What the Duck?! Episode 6 Transcript
INSIGHT-OUT: Learning the Benefits of PO Process Automation with Lindsay Smith
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 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. Today, I’m going to be joined by Lindsay Smith, and we’re going to discuss the benefits of purchase order process automation. If you work for a company that is struggling with inefficient PO change management processes, then this episode is for you. I’m @SarahScudder on LinkedIn and at @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 Lindsay Smith. Lindsay is a solution consultant for the manufacturing division of the software company Insight. I met Lindsay when he was the head of supply chain for the manufacturing company Parpro.
Parpro manufactures a variety of private label products for companies in the aerospace, gaming, telecommunications, and industrial markets. Welcome to the show, Lindsay. Pleased to be here, Sarah. Hopefully, you are feeling a little bit more rested. I know you’ve been back on the road quite a bit, and there have been some crazy travel stories and travel delays from my team. Yep, yep, always good to have a renewed appreciation for being back in the office. So, Lindsay, how did you wind up in supply chain? Yeah, I didn’t plan on that, Sarah. I came at it from an electronics engineering background. I joined Phillips in California, which was very much an engineering-led company, but with about, in today’s dollars, maybe a hundred million dollars in direct spend. Despite the nature of that direct spend, there was a low technical bench strength in the purchasing team, and so I was recruited to augment that team. It didn’t work. The buyers didn’t want to let go, so my role was redefined as a supplier manager for strategic materials. I took that to enjoy some success leading the outsourcing initiative, moved on to Arrow Electronics as Director of Strategic Material Programs – very much a high-growth management role. From there, managed a contract manufacturer before returning into the pure supply chain activity. So why were you drawn to manufacturing? Oh, I suppose it’s in my DNA, you know? My dad spent his career in manufacturing with NCR. But over and above that, it’s exciting. It’s the fulfillment of building stuff, and then you’re never done. There’s always the latent opportunity to build smarter, to build faster. And of course, holistically, manufacturing enables lots and lots of middle-class jobs, right? And there’s the opportunity to make life easier for all the folks on the production line in the blue coats. So, as I mentioned in the intro, you and I met a couple of years ago when you were running supply chain for a manufacturer.
So, when you ran the supply chain for Parpro, what was your biggest direct spend challenge?
Yeah, Parpro was a tier three, tier four contract manufacturer, and that encompasses probably three or four unique challenges at that level of organization: price and cash are critical. Even with a US-based OEM customers, don’t offer any latitude on pricing, so there’s pressure to at least come close to low-cost region pricing. The nature of the activity was very much high mix, low volume, so there’s minimal opportunity to negotiate leverage pricing on large volumes. The sheer velocity, lots of drop-in orders, built-to-order activity, so on the purchasing side, the need for fast responsive execution. And then, of course, plan source make delivers standard supply chain, but in contract manufacturing, you get to add on communication because customers also need the contract manufacturer to accommodate their scrutiny. Ideally, it’s a quarterly business review, but it can go all the way to a daily status of requirements to be communicated back to the OEM.
So, I know that you are an advocate for purchase order process automation. Let’s start with the basics. What does PO process automation mean?
Right, because clearly, it means different things to different people. To me, absolutely, I am an advocate. And to me, purchase order automation means relieving purchasing of the administrative tedium and reverting back to focusing on the core value ad, the things that purchasing was originally hired to provide.
Why is this so important to you?
Well, okay, what happens if you don’t do it? At best, you’re not nimble, and at worst, organizationally, you’re stuck. The organizations have a culture, and they have an envisioned culture, planned culture, they expected culture. Hopefully, they’re the same, right? But the envisioned culture becomes disrupted when supply chain becomes the world’s best firefighters, and it becomes that culture that gets reinforced. When we as supply chain frontline workers are rewarded, our rewards are rewarded for expediting. So, instead of the envisioned culture, now we become we’re rewarding being reactive and doing things that really add new value, which is disastrous, right?
So, you managed a team at Parpro. Tell me about a time when you were there when PO process automation
Yeah, when didn’t it, right? Or people, not the pure process, the PO process automation, okay? Well, the expected automation would be servicing the change recommendations from ERP, and that’s just too much. It goes awry when that becomes a black hole. If there’s no KPI tracking that, then that just becomes something on the to-do list. Then the jeopardy is that the purchasing team are going to focus on what their perceived priorities are. What are people, I’m trying to say, shouting? What are people calling for to get done sooner? You know, if production is standing there saying, “I need these parts on the production line, otherwise my line’s going to stop,” then you’re going to work on that versus ERP is telling you, “Hey, demand changed for one quarter out and we need to cancel these orders to avoid bringing in inventory that’s going to become slow-moving and obsolete.”
So Lindsay, this seems like a no-brainer to me. Of course, we want to do this. Of course, as a supply chain leader, we don’t want these challenges to happen, but they do, and they happen a lot. So how did you go about putting a PO automation process in place? Okay, no secret. That’s the standard digital transformation continuum. Let’s have a clearly defined vision around a compelling business outcome, like all ERP change suggestions are processed within five days, and we enjoy reducing reduced inventory and fewer line stoppages. You know, once you have that clearly defined vision, then communicate it. Communicate it broadly across the organization. Recruit an executive sponsor, usually a VP of Operations, if not the division manager, president himself. Brainstorm range of opportunities that are ways of doing this, and then that can be an encompassing activity, right? That draws the larger team in because you don’t want to do a one-person effort. Prioritize the opportunities, identify which of the best few you’re going to focus on, build a proof of concept. Let’s test it, right? Let’s test it for one project, let’s test it for one commodity, let’s test it for one supplier, and make it a visible proof of concept that we’re going to broadcast throughout the organization. You know, then take the baby steps and see where it goes from there. Demonstrate success.
When should somebody automate their purchase order processes? Like at what stage, what cycle, what point in the maturity of a company should this become a priority? Yeah, when’s it not a priority, I guess. When you’re getting started, any organization that’s established, any organization that’s working to a standard routine, any organization that wants to do better, any organization. You know, where’s the red flags? The red flags should, if you, in the absence of an insightful vision, right, use the red flags. What’s not working? What’s frustrating the leadership team?
So if the leadership team is frustrated that hey, every year we get to write off x tens of thousands of slow moving and obsolete inventory and no one can explain why it’s here, our HR’s complaining that every year we have our turnover of supply chain team is above the norm, and employees on the exit interviews tell us they’re frustrated with the manual steps of the process.
Or if there’s that gap between what’s being what’s expected and what’s being done, that of course, that’s when you should augment. What role does data play in all of this? Well, it’s foundational, right? So yeah, and it can be a bit of an obstacle because maybe we have to go backwards, right, because we can’t automate without data hygiene being in place. So we’ve got to scrub the baseline data, and that may mean scrubbing our supplier module in the ERP to make sure we’ve got correct contacts, to make sure we’ve got the correct email addresses, scrub the open order report, there’s a good one.
You know, you run the open order report and do something that show me all open orders more than more than choose choose a silly number more than 90 days old, and you go to the buyer and say, why is this in the system? Oh, don’t worry about that, everyone knows that’s not real, and we’ll take it. Okay, well, let’s clean it up so that we can, because you can’t clean up, you can’t automate until you’ve got a good data baseline to work from. So, and from that side, it’s good because all the nonsense that stops other standard can’t report from running it all gets purged out the way. Data’s always our friend, it takes the motion and the subjectivity out of the conversation, and it helps us focus on the right thing.
You know, and the right thing can be is often clouded amongst a whole bunch of whole bunch of facets, a whole bunch of perspectives. You know, purchasing is not responsive enough, now the data says, well, the buyers place 100 new POs a week, is that enough? And we can track that with a KPI. We should always pair up a KPI to the current frustration in the organization or perceive frustration, right? Purchasing pays too much, how many times do we hear that, right? So measure PPV to standard cost, do it by commodity, do it by project. That’s that, look at what the number is. Freight’s too expensive, we spend too much money with, how often has buyer been received a snarky comment from a supervisor because we used FedEx overnight to bring in something? Well, all right, what’s our budget, and what’s our KPI? Typically, I’m used to working with inbound freight being 0.2 percent of direct spend, so provided I’m in there, maybe my good suppliers are going to pick up my for my display, sorry, my established suppliers, where I’m where I do have a chunk of business, maybe I’ve managed to negotiate free freight ostensibly, and maybe other times when something’s changed, and I need to schedule changes, and I do need to expect, well, it still falls under the 0.2 budget. And then of course, your favorite, Sarah, right, but purchasing doesn’t respond to ERP change recommendations, all right, let’s quantify that, let’s use data to quantify that’s very simple.
How many change change recommendations are there? How many expedites, how many deferrals,
how many cancellations, and how many dollars tied to that?
And the that’s where the SourceDay becomes priceless because when you’re trying to justify that type of automation, you know you’ve got a hard ROI and a software line, and here’s a hard ROI around slob inventory around line stoppages due to exploit recommendations not being serviced, as well as excess inventory and higher inventory levels, lower infantry terms due to deferrals not being a process. So you know, putting data provides the lens to cut through all the clutter.
So you just mentioned several KPIs, what did you prioritize?
Good question, and this is where one of my irritations with quality organizations working under an iso umbrella in manufacturing that oftentimes quality tells supply chain your KPIs are on-time delivery and percentage of proof suppliers and first-pass yield. Okay, well that’s all good stuff, right? That’s foundational, but really what quality is saying, that’s the minimum level. If you want to get real about this, you have to look at brainstorm a list of 20 or 40 KPIs, or just google it, KPIs for a manufacturing organization or manufacturing supply chain, and then tailor them to the situation. So to answer your question, ParPro worked in a built-to-order contract manufacturing role, so the needs were to receive the order, process the order, regenerate MRP and generate net demand within 24 hours, and then secondly, generate a scope, the new buy requirement for that project scoping in terms of new buys, and with the expectation that ninety percent of new buyers would be placed within five days. And of course, then we cheat, because we’re smart. The buyer buyers always have a great intuitive ability, so of course, on day one, we buy the long-lead parts because once you’ve got the long-lead parts covered, then all your short-lead parts can be purchased within that window. So, percentage of new buyer new buy recommendations purchased within five days, that would be one.
What’s a long-lead part and a short-lead part?
It varies, right? It varies, every supply chain is unique, some of them are amazing, right? You know, in the semiconductor world, six months ago, we were hearing about six, nine, and twelve months lead time for some of us. It depends, it’s relative, you measure it relative to the customer expectation, and that’s when you start hearing words of frustration about people saying, “Well, that’s unreasonable.” That’s where you know what the conversations become emotional versus the conversational being data-based, objective, and pragmatic. So if the long-lead part is anything that’s going to come right up against the expected delivery date, the agreed-upon delivery date, regardless of the agreed-upon delivery date being five days, ten days, or a year, anything that’s going to come up close to the manufacturing bill cycle time and the shipment time and the QC time and the first article check time, if that’s maybe a 10-day window, then a long-lead part is anything that’s going to start intruding into that area, and it’s interesting, right? For years, Sarah, the world-class manufacturing folks have been saying, “Don’t waste manufacturing’s time with low efficiency trying to build something if you don’t have all the parts,” and yet last year, we saw the big three, Ford and General Motors, building not just one or two or a thousand, but tens of thousands of pickup trucks because they all had parts waiting for a single integrated circuit. You know, that’s just absolutely amazing that some of America’s greatest manufacturers, the world’s greatest manufacturers, right violated that rule because there was a long lead part. There was a complete disrupter to their what was the choice shut down the factory send employees home.
So, one of the things I really admire about you is you seem to be a champion for technology. How should companies determine if it makes sense to use technology and software to help with purchase order process automation? Because not everybody is open-minded to it. Executives are worried about change management; it’s not in the budget. So, there’s a lot of pushback and challenges at some organizations. Yeah, rightfully so. Rightfully so, I mean one of the things that the smart guys over at databricks say is that, for the most part, the explanation for the skepticism in the manufacturing industry of automation and change is that for years, their aspirations have exceeded the ability of technology to deliver. So, there’s all this latent frustration in manufacturing. To automate or not to automate, you know? The Joyce Mullins, our CEO, says, “Break the opportunities down into ROI and soft ROI, and maybe it’s a combination, and maybe it’s one or the other.” The hard ROI is easy, right? You know if I’m sitting here, I don’t know how many times Sarah I’ve sat in a year-end meeting with finance leadership being asked to explain a $100,000 or $200,000 inventory write-off of slow-moving and obsolete infantry. And part of the frustration of the conversation is the responses that go back to finance – all the anecdotes, the stories, the espoused ignorance – “Don’t know how it got here,” “Oh, yes, that project was cancelled” – as if that’s an excuse. The point is that, yeah, there’s a hard ROI for you that if you’re writing off that amount of material, then PO automation is a no-brainer for a relatively small cost, right Sarah? As self-doubt, you know, how do we feel? How do we expect and how do we expect to attract enthusiastic new talent into the supply chain space if we tell them, “Oh, wait, by the way, forget all the things you learned that either you have inherent to you or were still, if you went and did the supply chain degree program at the University of Michigan, forget all that because we’re going to have you do a bunch of manual steps?” versus being able to say, “Because we recognize your role as being significant and as an organization, we want to invest in you. We have, in addition to our world-class ERP, we have this app layered on top, and what it’s going to do is filter through the ERP change recommendations and automatically send them to our suppliers and have them automatically send them back. And your job is just to keep eyes on that and also just to watch the outliers.
So most likely, you probably know better than me, Sarah, but I’d expect 90% of it to happen automatically now. So now the buyer only has to work on the 10%. So in terms of, you know, how should companies determine that, you know, there’s a wonderful soft ROI, and if they’ve got a problem attracting key talent or retaining them, then here’s a way that we can invest in the employees, so there’s a great soft ROI return.
So the focus of our interview is on purchase order process automation, but you just brought up something that I think is really important to touch on, and that is attracting and retaining talent within a supply chain organization.
Why is supply chain employee retention such a big problem this year? You talked a little bit about from a technology perspective, but there’s a lot of other factors at play as well.
Yeah, so there’s a couple of things going on, right? And it gets lost in the macro. The macro metric was, I think, the Department of Labor says one in four people went and looked for a new job last year. In manufacturing, it was actually more. Manufacturing got scored at 31%, so 31% of manufacturing employees went and looked for a new job last year. And they didn’t. It got caught. I think the mass resignation is a little bit of a misnomer, right, because it was a mass change.
So people are switching to a job that they perceive as more flexible, is either better paid or has a better environment. So once the workforce has that perceived flexibility, there is certainly less patience to stay in a job that’s frustrating because, make no bones about it, it’s incredibly frustrating for a buyer to try and do the superhuman effort of, “Okay, let’s look at my ERP change recommendations. You know that guy Lindsay told me I had to do them again this week or reminded me, so, oh my goodness, I’ve got 240.” So, I do a mammoth task and I sweep through, and I get, choose your number, 90 done. MRP regenerates and I get 100 more. You know how soul-destroying is that? It’s like the guy rolling the rock up the mountain, right down the other side, and rolling it up again. It just never ends.
So, you know, very important, and we want to attract the millennials. They have new skills and talents. Contemporary education is promoting a higher acceptance for digital transformation in general. So we want fresh blood. We want new perspectives. We want new energy. We can’t constrain ourselves with folks that have been beaten down and become complacent.
You mentioned millennials. Maybe I shouldn’t have. What skills should supply chain leaders be looking for when hiring new supply chain team members that are going to work in manufacturing and in the direct spend space?
Curiosity, willingness to learn, and collaborative. Great to have. Certainly avoid anyone within, like me, with an ego. We want to be able to bring in folks that can work a problem in an open collaborative way. Yeah, focus on the outcome, focus on the process, take the individual out of it.
When prepping for our interview, you and I spoke about something that I want to make sure that we touch on. You talked about your frustrations with presumptions that problems are the buyer’s fault and then call the call the source date team and see what they can do.
What did you mean by this? So, I’m okay.
I’d hoped I’ve talked around that, but you’re glad you came back to that. So, it’s the cheap shot, right? It’s, it’s go. Let’s go find a victim rather than do a process map or rather than do a walk around or rather than pull together a team and brainstorm the issue. It’s so much easier to say all purchasing didn’t process the change, our purchasing was too slow. That, you know, they overlooked that a recommendation had been in the system for two days or five days. So, yeah, it’s too easy to blame the buyer. That’s you if that’s your excuse for mediocrity, for not driving exceptional growth, then you haven’t looked hard enough. You know, you got to systems, process, people, and let’s in a complex process. The I once had a rule of thumb, I think from one of the world-class manufacturers, that they look for at least three root causes, and the training’s never allowed to be one of them. It’s got to be beyond that. The I think realistically, in a complex process, 8, 10, 12, quality doesn’t like that because now you have to have a corrective action for each of the 12 if you’re going to be serious, so that you have to embrace things being broken. You have to embrace things not being as good as they can be, and that’s a moving target. You know, the rate of change in the world clearly has shifted to some fairly significant macros in the last two, three years, so we’ve got to be all over this change management.
Number one piece of advice you would like to leave our listeners who are wanting to get better at purchase order process automation?
Yeah, don’t go, okay, great pivot, to get better at it. Don’t try and build up on yourself. Certainly, be a catalyst, certainly be an instigator, but recruit support from the broad organization in some way, for sure. There’s a quality department that’s chartered with driving continuous improvement or managing real KPI. First, finance finance are very clever powerful people in the organization. They don’t like doing big write-offs at the end of the year. I once had a Texas CFO I asked her, “How did I avoid making the same mistake in the organization that my predecessor had made?” and her response was, “Not mismanaging work in process that caused me to have to restate end-of-year financials would be a great first step.” And what she was talking to basically ties to a process and a KPI, so advice is you recruit people who are aligned with your cause. So finance doesn’t want to write off material. Quality quality doesn’t want to hear about chaos on the line. The production manager, the production team, they don’t want to hear about parts being missed from kit builds or jobs. And of course, if the organization’s at a level that they have continuous improvement teams, six sigma teams, digital transformation teams, absolutely get on board with these guys and at least get on the list of, “Here’s the list of alternatives,” and push them back and say, “Hey, you know, yes, I understand you think I’m just pure automation, and you’ve got 10 other projects ahead of you, but mine ties to 300 thousand dollars in slow-moving and obsolete inventory right off per year, and I’ll be happy to let’s sit with the CFO and see how high he prioritizes that one.” So yeah, bring in friends, put together, define what success would look like, and tie it to a KPI so it’s tangible. Put together a little mini plan and just a few lines of what it is you think you’re going to do get an executive sponsor. If people want to check you out, where do you want to send them?
Leave me alone.
So yes, happy to. One of my personal values is to help anyone who asks. So certainly Lindsay Smith on LinkedIn and Lindsay.Smith@insight.com, happy to talk about digital transformation any day of the week. Thanks for sharing the benefits of purchase order process automation with us today, Lindsay. 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 @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.