Transcript: Manufacturing Supply Chain Woes – Jul. 2023

Manufacturing Supply Chain Woes
July 2023

Featured Panelists:
Greg Manhire, William Hatzichristos, and
Kevin Smith

Welcome to our Manufacturing Supply Chain Woes show! I am Sarah Scudder, Marketing Maven at SourceDay and the host of this show.

I am joined by Jocelyn, Rob, and Sam will be joining us as well, so we’ll see him pop on. The three of them have extensive manufacturing experience, and I’ve asked them to share some of their nightmare stories with us today. I always feel like there’s a lot we can learn from each other’s stories and some of the not-so-fun things that have happened. Our show sponsors, RapidRatings, I’ve actually known their team for several years. At the last company I worked at, we actually used their platform. They audit and provide Financial Risk data about suppliers. With given all the craziness and the banking and the economy, something that’s a very valuable service.

So, to kick off our conversation today, would like to have everyone drop a note in the comments and tell us where in the world you are joining us from and then also a word or phrase to describe your biggest manufacturing train wreck. So, something that you’re either experiencing now or maybe something that you’ve lived through over the past couple of months, and please feel free to drop questions for the panelists throughout the conversation. If there’s something that they’re chatting about that sparks interest, you can drop it in the comment, and I’ll be making sure to monitor and manage those throughout.

Jocelyn, we’re going to start with you today. Would like to have you do a super quick intro, tell us a little bit about who you are and where you’re joining us from, and then my first question that I have for you is how is the looming threat of a recession impacting you and your team? Big topic of convo, absolutely.

So, Jocelyn Aguero, I’m a senior manager of global categories. I work for Klein Tools, which is a hand tool manufacturer. We have a good mix of purchase finished goods that we’ve designed as well as products that we manufacture at our facilities. So, plenty of supply chain excitement going on on all fronts. In answer to your question about the recession, I’m sure it’s the same with a lot of companies, but it’s been interesting to see over the last six months just as things started building with, is it going to be a recession, is it not going to be a recession? I know for us it was heading towards the end of last year, at the end of 2022, just do we have too much inventory. We’ve been chasing things for six months, a year, two years now, with based on shortages and material problems out in the world and logistics challenges. And we’re building, building, oh, maybe we have too much. So, we spent some time pushing stuff out. You know, there might be a recession coming, things are slowing down, let’s air out our inventory a little bit. And the recession, at least in the tool market, is not happening so far. And so we’re like, you know, everything that we pushed out, let’s bring it all back in, and let’s actually bring it in sooner. So, I know our suppliers probably think we’re all insane, which is okay, but definitely communication has been like the word of the year. Just communicate and over-communicate, because we’ve got these relationships. If we just tell suppliers what’s going on, we have no idea what’s going to happen.

We have no idea if there’s a recession or not. We have no idea if it’ll impact us. So, just keeping that communication open and that transparency of, you’re right, we don’t know what we’re doing, so here’s what we’re going to do today.

So, question for you based on that, how what are you doing to manage inventory levels?

mean, communication, again, that’s my word. I’m going to keep saying that today. Working with our inventory team just to, you know, working on improving our forecast accuracy, working with sales, trying to be that middle, the center of the wheel with all the different rungs, you know, to the different stakeholders, communicating about upcoming opportunities on the sales side or even promotions and things, and just keeping visibility with what’s going on at our suppliers.

So, what is coming, what might be delayed, where can we kind of benefit from delays or shortages, and where can we benefit from lack of shortages or, you know, access and things that we can bring in, where can we focus our attention so that we’re kind of all on the same page?

Yeah, Rob, thank you for being with us. Would like to have you do a quick intro about yourself, and then my first question for you. So, Rob has some really crazy stories throughout his career, so just brace yourself, he’s got some good ones. My first story, Rob, that I’d like to have you share is the time it cost you 11 million dollars to fix a bearing issue in a traction motor.

No problem.

So, good afternoon, everybody.

My name is Rob Carr. I’m currently VP of Operations and Projects for a company called Zbec. They basically focus on new energy, oxygen, hydrogen, all the new applications going around the world at the moment, carbon solutions. So, we’re in lean and clean and lean, I would say, at this moment in time, and worked in various continents around the world, China, Americas, Europe, Mexico, Australia, and Hong Kong, so I’ve been around a few years. So, to answer your question, Sarah, I was working in a transportation business, and we were building traction motors, which goes into the bogies which the trains sit on, and we started to see some failures. And I won’t name the city, but it’s probably the biggest transit authority in the US, and we’ve started to see a couple of the bogies’ trucks weld themselves to the tracks.

So, customers were complaining, sorry, the riders were conveying, the customer was getting very upset with us. So, we had to go into a deep dive investigation. We’ve got engineers on board, we’ve got supply chain on board, we’ve got the manufacturing guys on board. Because it was a federal contract, everything was signed off and documented as we went through the process. We found out at one stage that one of our top buyers had made some significant savings. At one stage, he bought a bearing that wasn’t compliant – it needed to be an insulated bearing, but he bought a non-insulated bearing and thought it was good to go. We had built 760 trains for the New York Transit Authority, and we had to take every single traction motor off the train. That meant lifting the train up, taking the bogies out, taking the traction motors out, taking the bearings out, rebuilding and retesting the traction motors, then putting the train back together again. That’s where the 11 million came from. It was all based on, I wouldn’t say a lack of communication, because the team involved in the supply chain and buying were super, super good at their job. It was just that one of them thought, “Oh, I’m going to make half a million dollars of savings here,” and didn’t go through the right process. My lesson was when somebody comes to you and says they’ve done it, just do a bit more due diligence to make sure we’ve followed the right process, because it was very embarrassing.

So, what did how did you manage the relationship with the buyer after that? I think that’s a big mistake in a learning but a big part of that is as a leader, how you can teach somebody.

Yeah, no, for me, that was a Lessons Learned, and we sat down and went for a lesson learned process. It’s people make mistakes, we’re all human beings, I’ve made mistakes in my life, and we’re all human beings. So, we sat down, we walked through the process again, it wasn’t a single pointing exercise, it was hey, let’s do a lessons learned from this, let’s make sure we litig the process if we need to, and make sure the gate reviews that are required in that size of a contract are followed.

Yeah, awesome.

Thanks for being here, Rob.

Hello, Sam. It looks overcast and kind of gloomy outside where you are today. Sam, would like to have you introduce yourself, tell us a little bit about who you are and your background, and then my first question for you is about expediting. So, I feel like this has kind of become the norm and the standard over the last couple of years, and would like to have you talk
about an example of a part shortage that almost shut down your production line and almost
shut down your business.

Yeah, thanks for having me, guys. It’s good to be here. I was actually just looking a second ago to see how to blur my background because I agree it’s kind of a crappy day out here today, and I haven’t figured that out yet, so I guess I’ll keep looking, but I don’t know, actually, on StreamYard if they give you all the functionality like Zoom, so you may not be able to on this platform.

Well, I apologize. You’re just gonna have to look at the crummy
weather, I guess. I’m sorry, guys.

Yeah, so obviously, stability. I work for a company called Clemco Industries now, and I’ve been here for a little over four years. We manufacture industrial surface preparation equipment, and we’re getting more into automation and industrial applications. We operate out of just about an hour outside of St. Louis. Our international business is based out of Munich, and we have distribution in Singapore and manufacturing in Hungary and Denmark.

To answer your question about expediting, there was a time in my career, and it’s been a while, so I don’t remember exact figures,
but when Rob was mentioning millions, that’s really what came to mind. It was a larger Fortune 100 company that I worked at, probably close to eight to ten years ago, and I remember I was still somewhat green as far as expediting and purchasing and procurement was concerned. I was actually working with a team of buyers. I was a commodity manager at the time, and we had a shortage for an OEM customer in the automotive industry. It didn’t seem like a big deal right off the bat, and when we actually started talking to the customer, they said, “Listen, this is going to shut down a specific line in the manufacturing plant, and if I remember right, they said this is going to cost us about half a million dollars in production per day.” So all of a sudden, the expedite became that much more crucial. So, I had, um, this was actually kind of a pivotal moment for me in my career, and I kind of take it for granted now. Expediting high-level expedites, um, I’m sure you guys have worked with Buyers before who say, “hey, you know, I’ve asked the supplier what can be done, and they told me they can’t get us anything until, you know, next month, that’s the best they’re going to be able to do.”

This is where I really learned to dig deep. So, I had kind of a mentor who had, you know, decades of experience, and he basically said, “Son, let me show you how this is done.” And, uh, so yeah, we had to get in touch with the supplier. It turns out it was a component shortage of that supplier. We went, I think, either two or three tiers up in the supply chain, and we ended up having to pull together calls, I think, with four different businesses to discuss, you know, logistically what are the issues, and from a manufacturing standpoint, what are the constraints you’re dealing with.

It took us a couple of days to deal with it. So, I think by the time we ended up getting a rush in place, what we ended up having to do was to find an alternate product that made it even more complicated. So, it ended up, it ended up costing us a couple of days and about a million dollars with a key account that we had. When we talked to them, when all of a sudden, Donna, obviously, wasn’t a pretty conversation, but if we had delayed even a day or two more, they said we would have lost the account permanently. It was a massive account. So to me, again, it was kind of the first really high-level expedite that I dealt with in my career and one that had massive implications. Lesson learned.

What would you do differently now?

To be honest, I’m not sure that there is a whole lot we could have done differently given the circumstances besides, you know, maybe having a more formalized Supply agreement in place with that supplier of that critical component. It goes to show the importance to understand where your products are used downstream in the supply chain, and we didn’t know that. So, I’d say if there’s anything we could have done differently, uh, is to understand what the implications were if there were any type
of shortage and then to have some type of formalized Supply agreement with the supplier to ensure the stockout wouldn’t happen in the future.

I think it’s also a good highlight on the importance of having plan B, C, and D, so what is the emergency plan when things happen, and it may be that there isn’t a solution, but at least having steps in a plan in place, I think can be helpful.

Yeah, and I think if anything, it tells you a lot of times you don’t put those plans in place until you need them until it’s actually an emergency, and I think we all struggle with that.

I know I do personally, like, you know, should we have secondary sources for these critical product lines?

So sometimes you just gotta do it when the time comes. If you have the opportunity to do it in advance, you should.

So, we’ve got Michael joining us from Texas, a fellow Texan. Hello Michael!

I’m in Austin today. We’ve got Courtney, I’ve known Courtney for a very long time, and she’s rocking a green shirt.

Hello, Courtney! She’s joining us from Nashville.

We’ve got Hank joining us on a flight delay. Wow, he’s on a five-day flight delay. And then we’ve got Lauren, who is giving a shout out to Jocelyn, the most incredible supply chain superhero. Lauren has been a guest on this show as well, so Lauren, thanks for joining us.

The next question, are you, what would you say is your biggest challenge right now working with manufacturing teams? For fear of repeating myself again, with communication. I wasn’t joking when I said that’s the word of the year. I think during the pandemic and with hybrid schedules and remote work, a lot of us got used, really used to kind of working in silos. You know, which maybe we had done better at communicating and kind of understanding how everybody’s role interplays before, but we kind of all went into our turtle shells, so to speak, during the pandemic. And we’re back in a situation where I’m gonna make decisions based on what’s going on in my world, and someone else is going to make decisions based on their world and not necessarily think about how everything rolls into impact other areas.

So, we’ve had multiple situations this year alone, it’s only the end of March, where we’ve brought in materials for the month’s usage, we’re way above usage because of sales exceeding forecasts or something going on, and Manufacturing team runs three shifts over the weekend and shows up on Monday like, “Where’s our material?” And we’re like, “What are you talking about? We have enough for the whole month.” So, just again, kind of that over-communicating I’d say, the need for over-communicating. That’s one of the biggest challenges, just getting everyone to come out of those silos, and even if I don’t know that you need to hear it, maybe I just tell you when I’ve made this big decision.

You know, something’s delayed, even though it looks like we don’t need it, maybe we don’t need it right away. I’m still just gonna tell you it’s delayed, just in case you are planning on running an extra shift and I didn’t know about it, and you were planning to have that material arrive. So, I’m just kind of communicating outside of what I might think that you need to know, just in case you’re thinking something without thinking I needed to know.

How are you communicating with the manufacturing team? Are you physically meeting with them? What’s the meeting schedule? Is it email, phone?

I’d be curious kind of what your strap strategy and process around that, because I think that’s something a lot of people struggle with.

Yeah, definitely.

So in my case, a lot of us are in different locations. We’ve got five manufacturing plants across the U.S, we’ve got a corporate office in Texas, a corporate office in Illinois, so Teams has been a big one for us. You know, we’ll do a couple of emails, and if we feel, you know, someone feels like there are more questions, where it’s, you know, we don’t want to have 30 emails back and forth, let’s hop on a quick 15-minute Teams, just regroup on what’s going on, just kind of big, we’re doing a lot of big picture updates, you know, just kind of buckets of different lines that are running.

So we’re saying, hey, you know, for this line, I just want to let you know what’s going on. I think there’s going to be a supply gap here, or you know, we should be overstocked here, but then we’re going to use it up and just kind of those really quick, you know, spur of the moment 15-minute conversations to get on the same page, those have been instrumental.

All right, Rob, so the next story I picked that you shared with me, I just think this is a really, really interesting one for the audience. I’d like to have you tell about the time when you had to recall 450 rail cars.

Yeah, this was really interesting. It sort of goes back to the other subject we had. We, as a massive manufacturer of transit property and transit mobile equipment, we had a contract for 1,300 vehicles. We built 400, and the customer goes through an SMS, a service maintenance schedule. So they have a 30-day, 60-day, 90-day, and a two-year service mentoring schedule. They get there, getting into the first 100 cars, and then let’s start doing the service maintenance schedule. So they’re putting the cars out of service, they’re replacing the Rover cars, bringing them into the depot, taking them apart where they need to look at parts and pieces and service information. There were no electrical issues or anything like that to find out that the first 60 cars were missing barcode labels.

So per federal law in transit, you need to have a barcode label on each item so it can be confirmed when it was built, who was built by, and when it was installed. For some reason, and I’ll tell you why later, but we’ve gone through 400 cars and we’ve missed certain elements of the barcode and the process. And again, I mentioned the process before and the communication beforehand. I’m just going to go on jostling and just say I find Visual management is a real good tool. And everybody’s got their PCS, their computers and Excel spreadsheets, but a visual management daily meeting goes a long way in my book to just make sure everybody’s on the same page. Anyway, we weren’t on the same page. Different buying group, different organization decided that they could save money by not doing the barcoding, but not did not understand the technical requirement of the contract. And the contract was close to 4.2 billion. So you could imagine, again, the customer was totally upset. I was going to use another word then, but was totally upset and just had to go through that process, take the cars out of service, bring them back to the factory, and manufacturing, disassemble and put barcodes on product, which suppliers should have put on in the first place, but because the T’s and C’s are all wrong, and we haven’t followed up the technical spec of a cement which went under the under the bridge again, a significant amount of money, major embarrassment to a customer, and it was another lessons learned where don’t cut corners. When you’re going into something like this you’ve got to go dot the I’s cross the t’s to make sure that you you’ve got your customers happy and on your side. We kept the customer they continue with a an option order but it was embarrassing so it’s just a simple things like that can cause chaos.

So, what did you do? How did you work with your supplier to put a better process in place? I feel like this happens a lot where there’s something that breaks down and a supplier has some issue, whether it’s a quality issue. And then the key is putting something in place so it doesn’t happen again.

So we did a workshop, and we went through the contract which we signed up with the transit authority. What we learned was we didn’t do much of a flow down in the contracts, in the Ts and Cs of our purchase orders, or it was a big contract on the terms and conditions. So we adapted a purchasing arrangement where all the Ts and Cs were done for a flow down of the main contract, and they were given significant time before they quoted to read the contract. I’m talking significant three, six, eight
weeks to go through that contract and come up with any questions they had. And that helped with clearly understanding
what the scope of the work was and also understood if you were building a PA system in the train, you had to have certain requirements on it. And we went through that for a number of weeks, and it helped resolve the issues. And we demonstrated that to the customer, and the customer was pretty impressed that we managed to turn it around in that timely manner. But every time I see them, they still remind me that the time I had to take 400 cars out of service, and it cost them an arm and a leg, and the customers were unhappy. But hey, at least they laugh about it now.

So, Sam, tell me about a time when you had deemed like every single option was exhausted. Yeah, I think about a time, and it’s again, it’s been several years. When you asked for some examples, I thought, “God, I probably should have at least a couple dozen just in the last couple years.” But I wanted to expand back further in my career too, if I could. I thought maybe the audience would get bored with a bunch of pandemic-related incidents. But I’ve done quite a bit of work in new product development for different businesses, just from a supply chain standpoint. And you know the challenge is always, can you release product to the market in a timely fashion, at the cost, at the price point that the market’s looking for? And from a supply chain standpoint, you guys know that one of the critical pieces of that is to make sure that you’re controlling your costs. There’s a business that I worked with that
we were creating, we had designed a controls package, a cloud-based controls package for equipment, which when you break down the bill of material there’s a lot of electronics and, you know, printed circuit boards and things like that and we had a price point in the market that we felt pretty comfortable with at initial costs that seemed to, you know, that’s that that would allow us to operate with the margin that we expected and everything like that. And at the last minute, there was some massive supply shortage and replacement components that had to be used, that was going to seriously erode the margins that we’re projecting. And in this business, it wasn’t like an ongoing sales platform, it was kind of like, “Hey, over the next year, we’re going to be installing
the majority of this equipment, and so we need to get this figured out quick. It’s not a delayed release.” So we had, with this supplier, you know, we didn’t have much transparency, but the only option we had at that point was to say, “Look, I’ve got to break down the bills of material and do almost like a what I’d consider a ‘should be’ cost model to understand why is it that our costs are so far out of line because we couldn’t really determine from a component standpoint what was driving it.”

So we ended up having to do was to, we said, “Look, we’ve got to roll up our sleeves and do the hard work, and we’ve got to make sure that we have transparency with our supplier,” and we ended up breaking down the bills and understanding where the major cost risk was. And then ended up working with, I think, at least a dozen different distributors to find replacement components, electrical engineer on staff to determine how to redesign the entire system, and we did it all over the course of, I think, three or four weeks. And when you think about things from a typical project management standpoint, this is work that would normally take probably three to six months. But we had already released the product with prototypes in the field. We had, it was a product for restaurants, and they had already taken out, I think, maybe 50% of the equipment that needed to be replaced. So again, we were at that point where it was like, we have no option, this is something that has to be done quickly. And it was the work with the supplier, finding the replacement components, and really did, I don’t even want to describe how much time we put into it in the time frame that we had to work with. But that was the best option that we had at
the time, and what we had to do to get the product launched successfully.

And what was the result? How was the product launch?

The product launch was successful. There were a couple of delays, and if you guys have ever worked in the restaurant industry before, there’s just all kinds of stuff that can happen. So there were a few delays, but overall, the product launch was a success. I did want to mention too, this was actually less than, it was about a year after another product launch that we had done failed miserably that cost the company in the sum of millions of dollars that we learned quite a bit from and implemented in this next go-round for the new product. And like I said, everything was great until at the last minute something else happened, but we were able to respond in time. So, Sam, I have a background in the restaurant industry, so it’s rough. It is a lot of space to work in, for sure. It could be greasy too if you guys have been to the restaurants. It’s like walking onto an ice skating rink when you go back in the kitchen.

So Rob, we had a question come from the audience for you from Warren. She asks, did you revise your QA process and expand your incoming Inspection Team, and how did you put the checks in place? Okay, so it’s a very good question. Yes, we did 100% incoming inspection before the product was even issued to the warehouse. Obviously, the inspection sheet was tied to the technical spec of the contract, and we processed it that way. We used to do, at the time they were doing a, I’ve recalled it was a 25 inspection, but Lessons Learned, and it was more efficient to do 100 inspections, music as the part that was coming in the door, and we’re talking 16,000 different types of widgets to build one carriage on a train. So it’s quite a significant scope of change. We had to increase our headcount to be able to meet that need, but it was definitely worthwhile doing. I hope that answers the question.

Yeah, Lauren, feel free to drop any additional questions or notes if there’s something else you want Rob to address from his example. Jocelyn, next question is for you. So one of the things that I know supply chain teams focus on is putting processes in place and then making those best practices. So if you have people leave the organization, new people onboarded, you’re all kind of following the same systems. How do you personally keep best practices relevant while running as fast as you can for securing Supply and in some cases gaining cost savings? It’s a great question.

I think a lot of companies right now are experiencing some growth as we’re kind of coming out of the scare of COVID in the past few years. We certainly are, and I see it all over the supply chain market. So it’s a great question, talking about scaling up. One thing that becomes really relevant on a daily basis, and I see it on social media as well, so I know I’m not alone in this one, is organizational leadership will often want to pigeonhole supply chain into a cost savings
machine, right?

Push a button, get cash, push a button, get cash. Which, that would be amazing if anyone’s on the call who’s inventing that, please, please call me. But I think it’s really important to, in supply chain, not let go of our own that the additional value that we can provide. So I kind of think of it as like deliver plus. So when I get my pizza delivery at home, they also throw on a catering menu. I didn’t order catering, but it’s a good, just kind of bullet point in the back of my mind that if I ever wanted catering, they offer it. So I like to kind of encourage the team to do something similar. So we need the cost savings to keep our organization running, to keep our team relevant, perfect. We can do that, we can deliver. But what else can we deliver? And so kind of tying those things together and saying, we got this million-dollar cost savings project, and we’re also adding some risk mitigation for next time so that in the future, this won’t happen, or, you know, we don’t have to worry about something else. So kind of tying things together so we’re maintaining our relevance by bringing the cost savings, that’s really important, but also still tying in those other things that are really important as well that might just not be top of mind for a VP or president or something, and we’re just bringing it back up to the surface that, you know, it’s just as important, and we’re here to help and provide that value.

So Rob, you have another story about the time you expedited three trailers of product from China to an outside port for 12 weeks. Well, you could have paid minimal charges for air freight. Would you like to explain this story and what happened, and then what were the takeaways or learnings from this?

Sure, no problem. So this is similar to Sam, I think, in that we were expediting product because we’d run out of stock. This is another enterprise to the business, it’s a filter division which has distributors in the US. There must be about 160 distributors in the US, and they go through one channel, our supply chain, and we buy all the filters in different sizes, forms, lengths, thicknesses, air purity from China. In the market, fortunately, the market has gone crazy because of COVID. People are putting a lot more not changing their filters every year, they’re changing them every five weeks or every six weeks, which is good for business, but we didn’t see it coming. So we expedited the manufacturing, we expedited the packaging, and everybody had a picture of the plan, and I mean everybody, even the cleaner who comes in at 9 and does it clean because you can see it on the board. Somehow, we didn’t think about splitting the shipment and putting some of everything on a plane and sending the rest on a boat. We just thought the best thing was to put it all on a ship. The timing was wrong because we were on the back end of COVID.

Sorry, first of all, we got stuck in Rotterdam for six weeks because the ships were backed up, and then it got to LA. It had to go around the long way. It stopped outside Boston for three weeks and got moved down to Fort Lauderdale, where it sat for two weeks, and then it got sent around to LA for another week. COVID-related, lack of planning-related, and my goodness did we have some really upset distributors because they had a heavy demand. And I was going back to what Jocelyn was saying earlier, which is we just couldn’t predict the market. But we could have made, as a team, some smarter decisions when it came to getting the stuff back into the US and back into the market to get that customer-centric approach, which is the most important thing for me. But yeah, it was an interesting tale and an interesting nightmare to be quite frank. Even though the others were more expensive, this one was a nightmare because there were so many distributors involved, and there were, again, unhappy customers. How did we fix it?

We now have two manufacturing sites, one in China and one in the Czech Republic. Obviously, the Czech Republic is a shorter distance, and lead time is a lot shorter, and we negotiated contracts with China and the Czech Republic that they hold certain levels of inventory in a warehouse in the US for us without charging us, so you’ve got a bit of a win-win. But again, you had to go through that disaster to be able to think outside the box and get to those points where it was a win-win for both parties.

So Rob, just to be clear, what you said at the end is you actually have a distributor storing and warehousing product on your behalf, correct? We call it the free PL where I come from. Okay, and that’s something that how does the payment of the inventory work? Are you paying upon shipment or are you paying up front because I think that’s a model that more and more people are looking at now?

So because of the business culture in China, it’s normally pay out front. With us having a manufacturing facility in the Czech Republic, now we have better terms and conditions, so we don’t pay them until they are on the shelves in the distribution center. We were able to at least negotiate something slightly better, but China is, you pay 50 out front, and we won’t put them in a trailer until you pay us 100. In Europe, and some of the low-cost countries in Europe, they will invest in the business, and they will build the product and ship it to you, and once it lands, you get invoiced. I think that’s a very important distinction, especially for those who are with us who work for small manufacturers, and cash flow is really important, and they don’t have the means and resources to prepay for significant inventory up front.

Yeah, it’s about finding the right partners and the partners who want to grow with you, and that’s something else we learned along
the way. While I have 100 percent respect for the Chinese manufacturing groups in China, they are out for one thing only, and that is, I build it, and I send it to you, but you’re not going to get paid before. This organization that we started in the Czech Republic, the team and the people want to work with you, and they want to build a business around the aspects of the business that we’re building at the same time. Complex, but can be simplified.

So, Sam, I’d like to share a story that you shared with me when we were prepping for the call. You had a time in your career when you took a shortcut, and then it came back to bite you. Would you like to tell us the story and then what you learned from it and what you’ve done to make sure that doesn’t happen again?

Yeah, I thought I could use this as an opportunity to put a plug in for SourceDay also because I wanted to say within the first week, actually two weeks, of me working for this company, I noticed that my buyers, I actually had to cover for one of the buyers because they’re going to be on vacation for a week, and I noticed just the ridiculous amount of time they’re spending managing PO confirmations, and I said, “This is absolutely insane.

There’s got to be a better way.” So we evaluated some options, we ended up using SourceDay. Now it’s an awesome product. We had a business review last week that went really well. So, one thing that I want to describe about myself, I’m sure probably all of you guys fit into this category, but I cannot stand wasteful activities when people were doing things manually when they could and should be automated. So that’s how we addressed that situation. We had another situation where we’re ordering containers of product from overseas, and we had created a tool several years before I started here, where it was a tool outside of the ERP system to effectively build containers based on SKUs and the counts and quantities that we needed to order. What I noticed was the buyer on my team, I just happened to be sitting with him one day when he was doing the work, and I said, “My God, is this how long it takes you to order a container every time?” And he said, “Well, yeah, it’s really complicated because I have to go in and I have to look to see how much we have on hand, how much we’ve been using, I have to understand the weights of each of these things, and blah, blah.

So, Sam, I’d like to share a story with you that you shared with me when we were prepping for the call. So, you had a time in your career when you took a shortcut, and then it came back to bite you.Would you like to tell us the story and then what you learned from it and what you’ve done to make sure that doesn’t happen again?

Yeah, I thought I could use this as an opportunity to put a plug in for SourceDay also because I wanted to say within the first week, actually two weeks of me working for this company, I noticed that my buyers–I actually had to cover for one of the buyers because they were going to be on vacation for a week–and I noticed just the ridiculous amount of time they were spending managing PO confirmations. And I said, ‘This is absolutely insane. There’s got to be a better way.’ So, we evaluated some options, we ended up–we actually are using SourceDay now. It’s an awesome product. We had a call, our, it was like a business review last week that went really well.

So, one thing that I want to describe about myself, I’m sure probably all of you guys fit into this category, but I cannot stand wasteful activities when people were doing things manually when they could be automated. So, that’s how we addressed that situation. We had another situation where we’re ordering containers of product from overseas, and we had created a tool several–it was before I started here–where it was a tool outside of the ERP system to effectively build containers based on SKUs and the counts and the quantities that we needed to order. What I noticed was the buyer on my team, I just happened to be sitting with him one day when he was doing the work, and I said, ‘My God, is this how long it takes you to order a container every time?’ And he said, ‘Well, yeah, it’s really complicated because I have to go in and I have to look to see how much we have on hand, how much we’ve been using, I have to understand the weights of each of these things, and blah, blah.’ So, I said, ‘Hey, I got an idea,’ and this was the shortcut where I said, ‘You know, we can build custom reports outside the system and then create linkages so that you have all the information in front of you, and it should significantly reduce the amount of time that it takes to have you order these containers.’ So, we did that. This guy, in particular, was not what I would consider an Excel whiz, and so think about a spreadsheet that’s got lookup formulas tied to different reports, and he–at the time, we didn’t have great visibility of inbound of our inbound receipts, and also at the time, the supplier had, I want to say, their lead time was pushed out to like 10 months.

So, if you don’t have good visibility of your incoming receipts, then you’re not really going to know you have a problem until your inventory starts building at an accelerated rate. At first, the inventory was going up. We said, ‘Yeah, it’s because lead times are pushed out.’ And then all of a sudden, it started to get out of control. We started looking, he had transposed some columns inadvertently in a spreadsheet, and so what was supposed to be referencing what we had on hand was referencing something completely different, like maybe it was sales or something like that. What was happening is the tool was telling him, ‘You need to order, I think it was like five to ten times what he actually needed to,’ not to mention there were slow-moving parts that we hardly sell any of that he was ordering no joke probably five or more years’ worth of inventory on. So, by the time we found out, we rushed to contact the supplier immediately. We actually had two suppliers for the material. One of them worked really well with us, and we were able to cancel some of the orders. We were able to push some of the orders out. The other supplier, which we had failed to secure a supply agreement with about a year before during COVID, said, “We’ll sign this agreement. We had everything lined up, but we have to wait till after some of the pandemic issues.” This is back in 2020. We never ranked the contract, and because of that, we had all kinds of commercial issues with these guys. They said there’s nothing we can do. So, we ended up bringing in what equated to– I don’t even– I don’t even like thinking about it. We’re still bleeding inventory off now two years later. And so, the lesson learned there was, and what did we do to fix that problem?

Well, we’re managing it in the MRP system now, and we have an outside tool to check to make sure that we can build container loads, but we’re not doing everything out in that tool. It may take us a little bit more time. And so, that was the lesson, is don’t mess around outside ARP, especially if you don’t know if– if you know that the person using the tool doesn’t really know how to use the tool and how it’s utilized. By the way, that happened two years ago, and I still have people giving me crap about that now on my team. But– and the products out of the warehouse. You can go see it. You can see it still, and every time I go out there, it’s a nightmare that I relive.

Sounds like Rob’s example where he’s years and years later, every time he sees people, they give them crap. Yeah, it’s part of the job, I guess.

Yeah, I think Sam, inventory levels, whether a mistake or not, are something that are really going to be a challenge for people this year with the economy being so such in flux. It’s hard to figure out what to order when you can’t necessarily rely on historical data. That’s right.

So, Jocelyn, this is kind of a looking ahead for the rest of the year type question. What challenge are you preparing for now that you think is going to hit in 2023 that maybe hasn’t really taken full effect yet?

The biggest challenge that I’m looking at as a team manager, and I’m sure a lot of you are in similar situations, is just keeping the team engaged. Keeping our supply chain professionals engaged. We’re coming out of a period where it feels like everything’s been on fire for three years, and we’ve been long-distance running, and we’re all just exhausted, burnt out. So, I don’t think 2023 is slowing down at all. It’s not going to be a year for putting our feet up and eating bonbons, like I was hoping. So, I scratched that out of my calendar, and we’re going to have to keep running. So, just keeping it fresh and celebrating the wins along the way, I think it’s really key. Just knowing that people are exhausted and burnt out and giving people the space to breathe, as well as to apply their own creativity and find their own exciting projects and things they can get fired up about in a good way to tie along to all of the fires and things that we still have to put out in 2023.

Hmm, so Sam, another question for you. So, one of the things that I think is really important to highlight as supply chain leaders is the power of our supplier relationships. Our suppliers have a ton of knowledge. They’re innovating, and they can add tremendous value to your organization. I’d like to have you share a time when a supplier bailed you out, where a supplier actually pulled through in the clutch and saved the day.

Yeah, you know, it’s easy in this profession to blame your suppliers, but there are a lot of times when something’s your fault, and again, like you mentioned, those relationships are really important. Whether it’s their fault, your fault, whatever, do you have the level of collaboration to be able to work through the issues effectively? We had a scenario, actually not that long ago, where we had a major inventory discrepancy on a long lead time item that we sourced out of China. We realized we had an inventory discrepancy, we understood what the problem was pretty quickly, it was transactional. We hadn’t transacted things the way that we were supposed to, and so we had to reach out to our supplier. At first, the discussion was around “I’m sorry, there’s really nothing we can do because we have frozen time fences with production schedules and even if we were able to expedite something freight-wise, the materials still have to be made, and we still kind of have a locked, a frozen production schedule.”

So, again, it was another scenario where we had to get creative and I’m sure you guys have all been in this position in the last few years where it’s like your normal bailout procedures don’t necessarily apply, they’re not really working anymore. This particular supplier, we have a really strong relationship with and they said, There’s really nothing we can do with our current manufacturer, but this person was connected to a handful of different reps that mostly are domestic but that source product out of overseas. What this guy ended up doing was he said, “We can’t help you with our business, but I’m gonna find a way to help.” He ended up connecting us to a different manufacturer’s rep that we actually had never done business with. He helped us vet them, he said, Look, here’s the information I have on him, we could set up kind of an introductory call. We didn’t really have time to mess around with first articles or people, you know, whatever you call PPAPs or whatever, and we had very little time to work. He set us up with the supplier and didn’t end up even getting any of the business for it, right?

So we ended up purchasing directly through this other business and this guy just went through all kinds of hoops to get this work done. Again, to me, that was incredibly special and it was one of those things it’s like you talk about a relationship-building event, and that’s how you build these strong partnerships where it’s like, “Look, I’m going to do a lot of work for you even if I’m not going to end up getting the business for the work. Yeah, Rob, the biggest challenge you are preparing for this year to be quite frank, growth.

We’re not seeing any recession or anything like that, it’s unpredictable. Some of the markets and entities that we work in are uncertain at this moment in time, so we’re being cautious because we don’t want to overestimate and end up with millions of pieces and millions of dollars sitting on the shelves. But the order book is out of control; the sales guys are either selling for cheaper than what we should be selling for, or we’ve just hit the right time in the market. But I just don’t see a recession hitting the current business I’m working in at this moment in time. It’s a challenge to forecast, particularly at that growth rate, and it takes significant investment to get it right. We’ve been in a few cases like this before where you put the wrong investment in and end up with a disaster, or you’ve spent all your money and new products come to market, but you can’t make them in time because you don’t have the right resources or budget. So when you say growth, you’re saying not lack of growth but being able to handle and keep up with the growth you’re expecting.

Exactly. We’ve got capacity, jobs, people, machines, and stuff, and we’re looking at all the different angles of do we need to open somewhere else, or can we manage with what we have today based on what we’ve seen since early January?And it’s a challenge to forecast, particularly at that growth rate. And it takes significant investment to get it right. I’ve been in a few cases like this before, where you put the wrong investment in, and you end up with a disaster. You’ve got too much investment in, and you get the reverse. You’ve spent all your money, and then new products come to market, and you can’t make it in time because you don’t have the workflows around you or the budgets around you to do it. So it’s a real interesting business scenario. The growth is there, but you’ve got to be careful how you grow the business.

So Rob, I’ll ask this question to you and then see Jocelyn and Sam’s input as well. What is your technology investment strategy for this year? I mean, there are so many startups and new innovations in the space. I feel like sometimes it can be overwhelming to even assess and figure out what you need and then allocate a budget and manage the implementation.

And given you’re growing so much, Rob, I’m just curious how you’re going to manage finding and implementing new technology, or maybe you have what you need in place, and that’s not a big part of your strategy this year. One of the benefits we have is we have a very strong R&D team, and they are good obviously to R&D (research and development), but they’re also geared to look at the incentives and initiatives, what the market trends are, look at what the local states are doing, and those types of initiatives. Then we put up a business plan together based around what’s being invested in, what the government’s going to support, and what the public really wants or what industry really wants. It’s quite significant. There’s the hydrogen business. We were talking to a very large petroleum supplier who provides petroleum with their own petrol stations (gas stations, petrol is not a word in the US, sorry) and they’re looking for hydrogen. And it was 914 gas stations we were looking at. That is a significant amount of R&D investment, and we declined in the end because we are not big enough to deal with it, and we couldn’t get the budgets, the incentives from the governments, or the local states they were in to support it. So we had to decline that. I answered your question, Sarah. I waffled a bit, then I apologize.

Jocelyn, what about you? What are you focused on from a technology perspective this year?

You know, ironically, a lot of our online systems and tools that we use, a lot of the applications we use, are reaching end of life in the next handful of years. So I don’t think we’ve even begun to scratch the surface on the technology investments that we’ve got ahead of us, but it’s on the to-do list, and our information technology team, information security teams, they are just trying to chisel away at some of the different things that we can get before our organizational leadership and get approval for.

Do you have a dedicated IT sourcing person on your team? No, we just use our pool of IT team that supports the whole organization.

Got it. Sam, what about you? What are you prioritizing this year from a technology perspective?

Your business has been, over the last few years, refining our strategy in terms of which markets we’re competing in, and what we’re recognizing is that the technological expectations are dependent on the market that we’re trying to serve with the products that we’re selling.

So we do have, I can’t get, I got to be careful about what specifics I get into, but as an example, there are certain markets that are really interested in data collection, maintenance records, productivity, and there’s other industries that focus more on automation, and not necessarily the data is not as important, but throughput and productivity are critical. So we have a couple of technologies that we’re looking at in the next year to develop based on the voice of the customer work that we’ve done, and in the markets that we intend to serve, and a lot of times with, we have an extended lead time for customized projects that we work on, it gives us some time to develop some of that technology, but more modular applications is another thing that we’re focused on. So that’s kind of what’s on the docket.

We have a, like Rob said, pretty strong product development team here as well, and the strategy is fairly well laid out. We’ve done a VSA (Valley Stream Assessment) for each of the value streams that we have in our business. So typically, after that, we have a year-long set of initiatives that we’re going to focus on, and some of these critical developments are those initiatives that I mentioned.

So Sam, for those who are with us that have never done a value stream process, could you explain a little bit about what that is?

Yeah, when you…I’d recommend a book called Learning to See if you guys haven’t heard of that book before. It’s what most lean practitioners will use when mapping out processes. But it’s a way for you to see overall, and it depends on what level you’re looking at. You could create a value stream map for your entire business – the different material and information flows through the business. But it allows you to effectively see the different processes and understand them at a higher level. And then based on the goals of the business
and the strategy of the business, where do we see opportunities to make improvements? That’s what we’ve used it for.


Well, we are at time. This is a monthly show. We’ve got a nice little following that tunes in every month to hear the train wreck story. So next show is going to be April 11th at 12 to 1 Central Time. Shout out to Sam, Rob, and Jocelyn for joining us today and sharing your stories and wisdom. Wishing everyone a wonderful afternoon.