What the Duck?! Episode 24 Transcript
OPERATIONAL EFFICIENCY: Get from A to Z Quickly and Cheaply with John Hantzis
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 material supply chain content. Today, I’m going to be joined by John Hantzis, and we’re going to discuss how to reduce your overall logistics spend as a percentage of sales if you work for a manufacturer and are looking for tips on managing your end-to-end supply chain, then this episode is for you. John, welcome to the show. Thank you for having me.
So, random fun fact about yourself, you have to get us started on a fun note. I think a random fun, I’m a total foodie. I’ve been new to this office here, and it’s funny that I find food places that people have lived here for a decade haven’t found because they’ll see the food and like, “Where’d that come from?” Like, “Oh, this place down the street,” and you’re like, “Where’s that?” And you know, they grew up here. You know, I’m originally from Massachusetts, so it’s fun that I find the food place. This favorite type of food, all favorite type of food, it’s one of those. I’m a burger and tater tots kind of guy. It’s kind of fun. You’re saying this to a vegetarian. Yeah, you know, it’s one of those. On, you know, the burgers and the tater tots down here. I try the veggies, though. I still have veggies.
I think for me, it’s kind of what I call it in indirect or, you know, not clear direction. You know, a lot of times, you try to change your course of action based on what you’re given, and if you’re, if that direction is not really clear, it’s very hard to reverse engineer that to do what you need to do. What do you do for fun? I’m a kid that hasn’t grown up. I actually still collect sports cards like I did when I was younger, you know, do that with my son as well, so it’s one of those things that I still do. And then flip stuff, you know, retail arbitrage, kind of a big fan of trying to find little sales and flip them online, so it’s a fun hobby to do. So, what sports card do you have that’s most valuable? Oh, most valuable, I want to say it’s probably a Michael Jordan card or a collection of ones from Shaq’s rookie year that tops had a series called tops gold, and the whole, the cards had like a little gold foil to them. Okay, so you’re pretty legit. Yes, I try.
When you and I were prepping for the show, one of the things that I feel obviously came up in our conversations was your love for data. Why do you have such a passion for data? Well, I think one of the biggest things is it was someone that I had as a mentor back, you know, years back, where he said, “People can lie about the numbers, but the numbers never lie.” And when you’re looking at data, when you’re trying to decipher data and what it means and dirt, you know, create a direction of a path. Everything is in that number, historical data. So you know if you have, if you’re meeting with a customer and they tell you that, ‘hey we do x, y, z, but the data is suggesting otherwise.’ It’s kind of hard to, you know, collaborate that but when you look at the data, the hard facts, it’s very hard to, you know, discredit any of that when you’re looking at the numbers.
So tell me your story. I want to know how you got into supply chain. Actually, I was more…I was an engineering major, mechanical engineering in college. I started off in engineering. Most of it was…I was getting frustrated because I was working as a sales engineer, and I had to get products that I was creating or projects that I had to their job site, and you weren’t credited with it until the actual product was on site. And you’re working on projects from months at a time, so this was all into one big project, and I got very frustrated that the projects weren’t getting there on time. They were done in plenty of a window, and it was just very frustrating. So, I started working with, at the time, a logistics manager and saying, “Hey, show me how to do this. I don’t want to get mad and say something I don’t know. So, show me why, what am I doing on my side that I might be able to help get these things to the job site sooner? So, he started showing me how to do things both international and domestic. And then what happened was, unfortunately, he had a health situation, and at the time, the CEO of the company was like, “Hey, you’re the closest guy that has the right experience. Can you handle this in the interim?” 25 years later, I’m still doing it, but it was one of those things that is still like an engineering background is still a problem to solve. No problem is like, but it’s still a problem that you have to solve, and it’s just one of those things that once you get bitten by that bug, there’s no turning back.
So, you had your own company for several years?” Yes. What did you do and what problem did you solve?Well, a lot of what I was doing was I had a courier company, and a lot of at that time was working in partners with larger units that were doing the pharmaceuticals. So, it was basically the meds that go to like a nursing home, and it was something that, you know, you had incredibly tight deadlines. Most of the time, if a patient goes to a home, they were coming back from the hospital without the meds. Their meds might have changed, so now they need a new set of meds. So, you literally had a matter of two to three hours to make deliveries anywhere in the state. And most of what I was doing at that time was challenging that task, was filling that need. And then, I got into larger scale operations with like a Phillips lighting, now signify, and some of the biggest challenges were, you know, your warehousing, your operations, but also when working with purchasing teams. You know, when you realize that you have to work in unison with a lot of other departments and it’s not just a one-team show. You know, that’s something where you have to look at the end of the day or what I do now is, you know, I can’t make yesterday better, but I can make tomorrow better than today. And how do I do that? How do I work with as many people to make that happen? Having that full realization that you need purchasing, you need finance, you need all these teams to work in collaboration in order for you to pull that off versus one team trying to pull everybody or push everybody to the finish line. So you had your own company in the courier space for several years, and then you decided to kind of recently take on a role.
So why did you decide to give up entrepreneurial life? And tell me a little bit about what you’re doing now. Well, you know, a largest part of it is as, in when you’re an independent, is the headaches that come along with it. You have no other departments to help you out. You’re a one-person show. You know, it was long hours, a lot of craziness going on with that. And then I moved kind of in an independent contractor mold when I was working with say Phillips lighting. And then I ended up working at Amazon for a few years to enhance that opportunity and that logistics background. And then currently here at the company I’m at, AAMP Global, there was a previous person that I worked with that was a leader at Phillips lighting that came down here as a VP, and he had seen me and was like, ‘I need you on my team. I need you, you know, right now we’re having a lot of problems with ocean freight. Our spend is very high, the transit days are astronomical. I need you to do what you did for us at significant find Phillips light, and I need you to do that, you know, right away.’ So that was okay, here’s my challenge, I love the task, let’s do this. I worked with him in the past, I was very comfortable, and it was very clear what they needed me to do, and it was just like, okay, I have my direction now, let me do my thing. So what problems specifically are you solving for them? Most of what I’m doing now is international transport. So currently, we have a lot of manufacturers overseas in China, Vietnam, Thailand, and those products are coming into our warehouse in California, and my job is to help them get those products from A to Z in the most expeditious time frame as possible, but also in the cheapest for ocean. When I started here almost a year ago now, they were paying about fifteen-sixteen thousand dollars for a 40-foot container, and they were seeing on average of about 71 days in total transit. Currently, all of Q4, I averaged 34 days in transit from the manufacturer to our facility in California, and, you know, current rates with what they’re being, my all-in costs including delivery is about twenty-five hundred dollars for a 40-foot container. So the impact that it has on the bottom line, the ability, everything when you look at that, it’s something that you’re helping contribute where the speed to market, you know, when we’re dealing with electronics, a lot of the radios, the cameras, the things that we have in the different divisions, that speed to market, it has a big deal on the bottom line when you’re moving the stuff that used to be, you know, two months on your books before you were able to sell it. Now, you’re able to sometimes sell it within that same 30-day period that you know you’re getting them in there, that the sales guys can actually release those orders because they know the products due in, you know, that day or that week.
So, to just summarize for our listeners, you get things from point A to point B cheaper, yes. Most of what we call it, you know, is operational efficiency between air freight, ocean freight, parcel. If it needs to move and it needs to get from A to Z, what is the best way for it to happen? But it’s also in working with, you know, the purchasing team. I sit alongside the purchasing team because everything they do ties into what I do, and if I’m not doing my job, it makes their job harder because then it affects their future purchase orders. And that’s why a lot of times, I jump into a lot of these because it’s something that most people lose sight of, that interaction that needs to take place. So, for those that are listening that don’t necessarily have a lot of experience with sourcing and procuring transportation, we have a lot of buyers who work for manufacturers, but their area of expertise isn’t necessarily the freight and transportation piece.
What’s the most important piece of advice you can share with somebody who’s working to take that over or just kind of build at their knowledge base around how to buy transportation? I think you have to partner with an organization, freight forwarder that not only has the ability to move your freight but the technology to make your job easier. You know a lot of the companies now have EDI feeds where they can feed back into Oracle, you know, NetSuite, which we currently use SAP because what you’re trying to do is you’re not trying to do all the logistics. You’re trying to, you know, encircle logistics into what they’re doing in the day-to-day, and you need to rely on that technology to do it for you. Like, you shouldn’t be manually searching for a tracking number. You shouldn’t manually be searching if your purchasing order was released by the vendor to be picked up. This is all stuff that you can partner with a company shipping, you know, freight forwarder, and there’s plenty of them out there that have the technology and the ability to move that freight for you. And I think that’s one of the biggest challenges is most people don’t understand that aspect, and I think that’s why, you know, a lot of times I love doing these calls. I mean, some, you know, I was just along with speaking with Dennis, who was on one of the previous ones. You know, we had an hour phone call about understanding our happy hour from a couple of weeks ago. Okay, I was on a call with Dennis for over an hour, talking about ocean freight because it was just something that, hey, you know, these are the things you love to do. You love to be able to share that data and that information and have people have that understanding where it says, you know, you’re just trying to hoard that information, it does you no good.
So, the other thing when we were prepping for our interview that you mentioned a few times, and it’s really kind of the topic and focus of our interview today, is how do you reduce the overall logistics spend as a percent of sale? So, maybe start with what does that mean and then how does a buyer go about trying to accomplish this? Well, I think a lot of times, because you have so many divisions, depending on the size of the company, the individual divisions are siloed. They’re not always talking. So, when you look at your total logistics spend, this is your air ocean freight charges. This is your parcel going out to your customers that you’re charging for. So, what is that total logistics spend that your company is paying out for the amount of sales revenue that they’re generating and you know a lot of times, depending on what you’re looking at industry, they spike depending on how you look at them. Currently like, for right now, for my company at AAMP we’re sitting at two percent or less and it’s one of the big things that I that’s my report card.
That’s what I would say, two percent or less. What does that mean? So, two percent of the sales revenue. For instance, if we were, you know, $10 million in sales, I’m spending less than two million, two percent of that in logistics spend to make all of that happen. You know, between bringing the product in, shipping it out to the end-user or the customer. And those, you know, what you’re saying in that example is your cost of sales is two percent or less. Yes, for the logistics spend that you’re looking at. One of the biggest things that you need to target is your total landed cost because a lot of times you may purchase something that’s a great price but if you’re importing it from somewhere like China that has a 25% tariff on that goods, it is now significantly higher your total, you know, when you’re looking at your total landed cost for that product.
So in order to maximize your spend, it’s taking a look at that total landed cost. Where are we getting the part? Do we have the ability to dual-source it? If we don’t have the ability to dual-source, can we consolidate? Do we have another PO that’s going to be ready next week that we can combine into one shipment, ocean coming over, you know, over into the United States, and maximize that spend? And that’s what a lot of times we end up doing is we may have four or five vendors that will consolidate at one vendor location for us and then have one shipment come over. Now, I’m paying for one freight container, 40-foot, dedicated to the US versus five or six smaller, you know, less than container load shipments that come in all with, you know, respective charges.
When you look at those little things and you look at the little areas that you can control, kind of, you know, I kind of look at it all like when you’re looking at the purchasing side, you know, direct versus indirect spend. What are the areas that I can control? I can’t speed up the boat, I can’t speed up the manufacturer, but I can control the little areas in between, such as when the product’s ready at the manufacturer to when it’s delivered to the port. And once it’s at the port, delivery to the final destination, and being able to focus on those areas will also reduce your transit time. You know, because those are the biggest things, you know, depending on when that volume or that inventory lands on your books. You know, sometimes it’s when the minute it ships, it’s on, you know, from the manufacturer. It’s on your books. Other times, it’s not until it lands in your factory does it become on your book. So depending on those terms or the income terms that you have with that product or that vendor, those are another area of, you know, carrying costs that you’re looking at.
So it’s, you know, those areas that you can work with the purchasing team and say, okay, what do we have for open purchase orders? What’s behind? What’s back-ordered? What’s urgent? What do we need to do, you know, to make the sales numbers for that month? Next month, is there something I can do? Can I expedite this on this carrier? Can I switch some of these to air-free? You know, because when you’re even looking at air freight, a lot of times people shy away from it. But if you have a certain profit margin in that the air freight that you spend for that one or two pallets to get it over here to sell is, you know, much different than, you know, if you were looking at it to ship ocean and waiting 40, 50 days to get it flying that over here, getting it in the warehouse, and flipping it to be able to be sold. You know, that margin, you know, a lot of times, what we do for my companies is someone wants to air freight something there’s an Excel sheet that they have to provide.
What does it have an impact on the margin? What does it change our margin to go from our standard ocean cost to air freight, and is it justified? It’s something that goes all the way up to the CFO. He will approve it or disapprove it, and we move. But these are all things that can be done literally in hours, so it’s not like you’re waiting for a huge time frame to look at that. We have everybody here in the building. We have the ability to jump on a call instantaneously, and you know when you have that kind of working together camaraderie, it makes that process so much easier. And I think that’s what so many people get afraid of. And I’ve seen it in logistics pre-COVID. You know, a lot of times, you weren’t really having a seat at the table. Purchasing drove a lot of decisions, and rightfully so, but purchasing didn’t always understand logistics. And then you had something like 2018, 2019 when the China tariffs first started hitting, and then you got hit with COVID, you know, so it was like a double whammy being hit when you’re down, and it was everyone scrambling to try to protect the bottom line, trying to protect being in that for the long game. You know, and I think that’s some of the biggest things to take a look at. So you are a dedicated logistics person. Small and mid-sized manufacturers don’t have a dedicated logistics person, so sourcing transportation will actually fall directly on the buyers, yes.
So if I’m an overworked, time-constrained buyer, and I’m still trying to reduce my logistics spend, what should I do? I think the biggest thing to do is to look at companies that are handling shipments from that area, recommendations from people you know and trust in the purchasing circles. You have groups on LinkedIn that you could reach out to and say, “Hey, I need some help. I’m moving this product from here to here. Can anyone recommend some?” A lot of times, they may reach out to a logistics person. I’m kind of embedded with purchasing, so I see everything. We have meetings all the time, so I’m able to see all what they’re doing. But a lot of times, if you don’t have that ability, it’s reaching out, “Hey, this is what I’m doing. I need to move this product. What’s the best way?” And a lot of times, depending on that product or that area, you know, like for me, at any given moment, there’s probably four or five companies I could rattle off that could help, whether it’s air, ocean, parcel, combination of everything, and the ability to tie into your ERP system to make that job seamless for you.
Another big factor that comes up a lot in logistics, especially in the last couple of years, is this whole idea around risk and risk mitigation. How can a buyer reduce unforeseen logistics costs? So you think you’re going to pay X, and it actually comes in at Y, and then you’re sunk because it’s already done, and you have to eat it, and your margins become terrible. So it’s really important to be proactive, to try to plan and prepare for these unforeseen things that may happen. Yeah, I think a lot of times when you’re looking at it, a lot of times people will use the word resilience, resiliency. I kind of looked at it as more of adaptability. You know, there’s never something you’re always going to be able to control, but what can you do to mitigate it as least as possible? Sometimes it’s having dual-source options. If you have one single-source stream and that source team dries up, that impact could be very profound versus if you have two or three other vendors that could do that, maybe not in the timeframe, maybe not in the exact price, but not enough to really drastically have to throw your numbers out of whack. You know, that’s kind of where you want to create what I always use sports analogy as a bullpen. You want to have a bullpen in any avenue that you can do so should something come up, you have different things that you can do to make that call, a different vendor, different source structure that product may, you know, and sometimes with the dual-source, it saves you because if you’re not sourcing from China, that allows you to avoid that 25% tariff or reduce that tariff to 7.5% or less coming from another area of the world where now it actually ends up being a cost savings because of the total landed cost when you look at that total spectrum, and that average cost for that part actually goes down, even though you may have paid a little bit higher price for that part or lead time.
So earlier in our conversation, you mentioned something called 3PL, and that may be an option for some buyers. Can you explain what that is and when it makes sense for somebody to consider using a third party?
Sure, I think a lot of it, for third-party logistics, is that a lot of times, you may have grown organically, and the building you’re in is just no longer able to contain what you’re doing. 3PLs, you know, similar to FedEx, UPS, DHL, they have warehouses where they will pick, pack, and ship the product. So, you know, I used them at Signify. We had a UPS supply chain solution store that was in Kentucky. We would store all of our product there, and they would pick, pack, and ship the daily order. So as an order came in from a customer, it wouldn’t write to that UPS center. It really wasn’t touching any Signify person other than approving that sales order. They would pick, pack, ship that product, ship it out, there’s a tracking number that fed back into the system, off it went, and you were just paying a percentage, you know, based on that activity. And I think that’s where a lot of times it comes into these companies that have either organically grown or they have such a high demand, you know, for that product that it needs to be there in a day, two days or less, kind of the Amazon effect that exists today, that if you need to get that product now, you need to spread that product out to more areas in order to be able to react to that demand, and those 3PLs can take that burden without your company having a sign on the bottom line for an additional lease, additional manpower. It’s, hey, I’m going to store five pallets of product over here in this corner of the country. They’re going to pick, pack, and ship, and I pay, you know, a certain percentage for them to do that. You know, that’s the benefit of a company to not only be able to continuously grow without affecting the bottom line, but also allows them to learn that as well as they go so they can say, okay, this is how that process works.
To clarify for our listeners, 3PL providers have the ability to store inventory for you and handle the transportation, yes?
Yeah, so it’s something you have with different, there’s different areas of that where you can have it just storing, you can have them and then they can bring it back and forth. Like a lot of people that use cold chain supply, they don’t have, you know, large enough cold refrigerators to stick 50 pallets in, but there’s areas that you can go in and pay $20 a pallet for them to be stored at that facility, pulled out, and shipped to you when you need it. So they don’t have to do it direct to your customer, they can just store and bring it back to your warehouse as you need it as kind of an overflow space.
Got it. So, you’re a data nerd, you love spreadsheets and data files. What is the most important metric or metrics to be tracking from a logistics perspective? Again, we’re talking about from the viewpoint of a buyer who’s juggling a lot. We don’t necessarily have a dedicated logistics person, but we want to have some data to track and look at.
Sure. I mean, what I look at is kind of like tracking, you know, creating a QBR for that vendor. I look at it as, okay, what is their ability to meet that demand? Are they consistently hitting that demand? Or, you know, like you’re seeing in some cases now, certain vendors may want a down payment. Now you’re paying 10% down in order to secure that same product. So a lot of times, it’s what our vendors have the ability to grow with us, or do we have to look at other avenues? Many of the vendors we use, we’ve had for decades, and it’s great because you have the ability to grow and shrink in unison without affecting each other’s bottom line. And I think that’s what a lot of companies are stressing now, is that they didn’t have that ability. That as demands increase, but now it’s longer lead time. So now, especially with a lot of stuff I do, we have the chips, we have the microchips. You know, you have a 40-week lead time. So trying to plan to that demand versus the reality of what you’re facing, you know, it’s something that you have to create. You know, from my standpoint, I look at from the logistics standpoint, is the adaptability to work with our purchasing department, our sales engineers, or even our procurement engineers. Hey, these are the options that exist. Do any of these work for you? Do we have the ability to use an approved alternate in that product without creating something different? So the numbers for me are like the historical data. What is the actual to the forecast? Are we meeting that, you know, and tracking that? And then also, I track what is our deliverability metric. Are we able to meet what our customers want us to be? And are we able to do that where everyone kind of, you know, everyone at the end of the day is making money and doing what they need to do? And everyone has that metric. Obviously, we always want it better in some areas versus the other, but you have to sacrifice some of that for the, you know, combined good of what you’re trying to accomplish.
So if I had to pick just one metric to track, what would it be?
I would say the actual readiness data from a manufacturer. For me, it’s whether or not they’re able to meet that demand or it’s constantly getting pushed out. Because now, I’m incurring more charges, missing a sailing. I have to redo all of the paperwork. I’m redoing quotes because you may have quotes for shipping that are only good for a certain amount of time. And if that vendor is consistently not able to meet the deadlines they’re agreeing to when you send them that purchase order, that would affect my ability to trust what they’re doing or to possibly look at trying to secure another source to get that product.
You talked about technology earlier. What technology is important for somebody to have in place if they want to get a better handle of their logistics spend versus just email and spreadsheets?
Yeah, you have to have that visibility. You need to see, okay, is that product shipped? Is it in transit? Is it held up in customs? Was all of it shipped complete? You know, many times, you know…
I think there’s a lot of companies out there that will get something into their warehouse to find out 15 of it’s not there. The vendor didn’t ship it all, you know, but I but now you have your sales numbers affected because you didn’t bring it in time. So, having that total visibility of, is everything there? Is there are there any problems while you’re in transit? Is it meeting that deadline that we needed to meet? Did it leave the port on time, you know, in the beginning? You know, the beginning part of the year with so much demand, sometimes your shipment was getting pushed out, and now it might have not sailed for another week. Do you have the ability to go back to your purchasing and sales team to say, “Hey, guys, you know, we have an issue. This shipment got pushed. It’s not going to be here for another 10 or 12 days beyond what we anticipated,” and letting them know sooner. So, having that visibility into that total movement, I think, is integral because if you lose sight of that or you don’t have the ability to track that instantaneously, like for me, I have every shipment that’s up on, it’s got like a map on the top, and it’s got the mode of Transit. Where is it at? It color code changes if it misses a metric. So, if it’s behind schedule, it turns red. If it’s on schedule or on target, it’s green. So, I know to look at anything that’s not green or, you know, that’s red and say, “Okay, that’s where my area of focus needs to be.” The balance of these are perfectly good, but also whether or not that shipment is air or ocean, you know, that’s another thing. Is okay, how is it going to take? Is it going to be here in three, four days, or is it going to be here in 35 days? You know, especially as sales teams look at that data, they’re looking at the deliver date. We work with very big, large big box vendor stores, which tail stores, and they have delivery dates that are non-negotiable. You know, if you do not have it there by that delivery date, plus or minus one day, the whole shipment’s returned. They’ll reject that entire purchase order. So, it’s being able to keep to that status where you have that full visibility, and you’re relying on the technology. You’re not relying on somebody manually entering data in order for you to take a look at, no, and know where your shipment is, communicate with the purchasing team, communicate with sales. You’re not relying on all this manual data from all areas of the world in order to be able to do that. So, the technology makes you work, you know, smarter, not harder, and it gives you access to use that data to create report cards, report, you know, are we using the right shipping source? Are we using the right freight forwarder? Or are this is the freight forwarder doing what they agreed upon in their quote? Are they staying true to that time frame?
Are there hidden costs that we’re seeing? I think a lot of that’s what happened when some of the ocean shipping rates were very, very high. These containers were getting stuck in areas like LA and Long Beach for weeks and weeks. A lot of people didn’t understand where their stuff was or why it couldn’t be delivered, and charges were getting pushed onto the shipper or receiver. The carrier was saying it’s not on us, it’s somebody else, and you’re left paying astronomical fees for detention or demurrage as a result of that. I think that’s one of the biggest parts now with technology, is partnering. If you don’t have the ability to have a logistics person, having a technology vendor, a freight forwarder that you can rely on, that can incorporate into your ERP or TMS system and alleviate a lot of those headaches without spending an astronomical amount of money. Some of these solutions out there cost from $10,000 to $50,000, depending on what you’re doing, but the cost savings to not actually have to have a person there and to have that data directly fed into your purchasing software is worth it. Some companies use different software, so as you start looking at them, leveraging that technology to your benefit versus it becoming an Achilles heel of your supply chain is important.
Thanks for discussing how to reduce your overall logistics spend as a percentage of sales today, John. Where would you like to send people to find you? “The best way is on LinkedIn. I’m always on, always available, so if anyone has any additional questions or wants to connect, you can find me on LinkedIn very easily.” And for those who missed anything, you can check out the show notes by searching Another Supply Chain Podcast on Google. To ensure you don’t miss a single episode, make sure to add Another Supply Chain Podcast in your search. And to follow the podcast, subscribe to us on YouTube. I’m @SarahScudder on LinkedIn and @SScudder on Twitter. This brings us to yet the end of yet another episode of What the Duck?! Another Supply Chain Podcast. I’m your host, Sarah Scudder, and we’ll be back next week.