Midmarket consumer products firm focuses on supplier success
By David Hannon -- Purchasing, 12/14/2006 2:00:00 AM
“Our company owner has a mandate that we protect our suppliers’ margins.”
Not a phrase you hear often in big business today, but in the midmarket procurement model, suppliers are more often viewed as partners with valuable resources to bring than simply part providers.
Just ask Alan Cole, director of purchasing at wellness products maker Melaleuca in Idaho Falls, Idaho. The 2,500-employee company manufactures and direct markets nutritional, pharmaceutical, personal care, home hygiene, and other wellness products throughout the U.S. and various global markets. The company was founded in 1985 and has seen very strong growth. In 1991 its revenues were $30 million and by 2005 they had grown to $705 million in revenues, selling direct to consumers. Melaleuca has three main production facilities in Idaho Falls, Idaho, Knoxville, Tenn. and Shanghai, China. The China facility has been in place for three years and handles only the manufacturing of product that will be sold in China, which accounts for less than 10% of all manufacturing. (Melaleuca is doing some global sourcing through its China site and representatives on the ground there to see if they can find similar products overseas for less.)
Cole came to the company 15 years ago and now manages a 16-person purchasing organization that buys more than 5,000 SKUs from more than 220 suppliers. And despite the current environment of cost-consciousness, Melaleuca’s purchasing organization’s primary focus is on supplier development—so much so that Cole is lobbying to change the title of “buyer” to “vendor manager” at the company.
The emphasis at Melaleuca is on longer-term contracts with suppliers, often two years or longer, so suppliers can count on the business when they negotiate with their suppliers.
“We protect supplier margins because we firmly believe if they don’t make a profit, it impacts our business. We negotiate with our suppliers by telling them we’re in it for the long haul and hopefully if we commit to protect them, they’ll help us out too.”
As part of the supplier development effort, Cole is instituting a supplier rating system so suppliers know exactly where they stand in relation to their peers. “The higher they’re ranked, the more bidding opportunities they’ll get from us on new business,” says Cole. “Right now we send the information out to our top 100 suppliers monthly until it goes online.”
 Cole: "We protect supplier margins. We believe if they don’t make a profit, it impacts our business." |
At the same time, Cole has focused on developing internal measurement programs to evaluate Melaleuca’s purchasing staff. Cole points out that measuring the performance of a sales staff or a product design staff is a bit more cut-and-dry than ranking the performance of buyers.
His program measures buyers based on three key metrics: negotiated savings, stock-outs and pending orders. The savings metric is based on a percentage so buyers in big-ticket spend areas are equal to those sourcing smaller-value components. The stock-outs and pending orders determine if a buyer is keeping the right amount of stock, a very important factor in the fast-moving consumer industry.
“If we can’t ship a product out when an order is placed, the buyer is responsible for that pending order,” Cole says. The buyer rating system has been in place three years and Cole says buyers appreciate knowing where they stand and how they can improve.
The rapid growth of the company has pushed purchasing to work closely with the company’s six sale forecasters as well as suppliers to ensure materials are flowing to meet demand.
“We have some great buyers that can think on their feet,” Cole says.
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