Supply chains are having a moment. It took a major transformative event to highlight the importance and fragility of the global and interdependent supply-chain network.
Like the domino theory in politics, disruptions in supply chains have a ripple effect, with often devastating consequences to how goods and products are sourced, manufactured and delivered to a worldwide consumer base.
The dominos started to tumble when a perfect storm hit the world. Stressors were placed on supply chains, forcing many manufacturers to scramble to keep up with demand as supply networks collapsed.
High-performing and highly functional supply chains provide a seamless, end-to-end cycle from raw materials to product delivery, and create efficiencies; they are indicative of successful companies. According to a survey by Deloitte, 79% of companies with high-performing supply chains achieve revenue growth superior to the average within their industries. Conversely, just 8% of businesses with less-capable supply chains report above-average growth, demonstrating how critical the interrelations are between an enterprise and its supply chain.
As one of the largest suppliers of nutrition products globally, Herbalife Nutrition has built a supply chain that is the one of the backbones of our company’s success, delivering to 94 markets around the world. Our products consist of multiple ingredients, the majority of which include natural sources, and are sold through independent distributors. The company currently manufactures approximately 120 products, encompassing over 4,700 SKUs worldwide.
Following are three key lessons for creating a supply system that is not only highly efficient, but in many cases can withstand disruptions.
Building resiliency with a “network of networks.” To build resiliency into our supply chain and enable it to withstand multiple stressors, we began by ensuring that we had considerable transparency and control over the end-to-end journey of our products. Like most companies, our supply chain has been a continuously evolving collection of multiple technologies that serve a niche purpose across the global operation. These focused technologies allow for more agility and flexibility to respond better to the ever-changing business landscape. The downside is they can cause silos of information and drag in being able to recognize change within interdependencies, and create blind spots for management through lack of a holistic view.
The breakthrough in our supply chain was connecting these technologies by “networking the network,” using business intelligence applications to drive connectivity. This gives our supply-chain resources the ability to see and understand not only what is happening within their stream, but also better understand dependencies and total chain influence on holistic performance.
Knowledge is king. Market-level insights are critical in maintaining an optimal supply chain that balances the priority of service with the cost of inventory. Without real-time knowledge, supply-chain managers are often looking in the rearview mirror and unable to react nimbly to supply and demand. Because Herbalife Nutrition ships direct to consumers through a vast global distributor network, and isn’t reliant on retail channels, we have on-the-ground, immediate feedback from our savvy and experienced teams in the field. As distributor activity changes, we can use these metrics to better predict trends before they occur.
When we saw a recent uptick in demand for immunity-type products in China at the onset of COVID-19, we were able use this activity to better predict how other markets would likely respond as the virus spread throughout the globe. Using collaborative distributor metrics, we’ve been able to better service supply and anticipate sales-trend changes more rapidly, without having to rely on significant inventory buffers to absorb the unknowns.
Relationship of reliability. With much of Herbalife Nutrition’s core product supply coming from a centralized and vertically integrated manufacturing environment, our biggest supply-chain challenge is our lead time on a consumable product that demands a turn velocity that insures freshness and quality. To optimize this lead time, we had to build an architecture that focused on the variability between all transactional points of the supply chain. Too often disruptions or excessive inventory carrying costs are a result of the often-neglected and less obvious transactional points in between the traditional pillars of raw material supply, manufacturing, and distribution. It is these transactional stages, such as ingredient testing, product release, transportation bookings, import administration, and quality inspections, that can add up to a lot of variability which can often become product traps that add risk, time, and cost.
When focusing on the variability of each of these stages, and making their reliability and consistency part of the overall supply-chain strategy, the result adds up to significant improvement in lead time, reduction of safety stock with better predictability, and overall better service and quality.
As a 40-year-old company, we’ve learned over time. The changes Herbalife Nutrition has made to improve its supply chain have enhanced forecasting accuracy and created efficiencies and cost savings in other areas, including manufacturing and marketing. We have also built an agile supply chain that better supports the business as it grows. Herbalife Nutrition has consolidated a $1.2 billion annual spend into a single manufacturing and distribution replenishment planning environment, which has improved service levels from 96% to 99% within three years.
We continue to evolve, learn, and enhance our systems to meet the demands of our growing customer base. For us, our supply chain isn’t just about managing the flow of goods and associated revenue; it’s one of the backbones of our company’s infrastructure, and it’s critical to our success. In a time when consumers are price-sensitive and reevaluating what’s important, we hope other companies will apply our lessons and provide trust and consistency that helps not only their customers, but their brands and companies.
Troy Hicks is senior vice president of global supply chain at Herbalife Nutrition.
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