Numi Organic Tea: Value Chain, IT, and E-Business

Task: Read the "Numi Organic Tea: Value Chain, IT, and E-Business" case below and then consider the following questions.

>> Brian Durkee: Well, Numi is a triple-bottom-line company, which means our focus is on people, planet and profit.

Hi, I'm Brian Durkee. I'm the Director of Operations for Numi Organic Tea, and a big part of my role at Numi is to really manage that. And it's beyond just taking care of the employees. Numi has 50 employees in the US. But the people who dedicate the majority of their time on Numi products, that number probably exceeds 300. And those are the people that I have to indirectly look out for.

The overview of how our products are produced is that we are a tea company, we are sourcing products from primarily underdeveloped countries, which is why we're very big on fair trade and we insist on that and our supply chain model.

We don't move business overseas, or we don't do business overseas to reduce cost and to try to exploit a system. Tea is very labor-intensive, and it's something that the US is just not interested in getting involved with. I think some of the biggest challenges in China is getting the people in China and the managers of the factories to understand how we want things done and to make sure, one, our quality is there; and two, the level of a sustainability that we expect in a supply chain. How are they handling their waste? How are they packing our products? And three, how are they treating their workers? That's one of the reasons why we spend a lot of time in Asia. The owner of the company and myself spend a lot of time there meeting with factory managers, meeting with the workers, doing our own discovery process with the workers. And we are not trying to change their culture by any means, but we are trying to improve the standard of living for them.

>> Ahmed Rahim: They want to work with us, and I think they see the size that we can grow to and the size of business we can give to them. They see that these are Numi's values. Hi, I'm Ahmed Rahim. I'm the Co-Founder and CEO of Numi Organic Tea. We have to give them the power and the understanding of what they're buying into. Because just to say "You have to dO is... they can still do it with resentment but if you're explaining to them "Hey, if you . you know, this is what you're doing too to help the cause. Sure you're going to make some money off of Numi, and you're going to sell us a lot of product, but it's really important for them to understand why you're doing it, and for them to really buy into it and to get excited about it.

>> Brian Durkee: In 1999 we began working with our [inaudible] supplier. And we've grown with him tremendously, and we are his largest customer. I believe we've always been his largest customer. We spent a lot of time this year out there helping him improve his factory and providing him money and funds to get better workers, to get better work conditions and to get a better factory in place. And he's starting to implement changes himself. And that's when we we're having some success; if we can leave a mark and then we can leave the situation and have continue to improve itself.

We finally, after a lot of trying, we've got these boxes done; they're going to be done with a recycled content now. And one of the things I need to run by marketing...

>> Is that the 65 or 85%?

>> Brian Durkee: It's going to be a minimum 85%.

>> Wow!

>> Brian Durkee: But what we can't do, because of the mill's obligation, and for legal purposes, the mill cannot publish, the percentage on the box, as you see here. So what we can do is to put on the box a tagline that says "This box is made from recycled fiber."

^M00:03:36 And my personal goal for Numi is to become among the elite as far as how we manage a sustainable supply chain. We're looking at the most sustainable methods of packaging our goods, transporting our goods and producing our goods. And we are able to accomplish that by not using cello-wrap on our boxes, by using sustainable materials in our supply chain, and by minimizing our overall waste and footprint.

>> Ahmed Rahim: If you are working with chemicals, but you're taking care of the farmers, but then you're polluting the farmers with the chemicals. So every single aspect of the supply chain you can use virgin paper and tear down thousands of trees, whereas you can use paper that's been post-consumer waste and reuse it and put beautiful packaging on it and it looks great. People would have no idea that it was post-consumer waste. So the whole supply chain from beginning to end product, to the shelf, is so important for us.

>> Brian Durkee: So we need to have a good forecast, we need to have a good plan in place. We can't simply pick up the phone and order these materials. As far as profit, obviously a big part of my job is to make sure we are profitable. I have to manage the cost of goods, I have to manage the production processes. So we are always looking at ways to save cost, which is kind of counterintuitive in fact that you are trying to spend money to improve the sustainability of your product, you

are trying to spend money to improve fair trade, and you are trying to spend money to improve the quality of your product, but you also looking for cost reduction. And that's one of the biggest challenges that I'm faced with.

In the early days we actually managed most of the business with Excel spreadsheets. We actually operated the business with QuickBooks, which a lot of small companies do. And now we're servicing customers like the Costcos, the Targets, the Safeways, and we're distributing product to 22 countries worldwide. So our systems are very necessary to be compliant with all the different countries and the different languages and weights and measures and international regulations.

We manage all of the importing, all of the quality control, all of the sampling, all of the purchasing and inventory. We have three third-party partners that we work with: one is here in California, one is up in Canada, and we are beginning to work with one over in Asia where the tea is grown. If we were to own our machinery, we have not only to put up that capital, but in addition we would have to deal with fluctuating costs as far as downtime, machine time, worrying about the volume of products we're making, where at this point, our materials go there and we simply contract them to put in the tea bags for us per our specifications.

So about the time I came on, we started introducing the ERP system. We have inventory management accounting system, where we manage our inventory in multiple countries all through the same software program. We simply push a button and say, "We need make this product," and the system pulls all the lots, all the materials for us in multiple locations, and know that it's accurate and know our value of our inventory and know the cost of goods very clearly.

It really has helped reduce our costs, it's helped improve our customer service, and most importantly, it's helped us manage our business more efficiently. And it gives us complete visibility of what we are trying to do, and it keeps everyone on the same page. So anyone can log into the system and see exactly what's going on and where we are. That's a big part of our transition, from going what's in people's minds to going and replacing that with process. And when you replace that with process, that's when you can really grow.

QUESTION

(a) Based on this case study, what issues with China-based suppliers require Numi's managers to use influence and persuasion tactics?

(b) How does Numi get suppliers to comply with its policies?