron fears
that if they remain traditional, their growth might stagnate and eventually decline. To be in line
with the technological developments, they want to use the emerging possibilities to their favor.

Eltron realizes that they will need to innovate their business model but not necessarily
completely replace their current one. Rather they see their present stores as a point of strength.
Going digital means, they can serve larger markets and their current processes, structures, and
information systems cannot manage such a new reality. Eltron management board have invited
you as a senior business analyst (employed in the company since its early years) for
consultation about how this new vision can be realized.

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Initial Meeting
You were invited to a meeting with the management team. At the meeting, Klaus (CEO of
Eltron) said the following.

“We have a great vision. We want to take our company on a journey of digital transformation.
However, we do not want to replace everything because we believe strongly that what we have
built is good and have been profitable. It must remain as a strong foundation as we go digital. I
recognize that this will be a big project, perhaps the biggest in Eltron’s history. I have mentioned
this idea to the board and they are positive but I got questions. They asked me about what
digital means in this case and whatever it may be, we need to begin with being digitally present
on the web. We need to have a webstore that is competitive, reflective of our high quality
standards, and works as a portal for our existing and new markets. Of course, they also asked
how much this would cost and if the NPV and ROI would be positive enough. I need more
information before taking a final decision. I simply need to know more.”

Hans is the CFO of the company and he is a bit sceptic. He feels their current model is working
perfectly well and why fix something that is not broken. He said:

“I am not against this idea but in all honesty, our margins are much better than those internet
stores and we have basically no competitors. Such an investment will cost but will it give us
increased profits? I have a hard time seeing how our current services can be extended online
but I do see potential in increasing our sales. We are currently dependent on our physical
location but with digital, we extend our market considerably. So, I am cautiously neutral at this
point. We need to grow our profit margin because it is too little now. We are starting to see that
if we don’t do something, we might not be able to survive, which you can see from our income
statement”.

Anna who is the CIO is more positive towards the idea. She remarked the following.

“I see great potential but of course I agree with Hans, we need to have a solid profitable
solution. I am quite certain we will if we get the right solution in place. However, currently we do
not have the right infrastructure in place for such a solution. We have our ERP system installed
in Germany as we have many stores. It is an older installation of SAP which works fine as it is.
However, as it has been around for a while and we have customized it extensively, new things
in it, enhancements, and other changes are tricky. We have everything in SAP such as
accounting, HR, payroll and so on. Our other markets have their own SAP installation and
operate fairly independently from the German SAP installation.”

Sven, head of accounting, handed out a summary of the income statement for the last few years
and followed up on these remarks.

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“I do not like that at all. Each region is like a little island and it is difficult for me to get an
overview of all our finances. Would it be possible to solve this issue as well with the digital
project?”

Table 1: Income Statement

Fiscal Year (Thousands of €) 2016 2015 2014

Revenue 9161 8915 8704

Cost of Revenue 4251 4140 4049

Gross Profit 4910 4775 4655

Gross Margin 54% 54% 53%

Salaries 3191,5 3103,75 3025,75

Advertisement 147,3 143,25 139,65

Facilities 491 477,5 465,5

IT & Projects 245,5 238,75 232,75

Administration 245,5 238,75 232,75

Total Operating Costs 4320,8 4202 4096,4

Operating profit 589,2 573 558,6

Operating margin 6% 6% 6%

The meeting continued with general discussions about different aspects and it was clear that
there is some confusion about what digital means, what problems it can and should solve, and
what benefits could be gained by such a project. Klaus concluded the meeting with the following
words.

“It is clear that we want to investigate this. We are very interested in knowing what this would
mean for us but we need more information. What is needed to investigate this matter and when
can we get reports or the final report? What resources and who do you need to discuss with in
order to produce the report?”

To answer these questions, you said the following.

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“I will need to make a plan and get back to you. I will propose a plan for how this investigation
can be conducted, which deliverables will be produces, what activities I need to perform, who I
need to talk to and so on.”

Before you leave, you ask about who they think should be part of such a project.

Anna expressed that her SAP system administrator (Lukas) her developer (Taavi) should be
involved. Lukas remarked expressed worries that SAP system would not be able to cope with all
the added requirements and that the current installation is very difficult to change. Taavi was
more excited about the idea of working with integration of digital technologies.

They will also help with contacting the SAP vendor and the SAP consultancy firm Eltron uses
whenever needed. Naturally, the SAP vendor and consultants are very positive to exploring this
idea further. Hans reminded everyone that Silva (Chief Legal Officer) might be interested at
some point. She is curious of how legal issues will be affected by such a digital flow. He also
said that his head of accounting, Sven, should be perhaps consulted.

Karl, head of stores, said the store managers could be involved but as there are many of them,
perhaps a few representing the German stores and some representing the those located
outside of Germany would be enough. He also clarified that the heads of the regions should be
involved but that they would probably not have enough detailed information to contribute with
much data. On the other hand, they know who has the information. He clarified that if there is a
need to talk to personnel at the stores, you should go through the head of regions and via them
to the store managers.

Anna showed an organizational chart and remarked that perhaps Juta (head of supply chain)
should be involved. She has three key persons working for her, one who manages negotiations
and buying of certain products sold in our stores (Denis), Lina who keeps a close eye on new
brands and their quality rating so to ensure we only have top quality products, and finally, we
have Kelli (head of logistics) who manages our supply chain. While Juta is neutral about the
idea, her employees are positive as they see potential for savings and value creation with digital
technologies.

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Figure 1: Organizational Chart of Eltron

Anna concluded with mentioning the Region IT who has a small team to manage the regional
SAP implementation and the integration to every country’s warehouse partners. Anna thought
they might be slightly positive to the idea but if they give any problems, to contact her (Anna)
and she would deal with it.

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Context and Needs
An interview was conducted with Jonas (product owner), Klaus (CEO), Anna (CIO), and Katrin
(Head of Regions) about the company and how it delivers value to its customers. The following
remarks and notes are from that meeting.

Jonas explained that in essence, Eltron is offering two things. The first is high quality electronics
products. It does not matter what it is, it could be laptops, mobile phones, dishwashers,
speakers, TV, stereo systems. It does not matter as long as it is of top quality. So, we have
MacBooks and we also have Samsung’s best laptops but we do not have LG mobile phones.
We only sell the best TVs, speakers and so on. In addition, we have the latest in tech as well. If
you see a commercial or a video on Facebook, we have a few of them in our stores. We even
buy in a few of the latest things from Kickstarter so to have it in the store. If it is of really good
quality or new and exciting, we sell it. The other thing we offer are services. For instance, let us
say a customer wants a new TV and surround system. We take a look at his house, the colors,
the outlets, where the sofas are, we measure the acoustics and then we find the best match of
TV, surround system, speakers and we also propose where to put each device. We deliver and
install everything. We offer warranty and support. At any time, they can call and ask anything
related. Last month we had a family coming in. They wanted mobile phones, laptops and all
such things. We provided them with it all, not only the phones and so on but also got them
subscriptions with telecom company as well. Simply, they came in and we took care of
everything they needed. They came and together we figured out what they need and want, they
paid and all was taken care of. We charge for this and we keep the customers. Once they have
bought something from us with this service, they do not go somewhere else. That is how good
we are.

Klaus continued with the following. We charge and we charge quite high prices. So in essence,
our customers are not price sensitive. They value quality over price. Paying a few hundred
euros for a better speaker is a no brainer. So, our customers are affluent with high net worth or
high salaries. We also have clients that might not that well off but who are really interested in
the newest technical gadgets. Naturally they have money and they are usually men between 30
- 50. We feel that this model might not be sustainable but with a digital channel, we might be
able to extend our market and perhaps extend our product offering. Today we focus only on the
“best of the best” but we could increase our revenues by offering “the best” that cost a little less
and would attract a new customer segment. That market is slightly larger than the current one
we serve. That could mean doubling our revenues and that would make our business model
more sustainable. We also serve businesses. For instance, if a company wants to equip their
new conference rooms with high quality audio-visual tools, if a luxury hotel wants to install the
right audio-visual equipment in their more expensive rooms, or businesses that have venues for
conferences, they come to us. Not all of them but those who care about quality.

As we have physical stores, we sell our goods via stores. This is a limitation. They have to come
into the stores and we have our stores in major cities only. However, smaller cities also have a
lot of potential customers but we cannot serve them. Digitalization might allow us to serve them

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as well. I think we can offer them the same service but without having a physical store in every
location. That market share is significant because no one else are serving them. We can easily
use engagement platforms to reach them with almost or the same interaction as we offer in our
stores. Delivery of the products might be more complicated but there should be ways.

If Annika (Head of Marketing) had been here, she would have told you that today we get our
customers from traditional advertising in well selected places where our customer segments
are. Then we also rely a lot on word of mouth and referrals. Our excellent service brings us new
customers. Growth is slow but the margins are good. However, going digital, we need new
marketing strategy and we don't have the technology in place to do that. I am not sure we even
have the competence to do it. Maybe we could learn.

Jonas continued to say that our main resources that distinguish us from others are our staff, in
particular in the stores. Without their creative ability to solve problems, adapt and create unique
experiences for our customers and their deep knowledge about the products, we would not be
able to offer the level of excellence we do. We have developed a really nice database where we
gather all the feedback, designs, comments and so on. For instance, if we find that a specific
product has an issue, we report it in the database. If we see this happening three or more times,
we stop selling that product. Also, every customized installation we make, we take pictures and
enter them in the database. So, when a new implementation is to be made, the salespersons
have access to hundreds of previous installations. Each one is tagged with keywords, follow up
comments are entered, and ratings are entered.

We have a few important partners that scan the market for the coolest technology gadgets.
These savvy tech aggregators send us their recommendations and we order from them. This
allows us to have the latest coolest things without spending too much time finding them. This is
not the biggest part of our business but it satisfies the innovators and the early adopters.

Jonas continued to talk about what Eltron in essence manages. If we look at the main activities
we are involved with, we can basically discern planning activities, procurement, moving the
actual goods, selling them, and finally some corporate capabilities such as finance, HR, and IT.

Considering the large number of items, we carry and distribute, we need to plan the electronic
merchandise and it is not always that straightforward. We buy in some of the goods, in particular
from the larger re-sellers but at other times, we get the goods and will pay if we sell them. This
is more common for smaller and highly specialized brands that sell in low volumes and are
trying to break into the market. All of these activities require both supply chain and financial
management. Currently we do not have the structure in place to have advanced business
intelligence but that is a capability we should have.

We buy in a lot of electronics and we need to manage our partners’ relationships and naturally,
all the purchase orders, and the inventory. Let us not forget the product life cycle management.
The product life cycle begins with initial market launch and ends with its maturity or
obsolescence. We are seeing the life cycle becoming shorter and less predictable because of

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the rapid technological advancements made and the rate of innovation. On top of that, we are
seeing faster adoption by consumers. We are seeing for instance new categories of products
gaining popularity such as wearable devices. Another example is the rapid maturity of relatively
new categories of devices such as tablets. Yet another example is cannibalization of categories
where for instance, smart phone proliferation is affecting the demands for GPS based devices,
mobile audio, digital imaging and so on. Talking about smartphones, we see that updates are
coming frequently and consumers are interested in these events causing sales be more
concentrated around new launch dates. If we fail to interpret, predict, and properly react to these
factors in a timely and effective manner, we risk not being able to offer the right product and
services that our customers want, be stuck with excess inventory of products that are difficult to
move. We don’t really offer discounts because that does not suit our profile. Perhaps a digital
solution will allow us to offer discounts? If we are not able to have the right product at the right
time, that might hurt our image and brand. I should also say that it is not always easy to get the
massive supply chain to be that adaptive and quickly move the right product to our stores. The
longer it takes, the more we lose.

We need to manage our warehouses, the transportation of goods and in some cases, return of
products due to defects. In selling our products, we manage marketing, actual sales, order
management, store operations. I think these are our capabilities, perhaps I have forgotten or
overlooked a few.

Klaus made a few comments related to what he wishes to see at the end of the project. He
noted that currently, Eltron only serves customers who want the best of the best but there is
larger market segment that is not fully exploited. Customers, both private and corporate, who
want high quality products but not as high as we currently offer, are stuck in between us and
companies such as Euronics. They can get some products from Euronics but not the expert
knowledge. Klaus expressed that he does not think they will start carrying such products in their
stores but definitely for online sales. That would open up a new customer segment, and in
essence it is perhaps a new value proposition. He also emphasized that online store widens
their market to more than just the cities with physical stores. These aspects will increase our
revenues. However, we still want to offer “the personal touch” so to have interactions with
customers, even over the internet.

Anna followed up by commenting that Juta has been quite eager to make the supply chain more
efficient as she does not feel the current model is sustainable. She often remarks that the
current process is old, slow to adapt, takes quite a long time, is not flexible enough to meet
urgent needs, and we do not have a proper overview and way to monitor the product flows.
These issues make it hard to enable data driven supply chain management, speed up delivery
to our customers, and reduce the costs. She feels that there is room for reducing the costs by at
least 15%, perhaps even up to 40% of logistics costs with the right processes and system
support. This could impact the gross margin with up to 10% improvement.

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Strategy Analysis
Anna, the CIO invited her team (Lukas, Taavi, and a representative from the Baltics) to have a
workshop on the current state. The structure for other countries outside of Germany were
discussed first. The representative conveyed the following.

Our structure is quite simple. We have a system that is used by all the stores, we call it POS
(Point of Sales). It is a system we share between all non-German countries but each country
has its own interface to it. The interface is naturally in local language and might have some logic
that is country specific. In this system, we enter all the orders, activate subscriptions, carry
warranty data and so on. We only have sales via physical stores and therefore, we have our
own little warehouse in the store. The POS system has the information about what kind of
products we have in our warehouse. So, in Estonia, I can only see the items we have in our
stores, not what they have in Riga for instance. We also have a central ERP system (we call it
ERP Nordic) for all non-German countries. This is not the same ERP as the Germans have. We
share a light version of this ERP as it was easier to set up a new one than to extend the
German one. POS has a two-way interface with our ERP Nordic. POS sends all information
about sales and related data to ERP Nordic. The information sent also includes purchase orders
for new deliveries from the central warehouse to the store. We also get “master data for
products”. If we run out of stock on some item, we place an order (from POS) to ERP Nordic.
This is called replenishment order. Then the ERP Nordic will buy in the items if the item is not in
stock at the warehouse. If it is stock, they will ship to our store. We do not have our own central
Nordic warehouse, we have outsourced it to a third party. They take care of all the contacts with
sellers of the items and so on. Sometimes, it goes through the German central warehouse (also
an outsourced solution). So, our partner takes care of the actual buying in and shipping to us
but the data goes via ERP Nordic. Also, ERP Nordic is connected to the third-party ERP system
but I have no idea what kind of system that is. Noteworthy is that our third party here, have
agreements with couriers and sends us the products by using them.

Lukas began explaining the structure in Germany. It is structurally the same but with some
additions. First of all, in Germany we actually have a web portal where you can buy our
products. It’s an old one, it only carries few items, the most common smaller items but still, we
get order on a fairly regular basis from that portal. The web portal has quite a lot of logic in it
which makes it difficult to manage or extend. It is quite problematic because the items there, are
not checked or updated against the product catalogue in our central German ERP system. So,
can and do order items that are out of stock. The portal does not know actual central stock
availability of items. It is of course possible for the admin user to set the status for item as “out
of stock” but in reality, that does not happen. Then, the portal has no clue where the items are
so they can order an item thinking it's on its way but weeks later, they have no news about it.
Then they call and it is a mess trying to figure out where the order is, where the item is and
when it will be shipped to the customer. We really need to be able to give our customers a good

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and precise ETA (estimated time of arrival) and notify customers about any changes in the ETA
for both the web portal and stores.

Our central ERP system has a lot of functionality and interfaces. First of all, we also have an
integrated solution with our third party who takes care of our central warehouse for German
market. The replenishment process is the same as for other countries as well. We send a file
every night to and get one file from the warehouse about all the items that have been shipped
and updated. That is how we keep track of how much we have. However, we get this in a batch
so it's not always easy to track for one single order. Our ERP has all the data and functionality
to manage financial reports, it gets a file every week from ERP Nordic and daily from the
German stores. IT has the product data, customer data, stock levels, return policies, purchase
orders, procurement and all kind of data for salaries, discounts, campaigns, customer loyalty
programs and so on. So, in short, our ERP is the hub and in purchasing i.e. buying products
from producers such as Sony is managed by a third party and replenishment (the stores getting
the items they need) is managed by the ERP. So, stores do not have any direct communication
with the third parties. The management of the stocks of the stores is not that effective. It
happens quite a lot that Hamburg store has a certain item but its sold out in Frankfurt. Then
Frankfurt buys in the item via ERP and the third party but not that we ship from Hamburg to
Frankfurt. That functionality is not really in place. Perhaps this process model is useful for you.

[PO = Purchase Order, ERP = Enterprise Resource Planning]

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If we look at our processes, at the core we have processes for finding the right type of products
to have in our stores as we care about what we sell. We also have marketing and sales, sales
services, after sales for repairs and so on and upgrades, and making sure our stores have items
via in-purchasing and replenishment services. We want to enable our management processes
to be much more effective so we can use data as basis for forecasting, planning, and monitoring
of how well our processes perform but at the time being, we simply cannot collect that data
efficiently. For instance, we have SLA:s (Service Level Agreements) with our third party and the
couriers we use but we cannot measure and see if they are being fulfilled or not. That is not
good as the quality of our service to our customers includes speedy and precise delivery.

Taavi said he had a few models and offered them, perhaps they would be of help.

For the repair process, the main process is simply to diagnose, repair and that decision is
dependent on the customer if they do not have a valid warranty, upgrade the product or simply
buy back.

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[WH = warehouse]

Anna continued to add to the conversations. She said the following. The current structure might
work sufficiently for our physical stores but even that is borderline. In our management
meetings, I get questions about how many back orders do we have, how much are they
delayed, what is the average time of delivery and so on but I cannot answer these questions
easily. I have to take out reports and at the end, I still have to guess. This is bad, really bad
because how are we supposed to improve if we don't know how it is going? Just last month, we
had a survey done with our customers. Look at these two comments.

“I ordered online and it took about 2 months to get my product. I called but no one knew where it
was. He was saying that he had no way of tracking my order to see where it was. I mean, if its
not in stock, why can I buy it?”

“I love the service you provide, customized, personal, and very friendly. However, I ordered a
special device for my TV to get it work with Wi-Fi but the clerk could not tell me when I would
get my device.”

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“My phone broke and I went to the store to get it fixed. The sales guy was very friendly but he
could not tell me what it would cost or how long it would take. Am I supposed to blindly trust you
guys?”

Anna continued to clarify that management and stores need to be able to monitor the orders
both on an aggregated level and also individual orders. We should be able to provide the
customers with a better and firm ETA. In this regard, it is important for good customer
experience to deliver quickly and keep them updated about ETA. The same applies to repairs,
we have to be able to give some kind of answer or estimate. We know the principles but we
can't get it in the system. For instance, look, we have these business rules we want to apply.

Outbound logistics
1. Customer delivery promise rules (estimated time for delivery) depends on
• Stock availability
• Customer ZIP code
• Delivery method (normal, express, etc.)
• Time of order placement (date and time; e.g. holidays)
2. Which delivery methods are available to customer depends on
• Time of the day (e.g. express delivery only available until 17 o'clock)
• Product (e.g. TV does not fit to parcel terminal)
3. Which stock to use for order fulfilment depends on
• Product availability
• Delivery method (e.g. express delivery – deliver from nearest warehouse/store)
• Warehouse current capacity
• Time of the day
4. Split deliveries (case where one item in stock and another one out of stock) depends on
• In stock item (e.g. if phone case is in stock but phone itself is out of stock then does not
make sense to send case separately; but if situation would be vice versa then makes
sense to send phone out 1st)
• Out of stock item
• Customer preference (e.g. customer might live far away from a post office, so they could
actually prefer to have one delivery even if it takes a little bit longer due to the out of
stock product)

Repairs
1. Warranty duration depends on
• Device Manufacturer
• Product
2. Aftersales options available for customer (in warranty repair, out of warranty repair, buyback,
etc.) depends on
• Sales date

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 • Warranty active / not active
• Insurance exists / not exist
• Product (e.g. low cost accessories we switch to new right away without repairing them).
Repairs and returns are quite expensive so we prefer to offer alternative solutions such
as discounts on new products.
3. Which repair partner to use depends on
• Repair partner current capacity
• Device category / device manufacturer (e.g. Apple devices are repaired by one partner
and Samsung by another and we need to ensure that they are authorized repair
companies)
• Fault (e.g. all screen repairs are done by one partner)
• Repair registration channel (shop vs online)

Business Requirements
After some time of analysis and communication to different stakeholders, another meeting with
the management board was set. This time, the meeting was about what they actually wanted in
the end. This is a summary of the conversations.

Klaus clearly stated that he wants Eltron to expand its market by offering their products to those
living outside of the scope of physical stores. Given the fact that orders are coming via the
German web portal, there is potential.

Juta stated that, with or without the web portal, she really needs to be able to track and trace
every individual order and also, get an aggregated view. She simply cannot improve anything
without having access to vital data such as the performance of the supply chain. She needs to
be able to monitor the performance of the supply chain.

Hans continued to clarify that sales must increase and reaching to new markets is key.
Expanding our customer base and getting lucrative customer segments is important. He further
emphasized that quality in our service is integral part of our value proposition. That means more
than just smiling and competence. Our store staff are very good but we must be able to offer our
customers better information as well. We have to give them good and precise ETA:s, we must
be able to give them full information about their orders, keep customers fully informed about
their orders throughout the process all the way from buying to delivering as full transparency is
part of state of the art quality service.

Silva commented that we have SLA:s and it is in our best interest to ensure they are upheld. If
our partners fail in their quality, we will be blamed by the customer. Klaus agreed with all the

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points mentioned and also pointed out that besides all of this, we need to start looking at cutting
costs as the current structure will not be sustainable in the future. We cannot charge much
more, so costs need to go down.

Anna continued by saying that we must remember that our ERP system in Germany is too
integrated and rooted to be changed but perhaps a solution where it is “relieved” is an option.
One of the problems we face today is that the ERP is to difficult to develop and to enhance with
new functionality. Whatever solution we find, it has to be flexible and adaptable so we can add
to it. If we fail here, we will have a costly solution to maintain and that is not an option.

Klaus concluded with saying that we also have to find a way to be “nimble” in all our core
processes. We should be able to grow our web shop, offer customer care via phone and email
at the same time as we keep our well established physical presence. Perhaps a few stores can
be closed or opened but that is not the way forward. I want to be able to enter the Belgian
market easily, I want to be able to enter markets such as Netherlands, France and so on without
having to invest large sums of money.

Following this meeting, there was a meeting with the marketing and the finance department. In
this meeting, the question of benefits was discussed. Based on market analysis, benchmarking
and some other techniques, they believe that with a fully functional web portal, they will get
additional 16 000 EUR (all numbers are in thousands of EUR) annually in increasing revenues.
It would be reasonable to see the revenue grow by about 5 % per year. As the physical space is
not required as with stores, the gross margin is better and estimated to 65%. If Eltron uses its
current logistical structures in cities with stores to expand their market to surrounding stores with
personal services such as installing, the revenue increase would be 4 000 EUR annually. As
this would be an extension of the physical stores, the gross margin will be less at 50%.

With a web portal solution, the salaries required to maintain the service would be 600 EUR
annually. For reaching markets around physical stores, the current salaries would increase by
15%. With new or enhanced IT support, it is estimated that the maintenance would increase
with 30% and grow by 5% per year after that. If the solution makes use of the current
warehouse structures in place and also manages to engage the store warehouses as
“satellites”, the web portal can be sustained with additional 50 EUR a year and the adjacent
markets (to physical stores) with additional 50 EUR per year. These costs would most likely
grow by 7% per year. Finally, it would be required to invest additional 100 EUR per year for
marketing divided by 70 % for web portal and 30% for adjacent markets. Klaus had previously
remarked that this project should be profitable with an investment horizon of 4 years and a
discount rate of 14%.

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Additional Documents
As part of the analysis process, additional documents were found or created. They are in no
particular order, nor is there any further descriptions. Before submitting your final report, you
might wish to take a look at the documents and see if anything can be used.

Taavi had taken upon himself to model a few aspects of how the new solution could look like.
He focuses on primarily on how online orders and delivery. The first graph describes a high
overview of the process by which products are sent to customers. The second model captures
some of his ideas about how stores can be used to deliver products ordered online. This would
perhaps be most useful when Eltron tries to reach the markets around their stores. The third
diagram outlines some of his thoughts on multichannel delivery. Multi-channel delivery refers to
the different ways the goods can be delivered to a customer such as pick-up in the store, direct
delivery to the customer, and delivery to a close by location (post office or parcel terminal).

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[DC = Distribute Centre, Presales = sale made before an item is made generally available for
purchase]

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