May 13, 2020
Thriving Through Disruption
Register to watch our roundtable discussion with Spend Matters and Virtex Enterprises.
Spend Matters’ analyst Nick Hienzmann shares how the current pandemic has impacted global supply chains. The CEO of industrial manufacturer Virtex Enterprises explains how the electronics manufacturer has kept on-time delivery over 90% during this challenging time by transforming procurement and supplier collaboration. SourceDay CMO Sarah Moore moderates the conversation and provides valuable insight about what manufacturers around the country are doing to keep up right now.
Brad provides the vision and direction for VIRTEX’s ten locations. Mr. Heath founded VIRTEX in 1999, after more than fifteen years of working in process engineering, manufacturing operations and supply chain. Brad’s background means that VIRTEX has organizational, process, management, and operational excellence in its DNA, as well as the expertise required to deliver quality and lean manufacturing.
Nick currently covers multiple categories for Spend Matters PRO, including contract management (CLM), fraud and startup vendors. Point analyst for CLM SolutionMap. Project manager for Spend Matters Nexus engagements.
With over 25 years of enterprise software experience Sarah oversees global marketing for SourceDay, including brand marketing, demand generation, field marketing, partner marketing, events and all digital marketing programs.
How Virtex Has Managed COVID-19 Disruption
Hear from CEO of Virtex Enterprises Brad Heath, how his team has been able to navigate COVID-19 supply chain disruption.
Read the Transcript
Sarah: Thank you so much for tuning in. For those who didn’t hear my spiel about housekeeping, a couple of things as we kick off. We really want our discussion this morning to be interactive, so we have a handful of poll questions that we’ll sprinkle throughout this presentation. When you see those, just as you did when you first logged in, please complete those. What we learned from you all this morning is that about half of you are industrial manufacturers. We have a handful of distributors and retailers, some SourceDay partners and also SourceDay customers with us this morning.
So we are so glad you joined us, it’s going to be a great discussion. Another bit of housekeeping is that throughout the conversation this morning, if you have questions, there is a chat window within the GoToWebinar control panel that you’ll find at the bottom of the gray bars. Feel free to log those questions as we go, and then toward the end of the presentation, we’ll be sure to save a few minutes to get some of those answered. So as I said, we’re here to inform you, maybe even entertain you a little, inspire you, and so I want to make sure that you could feel like you can participate in the conversation as well. So with that, here’s our agenda.
Quick round of introductions, then we’ll have a short round table discussion with myself and my two co-presenters this morning, Brad Heath, CEO of VirTex Enterprises, and Nick Heinzmann, analyst at Spend Matters. Then Nick will roll into a presentation that he’s prepared with some really fascinating findings and research around the topics of agility, resilience, and how to master complexity in business and supply chain. Then, so that we don’t leave you hanging, I’ll share a really brief overview of our business at SourceDay and the product so that you can see some of the tools that Brad’s team is using to stay ahead of all the change that’s happening right now. And then, as I said, there’ll be live Q&A at the end. So with that, I’ve already introduced myself, Brad, will you please tell everyone who you are?
Brad: Sure. Brad Heath, I’m the founder and CEO of VirTex. VirTex was started 20 years ago here in Austin, Texas. Originally, we started as a low volume prototype by electronic manufacturing assembly. And today, we do product development design, global supply chain manufacturing for Fortune 50 and 500 companies typically, but variety. Most of our customers are in either the aerospace and defense, medical or industrial space, although we do a few automotive customers in that space as well.
Sarah: Awesome. And, Nick, throwing to you now.
Nick: Hi there. My name is Nick Heinzmann. I’m a research analyst with Spend Matters. If you don’t know us, Spend Matters is an IT analyst firm focused specifically on technology for procurement and supply chain management. So SourceDay is one of those companies that fits well within our orbit, in addition to the whole gamut of companies, offering technologies for e-procurements or sourcing or contract management and everything in between. I cover contract management at Spend Matters as well as other areas including fraud and niche solutions that may not fit yet in a box.
Sarah: Fantastic. So with that, let’s roll into your presentation.
Nick: Great, thanks. And hello to everyone on the call today, thanks for making the time to discuss this critical issue with us. And now more than ever, your time is scarce, and that many of you are joining us from your homes, where plenty of other people may be competing for your attention. We’ll get this discussion focused to ensure you leave with actionable recommendations you can implement quickly, even in the midst of a crisis. And speaking of crisis, COVID-19 is certainly unique. While the effects the pandemic has had in our daily lives are unprecedented, our vulnerability to this kind of event was actually well understood beforehand.
There’s been a lot of talk about how COVID-19 was a black swan event that no one could prepare for. But if you dig a little bit into the past, you’ll find that’s not true. Take a look at this “Time Magazine” cover, that was from May 2017. Three years ago this month. So our experience with SARS and H1N1 and multiple other diseases, scientists knew well in advance about the potential for a serious outbreak. The World Health Organization even listed Middle East Respiratory Syndrome Coronavirus and Severe Acute Respiratory Syndrome as two priority diseases they were tracking for the potential to create major global disruption.
The government knew how unprepared they were to manage [inaudible 00:04:21]. So rather than a black swan, COVID-19 is more accurately thought of as a gray swan, which is a potentially significant event that is considered unlikely to happen, but still possible. Okay, so why the semantics? Because even if the crisis is unique, unknowable risk isn’t a problem. It’s the design and capabilities [inaudible 00:04:39] themselves. The truth is that no one can 100% accurately model or predict the future. But you can adapt your supply chain organization to be ready for anything, or as a faulted MIT put it, you can be ready to pivot. The longer this pandemic stretches on, the harder it becomes to remember what business as usual felt like.
But 2019 was pretty crazy, and so were a lot of years before that. Manufacturers have been facing geopolitical instability, cyber attacks, hurricanes, and supplier bankruptcies, and trade wars, you name it. It’s probably happened in the last five years. And that’s just the external risks. There’s also ongoing trends like rising consumer demand for personalization, or shifts to e-commerce that are reshaping how supply chains need to operate. To put it plainly, chaos is normal. At least, that’s what the authors of this MIT framework say.
Chaos is what running supply chain was like in 2020, even if you have the best people and the latest tools, because the world is simply too complex to accurately predict everything that’s going to happen. And many businesses, this is exactly the mindset they apply. Customer orders come in, someone orders a plan for production, and then optimizes that plan for performance against the plan. But more often than not, the plans aren’t realized. It’s tempting to usually just blame poor execution. But just as often, unforeseen challenges are often the cause. So how do you address this? As you can see in the framework here, there are two factors, adaptability and capability, which is largely digital. The Y-axis is about creating greater flexibility across the supply chain by making planning, manufacturing, distribution, and logistics more adaptive towards demand volatility, customer expectations, and an increasingly unpredictable world.
The X-axis is about technological capabilities that advance flexibility and adaptability, as well as optimize for improved speed, economy, and reliability. And when you put those two things together, they create what we would term an agile supply chain. Now agile is probably a term you hear thrown around a lot these days, it’s kind of turned into a buzzword. But there is a real foundation for thinking about a deal analytically. And I think understanding the concepts can really help you explain the capabilities that you need to improve your own performance. Agility is an organizational capability that best enables different supply chain strategies, as you can see on the left of the graphic here.
Ability is defined as the power of moving quickly and easily, and also the ability to think and draw conclusions quickly. Supply chain agility fits this definition well in terms of being able to reconfigure internal resources and partner resources quickly, but also being able to develop an organizational capability to draw conclusions and surrounding the impending risks and make smart decisions quickly, that guides [inaudible 00:07:16] actions that you need to take. These attributes, in turn, enable three interrelated primary risk strategies, new resilience, responsiveness, and adaptiveness.
Responsiveness represents a firm’s overall strategy for how it reacts to external events like a pandemic or anything else for that matter. It means being able to act quickly when danger is spotted. Adaptiveness represents a broader approach to change in a business environment. An adaptable supply chain can adjust to new conditions or be modified for a new purpose. And resilience, which probably is the more familiar of these, describes the ability of a supply chain to prepare for unexpected events, or respond to disruptions and recover in a way that allows the organization to continue operations at the desired level of effectiveness.
Note that these strategies appear to overlap, but they are distinct. For example, while a responsive supply chain may be adaptive, as adaptation may be the response, and while a resilient supply chain may be responsive and respond to disruptions quickly, that’s not always the case. A responsive supply chain may simply be one that switches orders to secondary sources of supply when a primary source becomes unavailable, and then the supply chain stays the same until the primary source comes back online. Or, similarly, a resilient supply chain might be wanting to stop selling products or services that the disrupted supply chain provided, and instead [inaudible 00:08:35] out a different supply chain that provides similar products and services and sell those instead. That’s all great, but how do you enable those strategies?
While agility stay a fuzzy term, we like how this framework breaks the agility capability down into five concrete traits. First is alertness. An alert supply chain is one that continually monitors and is aware of what’s going on around it. Accessibility talks about a supply chain for all people who are responsible for it, have access to the relevant data and information they need to stay alert and make a decision. So a supply chain is hands off or a siloed data source is not accessible. Decisiveness is a capability where you can respond to issues promptly and execute actions immediately after decisions are made. And flexibility talks about one that can be easily modified.
That can take many forms. Suppliers with flexible manufacturing capabilities, flexible contracts that can adapt to new business conditions, or even flexible resourcing models to add labor capacity, or research that the supply chain organization might need in the middle of a crisis. And then last is swiftness, which we can also call speed. A swift supply chain is one that’s capable of acting fast. Agility is not just the ability to modify the chain wave, but be able to do it as fast as possible when speed is of the essence. And a really critical point here is that these traits are each intertwined with corresponding digital capabilities.
So the first one, alertness, it’s impossible to be aware of risks unless you’re continually monitoring them. And that takes some kind of intelligent capabilities, such as autonomous monitoring and use social media sites for potential risk events that could affect your suppliers. Or, for swiftness, that entails having tools like TO cooperation, in the case of SourceDay, that allow you to communicate change order to your suppliers instantly in bulk, and have all that data synced back to your ERP, which, by the way, also helps with the accessibility trait. Okay, last one. Agility and digital all sound great, but why does this matter? A supply chain can pivot, as well as it can be agile, it can be digital. But all of these are one supply chain that is correlated with not only better procurement performance, but also better business performance.
This last topic here is from Deloitte’s 2019 CPO survey, which we had the honor of helping them analyze and co-create last year. One of the interesting spins we did on the usual beta was create an index to think about complexity masters. Those organizations that have stood out for their top quartile performance and their ability to address complex business challenges. And what we discovered when we separated the leaders from the rest of the pack is striking. What sets complex masters apart is higher digital enablement, which, in turn, creates tighter alignment with other business functions and more flexible, again, digitally enabled operating models.
Top performing organizations are those that are most agile, which means they are fully enabled to respond to any challenge. That could be as run of the mill as expanding procurement influence into new spend categories or hitting savings targets, or it can be more complicated, like engaging a business partner with other functions to influence supply choices for a new product design. But no matter the goal, the overall trend is clear. Digital transformation is core to top performing procurements and broader business transformation. And speaking of complexity masters, we actually have one here today.
Although Brad is a CEO and did not directly participate in the study, based on our knowledge of his organization, we can confidently say that he represents just the characteristics we’ve been talking about, and the organizational investment needed in digital capabilities to obtain benefits. So without further ado, I’ll pass the mic back to Sarah, so she can introduce Brad.
Sarah: Thank you so much. That was great, Nick. And Brad, have you ever thought of yourself as a master of complexity? Is that part of your personal ethos?
Brad: Cool. Complexity is certainly part of our business.
Sarah: For sure.
Brad: And same thing to Nick’s point about resiliency, you know, and adaptability. With the kind of customers that we serve, you know, that’s a requirement for entry. You know, we have to have to have redundant supply chains, we have to have resiliency. In most cases, we’re sole source of supply for critical customers in the Defense Department and medical. So we have to be able to adapt, and adapt quickly.
Sarah: Right. And so as Nick talks about chaos is the new normal in 2020 during times of COVID or anytime, maybe you could start by giving us a sense of what your operations look like. You know, you gave us a background on what you guys do, but tell us a little bit about your growth story over the last few years.
Brad: Sure. So we started with a facility here in Austin. We ended up opening a facility in Mexico as well to service a customer that you know well in the ruggedized laptop world, did that for a number of years, and then did our first acquisition up in Milwaukee, Wisconsin. In 2017, I brought on a private equity partner. Since then, we’ve done several other acquisitions, we now have 8 locations and about 800 employees around the United States and, again, 1 facility down in Mexico. But that’s, you know, kind of the short version of who we are. So we operate in the Mid-Atlantic region, in the northeast, New England area. We operate in the Midwest and the Southwest.
Sarah: And it’s how many suppliers globally do you manage?
Brad: We’re over 100 suppliers. Yeah. In our top supplier list, it’s about 20.
Sarah: Okay. Okay, great. So it’s time for our second poll question for the audience, and I’ll throw it to you as well while they’re answering, Brad, tell us how COVID has affected your business.
Brad: So COVID has been a disruption to us, just like it has been for everybody. We saw significant drops in not only delivery times or on time delivery with our suppliers, but also difficulty in collaboration, in getting a hold of them because they did have a lot of people that were out. We dropped into probably mid-80s from an on time delivery across several sites from our suppliers, but we were still able to go ahead and maintain greater than 96% of on time delivery to our customer base because we had resiliency and because we had the ability to go ahead and react with our inventory, you know, we have various triggers. And we’ve had collaboration with our customers in that regard as well.
Sarah: So break down the change, you know, a little more specifically for us. So when you talk about disruption, that’s a big word, it can mean a lot of things across our customer base, you know, businesses that are thriving this time because, similar to yours, they’re an essential manufacturing of some kind. There’s a lot of move-ins that need to happen, a lot of products…
Brad: So kind of starting with where the disruption occurred, if you remember back to, you know, the start of COVID, you know, for those of us in manufacturing, it popped up in China, right in the middle of the Chinese New Year. So, you know, all of us plan for the Chinese New Year, we bring in a little bit of extra material, because we know they’re going to be closed for two weeks. You know, nobody plans that they’re going to be closed for six to eight weeks. So, we’ve got sources in China who weren’t open. They had the product, but there’s no one in the factory to ship it, there’s no one on the shipping docks to go deliver it, and there’s no one in the logistics side to go ahead and put it on a boat or a plane to get it here.
So, our first piece was sucking up a lot of the safety stock that we had in that six weeks and pivoting to some other suppliers, domestic suppliers, trying to bring in quicker sources of supply in some of those cases, where we did have things scheduled out through some of the offshore printed circuit board houses, some of our sheet metal suppliers, some of our plastic suppliers, where they were single source of supply. So we were able to do that. We were able to go ahead and change the order of a lot of our operations in the factories to work on material that we have, and then be able to shift resource around that down the road. But we got an early dose of, you know, what supply chain shutdown was even before any shutdown in the U.S.
Sarah: And it was, as Nick talked about, it was the fact that you’re using systems, your ERP system, you guys are running SyteLine, right?
Brad: We’re running a number of tools. So the Austin facility runs SyteLine. And then we use that as an accounting integration. But we have six different ERP systems across our ecosystem. We have a number of tools. SourceDay is one of those that we use for supply chain. Some of them are homegrown, some of them are BI dashboards, but we were exercising all of those very, very heavily, to go ahead and really get a view of not only what was happening in the site where I am in Austin, but I had to communicate heavily with all of our other sites throughout this to ensure that we were making sure that as we had capacity, if we had a problem crop up in one site where we were going to get shut down for a COVID outbreak in a facility, we had to be able to go ahead and shift product back and forth.
So we talked to our customers and got approval to go ahead and build, you know, some test runs in other sites, you know, all this contingency planning, right? Now, we ultimately didn’t have to do it, we put very, very tight controls in for monitoring employees, for protecting our employees, and have had no outbreaks in any of our facilities, including the one up in New Jersey area. So we’ve been very excited about that, the protections that we did for our employees who are working, and all of our employees feel very, very safe in coming to work, which is a big deal to us.
Sarah: And having a system… So it sounds like you have had massive disruption that you’ve been able to manage using the tools and technologies. We’ll talk about a little more about that in a second, Just for the audience’s benefit, none of you are experiencing no disruption. That’s not a surprise, but about…almost 40% of you have major disruption. So if you can now just shift to a little bit about how that massive disruption, how have you been able to maintain 96% on time delivery? And that seem…I imagine for some of our audience that are trying to manage all that through spreadsheets and email across six different ERP systems, eight different locations, how are you able to accomplish that type of success in this time of massive change?
Brad: We did it mostly by, again, planning and then some of the planning and organization tools. Collaboration from people’s home was done, but we still maintained all of the regular planning meetings, all of the tracking and output as we did before. People have gotten very, very good now at being able to work remotely. You know, we’ve brought back…everybody who works in an enclosed office has the ability now to come in or they can continue to work from home part or some of the time. So just collaboration across the enterprise is really the biggest thing. And having a good set of KPIs and metrics that we look at and then react to on a daily basis. You know, we like to call it, you know, superior execution at every stage.
Sarah: Right. And SourceDay, just for the audience’s purpose, SourceDay is one of the collaboration tools that you’re using to make all of those interactions between the people in the plants, the factories, your suppliers, your customers, all the triage that has to happen, moving inventory around, needs to be guided by a tool that can help you do that prioritization and workflow routing, managing the exceptions, etc. And so we help you with that, right?
Brad: Correct. And we actually sit in several places of the ecosystem with SourceDay. We have several of our customers who are SourceDay users as well as us with our supply chain. So, you know, we kind of see it from both sides. You know, we got the PO triggers and changes from customers as they were, unfortunately, mostly pushing stuff out because they couldn’t get into buildings to do installs and some stuff like that. But we were also, for the customers who were doing pull-ins and expediting, we were able to go ahead and bring a lot of that, you know, in quickly as well.
Sarah: Awesome. Well, interesting. So I think we still have Nick. I saw him drop off camera. I was going to him next. So you talked about, you know, master of complexity, being agile, using digital tools to enable that. Brad has a case study here that’s been awesome to start to learn about. Is it consistent with what you’re hearing across the market right now?
Nick: Yeah, absolutely. So with organizations that we talked to, we’re absolutely seeing a kind of a bifurcation of preparedness. If they had been organizations we were talking to, and we know had already made investments, and that there are certain digital capabilities, they obviously have not no disruption, but they can manage or even meet closer to that kind of excellent performance that Brad is talking about. They know how to pivot, or they can at least see and agree on what is happening in the supply chain, how they can maybe go about doing it.
Whereas, we’re also seeing a lot of inquiries right now about, what does this tool do? Or, what are the areas of technology that I need to be aware of? Which is how we’ve structured our kind of research and writing about this, is grouping it by different use cases like supply chain risk or fraud or contract analytics. And a lot of organizations are even saying, if they had started a process beforehand and maybe selected a technology, a lot of them, even despite spending for years, might be accelerating and exploiting those choices, because they realized the tool that they were evaluating and maybe puffing around and thinking about, they need today.
Sarah: Yeah, we hear… Let’s turn to the audience now with a poll question, how they’re collaborating with suppliers today and managing through all of these challenges, move-ins, move-outs, cancellations. Let’s ask that poll question. And I’ll tell you that, you know, in our experience, we still see a lot of people who are trying to manage through the situation Brad described, using email and spreadsheets, and has demand, has massive change in the ERP and MRP documents and reports, trying to get written out of the ERP so that everyone from planning to scheduling, sales, operations, procurement, can try to get a handle on just where things are, and doing that manually can be really tough and make it almost impossible to make business decisions.
So if the audience, while they go through that, I don’t know if, Brad, you could share a little bit more thoughts around, you know, so the day-to-day operations of having software to manage that instead of emails and manual processes is really awesome. When you think some of the advantages have been to VirTex, though, beyond just obvious.
Brad: So here’s the biggest difference. And, again, you know, we have a number of tools, you know, and dashboards that we use, but the point of all of those tools, whether they’re on the manufacturing side or on the supply chain side, is allow us to go ahead and get most of the information and feedback very, very quickly, so that we can manage to the exceptions rather than to the 90% of the things that are going fine.
So in the case of supply chain, rather than having our supply chain materials managers chasing, what are the confirmation dates? Did they change, updating them in the RSP system? What do we need to push out or pull in? Based on that, most of that information is coming back automatically from our supply chain or our key supply chain, roughly 20, again, of our suppliers are on that. And by doing that, we’re able to go ahead and then focus our human resources on chasing and expediting the problem children and the exceptions rather than the other 90%. The other 90% just happens, the parts show up, you know, we can adjust, push and pull as…
Sarah: Sure. Looks like we might have lost you, Brad. So here’s the poll results. It looks like…
Brad: …when you do, when you see the exception start to pop up, you know, that’s when you can go ahead and react.
Sarah: So it looks like our audience is not…the vast majority of them are not in your situation. Most of them are using email as the means of communicating all of this. So if we can just go back to Brad…
Brad: They probably had a harder six weeks than we did.
Sarah: Yeah, I think so because…
Brad: They likely had a much harder [inaudible 00:26:13].
Sarah: Right. And so, 96% on time delivery, it’s not like you weren’t dealing with stress. I mean, you had employees working from home, you had all the shelter in place orders from the city, but you had tools to be agile and to respond and all the stuff that Nick talked about. And the impact to the business, you’re CEO, right? So a lot of times we hear people talk about digital transformation, that justification is time savings, productivity, the types of things you just talked about, making sure my employees are working on the most important issues first, which is absolutely true, right? But there are follow-on impacts, and for you as a CEO being able to maintain 96% on time delivery now, what does that meant for things like revenue?
Brad: So the interesting thing about this during COVID is our number one goal in this entire situation was keeping our employees safe, and do that in such a way that it didn’t disrupt our customers and didn’t disrupt, obviously, the financials, either. And so being able to go ahead and do that, you know, whether that was moving people to different shifts, with staggered work schedules, moving our supply chain, you know, from one source to another, it was all centered around the resiliency and agility that Nick was mentioning earlier.
And, you know, if you’re doing work for aerospace and defense customers, and if you’re doing work for the medical industry, the quality systems certifications that you have around that require you to be looking at those things. So, you know, these are things that not only do we look at, we practice. You know, this was not the first time we moved work from one facility to another to make sure that it happens. You know, it’s not the first time that we had to go ahead and just suppliers to go ahead and do that, you know. The way you’re successful in a crisis is you practice the items tied to that crisis so you can make sure that your tools and your techniques are appropriate for that.
And then in this case, we’ve been very, very fortunate. It’s allowed us to maintain…you know, we certainly could have had things that we didn’t look at. But one of my favorite quotes is when Rudy Giuliani talks about 9/11, he said, “Obviously, we never practiced a scenario like 9/11. But we practiced every other scenario that we could think of. And in doing that, during 9/11, we saw things we recognized and we’re able to use those to pivot and react better.” And I think a lot of those same things hold true for VirTex with the COVID-19 crisis.
You know, we didn’t expect a pandemic, we weren’t planning for a pandemic, but we were planning for disruptions in supply chain. We were planning for disruptions, whether it was due to a fire or whatever in a facility. So by practicing those things and chasing those, with the combination of software tools, collaboration and redundant capacity, you know, we put ourselves in a situation where we were able to succeed and take care of our customers, and that’s what they pay us for at the end of the day. That’s how we’re measured.
Sarah: Gotcha. So good time for you to jump in, Nick. You know, as Brad describes 96%…able to get inventory, even though safety stock gets depleted, get all the parts he needs to build the demand that he has, as things move, you know, maintain urgency in medical and defense, and then other customers that are having to push out, you’re not having to buy inventory that your business can’t use right now. So, Nick, we are hearing a lot of people’s anxiety in this moment and maybe causing them to decide to just wait and see. Like, “Let the dust settle, we’ll make decisions about how to move forward, adopt new behaviors, new technology systems later.” I’m wondering what your thoughts might be about that.
Nick: Yeah, it’s a common argument we hear from a lot of companies. But the reality is, the reason why I bring up this complexity master study is because you see the difference in that. Those who have already made the adoption already had not just in their ability to do tactical actions, like move supply, and reevaluate their inventory strategy, but they’re also farther ahead in the longer term strategies in terms of tying procurement and supply chain performance to the rest of the business, whether that’s revenue, whether that’s new product development, whether that’s tapping the supplied ways to find new opportunities for improvements.
So when you’re making the case or thinking about the case for this, it’s not just about, “Oh, let the dust settle on and make a calm collected decision.” Like, yes, you should be making that decision wisely. But the reality is, compared with the subset of organizations that are already high performers, you’re already behind, and then this kind of disruption only puts you even farther behind. So you need to make a complex decision about what’s right for your organization and not rush into a selection where you’re going to pick the wrong provider or bite up more than you can chew.
But at the same time, you look at complexity masters, they not only have higher adoption of the core technologies, whether that’s cloud-based ERP, or in procurement cases, the core sorts of case we pay for indirect. They’re also more progressive in terms of their adoption of some of the more nascent technologies, like risk management tools. And that’s exactly what we’re talking about here. You have the ability to adapt and sense on one axis, but then also the ability to react if they have both of those capabilities already. They’re prepared to not only make the tactical actions but also they’re able to tie their performance into the broader things like, you know, revenue, integration, etc., that make the case for the ROI that comes with these solutions. It’s a longer term play. So it’s good for now and the future.
Sarah: And one last thought before we move on to the next stage, there will be a recovery, right? That is, we know from history. So one of the things to bear in mind as you talk about chaos as the new normal, Nick, you know, there’s never a good time, there’s never going to be a calm time where you can make a rational decision and have no, you know, make it “easy,” whatever that would look like. So, Brad, how are you thinking about the rebound or recovery phase?
Brad: So that’s a great question. One of the things that we look at…and we saw this in the 2008-2009 downturn, when it comes out of it, there’s always, always rapid growth as things come back online and things start cranking. So, you know, that can be as disruptive both from a manpower and cash standpoint. So, to Nick’s point, the people who aren’t putting the tools in place, the tools also give us higher inventory terms, they lead to greater profitability, they lead to greater agility. You know, all of the focus that we put into leaning out the manufacturing and making sure that we have productive capacity says that we have sufficient cash and we have sufficient capacity to go ahead and grow.
Coming out of the financial crisis, we had a 40% growth here. We were dangerously close to outstripping cash. So, you know, we made sure, coming into this one, that we have plenty of cash to go ahead and take that kind of growth. And, you know, the nice thing about having a good financial partner is they have a whole bunch more if we were to go do it, but we don’t believe we’re going to have to go ask for any more money. We think we can do 100% of what we’ve got and what we’ve got sitting on the sidelines, so we’re ready for growth.
Sarah: That’s so inspiring and exciting. I love being able to share these positive stories and to give people and spread inspiration about, you know, “Go ahead and make the leap.” It’s never a wrong time to evolve your business and be better prepared for the future. So with that, I’m going to…
Brad: And it’s never easy, so it’s never going to…you know, there’s never a time where you have… I mean, no one has lots of extra people and lots of extra cash sitting around, waiting to go find a project to go do. You kind of put it in your roadmap and you’ve got to go ahead and schedule it in and the results will come. But, you know, it’s going to be painful at the front end, but you work through it and then you reap the rewards like anything else.
Sarah: That is a master of complexity CEO. You think about making sure you don’t miss out…have the opportunity cost of not being ready for the rebound too. There’s revenue opportunity that if you deplete your working capital, you don’t have the ability to take advantage of. So with that, I just want to share… I know nobody came for a sales pitch this morning, but I did want to make sure we leave everyone with a visual of the tools that Brad and Nick had been talking about. As we’ve discussed, and as more than 63% of you are doing today, the relationship between buyers and suppliers is naturally chaotic.
And in this diagram, hopefully it looks familiar to most of you. Along the left, we’re representing the enterprise, starting with the ERP, in Brad’s situation at SyteLine, plus several other ERP systems, that’s really common. And as those systems do their calculations, as customer demand comes in and orders come in, they determine when it’s time to replenish inventory and purchase material from suppliers who are on the right side of this diagram. But as purchase orders are issued from that process, vast majority of you, and it’s very common, will take that file and then a buyer on a procurement team will have to email it to one or more suppliers.
In Brad’s case, he’s got over 100, most of our customers are similar. And then starting with the acknowledgement, every interaction about that purchase order needs to be acknowledged from the supplier. They need to agree to the terms that they can meet the price, dates, quantities. Our data shows that over a third of the time, on average, 36% of the time, a manufacturer will issue a PO and the supplier will…it will need to change over its lifetime. During the time of COVID, starting in January, that pace, rate of change jumped from what was 36% to now 61% of all PO lines are going to have a price, quantity, or date change.
So managing all of that through email, the really challenging and worrisome thing is things fall through the cracks. And it doesn’t take more than one mistake, an update that maybe made it back to the buyer’s email inbox, but not into the ERP system, to say that the supplier can’t meet the delivery date for… It just takes one miss for an entire production line to grind to a halt. And for the worst case scenario of having to miss it, a commitment to a customer could even happen. So that is exactly the problem that SourceDay was designed to solve. We replace all of that chaos with a software system that lives in the cloud.
It’s through multi-tenant SaaS, the system that Brad uses is the same one that his customers and his suppliers are also using. And it is designed to manage that chaos in the way that Brad described, so that everyone in this equation, from the buyers to the suppliers, are given an easy way to find the most important exceptions and then action them within SourceDay, all the back and forth happens there. And then once price, quantity, dates, all the changes are agreed upon by both parties, we automatically update the ERP. So everyone in the organization on the left, from the operations and scheduling teams to procurement, IT, finance, everyone knows where things stand on every single order. And that worst case scenario never comes true.
And then most importantly, as Brad described, everyone on both sides has the visibility they need to be ready to react when things change, which is the one thing we know is absolutely going to happen. So how does our product work? It sits…the core of it is a collaboration platform that’s designed to facilitate those human interactions using prescriptive workflows and other things. We have four products that sit on top of that, from RFQ to PO collaboration, AP automation, and quality. And each of those products are now capturing interactions in a structured data format that allows us to do some really interesting insights and analytics today.
I’m going to focus on the PO collaboration product because that’s the lion’s share of what Brad’s team uses, and it’s sort of the core of what we do. And then when I am done showing you the product, we’ll come back to discussion. So as I pull my account up here, I am logging in as if I were someone on Brad’s procurement team, one of his buyers. And when I log in to SourceDay, I’m presented with a dashboard that is basically, in this case, my all open order report. And I’ll start in that tab and I’ll see every order out to suppliers that is still open, that hasn’t shipped. And most customers, if you’re managing email, you’re managing this in a spreadsheet or you’re getting reports from your ERP system. What we do here is, across all of the suppliers, we roll up all open orders and we can see where things stand, from Cromax Metals, National Tennis, WR Handles.
The scenario here is a bike manufacturer, so those are the parts that I’m waiting on. And I can see very quickly that there are some parts here that are marked hot, and that is indicated by the flame. So if I go over to my late tab here, these are all the orders. Of those all open, these are the orders that are late. And I’ve already marked some of them hot that I see very quickly that I had a handful that are also late. And I can, all at once, mark the rest of these hot and send a note to all those suppliers, two different, in this case, telling them that I need these parts as soon as possible. I marked them as hot, I don’t have to send a single email now, all of that notification is handled through SourceDay.
They all have the hot flag, my Hot folder has been updated, and everything is organized and in its place. Then the other thing I can see is any updates I might have received back from suppliers. Rather than coming in my inbox for that, they’re all organized together. And I see from Cromax there, I have three updates. And what is quickly shown in this view is…this stuff in red is what they have proposed changes for. So we have a date change here, we have a quantity and price change, and another date change. And I can see, for these drill bits, they’re late, it’s a small quantity, that change is absolutely fine. So I can quickly go and accept that change.
And now what will happen is, it’ll automatically flow into SyteLine or whatever ERP that those parts are not coming, obviously, last month, they’ll come and be arrived and be ready to receive later in May. However, for these other two, let’s look at this one. We can view the history on this order and see when it was originated and approved by the supplier and acknowledged, and then I can see the changes that were requested yesterday. And if I’m not comfortable with any of that, I can…pardon me, sorry…I can reject those changes. And now nothing changes in my ERP, but the suppliers notified that those date changes and quantity changes aren’t going to work, we’re going to have to work something else out. So that is my buyer view. This is just the tip of the iceberg.
There’s a lot of other things that this solution can do. What I want to show next is the supplier interface. And so now I’ve logged in as Cromax Metals, one of the suppliers that we looked at in the buyer interface. And I can see, similarly, as a supplier, all open orders from this customer. I can export. I didn’t show this in the other tab, but this is my all open order report from this customer. We know that spreadsheets will continue to exist and be used in some cases. We have a customer that uses an open order report download every week to drive their war room conversation with the other parts of their business. That’s all possible. And then the updates can be managed here through SourceDay.
So, as a supplier, I can also go to my pending tab, and these are all the brand new orders from my customer that I have not yet acknowledged. And rather than open and respond to multiple emails, I can very quickly and easily acknowledge those through one interface. I can make all of these quantities, and prices, and dates look fine. Let’s say, for example, I need to update the price here. All I would do is propose the change of, let’s say, $4 apart here instead of $3.50. And then all of these other pieces look fine. So I can then hit the acknowledge button. And all of the notifications on those PO lines are going to be sent back to my buyer, all organized in one place and easy for them to respond to.
And then those hot orders that we looked at from my customer, I can go and also very quickly accept those changes. And now my customer is fully informed in terms of what’s going on with their orders. So that’s a quick view tip of the iceberg. As I said, it’s not a sales pitch, but I wanted everyone to get the sense for, if you’re managing emails today, it doesn’t have to be that hard. Brad’s team is using SourceDay in managing all of that change through an interface that makes it much easier and more efficient.
So with that, it’s time for us to go back to our live Q&A. As a quick reminder, if you have questions, you can publish them into the chat panel, in the GoToWebinar interface. And first question here that I see is the one that we always get, and that is supplier adoption. How hard was it, Brad, to get your suppliers up and running?
Brad: So we initially picked our 10 largest. So we did it in two stages. Nine of those 10 were quick adoption. A few of them needed more than one training session. The 10th one was very, very reluctant to go ahead and use the tool. They said, “Oh, we have our own software that we use, we want to be able to do it in that.” And they were quickly notified that that made them non-responsive to the supplier, and part of that business was going to shift if the suppliers did do this, because it was important to our supply chain team to maintain continuity of the tool. So, eventually, they came on board. But 90% of them in the first round were easy, and we didn’t have any pushback in the second round of suppliers.
Sarah: Yeah. And an important thing to note is that SourceDay’s team helps you with that, right? I mean, one of the…
Brad: I think it’s probably fair to say SourceDay’s team did all of that. You trained our folks and then you trained the suppliers, you know, other than us pushing them, the involvement from my team was minimal.
Sarah: Right. We know that you can’t get the value from the system, you can’t get the visibility, you can’t get the actioning of the exceptions that you need to get the value out of it if the suppliers aren’t using it. So we take that part of the implementation very seriously and we take it over. And in most cases we’ll guarantee that we can get the adoption you need to get the value out of the system. So I’m glad you guys had that…
Brad: One of the things that you didn’t mention in there that we find is very, very valuable, prior to putting in, you know, a supply chain collaboration tool, you know, we might have a PO that we sent over via email and our supplier just flat missed it. You know, they never entered it in the system. Well, if that’s a 26-week part, you know, the time to find out that it’s not coming isn’t, you know, two weeks before we’re expecting that part, where we’re calling the supplier to say, “Hey, what’s the expected date on this?” And they go, “What part? What PO?”
So by being able to see that, we know not only that they have seen our POs and they’ve acknowledged our POs, we actually see how quickly our suppliers are seeing our POs, you know, how long is it taking them to open and react to and respond back to our supply chain, and that’s great to know. You know, it’s like, how much do you value my business, right, is how long does it take you to look at what I sent you in terms of orders?
Sarah: Right, because in that scenario, your whole production scheduling team is assuming because the ERP says, “The PO said that these parts are coming in at the exact quantity on this date.” And they have tools and they’ve planned for it. If the supplier hasn’t even acknowledged the order, then nobody on that side is planning to fulfill on your date. And so that’s the nightmare scenario we hear about all the time. I think everybody’s dealt with it in their careers, but customers that use SourceDay see that happen very, very rarely, because as we saw, you can see all the POs that weren’t acknowledged.
I didn’t explain it as clearly as I’d hoped, but they’re all right there, and you can easily re-notify. And in your scenario we said, you know, the buyers now know what is most important and can focus on just those things, chasing them down by phone or whatever needs to happen to get them to respond. So that you never miss an order again, and you can have that 96% on time delivery that you talked about.
Sarah: So, let’s see, next question from the audience is, several ERP systems at…sorry, VirTex, and that’s really common. SourceDay is ERP-agnostic. We integrate with many…all the major, over 20 ERP systems, but tell us how it’s working at VirTex.
Brad: So as you’re aware, you’re in the process of integrating another one of our facilities that you don’t currently support up there. And I think that’s going rather smoothly. I think the key is, all of the databases have to be SQL-based tables for it to play nicely, and most of the ERP systems out there now are operating in a SQL environment. So, you know, it’s been very seamless.
You know, we’re in the process right now of rolling it out into our Plano facility which we acquired in December, which is a new product introduction, very high mix, very low volume facility, where we see a lot of lift in this because we do get a lot of surprises from suppliers in terms of…you know, at the time that we quoted this for a seven-day turn, they had stopped, now they don’t. So I think this can be very, very useful to our team as part of the suite of tools that they use right now to locate and identify stock and confirm that it’s coming, what we expect, it’s coming.
Sarah: And, similarly, we take the lion’s share of the work on the integration. It’s not like your IT team is having to write a bunch of code. We take care of that. They help us map, they help us with sandboxes, so we can do quality assurance testing before we go live. But…
Brad: Yeah, unlike Austin, we actually outsource IT out of the Plano facility, so we have even less support, you know, on that than we typically would, because we do a lot of the IT support out of the Austin facility and then we have a local resource that we use as well. But you guys do 100% of the heavy lifting there.
Sarah: And as you’ve acquired businesses over the years that you talked about the top, and each of them is running different ERPs, that’s how come you have six different ones in your business today. You haven’t had to necessarily migrate, though, and do the heart transplant.
Brad: Yeah, we made the conscious decision not to migrate those. We started to migrate the Wisconsin facility as one of our first acquisitions, and we were losing a lot of the flexibility of their existing system, the learnings that they’d had. And, you know, what we were going to actually have to do was hire a few more people to go ahead and keep up with the same level of workload to do it.
So we put the brakes on that, pivoted it, and are moving more toward a BI dashboard in a data warehouse or data lake approach to integrating all of the data because we still want all of our general managers at different facilities to be able to see total spend across all of our suppliers. You know, are we getting the best terms? Do we have stock in another place in excess that we could use to fill a shortage, you know, as well? So all of the key tracking and metrics, both customer and supplier, are going into a data warehouse and are accessible at the SQL level for dashboarding and that sort of thing.
Sarah: So you can manage…be managing your move-outs, move-ins, cancellations, customer orders, kind of as an executive, and not kind of dependent on reports?
Brad: No, I’m not looking as much. That’s really handled at the general manager level. But, you know, we can see from the sales team, you know, “Okay, we want to go ahead and get our total spend with, you know, a particular customer across all of their divisions across the country. So, you know, can we get a connection from one into the other one?” Again, we’ve picked up a facility in Dallas. Lots of our East Coast defense customers have facilities in the Dallas Fort Worth area.
Some of those we’re not currently doing business with, we want to go ahead and familiarize them with VirTex. We’ve got a very, very warm lead process from the existing customers in those East Coast facilities where, you know, why would they not want their facilities in the Dallas Fort Worth area to have the same advantages as a supplier that we give them in their sites? And that’s been a great lead for us.
Sarah: Sure. Sure. With just a few minutes left, Nick, I’m curious how common that scenario is, or what your point of view is on a heterogeneous kind of back office when it comes to ERP systems and finding ways to weave data together to get the visibility so that you can have the agility and the responsiveness that you talked about at the top.
Nick: Right. So a couple points here, it depends a bit on the industry. Certain industries are more prone to having a [inaudible 00:53:40] environment for ERP than others based on just the structure of the operations. Manufacturing is a great example of this kind of environment because, when you hear Brad talking about acquiring mobile facilities, and those historically have different IT operations, that creates a complex environment. And what we’re seeing, you know, over the next year, the biggest investment priorities for technology aren’t necessarily, oh, a new system or getting bleeding edge capabilities that’s renewing my ERP system or renewing my other tool.
So a lot of the time the back office does need to be rationalized or integrated in some way through… You know, it seems like, “Oh, no, not get another tool.” But these are…and tools we’re talking about here are the ones that make clarity of the data you already have. And think of it kind of the way software instruction, in general, you have presentation layer, logic layer, and then data. ERP, you know, has some logic to it, but it is mostly a repository of data, it’s information, and it needs to be processed and presented in a way that’s accessible.
And then also facilitates swift decision making, decisive decision making to the people who are actually making those decisions. So it’s an important aspect to note because you have a lot of data, a lot of different systems, but if it doesn’t all come together for you to make decisions, either in a pandemic or any kind of business decision, it’s not really useful information.
Brad: We’d like to call that one version of the truth.
Sarah: Single source of truth. Yeah. Yeah, that’s right. And the implementation doesn’t have to… With the modern technologies, cloud-based solutions, all the business processes that run off of them can maintain, you know, status quo. They don’t have to change as all the changes that are happening in the background, like underneath that. It actually provides more flexibility and responsiveness.
Well, gentlemen, this has been a pleasure. Thank you very much for your time and your insights. I really appreciate it. Thank you to the audience for sticking with us for the hour. This whole session was recorded, and so we will be sharing the recording out with all of you later this afternoon. It usually takes a little while for that to render. And we have future webinars with Spend Matters that we’ll be publishing and we would encourage you to join in. Thank you, Nick, for your partnership, and also, Brad. I really appreciate it.
Brad: No problem.
Nick: Thanks, everyone.
Sarah: Stay safe out there.