Manufacturing Supply Chain Woes
Vineetha Jayaram, David Berger and Denise Sena
Welcome to our Manufacturing Supply Chain Woes show. I am Sarah Scudder, CMO at SourceDay, and our show host today. I am going to be joined by three manufacturing supply chain experts. We have Vineetha, David, and Denise. All of them have extensive experience in the industry and have lived through their fair share of nightmares. So I’ve asked them to come on and share some of their biggest train wreck craziest stories. Our show sponsor is RapidRatings. I have known Eric and his team, I want to say maybe coming on four or five years at a previous company. I actually used their platform, and I’m a big fan of what they’re doing for manufacturers. So I’ve asked Eric to come on and introduce himself. Eric, maybe if there’s anything in particular you want to highlight that you guys are working on or doing that has really been benefiting manufacturers? Yeah, thanks Sarah, appreciate it. RapidRatings is happy to be here sponsor, and we love the conversation. So yeah, I mean, things have been really busy, obviously, with interest rate hikes and more corporate bankruptcies in the US, the UK, and EMEA. So we’ve been tapped on the shoulder regarding our models. What’s interesting is we’ve tweaked one of our models called Health marks. It really helps continuously monitor the longer tail of suppliers. So we’ve been busy doing that. And of course, we’re known for going out and getting the financials on private companies for our manufacturing clients so they can do a deeper dive and really accurately predict what’s happening because it bleeds into operational risk. So yeah, thanks for having me. Awesome, thank you Eric. And it looks like it’s Sue in New York today. I’m in Connecticut, and the skies are much better than last week. You know, it was very thick, very brown-colored looking. So it looked like you were in Dubai or a Sandstorm or something. Oh, I know you guys have had it rough. It looks like a little bit of light popping through behind you. Yes, and then we were caught in traffic with the I-95 on Sunday. That was fun with the bridge collapse. Anyhow, all good stuff. It’s supply chain stories, right? So awesome, thanks Eric. So for those of you joining us live, we would love to have you drop a note in the comment, tell us where you are joining us from, and if you are living through a nightmare right now, a word or phrase, or if you want to explain your situation a little bit. I always like to gauge and see where the audience… I see Larry is joining us from Canada. Hello, Larry. Shout out to you and thanks for being such a loyal fan of our show. Alright, so we have lots of stories to share, and I’ll monitor and see if we get specific questions that come in from the audience as well. So, Denise, I am going to start with you. First question for you is, can you recall a time when you went above and beyond to prioritize the well-being of a patient? And before you answer, do a quick intro as well, tell us a little bit about who you are. Absolutely. So first off, thank you, Sarah, for inviting me to this prestigious and experience-filled panel. I’m just so thrilled to be here. Hi everyone, my name is Denise Sena. I’ve been in the life science Biotech Industry my entire career. I’ve spanned over many different Industries such as Pharmaceuticals, vaccines, Animal Health. The lion’s share of my experiences in supply chain. I have a couple of years of marketing, so my forte is end-to-end supply chain. It’s great to be here.
So I’m going to start my story this way. In my experience, it doesn’t matter who does the forecasting. It could be the product marketer, it could be Salesforce, it could even be the financial planning and analysis team. But the commercial team is the revenue-generating entity of the organization, and it’s the supply chain’s responsibility to share with the commercial team the impact that having an inaccurate forecast on the customer demand, on the market trends, on the commercial landscape has on the value chain. So I use these train wreck moments, sometimes I call them nightmares, to really build the strategic relationship with our functional partners in order to come to a consensus on what we need to make versus what we all know the knock on the door to supply chain when the product is not there, so the revenue is not coming in. So let me tell a quick story, Sarah. I was a line supervisor in a distribution center. I worked the pick-pack shift, and we had a new product that we were bringing into the distribution center. Now, this product was a life-altering product. We shipped it overnight directly into the operating room about 80 percent of the time. The other 20 percent of the time, we shipped second-day air. So you can see, just by that information alone, the margin of error is very, very small. So we kicked off on July 4th, and everything worked out great. We were running the process very smoothly until we didn’t. What I noticed is we started to get more orders, more volume, more demand more frequently, and myself and my team at the distribution center couldn’t keep up. We started to get burnt out. I extended the day from eight days to 10 days to 12 days with overtime, and I saw something happen to the team. The morale started to drop, the burnout was there, the absenteeism went up. I brought contractors in that weren’t as experienced, and we started to make mistakes, pick-pack mistakes, inventory mistakes, the right product to the wrong hospital, the wrong product to the right hospital. And it wasn’t uncommon for a package to fall off the conveyor belt because of the congestion, never to be seen again, never to reach the hospital. So three things happened. Number one, we had customer dissatisfaction. Hospitals, doctors, surge centers that were calling upset. We lost their loyalty, we lost their trust, and we became irresponsible. Number two, and it’s our employees, they’re our biggest assets. They were burnt out, burnt out HR was on speed dial. My budget was completely blown from bringing in contractors, and I had to prioritize second-day air so we could get to it the next day and ship it overnight. Anyway, my freight charges were off the charts, which, of course, affected the cost of goods. And lastly, and we all know this, inefficiency in production planning. Our receiving department would plan for an inflated inventory day and then one day a lean inventory day, so the bullwhip effect was messing up our schedule. One day, the distribution center routed a call to me from a doctor, and the doctor said, “I had to reschedule my vacation because I could not operate on this gentleman, and he wasn’t going to survive by the time I got back from the vacation.” These stories stick with you. So when I received the call from the vice president that said, “Denise, you will not miss another package,” I took the time to talk to the president about being a sponsor to help me improve the forecasting and the demand that’s coming into the supply chain, and he agreed. But I hung up the phone, and I thought about that career-limiting conversation. I said, “How am I ever going to turn this around?”
I have 35 people that are beaten and broken. I don’t know what to do, but then something magical happened that day. It was a thundering and lightning storm, the worst storm I’ve ever seen, and within eight hours, we had a power outage, which slowed us down a bit. And then two hours later, we had a gas leak, so we all had to go outside. And by the time we got back in, we were all surprised to see this huge order that we needed to pick in 25 minutes. It was just like saying, “Hey, Sarah, let’s do a six-minute mile.” Oh my gosh, it was mind-blowing. And then I thought to myself, one, I need to update my resume. And then I said, “How am I ever going to get this team to come together?” So we got the order, we all huddled around the Xerox machine. I said, “Copy them, copy all the pages and distribute them out.” And I told them about the doctor who called me. And all of a sudden, I saw a change in them, a light in their eyes. They rallied together, they became a team, they became engaged. They now understood the value that they added to the organization, the purpose that they had, knowing that they’re the last people that touched this product before it goes to the patient. And we rallied and we cheered. Even the carrier truck driver came out and started talking with us. It was momentum, it was just a monumental time. We were able to get the packages out the door, and we all celebrated. And I called the vice president and I said, “We got this.” And in our celebration, going back to your question, the technician came to me and said, “You left an order on the Xerox machine.” Oh my gosh. So again, update the resume. But I said, “Alright, you pick it, you pack it, you call the airport.” I threw it in my car, and I don’t know if any of you are familiar with the Philadelphia airport, but I had to go over the Betsy Ross Bridge, going 90 miles an hour. I got a little air time too. And then it was like a movie. I’m driving on the tarmac, the plane is coming toward me, and I’m going toward the plane. I’m flashing my lights, and they’re thinking, “This is the crazy woman that called me from the distribution center.” I go, “Here is the package to give to the patient.” I was able to give the pilot the package, dripping. When I got back in my car, and by the time I got back to the office, and I called the vice president, I said, “I need to tell this story to the commercial team of the impact that it has if they’re not paying attention to our customer needs.” And that’s my story.
Wow, that was quite a story! Kind of a Hollywood-type twist to it. We have Hank joining us from Ontario, Cynthia is joining us from Springfield, Oregon. Eric Edwards dropped in, and then we have Rebecca. Her challenge is bad data in her ERP, which I’m sure data is going to come up in our conversation today. David, would like to have you introduce yourself, and then I’d like to have you share a time when you had to get really creative to address some supply chain demands. Sure, thanks Sarah. So, David Berger, director of America’s procurement strategy for CBRE, a real estate conglomerate where we have a lot of supply chain and manufacturing companies. I’ve worked in procurement and supply chain my entire career, worked a lot in heavy manufacturing as well as a lot in consumer products and a little bit in life sciences as well. So, I think back a little bit to the early part of my career. I was working for a large manufacturer that basically built equipment for power plants, and the whole nature of that job, we always had to be creative. So, we supported a service-based industry where we basically took down the power plants and serviced and maintained them, and for every hour that we would take them down off of operation, it would cost literally hundreds of millions of dollars. So, we’d service equipment and we would stock and have as many parts ready to go as possible, but undoubtedly, there was always circumstances that you can’t plan for, and you know, literally spare no expense, do what you can to get the part. And so, like, we as a team would, we’d have a pager that we’d rotate and carry, and whoever was on duty would have to make things work. So, you know, I’ll give a couple of examples, but I mean, like first, we would, you know, when we turned to our manufacturing plants and say, “Hey, could you make this?” And a lot of times, they couldn’t, but you know, we would often turn to our suppliers, ask them to work on a weekend, work overnight into the wee hours, and I, we literally would have to charter planes to make it work. You know, so like, we didn’t care about price because literally, like I said, every hour was costing us hundreds of thousands of dollars. So, I chartered a plane from Philadelphia to take a part down the Mississippi once, but I mean, that wasn’t a regular thing. So, I guess the message is, prepare to be renewable. It’s not always about price, and just do whatever you can to meet the customer needs and demands. And it just gives you a much different lens on things when you’re talking about the energy supply of this country and the potential impacts and costs that would be, you know, so that was a much different dynamic. Like in that organization, it was less, like I said, less about price, more of just get the parts there, deliver.
David, looking back, and Denise and Veneetha, feel free to step in if you have a presentation on his story as well. Looking back, what would you have done differently so everything wasn’t such a fire drill? I mean, the only thing I can think of is we probably could have done a better job with forecasting for these service averages. So, knowing what we were going to bring down and trying to keep it in stock or keep it on the ready. The challenges that we were supporting equipment that’s, you know, sometimes 50, 60 years old, and you can’t just talk for everything. But I do think we could have, within our systems and our processes, we could have done a better job with planning for that and to have more parts stocked. And, you know, probably also have communicated with some of our suppliers and have them on the ready for potential part mixes and whatnot. Yeah, I know I’ll just compliment what David said. I’m a big believer in sales and operation planning that brings together different teams to draw consensus on the safety stock metrics, whether it’s just in time or just in case, doesn’t matter, but there’s an agreement so everybody knows. And I love David, what you said about creating that dual sourcing strategy and building the relationship with the sourcing team and the suppliers so when you need something, they’ll be there for you. Yeah, yeah, I mean we would turn internally first to see if our manufacturing plans could support, but often, you know, they couldn’t, and we’d have to rely on our suppliers to help save the day. Yeah, I agree as well with what Denise mentioned because I think it’s important to have relationships with transactional suppliers, you know. So most often, we try to build relationships with suppliers for regular orders and regular demand, but in some cases, it’s always important to have relationships with suppliers who you can go to once or twice or a couple of times a year instead of having that regular relationship with those suppliers. So, those transactional suppliers are also very important, I feel, in the supply chain, especially when you have unexpected disruptions like this, right, where you’re struggling to find another source or you’re trying to fix things internally. So, definitely.
So, Vineetha, would love to have you introduce yourself, and then my question to key up your first train wreck story is to tell me about a time when you unexpectedly ran out of stock for a critical hardware component due to high demand. Thank you, thank you, Sarah. First of all, I feel really honored to be on this panel with Denise and David and to learn from their supply chain experiences as well. I work in direct materials procurement. I’ve been in procurement supply chain for the last 10 years. I started my career in supply of development procurement analytics for a pressure-sensitive materials manufacturing company, and from there, I moved on to category management for the last eight years within direct materials, mainly metal processing-related categories. So, you talk about castings, machining, sheet metal fabrications, extrusions, roll forming. So, that’s basically what I manage. So yeah, going back to Sarah’s question, you know, quite often we find, especially in the last three years, where we do have cases where hardware components or any small components that go into critical assemblies, right, there’s always a shortage of that. And in some cases, the reason for that is usually unforecasted demand, right? So if it is forecasted demand, you know that you can always have a stocking agreement with the supplier, you can always prepare for that internally with the safety stock, you know, you could always add on for a buffer stock. But what happens when you get an unexpected order or an unexpected, you know, volume comes in that you are not prepared for, which wipes out all your internal safety stock, you know? And that’s exactly what happened, and we had to meet the customer lead time. The customer lead time is already promised, right? So if, let’s say, it’s four weeks, then what do you do in those situations? And so that has always been a point of contention for us. So we go back to the supplier, the existing supplier, and we say, “Hey, we want to know if you have any stock available.” And in case they do have a stocking program with us, we may have already consumed all of that stock. It’s going to take them some time to reorder that material or those parts again, right? Or make those parts again. So that was the first step, is to go back to this current supplier and understand whether they had any stock available. The second step was we looked at, you know, whether there were any off-the-shelf parts, you know, because most of these components are usually custom components or made-to-order components. So whether you look at off-the-shelf parts, you know, are there any substitutes that could be used in those assemblies? Or of course, you know, we look at dual sourcing, right? We look at other vendors or any distributors. If there are off-the-shelf parts, then you look for other vendors or distributors. But I think the biggest learning for us was, you know, what worked for us was, you know, we looked at other off-the-shelf versions, and we went with an off-the-shelf component that could meet the needs of the customer. You know, we went back to the customer, and we said, “Hey, would this work?” And they said, “Yes, you know, this will work for us.” So that’s how we solved the problem. But the biggest learning for us was, because this is a one-time order, right? Because it’s not going to happen again and again. So it’s very hard for us to go back to a supplier that we have never worked with and say, “Hey, we need you for this one-time order, and that’s it,” right? So that’s where this question of transactional relationships makes a big difference, because you want to build relationships with suppliers who you may not necessarily do a lot of business with, you know? But you want to go back to them whenever there is a need, and there is an understanding between that supplier and you and the company, right? That there is going to be these short-term orders that you’re going to be getting a couple of times a year. So those transactional relationships with suppliers are also very important, or transactional suppliers are also very important. So I think that’s the key learning from that, and, you know, that’s how we met the customer lead time was looking at substitutes or off-the-shelf versions of this critical part. We could, you know, convince the customer, and even though we didn’t meet the lead time of four weeks, we still got it done in six weeks. But the contingency plan was making sure that you had, you know, a dual sourcing or maintaining a relationship with a supplier that you don’t normally do business with. So that is my story. David, any or Denise, any experiences with off-the-shelf substitutes as well?
Yeah, well, the same, similar, similar to the same company I was mentioning, the energy manufacturer, we constantly had to deal with substitutes, but everything had to go past an engineer because it has a highly controlled environment, so they would spec out their preference, but we would have to get creative when we couldn’t find parts. So we’d have to, particularly in the areas of fasteners and whatnot, you know, a lot of times those things are acceptable, but you know, we would buy highly engineered components to our specs, but sometimes we’d have to deal with the substitutes. And just to add, you know, I hear supply chain folks were very operational, we’re very efficient, right? But we’re also very creative. Think about it, we’re problem solvers, right? So I love what you said, many times, if we had an overstock of the 20 milligrams and a back order on the 40, it seems pretty easy to say, “Can you take two of the smaller ones?” And typically, the supply chain team that’s offering that solution, right, are the stoppers. To your point, David, or anything plastic during COVID, there is no way that you could get your hands on. So what could you do? And we relied on our procurement team to, which thankfully, they had engineering degrees as well, could help us with the chemicals and the materials in the bags to help our quality team says, “Yes, you can use this substitute.” This is always a team effort, but I love the creativity and the problem-solving that supply chain brings to the organization. Good point, yeah. I felt like when I was in that role, I felt like I was a procurement professional, but I was also in sales, like walking down the hall to the engineers, trying to convince them that this product was acceptable, too. Yeah, yeah, I’d say, I would say that if you want to go in supply chain, you should do a six-month rotation as a sales rep. It’s no longer just marketing. Absolutely. Oh, go ahead, Vineetha, sorry. I remember when I first joined my company, in my first company, years ago, eight years ago, I walked down the aisle, I could see all these mechanical engineers, and I’m not a mechanical engineer, so I had to really know how to read drawings and things like that, which was very new for me, coming from a supply chain operations research background and getting into heavy industrial manufacturing. So I completely echo the thoughts of what Denise and David said.
So, Denise, I’d like to have you now share an experience where you had to recover from a completely inaccurate forecast and successfully adapt. It seems like inaccurate forecasting and planning is kind of a theme today for some of our stories. Oh yeah, yeah, my gosh, I have many of them. I had a hard time selecting just one, but I think one that is really relevant is I dealt with life cycle management, launches, mature products, and also sunsetting projects or products. And it was at this juncture that we had a sunset of one of our products, and it was going to compete with generics. We were going to actually ask another CMO to manufacture this white label and sell it as a generic. I think what happened was for six months, we actually just clipped the forecast. It just started to decrease, decrease. The supply planning teams were kind of hanging up their apron, manufacturing just didn’t tool anymore, and we were just slowly stopping to produce. We would present at the IBP/SNOP, “This is the forecast, this is the health of this product, everybody’s on top of it.” And there were many moving parts, and I remember talking to our U.S. marketing team too, and they’re like, “We’re all on track, everything is going great.” It was probably three weeks before LOE, the loss of exclusivity, when one of the planners said, “It’s not going to happen. The CMO is not ready. They did not get GMP approval.” And so, we still have to deliver this product at the same volume that we did six months ago, which is, it’s that six-minute mile again, right? And so, it was unexpected. It was a breakdown in communication, not only in the planning team but throughout the entire organization. It was something that was presented to our C-1 that we got this, everything is fine. So, how we had to recover is we had to rely on our supply planning team to put pen to paper. They had to reprioritize, they had to move the lines around, they had to bring in a second shift in our Switzerland manufacturing plant. They explained the situation over and over again to our manufacturing team, and it was a success story again. We all pulled together from a patient-centric mindset to then make three months of stock within a matter of three weeks, and we were able to get the product to the patient. However, we also had to say, “What went wrong? Why did this happen? Why did we have to expedite? Bring in a different shift? What was it?” And it really was all around the communication and roles and responsibilities, right? They thought supply chain had it, supply chain thought marketing, marketing thought the patent attorneys had it, right? And so, just having that relationship, to what Vineetha was saying before, when you have that relationship across the organization and you’re cross-pollinating, people are vested in you. Like, they want to help you. So when you pick up the phone and say, “Uncle,” they’re there, right? And so, I think that’s what really helped us recover and make a seamless delivery to our patients. David or Vineetha, any thoughts or comments on her experience and the power of communication? I think it goes a long way.
Yeah, no, I would emphasize that. I mean, I think the biggest, what I mean, people always talk about, like, you know, hey, the technical aspects of things and pricing and whatnot, but I’ve seen too many circumstances where things fall down just because we haven’t communicated properly. The right hand doesn’t know what the left hand is doing. And I also want to emphasize emphasis as well, you know, to Denise’s point, you know, their communication is critical, but also it has to be very transparent and it has to be very clear because oftentimes we kind of assume a couple of things in the relationship, you know, that this is taken for granted, okay, the supplier should already be knowing about this or a commercial team should already be knowing about this. So it’s important for that alignment to happen so that there is no miscommunication in such critical situations. I think that is very important, in my opinion. That is a really good point. I think even when I look back and on it now, like, we knew the strategic imperatives have changed. We were also launching two biologics, and we knew that all the resources, all the energy, it was really sexy to be on the biologic launch. It wasn’t too cool to be focusing on an LOE because we knew that in the back of our mind, but we didn’t know what does that mean. We couldn’t translate it. And so that’s the translational piece, that business acumen that we all bring to the table if we can connect the dots. So, in addition to being creative, right, we’re also connectors of the dots.
So, David, you have a story about some train wrecks and disasters that happened dealing with mergers and acquisitions? Yeah, I definitely have a couple of stories. I don’t know if the first one is a train wreck, but it could have been. So, I was working with a large Fortune 500 Aerospace and Defense government contractor. They were in talks to acquire a large division of another DOD company. We were brought in as a procurement organization to help negotiate transition support agreements. What that is, is basically to ensure that our top-tier key suppliers, like our tier one, tier two, and tier two suppliers, would honor the pricing. Because, you know, hey, we now have a new contract with a new supplier, and a lot of times our suppliers will use that as an opportunity to stick it to you or raise the prices. But the merger was contingent upon that, from the financials, that we would be able to successfully continue with the supplier pricing that was in place. So, we, over the course of a month or two, had to negotiate with about 200 suppliers, setting up these transition agreements. We were reporting out to the executive leadership on both sides of it, both companies. So, very high visibility, and people’s jobs were at stake. They say whether the merger was going to go through. It was at stake from negotiating these agreements that I will say, thankfully, we did a good job, and the merger did go through. I guess the other, just to add to it, another quick example of a kind of merger and acquisition interesting story was, I was working with a life science manufacturer. They had grown by acquisition but had never taken the time to invest in their systems and processes. So, in the manufacturing plant, they literally were running three different ERP systems for their forecasting and procurement. It was, put it bluntly, a nightmare. So, finally, the company decided enough is enough. We went on a large Greenfield ERP implementation to consolidate things and make our workforces’ lives a little bit easier. And we were going all along the path, probably a year into the project, and then we find out that we were acquired. So, all our work was basically canceled and discontinued because now we were about to be acquired. It’s just interesting how mergers and acquisitions can have such a drastic effect on operational… it’s not simple switch and there are people that have staked and made their careers and lost their careers on M&A. Hmm, neither Denise, have you either of you lived through mergers and acquisitions? I’m assuming Denise you have because I know you’ve worked for some pretty big companies.
I have, David. I love that story, and Sarah, thank you. I appreciate it. I was fortunate enough to execute on the strategy of the acquired company. So, I worked for one company that had a blockbuster drug in cardiovascular, and it was cheap to make. It was a pill. It cost like three cents to make. So, we kept tons of inventory throughout the entire value chain and whip and raw materials. We had manufacturing sites all over the world. The forecast accuracy was close to 98, if not 99 percent. When we got acquired by the new company, they said, “Why do we have all this inventory if we have such a high forecast, right?” And so, with the acquisition came new ways of working, came new strategies, came new ways of working together. So, as a value stream leader that I was responsible for the end-to-end, we had to cut that. We had to move into, at that time, the just-in-time was very, very popular of slimming down the inventory at different nodes, reducing the cycle time, finding out where the gaps are, why do we bring the boat to Switzerland if it’s going to Germany, right? Tax reasons, right? So, you have a product flow, you have a financial flow, and it took about 18 months, something like that, to bring it down to meet the strategic imperatives. But I have to tell you, doing the just-in-time approach, in many, many years that one product, first time ever, had an administration hold, which means something happened at the manufacturing site that they had to hold production. So, here I’m reducing the inventory down to just in time, we’re implementing a continuous make model, and now we got to shut it down, and there was panic throughout the organization. But luckily, we didn’t slim it down to the point that we couldn’t recover, but that actually happened twice in one year when it hasn’t happened at all within like 20 years of making this product. But it just goes to show, I think, David, you were talking about the agility, the nimbleness in the supply chain. So, it really doesn’t matter how much stock you have. If you’re nimble and you can turn on the diamond, you can react quickly, that’s the most important part. So, the acquisition, you know, and the strategy worked out to be successful, but I did get a few gray hairs out of it, for sure.
Yeah, I just want to add to that. I mean, I’ve gone through an acquisition as well as a spin-off in the last couple of years, but it’s been interesting, you know? You get to learn a lot about the company’s cultures. I want to emphasize, it’s a big part of it, you know? Each, you realize it’s not just the systems that are different. You know, people have different ways of working. The leadership styles are very different. So, so I, you know, I find that to be the most, what can I say, or the most impactful for my career is understanding what is the different leadership style when you talk, when you work with a company that is acquiring you versus splitting from a company and being on your own, right? So, you have an independent spin-off. So, that was very, that was a great experience for me, and I have a lot of learnings, learnings from that which, yeah, which, which have been which I’m trying to pass on to my team as well. So, thank you so Veneetha. My question for you now is, you have a trainwreck story about a time when material prices rose over 50 percent in a year, and you had to try to control conflation, inflation, and maintain some sort of profitability for the products. Thank you, Sarah, for that question. Yes, you know, in the last couple of years, there have been a lot of cases, especially because I work in metal processing, and before that, you know, I worked in pressure-sensitive materials, but we have had cases where, obviously, I mean, where material prices have gone way up year over year, and, you know, we’re trying to figure out how do we approach these situations, right? Because it’s not always market-controlled when it comes to materials. So, how do you go about controlling any kind of inflation? So, there are three strategies to this, right? I mean, you first, you look at the cost models, you look at the total cost of ownership. So, when we say total cost of ownership, you’re looking at it from the total cost of acquisition. So, be it, you know, not just looking at purchasing costs, you look at the transportation costs, you look at the cost of packaging, you look at, you know, what is the cost of the payment, payment terms, inco-terms, what are the different quality delivery issues we have had with that particular supplier? Has a supplier been performing great, you know, which is also sort of a, you know, a cost incentive as well. So, when you look at all these different cost elements, then you put together, you can put together some sort of a comprehensive analysis of what the true costs look like, you know, which will definitely help with making any kind of decisions when it comes to profitability. So, that would be the first analysis that we did, was what is our total acquisition cost or the total cost of ownership. The second strategy that we took was looking at it from, you know, volume discounts or rebates, right? You look at, you know, is there any other opportunity for us to get any kind of price reduction based on the volume of business that we do with the suppliers, which is also very interesting, especially in a very high inflationary market. But, you know, it is what it is, right? So, if our volumes have gone up 50 at the same time from last year, we would look at discounts or rebates. Last but not least, is, you know, and we talked about this already, is the engineering side of things. Is, you know, looking at it from a value engineering standpoint, which Denise brought up, you know, we want to look at the total design of the actual part itself internally and understand if there are any ways in which we could reduce the cost of the actual part by redesign or by substituting for a cheaper material. So, so what is a way that we could do that, you know? So, we do a lot of, you know, internal product tear-down sessions. We call it, where we bring our engineering team, you know, together with our procurement team and, uh, some of our commercial team members, and we, you know, we look at the actual part itself on what value does that part bring, you know, what is the design of the part, what kind of value does it contribute, and then we put together the value stream mapping exercise and, you know, all that, right? So, so the value engineering, value analysis piece of it also helps in a very high inflationary environment. So, so those are the ways in which we were able to actually look at reducing the total cost of the part, and I think the VAV sessions were especially helpful for us to understand where we were actually whether it was a genuine cost reduction opportunity available, you know, when it comes to material and the application and so, so I thought that was very interesting. So, those are the three ways in which we were able to do that.
Well, a lot to unpack there, David. You have a story, not necessarily around cost reduction like Veneetha, but where your supply chain team made a significant impact on working capital. Yeah, I mean, I’ve probably heard this story a couple of times in my career, but basically, a similar narrative is the company finding itself going through some financial struggles and turning to the supply chain organization to impact the revenue stream. I mean, the easy answer is no. Well, it’s not an easy answer, is not to just go back to your suppliers and ask for cost reductions. But we had cash flow issues, so probably worse on the supplier side, but we had to. We developed working capital initiatives where basically, where we had to go out across the company and extend our payment terms, and those aren’t easy conversations, you know? If you’re because you know, we’re dealing with all sizes of suppliers, you know, the suppliers that rely on that capital to keep the lights running and whatnot. But you know, sometimes we needed to be flexible in what we were, you know, what we were asking. We certainly weren’t looking to put suppliers out of business. But you know, if I’m talking with a large technology supplier or somebody else, you know, it was about if you want to continue to do business with us, this is, you know, this is what the payment terms need to be. And you know, I feel like, you know, especially during COVID where revenues were significantly impacted, this was not unique to us. This, I mean, this was going on across the industry. Unfortunately, you know, they were, you know, we had to, we had to continue to operate, but the sales just weren’t there. So we were turned to as a supply chain organization to help improve that cash flow opportunity. Now, I feel like, I feel like it’s a trend in the marketplace that everyone is doing these working capital initiatives and pushing out payment terms to 90 or 120 days. Yeah, it’s so relevant, so relevant, David. I love that story. And similar to when we came into a cash flow situation, the supply chain kicked in, where we were forecasting like 30 pallets of X, 30 pallets would show up. We didn’t have any room for it. We only need like one pallet now. And we would ask the CMO, could you hold that stock for us free of charge, right? And so they would do that, knowing that we’re constrained. So, you know, I like what you’re saying. We also tried to centralize some of our products in one supplier, giving mass production and scalability as well. So I think the working capital and where supply chain can help with the bottom line, you know, I think people rely on the supply chain to go ahead and do that. I think it’s a very relevant conversation, absolutely. So, Veneetha, you have a story about a time where a main supplier told you that they could no longer supply one of your key parts because of labor challenges. What did you do about it? Because I think this is a really common issue that happened quite a bit over the last couple of years, where there was not a single source or a company didn’t have an alternative supplier, and they’re out of the mix, and then you’re like, well, shoot, what do I do?
It’s a tricky situation, right? I mean, labor challenges. You know, this is common throughout the industry, right? You’re going to see it in every sector these days. I think the first approach we took was, you know, understanding the why, right? I mean, if the supplier is informing you that they can no longer supply the part because of labor challenges, it’s important to know what they mean by that, right? Is it because they don’t have enough operators for that particular part, or you know, they don’t have enough people to work on that part? Or are they prioritizing the business and giving it, you know, to their preferred customers? Maybe we are not the preferred customer for them. And, or is it because the supplier just does not want to work with us because really, really, they don’t have, they’re short of people? And also, is this a temporary phase, right? So we want to know, you know, is this, are they planning on not working with us at all? Or is this just a temporary phase? Or are these labor challenges going to persist with this current supplier? And also, you know, we looked at options where we asked if we could even pay more for that particular operation. And, you know, that cost was a big challenge for them. And, you know, so we have tried that option as well. Then, I think, I think also, you know, because we need to look at it from a customer standpoint, if that part is critical, we have to communicate. I think that goes back to the earlier conversations, is communication, right? Internal communication on what is going on here with the supplier. Is there any way that, you know, we can go back to the customer and look at any other substitutes or options, right? So communication is also a key factor here. And based on the relationship, we could also ask the supplier, if, you know, we have a great relationship with the supplier, is, are there any other references or any other manufacturers we could, you know, reach out to, because you’re having labor challenges, we understand that, you know? And so, is there anybody else we could reach out to? So we explored all those options, and we finally were able to find an alternate manufacturer for those same parts, even though there were delays to the customer. But we already made it clear from the beginning, right? There was alignment on what is going on here, which is not always the supplier’s fault if they are having labor challenges, because it’s an industry-wide issue. I think the long-term action, I mean, if I had wanted to do this differently, was, you know, we would look at maybe doing some of that inside, if we had the capabilities, you know? Because manufacturing internally is always an option. Vertical integration is could be a better way to handle these situations, because then you could look at investing in automation or, you know, reducing the number of resources you need to work on that particular part. So I, that’s the way that I would approach it, I mean, looking at it, you know, in hindsight and thinking about it, right? But, but yeah, that’s, that, that is my story. Denise, what about you in a train wreck single-source story?
It’s almost very similar to what Veneetha was saying. We made big strides in working with our commercial team in a latest estimate to get the most updated forecast. We did it months in advance. We were very, very proud of ourselves, only to learn that the bags were going to be on a six-month back order, and we did not have additional sourcing. So we had to determine exactly what she just said. We did not have an MSA or contract with this supplier, so we sunk to the bottom of the priority list. So we went ahead and did that, that was our first step. So it elevated our priority, but still, maybe we would get it in four and a half months when we needed it like in two months. So we continue to negotiate with them to see if we can get partial shipments, negotiate to see if we can ship it overnight, and in those situations, it worked out because we created a nice relationship with that supplier. But in the meantime, it is a wake-up call to say let’s check and see if we can get something similar, run it by quality, and have another supplier. And if it looks different and it smells different, then we have to just keep moving forward. But that happened quite often at the company that I was at. It ended up, are we solving the problem, but it came with a lot of work, a lot of due diligence, and eventually, we were able to right size at least take our critical products and then back-fit them into making sure that we have a contract or an MSA with the suppliers and have dual sourcing. David, single sourcing or supplier train wreck story from you? I feel like there are so many to choose from. Yeah, I mean, we had one too. I mean, we had the going back to the power generation manufacturer. We dealt with a supplier. They had a patented technology on a bolting system, so it was like I couldn’t easily, I’d have to redesign and read you got a blueprint. I literally had no alternative. Now, I could work with my engineering team moving forward to move away from that supplier and design in something else. But I mean, they had a ton of parts out there in the field, and so I didn’t have a choice. I had to painstakingly work with that supplier, and they would push out their schedule on us that would really impact our manufacturing runs. So, I mean, I basically knew I had to work with that supplier, so I just had to go in, meet with them ahead of time, and kind of get on the same page and just say, “Hey, you know, this is, let’s make them be a part of the solution and let them understand the potential impacts that they were causing,” which, you know, which were millions of dollars having to rearrange manufacturing schedules. But it was tough. I’m not gonna lie. It was a very tough situation because we had no way out for our existing product that was already out there, and that’s a difficult place to be in. I feel like if we’re all on the sell side, that’s where we want to be, right? Be the sole single source because people don’t have a lot of other options. And not that you want to be a poor supplier or treat people poorly, but I would say that’s more on the rare side. I mean, most of us are working, buying parts and materials that, you know, there are other options or other ways to design products. Denise, David, Veneetha, thank you for sharing some of your train wreck stories today. I encourage our listeners to reach out to each of them on LinkedIn, follow what they are doing, and we look forward to seeing you on our show next month on June 11th at 12 Central.