Manufacturing Supply Chain Woes
Camille Corr Chism, Gary Starr, and Nirav Shah
Welcome to the Manufacturing Supply Chain Woes show. I am Sarah Scudder, CMO at SourceDay, and our show host. I am joined by Camille, Gary, and Nirav. They have extensive manufacturing experience, so I’ve asked them to join us today to share some of their nightmare supply chain stories in manufacturing. Our show sponsor is RapidRatings. I’ve been friends with their team – gosh, I want to say for several years now. I actually used their platform and product at a previous company. I’ve asked Eric, who is decked out in holiday gear today from RapidRatings, to briefly introduce himself and talk a little bit about how their company is adding value to manufacturers. So, welcome Eric.
Yeah, thanks a lot. Thanks, Sarah. Thanks, everyone, for joining in. RapidRatings is proud to be a sponsor. And so, I manage our partnerships and alliances. What we do: we help manufacturing companies, our clients, detect weak suppliers from a financial aspect with our Predictive Analytics and AI by using their suppliers’ financial statements. So, with everything happening this year with rising inflation and interest rate hikes, we’re really helping to identify those weak suppliers and help our clients get in front of liquidity and operational issues because we analyze those companies and those private companies tend to be a lot more vulnerable. So, Sarah, we took a just a real quick thing. We took a peek at some of our data earlier this month, and it showed that private companies are paying a higher cost of capital on average, almost 33 percent higher in interest expenses compared to public companies. So, something a little nugget to take away with.
Yeah, and I would say, Eric, in almost every conversation I have with people in supply chain and in manufacturing, risk is a top three absolute focus and priority for 2023 – how to mitigate and minimize risk in supply chain because craziness happens every day, and it’s not going away.
Exactly. Well, thank you, and Eric, where are you joining us from today? It looks exceptionally cold in your… It is cold. It’s about 25 degrees right near City Hall, World Trade Center. Awesome.
Well, Eric, thank you so much for being with us today and thank you, looking forward to the conversation.
So, to kick off our conversation with our experts today, I’d like to have you drop a note in the comments to tell us where in the world you are joining us from. And if it is freezing cold where you are like Eric in New York, drop a note and tell us how cold it is as well. Our panelists will be answering questions throughout the show today. So, if you have any questions that come up, that are general or specific for a panelist, drop those in the comments as well and we’ll do our best to get to those.
So, I want to start off today with Gary. So, Gary, I’m going to ask you a question, and before you answer, I’d like to have you do a super short intro about yourself as well. My question for you is, what challenges did you face at Phillips Telehealth while you were ramping up the supply chain to support ventilators and patient monitors during the Covid pandemic?
Alright, thank you so much Sarah. So, when I was at Phillips, I was the VP of Procurement Engineering for patient monitors. Currently, I’m the Vice President of Operations at Cadwell Industries, the third-largest neurodiagnostic company on planet earth. During the Covid pandemic, we had customers all around the world, hospital units, and even countries. During the Covid pandemic, were asking Phillips to ramp up production. We eventually ramped up production 500 percent from our prior output prior to the Covid pandemic for ventilators and patient monitors. And as we progressed the pandemic, Phillips actually came up with an amazing product or kind of a combination of products. They would send to hospitals into clinics around the world to help service patients that were critically ill with Covid. The biggest challenge we had is our ERP system could not keep up with the number of our manufacturers who were kind of going through rolling blackouts or shutting down factories, either due to breakouts of Covid or countries were shutting down manufacturing all around the world. Phillips had a very well developed and very mature Global Supply Chain, was very expert at executing through our ERP system. But once we went through this process of trying to ramp up production, multiple factories around the world, we found that our ERP system could not keep up with the information that was changing on a day-by-day basis as far as which manufacturers were or were not open and would or not be shipping product.
So, big challenge we overcame came with some brilliant individuals who stripped data out of our ERP system. They also worked with some middleware, and then they created a tracking tool. We briefed the c-suites of Phillips on a week-on-week basis of what the status was of what products we could or could not ship on a week-on-week basis to customers all around the world.
Gary, would you mind sharing, and Camille and Nirav, feel free to jump in if you have any comments or feedback as well, would you talk to us a little bit about what your manufacturing setup was like? US-based, Global, kind of what was the structure that was set up for your manufacturing plants?
Sure, so manufacturing for ventilators was primarily in the United States. Patient monitors are spread out between mainland China and in Europe. Most of the patient monitors, for in-room patient monitors, even monitors inside ambulances and in ICUs, were actually manufactured in a place called Biberach, Germany. I, in most of what we would call our spot-check monitors, our lower-end monitors, are actually manufactured in a couple of manufacturing plants in mainland China. The supply chain for all of these plants was actually strung out across the world. So, we had suppliers all across Europe and all across Asia and North America that were supplying the factories. For ventilators, there were inbound materials coming from both Asia and Europe. And for patient monitors, there were materials coming from all across Europe and across Asia to feed that factory. And for our factory in China, primarily it was an Asia-based supply chain was supporting our spot-check monitors, our lower-end monitors.
And what would you say was the biggest challenge in getting parts and materials and things that you needed through your global manufacturing plants?
I think that there were two primary challenges. The first was all engineers that reported to me – there were seven different sites of engineers that reported to me in the organization while I was there. We were primarily accountable for ramping up capacity at each one of the manufacturing plants that were supporting our requirements. And then we had a great global supply chain team that worked on the relationship side and on the prioritization of who each of these factories were going to support as their primary customers. The biggest challenge we had was for patient monitors. We were not the Production Act was not empowered by the president at the time where it was for ventilators. So, we had to negotiate at the c-suite level. We gave a list of suppliers we wanted Franz van Houten, who was the CEO of Phillips at that point in time, and other c-suite members to call corresponding leaders of companies around the world to try to get output for our products. The materials we needed desperately to save lives put on the top or close to the top of the list. It was a big challenge for us. The second biggest challenge I’d mentioned in the beginning was that we did not know on a day-by-day basis which factories would or would not be open. Sometimes countries were shutting down entire sectors. China shut down factories multiple times. And sometimes just individual factories would hit a certain red line of too many infections and they would actually shut down factories.
Yeah, Gary, it shows what an impact supply chain had on organizations when you have your CEO or your c-suite actually picking up the phone and getting involved in procuring and purchasing and trying to help your organization become a priority. And I think that just goes to show how much of a priority supply chain has become and how much visibility we’ve gotten in the last three years, particularly as it relates to supply chain and manufacturing. Yeah, absolutely.
Nirav Shah here. I’m CEO of AdCircus ERP, and you know, to add to that, right? How your ERP system, right, is set up and how that could also help you know, navigate those conversations. A lot of times, when they’re set up initially, the planning policies and the way MRP and MPS runs, right, all that data is not really revisited depending on what the change in economic climate is, right? So what we do and encourage customers is to say, ‘Hey, you go, we’re going through this situation, the pandemic, let’s revisit, you know, how you should order, right? You bump up those order quantities, those order multiples. Should you have more vendors out there on board, more vendors out there? Should you revisit, right, where you know how quickly you’re getting inventory in? Should you increase those lead times so MRP and MPS could react, right, accordingly and get those purchasers out there on time?’ So yeah, absolutely. I think the pandemic, you know, you know, really put a, you know, you know, bottleneck in a lot of, you know, manufacturing environments out there, but we, you know, encourage you to, you know, use the ERP system properly, going back and not having that data become stale, using that data, being more proactive in a more reactive kind of environment, so you’re insured to get those product, that product in, to meet your forecast, to meet your customers. So Gary, thanks for that, and I appreciate you being with us today. Any questions and comments for Gary, feel free to drop those in the chat and we’ll make sure to address those.
Nirav, would love to have you do a quick intro for yourself, and then my first question for you is around actually ERP systems. How do manufacturers that practice lean principles implement an ERP system? Yeah, thanks. Nirav Shah, CEO of AdCircus ERP. We’re a premier academic Microsoft Business Central implementing specialists in the mid-market area. You know, this is an interesting question because it’s confusing a lot of times, right? You practice lean principles, you practice, you know, Six Sigma, all these different, you know, concepts out there, and then you’ve got to implement an ERP system. You know, manufacturing in a certain way is, you know, pretty, you know, sometimes, you know, decided out of the box how you should do things, right?
So there was an interesting example where we had a client that practiced lean principles, almost cell manufacturing. If you understand what cells are, right, it’s, it’s, you’re making the product from beginning to end in one smooth, essentially, right? There’s very little kind of inventory that comes out of it that you go back and stock back into inventory, but it’s actually one continuous flow. Because I think about repetitive manufacturing, but there was, what I call, travel knowledge internally, because they hadn’t implemented an ERP system before that. They were writing a lot of things down by hand, so the managers there and the different cell departments said, ‘No, we want individual production orders for every piece of machinery in a specific cell.’ And that, you know, slowed down, you know, the whole manufacturing floor. And we went through different pilots, we did a bunch of different iterations, but, you know, it’s one of those things where, if, you know, change management is a thing with the ERP systems, right? And you’re implementing new processes, and it was really, you know, adamant that they want to implement a more unique bill of material structure for something that should, you know, we should have implemented phantoms and had the bill of material blow through a single routing instead of multiple routings on the manufacturing floor. So we went, you know, initially, since they were writing everything down by paper and hand, essentially, to almost, you know, almost like 1,500 production orders overnight. They couldn’t handle it, and, you know, obviously choked the manufacturing process. Went back to listen to our instructions, and, you know, went more a true cell manufacturing route, which is, you know, more repetitive manufacturing in that environment. We had a bunch of phantom items we put into the bill of material, single production orders would be released from beginning to end, and, you know, they were able to meet their customer due dates a little bit better. So, you know, it’s, you’ve got to be very cautious when you, when you implement in a lean environment or when you’re looking for an ERP system, because it could, if it’s slowing you down internally, right, you’re going to have a lot of overhead costs on inventory that’s coming in. You’re going to have, you know, you won’t be able to move that inventory as fast enough, and ultimately the customer is going to get impacted because they’re not going to have real estate due dates of when the product’s going to be shipped to them. When you say manually writing things down, you literally mean pen, paper on a desk? That’s what they were doing, yeah, exactly. They had the right idea that they needed an ERP system to understand what people are writing down, but they just didn’t, didn’t need that many transactions. And then once we consolidated, understood their bill of material, how they should be structuring their bomb, how they should be processing their manufacturing, what type of routings they should be putting up, right, it just, it became a process where it matched exactly what they were doing, instead of, you know, kind of what they thought that they were doing, essentially. Yeah, and it goes back to what, what Gary brought up. I mean, the whole data piece is so important. If you can’t trust the data in your ERP, you’re going to have a hard time getting buy-in and changing very manual, antiquated processes.
Yeah, it’s, it’s, it’s all, it comes out of cost-benefit analysis. We tell our clients all the time, before we implement processes, right, before they get too complicated, what is the cost benefit of this? Is this a benefit outweigh the cost of that transaction, right? There’s a certain level of time study that goes into putting in a purchase order, putting in, you know, recording inventory, recording labels for somebody. But, you know, what is that benefit? What are you taking out of that? How are you going to make decisions? How is that going to make you more effective, right? And how is it going to, you know, increase your margins at the end of the day? So we put that in front of our customers. They have all the time to make sure that they understand, you know, yeah, you know, as complicated as we could make ERP system sometimes, we don’t have to, and sometimes we could really make it easier and help everybody out and get the data that we need to become, have that data kind of speak for itself to increase our margins. Camille, welcome to the show. Happy to have you with us.
Very quick intro, tell us a little bit about yourself and then I know you’ve had some really awesome train wreck, pull-your-hair-out crazy examples that you’ve lived through in your manufacturing career. So, I’d like to have you start off by sharing your sabotage example with us today. Sure, sure. So, my name again is Camille Corr Chishm. My background is in packaging. So, with packaging, you know you’re not only designing the packaging, but you’re looking at the entire supply chain, the process, understanding the product, so everything ties in together. So, when you start looking at systems and data, you have to have a really good understanding of that to start with.
So, my first – and again, I’ve worked in packaging for over 30 years, food, pharma, technology, automotive, a little bit of everything, distribution for small parcel delivery. So, my first example has to do with sabotage. This was years ago, so this was 30 years ago. So, imagine what I looked like when I was 25. So, basically, this teenager walks into the plant. We’re converting packaging from bleached white board to unbleached. So, at this point, before sustainability, it was called environmentally friendly, but it was saving two million dollars for the company to make this transition 30 years ago. So, all the other plants pretty much had been tested, qualified, the packaging worked. We tweaked the machines, we tweaked the designs of the packaging, but this one plant we couldn’t get it to work. And without this plant getting the packaging to run on the lines at the line speeds required, we couldn’t really implement the entire changeover. So, this one plant was holding everything up.
We get there, the lines don’t work. I’m literally tearing my hair out trying to figure out why do the packages – the packages are just flying everywhere. You know, you turn the line on and the cartons are just falling all over the floor, and it’s a food plant. So now, the USDA guy is standing there looking like, ‘Are you gonna pick that up from the floor and put it back on the line? I’m going to shut the whole plant down.’ So, all these things are going on. It was kind of chaotic, but fortunately, I had a really good mentor, and he worked with the carton machine company, and he said to me, ‘There’s a two by four stuck in the line. Someone stuck a two by four in the line and is jamming up the chain.’ So, when he gets that part of the line, everything flies. So, part of this was dealing with respect, so people don’t want it to happen because it’s a change, and they’re like, ‘This kid’s not going to come in and tell us what to do.’ So, when I looked at the line, figured out where the 2×4 was and said, ‘Look, you know, this is causing the problem,’ it gained their respect, and all of a sudden, you know, the two by four disappears, and the line magically runs. But that was definitely a nightmare for sure.
And Gary and Nirav, feel free to pipe in as well if you have any similar experiences or comments and feedback as well.
Gary, a question for you. So, I feel like I have a theme going on here with Covid pandemic nightmares that you lived through, with a lot happening with emergency production and emergency things that were being produced. So, what challenges did you face ramping up for remote battery energy storage factories in Asia while at Power and Energy during a time in the Covid pandemic when you couldn’t travel at all? It was kind of an amazing, amazing experience.
So, I’ve done a couple of company turnarounds, and I had on my bucket list to do a company startup. And so, I was recruited by Pound to be their VP of Global Operations and Integrated Supply Chain, but it happened during Covid. We had a wholly owned factory in China. It was a four-story kind of brick and mortar type place, which was far too small for our hyper-growth. We’re going through Power and Energy is now the fifth largest battery energy storage company on planet earth. They have an amazing story. And then we had some contract manufacturing sites, very small Proto lines in Taiwan.
How we overcame this is I was able to hire a consultancy I’d worked with in the past. They had some people that were Chinese Nationals, and I leveraged the tools that I used at Phillips. It was developed by some great people at Phillips. It was there for either ramping up or moving factories from one site location to another. Had a great project plan, Gantt charted checklist, and how to actually do that. But essentially, I think I worked 18 to 20 hours a day, seven days a week, working with remote teams, running through multiple checklists to ramp up multiple factories to dramatically increase output. I think we’ve ramped up output by 482 percent in the period of time I was at Power and Energy. All this was done remotely. It was video, it was phone calls, it was calling in favors from people I knew across Asia, in Taiwan. The founders of the company had some great friends and some great technologists that actually were Taiwanese Nationals, actually helped out immensely to get that done. And then another great individual who was one of my employees who lived in Taiwan and had lived in Taiwan, I think he slept less than I did and was able to hire some great talent in Taiwan to help ramp up the factories. These were Greenfield Tip-Up factories. They were wholly dedicated. These had to be safety-certified factories. These were battery energy storage systems built in Asia, put in containers. They had to be certified safety-certified, each one serialized and tracked. And it was also during a time period that was very difficult and expensive in Global Logistics to get bookings on boats to actually get the product delivered to the U.S. We did have some impacts as far as being able to deliver on time to customers, but most the customers were somewhat understanding about the fact of what was going on with the Covid pandemic.
Each of these factories either had to shut down completely. Our Chinese Factory had to shut down completely, I think for eight weeks after we moved to a new facility before we could fully ramp it up completely. And then our Taiwanese factories never shut down completely, but they had to go to basically six-foot spacing, so half staff and running about 24 hours a day to try and support customer demand. It was an amazing journey. At the same time, we had electronic component shortages. We were micromanaging boards. We were allocating the boards that had to go into the safety circuits that went into each one of the products. And we would allocate them to each one of the four factories, kind of at our discretion, as we knew that their factories are going to be open but not overallocate to actually build up the products. It was an amazing journey. It was not a time to catch up on rest, but that was a great experience. Sounds like a master course almost in entrepreneurship. You were kind of building something new within a larger organization, and it was an absolutely great leadership team at Pound Energy. Still, just an absolutely great group of individuals, love them all and wish them all the best for the future. But it was a great experience to spend part of my career there with them.
Or if without having personal contacts, you and your executive team, it sounds like you would not have been successful. So having long-term relationships with key people and key suppliers is so, so important when you’re dealing with supply chain disruptions. It is. It’s not just facts and figures, it’s not just ones and zeros. Building those personal relationships, if you’re managing either global operations or an integrated supply chain, is very important. At very high integrity, you have to make commitments you know you can keep. You have to keep your commitments. You have to use those relationships, you know, with distinction and with honor and respect. But if you treat people well and you have good integrity, when you call in some favors, people are willing to help you. So, it was a great journey with them.
Nirav, another challenge that manufacturers have experienced is dealing with long lead times. Something that maybe took two weeks, it’s now taking six months or a year to get. So, how can make-to-order manufacturing companies better plan long lead time production items when a project is not approved or not accepted by the end customer? Yeah, that’s an interesting concept, right? The project’s not approved yet or accepted. It’s a project that may take anywhere from six months to a year, right? And now you have the pandemic. All right, how do you get stuff on order? Essentially, there’s a big challenge for one of our customers, and what they were looking at is they were only starting the planning process, the manufacturing process, once the project was pretty much accepted, right? But what we analyzed from a project standpoint or made-to-order, you know, environment standpoint is that there’s actually a percentage of degree that the order will be accepted as it’s going through its sales cycle. So, there was a certain point where we were able to identify to this customer when you get to this point in the sales cycle, you have your configured item, you’re at the point where you’re almost at final contract negotiation, there is some good faith that we’re able to release part of the bill of material.
Now think about a bill of material that could be 15 levels deep, 20 levels deep, 50 levels deep, essentially. As you go down the levels, the top levels are a lot more custom to what the customer is looking for, and then the lower levels start to become a little bit more standardized, right? You have some common components, some common sub-assemblies that are used across different parent items, essentially. The lower levels, what I call the standard and make-to-stock type of components. So, we’re able to identify what that line in the sand was in a specific bill of material across their product lines. So, when you got to a point in negotiations for a specific contract or project, they would create a simulated production. They would create a “what if” scenario – what if this particular order were to be accepted today along with this full bill of material. Most of the times, the top-level bill is the one that engineers are working on. They’re doing CAD drawings, and they’re passing the top-level bill to the ERP system to begin the procurement of inventory and material. But the lower-level bills are always in the ERP, and they’re just linked to the top-level bills. So, we basically use “what-if” production orders, and we had them look into the MRP and MPS engine.
What that allowed them to do is start looking and bringing to light any of these sub-assemblies that were more standard, lower-level, and get a head start, right? Because now, if you don’t have those standards, something you’re going to need, you have a good chance the project’s going to be awarded. And even if you don’t, you can still stock it and use it for another project, right? Because we’ll still have limitations around that to say you could only make so many of these and so on and so forth. There’ll be exception messages that come in through the MRP and MPS engine. What that did for them was actually radically reduce their lead time to get that full machine that they’re making completed, assembled, and on-site for installation. Instead of it being almost eight weeks to nine weeks or 12 weeks, right, they cut that down to like six weeks. And they’re turning that inventory right, they’re keeping their throughput, they’re keeping everybody kind of busy and working on the floor without people having to stop to see when’s the order going to come in, or can we make use economies of scale, right? Because think about it, making more is going to cost you less, right? The ERP will show you that and prove that to you based on the runtime data that you get from labor transactions, right? Maybe looking at your buying patterns – buy more in bulk now and get a lower price on what you’re buying.
So, you know, we’re able to dissect the process starting from sales all the way down to shipping and identify what the key milestones were to get ahead of the game. And that really helped this customer through Covid. They were saying that if it wasn’t for the decisions we made during the ERP implementation, they would have been hosed during the whole Covid pandemic process. They’re still able to ship, and obviously, they’re late many times, but it wasn’t as bad as we expected from an inventory sourcing or manufacturing standpoint. Camille or Gary, anything you can relate to in regards to lead times? Somebody just walked in, sorry if you hear them. Yeah, I mean, I think this is great because, you know, with packaging, you know, we’re focused on production many times; however, not having the proper system in place, and if packaging gets segmented and it’s not tied into the rest of the system, it’s kind of a black hole. So, you can have all the data and information you need, but it all needs to marry together. So, I think this is very interesting.
Definitely, from a lead time standpoint, the biggest challenge we’ve seen has really been for electronic components. So, if you look through your BOM, we’re buying boards, PCBAs from contract manufacturers, but the inbound supply chain for all those electronic components – there are thousands and thousands and thousands of parts. We spend a significant amount of time aiding our contract manufacturers and trying to find available suppliers. We’re seeing lead times out to 2026 for some components, and some of the components that are being put in our products, they’re called “being hot off of the test fixture,” so they’re being produced by a contract by an electronic component manufacturer, most of the times in Asia. They are the primary location for electronic components, and we’re tracking it all the way inbound to our contract manufacturer and day by day when they’ll start delivering boards to us, so I can fill whole orders. Challenging times, yes.
So, Camille, back to you. Another kind of crazy situation that you’ve lived through – you have a couple examples of experiences where your team was reactive instead of proactive. So, we’d like to have you share a couple of those, and maybe what issues did the lack of planning cause. Sure. So, this example that I’m going to talk about is related to automotive and returnable packaging, and I’ve told this story before in different versions, but not how it really impacted the supply chain. So, we had container tracking with RFID tags on the containers, and we had a system to track everything, so you could see where everything was going.
We had one plant that every month, we were spending about ten thousand dollars a month to buy new containers, returnable containers, for this one plant. And that was after we called and reached out to all the other automotive plants in North America that were using the same container, and then okay, they were using that container, and we would basically deprive them and slow down their production, and we couldn’t figure out where these containers are going. I’m looking in the system, and these, because part of my job was to manage these returnable containers, so I’m looking in the system and I’m seeing these containers are going in by the thousands every month to this plant, but they never leave.
So, I’m thinking there’s either a leak or their containers aren’t leaving the plant, but meanwhile, we’re starving other plants, they’re near shutting down production because they need the containers to run, and we’ve completely messed up that loop, that return loop that normally works pretty smoothly. So, finally, I thought I cannot figure out for the life of me where these containers are going. I decided to look on Google Maps, and when I go to Google Earth and Google Maps, I see in the backyard of this plant, this patch – it was a black patch. The containers were black. These were the containers, and they were, I would say, five times the size of a 53-foot truck. So, they were the size of a standard trailer multiplied by five, and they were just going into what would happen is they were reacting every time they had an order, ‘We need more containers,’ instead of going out to pull in what they needed, which meant they’d have to now bring someone in to clean and process these containers, they would just ask for more, and we would gladly enable them, give them more.
And then this is the other thing – we talk about ERP systems. So, this is an example of having definitive systems that track the containers of the RFID tags, but it’s not integrated into SAP. So, the parts are coming in, but the packaging is not tied to the part. So again, we end up going in – I had to actually elevate it to leadership. So, this is where Gary mentioned about having leadership understanding what’s going on and being an advocate, and once leadership got involved and it became a major issue because it was costing like I said ten thousand dollars a month, then the plant was motivated to clean up that pile of containers. And after that, the supply chain was running more smoothly. We weren’t shorting plants, we weren’t starving plants and containers, they were more thoughtful and intentional about what they were using and what they were receiving and keeping track of it much better, and actually using that RFID system that we use to track our containers. Kind of crazy stuff that you would never even dream up, right? And ten thousand dollars a month is a lot of money, yes.
Yes, and you know, you’re looking at systems with like, we know something’s wrong, what is going on, I can’t figure it out, I’m coming scratching my head, pulling my hair out, and finally, I just said, you know, how do we, when we start these systems, we do we start with the pen and paper, right? You build that structure, you have to have a system or a process that works. So, I kind of went back to the process and followed it through physically to say where could these containers be because it wasn’t the process, definitely wasn’t matching the system. So, we were able to get there, yeah.
So, Gary, another question for you – electric components are also kind of a theme here. I think you’ve had a lot of experience buying and dealing with electric parts. So, how are you supporting crazy growth at Cadwell Industries with the severe constraints on certain electronic components, which I don’t see loosening up anytime soon? Yeah, I think it’s going to be like this likely till 2025 or so. In the network of global integrated supply chain professionals that I network with, we think it’s going to be a long-term issue. So, we really approach it from multiple sides. A great relationship with an exceptional R&D engineering team here at Cadwell. They are accountable for life cycle engineering. And when we identify that there’s going to be a supply chain issue that we cannot solve, maybe it’s an ADI component or it’s a Texas Instruments component or something else that really is unobtainable, you cannot obtain these, you can’t find qualified and verified real parts even on the broker market. We actually have put a tool in place where we do a horizon scanning to see when we’re going to have an issue well in advance of when the issue actually occurs. And then we work directly with engineering and look for alternatives. So, we have had a great success rate. We’ve had very limited impact on customer shipments. I think that the longest impact we’ve had on a customer shipment due to an electronic component issue that we were not able to solve in advance of when we promised we deliver the product to the customers in about two weeks. I think that we’re definitely punching above our weight looking at a lot of my friends around the world and even my prior companies I’ve worked with where we had longer-term issues than that.
We have a couple of great analysts at work here. We have a great business intelligence tool and a great leader who’s very responsive. We call it a fire prevention tool we put in place where we really do horizon scanning against our forecast, our pending and released orders, and it really gives it gives me a stoplight report I can see every morning. We’re pulling data out of our ERP system, but it just shows me the things I should focus my energy on. And then sometimes I’m seeing six months in advance that we’re going to have a challenge on something, and we start working with a trusted broker network. And then we will have escalated calls, those with manufacturers, direct manufacturers, because we’re a medical device company, and also with distributors, so the classic distributors that everyone knows, to see how we can get higher up the prioritization list for parts that are on allocation, and thousands of parts are currently on allocation. So, it’s, you know, how do you raise your head above other people that are competing for the same parts? How do you tell your story and how do you encourage people to support a medical device company rather than a consumer products company? It’s multi-faceted, but so far, we’ve done a really good job of keeping things running and supporting our customers around the world.
Gary, you mentioned coming up with alternatives. What does that mean?
Alternatives would be, we would look at maybe a part in the same family. It’s not the exact part we’re trying to find. It could be a part of another manufacturer. Sometimes this means we have to re-layout PCB boards. We have to change a circuit. We have to change some type of firmware on the product. Again, we have an amazing engineering team. We look at all these options. Of course, the first option we look at how we want to solve it is from a supply chain standpoint. We want the exact part that is on the BOM that we can find someplace on planet earth and get that part if at all possible. We have had some situations where finding that part is not possible, and so engineering has done an amazing job. Because one of the things we’re able to do is just tell them much further in advance that we’re going to have an issue as opposed to, “Oh, our supplier’s out.” The other thing that we’ve done with our contract manufacturers, every week they send us an on-order and on-hand report, which we integrate into our BI tool so we can forecast when there’s going to be a shortage issue, and we start working with them to try and solve those. We try to keep the list of parts that our engineering team has to look at alternatives for very, very short. And when I do tell them there’s nothing we can do from a supply chain standpoint, they’ve utterly been amazing. They’ve solved every issue we’ve come up with, or they’ve had to come up with some type of alternative engineered solution.
Yeah, I think even I’ve heard Tesla has been re-engineering and redesigning some vehicles based on supply chain shortages. So, I feel like it’s going to become more and more of a thing.
Nirav, one of the other things that you and I have chatted about before is how companies are starting to leverage AI. In your case, my question for you is around how can companies use AI to help implement ERP systems?
Yeah, it’s a great question. Kind of piggybacks off of Gary’s commentary on what you’re talking about forecasting, better data out of the system. Yeah, I mean, ERP systems are no different, right? Artificial AI, the way your data structure, the type of views you get from your data that you normally wouldn’t see by creating a report is really important nowadays. You know, it’s going to help with your data capabilities. It’s going to help with forecasting. It’s going to help with cash flow, right? A lot of different areas to create efficiency with AI. Prime examples is predictively payments, right? When you’re putting in an order and you’re trying to understand, will we get paid on time for this particular type of order or from this customer particularly? It’s important because based on the model that’s defined, based on tolerances and thresholds, right, it’ll tell you right away the confidence is going to be low or the confidence is going to be high. Then you can have a conversation with the customer, or, “Hey, Mr. Customer, you know, I think based on history, we need a prepayment, we need a deposit on hand before we go ahead and release this order to you.” You’re going to have that conversation instead of releasing the order.
On the planning side, forecasting – you have all these years and years and years of data built up, history, right? You have sales history, usage history on the manufacturing floor. We’ll take that data, run it through AI tools. There’s different modelings out there for forecasting, and find one that fits your business and implement it to get the right forecast in place, to stay ahead of planning, right? Looking at historical sales, what you’re doing, or usages on the manufacturing line or whatnot. I mean, there’s a lot of use cases for AI. A lot of ERP publishers are actually realizing it, especially with cloud and the whole digital transformation that a lot of companies are going through. They’re getting access to this AI almost out of the box now. So, as you’re getting new releases, as you’re upgrading to the cloud, this AI is front and center on everyone’s role center dashboards to give them this information that they normally wouldn’t kind of put together for an instance like in a BI tool or something like that. So, you know, a lot of publishers have kind of figured that out and they have all this data, right, that they’re already kind of looking at. And it’s only going to get better from here on out, right? Because, you know, we have to kind of predict the next pandemic, right? We can’t sit here and say it’s not going to happen. It’s going to happen, but just when is it going to happen, right? We need to implement smarter tools and the tools that we had in the past to have, you know, be one step ahead of it. We can’t be two steps behind that we were with the COVID pandemic anymore. And I think AI is going to help a lot of companies get there, especially with the companies now understanding the value of a cloud transformation project. Camille and Gary, any experiences that you’ve had this year with AI?
Well, my – actually, I had a couple of examples that kind of had to do with the next question that I know we’re going to talk about. But I’m seeing a project that I’m working on now, how everything that Gary and Nirav are talking about right now – shortages of materials, this company makes a lot of electronic components – and I’m asking for samples so that I can, you know, to develop the packaging and get fit checks. And it’s very difficult. I can’t get those samples. But they’re just like, “Just get the packaging and just make it work.” But you don’t have physical samples. And it’s because of the shortages. And I think that they may not be using AI as much as they could because I think that would gain a lot more visibility for the entire supply chain and working together to get these systems going.
I think my experience has not been direct in the manufacturing side. I do know that some electronic component manufacturers are actually utilizing AI to decide about which products to manufacture, when to manufacture them, and what volumes to manufacture them, utilizing Predictive Analytics and also strong business case analysis of where do we make our profit, who are our key customers, how do we actually support them. That’s driving some of the decisions that used to be done by people sitting in a room deciding what’s our allocation, what, you know, what we can actually put into the production plan. Now it’s more predictive analytics in making recommendations. But it’s almost like a good, strong S&OP process, sales and operations planning process. You want to look at your past data, you know, what have you actually done? What have you actually produced? That’s kind of foundation pre-work for your S&OP. You want sales to come in and say, “Here’s what I believe I’m going to sell,” which likely will differ from what they actually have sold in the past. And then you want to work together on what are we really going to plan for? How do we actually change our plan?
I think AI is going to be the way of the future. I think in the next five years, you’re going to see more of that actually being adopted by more companies, telling us what you should be building and here’s why. And sales will be more of the checkpoint of does that make sense to you or not? Should we do more or less, or should we change our mix? So, yeah, and I think there’s a lot of AI happening behind the scenes that we don’t even know, kind of becoming commonplace but we wouldn’t necessarily know, “Hey, that’s AI.” So, I think we’re going to see more of that as well, just kind of day-to-day functions that we do in supply chain and manufacturing.
So, Camille, one of the other stories that we talked about in prepping for today was a disaster that you lived through because of a lack of testing. So, we’d love to have you share this story with us.
Sure, sure. So, this doesn’t have as much to do with ERP or the systems, but this one, the decision was made so we had a product. It seemed pretty much a simple product, it’s made the same way every time. However, when it was made, the size of the product varied and you didn’t know what the size was until you actually got running into production. So, normally, what we would do is do test runs, determine how big this part would end up being because it was a part that was wound into a bundle. So, we didn’t know how big the bundle would be until we did some trials and testing. And then from there, I could figure out exactly what the packaging needed to be as far as size, shape, you know, strength, all those things. But because they were fast-tracking this product, the decision was made to skip over the testing, saying, “Oh, well, you know, we just calculate it, figure out what this is.” So, what packaging always does, you know, packaging, we don’t need that, just buy the box, it’s just the box, and it’s coming from a magical warehouse from somewhere.
So, I decided to be proactive and set up a meeting with leadership at the facility, because we were supplying this product in the United States, but then the packaging had to match. For, you know, we had plants in Asia, we have plants in Europe, we have plants in Australia. So, we have to make sure everything looked the same, so no matter where it came from, you couldn’t tell where it came from. The first step was running it in the American plan. But again, I set up a meeting with leadership and said, “Look, skip testing. These are the risks that we can incur because they – you know, everyone was told there’s no risk, it’ll be fine.” So, I was very specific, these are the risks that we could – this is what could happen if the boxes are too small, the product won’t fit. But if the product box is too big, we could have collapsing boxes. So, I said I opted to make the packaging slightly big to be conservative. So, we might have the issues with collapsing boxes in the supply chain, but that’s better than them not fitting in the box because then we can’t even ship them. So, if that’s the case, you know, we order the minimum number of boxes, run the first run, see how they do in the supply chain, it won’t take but a few days to know. And then if we need to, then we’ll have the product, we can resize if necessary, and have the supplier on standby to order the package, resize it, and run the new product, and we can get it pretty quickly and pretty seamlessly.
So, I had this meeting, said this is the risk, this is the plan in case it goes sideways. And we ran, and it went sideways. Boxes started collapsing and everyone forgot because, of course, you know, this box, these things look horrible, we can’t sell this to our customers. So, I get the call that no one ever wants to get from the plant manager, saying, “What did you do? What is this?” And I said, “Well, remember?” I pull out the whole PowerPoint, you said this is what we talked about, and this is what we’re doing to mitigate this right now. And it ended up going pretty seamlessly, but, you know, that skipping steps – I won’t call it lack of planning, but skipping steps – can lead to unexpected risks. So, that would be my wonderful example. It was fun. Yeah, I just have to jump in here on this, guys. Yeah, I’ve seen my fair share of lack of testing, right? And even before then, it’s the lack of understanding what to even test. You know, sometimes it’s like, “Well, you know, I’m putting in an ERP system.” I tell everybody, right, we’re gonna go through a UAT task, right? We’re gonna do this full conference from pilot. But day one of implementation, start looking at what you’re doing at your desk and just start documenting it, whether you’re doing something on a computer, you have Post-it notes right there next to you. Right, you’re doing something in third person, whatever it is, start documenting exactly everything you’re doing. And then from there, we can start deciding, “Okay, which of these tasks actually happen in the ERP systems, which does not happen in the ERP system?” And, you know, I could definitely say I’ve been around some really bad testing environments where we have to go back and test again and test again until everybody got it right.
But testing is so important in anything, right? ERP is just one element of it, but testing new equipment that’s being rolled out, right? Testing, you know, a machine physically out on the floor, right? Testing the cardboard, the packaging out there. I mean, it’s so important. It has to be a lot of emphasis to put in testing that sometimes gets overlooked in the process and creates these manufacturing woes. Preventable is not always the optimal option. This is very common, too. I spent my entire career in high tech, and most NPI projects (new product introduction projects) tend to run a little bit late. So there’ll be a lot of pressure from marketing and sales. You’ve already pre-sold that, still have to go out on time and in operation. Sometimes, your non-popular purchase a VNV (verification validation). We’re going to do everything on our checklist before we ramp up production because we’re not going to have a quality issue out in the field. It’s better to ramp and launch slightly late but right and great than to ramp on time and then have a quality recall issue. So it’s a common theme in new technology that we have to deal with this.
So, one of the, you know, like you said, kind of fighting for that testing, keep it in there. Many times you hear, “But this type of testing is destructive. What if it breaks the part?” Well, I think you’d rather break a part in testing and fix whatever is causing the breakage and causing the failure than to put it out into the supply chain and then deal with that recall, damaged product. That’s definitely an ongoing conversation, sales pitch, yeah, for sure. Customers are always first. Quality is always first. Do the right thing for the customer. You don’t want to harm your company’s reputation by launching too quickly and then having a marketing issue because you have competitors, so they’re willing to leverage that failure that you have in a faulty launch to take advantage, maybe take some share. So the costs multiply. Oh, you just think about a post going viral on social media showing your product failing or not working. I mean, millions and millions of views within an hour, and you can destroy the reputation of your entire company.
I want to thank Camille, Nirav, and Gary for joining us today. Our next show will be on January 10th at 1 Eastern, so we will be back in the New Year. Crazy to think we only have less than two weeks till the holiday season kickoff. So, we will see you in a few weeks.