New Hope 360 Blog

How NOW Foods cuts costs while maintaining quality

RSS

NOW Foods, which sometimes takes heat for its low prices, isn't cutting quality. Instead, its economies of scale and manufacturing efficiencies account for its cost advantage.

One of my colleagues recently visited the headquarters of a well-known natural foods brand. The top gun's personal office occupied a footprint that rivals the entire office-space square footage that houses two dozen editors here at New Hope Natural Media. This company makes products that most everyone agrees are of high quality. But these products cost a lot too.

Contrast the above picture with the offices of NOW Foods in Bloomingdale, Ill., which I visited recently. True, the offices are connected to the manufacturing facility. Still, the foyer at NOW Foods, one of the biggest supplements manufacturers in the business, is underwhelming by comparison. It’s bright, clean and well appointed, but no more so than the waiting room of one of the newer Grease Monkey franchises.

And that’s the way they like it at NOW. It’s a company that prides itself on its thrift and on remaining true to its mission of offering high-quality supplements at affordable prices.

One criticism of NOW that we frequently hear is that the company must be cutting corners on quality given the price points of many of their products. This is a challenge that company officials are eager to answer.

“I don’t think any company in our industry has ever had our economies of scale,” said Neil Levin, nutrition education manager at NOW Foods.

NOW Foods sells almost exclusively through natural-channel retailers, whom they support with training and information. NOW also brings in staffers from Whole Foods Market and other retailers for tours of its factory.

“They can see how we operate and that we’re not chintzing on quality,” Levin said. “They are usually impressed when they take our tour.”

Take the NOW Foods tour

NOW’s facility occupies 263,000 square feet.  NOW was certified by the Natural Products Association for compliance with the U.S. Food and Drug Administration's GMP regulations in 2000, which set staff training requirements, testing parameters and documentation requirements among other things. It undergoes NPA audits of GMP compliance every two years.  NOW’s facility was recertified by NPA in 2009 and the facility passed FDA inspection in 2010. But the facility also incorporates up-to-the-minute manufacturing techniques that are not unique to the supplements industry.

NOW has more than 1,500 SKUs of its own and also manufactures private label products. To meet this demand, the manufacturer sources hundreds of different raw materials. Sophisticated inventory software keeps track of every bag and box via bar codes and readers, allowing employees to keep tabs of every lot through inspections and testing phases (all done in on-site labs) and follows it through the manufacturing process. Automatic forklift-like machines follow wire guides buried in the floor. Employees need only control the speed and stop at the appropriate bay of the warehouse, where racks soar for three unbroken stories. This allows NOW to cut the handling costs for its dizzyingly complex inventory.

The focus on cost continues through the manufacturing process, said Chief Operating Officer Jim Emme. For example, the company seeks first to refurbish a used machine rather than purchasing new.

And costs are saved on the back end in the shipping department. NOW has a sophisticated shipping line controlled in large part by computer that has been a model for others in the industry, Emme said. It allows the company to efficiently package orders for smaller retailers as well as servicing the Whole Foods of the world.

A bar-coded package label alerts the system to what products should go in the box. As the order makes its way along a U-shaped roller table, readers keep track of its position. When it comes abreast of one of the many hundreds of open boxes of products flanking the table, a light will flash over the bin that contains products that should go in the order. A number also will flash, altering the order filler as to how many bottles or bags to grab. So employees don’t have to read and remember which product is needed and how many; they just grab and go. The system also keeps track of how much each completed order should weigh to help catch mistakes.

NOW Foods’ streamlined process doesn’t quite reach the level of the just-in-time efficiencies achieved these days in automobile manufacturing. But, given the stop-and-start nature of the supplements business and NOW’s vast product lineup, it’s the next best thing. The company says these cost savings, coupled with its commitment to run at a lower margin than some of its competitors, are what allow it to sell products so inexpensively. Even NOW has its limits, though.

“We can’t compete with everybody,” Levin said. “There are some companies that you wonder how they price their things, because they're priced so low you couldn't even afford quality raw materials.”

Please or Register to post comments.

What's New Hope 360 Blog?

Your home for commentary from around the healthy lifestyle industry

Blog Archive