Transcript: What the Duck?! Episode 37

What the Duck?! Episode 37 Transcript

REDDY, SET, REDUCE!: Reducing the Cost of your Commodities with Nisha Reddy

Welcome to What the Duck?! A podcast with real experts talking about direct spin challenges and experiences, and now here’s your host, Source Day’s very own manufacturing Maven, Sarah Scudder. Thanks for joining me for What the Duck?! Another Supply Chain Podcast brought to you by Source Day. I am your host, Sarah Scudder, and this is the podcast for people working in the direct materials part of the 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 materials supply chain content. Today I’m going to be joined by Nisha Reddy, and we’re going to discuss how to reduce the cost of your commodities. If you work for a manufacturer struggling to deal with price increases from your suppliers, which is almost everybody given the craziness where we’re at with inflation, then this episode is for you. Nisha graduated with a degree in Neuroscience, so the purchasing and procurement space was very new to her. After discovering her passion for purchasing through her work experience, she became a strong presence within her company as a buyer in the automotive industry that is dedicated to reducing costs across eight commodities. 

So, Nisha, welcome to the show. Hi, Sarah. Thank you so much for having me. So, it makes me smile, laugh, cry all at the same time. We had to push our interview back a day or so because you were dealing with a plant disaster, plant emergency, plant shutdown, whatever you want to call it, and I feel like that is so typical of the day in the life of a buyer in manufacturing. Yes, I know. I deal with it all too much, and it’s, you know, you gotta take it as it comes and help out your plant in any way possible. So, I definitely feel like as a buyer, you’re supporting the plant as much as possible. You are their support, so I like, I have a lot of friends that work in that are buyers or work in procurement or supply chain and Manufacturing, and I always call them firefighters because I feel like they are always putting out fires or managing disasters that happen that come up that were not even thought of or something they couldn’t even plan for, yes.

Yes, I think so. Yeah, a lot of it is just thinking on your feet and trying to back up your plan and trying to get the solution solved as soon as possible. So, you have a pretty unique background in that you were planning to go into neuroscience and you found yourself in a totally different world and different industry being a buyer. How did you get your start in procurement?

Yeah, so I think I was always interested in business. I kind of had one foot in the medicine path and one foot in business, but kind of when the pandemic hit, I took a gap year, really thought about what I wanted to do, and it was actually I got my start through a network connection and through a family friend. And he was nice enough to give me an interview, and I was very, very honest in my interview. You know, I mentioned that I didn’t know anything about procurement and that I was very new to this, but I knew that I was a quick learner and I was a hard worker, and I made sure that I expressed that in my interview. And you know, I feel like companies need to take the chance and need to take a chance on people, rather than hiring people based off of their work experience, especially if they’re coming out of college without a lot of work experience because you need to start somewhere. So, yeah, I feel like I want to launch a campaign to call for new job descriptions. If I go on Indeed or some of the other platforms, it makes me cringe because I see lots of them are so stale and so boring, and they talk about wanting somebody with 10 or 15 years’ experience with a very niche skill set or in a very specific industry. And I feel like you miss out on so many smart, awesome people by limiting versus hiring really smart people and letting them learn an industry, which I think someone can do very quickly. Absolutely.

So, you someone took a chance on you, and you got a job in procurement. What’s the most difficult part of your job, and I’d like you to talk about something that you maybe didn’t even think about, something that is more difficult than you thought it would be?

Yeah, so obviously kind of the one thing that comes to my mind is juggling the multiple things I have to do in a workday, and that could be, you know, constantly thinking about connecting with my suppliers or what I have to do to award a new business to a certain supplier, or finding new suppliers, doing my market research, and obviously all of the meetings that I have throughout a workday. I did not know it was going to be so extensive, but at the same time, each of these activities kind of connect at the end of the day. You learn new skills through going through each of these activities, and it makes you become a better buyer and a more skilled person in your industry as well. And so sometimes projects can fall through at the last moment, and that I definitely did not expect. You can put in a lot of effort, do a bunch of research, and you’re ready to go, but maybe some other internal stakeholders aren’t there with your decision, and you just gotta start over and find something new to put your work into.

So, when you mentioned sitting in so many meetings each week, I call it death by meeting. There are people that spend almost all of their day in meetings, and then they’re scrambling after hours to try to actually get work done. 

So, one of the things that I’ve instituted for my team at Source Day is we have no meeting Fridays. So, we literally block off on our calendar, and it’s something that, as the leader, I lead by example and I make sure that we do not schedule or accept any meetings on Friday. And I feel like it’s really helped the team being able to execute and actually get work done throughout the week. Yeah, I think that’s a really great idea, and meetings can be helpful, you need to definitely go in there with an objective and with a plan of action, and I feel like a lot of times, those two things are not there. So, I believe I agree with you, Sarah.

On the flip side, what do you like most about your job? So, definitely the one thing that I love about my job is working with people, and especially since now I work for a smaller company, I have a lot of input in what goes into the sourcing activities, especially due to my Commodities and working cross-functionally too. I didn’t realize how much I would have to work with our engineering team and, you know, relying on them to help me understand some of these technical aspects of my Commodities a little bit better, but also giving them some insight on how their designs can be cost-effective or, on the other end of the spectrum, could maybe be adding costs to a particular commodity or a product.

So, I really like working with people and just knowing my suppliers better and my colleagues better because that also builds a level of trust and helps you to build your repertoire. And trust is really important in procurement, so there’s no better way of doing that than networking and taking a genuine interest in people’s lives other than just their work lives. So, I believe that your suppliers are your most important stakeholder. So, if you do not know how to build relationships and manage suppliers well, I think it will have a really big detriment to your career and your company. So, while internal stakeholder relationships are very important, I would argue that your supplier relationships are the most important.

Yes, I definitely agree with you on that. And you can see that on a day-to-day basis, some of the suppliers that you spend a lot of time with versus you don’t spend a lot of time with. Some of these other suppliers, you can see the relationship that builds, the trust it builds, and just how easy it is to get things done.

So, when you and I were prepping for our interview, one of the themes that stood out was your ability to build positive relationships with your stakeholders and become almost a resource for them. How have you been able to do this? Yes, so in the beginning of my career and when I started this job, it was…I did expect a lot of imposter syndrome, and I really had to prove myself with my work and my knowledge. So, I had to do a lot of extensive research in the markets for my Commodities that I manage. I had to make sure I prepared before every single meeting that I went to. But this not only helped me substantiate my skills and my presence in my company but helped me to build trust with my suppliers too, and so that they knew that I knew what I was talking about, that I was interested in what I was talking about.

And so, I think those things really helped me. And I’ve also become very data-focused. As a buyer, I make sure to make my sourcing decisions based off of data and data in the market. So, I think those things helped me build a positive relationship. And, you know, it’s easy to ask for a lot as a buyer, but you also have to give a little bit back and that’s an essential part of the art of negotiation. And you have to come up with an appropriate decision that will help you and not only you, but your suppliers as well and help them reach their goals, too.

Yeah, and I would argue that you mentioned you’ve become a very data-driven buyer. That’s been really tough during the last couple of years when your historical data really has become irrelevant. So, demand levels that you’re used to predicting kind of go out the window. It’s hard to project in the future when your historical data has become irrelevant.

Yes, absolutely. So, for me, I did have to focus on data just because I was learning the job. So, that really helped me to learn the job. But now I’m in a position where I see all these other little niche qualities about a supplier or about sourcing decisions that will, on top of the data part of it, help me make strong sourcing decisions.

Part of your job, other than working with stakeholders and managing and building those relationships, is you buy eight different commodities. So, what commodities are you managing today? What are those different eight categories?

Yes, so I manage expendable packaging, returnable packaging, raw resin (because we injection mold internally), injection molded parts, molded rubber parts, labels, stickers, extruded rubber, extruded plastic, and I’ve dabbled in aluminum and steel as well. And so each commodity has to definitely be treated differently because they act differently in the market. And I’ve had time periods where organ pricing has plummeted and then say polypropylene and nylon pricing has skyrocketed. So, it’s easy to get bogged down by the little details of each of your commodities, but it’s important that you take some time each quarter to evaluate market forecasts and define your cost-saving goals appropriately.

And I’m always a high achiever, so at the beginning of each quarter, I was like, “I’m going to save a ton of money in each of these commodities,” but it’s always better to underestimate your savings and overdeliver rather than overestimating your savings and underdelivering.

So you manage a pretty broad spectrum, which is great for you as you’re kind of new to the industry and new to being a buyer, so it’ll really help you, I think, accelerate your career. Which commodity has caused you the most difficulties this year in 2023? 

Yeah, I would definitely have to say resins as a whole, and each resin, due to its difference in raw material composition, acts differently in the market. And for a long time prior to the pandemic, I dealt with nylons a lot, so nylon 6 and nylon 6-6. They followed a very similar trend, but during the pandemic, they had very different trend lines. So I had to implement a lot of different ways to validate pricing that was not a usual practice for my company or my suppliers. For example, we had to go to a third-party auditing system to validate freight, raw material, overhead, and labor costs, since deltas in what they were asking for were significantly different every quarter. But I also did understand that we were in a very volatile time in a volatile market, so coming up with new ideas and ways to validate pricing on both ends.

So the theme of our conversation today is around price increases, which have been crazy and are still out of control. And with inflation, I feel like we’re not really sure what’s going to happen. So in Q2 through Q4 of last year, you mentioned that you really, really struggled with price increases. Why, and what impact did this have on your business? 

Yeah, and obviously that was primarily because of the pandemic. There were a ton of labor shortages. A lot of my raw material suppliers would declare force majeure. There was a large decrease in customer demand, large increases in raw material pricing, and obviously some environmental disasters as well that affected the whole span of the supply chain. And that affected pricing in a very unprecedented way. And this really called for an opportunity for us to revamp some of our sourcing procedures and implement new ways of doing things. And it was a very big, significant impact on our business. But working with operations, working with our materials team, with engineering through that time really allowed us to have empathy for one another. And also, working with my suppliers, right, because I knew that they were going through the same exact things that we were going through, that really helped us figure out new ways to do things that we thought worked before. And also, I learned a lot more about how, when situations like this arise again, how to deal with it appropriately.

So, through all this craziness of the price increases last year and what’s still happening this year, one of the things that really stood out to me about you is that you were still able to save your company a little over a million dollars. So, how did you do this? I’d love to have you walk me through this process because I think many of our listeners work for small and mid-market manufacturers and are constantly struggling with price increases.

Yes, it definitely was not easy, and there were times when I had to resource large amounts of business from key suppliers that we had been with for long periods of time to new suppliers. I also had lots of difficult conversations with suppliers about our current costing and our business relationship. But it’s important to give your suppliers ample time and sufficient notice and be truthful about what you are looking for, either in prices or in the supplier as a whole. Having enough knowledge in the market was also essential for my negotiations.

It’s important to always ask for cost breakdowns. One thing that I’ve noticed is that suppliers do not like to share where their costs are going into, but if you have a general idea of the labor overhead and raw material costs of a product, you can figure out where you can ask for some leeway and costs.

So just to clarify that for our listeners, what you’re saying is instead of getting the end landed cost, you pivoted your strategy a bit and wanted a breakdown of different parts or components so that you could have an understanding of what different pieces or parts of the process cost. This would allow you to highlight where there is room for growth or negotiation. Absolutely, and that kind of gives you a general viewpoint on how suppliers quote prices. I’ve seen that a lot of suppliers might throw a lot of their cost into their SG&A and profit, or they might hike up raw material costs from the market without showing evidence of it. So it’s always important to ask for this because they’ll know that you’re doing your due diligence and evaluating their costing. One key strategy that I’ve really used is to leverage awarding new business with price downs, LTAs, reduction in costs, and payment term negotiations. That is the key pivotal time to ask a supplier for and to do your big negotiations. When you say “key pivotal time,” you mean when you’re setting up a new supplier and you’re starting the relationship. You’re saying that’s the most pivotal point to include all of your asks. Yes, but also when you’re awarding a current supplier new business, you’re kind of leveraging that new business with your asks too because you’re giving them some more sales numbers, but you want to get something back from that as well. So it’s a really, really good time to ask for that, and I’ve seen that that’s worked a lot of the times. I feel like what you’re saying makes common sense, but it is harder to do if it’s a single-sourced item or part where the supplier knows that you do not have an alternative, and they have leverage. So what percentage of the items that you source do you have alternative suppliers for, and how have you gone out and tried to source and find alternative suppliers? Yeah, so I think it’s very risky to have a single-sourced supplier or have one supplier for one of your products. I always try to have at the minimum two suppliers per plant. We have multiple plants in different locations. It’s extremely risky if you only have one supplier, and I try to do a 70/30 split.

So I obviously have my main supplier that is very, very well priced. They’re very reliable, their quality is high in all of their products, but you also should have that 30 to 35 percent source to an alternative supplier because in an event that a supplier, let’s say, declares Force Majeure or something goes wrong with their business, you are going to be affected as well in a large way, so I always try to get at the minimum two suppliers for each big commodity and plant, and I would argue that you should give some business to all of them. If you have backup all alternative suppliers and you don’t send business their way, I feel like when you need them and you’re in a crunch, they’re going to be less likely to be accommodating and want to work with you. Absolutely, I definitely agree with that, Sarah.

So, what commodity are you most concerned about from a cost perspective moving forward this year? If you had to put your magician hat on and look forecast out through the rest of this year. Absolutely, so this year’s right now is forecasted to be kind of stable in the corrugated pulp and paper aspect and the online in the liner board market. I am more focused right now on my resins and on my aluminum commodities, and so I definitely am making sure I take every quarter looking hap looking at how forecasts may change, looking at areas to ask my suppliers for new negotiations, so and resins are definitely different as well because you’ll have your polypropylene that acts independently of nylon or you’ll have your ABS which very independently of polypropylene, so you have to look at each of those items separately, and so I have my eye on resins for sure this year.

Thanks for discussing how to reduce the cost of your commodities with me, Nisha. Where would you like people to find you if they want to reach out or follow some of the stuff that you’re working on?

Yeah, you can follow me on LinkedIn @NishaReddy.

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 optimal search results, make sure to add “Another Supply Chain Podcast” at the end of your search to ensure you don’t miss a single episode. Make sure to follow this podcast and subscribe to us on YouTube. 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.