Nautilus 2008 Annual Report Download - page 10

Table of Contents
MANUFACTURING AND DISTRIBUTION
Manufacturing
Our products are manufactured in the U.S., at our facility in Independence, Virginia, and at contracted manufacturing facilities in Asia. Our
primary manufacturing and distribution objectives are to maintain product quality, control costs, maximize production flexibility and improve
delivery speed. We have not experienced any significant difficulties with availability of raw materials or the flow of products from our sourced
providers.
Our commercial strength fitness products, and certain commercial cardiovascular products, are primarily manufactured in our Independence
facility. The Independence manufacturing operations are vertically integrated including metal fabrication, powder coating and upholstery
functions. By managing our own manufacturing operations, we have greater control over the quality of our commercial products and are able to
offer customers build-to-order capability and unique product configurations. Many of our strength products are made to order, which allows for
customization of colors and other options, yet also lengthens the manufacturing and delivery cycle compared to products in other business
segments. We have processes in place to expedite the manufacture and the delivery of custom orders. Approximately 230 people are employed in
our Independence operations.
Prior to January 2009, cardio products for our commercial business were also manufactured in Tulsa, Oklahoma. In July 2008, we decided to
close our Tulsa manufacturing plant as part of a company-wide restructuring strategy. The StairMaster products and specialized treadmills, are
now produced at our Independence location. Elliptical bikes and some treadmills formerly manufactured in Tulsa are now manufactured in Asia,
as are indoor cycling bikes and selected other cardio products.
Substantially all our direct and retail business products are manufactured by third parties in Asia. We attempt to remain apprised of our
suppliers’ ability to meet our product needs and participate in quality assurance activities to help reduce the risk of marketing substandard
products. We believe our relationships with our Asian suppliers, and the quality of the products they produce for us, to be good. Other than our
contract with Land America Health & Fitness Co., LTD. (“Land America”), which expires in December 2010, our third-party manufacturing
contracts are terminable by either party on relatively short notice. There is no assurance that we will be able to maintain our current relationships
with these parties or, if necessary, establish future arrangements with other third-
party manufacturers on commercially reasonable terms. Further,
we cannot assure that their manufacturing and quality control processes will be maintained at a level sufficient to meet our needs and to prevent
the inadvertent sale of substandard products.
Distribution
Our distribution facilities are located in Portland, Oregon and Independence, Virginia in the U.S., and Winnipeg, Manitoba in Canada. We also
have third-party warehousing and distribution arrangements to assist us in managing product movement in the United States, the Netherlands,
United Kingdom, Switzerland and Germany. We have reduced the number of distribution centers over the last two years in order to allow for
more efficient product flow to our customers and reduce our overhead costs.
In our direct business, we strive to maintain inventory levels which will allow us to ship our products shortly after receiving a customer’s order.
Because our direct business products are manufactured in Asia, we have long lead times between placing an order with the third-party
manufacturer and delivery of the products to our distribution centers. We compensate for the long lead time by monitoring our safety stock to
ensure we maintain adequate inventory levels. We use FedEx Corp. for the delivery of substantially all of our direct business products in the U.S.
and Canada. We have a three-
year agreement with FedEx Corp. which ends at the end of 2011. Our direct business product inventory is stored in
our Portland and Winnipeg distribution centers.
We manage our retail inventory levels to accommodate seasonal changes in anticipated demand. We generally maintain higher inventory levels
at the end of the third quarter, to satisfy consumer demand in the fourth and first quarters of each year. Many of our retail customers place orders
well in advance of peak periods of consumer
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