Mattress maker Purple Innovation realized a “significant breakthrough” in Q2 2024 gross margin from multiple supply chain improvement initiatives, COO Eric Haynor said on an Aug. 9 earnings call.
The company’s efforts have included diversifying its supplier base, optimizing its logistics network, implementing a systematic planning capability and improving manufacturing efficiency.
Focusing on improving the company’s gross margin has been a priority for Purple’s supply chain management team, Haynor told Supply Chain Dive in an interview. The mattress maker has been pulling out of a financial slump this year, with net revenue up 2% year over year in Q2 while its gross margin rose to 40.7%, up from 30.1% in Q2 2023.
Diversifying the supplier base
Purple started accelerating its supplier diversity efforts last year, shifting from a sole supplier model for materials such as the chemicals used in the manufacturing of its GelFlex Grid.
Purple analyzed what Haynor calls “the should cost” by asking determining the proper price for materials based on marketplace metrics such as commodity indexes. This was particularly critical when evaluating chemical suppliers, as Haynor’s team noticed chemical commodity indexes were going down but supplier costs were not.
When the company evaluates quotes from suppliers for its manufacturing chemicals and other materials, it also makes sure to assess each potential candidate’s qualifications and product quality, according to Haynor.
“The primary thing is, you need to make sure you have competition battling for your business, and that comes down to having more than one supplier for the items,” Haynor said, noting that having a more diverse supplier base has also helped Purple improve its resilience.
Altering its supplier base has not had a negative impact on Purple’s supplier relationships, Haynor said, noting that there are some forms of contractual relationships in place wherein the company makes volume assurances.
“We're not asking our suppliers to lower their price; we're changing the supply chain to take cost out."
Eric Haynor
Purple COO
“So I haven't found any problems in having those discussions. And usually suppliers are happy to fight for the business, earn the business, and they're really happy when they win it,” Haynor said.
Purple has also evaluated its internal capabilities through a “make versus buy analysis,” Haynor said. This process has led the company to vertically integrate and bring sourcing for pillow assemblies in-house, for example.
“We're not asking our suppliers to lower their price; we're changing the supply chain to take cost out,” Haynor said.
Purple is still working on supplier diversification and expects its efforts to deliver further savings later this year, Haynor said on the Q2 earnings call.
Even as it benefits from reducing its reliance on single suppliers, Purple is still finding the right balance in its production footprint. The company announced plans to close two manufacturing facilities by Q1 2025 in August. Despite the closures, Haynor said the company’s deployment of lean manufacturing across the organization has driven efficiency improvements.
Fill the truck
Optimizing its logistics network has been an exercise in simplification for Purple, according to Haynor.
“Where you save money in logistics is by filling up the truck and driving less miles,” Haynor said.
To cut costs and mileage, Purple introduced what it calls its scheduled delivery program. Instead of shipping individual orders via an less-than-truckload carrier, the company now takes multiple orders and combines them into a single trip with multiple stops.
Haynor said the program “has been hugely successful,” adding that the company’s delivered in full on-time performance is now hovering near 95%.
“Where you save money in logistics is by filling up the truck and driving less miles.”
Eric Haynor
Purple COO
Haynor also said that Purple has evaluated its partial network to improve shipping efficiency and reliability. For example, it may combine two sets of sheets into one box rather than shipping them separately.
Taking things a step further, Haynor said the mattress maker has changed its inbound network so that product coming from overseas goes straight to destination warehouses, which ship to customers directly.
“There's a ton of little pieces that you do with optimizing your logistics network to figure out what the best way to get to your customer at the lowest cost,” Haynor said.
Pushing planning performance
For years, Purple conducted its supply chain planning on disconnected spreadsheets, so what it bought didn’t always line up with what it expected to sell, according to Haynor.
To solve the issue, the company deployed material requirements planning (MRP) modules in its existing enterprise resource planning (ERP) system. The nine-month project required extensive data collection and testing, but now Haynor is more confident that the company’s forecasts translate into production and purchasing plans.
“It's been a big win for us,” Haynor said. “And this is the sort of thing that is transformational for a small company.”
Since the system was deployed in May, the company has reported lower inventory and higher levels of service, according to Haynor.
“The best part is, is that the team can now pull the levers,” Haynor said. “They can decide what their inventory is. Instead of the inventory being an outcome, what they did without information, they're setting parameters that allow us to determine what the outcome is.”
