Mattress Manufacturer Seeks Margin Boost Through Diversified Sourcing and Simplified Distribution Operations
# Reasons for Purple’s Reorganization of Suppliers and Logistics Network
This mattress manufacturer has improved its gross margin by diversifying procurement and simplifying distribution operations.
Published on September 16, 2024
Editor: Philip Neuffer
Eric Haynor, Chief Operating Officer at Purple Innovation, stated during the earnings call on August 9 that the company achieved a “significant breakthrough” in gross margins for Q2 2024, thanks to several supply chain improvement initiatives.
The company’s efforts included diversifying its supplier base, optimizing the logistics network, implementing systematic planning capabilities, and enhancing manufacturing efficiency.
According to Haynor’s interview with Supply Chain Dive, focusing on improving the company’s gross margin has been a top priority for Purple’s supply chain management team. The mattress manufacturer successfully emerged from financial difficulties this year, with net income growing by 2% in Q2 compared to last year, and gross margins rising from 30.1% in Q2 2023 to 40.7%.
### Diversifying Supplier Base
Purple accelerated its supplier diversification efforts last year, shifting from a single-supplier model to sourcing chemical materials for the production of GelFlex Grid from multiple suppliers.
The company determines appropriate material prices through market indicators such as commodity indices, a process Haynor refers to as “cost-to-serve” analysis. This is particularly crucial when evaluating chemical suppliers, as Haynor’s team discovered that while commodity indices were declining, supplier costs remained unchanged.
When assessing supplier quotes, the company also evaluates each potential candidate’s qualifications and product quality.
“The most important thing is ensuring there’s competition vying for your business, which boils down to having multiple suppliers for each project,” said Haynor, noting that a more diversified supplier base has also helped Purple improve its resilience.
Haynor stated that changing the supplier base did not negatively impact Purple’s relationships with suppliers, pointing out that the company provided volume guarantees in certain contractual arrangements.
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“We’re not asking suppliers to lower their prices; we’re reducing costs by altering our supply chain.”
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Purple COO Eric Haynor
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“I haven’t encountered any issues during these discussions. Typically, suppliers are eager to win business and are very happy when they succeed,” said Haynor.
Haynor also mentioned that Purple evaluates its internal capabilities through a “make vs buy” analysis. This process has enabled the company to achieve vertical integration, such as moving pillow assembly procurement in-house.
“We’re not asking suppliers to lower their prices; we’re reducing costs by altering our supply chain,” said Haynor.
Purple is continuing with supplier diversification efforts and expects further cost savings later this year, according to Haynor’s remarks during Q2 earnings call. Although benefiting from reduced dependency on a single supplier, Purple continues to seek the optimal balance in its production footprint. The company announced plans in August to close two manufacturing facilities by Q1 2025. Despite these closures, Haynor noted that lean manufacturing initiatives implemented across the organization have driven efficiency improvements.
### Loading Trucks
According to Haynor, optimizing the logistics network is a practice of simplifying processes for Purple.
“The way to save costs on logistics is to load trucks fully and reduce mileage,” said Haynor.
To cut down on both cost and mileage, Purple launched what it calls its planned delivery program. Instead of shipping individual orders via less-than-truckload carriers, the company consolidates multiple orders into a single multi-stop trip.
Haynor noted that this project has been “very successful,” with the company’s on-time full deliveries now approaching 95%.
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“The way to save costs on logistics is to load trucks fully and reduce mileage.”
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Purple COO Eric Haynor
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Haynor also mentioned that Purple evaluated parts of its network to improve transportation efficiency and reliability. For example, two sets of bed sheets might be combined into one box instead of being shipped separately.
Going further, Haynor said the mattress manufacturer changed its inbound network so that products from overseas are directly delivered to destination warehouses before being sent out to customers.
“There are many small steps in optimizing your logistics network, finding the best way to reach customers at the lowest cost,” said Haynor.
### Driving Planning Performance
For years, Purple conducted supply chain planning on disconnected spreadsheets, leading to procurement not always aligning with expected sales, according to Haynor.
To address this issue, the company deployed a Material Requirements Planning (MRP) module within its existing Enterprise Resource Planning (ERP) system. This nine-month project required extensive data collection and testing but now Haynor is more confident that forecasts can translate into production and procurement plans.
“This has been a major win for us,” said Haynor. “For a small company, it’s transformative.”
Since the system was deployed in May, the company reported lower inventory levels and improved service levels according to Haynor.
“The best part is now the team can control the levers,” said Haynor. “They can decide on inventory rather than having it be an outcome of lack of information; they are setting parameters that allow us to determine outcomes.”
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Source: Supply Chain Dive
