FORTE Furniture Factories (Poland)

Abstract

This case study illustrates the impact of ICT on the market structure and competition in the Polish furniture sector. The company studied is perceived as a leader among the Polish furniture manufacturers and furniture exporters.

Its strong position in the dynamically developing furniture sector in Poland is the result of intense investment activity supported by consistent implementation of the modern communications and information systems.

Recent implementation of the Electronic Data Interchange (EDI) within the company’s SAP system is another step in the consistently executed strategy of external and internal communication computerisation.

EDI enables standardisation, digitalisation and automatisation of the communication with business partners, which gives the company a competitive edge vis-a-vis its competitors and opens possibilities for collaboration with new partners, especially outside of the domestic market.

Background and objectives

Founded in 1992, FORTE Furniture Company is one of the largest Polish furniture manufacturers and furniture exporters. In 1993 FORTE has formed the FORTE Group jointly with German kitchen furniture producer Alno.

Today the Group consist of 12 furniture producing and distribution companies, who collectively aim at building a strong position on the Polish and European markets (e.g. Möbelvertieb FORTE GmbH responsible for the German, Belgian and Dutch markets; FORTE Ukraine targeting Eastern European markets, etc.).

The Polish furniture sector has experienced dynamic growth rates in recent years and has doubled its production capacity between 2000 and 2006. Moreover, the sector’s contribution to the national GDP is significantly higher than on average in the EU.

According to Maciej Formanowicz, the Chairman of the Polish National Chamber of Furniture Producers, the sector will continue experiencing annual growth rates of 10-12% in coming years. Such dynamic development in the sector means growing competition and usually rising prices of key production factors such as wood. That in turn forces companies to reduce their costs and seek new ways of boosting their competitiveness as well as provides incentives for the expansion onto the new markets.

FORTE is perceived as a clear leader on the domestic market and now focuses its investments on expansion abroad. Domestically the company has an extensive distribution network, providing products to the biggest Do-It-Yourself stores chain, Praktiker, and self-service warehouses chain, Makro Cash and Carry. Exports constitute 60% of the company’s overall sales and are focused primarily on Western Europe. In coming years the company’s newly opened production sites in Ukraine and Russia are expected to bring increased sales returns in Eastern Europe.

Due to the FORTE’s ambitious growth strategy and intensive investment activity, incremental implementation of modern methods of enterprise management is necessary for maintaining long term profitability.

In comparison to its competitors the company displays particularly strong commitment to the use of ICT as the main driver of costs minimisation and quality maximisation, for which it has earned considerable level of recognition (e.g. IT Leader Award 1999 for the implementation of SAP system awarded by Computerworld, Golden Laur 2005 for use of advanced IT solutions in the wood, furniture and paper sector awarded by TELEINFO) The company has been consistently investing in IT and advanced corporate management systems that provide uninterrupted flow of internal and external communication.

Currently FORTE operates on the SAP ERP system, which supports business processes from the design stage, through production, up to sales and order control. SAP is the most popular enterprise resource planning software in Poland, particularly often used by the big companies. According to industry research, SAP holds a share of about 35% of the Polish market for IT business solutions (IDC 2004). In previous years the company has successfully introduced additional modules, such as the OptiTrans logistics system, radio data terminals (RDT) and SAP module for the Warehouse Management (WM), which have furthered helped to reduce the operational costs and improve the quality of the client service.

All the subsystems used by FORTE are integrated into the main system using the SAP Business Connector (SAP BC). The company’s IT Manager, Tomasz Krawczuk, explained that through adoption of the Electronic Data Interchange (EDI) the company was determined to reduce the costs attached to the error-occurrence in the information exchange through elimination of human intervention in the process.

He further added that some companies were not willing to cooperate with FORTE if it did not have the EDI system. Thus the implementation of EDI can be judged as the result of two parallel trends: firstly, the consistently implemented internal process of the communication automatisation within the company; and secondly, the adaptation process driven by the demands of a growing furniture market and rising expectations of large business partners.

1.1.2 e-Business activity Solution selection

The company did not have any legacy systems in place before and therefore needed an entirely new solution to connect EDI with the rest of the system. As it was the case by introduction of the new modules in the past (e.g. by implementation of OptiTrans or WM), FORTE has turned to a professional software developer in order to receive a solution specifically tailored to the company’s needs.

The local subsidiary of the International Business Machines Corporation (IBM) has been selected due to its experience and knowhow in EDI services. After developing an appropriate IT solution, IBM sold the program to FORTE and now the module is managed exclusively by FORTE.

Technology description

EDI can be formally defined as the transfer of structured data by agreed message standards between computer systems, by electronic means. It allows value chain partners to exchange purchase orders, invoices, advance ship notices, and other business documents directly from one business system to the other, without human intervention.

The essential elements of EDI are: the use of an electronic transmission medium (originally a value-added network, but increasingly the open, public Internet) rather than the dispatch of physical storage media such as magnetic tapes and disks; the use of structured, formatted messages based on agreed standards (such that messages can be translated, interpreted and checked for compliance with an explicit set of rules); relatively fast delivery of electronic documents from sender to receiver (generally implying receipt within hours, or even minutes); and direct communication between applications (rather than merely between computers).

Implementation of the EDI helps the company to improve data accuracy, reduce technical complexity, lower personnel needs, and ultimately accelerate information exchange. Exhibit 3-1: Automatic information exchange between business partners thanks to the use of EDI Source: http://distribution.activant.com Exhibit 3-2: Range of the types of information exchange covered and standardised by EDI Source: http://www.globalscorecard.net

Implementation

The company started planning introduction of EDI in 2005. It took 6 moths to implement the system and it has been fully operational for 2.5 years at the time of preparing this case study. IBM specialists have worked closely with the FORTE’s IT specialists group headed by Mr Krawczuk, while developing the program.

Thanks to the involvement of the FORTE’s IT specialists in the process, the implementation and operation of the system did not pose any particular challenges as the internal IT unit was aware of all the particularities of the program. The IT unit was than responsible for providing training to the employees that had to operate the system. Although the costs of the investment were not revealed,

Mr Krawczuk highlighted that the investment did not pose significant risk nor imposed excessively high costs on the company, compared to the profits. The expected returns on the other hand were judged to be considerable. Mr Krawczuk has expressed deep satisfaction with the way EDI is operating now and did not see a need for changes in the systems in the foreseeable future.

1.1.3 Impact

EDI has had significant impact on the speed and quality of the information exchange between FORTE and its business partners, which further contributed to the company’s competitiveness and helped gain new business partners. The areas were the consequences of the introduction of EDI were most visible are: Costs reduction: due to the high sales turnover inaccuracy in data exchange can significantly raise operational costs.

After the communication between business partners has been automatised, errors have been eliminated and the process speeded up. In particular the order-to-money cycle has been shortened and the execution pf payments made easier. Relationship with business partners: the implementation of the system has eradicated the errors in the data exchange attached to human intervention (invoicing, orders of purchase, delivery forecast, etc.) and reduced overall orderservice cycle time.

However, not all business partners are involved in the program. The decision whether to include a client or not depends on the purchases volume and character of the relationship with the client. The decisions are made on the case by case basis according to the results of the costs-benefits analysis.

One of the most important business partners that have already profited from the EDI with FORTE is Makro Cash and Carry S.A. which might have resigned from further cooperation, if the company failed to introduce the system.

The introduction of EDI also opened possibilities to collaborate with new business partners. On the very day of the interview with Mr Krawczuk two independent companies have contacted FORTE voicing interest in collaboration based on EDI. The sales driven revenue increased in 2006 in comparison with the year 2005 and the export sales level display an incremental tendency.

Work organisation: the Departments involved in EDI are Sales, Purchases and IT. The introduction of the system required organisational changes within those departments. The employees responsible for the communication with the business partners that is now done automatically by EDI have been transferred to different departments. Although the departments involved have experienced significant labour reduction, the overall number of employees in the company has not changed much.

As EDI is one of many e-business projects that the company is currently using, in itself it did not change the requirements FORTE sets in front of its employees. As the company is undergoing constant computerisation process, a certain level of IT literacy has already been incorporated into the initial recruitment requirements or is being solved through provisional IT training. Exhibit 3-3: The impact of the EDI on the communication quality Source: www.firstsource-furniture.com

1.1.4 Lessons learned

This study has illustrated how a company which operates on a dynamically developing market can use ICT in order to strengthen competitiveness and expand its market share. FORTE has displayed consistent commitment to the use of ICT as the way to assure the optimality of its operations, high quality of service and competitive position vis-a-vis its competitors. The fact that today FORTE is a market leader in the Polish furniture sector with annually increasing sales returns and optimistic outlooks on expansion abroad proves that ICT can be an important means of assuring sustainable growth in the longer term.

The case further illustrates that companies of a certain size and with considerable market position can no longer refuse to implement modern corporate management systems, if they want to expand further. The demands of the business partners seem to be a driving force for adoption of progressive IT solutions, independently of the company’s strategy. Moreover, the fact that the company did not encounter any significant obstacles during the implementation process or while using EDI proves the importance of experience accumulated through adoption of previous systems.

Whereas the initial stages of computerisation of any company bear considerable risk (fixed costs, need of training, unsure results), once that stage is overcome, the risk-profit ratio changes drastically for the advantage of the company. The company has also used the implementation of EDI as a learning experience that could provide lessons for further work with ICT.

According to Tomasz Krawczuk implementation of EDI proved to be a particularly important learning experience for the company’s management. Since the implementation of the project the company realised the importance of work in managerial teams and makes more frequent use if it today.

Mr Krawczuk further explained that faced with the same situation in future, the company would disseminate information about the project and provide training to the staff earlier, before the actual implementation of the system. That shows the importance of the IT skills and incorporation of systematic IT training into the organisational structures.

1.1.5 References Research for this case study was conducted by Monika Sztajerowska ([email protected]), on behalf of the Sectoral e-Business Watch. Sources and references used: Interview with Tomasz Krawczuk, IT Manager of FORTE on 15. May 2008 Websites: FORTE Furniture Factories website, www.forte.com.pl Article on the Polish furniture sector, 18.03.2008 available at http://www.wirtualnemedia.pl/article/2266359_Wartosc_produkcji_polskieg o_przemyslu_meblowego_to_27_mld_zl.htm

About this document

This case study was initially published as part of the comprehensive Sectoral e-Business Watch study report “An Economic Assessment of ICT Adoption and its Impact on Innovation and Performance” (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: [email protected] Sectoral e-Business Watch c/o empirica GmbH Oxfordstr. 2, 53111 Bonn, Germany e-Mail: [email protected]