Many midsized companies that manufacture consumer goods face a competitive marketplace that demands that they behave like large companies in terms of product warranties, customer service, packaging, and marketing. How do companies facing challenges that include high fuel costs, increasing global competition, and rising costs for materials continue to grow and thrive? Learn how Thermos, manufacturer of the most recognizable brand of insulated food and beverage containers, uses Oracle On Demand to reduce IT costs improve inventory management enhance labor productivity Thermos' use of Oracle E-Business Suite On Demand, including applications such as Oracle Warehouse Management, Oracle Order Management, and Oracle Financials, has enabled the firm to focus on being innovative and economically prudent. According to Dr. Yuanfu Alex Huang, CEO of Thermos, the company expects to see a 30 percent increase in top-line growth this fiscal year.

As Published In February 2006

Keeping It Cool
By Katheryn Potterf

Thermos CEO Alex Huang transforms an icon.

Do you remember the lunch box you carried to school or the red plaid Thermos bottle your father took to work? Perhaps it's because the Thermos brand has been around so long—since 1904—that its products evoke such strong connections to childhood. After all this time, the Thermos brand is one of the most recognized in the world. In the United States alone, approximately four out of five consumers own at least one Thermos brand product.

So iconic of American culture are products manufactured by Thermos that the Smithsonian National Museum of American History has launched an exhibit dedicated to lunch kits and vacuum bottles, with many items donated by Thermos. Celebrities who have appeared on Thermos lunch kits participated in the opening of the exhibit, including Meadowlark Lemon, one of the original Harlem Globetrotters; June Lockhart of Lost in Space and Lassie fame; and Shirley Jones, star of The Partridge Family.

Although Thermos is a midsize company, with fewer than 2,800 employees, its brand obviously packs more punch, ounce for ounce, than many manufacturing heavyweights. As a global manufacturer of innovative insulated products, including food and beverage containers, soft coolers, and lunch kits, Thermos is always pushing into new markets. According to Dr. Yuanfu Alex Huang, CEO of Thermos, the company expects to see a 30 percent increase in top-line growth this fiscal year (ending March 2006). Like other companies that manufacture consumer-packaged goods, Thermos constantly contends with big challenges, such as record-high fuel prices; rising costs for materials, such as resin and stainless steel; and global competition. Plus, it must meet mandates set forth by big retailers to deliver orders faster and more accurately, keep a lid on costs, and implement new technology standards like radio frequency identification (RFID). Meeting such requirements is crucial because, as Huang notes, the company currently sells about 40 percent of its products through Wal-Mart and Target.

Putting a Fresh Face on Thermos: Meet Yuanfu Alex Huang

Dr. Yuanfu Alex Huang, 38, grew up in Taiwan. He holds a doctorate in accounting and taught at the Zicklin School of Business at Baruch College, City University of New York. Since Huang became controller at Thermos in 2001, his responsibilities have rapidly increased. He was promoted to CFO in 2001 and COO in 2004. Now, as chief executive officer, Huang oversees every aspect of the business for the Thermos Group of Companies.

Huang, who always thought he'd be a professor or go into public service, says he never dreamed he'd be running a company like Thermos. He recently moved from Thermos' U.S. headquarters in Rolling Meadows, Illinois, which is primarily a sales and marketing office, to Taipei, Taiwan, where he is closer to the company's two factories in mainland China and Malaysia, and the research and development center in Japan. Right now he is focusing on the production and sourcing side of the business to ensure Thermos is able to fulfill orders in a timely matter and adapt quickly in a changing retail environment.

According to Huang, midsize companies face special challenges that call for a high degree of versatility. "Today, the marketplace expects a midsize company to behave like a large company in terms of its offerings—particularly in customer service, product warranties, packaging, and marketing. In order to be competitive, companies must also be able to quickly implement new technologies. Other things being equal, for the midsize company to meet or to exceed all these requirements means that less goes to the bottom line. So, a manager at one of these companies has to be more economically prudent and innovative," he says.

Huang believes that his job is also to find solutions that free up employees to focus on strategic initiatives and projects that create exponentially more value—both personally and professionally. "Providing a collaborative, creative environment where people can focus on projects that have a more meaningful impact makes for a happier, more productive culture, which results in improved benefits to the organization," he maintains.

Blowing the Lid Off Creativity While Containing Costs

The business-school professor is still alive in Huang when he talks about his management philosophy and the principle of comparative advantage. He is in good company. When Nobel laureate Paul Samuelson was challenged by a mathematician to name "one proposition in all of the social sciences which is both true and nontrivial," it was several years later that he thought of the appropriate response: comparative advantage.

What is comparative advantage? Economist David Ricardo, inspired by Adam Smith's The Wealth of Nations, coined the term. According to this principle, the biggest gains in trade happen when an economy is allowed to specialize. If a country—or a company—is relatively better at making vacuum flasks than, say, producing coffee, then it makes sense to put more resources into making vacuum flasks and exporting them in order to pay for imports of coffee.

"We apply this principle by focusing on our core competency, which is making Thermos products," says Huang. "Thermos is not in the IT business, so we don't want to operate as if we are. Instead of running our own data center and doing routine maintenance and upgrades, which is costly in terms of money and people's time, it's better for our company—and more meaningful for our IT people—to focus on strategic initiatives. This gives them a greater sense of accomplishment, and they have more job satisfaction."

Rather than simply patching and tuning existing systems, the IT team can now engage in projects that are more visible, such as building new modules and enabling broader functionalities that meet the needs of various organizations, according to Huang. "One project that I just initiated and expect IT to take the lead in is to eliminate needless internal e-mails by allowing employees to exchange information about projects via other collaborative tools."

To Huang, moving to an on-demand or hosted IT model makes sound philosophical and economic sense—especially for midsize companies.

Checking Into a Five-Star Hotel

CHILLING OUT Favorite Food: Peking duck Favorite Wine: Opus One Favorite Thing to Carry in a Thermos: Hot coffee Favorite Movie: Forrest Gump Hobby: Golf (handicap: 2) What I Miss About the U.S.: Stimp rating of 12, bent grass green (golfers will understand) Favorite Musician: George Gershwin Book on the Nightstand: The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin Favorite Bookmark: www.ssrn.com [Social Science Research Network], an electronic library that helps keep Huang current on academic research in the areas of economics, accounting, finance, and marketing Family: Wife and two sons, ages 7 and 3 Education: Master of Science in industrial administration (MSIA), Carnegie Mellon University; PhD in accounting, City University of New York

"Moving from an internally managed computer network to a hosted or on-demand service has provided a wonderful economic solution for Thermos," says Huang. "We can now utilize a world-class computer system and its services to better serve our own customers and behave more like a large company, without spending the resources it would take if we had to build such a world-class data center ourselves."

Huang, who chose Oracle On Demand, was impressed by Oracle's state-of-the-art data center in Austin, Texas. "With Oracle On Demand, it's like staying in a five-star hotel, where all the amenities are in place—swimming pool, gym, lounge, 24/7 security, electricity, housekeeping, and maintenance," he says. "To duplicate those amenities within our own four walls, the cost would be very high. In fact, the CIO of a well-known manufacturing company told me that to build just a small but respectable computer room that's fully operational would cost a million dollars."

But this is one five-star hotel that apparently ends up paying the guests to stay. According to an ROI study focused on Thermos, the company's overall investment in Oracle's hosted service will generate an estimated US$6.2 million in efficiency gains and an ROI of 222 percent over the life of the project. The postimplementation ROI study, which was conducted by consulting firm Shack & Tulloch, also showed that by avoiding up-front capital outlays for hardware and facilities, Thermos realized immediate savings of US$665,000 and 47 percent lower IT operating expenses.

Using Oracle E-Business Suite On Demand, including Oracle Warehouse Management, Oracle Order Management, and Oracle Financials, Thermos has gained measurable efficiencies in its warehouse and inventory operations, marketing and brand management, and Finance department.

Driving Warehouse and Inventory Efficiencies

In addition to the US$665,000 that Thermos saved in capital costs during the first year, the company conservatively estimates that it saved another US$300,000 due to improved inventory control. Moreover, according to the study by Shack & Tulloch, it currently takes Thermos just five minutes to generate back orders, compared with 30 minutes when workers used to key data into multiple systems. And overall warehouse labor productivity surged 15 percent in the first year. By moving to a perpetual inventory method that eliminates physical stock counting, Thermos now saves about two weeks of intensive and tedious labor, or an additional US$20,000 annually.

Mike Yeager, director of logistics for Thermos, credits the tighter inventory management to Oracle's integrated architecture. "With our previous systems, there were interfaces and data entries between systems that resulted in discrepancies, which took significant time to reconcile," he says. "With Oracle, we know exactly what product we have, and where, at any point in time."

Prior to the Oracle implementation, the staff spent hours rekeying data and manually creating reports and analyses. This slowed down warehouse operations because basic tasks such as counting inventory items, picking goods, and generating back orders took much longer than necessary. Now, by informing warehouse managers exactly where products are stored, the new system accelerates the picking process. Plus, the new method requires two-thirds fewer warehouse workers.

Longer term, the company expects to see further savings by linking the inventory system to demand-forecasting tools available in Oracle E-Business Suite. Thermos also plans to roll out RFID technology no later than 2007. 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 [it] does so without substantial investments in in-house IT development," says Huang.

Giving a Face-Lift to Marketing and Brand Management

Think of all those celebrity faces or other cultural icons on Thermos products. Someone has to manage all the brand licensing and trademark agreements that Thermos has with top brands such as Batman, Barbie, Star Wars, and NASCAR. The Marketing department handles brand-licensing agreements on both ends—for both the Thermos brand, which is a major source of revenue for Thermos, and for all the other companies' brands. Julie Ryan, licensing manager for Thermos, has seen improvements in the way brand-licensing agreements are prepared. "With our previous system, it took at least eight hours to pull together an analysis of sales and royalty payments for a particular contract," she says. In the past, with data scattered across several systems, managers had to print out a stack of reports of about 500 pages each and try to comb through them for the information they needed.

Today, the analysis takes only half an hour. Ryan says the substantial time savings allows her to expand her horizons and focus on making better decisions regarding intellectual property rights. Moreover, the new system has allowed Thermos to automate contract renewals, track royalty revenue and payments, and evaluate the success of marketing strategies.

Streamlining Financial Management

Thermos has gained efficiency and improved productivity in its financial and accounting operations, according to the study. Now that there's no need to merge and reconcile data from multiple databases, the company closes its books faster every month—down from six days to just two.

Thermos also uploads budget data in only two hours—instead of the three days it previously required—and Oracle's single data model greatly simplifies number crunching and analysis. "It's much easier to extract data and write reports," says Rosemary Schmeling, system administrator for Thermos. Moreover, adds Thermos MIS manager Austin Wu, "The integrated system makes us more productive in delivering the kind of reports and analysis that our managers need."

Another satisfied employee is Colleen Butler, accounts payable specialist at Thermos. "Our payables process has become much more efficient," she says, noting that the old system required manual matching of invoices and receipts. "Now matching is automatically done in the system." The new system's automated workflow, the study found, has translated into 75 percent faster processing of invoices for payment.

Romancing the ROI

The ROI study focused mostly on hard data. But there are also what Huang calls the softer or more romantic benefits—such as the peace of mind that comes with Oracle On Demand's comprehensive security and system support. All of this is critical because, as Huang says, "Any system failure would have severely damaged our reputation as a world-class supplier."

The difference now is like night and day. "Knowing that we have Oracle experts running our applications around the clock lets me get a good night's sleep," he concludes.

After all, what good is a five-star hotel if you can't sleep?