Rapid Return

Like most consumer goods manufacturers, Thermos is facing increased pressure from its larger retail partners like Wal-Mart, Target and Walgreens to deliver orders faster and more accurately, and to implement new technology standards like radio frequency identification (RFID). Even though meeting retail requirements can be a difficult and disruptive process, it's a price well worth paying in order to compete in today's global economy, according to Alex Huang, chief operating officer for Thermos. "All of these mandates are good for the business," says Huang. "At the end of the day it will help us reduce costs, produce more and ship more."

Addressing Lack of Integration
Demands from customers forced Thermos to reexamine its aging computing platform, a heavily customized patchwork of applications that executives said could disrupt product deliveries or hurt customer relationships in the event of a shutdown. For years, Thermos ran most of its operations using a mixed bag of specialized business applications, including HFA for order management, DOS-based Fixed Assets for some balance sheet items, EXE for warehouse management
and Global GL for accounting.

"Our previous systems were extremely customized modules from different vendors that were very costly to maintain, much ess enhance," says Huang.
Because the standalone applications weren't designed to work together, the company had to constantly pay outside developers to write interfaces and modify code to make the system perform basic functions such as budgeting, account reconciliations and supply chain management.

"It was hard work to put in place
the interfaces to fit the business needs," says Rosemary Schmeling, system administrator at Thermos.
The lack of integration meant staff routinely spent hours re-keying data and manually creating reports and analysis. It also slowed down warehouse operations, where basic tasks such as counting inventory items, picking goods and generating backorders took longer than necessary. In the finance department, staff took weeks to balance the books, and in the product-licensing department, analysts sometimes spent an entire day tracking down numbers to answer simple questions from licensors like Mattel and Warner Brothers. "Thermos had many inefficient outdated processes in need of change," admits Rick Dias, vice president of Marketing for Thermos.

Migration to Oracle
In response, Thermos embarked upon a major overhaul of its business-process and information systems. It invested in an integrated suite of enterprise software from Oracle and moved from an internally managed computer network to Oracle's hosted service, Oracle On Demand. According to a study by consulting firm Shack & Tulloch Inc., Thermos recorded immediate savings because it avoided upfront capital outlays for hardware and facilities. Within months the company began realizing improvements in its warehouse and inventory operations, finance department and overall business information programs.

The study estimated Thermos' overall investment generating $6.2 million in benefits and an ROI of 222 percent over the life of the project. In addition to capital cost avoidance, savings came from higher staff productivity across several departments, lower inventory carrying costs and reduced IT management expenses. The investment also yielded significant strategic benefits by lowering the risk of business disruptions, ensuring compliance with industry standards, and supporting new marketing and other business initiatives.

Single Platform
To keep implementation and long-term ownership costs under control, Thermos decided early on to stick with "commercial off the shelf" software, and it chose Oracle over a handful of enterprise-resource-planning vendors. The company took about 11 months to migrate to the new platform, which runs a range
of Oracle E-Business Suite applications for managing finance and accounting, product ordering and warehouse operations. And rather than running the system in-house, Thermos chose Oracle's hosted service, Oracle Ebusiness Suite On Demand.

The company adopted most of the suite's built-in business processes --or "businessflows"-- in an effort to avoid expensive development efforts. "The decision to work with commercial-off-the-shelf Oracle solutions was cost efficient in both the short and long term," says Dias. "To re-engineer our processes and then implement an ERP system customized to those flows would have been lengthy and costly while limiting our future migration path."

Huang agrees and says that replacing four fragmented systems with just one has simplified IT management while providing managers faster access to more consistent data. "We've moved from a very complex and costly IT infrastructure to an integrated platform running on a single instance," says Huang. "The Oracle solution integrates our information and gives us future upside potential."

Inventory Under Control
The study by Shack & Tulloch also noted significant efficiency improvements at Thermos' Mississippi distribution facility. For example, in past years, physical inventory could take up to two weeks to complete. The company is now moving to a perpetual inventory method that eliminates physical stock-counting altogether. The move will save two weeks of intensive labor, or $20,000 annually.

The new system expedites the picking process by telling warehouse managers exactly where products are stored. Thermos can now dispatch forklift operators faster over the radio instead of using old paper-based procedures and the new method takes two-thirds fewer workers to manage. "Our work release process is now simpler and smooth," says Walter Dye, warehouse and shipping manager. "We've also been able to create reports that give us more meaningful information
than was previously available."

Back in Black
The study showed the integrated platform leading to faster completion of backorders. Today it takes just five minutes to generate backorders compared to 30 minutes when workers used to key data into multiple systems. The distribution and order-management applications, working seamlessly with the financial modules, virtually eliminated mistakenly shipping products without invoicing. In the year following implementation, the value of "shipped-but-not-invoiced" errors fell by more than $70,000 to virtually zero.

Overall warehouse labor productivity surged 15 percent in the first year after implementation (2003-2004) as Thermos began managing the same throughput with fewer workers. Managers said they expect the productivity gains to reach 29 percent in three years and that up to two-thirds of the improvement could be attributed directly to the Oracle system. Thermos also conservatively estimates it saved about $300,000 in the first year because tighter inventory control allows the company to reduce the amount of safety stock it keeps in reserve. Longer term, the company expects to reduce inventory levels further by linking the inventory system to demand-forecasting tools available in the Oracle application suite.

Thermos plans to follow Oracle's lead and roll out RFID technology no later than 2007 to meet deadlines set by major customers such as Target and Wal-Mart. Executives say the Oracle platform will make RFID compliance possible because it has technology built in that enables electronic data exchange and supply-chain synchronization with retailers. "It keeps Thermos on the cutting edge and instills confidence in our customers that Thermos is a world class company, and does so without substantial investments in in-house IT development," says Huang.

Better Marketing Management
Thermos's licensing manager, Julie Ryan, has seen substantial improvements in the way she prepares brand-licensing agreements, a key source of revenue for the company. "With our previous system, it took at least eight hours to pull together an analysis of sales and royalty payments for a particular contract mainly because the information was scattered across several systems and in file drawers." Today, the analysis takes about 30 minutes and Ryan says the time saving lets her "expand her horizons" and make better decisions regarding intellectual property rights.

Thermos has automated contract renewals with the system, and tracks royalty revenue and payments to evaluate the success of marketing strategies. Thermos believes this move to an industry-standard financial platform will give licensors more confidence in Thermos as a business partner. Thermos currently has brand licensing and trademark agreements in several countries and maintains strategic partnerships with top brands such as Batman, Barbie, Star Wars and NASCAR.

Competitive Advantage
At the end of the day, Thermos firmly believes it makes good business sense to let Oracle handle day-to-day system management tasks. "We're employing the 'law of comparative advantage,'" Huang explains. "Outsourcing system administration to Oracle means we can spend more time on our core competencies. It allows us to better utilize our resources for more strategic projects such as supply chain improvement."

Another advantage? Comprehensive system support. "Knowing that we have Oracle experts running our applications around the clock lets me get a good night's sleep," says Huang, noting that the growing potential for system outages posed by the aging legacy system figured prominently in Thermos' decision to move to the software-as-service model. "Our customers expect quick turnaround on delivery times, and any system failure would severely damage our reputation as a world class supplier," says Huang. "Thermos now has a secure environment that minimizes business risk."