Candles are lighting the way to an e-commerce venture that has been in the works for two years and is just about to ignite. The story began in 1996 when Hallmark decided to return to their core competencies in papergoods and cards and sell off their candle-making operations. Candle Corporation of America, a medium-sized, Chicago-based wholly owned subsidiary of Blyth Industries, seized that opportunity to take a giant step ahead in their growth strategy.
The acquisition was not without its challenges. In the deal, Candle received the Hallmark brand names and the right to supply candles to Hallmark’s 4,500 flagship retail outlets, the Gold Crown Stores, as well other Hallmark stores. In addition, Candle picked up Hallmark’s business of making candles for non-Hallmark retailers, primarily food and drug stores.
That was good news/bad news for Candle. The company already supplied candles to a wide range of companies, from Walmart to boutique shops and high-end department stores. Furthermore, Candle was in a high growth mode, and immediately assuming an operation the size of Hallmark’s was beyond their capability. “We were building plants and digging holes in the ground for distribution centers. We could not absorb that volume overnight,” said John Nordin, CIO.
So the two companies arrived at an agreement. Hallmark would continue to do everything but make the candles until Candle could take over the operation completely.
“Hallmark didn’t want to jeopardize the relationships they had with their own retailers, so it was a mutually agreed upon transition that served a couple of purposes,” said Nordin.
Candle had two years to get ready. Enter Catherine Jones, e-business sales specialist at IBM Global Services. A few months after Nordin had struck the deal with Hallmark, she called in response to a survey card he had completed. Two hours later, they were still talking, and the basis for the relationship was being laid. The upshot of the conversation was that Jones nominated Candle for her company’s proof of concept program. The program, operated through IBM’s e-business solutions center, was part of the company’s marketing effort in the early stages of e-commerce.
IBM Approval of the nomination meant that the candle makers received free consulting services to determine if a plan to use the internet to accept orders from small retailers and put them into Candle’s business systems with a minimum of intervention inside the company was viable. Six months later, the concept was deemed viable, and Candle hired IBM to design, implement and manage the system.
Now the transition period with Hallmark is coming to an end, and Candle is getting ready to launch the end-to-end business solution developed in the relationship with IBM Global Services. The system has been tested ‘from front to back,’ and Nordin is in the process of identifying the manufacturers reps and customers who will be in the pilot.
“We expect to put that in place in May,” he said. “We’ll run it for a couple of months, make sure it all shakes out, get some feedback and then do a general launch later in the year.”
Shredding the Paper Problems
The system addresses several challenges presented by the acquisition of the Hallmark business. Candle’s large retailers were already using a traditional EDI system, but another more than 30,000 storefronts were dealing with the company on paper. Hallmark’s Gold Crown stores were using handheld computers for ordering, but those couldn’t be used when the candle business moved out of the Hallmark distribution process. The rest of the Hallmark acquisition the Hallmark stores other than the Gold Crown storefronts and the non-Hallmark retailers also were on paper.
“I needed to find a way to make sure that when an internet order came into my business systems, it was treated like any other electronic order,” said Nordin. “It was key that it look like a standard EDI order, both from a business process standpoint and an IT architecture standpoint. The leverage I used to get the project funded is that there are no internal changes to either the business systems or the way we deal with setting up a customer, qualifying a customer or setting up pricing.”
The system is a standard internet application made up of “pieces IBM already had but had never clicked all together in this fashion,” said Nordin. The emphasis now is on presentation, making use the manufacturers reps and customers can navigate the site easily. IBM and Candle even steered away from graphics, because they slow down the process.
“Right now, this is an ordering system, not a shopping system,” said Nordin. “This is a business-to-business solution, this is not a consumer-to-business solution.”
Early Bird Benefits
Nordin predicts great benefits from the internet ordering system, beginning with the return on investment (ROI).
“We estimated conservatively that if we converted 10 percent of our existing paper orders, we would pay for this project in 14 months,” he said, “and we were very conservative on costs associated with handling a paper order.” Nordin believes the early adopters will get the early ROI on internet commerce, but that won’t last long. “Pretty soon, this whole thing is going to be a commodity,” he said. “In the next couple of years, you’re going to be expected to have a way to order product via the internet, whether it’s directly to the consumer or business-to-business.”
Lessons from the Outsourcing Primer:
- In acquisitions, work with the seller to assure good service during the transition.
- Internet orders that look like EDI orders can eliminate internal changes to business systems.