Manufacturing Supply Chain Woes
Kevin Lawton, Rick Watson, Roger Buck and Paul Vragel
Welcome to the manufacturing woes show. I’m Sarah Scudder, CMO at SourceDay and the show host. I am joined by Kevin, Roger, and Paul. They have extensive manufacturing experience and I’ve asked them to share their absolute train wreck and nightmare manufacturing stories with us today. Our show sponsor is RapidRatings. I’ve been friends with Eric and the team for many years, have actually been a customer as well, so big fan of what their team does. So I’ve asked Eric from RapidRatings to briefly introduce himself and talk a little bit about what their company is doing to add value to manufacturers.
Yeah, thanks Sarah, really appreciate it, and we’re always proud to be a sponsor and yeah, RapidRatings, we help manufacturing companies detect weak suppliers from a financial aspect with our predictive analytics and AI, and we base our analysis and risk level ratings on the financial statements for both public and the hard to get private companies. And we know financial risk can lead to other indicators such as poor quality and also on-time delivery issues, so the other thing we’ve been innovating on is we recently launched our FHR exchange connecting buyers and sellers to share their financial health score and to do some peer benchmarking on themselves, so they can keep up to speed on themselves and their suppliers. Eric, where are you joining us from today? I am in Stanford, Connecticut, and getting ready to head off to Bodrum, Turkey for a family reunion later this week, so excited to get some R&R in as well. My youngest sister married a Turkish man and her and their two tiny kids did a, I think a 14-hour flight. Oh my gosh, and they are there for a month. Wow, if they’re going to make that long haul, yeah, a month is great. Ours is 10 hours, so enjoy the session everyone. Awesome, thanks for joining us Eric, thanks. Alrighty, so what to kick off our conversation, I would like to have our audience put in the comments where in the world you are joining us from. It’s really fun to see, we typically get a pretty broad mix of people joining us from around the globe, so let us know what city, state, and country you are joining us from. And then our conversation topic is about the crazy, crazy nightmare stuff that happens in manufacturing. So if you have a story, a phrase, or something that you want to share in the chat as well about something that’s happened to you recently in the manufacturing space, would love to see that. So do not be shy, drop notes in the comments throughout, I will be monitoring the Q&A and so if we have any questions that come in from the panel, I’ll make sure that we address those to the right panelists. So it looks like we’ve got Elizabeth joining us from Orlando, Florida. Angela joining us from Houston, Texas.
I see Nikki Gonzalez is with us as well, so as we get people joining us, I’ll continue to pop up where they are joining us from. So I want to kick off our conversation today with Kevin. So Kevin, I’d like to have you introduce yourself, tell us a little bit about how you wound up working in the manufacturing space, and then would also like to have you share a personal or random fact about yourself. Sure, so my name is Kevin Lawton and I’m a host and founder of the New Warehouse Podcast. I’ve been working in manufacturing from more of a support side from our warehouse and distribution side and supporting manufacturing side of the building as well.
So an interesting fact about me is that I’ve kind of come full circle all the way and I have my alma mater. I went to Ryder University, go Bronx, I’ll say. I was a student there and I had the feeling that I couldn’t get out of there quicker, I think at the end of you know four or five years, I got to stay into my master’s but I’ve now come full circle and I’ve started teaching supply chain there actually, which is actually not what I went to school for. So that’s kind of where I’m at now. And Kevin, we also have another shout out here. Tom from Columbus, Ohio gives a shout out to the Buckeyes. Oh, I see that. Yeah. So Kevin, my first question for you, since you do a lot of work in the warehouse side of the business, what happens when manufacturing and the warehouse are not on the same page and operating in silos? Yes, so in my experience, I’ve worked in a facility where manufacturing and the distribution side are in the same building, under the same roof, and even though in the same building with no wall in between us, you know, there are times where you have these silos that develop and happens. I think is there’s sometimes a misunderstanding on the distribution side of the priority of whether it’s, you know, getting out those orders that are already made on the distribution side or these in this aspect in this environment that I’m referring to, our manufacturing side is more of like a customization assembly side, so taking some of like our basic stock products and then adding things to them and making them adding different components and building them out so that they’re more of a customized for the customer. So there’s a lot of sometimes confusion on what the priority is, right? When manufacturing is asking for some components to be delivered to their side of the building versus whether, you know, should we put the resource towards getting the these orders that are already made out the door? So there’s a lot of times where you’ll see that this silo will affect customer orders down the line when you’re focusing just on the customer orders that are like in front of you for the day.
So in order to break down these silos, I think it’s really important to be able to have better communication and understanding, and even though you know maybe manufacturing and the distribution side are two different parts of the business, they still need to operate together, especially when you’re supporting each other because manufacturing is producing goods that you’re gonna ship out on the distribution side and then the distribution side can also be supporting the manufacturing side on that material movement and getting the material to the manufacturing side. Definitely certainly through the pandemic when you know it’s difficult to get containers out of the port and you know we’re waiting not only on finished goods that were coming from overseas but also components that were coming from overseas to support the manufacturing, there was a lot of kind of juggling in a sense of you know who’s whose containers are gonna get the the priority coming into the facility and I think you know through some trial and error and figuring out how to really manage that prioritization and coming up with some some simple systems and ways to look at it and manage it.
We were able to really kind of break down those silos a little bit and be able to make sure that inventory and product is flowing to the places where it needs to, and everybody in a sense is getting the attention that they need, whether it’s manufacturing or distribution. Awesome. Well, Kevin, thanks for being with us, and I’m excited to check out your podcast. We’ll have to have you tell us a little bit more about it later on, so great to have you. Rick, would love to have you introduce yourself, tell us how you got into this crazy world of manufacturing, and share a personal or random fact. Thanks, Sarah. I appreciate joining the podcast, and shout out to Kevin who he and I have been on several podcasts and events before, so good to see him here too, and greetings to Roger and Paul who I hadn’t met before. You know, I’ve been in e-commerce for 22 years, so I come to manufacturing by way of e-commerce, and I what I primarily do in my day job at RMW Commerce is a consulting firm that helps private equity-backed brands leverage digital commerce and access new customers and build new capabilities for them to serve their customers better. Where manufacturing obviously fits in is you need to make the goods, you need to forecast what goods you need, how to get them there to your various facilities on time, because to serve your facilities like Kevin said with distribution, distribution and e-commerce gets more difficult because you have multiple different channels to distribute your product to. It could be a marketplace that’s fulfilling on your behalf, you could be shipping to a marketplace, you could be shipping directly to the consumer as well as to your retail outlets, so you need a lot of different capabilities. Kind of a fun personal fact is I was working at a software company about eight years ago, and we had an outsourced development team in Russia with about 60 employees, and I had just started as a Chief Operating Officer, and about a month after I started, the CEO pulled me to the side. He’s like, ‘What do you think about going to Siberia?’ And I was like, ‘Sure, I’m game for anything. I always like traveling to new places and meeting new people.’ So I actually spent about a month in Siberia in the winter.
It was something like negative 20°C or something like that. So it was definitely a great experience with people that were super nice. It was in the middle of the forest in the country, not kind of near Moscow, so quite a long time to get there, but definitely experience I won’t forget. So, Rick, when you and I chatted, you mentioned that you’re actually seeing things in the manufacturing space actually de-globalize, which is interesting. What challenges and issues is this causing for manufacturers, and what can they do about it? Yeah, what I would say is if you kind of rewind back 25 years, where a lot of more manufacturing was local, and before kind of like Thomas Friedman wrote ‘The World Is Flat’ and you know corporations sort of split and outsourced across the world to whoever the cheapest provider was and transportation and time delays between these areas were very small, fast forward to now, post-COVID, the world is not flat as much anymore. The world is getting hillier, and certain aspects of the world are getting downright mountainous, if you’re gonna keep this analogy going, and so what I what you definitely see is like if you have like a 25-part supply chain to assemble this various product, it’s getting harder for you this year than it was five years ago, 100%. That’s that’s true, that’s kind of what I mean by de-globalization. Whether it’s prices or transport time or all these these sorts of things, and they’re only I mean I think the solutions are obvious when you say them, but they’re harder to do.
Generally, you have to simplify your supply chain. Getting the absolute lowest cost in theory is not always the smartest thing, because you also unit cost, while important, isn’t the only consideration. Time to market, making sure that you can actually get your goods out of the country on time to meet your production schedules, and then second is just your flexibility. What happens if one of your manufacturing facilities or nodes is not performing to your standards because of COVID or a million other reasons? Simplifying that, to nearshore some of that, is you know can make your supply chain more efficient. And I think that’s there are a lot of manufacturers thinking about along these lines right now. This is not a short-term thing. You can’t switch out a complex manufacturing process inside of six months, you know, unless you have a very straightforward kind of work schedule. Awesome, Rick. Well, thanks for being with us today. Thank you. Roger, you are up next. Roger’s a dear friend. I’ve known him, gosh, I don’t even know, maybe 10 years at least, and he’s been on lots of different shows and panels, so we’re really excited to have you with us today. Well, I certainly appreciate that.
She mentioned we’ve been friends for a long time. I’ve been in the manufacturing sector for the majority of my career. I’m actually doing M&A work now, but I’m still doing M&A work, selling and helping companies buy and sell manufacturing operations. So I, the feedback I get are from them, not my necessarily personal experience. Fun fact about me, I guess I’m going to go back to the comment Kevin said. He went full circle back in high school and college. I had hair down in the middle of my back, and I was playing guitar in rock bands. And then I went off on my career, and now I’m winding that down, and I have a half a dozen guitars behind me, and I’m letting my gray hair grow out. So I’m going full circle again too. Not sure where that’s going to end up, but you know. Go ahead. I think we need to come up with a clever name for your new band. It’ll probably have something to do with print.
So I think having good identification and processes to familiarize the employees with what, how, to be able to decipher those different things can prevent a lot of mistakes and prevent a lot of wrong components being picked or delivered to the manufacturing side.
Because a lot of these things can look very similar in a sense, and I think that’s, you know, just some of the highlights of why—you know, sticking to your quality standards and just your overall standards in general. Even though you’re trying to, you know, get to an end point where you may have, you know, lots of customers complaining and you want to try and bring the noise down a little bit, you’ve still got to make sure that you’re, you’re following through and doing the important things to make sure that you’re—you know, dotting those i’s and crossing t’s, so you don’t have further headaches downstream.
Rick, Angela has a question that I’ll throw to you, and then Roger, get your input as well. So, since you’re—you’re focused in the e-commerce space, the question is: Are customers routinely performing and receiving inspection? And if the product doesn’t meet the quality standards, what happens?
Rick, you’re on mute. I remember that.
Almost always, customers are performing some kind of receiving inspection, and obviously, there’s a few different ways to do that, depending on the size of the shipment. At the very least, there’s some kind of sampling process for the finished goods that are being received before it’s sent to the downstream channels.
I would say the agreement between a brand and their suppliers usually includes some kind of manufacturing allowance for defects. You know, obviously, you’re paying a certain amount for a lot of goods. You’re not expecting a hundred percent quality in any kind of shipment. So, if there’s, you know, say less than a half a percent or something, then there is a certain amount of—you know, you call it breakage or something like that to—you know, to deal with. But otherwise, you’re essentially seeking refunds—you know, you know, against your contract for future shipments of goods. So, you’re making essentially quality claims against your contract that need to be addressed either immediately or in future shipments—you know, from those things. So, that’s—that’s what I would generally say. I’m sure others have more to add on this.
Roger, any thoughts from your experiences?
Yeah, I’ll relay a quick story because, you know, and again, in the printing space and everything, they ship product out. And, again, they’re like he said, there’s pluses or minuses as to the amount of quality or level of quality that could be achieved. But I know one particular company that supplies shipping labels, and they supply them to large distribution organizations. So, think Walmart, Target, all these large online retailers that are shipping, you know, a million packages out every 24 hours out of 24 different distribution centers. So, tons and tons and tons of labels going out there. You know, the quality of the label from an adhesion standpoint, a printable standpoint, a use standpoint, has to be spot on when they get it.
What this CLA this company actually did is they took the QC effort and brought it in internally. And they actually QC all of the product coming out of a variety of different manufacturers. They see it in a lab. So, before product ships, samples are overnighted to their lab. They do a product test. They have all the correct testing equipment to gauge this. They can check the coding, they can check the image ability, they can check the tack of the adhesive, they can check all of this, and then they approve it for the manufacturer to ship it to the end user. So, the end user does not have to do a QC check because they’re too busy pushing a million packages out the door. So, it’s an opportunity for a supplier somewhere in that supply chain to take on that QC responsibility. And it’s worked very, very well for them. Their business continues to grow. And as everybody knows, particularly since COVID, you know, shipping to your front door has just gone off the charts right now. So, but it’s a—it actually becomes a very critical issue for them. But they brought the QC further up the pipe.
Thank you for that. And Angela did add a note that her background is in aerospace-powered telecom. These are highly regulated industries with very rigid quality standards.
All right, Paul. Let’s test out your new mic here. I’d like to have you do an intro. Does the mic setup work better?
Perfect, crystal clear now. Got it, okay. So, real quick, I got tenderized into manufacturing at the age of 23. I was overseas. We had a failure in a major diesel engine on a ship. I called my boss. He gave me two words of instruction: “fix it.” So, we’re in Portugal, the ship is manufactured in Spain, engine manufactured in Spain under license from the Danes.
I have no domain knowledge. I’m 23, no staff, no budget. I don’t speak Spanish, Portuguese, Danish, and I have these two words, “fix it,” ringing in my ear. I went to the manufacturer, engine manufacturer, they said, when I asked them, “What’s the plan?” they said, “We don’t think we have a problem. We think the Danes have a problem.” So, I’m sitting there with nothing, and except I was there, went down on the floor, listened to the people who were doing the work, watching what they were doing, got them bought into sharing information and implementing change within a few weeks under those circumstances.
So, no authority, no domain knowledge, etc., across language, cross-culture, we got a permanent increase in their manufacturing capability that they owned.
I took away from that a couple things: employees are the world’s experts in knowing what they actually do every day, and ninety percent of the issues that waste time and money and produce poor results are embedded in all of those local processes, which actually gets me into some comments in general.
So, the environment, as everybody has pointed out, has changed. I heard one large manufacturer say we’ve gone from a VUCA (volatile, uncertain, complex, and ambiguous) environment to what they called BANI (brittle, anxious, non-linear, and incomprehensible). To support what Rick and Roger and Kevin have said, one of the things that, in dealing with that environment, you really need to look at your full, front-to-back, top-to-bottom processes: how do you really actually work?
Many companies, as has been pointed out, have silos, and what the silos do is obviously raise cost. They consume time, they also limit your ability to identify and take advantage of an opportunity, but if you have a very clear understanding of process, front-to-back, top-to-bottom, you have employees engaged so that you’re getting a lot of cross-functional knowledge in those processes. So, when you need to make a change, you can identify that and you can make that change extremely quickly and effectively.
So, in terms of the promotional goods, somebody had can identify, “Hey, here’s an opportunity that we can take advantage of and get that implemented.” Doesn’t happen without clear knowledge of processes and really high employee engagement, so it’s safe for change and you’ve got an improvement-seeking group of employees.
Rick, you work with—there’s one addendum to that, okay—one of the implications for supply chain is if all of the activity falls on the procurement to fix what’s happening in supply chain, now you have a real issue because it’s not—this is not a short-term problem, this is a long-term problem that needs to be addressed by the whole organization. I’ll say more about that later.
Oh, thank you. Glad to have you with us.
So, Rick, you work with brands that sell on Amazon. I have to say, personally, I just moved into a new house in Austin. I probably get one to two Amazon deliveries every single day. I’m like the shopper of the neighborhood right now, getting everything new for the house. So, what is one of the worst stories you can share, working with a customer running out of stock on Amazon?
I think the biggest issue is I was working last year with a heating and cooling supply manufacturer, so essentially fans and heaters. And obviously, highly seasonal business, particularly if you’re in the south where you are. If you’re in the winter, you don’t need it. You don’t need a fan. If you’re in the summer, you certainly need a cooler.
So, I think that that’s kind of the worst-case scenario for a seasonal business where if inventory doesn’t arrive at the right time, then you could be really screwed up. You know, the company essentially, one of the things that happened during COVID that I saw—I had quite a number of brands that I worked with—is for the e-commerce brand, they’re not necessarily manufacturing experts. You know, they found a supplier that seems to be reliable, and it’s coming in. I mean, you know, and in rough terms, they’re hitting the order button. And then a few months later, it’s showing up in a container ship or whatever it is, and it’s landed, and they know the landed cost. Well, in COVID, all that fell apart. And so what a lot of manufacturers had is product that was three to six months late—if it showed up at all. And then you didn’t know what was going to land at all either. And so I would say, you know, one of the worst situations that I’ve had in kind of a manufacturing—you know, call it a manufacturing disaster—actually, the manufacturing is probably just fine. It was more the supply chain in between. The customer doesn’t care either way. All that manifests itself on Amazon is that you’re in the middle of the summer and you have no fans to sell, but you have plenty of heaters. Unfortunately, those aren’t moving too fast in the middle of summer. Amazon doesn’t want to purchase those through Amazon first-party vendor situation. You could try to sell some through third party, but again, the demand is just not there. You have to maybe sell them to Canadians in the summer, yeah, or someone, someone higher up.
And then we have the whole power of a bad review. Yeah. That does for your entire presence on a site like Amazon.
Right, no exactly, it’s a critical part of the process. And I think managing your reviews—reviews are a huge I think benefit to brands on Amazon. To mine them as a source of data for manufacturing issues, not only new product, not only manufacturing issues like, ‘Oh, I do this with the product and this happens. Oh, I didn’t realize that. Let me talk to my supplier about that.’ But then second is new product ideas can also always come from reviews as well.
So Roger, you talked a couple of the examples you gave earlier were about companies that had challenges because of paper shortages. They couldn’t even get supply, couldn’t fulfill orders at all, or they were several months delayed. How is the dramatic issues with the paper supply chain that companies are experiencing, how is this helping them navigate to more creative innovative solutions?
Okay, you know, that’s an interesting question because I don’t know how much of our audience knows about the paper situation. But depending on what type of printer you are and what type of paper you’re buying, there’s been a lot of consolidation of paper mills here in the United States. And particularly, like the business forms area for roll paper products and everything, there’s really only one major source down in the United States. They’ve bought everybody else. So, you know, they’re taking care of the big guys. The small guys who don’t need a whole lot of paper are surviving, and the guys in the middle are the ones that are having the challenge. But what all of them are concerned about is, you know, if they can’t supply a printed product, let’s say it’s marketing collaterals, if they cannot get the paper to print the marketing collaterals to give to the brand owner, what’s going to happen if that brand owner decides, you know what, rather than doing direct mail or a catalog, I’m going all digital. You know, I can’t deal with this supply chain issue when I’m having to deal with hard goods and materials and substrates. So, I’m just going to go digital. I’m going to beef up my website, I’m going to do email marketing, I’m going to do more online ordering of some sort. But I’m going to take it all digital. I’m going to get away from paper. So, the concern isn’t, you know, is there going to be a replacement for… it’s hard to replace paper with some other paper, but you can replace paper with technology. So, the concern is, is the impact long term going to be brand owners are going to find other methods to get their brand message out rather than putting it on a hard surface?
Now, at the same time, those same brand owners have to ship product, and that product is being shipped in a cardboard box that has some sort of graphic or label or a full-color image all over that. So, printing is still going to be here, but it’s going to shift to another product of that. But it’s definitely going to impact the industry overall if they decide to change technologies.
So, Paul, many companies have an ISO—let’s just say 9001 or 2015—or other certifications in place. How can these certifications contribute to supply chain issues for manufacturers?
Well, there are a couple of ways. Some of those are just the origin of the certification system. Companies who had been working with suppliers, when they pursued their certification, they simply grandfathered those suppliers in based on past use. And in this new environment, there are a whole lot more factors that need to be considered in whether or not that’s an acceptable supplier. And I’ll just give a couple of quick stories of things that happened.
Chemical manufacturer sales was pushing for product R&D. Didn’t have a disciplined process for doing that. They didn’t involve either procurement or production as they’re going through their design development. And the result of that was they did an acquisition and they ended up at fifty percent on-time delivery. Going through the whole process again, the connections front to back, top to bottom, so that they could identify opportunities. They were able to improve the on-time delivery from 50 percent to 96, and while reducing inventory 22.
So, another case of a chemical manufacturer had a supply base that they developed and from the initial supply of the material, they continuously—not intentionally, but unintent—ratcheted up the specifications of the material. So, we went through, and again, cross-function, cross-functional involvement wasn’t just, ‘Let’s beat on procurement.’ Let’s look at the whole system, identify with engineering and R&D and production. What are the minimum standards that we can work with across our product line? And doing that analysis enabled reducing the specs, which opened up a much larger supply base for that. So, it’s a—it’s again, it’s not just buying. It’s looking at, re-look at your system from what are the customers looking for, all the way through how does that get produced, who are you partnered with, who are you… where and how are you sourcing material?
Paul, we had a comment from Deepak that I wanted to highlight. He said, ‘I faced a big crisis for semiconductors in the past two years, being a buyer and it’s still continuing. Not sure what the best solution is to manage the supply chain for this commodity in the automotive sector.
Automotive is in a tough place. They when the supply chain, uh… when the supply chain issue started, they decided to, in a sense, jettison the chip suppliers. They, they just told them, as automotive tends to do, they say, ‘You, you, you’re supplying us, you will listen to us, you will do what we say.’
They shut down production and cancel their orders from the chip makers. So, chip makers came back and once demand picked up a little bit, chipmakers went out and found other people who would pay more for the product. So now automotive companies show up and they say, ‘Well, we want our we want the product and we want our previous deal,’ and the chip companies say, ‘I don’t think so.’
Automotive is particularly particularly tough. We’ve had situations where companies had had a product line that developed over time, and they had never really rationalized the product in terms of, so they had multiple control systems, many different components in there, and ultimately they the product just wasn’t being successful. So, went through to rationalize the product from a customer perspective. What what’s really selling here, what do they need?
Rationalized all of the control systems, so instead of having half a dozen different control systems, a single control system that was able to operate all of the products in the line, and that simplified the supply chain for all of their chips, as well as other parts that they had to do.
It’s not a great answer in automotive. They need to do the same kind of thing: redesign the product to minimize the chips that they use to obtain the chip, to design around the chips that they can obtain. Just pursue multiple strategies beyond just ‘we need this chip, issue a PO, wait for it to come in.’
Yeah, and Rick put in the comments and an example of this in action: Tesla is actually redesigning their cars to use fewer chips because it’s gotten so bad. They’re trying to help their supply chain and sourcing teams by actually doing a complete redesign of the product.
Yeah, and that’s that is the kind of environment we’re in. You, there is no limit to what you need to re-look at, because the assumptions of quasi-stability are gone. As I said, that that brittle, anxious, non-linear, and incomprehensible supply environment.
So, Kevin, one of the things that, again, you talked about at the beginning is this idea of whether or not a manufacturer has their warehouse under the same roof or as part of the same facility or not, and with all of the supply shortages, manufacturers have been buying in bulk. Just-in-time has completely gone out the window. I mean, we work with companies who have one, two-plus years’ worth of inventory now in stock, which means they’ve had to go out and get more warehouse capacity.
So, what are the big kind of challenges with a manufacturing and warehouse team not being under the same roof? And then, how do you fix that and bring them together?
Sure. So, I mean, I think some of the challenges, not being under the same roof… I guess, to address the first part of your question, is you know, certainly, at times, where you’re seeing that maybe you needed an extra part or you’re missing some components, it’s not necessarily readily accessible if it’s in a different building. Depending on how far away that additional building is, you’re adding to your lead time essentially. And if you run into a situation, I’m kind of actually touching on my last points or the last question you asked me about quality, you know, if you have a quality issue on something that you have within the manufacturing facility, and your only other alternative product is in a different facility, then you’re obviously at a standstill until you can bring that product in, right? So not only is it adding to the time to get to completion of whatever that work order may be, or the build of the product at that time, but you’re also adding additional costs because now you’re adding transportation costs as well, because you’re having to shuttle and shift product around to your different locations, depending on where it’s needed. And, you know, if you’re running into situations where you’re here stockpiling, in a sense, as you mentioned, to try and make sure that you don’t run out of things, that doesn’t necessarily mean you’re always going to have space for that product in the spot that you need that product to be in.
So, it creates additional kind of redundancy and moves and just inefficiencies overall. And you know, you can run into situations too where you know, maybe you have a transfer truck that’s going in between facilities on a daily cadence or multiple times a day cadence, and you know, something, a pallet gets left off the truck for whatever reason, and now you’re waiting on the next transfer again. So, so it’s creating a lot of inefficiencies. So, it’s interesting, I guess, a contrast, because you’re trying, in a sense, to reduce your time to get products by having more product in stock, but then you know, you’re adding some time downstream as well because of that movement back and forth. So, then, to kind of move towards a situation where everything is under one roof, essentially, I think you know it takes a lot of planning and understanding of your forecast and the product that you actually need to have in stock. And you know, it’s a difficult thing because at, you know, in the current environment and environment of the last couple of years, you know, in your example there, I mean, you mentioned you know they have one to two years of supply of product, which you know, in the past was kind of like you know, a no-no, right? It’s like too much.
So but in that sense, you know, it’s hard to see like how long, how long do I need to have that buffer for, right? Is it going to reduce, so like does it make sense to, should I actually go out and invest in a larger facility so I can get everything together and reduce those inefficiencies that I was just talking about? Or is it, you know, we’re gonna be okay in, in a year or two, and now all of a sudden I’m gonna end up in three years with too much space like I had extra space. So, you know, it’s a tough balance, I think, but I think, you know, as with anything, if you, if you weigh the kind of pros and cons, and you know, if you’re seeing that there is a lot of redundant moves in between facilities, and it’s just not making sense from a cost perspective and a wasted time perspective, and you’re trying to eliminate waste from a lean perspective,
I mean, you know, you need to see like, you know, can I realistically develop a facility or find a facility that can house everything I need in one space, and will that last for the long term too, like not just a band-aid kind of situation? And you know, I’ve been a part of a consolidation in that aspect, and I will say that it takes takes a lot of a lot of planning to understand not only how to support the manufacturing side of the business in the facility but also support at the same time the distribution side of the business. You know, there’s a lot that goes into it in terms of site selection but also internally in the space of the the layout and how to ensure that you’re maximizing that cube and utilizing the storage to the best of your ability, you know, versus when you have, you know, finished goods versus components and how should they be stored in an effective way to create the most streamlined process. So, so it’s definitely a balancing act and there’s a lot of things to consider
there, both upstream and downstream
impacts when going from multiple
facilities to one facility.
So, Rick, one of my favorite topics is data and forecasting. What are some ways that manufacturers fail to realize their forecasts?
Yeah, I think one of the ways is that there are really two types of forecasts, you know. A quick story: I was auditing a manufacturer last year, and I was asking, ‘So, talk to me about your forecasting process, both on before you order and after you order.’ It’s like, ‘Oh, forecasting, we have it locked up. We know exactly how much.’ And you kind of peel the onion back. You’re asking questions, questions, questions, and you know, the supply chain group is obviously ordering. You know, they’re forecasting for their order, obviously. You have a huge retail channel support, and that’s important.
The challenge is, once it lands, there’s no forecasting on the demand side, and so, I to me, there’s two sides of the same coin that it’s a little bit like the left arm isn’t talking to the right or arm in the in these situations where the whole company made a huge commitment in cost of goods, and the marketing team, you know, or in some cases, the e-commerce organization, they’re fighting hand-to-hand combat on the channel. But if you ask them, it’s like, ‘Give me your day-by-day forecast for sell-through on these units that we spent a lot of money on,’ and you hear a lot of hemming and hawing. And one of the levers you can use to on a day-to-day and week-to-week basis to help, you know, sell through this product, and the reality is there is not a cross-functional team of e-commerce leaders, operation leaders, manufacturing leaders, and financial leaders that are really working together to close the loop on this for on this original forecast that happened to your manufacturing supplier obviously several months ago. After it lands, it’s almost like whatever happens down the stream, it’s like, you know, someone else’s problem. It’s not my problem.
Somebody else must have ordered the wrong thing, but that’s not really a sort of a partnership relationship between your various departments. That’s in some ways it’s, it’s more adversarial, and if a CFO or CEO isn’t aware that behavior is happening, if they’re not in the weeds, it can, everyone’s trying hard, but they’re not trying hard together, is one way to put it. And, and I think, I would almost say this is somewhat of an epidemic problem in brand manufacturing online from the operational point of view, unfortunately, because it’s actually a quite simple problem to solve once you identify what’s happening.
But it’s almost like a muscle that you don’t exercise, it will attribute that teamwork and collaboration between departments will atrophy unless there’s some incentive and feedback loops in both directions. If you over forecast, then is there some penalty or what happens to the group that is that needs to hit a stretch goal, maybe they weren’t comfortable with, maybe they never signed off on the forecast. So, I think there are a lot of different scenarios that can happen, but communication and collaborative planning is is really at the root of why some of these challenges happen.
Yeah, and Rick, I would say, in particular, this is a challenge for brands with seasonal products. Right? Everything gets more acute with seasonal because with seasonal products, you know, it’s almost like you order bananas, and those bananas are going to be rotten in a week.
So, if you miss your windows, and you saw a lot of this happen in the last six months in retail where all these you know, all this write-down and it doesn’t even have to be seasonal products. It can be products that the economic environment changes. What happened in retail recently, economic environment changes, consumers are witnessing inflation, they’re spending a lot on non-discretionary items like groceries and stuff for their kids and back to school and all these things. Meanwhile, all the discretionary stuff that retailers bought that people thought they were going to buy, we’re, hey, it’s summer, people are going on trips, and they’re going to spend on a new wardrobe, and none of that’s happening. And so, retailers are left with a lot of oversupply that they need to mark down. And again, some of it is not necessarily their fault, and in some sense, but it’s, it’s a problem of oversupply in the consumer situation.
Well, we are just at the hour. I want to thank Roger, Paul, Kevin, and Rick for coming on to share some of your crazy manufacturing stories. This is a monthly show. Our next show will be on September 13th at 1 PM Eastern.
Join us to hear another group of panelists coming and talking about their manufacturing experiences.