DC Velocity - IdeaBook 2017

2017 dB

2. Scale and technology. Amway does not manufacture a product itself unless it has the scale and/or technology that make controlling the manufacturing process a competitive advantage. An example of scale would be the more than one billion soft-gel capsules Amway produces annually, with four production lines in Ada running around the clock to meet global demand. An example of value-added technology is Amway’s powdered laundry detergent: the company developed a process that makes the detergent especially effective, with more surfactants per gram of carrier than other detergents. Meanwhile, Amway has stopped manufacturing a number of items, such as food bars, bar soap, and corrugated cardboard, where it does not add value and which can be purchased from outside suppliers without compromising quality or availability.

Sometimes there’s an added bonus when Amway decides
to stop manufacturing a product or component. When the
company stopped manufacturing its own corrugated car-
tons, it filled the space that was freed up with a digital label
press that produces different kinds of labels on demand.
“Now we’re able to make labels as we need them instead of
ordering massive reels of different labels from a supplier,”
Calvert says. “In each case where we have freed up capacity,
we try to pivot from a low-value-add commodity to some-
thing of much greater value.”
A related consideration is efficiency. In one recent case,
Amway brought production of an ostensibly low-value
item back in-house. In Michigan, the company had been
purchasing thousands of truckloads of empty bottles for
products like shampoo and protein powder—on the order
of 100 million bottles a year—which required a lot of
storage space and generated significant handling and trans-
portation costs. Now it brings in railcars of HDPE plastic
material and blow-molds and silkscreens the bottles itself.
“A bottle that’s blow-molded from a very small amount of
HDPE can be in production the next day,” Calvert points
out. “We fill them, put them in cartons, and produce labels
as needed. We’re extremely lean, as opposed to having
massive storage centers with truck after truck after truck of
bottles coming in.”

3. Ability to be responsive. For Amway, manufacturing
product lines that are subject to significant demand fluc-
tuations closer to major markets has paid dividends in
terms of responsiveness. Calvert cites the example of water-
and air-filtration systems. The company used to import
components from Asia, manufacture the products in the
United States, and then ship finished goods to domestic and
international markets. But Asia was by far Amway’s biggest
market for the filtration systems, and unpredictable events
like an air pollution crisis in South Korea or water contam-
ination due to swine flu in China could boost demand to
10 times normal sales for some items. Amway worked with
an Asian supplier that could expertly integrate the printed
circuit boards and do final assembly of the filtration sys-
tems. That cut lead times from demand signal to availability
in a local warehouse from 150 days to 47 days. “If we had
decided to keep water- and air-treatment products in the
U.S., we wouldn’t have been fast or agile enough to respond
to changes in demand, and I don’t think we would have
seen the growth in durables that we have,” Calvert says.
It’s critical, he adds, to maintain innovation and reliability
regardless of where a product is manufactured.
In addition to those three top-line considerations, a num-
ber of other factors influence the “make vs. buy” decision.
Quality control, of course, also plays a leading role. Amway
has invested some US $335 million over the past four years
in building new production capabilities for some of its
nutrition, personal care, and beauty products. Calvert cites
the examples of concentration and extraction facilities for
botanicals that come from its farms; vitamin production
in the United States; a nutrition, beauty, and personal-care
manufacturing plant for India, which had previously been
outsourced; and new nutrition and personal-care facilities
for Vietnam. “Those are businesses where control of mate-
rials production is very, very important,” he says. Customer
preference also matters; global consumers, for instance, put
a premium on nutritional supplements that are U.S.-made.
x Headquarters: Ada, Michigan, USA
x Markets: Operates in more than 100 countries,
representing more than 90 percent of the world’s gross
domestic product
x Annual sales: US $9.5 billion in 2015
x Employees: More than 19,000 globally
x Products: About 450 products in categories including
nutrition, cosmetics, personal care, and home care
x Certified organic farms: USA ( 2), Mexico, and Brazil
x Manufacturing plants: Ada, Michigan ( 10), Buena Park,
California ( 2), and Quincy, Washington, USA; Tamil Nadu,
India ( 2); Guangzhou, China ( 4); Binh Duong and Ho Chi
Minh City, Vietnam
x Major distribution centers: Ada, Michigan, and Santa Fe
Springs, California, USA; Venlo, Netherlands; Guangzhou,
China; Busan, South Korea; Moscow, Russia.