What the Duck?! Episode 17 Transcript
CLOSE ENCOUNTERS: Building Long-Term Supplier Relationships with Andre Langhorst
Welcome to What The Duck! A podcast with real experts talking about direct spend challenges and experiences. And now, here’s your host, SourceDay’s very own manufacturing maven, Sarah Scudder.
Thanks for joining me for What The Duck! Another Supply Chain Podcast brought to you by SourceDay. I’m your host, Sarah Scudder, and this is the podcast for people working in the direct materials part of Supply Chain. I’m @SarahScudder on LinkedIn and @Sscudder on Twitter. If you are new to the show, make sure to follow this podcast so you don’t miss any of our direct spend supply chain content.
Today, I’m gonna be joined by Andre Langhorst, and we’re going to why you should prioritize building long-term relationships with your suppliers and how to do so. If you work for a manufacturer and are struggling to establish strategic non-transactional relationships with your suppliers, then this episode is for you.
Andre is a software engineer by training. I was told that putting the word “software” in front of engineer is very important. That’s right. He loves building, solving problems, and engaging with customers. He’s lived and worked on three continents, very broad across many industries. He’s a German transplant now on the East Coast. He loves brainstorming and envisioning a better future, talking about value, and making customers run. Favorite part of this is he is a self-proclaimed supply chain nerd, which we’re gonna dig into in a little bit. Well, welcome to the show, Andre.
Well, Sarah, excited to be on the podcast, and I think you totally nailed the introduction. I don’t know how to improve on that. I really love complex problems. I love the challenge of figuring things out, and I really like to put things in place to kind of solve the problems for me so that I don’t have to do it again because I like to solve it once, not twice. And it looks like you are quite the artist visionary.
I see a whiteboard in the background that looks like it’s been put to very good use. Yeah, yeah, that’s correct. I like to map everything out on the whiteboard if I can. The behind me is the result of me working with my eight-year-old through his assignments and how much chocolate he earns for how many minutes. And yeah, so I think the whiteboards should be everywhere, and I like to put them to use. So Andre, I’d like to kick off by having you describe yourself in one sentence.
Yeah, I think you did that already, right? So, I like to solve complex problems and love these mental challenges. So, I love to debate a lot, and I’ve been working in the supply chain space for a while. I think one thing that drew me to this area is the complexity of the area, and that’s kind of what I work on. So, you’re a self-proclaimed supply chain nerd. How did you get this nickname?
Well, it’s not a given nickname per se, I’d say. But when I get nicknamed, it is usually like “professor,” “doctor,” something, you know, because I like to work on these complicated things. But I’d say that me and my colleagues, we like to call ourselves supply chain nerds because many of the things that we deal with, and mostly actually our customers deal with, are complicated. You know, quarterly closes can be complicated as well, but everything that’s going on this world, delivering on time in full with quality, great service to your customers, you know, I think that’s quite something.
So, I want us to start off our interview today by going a bit personal. Okay, as I mentioned, you started as a software engineer doing integrations, so I would like to talk a little bit about your career journey. Right, so I, like I said, am a software engineer by training. So, even before I studied, I built systems for discrete manufacturers. They built aluminum profiles, that’s what you need when you build a conveyor belt and any kind of infrastructure for factories. And, well, then I went to minor and major also in software engineering because that’s what I love doing. So, no supply chain yet, right? But then during my studies towards the end, I kind of had to finance my lifestyle and everything, and I was recruited by a consultancy on campus and started working with various clients from different countries. I got to travel in an airplane as a student, you know, so I really liked the diversity of the job and the people and kind of learned what makes the world run. And well, that consultancy was acquired by SAP, and there I quickly discovered that accounting and cost centers and payroll, you know, that’s not what’s in the stars for me. So, instead, there was the time when APSs, right, advanced planning systems, were really maturing as an add-on to your ERP and covering all these broad processes: forecasting, demand planning, production planning, scheduling, materials management, warehousing, S&OP, inbound, outbound, you know, our space basically. So, those were all new for me, and this really drew me in. So, my very first project was kind of the only one at the intersection, let’s say, of software engineering and supply chain. I helped the life sciences company build a hardware/software kind of IoT before IoT existed project that would enable their clients to, you know, their clients are research research centers and as basically like a freezer on that is managed remotely. So, that was kind of the first supply chain project. And as I mentioned initially, APSs were really getting mature and on the rise, so I started my career actually as a management consultant. So, I would go and visit the clients and walk the shop floors, you know, understand the processes and challenges and kind of, you know, see physical manifestations of too much inventory, right? You see it kind of, you see it there, right? And backlog, too much backlog, you can kind of see these things. And then we would try to figure out how to improve these processes with software. So, part of my early career was translating between the customer, right, and what they kind of wanted to achieve and the issue and then the technical engineers that kind of had the answers to the what and the how. So, that’s what I started with. And then I have to ask, what was the most shocking thing you saw when you were doing visits on the production floors?
What stands out as like the ‘wow’ moment?” So that’s actually at the intersection of sales, engineering, and production, and it was a very interesting client. They had a very motivated sales group, and the sales guys, of course, they wanna do everything for their clients, so they called all the time to the production floor, tried to discuss changes, engineering changes for the clients. So what would happen is that the best salesmen managed to make the production managers remove almost finished products from other customers, and then they were repurposed for their own clients. That was quite interesting, and of course, what was the root cause? The root cause was too much backlog, so they had been getting all the orders in, “Give it all to us, we wanna book all these bookings, bookings,” so they kind of lost insight into what’s really going on operationally, and when you’re in such a situation, you only have really one thing that you can do. You need to successfully remove backlog and get through this and not steal parts for other customers. That was a good question, that was quite an experience, and I would never imagine that big, important machines get built that way. I’m not sure what I would’ve said when I saw that happening. So that was kind of at the beginning of my career, translating between these requirements, and then over time, I got more into the supply chain strategy component, right? And at that time, it wasn’t really common, and I became an evangelist for it, was installing a dedicated supply chain organization. Now we all know chief supply chain officers, but at that time, it wasn’t common, you know, with supply chain balance scorecards and as a cross-function between all these engineering, sales, production, sourcing, logistics, and service. So that’s kind of what I did then in the middle of the career, and that brought me to all kinds of wild places between the frozen rivers in Siberia and the beaches in Rio de Janeiro and the desert in Dubai and the Wind and Calgary. So that kind of carried me for a while over the globe and was interesting to get exposure to many different industries and clients and see how they approach problems, and you know, there are things you don’t even know these problems exist. If you’re in the middle of the rainforest for an oil and gas exploration companies talking about materials management is an entirely different challenge because you gotta fly in the stuff with a helicopter, and so very, very interesting. And then 2017ish.
Yeah, I returned to the US for a second time and then to beautiful Pennsylvania here, and that was when I joined the Direct Materials group back then in Ariba, which now has become the SAP Business Network, right, or provided the foundation for it. Yeah, I’ve since then focused more, let’s say, on the value part of things. You know, what should you really prioritize with all these many things that you can do? You know, what should you actually start with? And, you know, because you cannot do everything, and, you know, for every customer, it has their individual challenges, and so you need to find a good solution for every situation. So one of the reasons why I was interested in having you come on the show is when you’ve got a very heavy manufacturing background, but your focus has really, at least for the last few years, been in the direct materials, direct spend space. What would you say is new with the direct materials procurement now, meaning in 2022, that was not a thing in previous years?
Yeah, I mean the year is almost in the books, right, so I’ll basically say what’s in store for 2020, right? And so from previous years, in 2020 we all discovered that we are all in a globally networked supply chain, a network of supply chains, and we all discovered that over three decades, we have built a network of supply chains that may not be as dependable as we thought they were. So we had the Swiss canal, we had obviously COVID with all these changes, we had all kinds of weather impacts, and what has happened over, and that has been a trend that has been going on for decades, is that uncertainty increased. So there’s some measures of uncertainty actually, you can measure uncertainty, so these have steadily increased. What has decreased, are you know, it’s part kind of also my fault because you know, advanced planning solutions, you optimize inventories, but what if your assumption regarding the probability of something going really, really wrong is not correct? You know, usually you don’t factor that in, you so and that’s what we’ve kind of seen from 2020-2ish right, and now we’re, I think we’re getting into a new phase. You know, we’ve had inflation now for a while as well.
So we will see different aspects of the global bull whip in the next year. So, semiconductor is already in a different cycle, and you’re already seeing increased capacities that will then swing back to automotive, which will then impact prices. And so, for logistics, same thing. We have been through all these different cycles of logistics, and now we see additional capacity in logistics. Global shipping has kind of relaxed, and so what– why– why I think I think this is like a continuation, but we’re just seeing a different side of the coin. The thing that has changed now is that we got smarter a little bit, right? So, we kind of figured out, ‘Oh yeah, so we cannot depend on all these things anymore.’ So, resiliency is now something we need to look at. So, for– I don’t know– 10, 20 years, if you look at CPO priorities, supply chain resilience wasn’t even there in the top 10, and now it’s top one and top. So, now, now we kind of figured out that we need to do something there, but also we– we don’t want to waste our resources. We want to do that more efficiently. So, now we are through the initial shock of things are not as stable as we thought, and we are putting these things in place to get a better handle on all these uncertainties. And now we can actually go back and look at, ‘Okay, how do we do this more efficiently?’ Before, we were like firefighting and trying to fix this and fix this, oops, find a new supplier there. And now, I think we’re getting into, let’s say, a stable unstable situation, right? We are trying to create a pocket of stability on top of all this instability, so I think that’s what’s changing. We’re getting into a new phase and also getting kind of new solutions in because we are learning to deal with this uncertainty.
Yeah, when you and I were prepping for our interview today, I think supplier collaboration came up quite a bit in our conversation, right? So, why is this so important, and what does it mean to you when I say ‘supplier collaboration’? How do you describe what that means?
Okay, so you have all this uncertainty, and then let’s say your engineering department tells you to find a new source of supply, right? That’s a new supplier. That means it’s an untested relationship in all aspects. It’s an untested relationship in terms of, you know, how do we understand each other when we say, ‘You know, we confirm something, right?’ How are they being on time? What is their understanding of quality? It’s all untested. So, what do you do? Well, you have to collaborate, and you have to try to do this proactively. You have to try to share planning information. You have to try to get a common understanding of the execution, right? You have to create visibility. You have to have processes in place where you can quickly react to quality deviations. Right? This is yellow every other day. It was white. What does it– okay, so figuring these kind of things takes days and weeks and months, right? So, you’re trying to make this more efficient.
So, I think that is why supplier collaboration is critical. For once, because we’re now dealing with untested relationships in many cases, when we need to be flexible, re-engineer things and, well, then we kind of the only fixes collaboration. And then you mentioned bull whip before, there are only two fixes to bull whip. Or will you describe for our listeners what you mean by that? Let’s start, okay? Yeah, so bull whip effect, I mean very simply, is everyone has experienced it in a car. You know, there’s a traffic jam and then the whole traffic stops, and it may stop completely, and then suddenly everyone goes full speed again, and then again stops. And so, that’s kind of the bull whip effect. Even though everyone could drive perfectly safe and be happy, let’s say at 10 miles per hour, we’re not doing it because we are humans, we’re impatient, you know, we want to go because, you know, look, it looks clear, let’s go, right? So, that’s a human behavior.
There are certain effects, of course, that like the Forester effect and these things that promotions can affect bull whip effect, so there’s certain effects on bull that make it worse and create but the one, the two key things is, so if you know everything at any given time, you don’t have bull whip because you know everything, and there’s no delays, but in reality, there’s delays. So, the time between the supplier thought about canceling your order and you receiving it, that’s a delay that’s time that you can put to use in order to find some new supplier or maybe renegotiate or whatever, but that time is lost if that delay is long and that creates, oh my god, now we need to act and fast, right? So, you accelerate and then you get to stop again. So, that’s the bull whip effect, that’s and the more supply chain layers we have, the more this bull whip effect is amplified. So, with all these global supply chains, this is why we’re seeing all these logistical challenges.
That’s the bull whip effect, and the only solve is insight, visibility, and digitization, which enables collaboration and speed, right? So, if you are faster and if you have a better insight and accurate insight into what the situation actually is, you can mitigate the bull whip effect, and this is all collaboration. So, my whole mantra is collaboration, collaboration, collaboration, you know, everything you can collaborate. So, a question I have for you around that, I’m sorry to interrupt, let’s make it more specific, actually. I think a good example that just came to my mind is pharma companies.
So many pharma companies utilize CMOs, right? Contract manufacturing organizations, right? They basically outsource certain aspects of the production cycle involving the key ingredients, but also packaging. And this is a trend that’s not going to revert. It’s a trend that’s actually still intact. It may, you know, shift between different regions, right? Because we have now had a very strong dependence on China, for example, so it may shift. But that trend is not going away because we’re all looking for efficiencies.
So now, how can you be a good buyer and how can you have a good relationship with your supplier? I can tell you how you can be a terrible buyer. So you give them really bad data and you change it around all the time. How can they plan with that? They can’t. So what will they do? Right, all these things have impacts. So if the supplier notices that the data you give them is bad or changes all the time in unpredictable ways, they will make their own conclusions. You will pay a higher price. You will again worse terms, you know.
Do the other thing, be a good buyer, you know? Share all this information and try to be accurate. You know, of course, things change, but try to make it make reasonable changes. And then what happens? You get a win-win situation. You get a situation where suddenly, like in this case, the pharmaceutical companies that may the CMO, they may have a reserved production line, and just because you’re sharing information, they can squeeze in some orders from some other client. They make more money, they’re happy, they give you better conditions. So that’s win-win. Dealing with suppliers doesn’t need to be win-loss, right? It doesn’t need to be a trade-off. So there’s a lot of win-win to be discovered, and unfortunately, it’s not always.
You mentioned a great pharma example and you talked about what a buyer can do to better collaborate with the suppliers. I would argue though, in many organizations, it needs to be more culturally driven from the top down. So what can a leader do who has a team of buyers or a team of people on her or his procurement team to set up processes and systems to enable their teams to better collaborate with suppliers? I think that’s a really important distinction.
Yeah, so I think there’s two answers, probably at least. I think one is strategic. I mean, set up the objectives in a certain way for your in terms of balanced scorecard. Just if you have purely KPIs, right? Of course, your team will hit them, but nothing else will hit. So think in terms of a more balanced scorecard and of a more balanced KPIs that also consider the supplier and win-win.
And what do you mean by scorecard? And yeah, like, if you’re in a sales organization, you wanna sell, right? You basically what you set up is a sales target, and then they will run and make it happen, right? But if you have different things you want to achieve at the same time, you need basically a more balanced approach where you have different metrics by which you…your success, and not everything, will be then sales. It will be different objectives, like you know how happy the supplier is with you, right? It can be something entirely qualitative, for example, and so adding these different dimensions to the overall performance, that will make one thing happen, that will provide orientation.
But that doesn’t mean that your team can actually do it. The other thing is you need to remove roadblocks and that’s your systems, right? That’s where you and me come into play, and we need to provide a system that takes away the roadblocks and takes and automates everything as possible, digitizes as much problem, provides a user interface that is easy to consume and is responsive.
So that’s the other thing they don’t have, right? So usually, if they’re everyone is trying to do the right thing usually but often you’re so, you know, dealing with all these global changes, you’re trying to react to all these changes, you’re already in complete cognitive overload, and then you simply don’t have time. So you need to create space, you need to create this room for improvement, and then the things you can steer with the KPIs with the scorecards can actually happen. So you need the objectives, but also you need to actually make your team enable them to do it because they may not actually have the time to do it.
Remove all wasteful activities, remove things that are not necessary, approval steps that can be maybe automated, you know, there’s so many things you can do in terms of efficiency. Yeah, but definitely digitization is a big one there. Yeah, I would also argue another important part of the supplier collaboration process is also making sure you have alternative suppliers in place and that you’re nurturing those relationships.
The last thing you wanna have happen is you’re waiting for your parts to arrive, they’re supposed to be here tomorrow, you find out it’s gonna be three weeks, you don’t have an alternative supplier in place, you’re scrambling last minute, and if you don’t have somebody that you can call or contact, it makes that process much much harder. The exactly right and then maybe you have to steal.
Yeah, then your sales team’s on the floor directing stealing parts from other customer orders. That’s firefighting. You know, then you’re just trying to survive. So exactly, you’re exactly right. Do you have any examples of customers that you’ve worked with that you can share that have done a really good job of transforming from more transactional supplier relationships to more collaborative and strategic? Yeah, I mean there’s a bunch of them. I will stay in industry terms anonymized because I didn’t get the approval in advance, but so there’s some life science and CPG customers that wanted effectively to have a supplier. And when you have supplier management inventories, you can do two things. You can basically get the supplies off your books, right? This is kind of let’s say the accounting trick and makes you look more efficient and then also the management aspect. So there’s lots of customers that I work with that transitioned this operational aspect of having to restock them and having to manage these inventories on site for a buyer, right? Let’s say in a warehouse in a certain side, they manage the suppliers over there for the where we’ve seen that actually the supplier can do it much more efficiently if they have an understanding of, you know, like you said, are you gonna stick to the agreement?
Are you gonna really stay within the boundaries that we agreed to? And I’ve also seen this not work out where actually buyers asked us to, you know what? I cannot try my suppliers even though we have the thresholds defined, the min and maxes and everything and the restocking and so they, it’s not accurate. They don’t stick to the agreements. So I need additional information so that they need to put in to get more information, you know, so that that, I’ve seen both things and it really depends on the industry. But in the SMI area, there’s definitely some quick wins where suppliers sometimes can do a better job at managing and there’s probably other examples. So one of the other things that you brought up when we were prepping for our conversation was around what you are calling a talent crisis in supply chain. This has not been discussed, what I would call very much. I mean sure, you read about it and it comes up, but I don’t see it being some massive, massive topic of conversation and priority. Why do you think that is? Yeah, that’s a good question. Why pretty much every customer I talk to is affected by this, in be it in logistics, you know, be it, let’s say more operative functions like, you know, even truck drivers, but definitely in the menu in the factories, there is not a very strong bench of talent that then they can utilize and also the requirements seem to be higher towards what employees expect, you know, and in a very strong labor market that we have right now, at least in the US, you have options and suddenly, you know, people leave because you’re not, you mean like gyms and massages and breakfast, lunch, and dinner.
I’m used to living in the Bay Area, so I’m used to some pretty crazy things, like kombucha and all that. Yeah, I mean, we don’t have these things on the East Coast. We get water, maybe sparkling, but that’s it. But I think it’s even more basic things like just the pure workload that can burn you out. Just dealing with things can be very taxing. And all jobs involve technology to a certain extent. Even simple jobs are increasingly being replaced by robots and automation, but most jobs now involve a certain amount of technology at least. And those are not so easy to replenish. You need training, standard operating procedures, and all kinds of machinery. I don’t know why it’s not being discussed, but it’s real. To piggyback on that, and again, this podcast is focused on people and direct materials, which I know has a talent shortage. How do we solve this? Well, one thing I think that you are doing that I really like is getting more women into the field of supply chain. I myself coached a young talent who studied supply chain, and I think the field needs to present itself as a more attractive career choice. And making processes more efficient and not wasteful is another way to solve this. You studied at a university for how many years and paid a lot of money, and then you’re working on reformatting some Excel files.
You know, that’s not what people want, right? They want to have an impact and they want to see how they can, yeah, maybe at scale improve the world, but even on a smaller scale, you know, make things work. And so, I think we need to make sure that we provide impactful jobs, that we identify when jobs are not impactful, and just serve a system, an internal system that we can maybe reduce. And one of our board members calls this “zombie killing”, right? So when you have these zombie processes that you really shouldn’t have, you know, identify them, kill them, because they’re just creating unhappiness and there’s nothing good coming out of them. So yeah, I think those will be some general guidelines, identify these things that don’t really have an impact and don’t really have an, and just make it a more open and attractive field to work in.
For those who are listening that are wanting to upscale their procurement teams and hire buyers and leaders in the direct space that are going to have better skills to collaborate with their suppliers, what do you think are important things to look for when hiring new people?
I already said that technology is not going away, so you need to be adapt and adapt at utilizing various, you know, elements of technology, right? Do you need to be a data scientist? No, probably not. You need to be flexible in terms of ways of working. So I would definitely look in terms of cognitive flexibility. I would look at how well you are able to put tools, let’s say tools on a very high level, you know, make them do the work for you.
So what’s next? What’s coming is obviously, it has been in the news over a couple of weeks, what’s coming now for real seems to be AI and that will have an impact on procurement and supply chain as well. That means lesser tasks that you really don’t want to do, you know, like simple supplier management task, those will be potentials. Those will be the first potentials to be realized, like massive email overload from suppliers, that is the actuality, right? That’s current. But those are things that AI will be able to help us with, and I think that is a short development that’s over the next one to two years.
So think of all of this going away, what do you do then? Well, obviously, you focus on the more value-adding activities, like actual supplier management, you know, actually meeting with your suppliers, actually talking about their products, their developments, you know, this, that, that is time that we don’t have. We don’t have time for this today, but this is what we really should be doing, really understanding them, really understanding their products, their building, and the value they could be adding to our products, what’s up in their pipeline, you know, more strategic topics.
So I think this is gonna continue to, to that, that the more clerical activities will be increasingly automated. And that you, that you will actually be in need of people skills again, and talking to these people for real, and not about, you know, where’s my order, not about did you send it, but actually, you know, well, let’s look at your products and let’s look at maybe different formulations and let’s look at technology. Let’s look maybe at material trends in terms of, you know, new opportunities, things that we could benefit from as a buyer or, you know, and you could use in your production process as a supplier. So I think that’s what you should look for, people skills and technology skills in the sense of being able to utilize technology effectively.
Thanks for discussing why you should prioritize building long-term relationships with your suppliers today, Andre, and I also want to highlight we talked about not only why but how to do so. If you have anything you’d like to promote or a project you want our audience to know about, now is the time. So, where would you like to send people if they want to find out more about you? Yeah, if you want to find me, I’m on LinkedIn. I don’t want to promote anything obviously, I’m looking to put the business network in place to solve problems around purchase order collaboration, planning collaboration, all these things that I managed that I mentioned before. So yeah, you can reach me on LinkedIn. I think we, as a practice globally, you know, we can learn so much from each other, and yeah, I really enjoyed the exchange. If you missed anything, you can check out the show notes. You can find us by typing in “What the Duck?! Another Supply Chain Podcast” in Google to have the optimal search results. Make sure to add “Another Supply Chain Podcast” to ensure you don’t miss a single episode. Make sure to follow this podcast and subscribe to us on YouTube. If you are new to the show, make sure to follow this podcast so you don’t miss any of our direct material supply chain content. I’m @SarahScudder on LinkedIn and @Sscudder on Twitter. This brings us to the end of another episode of What the Duck?! Another Supply Chain Podcast. I’m your host, Sarah Scudder, and we’ll be back next week.