Transcript: Manufacturing Supply Chain Woes – Jan. 2023

Manufacturing Supply Chain Woes
January 2023

Featured Panelists:
Erica Halverson, Bryan Kippen, Dave Chrysler

Welcome to the Manufacturing Supply Chain Woes show. This is our very first show of 2023, so super excited, and we’ve run the show now for over a year, and we’ve built up a really nice community and following, and had so much positive feedback, we decided to continue on with the show this year. I am Sarah Scudder, Chief Marketing Officer. I like to call myself the Marketing Maven at SourceDay, and I am the show host. Today I’m going to be joined by Erica, Dave, and hopefully Brian if he’s able to get on StreamYard. All three of them have extensive manufacturing experience, and I’ve asked them to come on and share some of their nightmare train wreck supply chain stories with us today. Our show sponsor again for our second year is RapidRatings. I’ve been friends with their team for several years, actually used their software myself. I’m a huge advocate of what they do for the manufacturing community. I’ve asked Eric from RapidRatings to join us today and just say a few words. Eric, introduce yourself and maybe talk a little bit about what you guys are doing from an innovation perspective this year that may be relevant to absolutely work in the manufacturing space. Yeah, thanks, Sarah. Thanks, everyone, for joining. We’re proud to be a sponsor for the second year, SourceDay. I appreciate that, and yeah, what we do is we’re helping manufacturing companies detect weak suppliers from a financial aspect with our predictive analytics and AI by using public and private company supplier financial statements. And so what we’re doing is we’re looking at, it’s particularly private companies are very vulnerable right now, right, with interest rate hikes and inflation, and so it puts a lot of stress on the cost of capital, which they’re paying a lot more this year than previous years, and so we’re really helping our clients get out in front of these issues to detect issues early which often reside in supply chain issues. So happy to tell people more about it. Awesome. And I think you mentioned in the prep that you were joining us from New York today. Yeah, down on Chambers Street is our office and right near World Trade, and so it’s a little chilly but I’m doing our little sales kickoff, so it’s nice to see a lot of people in person, so it’s nice to be back in New York. Awesome. Well, Eric, thank you so much for being with us today, have fun at sales kickoff and thanks a lot, appreciate your sponsorship and support for the manufacturing community. Absolutely, our pleasure, thanks, Sarah. All right, for those of us joining live, we’d like to have you put in the chat a shout out. So give us a hello and tell us where in the world you are joining us from, and also if there’s something that’s on your mind about a train wreck that you’ve experienced recently in manufacturing, drop that in the comments as well. I like to kind of see what the pain points are of our audience. And if you have any questions throughout the show today for Erica, Dave, or Brian, make sure to drop those in the chat as well, and I’ll make sure that we have time to address those. So again, tell us your name, where in the world you’re joining us from, and if you are currently experiencing a nightmare, we’d like to hear about that as well.

So to kick us off today, I’d like to have Erica start off. So, Erica, I’m going to ask the first question to you, and before you answer, I’d like to have you do a super, super short intro. Give us a couple of sentences about who you are. So my first question for you is, what is the biggest supply chain challenge you’re facing in the industrial hemp industry right now?

Yeah, well, thank you for having me. So I’m Erica Halverson, I am the founder and CEO of Tiny ePaper, and we make 100% pure hemp paper on a mission to get everybody to stop using trees for paper for everything. And my biggest supply chain challenge right now is I have no supply chain, zero. So we are in the process of building it. My industry just came out of prohibition in 2018, thanks to the Farm Bill that was signed, but not every state has signed on to start growing industrial hemp because a lot of these states have really been focused on the CBD side and the medicinal side of this plant. And this plant is not the cannabis plant; they are two separate plants. And the industrial plant is also not the same as the CBD plant. So a lot of my problem is there needs to be a lot more education about the difference in these plants and the main reason why we’re trying to build the industrial hemp supply chain, which is very different from the other two sides of the plant.

Erica, for those who are joining us that are also maybe at startups or smaller companies that maybe don’t really have a supply chain function yet built out, maybe walk us through some of the things you’re doing to set up that infrastructure. And, Brian and Dave, would love to have you pipe in as well if you have any ideas or thoughts.

Yeah, so one of the first things I’m doing is I’m trying to find, when I first started, vendors, third-party companies that were already doing some of the things I needed for paper with trees that may be interested in exploring the hemp side like paper mills. Finding the right paper mill that was ready for that challenge is a challenge in itself, but I was able to find one. And that’s actually how I got started – finding a pulper that was already pulping for trees that was willing to experiment, finding a printer that was willing to experiment, that was already doing tree paper and already in the cannabis industry. So that’s how I started – I tried to find, to prove my concept because I had to do that too, even without a supply chain. I tried to find people that were willing to explore outside of that tree box and start getting into hemp. And then from there, it’s realizing what the process was, all the machines I need, and then I started fundraising because what I found out is I needed to own that supply chain myself versus relying on third parties, because third parties have all the control of your chain and I need control of that.

Yeah, Erica, a super interesting story that you have, being a CEO and founder fundraising kind of in a new innovative space. So, if you are joining us working for a startup or a smaller manufacturer, definitely recommend reaching out and connecting with Erica as she goes through her journey of building a supply chain. And I know you’ll probably experience quite a bit of challenges this year and hopefully some big wins as well as you’re building that out. Yes.

Dave, would like to have you do a quick intro and then my first question for you is to tell about a situation where a single-source supplier for a critical or raw material impacted the manufacturing process. And I think this is kind of relevant to what Erica was talking about – about finding a pulp and paper supplier. You have to be careful about relying on one supplier for anything critical. There’s a very important lesson to be learned in diversifying and having multiple suppliers for everything that you source. Yeah, totally.

Well, thanks for having me on, Sarah. Just a quick intro, my name is Dave Chrysler, and I own an operations consulting business working mostly with ops leaders in the manufacturing and distribution spaces. Helping them to optimize their processes, their business systems to drive bottom-line results, and to help them implement a continuous improvement mindset. So yeah, super interesting with where you’re at, Erica, and the things that you’re working through, ties back to a long history that I’ve had in the print manufacturing space. So kind of love to compare notes and potentially connect you with some people in my network that may be able to help you there as well. But yeah, Sarah, to kind of answer your question in terms of single-source, you know, it has its advantages and disadvantages, right? And we can talk about both of those things and how they impact ultimately the manufacturing process. From the advantage standpoint, the one example that I have was from a print manufacturing facility that sourced all of their raw material from a single source. And while there was kind of, you know, a tremendous amount of advantage by putting your eggs in one basket, as you can imagine, there was a similar amount of disadvantage from the manufacturing process standpoint.

And some of the things that we learned, lessons to take away from that experience and that story is really around what do you do in the situation when you are single-source and you run into an issue, right? Because that is obviously going to happen. And the two ways you deal with that are, you know, you’re diversified and you have a group that you can source from, or you go single-source. So, in the case of this single-source situation, what we had to do to be able to continue to provide products to our customers was we had to get better at processing material that was either a substitution that could have been from a substrate standpoint, maybe a heavier weight material, could have been a larger size material that we then either had to slit down, you know, handle multiple times, those types of things.

And that kind of brings you to some other considerations, right? If you are single-source and you’re doing those things, you’re obviously developing a very in-depth relationship there. And so, as you’re incurring some of this additional expense, oftentimes, you know, you’re kind of left with, “Well, what do we do? Do we capture that cost? Do we return that cost back to our suppliers?” They’re obviously incurring some additional expense if they’re having to substitute out particular raw materials, whether from, you know, like I mentioned, that size standpoint. So, you know, obviously, there’s inherent waste in what they’re doing. And, you know, the best relationships, I think, are just that – their relationships that you have to work through some of those significant challenges because, at the end of the day, whether you are single-source or you have multiple sources, you’re going to run into these challenges that are going to be potential raw material delays. How do you go ahead and still satisfy your customer demand and move through all of those different types of situations? So, it can definitely get tricky, and you definitely learn the advantages and disadvantages relatively quickly in that situation.

So, Dave, what was the gist of the train wreck for this specific example with the single source? What happened?

Yeah, so in this, there actually were multiple cases of this, you know, which is kind of why I left it at a high level. But what ended up ultimately happening was we had a significant demand come through that was beyond our typical, but still kind of within a range that we would consume on any given quarterly basis. And ultimately what had happened was that we ended up having to bring in a completely different material and substituted out, and we had some additional significant cost increases because of that, right? And so, it ended up being a situation where we had to go back to our single-source supplier, we were able to at least satisfy the demand side of things, but we had to go back and kind of do some pretty heavy-duty negotiating to ensure that we’re kind of made whole. And then the other challenge that we ended up having in this particular situation – it was a piece of repeat business. So, you know, about every half of the year, this business would repeat. So, we had to pre-plan, you know, what were we going to do on the next repeat run? Because we were doing a material substitution on this, obviously you don’t want to impact the end-user, or if you do, you need to have some sort of mitigation plan in place for that. So, there’s just a lot of considerations, a lot of moving parts, kind of going on all at the same time with this, and you know, we learned quite a bit in terms of how to navigate those things from an immediate standpoint and also kind of forward-looking when we had situations like that unfold.

Brian, anything from your experience where you had a single-source disaster?

Yeah, I mean, in manufacturing, we’re a small manufacturing company, and there are times when you develop a great relationship with a supplier and then they run out of materials. So, you know, I started diversifying my supply chain as far as raw materials went probably about 10 years ago. And you know, because of COVID and you know, even geopolitical things can create a nightmare for materials. I mean, it used to be that our aluminums would come from South Africa, and then they started coming from Russia, and then you know, the war in Ukraine, guess what? We stopped getting foreign materials, titanium and aluminum there. So, in ways, you can have a supplier that’s purchasing their goods from, you know, kind of smaller, when you’re using smaller companies, smaller manufacturers for raw goods, and if they lose their supply chain to a larger house who comes in and says, “Hey, we’ll buy X number of feet,” then they lose out and then you have a big problem. So, we’ve had issues with buying domestic material because the domestic demand goes up when the foreign source disappears, but we’ve tried to mitigate that. Fortunately for me, my company is primarily prototype, so we kind of take our materials, tend to be like the scrap size for most other companies who are doing mass production. But we do feel it, we do see it, but the big thing has been diversifying. Our company is also diversified because we’re both in California and in Vermont. So, some suppliers got to the point where they’re not selling material past a certain point, but we can purchase material at our West Coast facility. I mean, FedEx ships cross-country overnight for the most part. If you’re buying huge pieces of material, we would manufacture on whichever coast have the material closer. But total issues with single source, and I think that goes regardless of pandemic or wars, even the weather will change that. I mean, we’ll see what happens for food because of California being in so much water.

So, Brian, what is your advice to listeners that are with us today about bi-coastal manufacturing?

So, for us, the nice thing about being bi-coastal is again with materials, we have… we now have a larger spread for who we can receive materials for and from. And most of the time, you take a large piece of material, you reduce it into something lighter, so therefore, the closer we are to mills, closer we are to suppliers, then we can actually reduce costs, reduce shipping costs. And, you know, during the holidays, it also will create a pretty significant difference in shipping. So, we try to produce things close to where they’re going, but also being able to have multiple sources for materials allows us to do that a lot better, gives us a little bit more of an advantage.

Erica, so coming back to you about the hemp industry, I think you’re the very first guest to come on the show that actually works in the hemp space. So interesting, why hasn’t supply chain grown since industrial hemp became federally legal in, I think it was 2018?

Yeah, so I kind of alluded to this a little bit before. There was this green rush, which in the industry we call a green mirage because it was never really there. That all of these people figured, “All I have to do is get into the medicine side of the industry and I can be a billionaire.” And that was proven not to be true very quickly for folks. So, a lot of farmers who got into the CBD side of the industry, they had a real issue with supply and demand. And up until even last year, I had some CBD farmers asking me to buy stocks that they had sitting on their farm since 2019. I can’t make paper out of that. But that just goes to show some of the… when you don’t have a full supply chain, you have real supply and demand issues that sway on either side of the pendulum very fast. So, the CBD side had a mass influx of supply and they didn’t have the demand to meet that. On the industrial side, we had a mass demand and zero supply. And we need to make those be equal now because, and what’s the biggest problem, is all those farmers that got burned back in 2018 and 2019 with the demand issues for CBD now are really skittish about the industry, and they don’t really trust us when we tell them that no, the industrial hemp side is different. We can make 25,000 items that we know of just now with this plant alone, and none of it has to do with smoking it. So, that’s the real piece and the real challenge that we have is re-justifying this industry on the other side of the industry to some of these folks that already have a bad taste in their mouth about it.

So, you have a really unique challenge in that there’s demand but nobody creating the supply, well not nobody, there’s one of us out here. There’s a few of us out here. I have now, I think, three or four stock processors that will process raw material. Their ability goes in and out because they’ve got to have supply in order for them to run. So, I can’t always rely on those third parties. So now I’m looking for my own decorticator, my machine, so I can do my own processing of the stock because I can’t rely on other suppliers because their demand or their supply of raw material already isn’t in demand. So, one of the things that I’m doing to try to mitigate that is new partners that I have that I’ve already formed a new LLC on underneath my corporate umbrella for a specific hemp make product out of paper. I’ll be introducing that in a little bit with some big announcements, but one of the reasons why I’m partnering with them is because they are an indigenous tribe. And the indigenous tribe brings me three things that are very pertinent to my supply chain. They have a lot of land space for my raw material and they have a want to get into that. They have building space for machines that I need, and they have labor. And part of my mission statement for my company has always been to prove that industrial hemp can have a positive impact on marginalized communities. And so, that’s why partnering my supply chain side with one entity, an organism that can actually supply me multiple links in that supply chain, has been my strategy to try to build this as quickly as we can.

And, Erica, how are you going out and finding these partners?

I have been in the cannabis industry for seven years now, and a lot of it is… this is still a very small community because we don’t have a supply chain and we don’t have all of these things, and half of our plant is still not federally legalized. So, it’s a very interesting space to be in, and we’re a very close-knit community. I don’t even call us an industry yet. When you’re in an industry, you have a supply chain, and you have SOPs, and you have repeatable processes. We don’t have any of that yet. We can’t even have banking right now. So, we are a community, and we stay very close together. I would probably tell you I know 99% of everybody and anybody who is in the industrial hemp space, on any side of it. And we just know each other because there’s not that many of us. So, that’s the… that is actually the good part of where we are right now. Everybody knows everybody in this industry, which can be a good and a bad thing because you don’t want to burn any bridges, but we just all know each other. So, I just now have to put out a Facebook post or put out a LinkedIn post saying, “Hey, I’m looking for this,” and I have 20 or 30 people that will come to me and say, “I’m ready for you.”

Yeah, and the reason I asked is I know one of the challenges a lot of manufacturers face is they have this main supplier, and it can be very challenging to find alternative suppliers. So, it sounds like you, because the community is so small and immature, you have a good process in place that’s working for them.

We do. And one of the… just to mention too, one of the other things about this plant, even though we don’t have a supply chain here in the United States, the supply chain does exist over in Europe, in Russia, in Finland, in India, and in China. So, there are… the reason that I’ve already made and sold 100% hemp paper on a commercial scale is because I got my hemp from Europe. So, that’s the… that’s the kind of good and bad thing about this side of the industry and this plant as well is we do have a supply chain; it just doesn’t exist in this country right now. So, that’s what I’m trying to build and bring manufacturing back to the US.

So, Dave, next question for you: tell me about a time that you ran into a lack of contingency plans within a manufacturer to handle an unexpected disruption.

Yeah, this was an interesting situation that I kind of found myself in. I was responsible for a facility that was, again, another print manufacturing facility in this situation. And we had recently been awarded a major multi-year contract with a national retailer. And as part of that contract award, we were responsible to provide a disaster recovery and continuity plan, a contingency plan, you know, should something happen to the facility. And it was a bit of a new curveball because we had not gone through the disaster recovery process in terms of what risks we were really opening ourselves up to. And, you know, this was in a time where today, one of the things I just saw an article about this the other day too, there’s a lot of cyber attacks and data integrity issues. And it seems like every other day things like that are happening. And this was kind of in a time where that wasn’t as prevalent.

But I will tell you that by going through this risk assessment and ultimately coming to the point that we were creating our continuity plans and kind of going back and reporting, and then running through some of these different scenarios to fully flush out what was happening, it was kind of a stark realization that if we were to go through one of these catastrophic events, whether that be a cyber breach or a significant weather-related natural disaster type thing, like what we’re seeing even in California right now where you’re just kind of unprepared and unplanned, it was really eye-opening to see just how at risk we really were to be able to ultimately deliver on what the customer was requesting.

And the short version of the story is that we were able to mitigate the risks that we ultimately identified. We continued down with the contract, and all was well and good. But I felt like it’s a great story to kind of share with people just from the standpoint of oftentimes, we can think, “It’s not going to happen to us. We have processes in place. We have procedures in place. We’ve gone through and done some assessments.” But the other half of that assessment piece is running through the real live testing to see if the continuity plans are going to be in place.

Brian, what have you done from a continuity planning perspective? Would love to hear maybe some of the pain points and maybe if you have some wins that you’ve been able to glean from that.

Yeah, I mean, as Dave mentioned, like having the continuity is one thing, but again, IP, when you’re transferring between two locations, you have to have a pretty steady, pretty secure way of doing it. Certain things can’t be transported. You can’t just email yourself if it’s ITAR. You can’t email yourself if you have a complete and entire program for manufacturing. If that were to get intercepted, you lose absolutely everything. Also, I mean, if that gets out there, especially you can get into a lot of trouble.

So, definitely there’s pain points. The idea when you walk into a new facility of, like, starting over sounds good. But imagine walking into a new apartment, opening the door, and realizing, “Oh, there’s no fork. I need a fork. I have 50 forks over there at the old apartment, but I don’t have any here.” So, you’re constantly… all the things you take for granted, you all of a sudden just… they disappear. So, there’s redundancy. We’ve tried… I mean, we have redundancy and then there’s also the systems or something that we could bring with us. But there’s things where California, the Bay Area where the first shop was started, we have a lot less real estate there than we do in Vermont. We have 18,000 square feet in Vermont, we have 4,000 square feet in California. So, the systems, the equipment that we have on the East Coast is different than the West Coast. But what it is has been about creating a modern manufacturing facility. So, we have automation and things like that.

But, yeah, there’s pain points. The wins are you learn, and the losses are you had to learn. So, there’s a lot of steps that we took that were kind of unbeknownst because, you know, when you’re running the race, your feet are moving, and then all of a sudden you stop and everything hurts. And that’s what we found out is we’re… we didn’t know very much. So, setting up the second facility, if I wanted to do a third, I would know all the things I didn’t take into consideration to start a second. So, the expense and things like that.

So, Brian, what would you say is the single greatest pain point you have today?

Single greatest pain point I have today is going to be things around raw material sourcing because it’s constantly changing. So, it used to be a quote for material would be good for 30 days. Now you’re lucky if that material is still available, let alone if the price is still good. Most of the time, we’re fast-paced. We’re turning in parts in three to five days. But sometimes it’s a higher volume order or it’s a longer lead time because of materials. You call up your supplier, they tell you how much the material is, when you can have it, you place the order, “Sorry, we don’t have it, plus it’s gone up 15%.” So, that’s the single greatest pain point, is that unknown. And then quotes are different than estimates. Your customer’s already kind of giving you the purchase order because they anticipate that cost. And then calling them and saying, “Yeah, three days ago it was great, but now we’re 15% higher on materials, and your lead time is out the window.” So, we’ve had to change what our… how long a quote is good for, is now 24 hours, which used to be quotes were good for two weeks, which is crazy. But it’s 24 hours. I mean, you literally go to bed and wake up and you’ve got to redo it.

And that’s a problem when you’ve got a large corporation that needs more than one signature to get something going. So, there are certain things. I mean, titanium and more exotic materials are going to fluctuate more. Like aluminums and plastics, they stay. We’re still okay for three to four days on that material.

How do you use technology to manage the communication between you and your suppliers, or is most of it manual? And by manual, I mean phone, email, spreadsheet, phone, email, spreadsheet, primarily because we’re such a fast-turn company. I’ve attempted to bring ERP systems in, and it’s really difficult for things like that. So, because, you know, to input that data and then realize that that quote is not going anywhere, it’s a lot. A lot of on Mondays, I call my suppliers for my most often used materials, and I can input the cost per pound for most materials into a database. So when I make a quote, I’m not having to, you know, contact the supplier every time. I’m doing it on weight. But, yeah, oftentimes, because our margin for material, we aren’t really trying to save you three to four cents per part because typically, we’re building one to five parts. If we’re a production shop, two cents over ten thousand parts is a lot of money in comparison. So, yeah, for us, that’s not huge, but there are pain points definitely for that. You know, just fluctuation can kill a job.

So, Erica, I know we’ve talked a little bit about this. We’re in 2023 now. What needs to happen for you this year in order for your supply chain to be where you want it to be at the end of the year?

Yeah, so I need the funding that I’ve already been promised to come through so I can start building and buying the machines and putting them in places. This year is going to be the year where we’re going to stop talking about it and going to start doing some things about it. And that’s what this supply chain has been lacking the most. A lot of people doing this, but when it’s time to start doing something about it, they go away. And so, that’s going to be the biggest change. And already this year, just talking to other people in the industry, there is already a different feeling about 2023 for industrial hemp. The money that has come in, for lack of a better term, Covid weeded out all the bad money in this industry. And what we’ve been left with are serious people who really want to help get this side of the supply chain going. And we’re all on a mission, and 2023 is going to be our year to start making things actually happen.

Erica, for those of us who aren’t super in tune with the hemp industry, maybe you could just share a little overview about what does the hemp industry look like, and what are some of the things that you’re creating and using hemp for?

Yeah, so first off, to delineate, the hemp that I’m talking about is industrial hemp. And the reason that’s important is because CBD, the medicine, comes from the hemp plant as well. THC, marijuana, comes from the marijuana plant. CBD comes from hemp. Two different plants. So when we talk about hemp, there’s actually two sides to the hemp industry: CBD, medicinal, and the industrial side. On the industrial side, gosh, like I said before, there’s 25,000 things that we know of that you can make with this plant—paper, textiles, plastics, biofuels, biochar, food, hempcrete, construction materials, all of that stuff just out of this plant. But every single one of those products has its own supply chain. And so, that is where the biggest challenge is. And I think the most surprising thing for people to understand about this one plant is the lack of a supply chain. The number of products that are being held up getting into the market right now that can have a direct effect on this economy is amazing.

For example, one of the things with hemp paper on its own, hemp is naturally antibacterial and water-resistant. So we can harness those properties of the plant naturally. And I can make antibacterial paper for, like, a hospital that has a bunch of gloves and syringes that are in paper packaging and things like that. Or adding an enzyme to the pulp to make it not just water-resistant, but turn it into waterproof. And I’m already putting the IP behind a waterproof paper drinking straw made out of 100% hemp. So there’s a lot of things that we can do with this plant that I don’t think a lot of people fully understand that is really going to have some changes on how climate change, on the economy of this country. And it can have a direct effect on bringing a whole manufacturing arm or arms back to the United States, because like I said, every one of those products has to have its own supply chain.

Yeah, Erica, we work with someone named Gretchen who runs an organization that focuses on manufacturing in the U.S. I should probably connect you with her because I feel like your story and journey would be a really good fit to talk about bringing business and manufacturing work back to the US.

Absolutely, and it’s also about bringing these products back to the U.S. Covid put a glaring spotlight on all the stuff that we are getting from China. And when we couldn’t get that stuff anymore, like paper cups and napkins and bags and all of those other products, it really puts a focus. It’s not just bringing the manufacturing back, it’s actually bringing those products back to availability on the domestic side.

So, Dave, when we were prepping for the show, you shared a train wreck story about a quality control issue within a raw material that I’d like to have you share.

Yeah, thanks. Yeah, I think this is something that a lot of manufacturers end up coming across and maybe not as many people touch on or talk about, so I thought it was a great story to share because it ended up creating a pretty significant quality defect for an end user of a product. That was being manufactured. And ultimately, what it came back to, this happened to be a material that they were bringing in, raw material components. Our suppliers bring in raw material components, manufacturing a substrate that included a top sheet, adhesive, and a liner, and then supplying that as our raw material in this particular facility. And ultimately, what we figured out after quite a bit of failure issues from the end user, you know, you can imagine what that story started like and how that feedback started to come back to us as the manufacturer. And then, as we started to dig into what the situation was and we were looking at, you know, obviously all of our sample retains and doing testing, you know, we were having a really difficult time kind of replicating the issue that our customer was saying is happening on a frequent basis. And the issue that they were alerting us to was the fact that these labels, that’s what the end-use product was, was a curtain label that had direct thermal imaging on it. And the labels were peeling off in the warehouse by themselves, if you can imagine. And, you know, and so to kind of follow the whole entire supply chain backward and, you know, figure out, well, at what point was the failure? You know, it was really an incredible kind of discovery journey to go through that because, as I mentioned, it seemed to be an intermittent issue. And, you know, you go through all of the things that you would typically go through, right? Well, what’s the environment like? Is this thing in a warehouse in Houston? Is it, you know, and the adhesive is heating up? You know, and come to find out, the root cause of the issue was inconsistent amount of adhesive that was being applied when we received the raw material. So, ultimately, you know, we obviously rectify the situation with our client. But what we ended up having to do from an ongoing basis standpoint was anytime we ran products like this, we ended up having to create an entire raw material testing process. So, as we were bringing in rolls, we were doing our own QC because of, you know, the extent of kind of, you know, not only goodwill kind of damage, right, but, you know, real cost to the business because we had this issue. So, it was an incredible lesson to learn. It was something I don’t think I would ever want to see again, but pictures literally where you could, you know, just see the outline of where the adhesive was, and this label just flopping over. It was, it was really an incredible situation to have uncovered. But, you know, really highlights the issue of, you know, we often talk about from a manufacturing standpoint, the defects that we create in and of ourselves and in our own processes. And when we are bringing in raw material, you know, inherently, they have a manufacturing process that they’re utilizing in most cases to create that raw material for consumption. And therefore, it’s just an additional set of variables that need to be, you know, kind of brought to the surface and thought about, you know. And again, could be no fault of your own, right? But because you’re touching that product and making something else out of that raw material, now you have accepted responsibility, and you’ve got to uncover exactly what happened and what you’re going to do to correct the issue.

Brian Kippen, you do prototyping. How do you attack quality and testing? I mean, that’s kind of an interesting situation since you’re, you know, on the prototyping side.

Yeah, so a lot of, I mean, a lot of the testing of product goes back to the client. So we’ve got a blanket disclaimer where you’re responsible for the design. But as far as, like, you know, picture having to build one part and it comes out of a five-inch block of material that’s, you know, say, a two-foot by three-foot piece, and all of a sudden, you know, there’s a problem inside that material or it warps or something along that. And, you know, you basically quoted it utilizing one piece of material, and then all of a sudden, everything’s upside down. And that goes back to, you know, having a trusted supplier for material. We, at some point, we got a piece of aluminum as a sample from a supplier, and it literally started peeling, peeling apart. So it was almost as if it was like a stack of tissues for aluminum. And I have no idea who the initial supplier was for it, but they were testing out a new supplier to them. And I was like, “I don’t know what this material is, but it’s not the way aluminum should be.” So, oftentimes, you know, if we didn’t have a trusted supplier for the material, we could be in a hole in a hurry. And oftentimes, you know, you’re looking at it, it’s like, “Okay, if I go with supplier A, it’s a hundred dollars. If I go with supplier B, who I don’t know, it’s eighty dollars. It’s a significant cost differential.” But unless we have the ability to test supplier B, supplier A is going to be the one to go with because they’ve got a reputation. So, as you know, when we have less stress, you know, we try to bring on new suppliers because I like to get at least three quotes per product when we’re producing components. But you can’t do that, you know, on a whim. I mean, so many issues happen, and then if your client’s not happy, well, then you don’t have a job again. So, you try to bring that in as you can, but it’s for sure difficult. So, with prototyping, so that’s material quality, quality itself, each and every component is inspected in process. Our clients spec out what tolerances they have, what materials they have, you know. But so everything’s checked in process, so we can build it once and build it right. And if it’s not built right, then we consider that a setup part. Yeah, it’s scrap, but you just change the name to feel better at night. So, Raphael says all errors found in a product, a hundred percent of them have a common origin, engineering change process.

Brian, another question for you: What are you doing differently in 2023 to decrease supply chain burden? For us, it’s the continued diversification of suppliers, as well as adding more automation to our processes. In 2022, we added a second robotic cell. Most people think that’s insane for a prototype company to do. All that is just changing your idea of how systems work, right? So if a system is created for doing production, how can I use that system to do something else? That’s just like changing where that variable is and where that variable is. Instead of having that variable on a machine, the variable is at the program or at the person who’s generating the program for the machine to understand. Give them the variable, not the thing that’s anchored to the floor, because people are really good at problem-solving. A machine that’s specifically doing something should be doing that task. So people problem-solve, machines do work. So it’s adding those things and kind of creating more and more systems so we can follow in. Perhaps in the next couple of years, we’ll add another location smack dab in the middle of the country. But come to Texas, we’re a good location. It depends on where you are in Texas. State, there it’s true. I’m in Austin, so you probably wouldn’t want to necessarily pick Austin for manufacturing.

Well, I mean, look at the companies that are in Austin that need manufacturing, so that’s right. You know, why not? Why not Austin? But yeah, I mean, it’s really a lot of fun to create systems so you can change that supply chain issue as much as you possibly can. So, Dave, you’ve now kind of pivoted your career and you’re doing consulting, working with several different manufacturers. What are you seeing as the biggest supply chain pain point for manufacturers in 2023?

Yeah, it’s a good question. I mean, I think when we kind of zoom out and, you know, it’s come up here, obviously, we’re still dealing with the supplier, you know, that communication factor, how that happens, from a process perspective, you know, I would say that still is probably one of the biggest pains because whether it is from the standpoint of we are single source and we need to identify more sources, whether we’re already multi-source and we’re having issues with raw material cost variation because of other factors that are impacting that part of the supply chain. But yeah, I would say as we zoom out, that’s probably still the biggest issue, is that communication, change orders, how does all of that part of the process work together. And I would say both internally and externally, right? Because we have a tendency to sometimes focus our attention on one or the other or to put emphasis or blame on one or the other, and that’s really, you know, the stuff that I love to do from a process perspective is we’ve got to look at the whole and see what the impact is of those decisions, how are we handling it today from a process and technology standpoint. And, you know, I thought Brian made a really tremendous point there in terms of kind of, you know, machines, technology. It’s there to do the things that the people have already decided from a process perspective that need to be executed. And so how can we kind of look at all of those things and make them work more cohesively? You know, I would still say that’s probably the top issue I’m seeing today.

Brian, a question for you around technology. I know there’s been a lot of conversations around manufacturers and them being slow to buy and adopt and implement technology. Is there a certain area of your supply chain where you are looking at technology, and if so, what are you considering or looking at?

So I mean, we’re an early adopter. I mean, it shouldn’t be but an adopter of automation, industrial automation. I think like there’s an argument that automation takes jobs. In a way it does, it takes that position away from, you know, an operator. But if you look at humankind and human nature, our natural instinct is to create less of a burdensome job for ourselves. So for whenever somebody’s saying, “Oh, if we get a robot that takes away a job from Tom or Sally or whatever,” look at the ATM. Did the ATM ruin a bank teller’s position? Now it gave them the ability to do more meaningful work. It allowed the bank to have two branches with the same number of people, and like that’s what we’re trying to do. And that’s, you know, again, you know, people talk about this China supply chain, this, that, and the other thing. Where we are behind in manufacturing is kind of where we start our education. So it’s like, if you know, advancements can start by instead of starting in 1935 for manufacturing education, start in 2015, start with where we are going, not with where we used to be, because you don’t teach how to shoe horses on the first day of driver’s ed. You could, but you’d never get a license before you’re 40. So it’s one of those things where it’s like, that’s technology. You know, to utilize technology for automating quoting systems, for utilizing technology for ERP, for, you know, we don’t use graph paper for doing accounting anymore. So automation is pretty small if you look at it. Like, little things can be automated. Yes, getting a huge robot that can move hundreds of pounds, that’s big automation, but it’s the same, you know? I just say that’s my ATM. It does produce money faster. ATMs don’t produce money, they just move it for you. So, yeah, so just change the mindset. Technology is here and it’s going to continue to increase. I was recently in a class the other day for educational psychology, and they showed me ChatGPT, the AI that you can use to basically write whatever you want. I think that’s amazing, but as an educator, I see that as, we gotta bring pen and paper back to the school, because, you know, you can have a senior in high school write a pretty good paper just by going to ChatGPT and say, write a three-page paper on this. So, automation, technology, great stuff, but, you know, if we’re trying to learn, we should also, we also have to know what we’re doing with said technology, said automation, said, you know, yes, there are, you know, fine line with everything, fine line with technology, but if you know how to use it for good, it’s really great stuff to do.

Brian, given that I’m a marketer, my thought on the whole content automation, GPT-3 chat is, I’m all for it, because I think it’s gonna distinguish really good content and copy versus people that just use automation. So, the more people that use it, the better for us, because we have a content writer and we are really thoughtful and take the time to create really good copy. So, yeah, I’m all for other people using it. You have to know what you’re talking about before you can hit post, because you can get that information and if you don’t know what you’re talking about, everybody else who looks at you is gonna be like, “I know, that’s not the point.” That’s right. Change process, you said this process should involve clear directives, targets, and activities for every single department involved. So, that’s engineering, development, quality, procurement, marketing, and prototypes. All items should have a sign-off, approving release of the revision, which forces each to retain documentation of validation of each of their respective steps. Manufacturing is very much involved, as products should be successfully made under normal operating conditions. He says he’s spoken his piece, over and out. So, thanks, Rafael, for sharing your wisdom and insight with us. So, that brings us to the end of our very first episode for 2023. Join us again next month on Tuesday, February 14th at 12 noon for our next panel discussion about Supply Chain Manufacturing Woes.