Business and IT alignment delivers sound growth for Plantronics.
by Minda Zetlin, August 2011
In 1961, two airline pilots in Santa Cruz, California, brainstormed an alternative to the heavy communications headsets of the day. Their invention became the cornerstone product for Plantronics—and became the first communications headset in outer space. Indeed, Neil Armstrong proclaimed “One giant leap for mankind!” through a Plantronics headset.
Building on that remarkable success, Plantronics has become a dominant player in the business headset market. For 50 years, the company has manufactured products that support communications for emergency workers, pilots, and astronauts—and, of course, cubicle dwellers around the globe.
But the twenty-first century began with a boom for electronics, and the company’s leadership sought to tap the lucrative consumer market as well. As a result, Plantronics management found the company playing by a new set of rules.
“The consumer retail market is a very different animal,” says Kai Hypko, senior director of Supply Chain Systems and Strategy at Plantronics. With Plantronics’ consumer products, a product lifecycle from first volume shipments to end of life averages less than 18 months. The growth in mobile devices, Bluetooth technology, and unified communications contributed to the rapid changes in Plantronics products—and provided an opportunity for rapid sales growth.
“It’s been very exciting,” says Tom Gill, CIO at Plantronics. “We have much more of a balance between B2B and consumer now. And that’s presented some unique challenges, including ones to our supply chain.”
These challenges were compounded as the global recession disrupted both consumer and commercial spending in 2008. To offset the impact of the global economic downturn, create new efficiencies in the company’s supply chain, and deliver on the promise of the consumer electronics market, Plantronics management chose to transform the way IT supports manufacturing processes. And the company continues to reap those benefits today.
Meeting the new demand of the retail market required Plantronics’ management to gear up production and distribution. Growing through several acquisitions, the company also inherited additional distribution and manufacturing centers. “We anticipated tremendous volume growth,” says Hypko, “So we built a second factory in China, in addition to the one we already had in Tijuana.”
By 2006, in addition to its two factories, the company had seven distribution centers and four design centers at locations across the globe.
Each of these locations operated efficiently, but the data they generated was somewhat isolated. According to Hypko, data lived in PDF documents and on file shares in multiple locations.
For example, Plantronics executives began to see that inventory was spending too much time in the warehouse. Insight into customer demand provided a critical tool to help with increased inventory turns (a rough estimate of the number of times during a year inventory is completely sold off and replaced), but critical data about demand was not instantly accessible to Plantronics’ supply chain experts.
Indeed, the acquisition strategy led to IT inheriting multiple forecasting tools. These isolated tools required demand analysts to spend significant time assembling and normalizing the data from different sources.
Additionally, demand planning changes needed to be broadcast to distribution centers in China, Mexico, the U.K., and other locations. But these facilities were also running separate operations planning and material requirements planning systems, adding time to the process for rationalizing those changes.
For sourcing materials, Plantronics procurement managers wisely negotiated prices with global suppliers. But execution was decentralized, with buyers around the globe each communicating the inventory needs of their own locations. Critical information such as prices paid and division of orders among approved suppliers was logged in spreadsheets and sent to Santa Cruz once a month to be aggregated.
“It was a spaghetti network of data residing in many different forms,” Hypko says of the IT systems that supported Plantronics’ expanding manufacturing organization. “It highlighted the need to re-engineer our supply chain.” Working with the IT department, Hypko’s team created a five-year roadmap to do just that.
A Sound Plan
Even before Hypko joined Plantronics, CIO Tom Gill worked with the Oracle Insight program to determine ways that enterprise IT solutions could benefit Plantronics’ growing supply chain.
“We’ve been a strong partner of Oracle since 1996,” Gill says. “We were early implementers of Oracle E-Business Suite, and demand management and planning was a natural next step in terms of more-advanced supply chain management and inventory optimization. It was a natural evolution of our Oracle footprint.”
The analysis from Oracle Insight became the foundation of a five-year plan to align Plantronics’ IT and manufacturing efforts with an evolving business strategy. According to Hypko, gaining visibility into the company’s global customer demand was the ideal place to start, since any enterprise system that can efficiently manage the supply chain must be based on the real needs of the marketplace.
“It’s like having a really speedy car but not knowing where you’re going,” Hypko says of managing a supply chain without the insight of demand forecasting.
Fortunately, Oracle had recently acquired an industry-leading provider of sales and demand forecasting software. The plan to add Demantra applications into Oracle’s existing portfolio of enterprise solutions had a real advantage for Plantronics. “It was important to us to be able to integrate everything,” Hypko says. “So we lucked into Oracle’s acquisition of Demantra, which I believe is one of the strongest demand planning solutions available.”
Demantra applications were able to crunch and analyze demand analytics and began returning a benefit to Plantronics—just as the global economic crisis began to unfold. “When the downturn happened, we were able to very quickly identify our problem spots,” says Hypko. “We were pulling shipment and booking data into Oracle’s Demantra applications in real time.”
This visibility allowed Plantronics executives to see how each geographic region and product group was performing and quickly alter business strategy when needed. Because the solution was integrated at a single point, Hypko’s team was able to quickly send demand data back to the company’s suppliers. This saved Plantronics valuable time when responding to market volatility.
Today, Plantronics also uses Demantra applications to forecast demand at the finished-goods level. This fits well with existing supply chain practices. For example, Plantronics manufactures earphones but then keeps them in an unpackaged state, awaiting small cosmetic, serial number, or packaging changes requested by the end retailer. This allows Plantronics executives to meet the specific needs of the company’s big-box customers.
With this flexible supply process and Demantra applications analyzing data for demand planning, Plantronics avoids oversupply of an unwanted item or model.
Untangling the Spaghetti
With Demantra applications in place, Plantronics managers could use their enterprise system to forecast demand. But communications among Plantronics’ various design centers and factories was still fragmented. Hypko knew the company could realize new efficiency benefits if the essential data held in those locations could be more effectively shared.
Plantronics had a total of seven distribution and design centers in China, the U.K., and Santa Cruz, California. Getting information through previous communications channels could be frustratingly slow.
“It could take three weeks from the time a demand change was recognized in the U.K. before a product manager in China realized he needed to buy an additional type of ear bud,” Hypko says.
Implementing Oracle Advanced Supply Chain Planning fully integrated Plantronics’ 16 global locations and gave executives in multiple locations access to vital information 24 hours a day.
With design, manufacturing, and delivery processes managed by a single system across all geographies, managers at the company’s different locations could learn about product changes as soon as planners uploaded them into the system.
With integrated demand management and supply chain management solutions in place, Plantronics leadership could also change the company’s interaction with suppliers. In the past, slow communications and decentralized ordering led to increases in inventory levels. Worse, information from designers and engineers did not always get through to suppliers in a timely way. “What the suppliers were building was not what the engineers needed,” says Hypko.
Plantronics selected Oracle iSupplier Portal to allow vendors to manage their own inventory at Plantronics locations on a consignment basis. Instead of having to wait for an order, the vendors themselves monitor the numbers of items held in inventory at Plantronics plants.
When those numbers drop below agreed-upon minimums, the supplier replenishes inventory levels. Today, 120 Plantronics suppliers interact with the company in this way. “We’ve removed the non-value-added activity of manually issuing purchase orders,” Hypko notes.
Getting needed supplies in the door more quickly means Plantronics can get finished products out the door to retail customers more quickly as well. Plantronics IT staff also implemented Oracle Global Order Promising for retailers. “Now we can make accurate commitments to customers at the time of order entry,” Hypko says. Indeed, thanks to its new Oracle systems, Plantronics is able to promise delivery within 48 hours of an order.
As a result of all these changes, inventory fell from a high of US$165 million in 2006 to US$59 million (with annual revenues of about US$614 million) by the end of 2010. Inventory turns more than doubled, from a low of 2.5 to a high of 5.6.
Plantronics calculates that lower inventory and efficiency improvements create a savings of US$18 million a year, providing payback for its investment in the new Oracle implementations in a mere eight months. Investors noticed the improvement too: the company’s share price more than doubled from around US$17 before these changes (and before the economic downturn) to about US$36 as of summer 2011.
“These changes have really made a very dramatic difference to Plantronics profitability,” Gill reports.
These benefits led Plantronics management to continue their investments in operational efficiency. The next effort came in the area of product lifecycle management (PLM). Executives knew they needed a PLM system to go beyond mere passing of information between locations and suppliers. Leadership hoped to support collaboration among all the participants in the supply chain.
In particular, they were looking for a more efficient way to deal with product designs and requirements before manufacturing started. This would ensure that the right part was being manufactured and that obsoleted products would be cleanly retired when they reached the end of life. Here again, the functionality delivered with Oracle’s acquisition of Agile’s PLM solutions was an obvious stroke of good luck for Plantronics executives. “Agile was probably the only non-Oracle solution we would have deployed if Oracle hadn’t bought it,” Hypko declares.
Oracle’s Agile PLM solutions provide secure, timely, and accurate visibility and control of critical product information and processes to stakeholders at every stage in the product lifecycle. Agile solutions support collaboration among the stakeholders in the product development process and Plantronics’ new shorter lifecycles, and Hypko found that Plantronics users adopted the new tool very swiftly.
With so many users of different nationalities in different parts of the globe, the very low barrier to entry for new users is a meaningful benefit. “It’s very intuitive, and we’ve gotten very positive feedback,” Hypko says. “At the same time, it’s configurable enough that you can adapt it to work for you.”
Indeed, Plantronics is taking advantage of the configurability of Agile PLM applications to do its implementation in stages.
“Agile solutions being quite modular allowed us to break them down into bite-size pieces,” Hypko says. The first bite was managing the approval process for engineering change orders (ECOs)—changes made to a product or its components after the design is finalized or during the manufacturing process.
Plantronics began using Agile PLM applications to route ECOs through the entire approval process and on through implementation. That change sped up the process of approving and implementing these changes from three to four days to one-and-a-half days, a significant benefit in a market where product lifecycles are short and it’s important to respond swiftly to consumer demand.
In the next phase, currently being rolled out, engineers use Agile PLM applications to actually initiate ECOs, not just to shepherd them along. The next step after that, Hypko says, will be to have suppliers receive ECOs—and acknowledge that they have—using the Agile solutions.
“We expect that this will really improve supplier visibility to our ECOs and changes. In today’s environment, we are relying on the buyer to sign off manually on communicating the change to the supplier. It’s an open loop, though, because we don’t have a system to confirm that the supplier has seen and acknowledged the ECO.”
A Unified Future
The strategy behind the Agile project brings Plantronics management closer to its overall goal: a single source of truth, or data model, that the various product, planning, operations, and manufacturing systems; suppliers; customers; and other systems within Plantronics can all use. Today, the data contained in Agile PLM solutions is shared with several of the company’s mission-critical systems and functions. The data is integrated with Plantronics’ Oracle E-Business Suite applications to assist with a wide range of business functions. The data is also shared with Oracle Hyperion applications in use at Plantronics, to support accurate budgeting and financial forecasting. The connections among these applications contribute not only to business efficiency but to preserving the institutional knowledge gathered by five decades of Plantronics employees.
“As a global company, we are open 24/7,” Hypko says. “We needed a solution that allowed employees, with their respective responsibilities, to get the information they need to get their jobs done wherever they are in the world. We also wanted to move the information residing in people’s heads that had been with the company a long time so that it too would be available 24/7.”
This requirement intersects with the business goal Plantronics management has for IT as the company moves forward. “That was our overarching vision,” Hypko concludes. “We want a single source of truth for all this data.”