Despite strong sales, pandemic creates some disruptions for companies
By: David Rauf
“This was felt everywhere and in everything; the immediacy of things shutting down in a manner of days was extraordinary.”
—Brian Kraus, VP Global Manufacturing, Amway
“We were fortunate that we had some plans in place to be able to respond as quickly as we did. It’ll be interesting to see, as an industry, how this changes things in the coming year.”
—Brian Kraus, VP Global Manufacturing, Amway
Already faced with a variety of new challenges in the coronavirus era, direct sellers are dealing with another major hurdle affecting their daily business: supply chain disruptions.
The COVID-19 pandemic has tested the supply chains of direct selling companies like no other event in recent history.
Just as in other industries, direct sellers have spent much of this year scrambling to shore up their supply chains as the virus shut down the world in the spring. And the immediate future remains uncertain, as public health experts warn of a potential second wave this winter that could lead to more issues with global production and manufacturing.
Some direct sellers have reported spikes in demand for certain items such as household cleaning products and nutritional supplements. At the same time, access to components and labor from around the world has been strained, leaving some direct sellers unable to keep up and losing sales in the process.
According to a recent survey by the Direct Selling Association (DSA), 63 percent of companies that responded say they have experienced global supply chain issues related to the novel coronavirus.
That figure has been trending downward in recent bi-weekly COVID-centric DSA surveys of member companies, a sign the supply situation for companies is slowly improving. But at one point in mid-May more than 75 percent of respondents were reporting disruptions.
Some of the written responses in a DSA survey from June provide more insight into specific issues.
Over the summer, direct sellers say they have been dealing with a wide range of problems: depleted inventory levels, delays for components out of China, production facilities running less efficiently because of social distancing and safety measures, freight and import expense increases, delays with customs, and issues with third-party suppliers.
One company noted in its written response that a major supplier is “no longer producing seven of our top products.”
Another company said the “largest issue is with last mile delivery in foreign countries,” while another wrote that there is a “shortage of ingredients from around the world.”
Companies Brace for Impact
Brian Kraus, vice president of global manufacturing for Amway, the world’s largest direct seller, says this has been the most “disruptive event” he’s experienced. “It was such an enormous challenge to deal with,” he says.
Kraus has been working in Amway’s supply chain for the past 18 years, and in that time he says there’s been no shortage of turbulence: work shutdowns, supplier bankruptcies, equipment failures, and the financial crisis of 2008. But “nothing like this,” he says.
“This was felt everywhere and in everything,” Kraus says. “The immediacy of things shutting down in a manner of days was extraordinary. But the resilience of our employees and supplies was extraordinary.”
Amway avoided major disruptions, according to Kraus. Yet, when asked if the company’s supply chain had retained its pre-pandemic efficiency, he didn’t mince words: “I wish.”
“By no means,” he says, “are we back to where we were pre-COVID-19.”
At Amway’s U.S. factories, workers are being grouped into clusters called “grids” to maintain social distancing protocols. In normal circumstances, workers would flow from one job to another in a plant. But now they are in smaller dedicated pods of five to 10 people, Kraus says.
The company also has new cleaning protocols for its factories and has implemented gaps between shifts so “people don’t run into each other,” Kraus says.
Those safety measures, he says, will stay in place for “as long as we need to keep people safe.”
“We’re watching this like everyone else is, and we will happily loosen our preventive measures at the appropriate time,” Kraus says. “But that will not occur until we are convinced what we do will not compromise employee safety.”
The two biggest disruptions for Amway were felt in Michigan, where stay-at-home orders prevented the company from producing beauty products deemed non-essential, and in India, where production of beauty products shut down for two weeks, says Kraus. He notes: “while we did have some outages, it wasn’t totally disruptive to business.”
Amway also faced challenges keeping up with demand for hand sanitizer and nutritional supplements, he says, as pandemic-related demand spiked for those types of products for most direct selling companies.
The company already had contingency planning for supply chain disruptions before the pandemic, says Kraus, which allowed Amway to adapt more quickly once supply-chain shock had set in globally this spring.
“We were fortunate that we had some plans in place to be able to respond as quickly as we did,” he says. “It’ll be interesting to see, as an industry, how this changes things in the coming year.”
All Players Must Adapt
Other direct selling giants are also reporting that their supply chains mostly avoided big disruptions, but have still had a few roadblocks on the path to full recovery.
Herbalife CEO John Agwunobi told analysts during a recent earnings call that the company’s factories as well as its third-party manufacturing facilities are operating at close to normal capacity. He noted that “there have been last-mile delivery disruptions … in various markets.” In a May filing with the SEC, Herbalife said it had experienced COVID-19-specific issues in Brazil, where product pickup from distribution centers was not available at the time.
The company also faced reduced product availability due to manufacturing or distribution disruption, according to the filing, “although the region has seen only a few temporary out-of-stock products.”
And in India, Herbalife said in the filing, the company encountered pandemic-related issues that included manufacturing capacity and difficulty delivering products to members. Product supply was “at some risk due to labor availability at contract manufacturers and warehouses in India and customs delays for imported products.”
“Despite challenges to our manufacturing activities, we have generally been able to continue to produce levels of products to satisfy current levels of demand,” Herbalife wrote in the securities filing.
Meanwhile Nu Skin CEO Ritch Wood says his company’s manufacturing segment has performed well under the circumstances.
In a May earnings call, he said supply chain disruptions on certain ingredients and packaging materials from third-party suppliers impacted the business negatively, but overall the company’s supply chain remained “stable,” buoyed by investments in additional equipment capacity at its factories.
“Our manufacturers have actually performed really well trying to work through a number of disruptions that came from not being able to get an ingredient here or a packaging item there, which didn’t permit them to get some orders shipped out to some of their customers during the quarter,” Wood said during the earnings call.
He noted that “it seems like things have really stabilized,” on the supply chain front.
At Modere, CEO Asma Ishaq says the company’s supply chain did not feel a lot of pressure in the first couple of months after the coronavirus spread globally.
From March through early May, it “seemed rather manageable,” she says. At the same time, the company experienced a sales uptick—described as “multiple folds” by Ishaq—in their top sellers and then in other product categories. She says, “For example, cleaning and household products are selling like never before.”
That increase in demand coincided with a slowdown from suppliers used to source specific components for its products, including spray nozzles and applicators.
In some cases, there have been delays, but in other cases components are “just not available” because of the higher demand for personal care products, says Ishaq.
“We just had to get creative and look around more than we used to,” she says. “That means looking for alternate suppliers to make sure they have their forecasts and can keep up with purchase orders.”
Ishaq says there has also been cost increases to ocean and air freight, which “affects the entire supply chain.”
She adds: “Planning is more important than ever. Supply chain management is much more important these days to be able to accommodate any unexpected delays.”
“We haven’t faced anything that would cause alarms or red flags for us,” she says. “Extraordinary times require us to be more creative and work hand-in-hand with our suppliers.”
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