Manufacturing Supply Chain Woes
John Hantzis, Nathan Cunningham, Stephen Drummey and Rachel Hassal
Welcome to our Manufacturing Woes show! This is a special edition. Not only do we have four panelists today, but Eric and I are both joining from ISM in Dallas. So, we are sneaking into our hotel rooms to host the show before you run back out to the conference. I am Sarah Scudder, the Chief Marketing Officer at SourceDay and our show host today. I am going to be joined by John, Stephen, Rachel, and Nathan. They have extensive manufacturing experience, and I’ve asked them to come on today to share some of their absolute most crazy supply chain train wreck stories that they’ve lived through. And of course, what are some of the learnings that we can all take from the nightmares that they’ve lived through? Our show sponsor is our friend’s Rapid Rating. I have known Eric and his team for many years. I actually was a customer of Rapid Ratings before I joined the SourceDay team. They do a lot of really important work in the manufacturing space. So, I’ve asked Eric to hop on, do a quick intro, and Eric, maybe highlight something innovative or unique or something new that you guys are working on this year that is relevant to people in the manufacturing space?
Thanks, Sarah. It’s been a good ISM show. I’m glad you’re here in person together. It’s great. Yeah, it’s been really busy, you know, given that we just had the 10th interest rate hike in a little over a year. So, that makes the cost of borrowing capital more expensive for suppliers and leads to liquidity and operational issues, especially for private companies. So, that’s where we come in. We’re really analyzing those private companies as well as public and getting those financial statements that are hard to get. And then running our models over that to really detect issues early on, early warning signal. And something innovative that we’ve been doing is we just tweaked our HealthMark model, which is more of an instant score and really dials up the aggregate analysis that we have on other companies we’ve rated with our FHR. And so, that will help, you know, the longer tail suppliers and get some really good indicators for manufacturing supply chains. Awesome. So, if you are needing to assess or look at the financial health of your suppliers, highly recommend reaching out to Eric. He’s an awesome thought leader, and they do really good work. So, Eric, thank you for sponsoring the show and hopping on this morning, and enjoy the rest of your conference.
Absolutely. Thanks, Sarah. Thanks, everyone. So, for those of you joining live, I’d like to get a sense of where our audience is joining us from. So, please drop us a note, tell us where you’re joining us from, and what you are planning on having for lunch today. We have Denise joining us. She said, ‘Looking forward to the awesome panel with Rachel and Sarah.’ So, Denise, thanks for being with us again. Drop us a note if you do have questions for Rachel, Nathan, John, or Stephen. Drop those in the chat as well. I’ll make sure to try to monitor and manage those as they come in. If we don’t get a chance to get to all of those, I’ll make sure we send out a follow-up Q&A after. So, with that, I want to do super, super short intros, just so you have a little bit of sense about who is going to be speaking today. So, minute or less intro for each panelist. Tell us about who you are and a fun fact. Do not forget a fun fact. That is very important. So, I’m going to go ahead and start with Stephen and the intros.
Hi, so my name is Stephen Drummey. I am currently a lead buyer at Sanmina Corporation. I mainly work with new product introduction and launches and kind of onboarding. That’s the majority of my experience, both in electromechanical and electronics as well. And a fun fact about me is I am a numismatist, so I like to collect coins. I was just going to ask what that was because my Google fingers were not fast enough. Stephen, thanks for being with us. Larry Lang joining us from Canada. Look at these awesome people. This is a conversation to listen in. Larry, thanks for being with us today. Rachel, a quick intro from you, and thank you for being so dedicated and joining us from the car today.
Yeah, hi everyone. Rachel Hassall, 15 years of experience in the CPG world, working on everything from cosmetics to home care to personal care. Started off in R&D and moved my way into procurement and supply chain, so interesting background there. Fun fact about me, number one, I’m in my car. Number two, is I’m the only person in my family, cats included, that does not have a British passport. So, that’s me. Thank you, Rachel. Nathan?
Yeah, so Nathan Cunningham. I worked at Tesla for five years in supply chain. I now run a supply chain analytics consulting agency. So, that’s me. And a fun fact is I can solve a Rubik’s Cube. Fastest time was in high school, clocked it at a minute 18. So, certainly not at like YouTube display level, but I could probably do about two minutes now pretty easily. So impressed. We have Kimber joining us from Maryland, and for lunch, she’s having grapes, cheese, and water. Very, very healthy, Kim. John, you’re up next.
All right. My name is John Hantzis. I’m the Director of Logistics for AMP Global. About 20 years in the industry, prior background engineering, did some time at Amazon. I actually did some work with Stephen’s company, now that he said it, with Phillips Lighting Signify. So, I did quite a bit of work with them. But basically, the easiest way I sum up what I do is if it moves, it comes through me. And most of the time, no one knows what we do until we don’t do it. Awesome. So, Stephen was on our What the Duck podcast recently, very, very interesting background around new product implementations and introductions. So, a lot of craziness happening in the supply chain manufacturing space there. So, Stephen, my first question for you is what issues have you run into with customer-supplied material?
So, I guess particularly for me, especially with onboarding for new customers, you’re very frequently working with customer-supplied material. They want to make sure that you’ve got the parts to start building to meet their schedule. So, every company kind of operates a little bit differently. Some companies, especially ones in R&D, might not have a robust process for handling and managing materials. It’s not really the focus of their business model. So, why would they invest into something like an ERP, well, maybe not even ERP, but MRP system, which means you can occasionally find yourself kind of managing a mystery at times. But I specifically think of a very recent onboarding project where they didn’t have any list of open orders or specifics on delivery dates or quantities or part numbers suppliers. So, it was kind of very early on in the prototyping development phase. But without any of that information, it kind of makes it difficult to load good information into your ERP/MRP system so that you’re accurately driving your own supply and then giving you the ability to plan accordingly. So, that’s definitely a tricky situation to kind of navigate. That’s definitely a concern that I would see with having to manage customer-supplied material. So, Stephen, did they just drop off a box to you? Like, is that what happened?”
Oh, well, it wasn’t just the boxes. Now it’s 60-something pallets. There’s no information, very limited amount of difference, and then it just kind of kept coming. A lot of this stuff they would order, they place orders out in advance with suppliers, and then suppliers were holding some of the material. So, we kind of had this trickle, trickle end of customer-supplied material for quite a while. But yeah, so the impacts of that too is we had to, a lot of the stuff we wanted to count. Obviously, we want to verify everything we’re getting and make sure that we’re not, you know, that there isn’t a huge mistake or something that we’ve missed. And then I think also what kind of compounded this already issue was that the customer wanted to waive incoming inspection for a lot of this material because a majority of it came directly from their facilities. And in hindsight, that was definitely not a good idea. We probably should not have done that because fairly quickly found floods of material coming in or hitting MRB/RTV, which was, you know, and I didn’t really have anywhere to go other than back to the customer. But fast forward kind of over two quarters, we found ourselves kind of running into these significant shortages for various reasons, quantities, you know, no one’s perfect with counting, and also with quality issues or parts mistakenly getting swapped between each other.
but I think the worst experience the worst the worst offender was a a 22-week lead time custom part that was made overseas and I we didn’t quite realize both both companies thought the other company had the parts and in fact neither of us had the parts so we figured that out it’d be very very end of Q3 beginning of Q4 and kind of managed with a lot of hard work Vigilant supplier to kind of get material enough to build units for quarter four and still to this stage is the highest quantity that we ship in that quarter too so there can be all sorts of surprises that come up but as long as you you know can work through them that’s Rachel any surprise deliveries in your career where stuff literally just arrived without any notice or any real documentation
“So, I haven’t personally experienced things just rocking up to our doorstep. However, I have had multiple experiences where the demand says we need more, the demand signal says we need more, and then all of a sudden, we are sat on pallets and pallets and pallets of product with apparently no demand against those. So, while you know it didn’t rock up and we knew exactly what they were, we had a bunch of bottles, we had a bunch of pumps. You know, this was during COVID, and hand wash was a necessity, right? We couldn’t make enough of it fast enough for a long period of time. And we realized that we were having some issues with our forecasting, our demand process. And therefore, we ended up sitting on a load of materials, millions and millions of dollars worth of inventory. So, through a lot of negotiation, we managed to bring that the exposure level down, cancel some outward forecasts, things like that. But no, I’ve never had product rock up and not know what it is, but definitely been sitting on product that we have no idea what to do with. So, Nathan, you used to work at Tesla. Very near and dear to my heart since I am from the Bay Area, and just about everyone I know has a Tesla now, including my sister who just bought her second Tesla. So, Tesla’s, I’m gonna call it production hell, seems to be the most famous nightmare in recent history. Can you maybe shed some light to us on what the heck is going on? Let’s start there.
Yeah, so, production hell was a very famous phrase that Elon shared on Twitter in late 2017. So, pre-COVID, before everybody else knew what supply chain was or what disasters could happen, Tesla was very famously in production hell. So, lots of different things happened, but basically, to contextualize everything that was going on, Tesla was trying to create a brand new product at super high volume with no ramp-up time, with unproven technology, with unproven manufacturing processes, with a new design. Like, we were doing it all, everything 100%.
Now, a lot of people think that vehicles have been made forever, and so an electric vehicle will be very similar to a regular engine vehicle, and that is not the case. There are just so many differences, and you know, perhaps some of the similarities might be seats or steering wheels, but that might be where it ends. It’s like there’s just not a lot of components that transfer over. And I know many colleagues who would say even the seats and the steering wheels in a Tesla are like no other car on the planet. So yes, that was the situation. We tried to do everything, and I think one of the things that I was involved in personally is that Elon said we automated too much too quickly. And one of the things he said is, “Humans are overrated,” which is like a very Elon thing to say. And that’s where I spent a lot of my time. We bought tons of automation that took a while to get right. And anyone who’s worked with equipment or automation knows it takes a while to get right. And we just didn’t plan for it. So there was all this time of me actually trying to help the engineers fix that equipment and get parts for equipment and things like that. And it’s not necessary. You know, Tesla did the best they could, and obviously, they came out the better for it in the end. But just a hundred new things all at the same time with no ramp up, and yeah, it was a nightmare, yeah.
You know, you talked about trying to do all these amazing things, also very challenging things, right? In a similar way, but with soap, I was in the same place, right? We were pushing the balance, and that’s where innovation comes from. How much did you utilize the Tesla name in the conversations with vendors as you were trying to tackle all these seemingly crazy things?
Well, so we dropped the Tesla name constantly, but it wasn’t as valuable back then as it is now. So, like in 2017, Tesla was a very small volume manufacturer that didn’t make any money. And so we said, “Hey, we’re gonna be this really big thing,” and they were like, “But you’re not.” And so, like the Tesla-like people who understood Tesla or appreciated what we were doing, I would say probably half of the suppliers got it. They were like, “Oh yeah, for sure. We’re here for you. We’ll drop everything. We’ll make sure that you’re taken care of.” But there were a ton of suppliers that were like, “Yeah, we’re not gonna stick our necks out for you because you’re not proven yet.” And rightfully so, at times, right? It’s like, you know, we haven’t proved ourselves. Like, we haven’t made any money. You know, we’d burn billions of dollars of cash. It’s like, that’s not the type of stellar company you want to be a supplier for, right? But, I mean, people, I would argue, I mean, Amazon was unprofitable for many, many years. So, I mean, I feel like that was kind of the thing. I mean, the market has changed a lot this year. But when we look back over the course of the last five or ten years, I feel like that was pretty common, yeah.
Yeah, personally, John, I asked you to come on the show because you have a very unique perspective, and that you’re very specialized in freight and logistics, which has had absolute craziness in the last three years. So, I’d like to have you start by sharing what you feel was the biggest COVID train wreck that you experienced, that was something that you never thought imaginable, like just absolute can’t even believe it, it was just insane. And then, how did you solve and work around that? Because one of the things that makes you so unique is, I feel like you’re very, very creative and innovative, and you just kind of figure stuff out.
I think one of the biggest challenges that came about from COVID was the misunderstanding of your suppliers’ raw material. Because a lot of times, you’re not brought on board to have visibility to their raw material. So, you gave a PO, they would have a projected lead time, at the time that was getting fed into, like, an SAP system, and it says, “Okay, your time of delivery is here.” It gets put in there, and then all these sales orders could get put on. And then all of a sudden, you go from something that was a 30-week lead time to 90.
Especially now, if you look at electronics with microchips, we have a 90-week lead time, and all of a sudden, everyone’s panicking because it’s like, “Well, we have everything else but this component.” And then all of a sudden, you know, you see the biggest mystery to me was the microchips themselves. You know, you had companies that were buying them, and then also they’re going on the spot market for five, six times that. Chips that were two, three dollars are a hundred and fifty dollars. So when you have price points, and say, like, for instance, with, you know, currently now with, like, say, a radio sagile, your margins are not that large. But when you’re talking about the companies that were buying these, like, in the medical field, they had the pocketbook to buy and hold this stuff and then consume what they wanted and sell the balance on the open market. What you, what I think a lot of people didn’t predict was how much of that inventory would shrink up, that it would now push out your deliveries. And that’s where, you know, you kind of have to get creative, was like, “Okay, do we have an alternate approved chip? Do we have a way around this? Can we reconfigure existing electronics to not need that chip or use chips that we already have that we have readily available or ones that you could get and reuse?” So it was being able to, what I call, you know, call a pivot or an audible, if you were looking at it from a sports analogy, is, “What can we do to keep the customers happy and keep the bottom line, keep the company profitable without having to completely reinvent the process mapping with the contract manufacturer?” Because, you know, we had no visibility or insights into that.
The secondary part, which I think most people didn’t anticipate, was the backlog at the ports. You know, LA Long Beach, for instance. Everything I’ve done for many, many years has been LA Long Beach. I was out there, you know, 2019, and you’re coming over, and there are 60, 70 ships out there, which was unprecedented. So then, you know, you start going where you had an ocean time of, say, 45 or 50 days, now became 70, 80. And where that comes into a problem with the company is you’re paying your vendor in a 60, 40, 30, 60-day terms. So you’re paying for inventory you can’t even sell, and that you don’t even have in your building. So it complicated, you know, especially companies that are owned by private equity or ones that borrow based on receivables and inventory valuation. You were paying for inventory you couldn’t even get into your building to sell or even kit up to be sold with other things. And I know that was one of the biggest headaches I faced when I first came to AMP. They were averaging about 71 days from the manufacturer in China to delivery in our Ontario, California location on average. When I was able to get everything figured out and, you know, dialed in because I have a lot of those understandings, we averaged all of Q4 at 35 days from end to end, from China, from our event manufacturing China, to delivery in my warehouse was about 35 days. When I started, they were paying, say, $16,000 to $20,000 a container to currently my all-in might be two or three grand. You know, so having that understanding and knowing where you can, you know, jump in for your company to help
predict or help contribute. And I think the biggest issue that most companies face is lack of collaboration between departments. You know, I’ve worked at very big companies where procurement was on the West Coast, but operations was on the East Coast and in the middle. So you had procurement that might have been buying stuff that logistics had no idea of. And then all of a sudden, it’s ready, and it’s like, “Well, you know, that customer predicted 300 units a week, and now they want 600 units. Well, you didn’t buy enough in that time frame.
So now I got to do a combination of air freight to bring it in, to make sure we can make that number, ship the balance ocean, but keep the profit margin where it needs to be, and to keep all the parties happy. And I think in a post-COVID situation, supply chain operations and procurement people really came to the forefront because at those times, that’s when companies really saw what could be done with people that had the experience in that area. In pre-COVID, you kind of were never given a seat at the table. Now all of a sudden, you’re the first person they’re running to to help fix the day, and now they have to rely on that experience because everything else, all the fancy ERPs, aren’t going to do anything if you can’t get it on a boat, get it on a plane, and move it and get it into your warehouse. That ERP telling you a 90-week lead time, well, that’s what it’s told. So it’s just, “Hey, everything’s perfectly fine,” but you’re trying to say that to your big box store company, you know, customer that says, “Hey, you told me we’d have these in 30 or 45 days. We need these on the shelf, so we’re going to go to a competitor.” So it’s, “Okay, how can you jump through those hoops?” And I think having that collaboration where procurement, ops, logistics, warehouse, distribution are all on the same wavelength and understanding every movement, because one thing I do, procurement does rolls in with me. Okay, now it’s ready, it needs to ship. I need to get into the warehouse. They can get enough time to get it to a customer. And having everybody on that same page is kind of what is the most crucial thing now, especially where margins are tighter, certain things are starting to peak up when customers are really wanting more of stuff, and you’re still having chip problems. The chip shortages are still prevalent. So what really stands out to me, and I’ll see if Rachel or Stephen have a train wreck example, but that 90, what was it, 90-week lead time, right? Something used to be maybe a couple weeks, a month, and you’re extending things out a year, two years, three years. I mean, that’s just like major train wrecks. So Steve and Rachel, do you guys have a lead time train wreck that you’ve lived through recently?
Yeah, and I think, you know, COVID really was like the start of a lot of this kind of nonsense of where you said, “Okay, yeah, we’ve been working on this project now for six months. We have a timeline in place. We’re gonna make this launch.” And then all of a sudden, your lead time doubles, triples, right? I have a recent example where glass, right? So glass over the last year has been exceptionally turbulent, and I’m talking very much in the cosmetic space. But we had a lot of glass coming from Europe, right? Which, that was great during COVID because we weren’t having the issues with China or with India and some of that freight issue that was being seen. But then when the energy crisis hit in Europe because of the Ukraine conflict, we were then seeing, you know, factories having to shut down because they were being told by the government, “You’re not getting any more energy,” right? Or they were just too expensive to be running their operations. So either you were paying through the nose to try to get them to run your product or you were just faced with the backlog and the shutdown from all the issues in Europe. So yeah, glass for me over the past year became a huge hot-button topic, and we went from, you know, four-month lead times, which was long but manageable, up to 52-week lead times. So that was definitely one of the issues. And I think one of the things that I’ve been really pushing, and I had a boss one time used to say, “Never let a crisis go to waste,” right? So we should always be looking to improve. And, you know, John, kind of to what you were talking about, is I’ve really tried to use the opportunities where we’ve had supply issues to try to emphasize what does best practice look like to avoid these issues, because if anyone has learned anything over the last couple of years, it’s just one thing after another, right?
So, how much resiliency can you build in advance, right? It’s much, much easier to qualify a secondary source when you’re in the development process than when you have nothing on hand and are struggling to do it, right? So, I think really what I’ve been trying to focus the teams on is that we’re not going to be able to solve every problem, we’re not going to be able to forecast every problem, but what we need to be doing is taking control of what we can, and we actually have much more power to influence much earlier on in the projects to try to make our lives better. And so, I think for me, making sure that procurement and supply chain have that seat, like in the innovation, like in the very initial ideation sessions, is super, super critical. Because by the time you’re already locking in specifications, it’s too late, right? So, for me, John, just hearing you talking about, like, “Oh yeah, do we have a secondary qualified source? Can we use this in another place?” That’s all stuff that we have control over, and I don’t think our supply team often has that right voice at the table to express those things. And many times, you may have a system that doesn’t talk to each other. So, for instance, you might have a procurement software that exists outside of your ERP, but your logistics and your ops people have no visibility to it. So, if you’ve made a change in there, it doesn’t show in the other system until all of a sudden, you know, it runs a weekly or monthly report, and then all of a sudden, you see everything’s gone haywire. You don’t know where it came from. Yeah, absolutely, absolutely.
Nathan, what about you? I feel like you have examples from your career around this crazy lead time train wreck. Yeah, so it’s a funny story. I remember I was trying to buy something we had quotes for. We knew how much the lead time was for all these parts that we quoted. And when we went back to re-quote, the lead time went from 14 days or, you know, 12 weeks or something—I can’t remember exactly—to over a year. And we called the supplier and we’re like, “What on earth is happening?” And here’s the deal: it’s Apple specs. Very specific things, and this isn’t for Apple Apple products, this is for Apple equipment that makes Apple products. So, it’s pretty far deep into the supply chain, into the manufacturing. And when Apple launches a new iPhone, all the capacity gets bought up for these sub-components, and literally nobody on the planet can get them in less than a year. It’s like, “Yeah, we’re going to be tied up for the next year helping Apple, sorry.” And I’m just like, “I was there like Apple’s released a new phone every single year for the last 10 years. Wouldn’t you think that you knew how to handle this capacity issue? Yet, it’s like, figure this out, come on. You have other customers.” But they didn’t care. It’s like, “No, we got a contract with them, we’re good.” I don’t know, it was insane. Yeah, 100%. I feel you, John. Yeah, so I definitely, going off what Rachel said, I think there’s a lot. The best way to avoid some of these issues or at least mitigate them is definitely early on in the development phase. And you should always have a minimum. I always say, if you can, you should have a minimum of three sources, three approved sources for everything. And obviously, that’s not always feasible, but in a perfect world, that’s really what you should be doing. And if you can’t do that, that’s the type of stuff where you need to go have a chat with purchasing or see some of the materials and say, “Hey, look, this one, there’s no alternative. There is no, you know, it’s a full redesign of the entire product if we can’t get this part.” And managing it right up front with an aggressive and big purchase is usually one way to kind of cheat around it. But if you’re not used to that sort of huge fluctuation in lead times or, you know, other companies buying up huge chunks of stock, you can get caught off guard, and you can’t get any material.
So, but also relationships with distribution. They can have, you know, put stock on kind of set aside for certain customers if you have agreements in place. There’s also things like that as well. And I’ve got to throw in, being that I’m Miss supply chain, supplier collaboration, collabing with your suppliers in real time is very important. So, you know, if your supplier is not going to be able to deliver or fulfill the order, if there’s something, so you have the time to pivot and be proactive, versus something just not arriving and, oh crap, now I’m in scramble firefighting mode. Sarah, do you know any companies that do supplier cooperation? Hey now, hey now, stay on track for our combo today. Something that Rachel brought up that I want to ask you, Stephen, and then ask Rachel. Rachel mentioned about the collaboration in regards to the engineering and innovation and building of product. Stephen, can you share maybe a train wreck example because you do a lot of new product introductions around how component design and selection impact the supply chain and have maybe caused a disaster or two for you in your career? Yeah, yeah, I can definitely think of a good example. So, we had onboarded this new customer, particularly large product. The BOM was, or at the time, it was like 600-700 components. And basically, we were informed that the Eco to formally release the BOM into our system was being sent over to us. So, we’re kind of, you know, taking receipt of that Eco. We knew what it was, so, you know, everyone kind of pushed it through. And after the fact, we realized that the BOM had grown by about 300 parts plus. And we were kind of scratching our heads, you know, how’s that? That’s gotta be a mistake. Something must have happened. That can’t be right. That’s not what we talked about. Come to find out, the engineering team decided that they would make it an addition to the BOM. It ended up being like an additive piece to the existing product. But they had decided to handle all of the material purchases for those parts through their NPI process. And so, they decided the materials teams didn’t need to know about this change. It wasn’t relevant because they had already bought the parts. So, they also did not keep track of any of the materials that they purchased. And then they just kind of sent them to us. So, not only were we caught in a situation where, you know, I’m essentially in double-driving demand, but I also don’t really know, you know, where I’m supposed to phase in, you know, which parts were you able to, you know, secure supply for, which ones weren’t you able to. You know, where am I taking over in the supply chain? And I think that had a lot of pretty significant ramifications right off the bat, because, you know, basically, my ERP MRP feed was not very useful, especially when you think about the material that I’m already receiving from the customers. This is in addition to all the stuff that we had already been taking. So, we would wind up going through, I mean, I’ve gone through hundreds of RDLs, receiving discrepancy blog resolutions, you know, just trying to get things cleared up. And then, if you can imagine, you’ve got, you know, I’ve got POs up for this material, and we’re also receiving it from our customer. How, you know, someone in receiving could accidentally receive stuff on the wrong PL, that definitely happened.
So, it can have, you know, if things aren’t set up right and there isn’t strong communication right up front between engineering and materials and materials teams, that’s a big problem. You’ve really, really got to make sure that both teams are on the same page when it comes to, you know, what needs to be communicated and what doesn’t. So, I think that was probably one of the biggest train wrecks I ran into, for sure. Rachel, what about you? What about a train wreck time when procurement was brought in too late on a new project? So, during my time making soap, right, we did a lot of limited edition programs, right, and seasonal programs. So, holiday was always a big one. Holiday hand wash, if people don’t buy hand wash specifically for Christmas, you’re missing out. But holiday hand wash was always, always a big thing. And these were always really considered just rip and reapply, right? It was the same vendors, right? So, procurement wasn’t heavily involved. It was typically a very light touch. However, in this particular example, the design team had come up with this really beautiful design, very technically challenging. So, and I think, you know, procurement, we weren’t really heavily involved because it was always the same vendor that we used, same bottle, same pumps, all this jazz. And really, we needed to be brought in much earlier to work on the negotiation with the vendor who we had always been using because it was so technically difficult. The pricing came back, you know, same typical number of colors that we were using, but so much more technically challenging that the pricing came back astronomic, let alone we were having issues actually achieving the design at the end, right? So, we had to send people on press check time and time again to get this right. It’s limited edition, so, you know, you have one time really, you know, to get the volume in that you need, and then you’re going and begging for topping up on this one particular SKU versus another. And so, I think this was a great learning for me, was that just because it’s a rip and reapply, there’s no such thing as rip and reapply, and we really needed to have procurement there to elevate these potential risks in a much different way, even though they were vendors that we had always been working with time and time again. So, again, a different design can have a massive impact on your vendor base, and anything that is either a limited edition or anything that is a seasonal product also comes with its own significant supply challenges. John, same to you. A lot of times, freight and logistics are forgotten about. You guys are the ugly stepchild. We have a product, we’re ready to ship. Oh shoot, we actually need ugly. We need to actually be able to get this to our customer. So, what is your biggest train wreck or one of the train wrecks you’ve experienced where you’re brought in too late, and what happened? I want to say it was a train wreck because of the ask, not because maybe brought too late. I had a situation with a company, you know, one of the big lighting company, that we had to move an entire 60,000 square foot warehouse during China golden week. So, it had to move from Louisville, Kentucky, which was an external UPS supply chain, to our internal in El Paso, Texas. And we had to be up and running the Monday after golden week with no headaches. So, it was me and another person going down to Louisville, Kentucky. It was 31 full truckloads out the door within this four-day period. And then it was flying to El Paso, making sure they were received and everything was good, testing within SAP, because at the same time, they were implementing SAP.
So, it was a two-two double whammy because these had always been in an external warehouse, and now they’re in an internal warehouse. They wanted to control the cost, but it was moving, you know, 31 truckloads of material in a week period and being up and running that Monday with zero hiccups. And, you know, we pulled it off. It was not easy. It was a lot of no sleep because, you know, you’re going into a place that you don’t control. It’s not your warehouse, so we had to pay to actually have extra people there running 24/7 to be able to pull these things off the rack because you’re in a third-party warehouse. Not everything is wrapped. You have a bunch of half pallets, so the utilization in the trucks had to be at the maximum. So, it was creating wrapping and then creating the UPC code so they could be scannable so that it was easy to receive at our warehouse. So, it was a gigantic feat to be able to pull off. And then we’ve had special ones with special projects where, you know, we had a similar location that had to be somewhere in Christmas, so I ended up renting a car and driving from Louisville, Kentucky, up to New York City to deliver something on Christmas Eve because it had to be there. And that contractor was actually out on holiday, surprise surprise, but no one would deliver. So, I literally was getting a rental vehicle, putting four pallets of very high-end lights into the vehicle, and media, you know, driving it to New York City on Christmas Eve and then driving from New York City back to Boston. So, those craziness happened, you know, to me. When I had interns at work for me, one of the things I always used to love to say is, “Do you want to read about a case study or do you want to live through one?” Because everything you read and going through supply chain in school now, it’s all these, “Well, Widget A moved.” It’s not like, “Okay, you’re getting the call with your hair on fire because this is already going on, and here, fix it.” And that’s usually what we end up getting. And so, it’s having enough experience to understand that logistics is always organized chaos. It is never going to be smooth. It is never going to be a fine process. My job is to make that roller coaster ride less, and it’s going to have bumps, we’re going to have highs, we’re going to have lows, but mine’s to try to smooth out that process versus trying to go on this thing that shoots up at 100 feet, you know, at 200 miles an hour, then drops back down, because that costs the company money every time you have those highs and lows. It’s being able to have what I call that bullpen for that decision, “Hey, do we need this? Okay, we’ll split up four palettes, we’ll air-freight them, we’ll put the rest on ocean, we’ll minimize the cost. The aggregate combined total landed cost is the last.” But we’re able to keep all the backorders flowing and moving stored, so, you know, keeping those things happening is, I don’t want to say never happens, because for me, it’s a regular occurrence. You know, you probably get, you know, even now, it’s like, “Hey, these containers are due on June 1st and 2nd. Can we get them in at the end of the month?” And it’s like, “Oh, you know, I, they’re not going to speed up a boat
for me.” But my job is, “Okay, can I get it in? When is it arriving at the port? Can we get everything like I pre-clear them through customs so that it’s less? I can control all the little what I call time zappers that exist in transportation.
And then, anything within my control, I minimize as much as possible. And that’s kind of where, now, like I think one of the best times we had was 31 days from ports and China to delivery through Long Beach, you know. So for 31 days, that’s, you know, pretty good. And being able to average that speed to market comes in as, you know, significant savings to the company. We’re able to get stuff in and sell it before you’re making that payment to the vendor because we also, on the flip side, and I’m sure many of you are encountering this, you may have vendors now that want a prepayment because they’re carrying certain costs. Now you give them a PO, and now they want 10-20% down because they’re outlaying a bunch of costs to bring this material in to build to your timeframe that’s, you know, may not be within the scope that they want to deal with. Managing cash flow is a real thing. Thank you.
So I want to pivot a little bit. I know we’ve been talking about lead time disasters, but I want to talk about negotiation disasters, something we’ve not really talked about much on the show. And I think there are a lot of train wrecks and nightmares that we all live through dealing with negotiations, and I think it’d be fun to share. So, Nathan, I’d like to have you kick off, maybe with your absolute worst negotiation. This is going to be a fun topic. Well, here we go.
So I went into this negotiation with the easiest ask ever, so that we wanted to implement EDI, which is great, everybody loves EDI automated invoicing, right? It’s like, ‘Hey, we’re gonna try to automate things, whatever.’ And the thing was, when we scan your box at our facility, everything is auto-generated. You don’t have to do a single thing, right? It’s perfect. So, I called the supplier. I’m like, ‘Hey, we want to implement this process with you. Is there any issue with that?’ And he said, ‘Absolutely, there were issues with that.’ He said, ‘I sent an invoice as soon as it leaves my facility. I don’t care what happens after that. I don’t trust you guys, and my cash flow is already strained as it is. And I can’t believe you would ask me. I can’t believe that all these supply managers constantly ask me for things all the time.’ And so, not only am I not doing this, we need to reduce our payment terms by 15 or 30 days or something. So, I went into this call, telling my boss, ‘Hey, so, you know this million-dollar supplier we have? Yeah, so they almost stopped shipping to us and stopped doing business with us altogether. And, but I saved that. And, but we do have to pay them sooner now.’ And it was just a nightmare. Like, I got nothing, right? Like, it was the worst. And for them, I really try to avoid using the word ‘sole source,’ but they were truly one of a kind. And it would take months and months of engineering effort to ever switch from them, right? So, it would be very painful and expensive to switch. And so, we needed them. It’s not like I could say, ‘Well, screw you guys.’ Like, it was just like, I had no leverage, and I don’t know what I said, but it did not turn out well.
Stephen, what about you? Do you have a negotiation train wreck that you can relive with us today? Yeah, yes. So, it’s still kind of in process, I guess. Oh, it’s a real one. I love this. So, I’m gonna call it a negotiation because that’s kind of what it’s devolved into a little bit, but or mediation between the customer and the supplier. So, quick backstory is kind of this: the customer designed this part that calls out a specific raw material, and the raw material doesn’t, it’s not capable of meeting the surface class spec, the cosmetics spec that the drawing also calls out for the finished product. So, they essentially designed in something that’s not, you know, it’s not, you can’t produce it with any sort of consistency. And so, we’ve been going back and forth kind of with the supplier, you know, really getting into gruesome details about fallout rates and trying to get them to continue supplying us with material. And we’ve been going back and forth now for five months, I think. This has been, continues to kind of linger on, but we are finally getting kind of, we’re kind of getting supply after a lot of, a lot of back and forth and a lot of discussions. But a lot of this is kind of driven by subjective quality standards.
I think it’s or cosmetic specs and things of that nature, but you know ultimately it wound up limiting the number of units we can build for this quarter and kind of turning it into a fire drill. For once the parts hit the dock, it’s, you know, we gotta go. We got to build everything we can as fast as possible. So we’ve got, you know, essentially finished units built up waiting for these parts, and, you know, they, I guess the difficult part is the customer is not really willing to change their spec or they’re still reviewing, looking for alternatives. But in the meantime, that’s kind of, you know, a very significant burden for us to try and deal with, especially when the supplier is saying, ‘I’m not going to ship you parts until you change the spec because I can’t beat this. I’m not gonna, you know, I’m not gonna continue to put myself in the situation where I’m just bleeding, bleeding capital and, you know, not really making money, losing money in a lot of situations.’ So it’s been tough, to say the least, trying to keep things on track and keep people focused and, you know, actually get product delivered to us, which is coming tomorrow. So, at least in this cool, we are still one of the most even-keel, calm people I’ve ever met. I feel like nothing gets you going or riled up. So I admire that about you a lot. I don’t think I would be so peaceful. Thank you, hold it back. You’re like a boxer or, you know, you do. Do you have a hobby to let it out? Rachel, what about you? Negotiation nightmare?”
“Yeah, so actually, this is an interesting one because it was when I was in R&D, actually. So this was me as a recipient of a not optimized, let’s call it, negotiation. So, I was working for hair care, for a global hair care brand at that time, and there was a big project for one of the brands. And the idea was to negotiate for the first time ever all of the master batch, all the colorant for those bottles globally, right? First time ever that they were gonna do this. And they developed this whole new range of colors. It was 26 color bottles, 27 color caps for North America, Latin America, Europe, which included the Middle East, Asia as well. And the concept was they developed this great color palette, and then they sent it out to tender. Now, instead of having all of the vendors come back and submit actual physical samples, they picked, let’s say, like five colors, right? And so, the vendors then submitted pricing with color chips and things like that. And they awarded the business to a secondary supplier, to a different supplier. And here comes Rachel, the lowly packaging engineer, having to qualify 27 color caps in different resins for each of the regions, 26 color bottles in monolayer, bilayer, and trilayer in all of those different regions. And really, what it came down to was that the vendor who had submitted the proposal for this great cost savings and it was going to deliver, you know, millions of dollars in cost savings, couldn’t actually meet the color targets, right? Not only that because you were doing some bilayer with some very special techniques too, in order to get like a depth of color and this great pearlescence and things like that. The box of standards that I had that were approved were massively ranging from one bottle to the next, right? So you could pull two bottles out of the same color and they
were totally different. So, I had issues kind of from top to bottom in this project implementing it as an engineer because of the way that the procurement team had gone about setting up the project to begin with. Now, after lots of tears and many beautifully colored Excel sheets, we did get there, but it took a long time. And the vendor, you know, in awful transparency was telling me, ‘Hey, we’re gonna lose money on this color, but we need this project to end,’ and I was like, ‘Thank you, I appreciate that.’ So, that was probably the worst negotiation that I’ve been the recipient of. Dave, don’t worry, I still love you. Dave was the procurement guy who was on it. It was actually my first procurement boss as well. I don’t know why I took a role with him on his team after he did that to me, but that’s okay. It was worth it. It was worth it. But yeah, so I think, you know, really for me, from that learning, is being really smart about how we design RFQs is really important in understanding the implications for both the vendors and for your internal teams to actually execute those. Because I think sometimes in procurement, we might get tunnel vision, just like, ‘Hey, let me get the best price,’ without really understanding what it takes to implement. So, that was my biggest negotiation nightmare, but I too survived, so all of you can too.
John, quick tip. We don’t have time for a story, but a learning or takeaway that you would like to share about a nightmare negotiation that you’ve lived through. So, some advice for people maybe working in logistics and transportation. I think it’s more, and it’s in the collaboration with the procurement team because we had one, where I had one many times, that there’s a negotiation over the payment terms, and what they love to do is withhold your shipment because of a Telex release. So now they know it’s end of month, you’re trying to make your numbers, and this shipment is crucial to do that, and they use that opportune time to say, ‘We’re not going to release that until you pay us.’ And that’s how, especially when you have Consolidated Freight, you could have two million dollars in that container, and their stuff may be only a hundred thousand, but they want that money for their number. So they actually will withhold your entire shipment to get their payment. And then I’ve done, you’ve seen the same thing with freight forwarders. They’ll withhold payment because you acquired a company and they went, ‘You want to have 60 terms, they’ve had 15-day terms.’ So now they want to do it in a quicker timeframe. They’ll withhold the shipment from being released to you until you pay for that shipment. And it’s one of those things that if everyone was working together, it shouldn’t come out of left field. And if that collaboration exists, then nothing becomes a surprise, and you can build some resiliency into that to say, ‘Okay, does it come out of procurement, does it come out of logistics Ops, however you want to do it or a new project, R&D.’ You know, as you look at those things on there, is having that collaboration where most of these surprises shouldn’t come out of left field. It’s a matter of just being able to have that conversation with your teams to make sure those speed bumps are minimized. Bottom line, don’t screw over your suppliers, they matter, they’re important. If you don’t pay them as you should, there may come a day where the supplier is going to say goodbye to you. So don’t mess with Freight and Logistics people because we can find anything, anywhere, at any moment.
And John, John could come after you. Don’t mess with John. So, I encourage you to reach out to Nathan, Stephan, John, and Rachel on LinkedIn. They’re all doing really amazing work in the manufacturing and supply chain space. Follow their content, reach out, shoot them a note. Our next show will be Tuesday, June 13th, 12 to 1 Central Time, as always. And with that, I’m wishing everyone a wonderful afternoon.