NutriSystem is experiencing phenomenal growth. Customer-focused, "lean" supply chain management is fundamental to the company's success, says Chief Supply Chain Officer Lou Arace.
It's only fitting that Lou Arace manages the supply chain at NutriSystem, a provider of weight management products and services. The company is built on a supply chain strategy that, like CSCMP member Arace, is all about "lean."
NutriSystem moved to an e-commerce, direct-to-consumer business model in 2004, satisfying an unfilled need in the consumer marketplace: a nutrition-based, easy-to-use weight-loss plan that ensured privacy without requiring a major time commitment. The result has been exponential growth, from annual revenues of US $34 million to nearly US $800 million in four years.
Prior to joining NutriSystem in 2007, Arace was senior vice president of global operations for Cardone Industries, a supplier to the automotive aftermarket industry. In his current position of senior vice president and chief supply chain officer, he is responsible for all aspects of NutriSystem's supply chain, including procurement, supplier management, food quality and safety, logistics, distribution, transportation, demand/supply planning, inventory deployment, and continuous improvement.
In a recent conversation, Arace described how supply chain management and execution make it possible for NutriSystem to deliver on its commitment to provide the perfect customer experience.
Who is your target market?
NutriSystem's target market is busy people. Many of our clients want to lose weight without counting points, shopping for groceries, going to meetings, or doing public weigh-ins.
What is the focus of your supply chain strategy at NutriSystem?
The focus of our strategy is to deliver the "perfect order" to our customers. We define the perfect order as one that is delivered 100-percent complete, 100-percent on-time, with perfect quality. Our goal is to utilize the principles of lean supply chain management to deliver the perfect order at the lowest total supply chain cost.
Master of Business Administration Degree, Pennsylvania State University
"Lean" has been the cornerstone of your career. How have you applied lean supply chain concepts at NutriSystem?
Lean thinking has been the foundation of my operations and supply chain experience. I believe in its principles because they're simple and can be applied to any process.
Most supply chain improvement efforts focus solely on reducing costs, and they tend to overlook the customer experience. ... Our customers readily provide us with terrific feedback about what they want and need in the numerous surveys we conduct. We use this information to map out our entire business strategy, from the consumer all the way back through the supply chain to our suppliers' suppliers. ...
A typical business process contains 95-percent waste and only 5-percent value-add. Our goal is to eliminate that waste and home in on what the customer really wants and is willing to pay for.
Involving every team member throughout the supply chain is key to successful lean process improvement. Any organization can implement new practices or change logistics networks, but your people are your only appreciable asset. Lean forces us to enlist everyone's help in working toward continuous improvement. You can't build a true culture of innovation and efficiency unless your entire team works together.
What innovations have you implemented to improve your supply chain?
We've implemented a customer-focused Customer Service Policy (CSP) that details exactly how we are going to serve our customers on a daily basis. Our goal is to increase the level of customer value through the delivery of the perfect order, as well as to lower our total supply chain costs.
Next, we optimized our distribution and logistics networks using a total supply chain cost model. Our CSP drove our network design and inventory, vendor/partner, and procurement strategies.
We've all heard the phrase "No one shrinks to greatness." For me, effective supply chain management is more about enabling a growth strategy than it is about developing a cost-reduction strategy. If you continually deliver exceptional customer value while driving out waste in every process, you will facilitate growth, innovation, and cost improvements.
What special problems did your supply chain implementations solve or overcome? NutriSystem has grown at an astounding rate. It's not easy to optimize your supply chain while your company is experiencing such phenomenal growth. Our focus has been to enhance our infrastructure to allow for even more efficient scalability while continuing to deliver the best customer experience possible.
How does NutriSystem's distribution system support its business goals?
Our distribution and logistics network is based on a regional distribution model that expedites our customer service policy. The goal was to optimize timedefinite delivery of the perfect order, while maximizing network efficiency through a total supply chain cost model. Most companies tend to focus their network design solely on outbound shipping costs. Our model was designed to reduce supply chain costs in accordance with our CSP.
Does NutriSystem manufacture its own products, or is that function outsourced?
We currently maintain a network of suppliers and partners to manufacture our products.
How do you maintain quality control from the manufacturer to the distribution center (DC) and from the DC to the customer?
We have rigorous certification, process control, and audit activities throughout every step of the supply chain that drive both compliance and continuous improvement in our quality standards. Quality is a fundamental principle in effective supply chain management. You can't have speed or low cost without quality processes built into every step of your supply chain.
How has your CSCMP membership rounded out your career?
My CSCMP membership provides me with instant access to changing trends in logistics and supply chain management. It is critical that we, as supply chain professionals, stay linked in to cutting-edge information and the latest issues impacting our profession. CSCMP also helps us examine a wide cross-section of industries to identify best practices that can be applied to supply chain management.
During economic times like these, more and more companies are looking to supply chain management professionals to increase revenue and manage costs. CSCMP is integral to my journey of lifelong learning by offering me state-of-the-art operational knowledge across all industries.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
A new survey finds a disconnect in organizations’ approach to maintenance, repair, and operations (MRO), as specialists call for greater focus than executives are providing, according to a report from Verusen, a provider of inventory optimization software.
Nearly three-quarters (71%) of the 250 procurement and operations leaders surveyed think MRO procurement/operations should be treated as a strategic initiative for continuous improvement and a potential innovation source. However, just over half (58%) of respondents note that MRO procurement/operations are treated as strategic organizational initiatives.
That result comes from “Future Strategies for MRO Inventory Optimization,” a survey produced by Atlanta-based Verusen along with WBR Insights and ProcureCon MRO.
Balancing MRO working capital and risk has become increasingly important as large asset-intensive industries such as oil and gas, mining, energy and utilities, resources, and heavy manufacturing seek solutions to optimize their MRO inventories, spend, and risk with deeper intelligence. Roughly half of organizations need to take a risk-based approach, as the survey found that 46% of organizations do not include asset criticality (spare parts deemed the most critical to continuous operations) in their materials planning process.
“Rather than merely seeing the MRO function as a necessary project or cost, businesses now see it as a mission-critical deliverable, and companies are more apt to explore new methods and technologies, including AI, to enhance this capability and drive innovation,” Scott Matthews, CEO of Verusen, said in a release. “This is because improving MRO, while addressing asset criticality, delivers tangible results by removing risk and expense from procurement initiatives.”
Survey respondents expressed specific challenges with product data inconsistencies and inaccuracies from different systems and sources. A lack of standardized data formats and incomplete information hampers efficient inventory management. The problem is further compounded by the complexity of integrating legacy systems with modern data management, leading to fragmented/siloed data. Centralizing inventory management and optimizing procurement without standardized product data is especially challenging.
In fact, only 39% of survey respondents report full data uniformity across all materials, and many respondents do not regularly review asset criticality, which adds to the challenges.