Lean leadership

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.

"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.