The following Supply Chain Matters guest blog contribution is authored by Troy Hicks, Senior Vice President, Worldwide Supply Chain Planning, Herbalife Nutrition.
Understanding what consumers want is no easy task. Doing so in more than 90 countries can be almost impossible. Most people probably don’t think about what it takes to develop, manufacture, market and deliver products to consumers all over the world. In fact, the forecasting and planning that it takes to accomplish such a feat, often referred to as supply chain management, is as much art as it is science.
Take for example Herbalife Nutrition. The Company manufactures nutrition products consisting of multiple ingredients, the majority of which are botanicals, and sells those products through independent distributors, in more than 90 countries. The company currently manufacturers approximately 120 products, encompassing over 4,700 SKUs worldwide.
Catering to Consumer Taste
People are the same all over the world. Or are they? While people all over the world may want to live healthier and happier lives, quiet often their dietary needs and flavor palates vary based on where they live, as well as cultural differences. For example, people may observe Kosher or Halal dietary laws. Or perhaps its something as simple as a flavor like red bean or Kulfi being a traditional cultural flavor.
So how does a company forecast what consumer demand will be and what it will take to deliver the product to consumers?
Managing Both Art and Science
Supply chain management is a relatively new field, gaining mainstream recognition in the mid-1990s. And up until 2013, Herbalife Nutrition used a traditional model for its supply chain management. Its analysts and management were centralized in one location, using traditional algorithm analyses of sales history, seasonality and trends from around the world to forecast future finished product needs, and naturally the raw materials required to make those products.
Unlike a traditional retail model that has challenges in determining product demand, Herbalife Nutrition’s direct sales business model and global scale also present challenges to the forecasting and planning process. For example, in the U.S. a large portion of orders are drop shipped direct to customers, so orders are placed as product is sold; while in Mexico distributors are often purchasing in the afternoon for cash flow management purposes; and in Asia they make smaller purchases, but more often.
Even with the traditional supply chain management method, the Company was relatively accurate by industry standards in its supply chain analysis, netting an approximate 73% accuracy rate. But due to the types of products the Company manufactures, it meant stocking additional raw materials or finished products to close the net error gap and meet consumer demand. By doing so, the Company was tying up money in inventory and driving up opportunity cost.
In 2013, the Company decided to take a more holistic and proactive approach to the supply chain model to determine where it could improve forecasting accuracy and savings. Rather than chasing trends, we made a strategic decision to collect and utilize forward-looking information.
First, we decentralized the analysts, imbedding them in the regions and with the sales and marketing teams around the world. Doing so created the opportunity for the analysts to gather both statistical and anecdotal data in real time. It also afforded them the opportunity to witness the information first hand. They were now able to collect higher quality data, react faster to that data and build better relationships with business partners.
But, simply placing people in the field was not enough. We also upgraded the forecasting tools to Oracle Demantra to better integrate with our other systems. The change helped enable an automated forecast process that simultaneously maps demand forecasting against factors such as supply restrictions, customer commitments and inventory counts. And with Oracle’s global presence, our analysts had the ability to receive real-time local support, should they require it.
Now, the systems are able to do what they were designed to do, analyze baseline statistical information. And the analysts could focus on their strength, using their local expertise to factor in local market intelligence, market conditions, local sales and marketing initiatives, including cultural discrepancies.
Efficiencies were quickly realized and moved from building better analysis systems, to building better information. The changes proved to be the right move with forecasting accuracy increasing year-over-year to what is now approximately 83%. The realized efficiency in forecasting and planning also directly translates to efficiencies and cost savings in other areas like manufacturing and marketing. This will help better position our supply chain to support the business as it grows.
About the Author
Troy Hicks is senior Vice President of Worldwide Supply Chain for Herbalife Nutrition. Mr. Hicks delivers on the Company’s purpose to make the world healthier and happier through his role and direct responsibility for planning, project management, and inventory management investment for both Herbalife Innovation and Manufacturing facility (HIM) manufactured, and contract manufactured products around the world.