Nutrisystem 2008 Annual Report Download - page 12

appointments with existing customers. Sales agents and counselors are available 24 hours per day, seven days a
week. Sales agents are paid primarily on commission while counselors receive an hourly wage.
We seek to hire counselors with backgrounds in psychology, sociology, nutrition, dietetics or other health-
related fields and with suitable temperaments to talk with our customers. Our counselors are more experienced
and have more training than our sales agents. Counselors are trained in our meal plan, our Internet chat service,
email, voicemail, motivational techniques and customer service problem solving.
Customer Service
As of December 31, 2008, we employed approximately 145 customer service representatives. Customer
service representatives are trained to handle in-bound calls and email from customers who have questions or
problems with an order after the sale transaction is completed. Typical customer inquiries relate to arrival date of
their order shipment, report of missing or damaged items and credits and exchanges. For email inquiries, we have
a software system that scans the customer’s email message for key words and automatically supplies the
representative with a form response that is reviewed, edited and sent back to the customer. Customer service
representatives are typically available from 8 a.m. to 12 midnight, Monday through Friday, and 8:30 a.m. to 5
p.m. on Saturday and Sunday. Customer service representatives are paid an hourly wage.
Fulfillment
We operate an integrated order receipt, billing, picking, shipping and delivery tracking system comprised of
proprietary and third party components. This system integrates the front end, or website customer interface, with
order processing and shipping, and allows Internet customers to access shippers’ order tracking numbers online.
Our computer-assisted picking system allows for virtually paperless order picking in all warehouse facilities.
We operate an integrated network of distribution facilities of which one is company-owned and four are
outsourced. In 2008, we undertook a complete review of our entire supply chain management function which
enabled detailed studies on product cost improvements, vendor productivity, warehouse efficiencies and key cost
center opportunities. This effort resulted in improvement in our inventory management and allowed for the
reduction of our outsourced distribution facilities. In 2008, more than 85% of our fulfillment was handled by our
outsourced provider. We have entered into a service agreement with our outside fulfillment provider, which
provides for storage, handling and other services, pricing and minimum space commitments. The current contract
expires on October 31, 2011, but may be terminated sooner by either party upon 30 days written notice. There are
other outside fulfillment providers that could be utilized if needed and we are continually evaluating the need for
secondary fulfillment services.
In 2008, approximately 99% of all direct customer orders were shipped within two business days of the day
received. In addition, we can ship to approximately 99% of the domestic population within four business days
using standard ground transportation. Direct customers are not charged for their orders until the ordered product
is shipped. We do not charge customers for shipping and handling on Auto-Delivery food orders provided
customers take receipt of their second order. If a customer cancels before receipt of a second order or postpones
their second order for more than 30 days, the customer will be charged for shipping and the difference in pricing
for an Auto-Delivery order versus a non Auto-Delivery order.
Product Development
All of our foods and supplements are currently outsourced from more than 30 manufacturers or vendors. We
have entered into supply agreements with many of these food vendors. The majority of these agreements provide
for annual pricing, annual purchase commitments, as well as exclusivity in the production of certain products,
with terms of five years or less. One agreement also provides for certain rebates to us if certain volume
thresholds are exceeded. All of these contracts may be terminated by us upon written notice, generally between
30 and 180 days. We anticipate meeting all annual purchase commitments.
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