What the Duck?! Episode 3 Transcript
INTO THE DANGER ZONE: Effectively Managing The Dangers Of Single Sourcing With Darlyne Freedman
Welcome to What the Duck?!, a podcast with real experts talking about real issues in direct spend supply chain, and now here’s your host, SourceDay’s very own supply chain maven, Sarah Scudder. Thanks for joining me for the What the Duck?! another supply chain broadcast 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. Today, I’m going to be joined by Darlyne Freedman, and we’re going to discuss the dangers of single sourcing and what you can do to find multiple suppliers for everything you buy. If you work for a manufacturer or distributor that hasn’t received supply because of single sourcing and you are constantly stressed out about relying on just one supplier for your most important items, then this episode is for you. 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 excited to be joined by Darlyne Freedman. Darlyne runs sourcing and procurement for Ruiz Foods. Ruiz Foods is a family-owned food manufacturer headquartered in California and Texas. Their two flagship brands, El Monterey and Tornadoes, are both the number one brands in their respective categories: frozen Mexican food and roller grill snacks. Any direct spend purchase that is made at Ruiz Foods falls under Darlyne and her team. Welcome to the show, Darlyne. Thank you, Sarah. I appreciate your time today. Happy to join you.
How did you wind up in supply chain? That’s a great question. I started out my career not in supply chain very early on. I was in finance, so I had the opportunity when I was very early on in my career after I had done some what we called cost engineering work when I worked for engineering and construction firms. They needed a person to work in procurement and to buy a lot of the capital equipment that was needed for our retrofit or building of buildings that we were building, and most of them were manufacturing-type buildings, not like schools or hospitals. So, I took on the role and just really fit into it really well from a procurement standpoint. I did a lot of other things as well, like scheduling, document control, estimating, and logistics, getting all of the equipment to the site. That was really fun and exciting, and I did that for about 10 years. Then, I moved into pharmaceutical and really honed in on procurement and supply chain type roles after that.
Why were you drawn to direct spend? Well, that’s really a great question because to me, that’s where a lot of the action is, and you’re literally either making the product or building the building, so you get to see the results right. You get to see all of the results of what you buy and what you’re bringing to the site. So, you get to see it from start to finish, birth to death.
When I worked in pharmaceuticals, we used to actually, you know, I would buy lots and lots of different things on the direct side but I never got to really see how it impacts people’s lives. And we would get patient testimonials sometimes when I worked in pharmaceuticals that would come through the internet and it would really just hit you right in the heart, you know? Where these you actually weren’t impacting people’s lives, right? The patients that took these medicines. So, that was really what drove me to really be on the direct side of the business. It was exciting and there was, you know, constant change, you know, especially on the innovation side when you’re trying to find a new product or ingredient to help bring a new product to life, and that’s really fun. That’s the really fun part.
When you and I were prepping for this interview you told me” it’s important to plug the holes with your IT team,” what does this mean?
Yeah so I’ve worked in a lot of different companies and the first thing that always comes to mind especially on the direct side is dirty data. What I call data and data mining and really meeting with IT and finding out what are the technologies that are utilized by procurement and supply chain and how do we really stay up ahead of the latest and greatest in procurement and supply chain type software and software as a service or whatever is out there that’s new. And that can really push us forward in the sense of 21st century procurement and supply chain. There are so many different tools and technologies out there that you really need to stay on top of it on at least an 18-month basis because there is so many different areas again of procurement and supply chain and there’s way too many technologies out there for you really to hone in on just one. There’s no one answer for all the procurement supply chain. Not never has been but the space has really grown over the last 10 years.
The other thing that you mentioned to me is that you strategize your goals with your team how? And why?
Yeah, so we really look at a long-range plan, which is for three to five years. And again, because technology is changing so much and our product portfolio, since we do work with retail and food service, is changing so much, we, as a team, really need to strategize on what we’re doing. If we’re going to be adding a new line in a facility in one of our plants, if we’re going to be adding a new plant, if we’re going to be adding different products, so our team really needs to be ahead of what’s coming down the pipe, either from the retail and food service sales and marketing team or from our capital plan. We need to know what’s happening at all times because that’s going to affect our contracts with our suppliers if we’re going to be discontinuing items or if we’re going to be adding new items and adding new lines. We buy a lot of different items that could really impact the suppliers that we work with. If we take away a lot or we add 2x of whatever we’re buying, they need to know, and they need to know ahead of time, right? We need to make sure that they’re aware that they can fit it into their scheduling and their plan of for that facility, or they may need to move us to a bigger facility. You know there’s all kinds of strategy that goes around all that.
You mentioned to me that one of your biggest challenges in 2022 is the fact that some of your items have been single-sourced. What does single-sourcing mean?
So, there are two types of single-sourcing, right? They’re sole source, which means nobody can make the product besides the person that you’re dealing with, so that’s sole source. That’s very dangerous, 100% dangerous because they’re the only person on the planet that can make that product for you. So that’s major dangerous for procurement. The other side of it is single source, where you have decided as a company, for whatever reason, to only buy that product which you can buy from multiple suppliers. You’ve decided to put all your eggs in one basket, as they say. I hate to use those kinds of euphemisms, but you have decided as a company to go ahead and just buy it from that one person or company or broker, and that’s your decision that you made, which is fine. But in this environment, especially right now in 2022, in 2021 during the pandemic, we have seen that that strategy, just because of ease in the past, “we buy this from this guy, just go buy it,” it was just easy. Now we got to take a really hard look at what’s easy because I’ve seen it, and I’ve seen it many times over the last two and a half years during the pandemic and COVID is that supplier doesn’t have it.
So, even if it’s a small ingredient on the direct side, if it’s in the recipe, they can’t run it without it. Especially if it’s on the label, so you really need to have it. You need to have an alternate source, so I’ve taken an 80/20 approach. 80 goes with obviously whoever we’ve decided is the best supplier for it, but we need to put 20 with an alternate supplier and hopefully, it’s at the same price and at the same type of logistics, and then we’re not paying more. We’re always looking at that, but we need to have an 80-20 strategy. Or, we obviously need to work with our R&D group to say, “Do we really need that product right? Is the volume small enough that we can get rid of it or change it to something else that we buy a lot of?” So, that’s an alternate strategy as well, not just we need secondary suppliers for a single source. It’s really also you need to look at what is it and why is it in the formula.
Doing switching to having multiple suppliers for everything you buy isn’t something that just happens overnight, and there’s often a trigger. What nightmare experience was the ultimate trigger for you to move away from single sourcing? There really wasn’t one. I mean, I probably could give you one example, but it was really just the constant pandemic issues that were coming up that you didn’t know where it was going to hit you. You know, we had one specific that was a big one, I will call it. It wasn’t a triggering event because we’ve been doing it for a while, but it really brought it all the way up to the senior leadership within my company that it was talked about, and it was talked about in the news. We had one supplier for a modified corn starch, and that supplier could not perform to our contract. They did not declare force majeure; they were just way behind. Now, they were hand to mouth getting it to us. I mean, we almost shut down plants several times, and literally, they got it to us within like an hour before we would have to shut down the plant. But you can’t live like that. I mean, every day we were, you know, pens and hands on the chalkboard ready to cry. You can’t work like that. That was a very triggering event within the company because we did a lot of work to try to find an alternate supplier, but nobody had it. Nobody had it. It was a nationwide outage, and then people were reformulating into a different product, but everybody was doing the same thing with that.
So, it was a very interesting time, and it was a very triggering event within my company that we really had. We have had every day, practically, a supply continuity meeting that we have every morning at 8:30. It also is with the plants because obviously the plants are having issues on the other side of things, but procurement and supply chain all meet every day at 8:30, and on and we talk about supply continuity.
So you can tell very much has been thought about the whole time, but that was a very large triggering event within my company that had a lot of other factors happening with it as well.
Finding multiple suppliers for everything you buy is not easy. What is the process you are having your team use to do this?
That’s a great question and I’ll tell you, we actually created a RACI chart. We went and talked to everyone that’s involved with adding a new supplier, and we created a process chart across this flowchart and also who’s responsible for what and when. Can we do things in parallel because you’re right, it was taking way too long and we were very used to it being that way prior to the pandemic. We were very used to prior coverage. Okay, it’s going to take this long to get a new supplier qualified. We had to, like, you know, put that in super mode, right? We had to put it in sport mode instead of eco mode. So we wrote down the process flow map, we wrote down who’s responsible, accountable, consulted, and informed on a RACI chart, and we put down what area of the company is involved.
Procurement starts off the process with a vendor setup and an NDA with that supplier and the spec, sending them the specs. Then after that, it goes to quality and regulatory, and then after that, it goes to R&D when we bring in samples. But we also decided, can we do some of these things in parallel, right? Can we shorten up time frames? Because when we actually did it the first time on the RACI chart, we put time to do this process. It was going to be taking half a year to qualify one supplier. Now, granted, we didn’t do a lot of it in the past because, again, we have a single source going on, and we were, well, I’ll say, you know, happy-go-luckies. But now we have a list of 19 different alternate supply projects that we’re working on all at the same time, so we really needed to move this along and speed it up. So we actually did that, and we’ve saved a lot of time. I will still say it takes longer than I think it should, but there’s a lot of rework that goes on. Some of that’s on the supplier as well, getting us samples, getting them on time, getting them quickly. Some of that is out of our control. But whatever was in our control, we had it written down. Can we parallel path and make sure we’re staying on top of it? So we actually have a process flow that we’re following, and we’re trying to improve that every single day.
So all of this screams risk to me. What would you say for our listeners who are in buyer or supply chain positions and think it’s too risky to their business to go out and find more suppliers?
Yes, I would say we during the what I’ll call the racy chart and the sampling process, so we bring in samples from the supplier. R&D will test those samples in the lab first, give feedback to the supplier on those samples. Obviously, we have a spec and they have to meet that spec, but we still do samples in the lab. If those samples are not approved, it goes back to the supplier with a comment with a sheet that they get with comments on where they are either out of spec or we do it we do a cutting or a sensory based on the sample and give them feedback on it, because everybody thinks it’s just you know, lemon concentrate or lime concentrate, it’s all the same. No, it’s not. I’ve tasted granulated garlic from several different areas of the world, and they do not taste the same, even though they are granulated garlic. You know, one didn’t even taste like there was any garlic in it, and one was like, you know, blow your doors off garlicky. So, it’s not the same, right, even though the spec says granulated garlic. But for us, after that, this is the important part, after the sample is approved in whatI’ll call Bench with R&D. We will bring in a pallet or whatever R&D tells us they want to do, and then they test it in the facility in the plan. They do a plant trial, and if that passes in the plant trial, then they become approved. That’s the biggie. Obviously, it has to pass our quality and regulatory, so that’s very early on in the process. They have to pass an audit, an audit from quality and regulatory has to make sure there are no issues from a regulatory perspective. That’s done early on in the process, and then they’ll have an on-site supplier audit. If they’ve already passed the paper-based quality audit, they will do an on-site audit later when once they’re approved. One of the other challenges with expanding your supplier base is how do you manage all of these new suppliers ongoing, especially if you’re at a company with a small procurement team, limited resources. What have you done to put in place to better manage your suppliers on an ongoing basis? Again, that’s a really good question because I’ll say we’re in that journey right now. It’s working with it, and how do we improve our ERP system? So our ERP system is fairly new. We put it in place in April of 2019. It’s not SAP, but it’s an ERP, and we put that in April of 2019, so it’s fairly new. And I was not here when it was put in, and we did a lot of customizations to make it look like the old system. So we’re in the phase right now of procurement and supply chain are asking a lot of questions on why did we do what we did in the past because a lot of those people are retired or gone, and so we are going back to our IT provider and saying we want these things. Some of them we can do already, but nobody told us, or it wasn’t turned on, so that’s new news, and then some of it’s new that they’ve upgraded, and when we go to the cloud-based system that we’re going to get on the ERP, that’s when we’ll be able to help with a lot of those things. So we have a list that we’re working with IT, and that’s one of those things on the list that we’re working with IT on is really getting visibility to our suppliers and who buys what where right. This is the raw material code here are the suppliers that are associated with that, here’s the contact, here’s the email, here’s this. So we are, procurement responsible for keeping it up to date, but I want it to be in the system so that if a new but is in the seat from a procurement perspective, and they have their categories that they’re responsible for, they know where to go to get that list of who buy who are we buying from. Another piece of that is after the purchase order has been issued, you mentioned you’ve recently put in a new ERP replacing a homegrown system. How are you managing changes that come in with the suppliers? And I asked that because I feel like changes happen almost hourly sometimes.
Yeah, and when you mention changes, are you mentioning price changes or additions to POs? Any purchase order changes, so you issue a purchase order from your ERP, and the supplier has maybe a price change, a quantity change, they can’t ship it from the New Jersey warehouse but they can ship it out of the California warehouse. How are you managing internally all of those changes? That’s still a very manual process, and I can tell you we’re trying our hardest, especially from a price perspective, because you’re right, a lot of the prices are changing daily, especially on commoditized things that we buy on the spot market. You know we’ll put the PO in two or three weeks before we need the product, right? Due to lead time changes, a lot of lead times are expanding, and we put in what the price that we know that it was on that day when we put in the PO, but you know the price is changing when they ship it, and so we have to update that PO with the dollar, the new dollar amounts, or we’re gonna have a variance with finance, and that’s not fun, right? So I can tell you we’re tracking our percentage on that. We’re about 70% accuracy on our PO pricing, which is not good, and that’s on the direct side. The packaging side’s a little better, but the direct side, I mean, but I will admit we’ve gotten a lot better. We were in like the low 40s, which was horrible. So I really had a meeting with my team, and you need to confirm these prices at the time of the PO and then before shipment, when they’re saying they’re going to ship and they give you a ship date, you need to confirm that price with them on a ship date when they tell you they’re gonna ship. And if it’s different, you need to put it in, change the PO. Locations doesn’t really happen very much for us. If changing location that does not very happen happen very much for us, however, I will tell you on shipping, since freight has gone a little cuckoo crazy as well on pricing, you know our logistics team has challenged us because they’re very good at tracking and monitoring pricing in lanes. So they have the ability to do race pickup versus vendor ship, so we are trying to do a balance and try to rebalance and change it from what it was, which was mostly vendor ship, to really looking at can we do race pickup. So those are some of the things that we’re really focusing on to try to save some dollars.
What about what I call fat-fingering data entry errors? You have all these changes coming in that you said are still pretty manual. Somebody on your team needs to go back into the ERP to input those changes. Oh yeah, it just literally happened last week. We had something that was supposed to be about 91 cents, and when we got our weekly download from finance on how we did from a price point variance, that one stuck out like a big sore thumb because it was fat-fingered at point 091 instead of 91. That happens all the time, and I tell those buyers I’m cognizant of it. I can tell who did it because I know what facility it came out of, so I know each buyer has what facility. So, if it says California, I know who the buyer is that made that error. You have a conversation with them, and obviously, they don’t feel good about it. It’s too late now. So yeah, it happens. It literally just happened last week. I can tell you, no fun. That’s no fun. Do you have an example you can share of a time when you were able to use an alternative supplier, and it saved the day? Oh, absolutely. Especially, I could talk about that modified cornstarch. Our supplier, again, did not know what the right and left hand was doing, was literally almost going to shut us down every week. We had a broker who actually, this is going to sound crazy, but there is a broker that we contacted that said they had some modified cornstarch from the supplier that we buy from, and they had it. They sent us pallets when we were about to shut down because our incumbent supplier could not get it to us. But the broker said we have their product, we have it on, we have some. You know, we’re like, can you get it to us tomorrow, or actually, it was that day, and they were just up the road up in California, and they’re like, yeah, we can get it to you today. I was fine. You know, it’s one of those moments you just wanna. It’s good to have those relationships, though, Sarah. That’s what’s really important in what we do, and that’s one of the reasons why I went to a smaller company from a large, you know, large CPGs. I’ve worked with very large CPGs in my past.
You can look me up on LinkedIn, you’ll see where I’ve worked. These are large corporations, very large corporations, and that’s what I wanted to be. I wanted to be really knee-deep into working with the upper camera team and building a procurement team and knee-deep in working with the product and IT solutions and all of that. To me, that’s the exciting part. And when you look at work at large CPGs, you’re much more removed. It’s all about just the numbers at my level. Right, it’s about numbers. It’s not really doing a lot of the work and improving a lot of the work and working directly with your team to do that. But for me, that’s why it’s exciting is working with that day-to-day operations and really getting improvements moved along a lot faster. There are not a lot of layers here. It’s me and my team, right? It’s me. I can go talk to the CEO anytime I want. I can talk to the CFO anytime I want, and they talk to me when they see their needs, process improvements. I’m directly responsible for any of those process improvements, which to me is exciting, and that’s why I do it.
So, I want to make sure that our listeners leave our discussion today with at least one or two actionable things that they can do to immediately go back to their companies and either launch a program to find alternative suppliers or, if they already have alternate suppliers, improve their processes. So, what are one or two key takeaways that you want to leave with the listeners today?
Really understand how your alternate supplier process works. Add an alternate supplier process, step by step by step. Write it down if you have to on a piece of paper. Do it on a board. Get everybody in the room that’s involved and understand the process and try to find ways to improve it because waiting six months to get an alternate supplier is not good in this environment. You can’t do it, right? So, that’s the first thing. And then the biggest hurdle that we’ve had is, and that we’ve is, you really need to get tight with your R&D. Now, understanding the process and process flow and who’s responsible and cutting out and doing things in parallel for the alternate supplier process is key. You have to understand it at the lowest level possible and get it written down, and again, try to find ways to improve it. But the second piece really is you need to be very tight with R&D. They know ways to improve and things that are in those formulas or how to make that product. They know how to make the product. They know what’s in the product, and they know ways they can help you. So, if you say to them, “We cannot get lime juice concentrate. Can we get it out of the formula? Can we use something else?” They will help you. You need to tell them and be very transparent about what you can’t get. If you cannot get it and you need an alternate supplier, or you need to reformulate out of it or reformulate into something else that we already buy, they are your lifeline.
To be able to do that, so you really need to be tight with R&D and really have—seriously, we have weekly meetings with them to tell them what’s going on and in the industry, because they sometimes they’ll tell us, ‘Hey, we heard that you can’t get, I don’t know, dextrose,’ they heard it, and they’ll say, ‘Hey, what’s going on, dude? We heard this out in the industry. Is our supplier okay? Can we get this? Do we need, you know, now they’re coming to me, saying, can we help you?’ which is fantastic. Instead of me always going to them, they’re now coming to me when they hear things, which is fantastic. So that’s what, those are the two key—two keys, in my opinion. Quality and regulatory would be third, right, for sure. And actually, they’re like 2A and 2B. R&D is A and quality and regulatory is B. It’s not even a three, it’s A2, A2, B. So those are it. If people want to check you out, where do you want to send people? Yeah, they can check me out on LinkedIn. Darlyne, I spell it weird, so I come up pretty quickly. It’s D-a-r-l-y-n-e. So if you type in Darlyne, I’m pretty sure I’m the only one to pop up, but last name Freedman, F-r-e-e-d-m-a-n. So Freedman. Pretty easy to find me. Thanks for sharing the dangers of single sourcing and what you can do to find multiple suppliers for everything you buy strategy with us today, Darlyne. If you missed anything, you can check out the show notes. 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. I’m @SarahScudder on LinkedIn and at @SScudder on Twitter. This brings us to 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.