Millions of people have NON-DURABLE HERBALIFE SEED TO FEED. in size by 2020, which the company refers to as its decade plan.

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1 NON-DURABLE HERBALIFE / Net sales: $4.8 billion / Headquarters: Los Angeles / Employees: 7,000 / Specialty: Nutrition products / Rich Goudis, COO: We never cross the goal line, we just continue to move the ball down the field. Herbalife is one of the world s leading direct sales companies, and continues to grow. A Healthy Future Herbalife s seed-to-feed supply chain strategy is at the center of the direct marketing giant s efforts to double its size by BY JIM HARRIS Millions of people have looked to Herbalife to help them live healthier and more active lives for more than 30 years. With 3 million-plus independent members and distributors of its food, nutrition and personal care products in more than 90 countries and many more millions of daily consumers, the Los Angeles-based company has grown to become one of the world s leading direct sales companies since founder Mark Hughes sold his first protein shake in Instead of just staying the course and maintaining its business at its current levels, Herbalife continues to grow and expand not only in terms of its global footprint, but also its internal operations. We have a philosophy that we can always build it better, COO Rich Goudis says. We never cross the goal line, we just continue to move the ball down the field. Ongoing technology, manufacturing and supply chain investments are helping Herbalife meet its goal of doubling in size by 2020, which the company refers to as its decade plan. SEED TO FEED One key component of Herbalife s growth strategy is its seed-to-feed initiative, which addresses the traceability of it ingredients, and the manufacturing and quality of its products. We believe that as we grow over the next 10 years, food safety will be a important strategic initiative in order to create confidence among our members and their consum Summer 2014

2 ers, Goudis says. We want complete traceability of our products throughout the entire supply chain. To achieve this, the company recently made two significant facility investments. A botanical extraction facility in Changsha, Hunan Province, China, processes botanical extracts such as teas, guarana, chamomile, broccoli and bilberry for use in many of the company s products. These extracts are produced from botanicals purchased directly from known farms in Hunan Province and other regions in China, processed in Changsha and then sent to Herbalife s manufacturing facilities in Suzhou, China, and Lake Forest, Calif., as well as its contract manufacturers. Changsha, the capital of Hunan Province, is home to many of the world s nutritional herbs and botanicals. Herbalife Herbalife recently invested in a botanical extraction facility in China to process extracts for multiple products. also protects their ingredient pipeline by sourcing key materials from world leading suppliers such as vitamins and minerals from DSM (formerly Roche Vitamins), soy from DuPont and ADM and fructose from Tate & Lyle and DuPont, among other sources, the company says. The 165,000-square-foot, $11 million facility, which opened in early 2013, can process roughly 2,000 metric tons of raw materials annually through extraction, purification and drying methods. The facility also houses Herbalife s quality control center of excellence, which routinely retests all products manufactured worldwide. The new $130 million Herbalife Innovation and Manufacturing (HIM) facility in Winston-Salem, N.C., which opened in May, will also enhance the company s ability to make quality products and, with added capacity, meet the growing needs of the company. The 580,000-square-foot plant the largest facility directly operated by Herbalife will house manufacturing operations as well as product development and quality laboratories. The facility will create an estimated 500 jobs in manufacturing, packaging, warehousing, engineering, quality control and other areas. Products manufactured in the Winston-Salem plant will be exported into more than 50 countries, to many of the company s more than 700 member access points worldwide, the company notes. The new facilities will be linked to Herbalife s other factories and distribution centers around the world through the Oracle information systems platform. The North American market is served by hub distribution centers in Memphis and Los Angeles and 10 other smaller regional sales centers. Any factory we directly operate runs Oracle s manufacturing module as its core operating system, Goudis says, noting that all the company s manufacturing data is backed up in a cloud infrastructure housed in Austin, Texas. Every factory runs the same metrics and analytics, which we can monitor centrally, and all products are planned using Oracle s Advanced Supply Planning mod- Summer

3 Herbalife says its use of an Oracle management system gives it a high degree of control. ule. In addition, the company uses Oracle s Agile PLM system as its repository and one source of truth for product formulations, specifications and labels Oracle s warehouse management system to run their largest regional distribution centers. Oracle helps us run a global company with even greater ease and most importantly, gives us the level of control over our proprietary data that we require, Goudis adds. Herbalife s other technology partners include IPTI, which provides its pick to light hardware; Interroll, which provides pallet flow racking; and TWG, which provides the conveyor systems used in the company s warehouses and factories. We want complete traceability of our products. Rich Goudis QUALITY CONTROLS The seed-to-feed program establishes a number of quality controls that Herbalife applies to its manufacturing, warehousing and distribution practices. Incoming materials are tested for identity, the presence of heavy metals, microbiology and pesticides. In addition, the 42 Summer 2014

4 identity of key herbal ingredients is verified through the company s botanical identification program, which established a fingerprint for botanical ingredients that all incoming materials are compared against. When we specify a botanical ingredient, we want to make sure we are getting the right kind of botanical every time, Goudis notes. Products go through at least five rounds of testing during the procurement to production process. That includes testing the products extensively to ensure they meet what is claimed on their labeling. In addition to testing, Herbalife assures quality by maintaining appropriate climates for its products to avoid spoilage. The temperature and humidity can be tracked electronically as they move through the shipping process. As our products journey through the logistics and warehousing environment, they re all kept under strict temperature monitoring and humidity controls, Goudis says, noting that products are shipped to countries in five distinct climate zones. We want to understand the environment our products will be in, so we can understand the nature of, and make changes to avoid any member or consumer complaints we might receive. // CRB USA // CRB teamed with Herbalife to provide Design/Build services for their multi-product nutritional supplement production facility located in Winston-Salem, North Carolina. Working with the Herbalife Team, CRB was responsible for overall project management, facility architecture, process utilities, mechanical, electrical, plumbing/fire protection, I&C design and construction management services. This Design/Build project went from concept to commissioning in 18 months. by its members, that can vary in size and scope from commercial spaces to homes. Instead of investing in weeks worth of products, customers pay a few dollars a day to enter the club and enjoy a single shake, tea and aloe. The JOIN THE CLUB Herbalife s $200 million investment in its single-instance Oracle platform also provides the company with the capacity to open up to five or six new markets a year. Much of the company s growth in recent years does not come from new markets, but instead is a result of a transformation in its sales model from having customers periodically buying large quantities of Herbalife products to a daily consumption model, where consumers essentially purchase by the serving, Goudis says. In this model, customers typically visit Nutrition Clubs established Summer

5 the marketplace, and also have a robust scientific advisory team that includes some of the leaders and influencers in areas such as obesity, heart health and nutritional supplements, Goudis says. We react to this input while sticking to our core product category offerings. lower price point opens up a larger market of people who can afford to buy our products, he adds. The daily consumption model started more than 10 years ago in Mexico, which is now the second largest country in Herbalife s portfolio. In addition to shaping the company s The company tests all incoming materials to ensure they are the right botanicals for the products. business model, consumers and members also play a role in helping the company develop new products and flavors. The majority of the company s research and development efforts take place close to local markets. We get a lot of input from our members on what they would like to see in LEADING CHANGE Herbalife s growth and traceability strategies are driven by a management team that was hired specifically with the Decade Plan in mind. For us, growth is not just a matter of finding a warehouse or acquiring a company, it s about investing in a management team to execute a core strategy that will create a competitive advantage for years to come, Goudis says. Goudis joined Herbalife in 2004, initially as the company s CFO. In 2010 he became COO, and today, Herbalife employs 18 executives from Goudis past two companies Rexall Sundown and GNC. This group of industry leading executives includes executive vice president David Pezzullo, senior vice presidents Gerry Holly, Mark Evans and Gary Swanson and vice presidents Mike Locke, Jim Barton, Qun Yi Zheng and Kuei Tu Chang. Leading executives who joined the team from other industry-leading companies include senior vice presidents Joseph Plunkett, Bill Frankos and Pradip Mukerji. Herbalife s management and other personnel all excel at handling the complexity of a global business manufacturing and distribution operations in an efficient manner, Goudis adds. We recently had an investor visit, and he asked me what I thought our most valuable assets are. I said, `Our products and distribution, but what creates real value here is our culture, Goudis says. When you visit one of our facilities, you will find people who are passionate about nutrition and want to help others, and there s a real sense here of embracing and leading change. q 44 Summer 2014