HyperX Game Plan: Win at Demand Planning and Replenishment
Kingston Technology Company Inc.'s expertise comes from making and selling memory products. The supply chain model that shaped its success didn't hold up, however, when its high-performance product division, HyperX, got into the gaming peripherals business.
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HyperX, the high-performance product division of Kingston Technology, is the world's largest independent memory manufacturer. It encompasses multiple product lines including gaming peripherals, memory modules, solid-state drives, USB flash drives, headsets, and mouse pads.
Logility is a supply chain management and advanced retail planning company delivering integrated solutions to help companies increase service, reduce costs, and replace inventory with information.
As HyperX grew, it became clear early on that the Fountain Valley, California, company needed a new approach. HyperX required different distribution facilities, shipping methods, supply chain visibility insights, retail customer relationships, and demand, inventory, and replenishment planning tools in order for it to scale in the gaming world, a hot, hip, and fast-moving segment of the consumer electronics industry.
"From materials sourcing all the way through to fulfillment, Kingston and HyperX have different supply chain management models," says Wei-Shine Chien, director of supply chain for HyperX.
Gearing Up for Gaming
Kingston's memory module products, which depend significantly on memory chip availability and pricing fluctuations, have short lead times and come in small-format packages that take up less shelf space. They are typically shipped by air, move through well-established distribution channels, and can serve multiple global regions without any product changes.
HyperX's high-performance gaming headsets, keyboards, and mice are on the opposite side of the supply chain spectrum. They are produced by outsourced manufacturing partners; are bulkier shipments that move on pallets by ocean cargo; need different kinds of shelf-storing space within distribution centers; and, in the case of keyboards, must be configured to meet each geographical region's specifications.
Demand planning, inventory management, and replenishment cycles must be tightly managed to meet retailers' and e-tailers' expectations for high service levels. But, cycle time from material sourcing to customer delivery can be nine or 10 months, making it difficult to keep supply and demand in the right balance.
HyperX's rapid growth also brought additional challenges.
The group launched its first gaming headset in 2014. Initially, it carried two SKUs, and then added two more. It grew from a manufacturing base of about 2,000 headset units monthly, the capacity limit of its outsourced manufacturing partner at the time, and by 2018, had shipped more than 5 million gaming headsets.
HyperX added keyboards and mice to its product mix, and is now expanding into other categories, including products for gaming consoles. Its portfolio has ticked up to 300 SKUs and growing; globally, HyperX products reach about 100 countries and have found their way into about 20,000 storefronts. Outbound shipments averaged about 17,500 per month in 2018, with a peak of 23,000 coinciding with Black Friday sales.
If this wasn't enough, end users' fickle nature also impacts HyperX's demand planning, inventory management, and replenishment strategies and compels the company to consider the supply chain ripple effect of unplanned events that may trigger greater demand.
Fortnite Battle Royale
For instance, events such as the live-streaming, record-breaking March 2018 Fortnite battle royale that drew more than 600,000 live views could push HyperX's supply chain capabilities to their limit and leave the company scrambling to fulfill a sudden increase in unexpected demand.
All this complexity led executives to the inevitable supply chain decisions that had to be made to support HyperX's gaming devices' continued growth.
"Kingston was not built for this kind of product complexity," Chien says. "But, we had enough experience to start putting the models in place so that when the volume came we would at least have space to expand and store inventory.
"Planning-wise, we knew we couldn't use Kingston-owned facilities because they were designed for small form-factor goods," Chien adds. "We also knew we didn't want to build our own distribution facilities. Instead, we wanted to invest in product development, branding, and the engineering resources that would help us penetrate the gaming market."
In 2016, HyperX started working with several third-party logistics (3PL) providers globally to ensure that it had the space, capacity, and labor needed to execute its business plan. The company now runs all of its inbound and outbound logistics out of three distribution centers in the United States, three in EMEA (Europe, the Middle East, and Africa), and three in the Asia-Pacific region. Approximately 70 percent of HyperX shipments typically come from four of HyperX's nine global distribution centers, with the U.S. and EMEA facilities taking the lead.
Around the same time it was sorting out the physical movement of its products worldwide, HyperX also began searching for technology solutions to optimize its supply chain planning practices. The spreadsheets and legacy systems carried over from its parent company no longer supported HyperX's growth.
HyperX went through the typical surveying and interviewing process to find the right technology partner. By the end of 2016, HyperX contracted Atlanta-based Logility Inc., a provider of collaborative supply chain optimization and advanced retail planning solutions. In January 2017, it started the five-month implementation of Logility's Voyager demand planning, inventory planning, and replenishment planning modules.
"Our process was very manual; we did a lot in spreadsheets that required emailing information back and forth," recalls Kevin Teng, a HyperX business analyst. "There was a significant amount of data entry and copying into and from our ERP system. Our ERP system is old, so extracting information was not as simple as we would have liked it to be.
"Logility is data agnostic," he adds. "It can grab data from different sources, and make that information easy for us to access. The Logility screen is simple to navigate and we were able to eliminate some of the manual work."
Meeting Market Needs
HyperX also benefitted from Voyager's segmentation capabilities.
"One simple but robust capability is segmentation and the ability to analyze plans for different market needs," says Karin Bursa, Logility's executive vice president. Keyboards, for example, have different requirements; a European keyboard is different than an Asian one.
"With segmentation capabilities, HyperX can look at a product form or a product family and then look at derivatives of those product families," she adds. " They can see what the seasonality and market promotions look like, and what the brand awareness for each of those products is in each marketplace. They now have one aggregated plan that gives them greater precision in their demand, inventory, and replenishment planning."
The Voyager roll-out has helped HyperX in several ways.
Besides being able to synchronize the planning process to boost efficiency, align inventory with customer service goals, and streamline the replenishment cycle, Chien recalls three other instances where the Voyager tools had a significant impact.
In the case of the Fortnite live-streaming match-up, which resulted in 100 million game downloads in a few months, the unplanned event caused a quick and big spike in headset demand, not only for HyperX but for all headset makers that have audio communication features in the devices, a game requirement.
"Since we were still growing, we had safety stock and buffers going into 2018, but this event ate up all that and wrecked our plan," Chien says. "Unless you have some type of tool that monitors market variables that are not directly related to your product, you won't see the demand increase until it's too late.
"But, because we could see that our headsets were actually moving, we were able to let our suppliers know what was happening and what we needed. They were more willing to listen to us because we had the hard data."
Improved supply chain visibility also played a role in doubling inventory turnover by the end of 2017 for HyperX's highest running SKU, the Cloud II headset, one of the company's best sellers in terms of revenue. While Chien says some of that movement stemmed from HyperX's growth, the ability to plan inventory differently across different distribution centers accounted for a significant amount of the turnover gains.
The company was able to shift from a blanket inventory and planning policy to more control over knowing when and how inventory was moving and replenishing stock more effectively. Chien estimates that this helped the company save $2 to $3 million in working capital, which it invested in new products.
What a Surprise
Logility tools helped rectify a supply chain surprise as well. The HyperX team received a Logility alert about retail customer Best Buy needing a headset product that was on the tail end of its life cycle. The alert revealed that Best Buy was seeing a run up in sales, but there were not many units left in inventory. Had that alert not popped up, HyperX may have missed the replenishment target and been fined for a stock-out.
Logility continues to embrace the latest methodologies, analytic capabilities, and leading-edge technologies to give HyperX better trend data, more specific insights about product consumption, and the ability to refine demand, inventory, and replenishment planning strategies.