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. Thank you 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 the supply chain. I’m @SarahScudder on LinkedIn and @Sscudder on Twitter.
Today, I am going to be joined by three manufacturing supply chain experts. We have Vineetha, David, and Denise. All of them have extensive experience in the industry and have lived through their fair share of nightmares. So I’ve asked them to come on and share some of their biggest train wreck craziest stories.
So, Denise, I am going to start with you.
Absolutely. So first off, thank you, Sarah, for inviting me to this prestigious and experience-filled panel. I’m just so thrilled to be here. Hi everyone, my name is Denise Sena. I’ve been in the life science Biotech Industry my entire career. I’ve spanned over many different Industries such as Pharmaceuticals, vaccines, Animal Health. The lion’s share of my experiences in supply chain. I have a couple of years of marketing, so my forte is end-to-end supply chain. It’s great to be here.
Thanks Sarah. So, David Berger, director of America’s procurement strategy for CBRE, a real estate conglomerate where we have a lot of supply chain and manufacturing companies. I’ve worked in procurement and supply chain my entire career, worked a lot in heavy manufacturing as well as a lot in consumer products and a little bit in life sciences as well.
So, Vineetha, would love to have you introduce yourself, and then my question to key up your first train wreck story is to tell me about a time when you unexpectedly ran out of stock for a critical hardware component due to high demand.
Thank you, thank you, Sarah. First of all, I feel really honored to be on this panel with Denise and David and to learn from their supply chain experiences as well. I work in direct materials procurement. I’ve been in procurement supply chain for the last 10 years. I started my career in supply of development procurement analytics for a pressure-sensitive materials manufacturing company, and from there, I moved on to category management for the last eight years within direct materials, mainly metal processing-related categories. So, you talk about castings, machining, sheet metal fabrications, extrusions, roll forming. So, that’s basically what I manage. So yeah, going back to Sarah’s question, quite often we find, especially in the last three years, where we do have cases where hardware components or any small components that go into critical assemblies, right, there’s always a shortage of that. And in some cases, the reason for that is usually unforecasted demand, right? So if it is forecasted demand, you know that you can always have a stocking agreement with the supplier, you can always prepare for that internally with the safety stock, you know, you could always add on for a buffer stock. But what happens when you get an unexpected order or an unexpected, you know, volume comes in that you are not prepared for, which wipes out all your internal safety stock, you know? And that’s exactly what happened, and we had to meet the customer lead time. The customer lead time is already promised, right? So if, let’s say, it’s four weeks, then what do you do in those situations? And so that has always been a point of contention for us. So we go back to the supplier, the existing supplier, and we say, “Hey, we want to know if you have any stock available.” And in case they do have a stocking program with us, we may have already consumed all of that stock. It’s going to take them some time to reorder that material or those parts again, right? Or make those parts again. So that was the first step, is to go back to this current supplier and understand whether they had any stock available. The second step was we looked at, you know, whether there were any off-the-shelf parts, you know, because most of these components are usually custom components or made-to-order components. So whether you look at off-the-shelf parts, you know, are there any substitutes that could be used in those assemblies? Or of course, you know, we look at dual sourcing, right? We look at other vendors or any distributors. If there are off-the-shelf parts, then you look for other vendors or distributors. But I think the biggest learning for us was, you know, what worked for us was, you know, we looked at other off-the-shelf versions, and we went with an off-the-shelf component that could meet the needs of the customer. You know, we went back to the customer, and we said, “Hey, would this work?” And they said, “Yes, you know, this will work for us.” So that’s how we solved the problem. But the biggest learning for us was, because this is a one-time order, right? Because it’s not going to happen again and again. So it’s very hard for us to go back to a supplier that we have never worked with and say, “Hey, we need you for this one-time order, and that’s it,” right?
So that’s where this question of transactional relationships makes a big difference, because you want to build relationships with suppliers who you may not necessarily do a lot of business with, you know? But you want to go back to them whenever there is a need, and there is an understanding between that supplier and you and the company, right? That there is going to be these short-term orders that you’re going to be getting a couple of times a year. So those transactional relationships with suppliers are also very important, or transactional suppliers are also very important.
So I think that’s the key learning from that, and, you know, that’s how we met the customer lead time was looking at substitutes or off-the-shelf versions of this critical part. We could, you know, convince the customer, and even though we didn’t meet the lead time of four weeks, we still got it done in six weeks. But the contingency plan was making sure that you had, you know, a dual sourcing or maintaining a relationship with a supplier that you don’t normally do business with. So that is my story. David, any or Denise, any experiences with off-the-shelf substitutes as well?
Yeah, well, the same, similar, similar to the same company I was mentioning, the energy manufacturer, we constantly had to deal with substitutes, but everything had to go past an engineer because it has a highly controlled environment, so they would spec out their preference, but we would have to get creative when we couldn’t find parts. So we’d have to, particularly in the areas of fasteners and whatnot, you know, a lot of times those things are acceptable, but you know, we would buy highly engineered components to our specs, but sometimes we’d have to deal with the substitutes. And just to add, you know, I hear supply chain folks were very operational, we’re very efficient, right? But we’re also very creative. Think about it, we’re problem solvers, right? So I love what you said, many times, if we had an overstock of the 20 milligrams and a back order on the 40, it seems pretty easy to say, “Can you take two of the smaller ones?” And typically, the supply chain team that’s offering that solution, right, are the stoppers. To your point, David, or anything plastic during COVID, there is no way that you could get your hands on. So what could you do? And we relied on our procurement team to, which thankfully, they had engineering degrees as well, could help us with the chemicals and the materials in the bags to help our quality team says, “Yes, you can use this substitute.” This is always a team effort, but I love the creativity and the problem-solving that supply chain brings to the organization. Good point, yeah. I felt like when I was in that role, I felt like I was a procurement professional, but I was also in sales, like walking down the hall to the engineers, trying to convince them that this product was acceptable, too. Yeah, yeah, I’d say, I would say that if you want to go in supply chain, you should do a six-month rotation as a sales rep. It’s no longer just marketing. Absolutely.
I remember when I first joined my company, in my first company, years ago, eight years ago, I walked down the aisle, I could see all these mechanical engineers, and I’m not a mechanical engineer, so I had to really know how to read drawings and things like that, which was very new for me, coming from a supply chain operations research background and getting into heavy industrial manufacturing. So I completely echo the thoughts of what Denise and David said.
I’d like to have you share a time when you had to get really creative to address some supply chain demands. So, I think back a little bit to the early part of my career. I was working for a large manufacturer that basically built equipment for power plants, and the whole nature of that job, we always had to be creative. So, we supported a service-based industry where we basically took down the power plants and serviced and maintained them, and for every hour that we would take them down off of operation, it would cost literally hundreds of millions of dollars. So, we’d service equipment and we would stock and have as many parts ready to go as possible, but undoubtedly, there was always circumstances that you can’t plan for, and you know, literally spare no expense, do what you can to get the part. And so, like, we as a team would, we’d have a pager that we’d rotate and carry, and whoever was on duty would have to make things work. So, you know, I’ll give a couple of examples, but I mean, like first, we would, you know, when we turned to our manufacturing plants and say, “Hey, could you make this?” And a lot of times, they couldn’t, but you know, we would often turn to our suppliers, ask them to work on a weekend, work overnight into the wee hours, and I, we literally would have to charter planes to make it work. You know, so like, we didn’t care about price because literally, like I said, every hour was costing us hundreds of thousands of dollars. So, I chartered a plane from Philadelphia to take a part down the Mississippi once, but I mean, that wasn’t a regular thing. So, I guess the message is, prepare to be renewable. It’s not always about price, and just do whatever you can to meet the customer needs and demands. And it just gives you a much different lens on things when you’re talking about the energy supply of this country and the potential impacts and costs that would be, you know, so that was a much different dynamic. Like in that organization, it was less, like I said, less about price, more of just get the parts there, deliver.
David, looking back, and Denise and Veneetha, feel free to step in if you have a presentation on his story as well. Looking back, what would you have done differently so everything wasn’t such a fire drill? I mean, the only thing I can think of is we probably could have done a better job with forecasting for these service averages. So, knowing what we were going to bring down and trying to keep it in stock or keep it on the ready. The challenges that we were supporting equipment that’s, you know, sometimes 50, 60 years old, and you can’t just talk for everything. But I do think we could have, within our systems and our processes, we could have done a better job with planning for that and to have more parts stocked. And, you know, probably also have communicated with some of our suppliers and have them on the ready for potential part mixes and whatnot. Yeah, I know I’ll just compliment what David said. I’m a big believer in sales and operation planning that brings together different teams to draw consensus on the safety stock metrics, whether it’s just in time or just in case, doesn’t matter, but there’s an agreement so everybody knows. And I love David, what you said about creating that dual sourcing strategy and building the relationship with the sourcing team and the suppliers so when you need something, they’ll be there for you. Yeah, yeah, I mean we would turn internally first to see if our manufacturing plans could support, but often, you know, they couldn’t, and we’d have to rely on our suppliers to help save the day. Yeah, I agree as well with what Denise mentioned because I think it’s important to have relationships with transactional suppliers, you know. So most often, we try to build relationships with suppliers for regular orders and regular demand, but in some cases, it’s always important to have relationships with suppliers who you can go to once or twice or a couple of times a year instead of having that regular relationship with those suppliers. So, those transactional suppliers are also very important, I feel, in the supply chain, especially when you have unexpected disruptions like this, right, where you’re struggling to find another source or you’re trying to fix things internally. So, definitely.
So, Denise, I’d like to have you now share an experience where you had to recover from a completely inaccurate forecast and successfully adapt. It seems like inaccurate forecasting and planning is kind of a theme today for some of our stories. Oh yeah, yeah, my gosh, I have many of them. I had a hard time selecting just one, but I think one that is really relevant is I dealt with life cycle management, launches, mature products, and also sunsetting projects or products. And it was at this juncture that we had a sunset of one of our products, and it was going to compete with generics. We were going to actually ask another CMO to manufacture this white label and sell it as a generic. I think what happened was for six months, we actually just clipped the forecast. It just started to decrease, decrease. The supply planning teams were kind of hanging up their apron, manufacturing just didn’t tool anymore, and we were just slowly stopping to produce. We would present at the IBP/SNOP, “This is the forecast, this is the health of this product, everybody’s on top of it.” And there were many moving parts, and I remember talking to our U.S. marketing team too, and they’re like, “We’re all on track, everything is going great.” It was probably three weeks before LOE, the loss of exclusivity, when one of the planners said, “It’s not going to happen. The CMO is not ready. They did not get GMP approval.” And so, we still have to deliver this product at the same volume that we did six months ago, which is, it’s that six-minute mile again, right? And so, it was unexpected. It was a breakdown in communication, not only in the planning team but throughout the entire organization. It was something that was presented to our C-1 that we got this, everything is fine. So, how we had to recover is we had to rely on our supply planning team to put pen to paper. They had to reprioritize, they had to move the lines around, they had to bring in a second shift in our Switzerland manufacturing plant. They explained the situation over and over again to our manufacturing team, and it was a success story again. We all pulled together from a patient-centric mindset to then make three months of stock within a matter of three weeks, and we were able to get the product to the patient. However, we also had to say, “What went wrong? Why did this happen? Why did we have to expedite? Bring in a different shift? What was it?” And it really was all around the communication and roles and responsibilities, right? They thought supply chain had it, supply chain thought marketing, marketing thought the patent attorneys had it, right? And so, just having that relationship, to what Vineetha was saying before, when you have that relationship across the organization and you’re cross-pollinating, people are vested in you. Like, they want to help you. So when you pick up the phone and say, “Uncle,” they’re there, right? And so, I think that’s what really helped us recover and make a seamless delivery to our patients. David or Vineetha, any thoughts or comments on her experience and the power of communication? I think it goes a long way.
Yeah, no, I would emphasize that. I mean, I think the biggest, what I mean, people always talk about, like, you know, hey, the technical aspects of things and pricing and whatnot, but I’ve seen too many circumstances where things fall down just because we haven’t communicated properly. The right hand doesn’t know what the left hand is doing. And I also want to emphasize emphasis as well, you know, to Denise’s point, you know, their communication is critical, but also it has to be very transparent and it has to be very clear because oftentimes we kind of assume a couple of things in the relationship, you know, that this is taken for granted, okay, the supplier should already be knowing about this or a commercial team should already be knowing about this. So it’s important for that alignment to happen so that there is no miscommunication in such critical situations. I think that is very important, in my opinion. That is a really good point. I think even when I look back and on it now, like, we knew the strategic imperatives have changed. We were also launching two biologics, and we knew that all the resources, all the energy, it was really sexy to be on the biologic launch. It wasn’t too cool to be focusing on an LOE because we knew that in the back of our mind, but we didn’t know what does that mean. We couldn’t translate it. And so that’s the translational piece, that business acumen that we all bring to the table if we can connect the dots. So, in addition to being creative, right, we’re also connectors of the dots.
So, David, you have a story about some train wrecks and disasters that happened dealing with mergers and acquisitions? Yeah, I definitely have a couple of stories. I don’t know if the first one is a train wreck, but it could have been. So, I was working with a large Fortune 500 Aerospace and Defense government contractor. They were in talks to acquire a large division of another DOD company. We were brought in as a procurement organization to help negotiate transition support agreements. What that is, is basically to ensure that our top-tier key suppliers, like our tier one, tier two, and tier two suppliers, would honor the pricing. Because, you know, hey, we now have a new contract with a new supplier, and a lot of times our suppliers will use that as an opportunity to stick it to you or raise the prices. But the merger was contingent upon that, from the financials, that we would be able to successfully continue with the supplier pricing that was in place. So, we, over the course of a month or two, had to negotiate with about 200 suppliers, setting up these transition agreements. We were reporting out to the executive leadership on both sides of it, both companies. So, very high visibility, and people’s jobs were at stake. They say whether the merger was going to go through. It was at stake from negotiating these agreements that I will say, thankfully, we did a good job, and the merger did go through. I guess the other, just to add to it, another quick example of a kind of merger and acquisition interesting story was, I was working with a life science manufacturer. They had grown by acquisition but had never taken the time to invest in their systems and processes. So, in the manufacturing plant, they literally were running three different ERP systems for their forecasting and procurement. It was, put it bluntly, a nightmare. So, finally, the company decided enough is enough. We went on a large Greenfield ERP implementation to consolidate things and make our workforces’ lives a little bit easier. And we were going all along the path, probably a year into the project, and then we find out that we were acquired. So, all our work was basically canceled and discontinued because now we were about to be acquired. It’s just interesting how mergers and acquisitions can have such a drastic effect on operational… it’s not simple switch and there are people that have staked and made their careers and lost their careers on M&A. Hmm, neither Denise, have you either of you lived through mergers and acquisitions? I’m assuming Denise you have because I know you’ve worked for some pretty big companies.
I have, David. I love that story, and Sarah, thank you. I appreciate it. I was fortunate enough to execute on the strategy of the acquired company. So, I worked for one company that had a blockbuster drug in cardiovascular, and it was cheap to make. It was a pill. It cost like three cents to make. So, we kept tons of inventory throughout the entire value chain and whip and raw materials. We had manufacturing sites all over the world. The forecast accuracy was close to 98, if not 99 percent. When we got acquired by the new company, they said, “Why do we have all this inventory if we have such a high forecast, right?” And so, with the acquisition came new ways of working, came new strategies, came new ways of working together. So, as a value stream leader that I was responsible for the end-to-end, we had to cut that. We had to move into, at that time, the just-in-time was very, very popular of slimming down the inventory at different nodes, reducing the cycle time, finding out where the gaps are, why do we bring the boat to Switzerland if it’s going to Germany, right? Tax reasons, right? So, you have a product flow, you have a financial flow, and it took about 18 months, something like that, to bring it down to meet the strategic imperatives. But I have to tell you, doing the just-in-time approach, in many, many years that one product, first time ever, had an administration hold, which means something happened at the manufacturing site that they had to hold production. So, here I’m reducing the inventory down to just in time, we’re implementing a continuous make model, and now we got to shut it down, and there was panic throughout the organization. But luckily, we didn’t slim it down to the point that we couldn’t recover, but that actually happened twice in one year when it hasn’t happened at all within like 20 years of making this product. But it just goes to show, I think, David, you were talking about the agility, the nimbleness in the supply chain. So, it really doesn’t matter how much stock you have. If you’re nimble and you can turn on the diamond, you can react quickly, that’s the most important part. So, the acquisition, you know, and the strategy worked out to be successful, but I did get a few gray hairs out of it, for sure.
Denise, David, Veneetha, thank you for sharing some of your train wreck stories today. I encourage our listeners to reach out to each of them on LinkedIn, follow what they are doing.
Thanks for tuning in today. 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.’ This brings us to the end of What the Duck?! Another Supply Chain Podcast. I’m your host, Sarah Scudder, and we’ll be back next week.
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 the supply chain. I’m @SarahScudder on LinkedIn and @SScudder on Twitter.
Today, I’m going to be joined by Dave Alexander, and we’re going to discuss how to deal with transit delays and price increases for direct materials. If you work for a manufacturer and are looking for some better or different ways of handling transit delays and price increases for your direct material purchases, then this episode is for you.
Dave began his supply chain career a little over 40 years ago. He started off with an MRO category and has since transitioned into international raw and finished goods. Welcome to the show.
David, thank you.
Sarah, thank you for having me. I am in Austin this week, and we have a little bit of a crazy storm on and off, so I hear some really loud rain in the back. If you hear thunder and lightning going on, that’s why. I’m also in sleep recovery mode. I was at the SIG conference last week, so it’s kind of a thought leadership industry conference, and my industry friends and I rented a house in Sedona after and did a ‘Girls Gone Wild’ supply chain style. So if I’m dragging or looking a little tired, that’s why. No worries; you look great.
So, Dave, I want to go back in time and talk about how you ended up in manufacturing.
Sure, I mean, long story short, I, first of all, I didn’t know, you know, what to do after school, and you know, as far as, like, work goes, and I didn’t have a, a target on what I wanted to do, to be honest with you. As you know, business is very broad, so it’s, you know, what I was going to end up in is, you know, TBD. My father was, is in manufacturing, he’s in supply chain, over, you know, 10-15, you know, years, roughly around there. He said, ‘Give it a shot, you know, this is how the business works, I think you’ll like it, it’s very upbeat, it’s never a dull moment, every day is different, you know, just give it a shot and see where you know, goes, and if you don’t like it, take it and use it to go somewhere else.’ It’s like, ‘Okay, sure.’
So, you know, long story short, I applied for some places, and I landed my, my first job in a manufacturing facility, Dexter Magnetic, and from there, I started off as an MRO buyer. So essentially, over there, I was hired to save them at least 20% cost savings, as far as what they currently had on, you know, on their inventory list and what they were currently purchasing from. So I had to essentially implement a cam band system, which was, you know, again, I didn’t know exactly, you know, where to look or how to even start this, so this was all pretty much playing it by ear. So I started off doing that, implemented a system as far as inventory levels and replenishment levels, and then I went up from there.
So for those, so our audience is people working primarily for small and midsize manufacturers, most are on the direct side. What does MRO mean and how do you even go about tackling price savings at the level of 20%? That’s a pretty significant reduction, and there’s a lot of in-between-the-lines gray areas when you look at cost savings. So we’d love to have you kind of deep dive for us.
Sure, so yeah, so 20%, yeah, it was huge, but the way they were purchasing was also a huge issue, and that’s what kind of led to, you know, it could be done. It wasn’t like something that, you know, everything was in line, and there was implementation and there was, you know, min-max. There wasn’t any of that, so it was just kind of the Wild West. So when I first got hired on over there, everything was sent by replen or requisitions. So I would get an email saying, ‘Hey, need this adhesives, I need 10 units from McMaster or whatever the supplier may be, and I need them by, you know, X date.’ Well, we didn’t have any inventory, so I was just ordering one-off for everybody in the whole building. Yeah, so it’s almost like just-in-time inventory management by default.
Yeah, yeah, and there’s constant runouts, there’s constant delays, there’s constant stoppages because they were just ordering for what they need for that day or for that week, whatever it may be. So there was no, there was no essential forecast for, for MRO. Essentially, at least where I’ve in my experiences, it’s based off of EA, so annual usage. What are they going to use for the year, and that also determines, okay, you know if it’s adhesive, there’s expiration date, so I got to be mindful of that. There’s also, you know, things that are perishable that could be, you know, broke, that can be misplaced, you know, there’s people take stuff home, you know, there’s a whole bunch of intangibles as far as what can be done as far as getting a proper usage and a proper on-order material.
So for me, so what I did as far as the cost savings aspect was I figured out okay, what are you guys using for the year? What jobs do you have coming up? And based off that information, I would just get what they were purchasing from.
So, EXA, I had to build contracts with MSC, who is, you know, exactly, essentially like McMaster-Carr, but a little bit cheaper. There’s a little bit of cost savings there. And then I would buy in bulk, I would buy for the, for you know, two months, three months, depending on whatever the job may be. If it’s adhesive, it’s a different story because, again, there’s expiration dates that I have to be mindful of, but I would just buy from wholesalers and I’ll buy in bulk. And then, implement a Min and Max system.
So from there, after once I got the material, we figured out, ‘Okay, we should be around this, you know, amount by, you know, February if I was ordering, you know, two months prior, you know.’ So then I would just establish it that way. I had them pull out cards, there’s a red, orange, and green card. So essentially, they would, you know, as soon as they’re getting low or they’re getting towards the, like, you know, the middle, I would hit the orange card and I would go do my cycle counting. And if I see any orange, I’ll replace that with, you know, whatever quantity is missing. So there was, there was huge, huge margins as far as what we can do because, again, there was no system in place. If there was a current system in place and they’re asking me to do 20% cost savings, I’d kind of, you know, I’d be a little skeptical. But in this case, it wasn’t, it was the Wild West, so there was a lot of room to play and a lot of room to, to, to grow, essentially. So we did that every quarter. We had to, you know, review what we were, did, what we did last or previous and see where we are now. And sometimes we’d even go over 20%, you know, we’d go over 20%, you know, we’d be in the middle, you know. So there’s, there was a lot of room for, for growth.
Prior to or as I was exiting, they were implementing a vending machine system as well. So that was going to help out, huge, you know. So at that point, it was, you know, it was pretty much set, you know. It was just figuring out what jobs are coming up and what we have to order, what we need, you know, given if we have inventory or not to get the ball rolling.
How did you ensure data accuracy? So, I know one of the challenges with organizations when they’re buying two, three, four months at a time, which can make a lot of sense from a cost-saving perspective, you also need to make sure that the data that you have is relatively accurate because you’re basing your ordering off that data.
Exactly. So, it’s never going to be accurate, just, period. It’s never going to be 100% accurate, just like forecasts. Forecasts are never going to be 100% accurate. You can get very close, but it’s never going to be. So, essentially, cycle counting for the MRO field, especially, making sure your cycle counts are, you know, by month, you know, especially if you’re managing, you know, if you’re managing not as big as a warehouse, it’s easy for you to do inventory levels. It’s easy for you to freeze the system, get the inventory leveled, and then reconcile that back. You can get as close as you can. Luckily, I didn’t have, I worked very close at the time when I was working in manufacturing. I was very close with the warehouse. I was constantly in there. I knew what was coming in, I knew what was going out, I knew what was my high movers, I knew what, you know, what usually stays and what I need to monitor. So it was easy for me to do that.
But coming into the distribution world when I’m buying for 14 different locations, you know, that’s a, that’s a different story. We can get into that if you want as well.
So, in this MRO role, you came in, it sounds like you established quite a bit of process and ordering in bulk to help reduce pricing. And then you transitioned into a new role, and I, I think it was at a different company, into handling international raw and finished goods. So why the change? Why did you decide that you wanted to take on a different role?
Well, actually, I was hired to do an MRO position over there. So I, I actually did that. It was an e-com. I was essentially an implementation, so we were setting up an e-commerce site because we’re, we’re, we’re direct material fasteners.
We, you know, we have a couple different customers, that’s all we do is Fasteners, so we were branching out upon me being hired to the perishables, MRO, PPE as an online business. So my job was to see the contracts, review the contracts, see what their annual usages were, essentially exactly what I did over there but just, you know, not on a manufacturing level, and ordering prior to production, prior to us, you know, starting to go live. So we, we got a new facility in St. Louis, we had a new Warehouse where all that material would be stored based off of what I was given the annual usage. I was ordering per that. Again, I was getting a lot of price breaks because we were ordering, you know, for at least three to four months, so I was getting a lot of price breaks, and we were getting the ball rolling. Obviously, when you get a new contract, you’re, you know, the pricing is still, you’re not going to get as, as bad as if a price break, you know, upon the second order or the third order, so I was getting a lot of those. We were loading the warehouse, getting that all stocked up, and then once we, which took a long time, by the way, you know, just getting the warehouse, getting it up.
I’m sorry, what does a long time mean? So essentially, just getting things implemented, so the warehouse, you know, getting that, getting it up to code. We had a lot of regulated material as well that was coming in that needed special certification in order for us to get it shelved. So there were a lot of delays, there’s a lot of things in the way. You know, and then once we did get it set up, we got our inventory set up. We had a lot of, because our system was not meant for MRO, it was all Fasteners. We were buying per thousands, you know, it was a different, so now we’re buying MRO, and it’s per pack, and it’s, you know, per box. My triggers for my buys are coming in, you know, wacky because we’re buying, we buy per thousand, so now it’s asking me to buy, you know, if I wanted five boxes, for example, of nitrile gloves, it’s asking me to buy, you know, 5,000, so it’s just, it’s because it was just wonky. So getting the system implemented to what we were purchasing was huge. And also our warehouse, because they’re receiving it in our system, had huge issues with receiving the material incorrectly. So we actually had to go back. We have NetSuite now, but prior to that we weren’t, so we were in the transition as well of getting a new system. So, you know, we had to work with our team, making sure that our pack quantities are correct per each item and so that a warehouse can receive it in properly, because now our inventory levels were a little messed up. So it was a huge learning curve for everybody. But once we got it set up, you know, to this day, it’s working like clockwork, so we’re still good there.
What about, so you mentioned International, which I think was new based on your previous role. So what percentage of what you were purchasing was coming from the US versus another country?
Sure, so International is a little bit different as far as working with suppliers in many ways. So the first way is I’m ordering, you know, for 500,000 here, you know, a million here versus a domestic supplier, you know, our domestic suppliers at least, we’re not ordering, you know, as much. So dealing with, you know, MQs and dealing with price breaks is a whole different thing. Based on our sales contracts, one of the main things that I’ve been seeing lately is price increases without any, you know, price breaks as far as MQs, and that’s also something that I’m working on now and I’ve been working on based on lead times.
So we’re having a huge issue with our lead times as far as port delays. I’m seeing a lot of parts that are, you know, they’re porting in 28 days, which is, you know, standard four weeks, but then they’re staying in an additional four weeks at the Port, which we’re being charged for, by the way. So I had to increase, I actually had to go in the system and technically increase the lead time for the part because, you know, that’s the, the port delays. So I’m kind of in, in a, in a stuck between a rock and a hard place as far as getting the material in on, on time. The suppliers are shipping on time, but we’re just not seeing the parts until they release from the port, which is another, you know, 28 days. So, therefore, that’s when I am, I’m starting to strip the, the parts from the plate, from plating, bring them in raw. I would create a new part number in the system for the raw good and then get it tested for after we plated it here in the states and we get our contract set up. I would get it tested over here. If it looks good, we send it over to our customer if they agree with it based, you know, based off the circumstances, that’s what we start to do.
So I create a whole new part number, a raw part number, which inevitably turns into the finished good. So I was working a lot with our International suppliers as far as, ‘Okay, you know, this is a part number that we’re buying it at, this is where I’m going to be changing it to, and this is what we’re going to be doing for the next, you know, until this starts to clear up because till this day, it still hasn’t really cleared up. So we’re just kind of, you know, rolling with the punches and just trying to get the parts in as soon as we can. Suppliers can’t change their manufacturing due dates or manufacturing lead times, but we can change our due dates if we get an updated forecast from the customer and stop using our statistical forecasting and move over to a commercial release.
So why the port delay? It sounds like the manufacturers are on schedule, but once they’re dropping them for transport, that’s where the issue is happening.
Yeah, I mean, you gotta, no one knows, but you gotta think of it this way. So once the containers get dropped off in LA, which we most of the time we use the LA ports, if we want to save money, I usually try to have them directed towards the Atlantic and go towards that way. But that’s a whole different story because there’s still some delays there as well, but just not as, not as drastic. So when they hit LA, you have a whole bunch of, it’s first come, first serve. So whatever comes in first, that’s what’s going to be released first. And you gotta consider inspections, you gotta consider, um, or what are they called, our transportation team has a legal document as far as what is coming in and what’s coming out. If the bill of lading or the invoice does not match what’s on order or what matches what they’re saying that’s shipped, you know, that’s a huge discrepancy as well. So there’s, there’s a whole bunch of issues as far as getting them in.
Okay, then getting them released, you know. Once they’re released, we have a 3PL system that we use that takes the material from the port and ships it over to one of our locations. So that’s an additional week or two, price if inspections go good and the bill of lading matches the invoices matches, then we’re good to go. So there’s a lot of intangibles once it hits the port. It’s, sir, it’s out of our hands. Our trade compliance team works very closely with getting, you know, everything released on time, and if they need anything, you know, they ask me to provide it to them.
So they can give it over to the, the Brokers. So there’s a lot of intangibles. So once they do hit, you know, sometimes yeah, it could be four weeks, but sometimes it could be two weeks, you know, you just, you just never know. So it’s just one of those things where, you know, what the best thing we can do is just increase our lead time for right now. If it allows us, we can get some parts, strip them down, bring them in raw, and then just plate them here in the states just to cut some of that Transit time or essentially with the because if we cut down the manufacturing lead time, we’ll get these in sooner because they’ll shift sooner. So it’s just been negotiating with our customers and making sure that’s all right, clearing it with them prior to doing this.
What about the geopolitical climate? There’s a lot of uncertainty around tension between countries and what’s going to happen next year. So how have you been kind of forward-looking and planning in case there’s issues in certain parts of the world that you’re receiving Supply from?
So we haven’t thought, you know, that’s, you know, for a, a bigger position than me to, to figure those intangibles out. But I did, I can speak on as far as how it affected my goods prior to this one, you know, this issue that we’re dealing with now in the Ukraine. When it first started off, I had a part for a pretty big customer that was manufactured over there, and they’re the, the only ones that do it, they’re the only ones that have that Mill machine to get that part finished for us. We’ve tried every other source, and they’re not cheap either, they’re not cheap, and they’re very, very heavy, so there’s literally nothing that we can do, and we’re talking about a 300 a day lead time. So it just, nothing was in our favor, and they just shut down all their machines, every single machine, they shut down, and it just, the recovery for that, you know, making, you know, paying breaking fees to get them, get those machines running to the point where they had, you know, just kind of like a recovery team to come in and manufacture it for us on the weekends, you know, just because that’s just, it was, it was very hard, you know, and we had to cough up some, some money to do that, you know. So our, our profit margins on that part just tanked. So we didn’t really have much to say, but again, we were trying to get our customer, you know, 100% service level, so we had to make sure we get it done.
But it’s just something that we’re buying from Germany, but they’re manufacturing it over in the Ukraine, so it was, it was just one of those things where you just didn’t understand, you know, the understand the depth of how far it went. So that was one that really affected us, but again, we, you know, we recovered, you know, everything is on track, we got an updated forecast, we’re, we’re airing air freighting everything now. So once the material is done, we don’t even ship it ocean, we just fly it right out. So we just, we’re cutting, you know, 56 days in lead time, you know, down to like six to seven, which is great.
How are you managing cost then when your costs are increasing probably pretty significantly by doing air freight versus, oh, yeah. So increasing the quantity, I order more as far, I order per what the, the forecast is. So if I’m seeing demand this, you know, that’s what we’re talking about earlier, if I see demand loading in the out of the forecast for per statistical, you know what we think they’re going to use, and I know this is the high running part, and I know what our inventories level levels look like for the past, you know, six months, I’m going to increase the quantity, you know, instead of 50,000, I’m going to order probably, you know, 60, 70, and then I’ll keep the two months for Safety stock just in case, because now I’m having a high, I have high lead times. Okay, this part is very heavy, it’s very expensive to Air Freight. Okay, we’ll eat the cost now, but come the next order, I’m just going to order more with a price break, at least a 10% cost price break, and then that way we’ll have at least two months Safety stock to cover us for the transit time for the next proposal.
You’ve mentioned a couple times demand planning and forecasting, which I know you’re not directly responsible for, but you work closely with that team. How are you accurately planning customer needs right now when I feel like things are so uncertain in the market, and I don’t even know how companies are predicting, you know, a quarter, a couple months out at a time right now, so curious how you’re managing and planning all of that?
Well, the forecast is not just for our benefit to know what we’re ordering, and when to order it, it’s also to keep the customer reliable, right? So we know, ‘Hey, you tell me that you’re going to use 50,000 here or 60,000 here in November.’ Okay, well now I’m seeing some over-usage. You actually used 100,000. So what happened here? Where’s the spike? And if that’s the case, and if there is over-usage, it’s, we’re not, we’re not liable. So our MRP system monitors their trends, it monitors what they use to what we bring in. Okay, it’s very simple. It’s what we’re forecasting, what they’re forecasting. If they’re in line and I’m seeing that the charts are going, you know, through the roof, okay, there, there needs to be a reason why, was, you know, there’s a ramp-up reduction, was there breakage, like, what we need an explanation on why we’re bringing in more material because we have to hold them liable and accountable for that. We can’t just keep air freighting and gap buying for a part that, ‘Hey, you said that you’re going to use this x amount. We brought you x amount. As a matter of fact, we brought you a little bit more, and we’re still, you know, over the consumption rate. So that’s something that needs to be addressed and to hold them liable. It’s just getting those updated forecasts, the thing I’m seeing a lot, especially right now. I’m seeing a lot, especially coming towards the end of the year. I, you know, they’re starting to order more quantities than what I’m usually used to and seeing. And I’m asking sales and customer service, ‘Hey, have you asked for your customer’s updated forecast?’ And they’re like, ‘Yeah, yeah, they’re working on it.’ But I, I understand they’re working on it, and I understand that we’re not going to get it right away. But now I’m ordering for their old forecast, right? So when it comes up, when it rolls over to the next year, and we’re going to be short, you know, who knows how much or, or even more, even worse, we order more than what they’re going to use, you know? How do you, there’s a gray area there, you know? Oh, isn’t it, was in the transition between forecasts, you know, what are we going to do with this material because if we’re, if we’re basing their forecast off a statistical forecast system, then they’re going to be, we’re going to be liable for their material because we thought that you’re going to use XML based off of your what you gave us and what you used. So I will be liable for it, but if it’s, if it’s a customer forecast and we’re using it for what they’re asking us to, yeah, they’ll, they’ll 100% be liable. But there’s some that I, I, yeah, we, they’re medium to slow runners, you know, we, we kind of monitor their trends and see what they use because it’s very, you know, it’s all over the place. So we decide, okay, this is what we’re going to order you for now, and this is what you’re going to use until, you know, you need another order. The lead times aren’t probably as bad, it’s cheap to air freight, so if they’re done, I would just skip the ocean freight and just ship them air. So there’s a lot of playroom, so that’s why we do it that way. But for the, for the big ones, you know, it’s based off of what they’re asking. So if they’re asking us, you know, and I’m seeing those spikes, I’m seeing orders that I’m usually spending, you know, I’m P, I’m buying 100,000. I’m seeing my proposals going up to 250, and I have to figure out why, you know, what’s going, yeah.
But again, the forecasts are not updated, and because of that, it’s going to show spikes in the system, so it’s going to show as, you know, over-usage, it’s going to show as, you know, customer over-consumed or breakage, you know, and it’s not GNA, it’s not going to let me complete that the action. So I have to figure out why, find the root cause, and it’s a whole mess, but that’s because there’s a transitional phase of, you know, forecast changing, so it’s not essentially the market is that bad, it’s just getting the system updated to what it actually, you know, needs to see is the biggest challenge, I would say. What is the biggest challenge you’re living and breathing right now, like today, if you had to pick one thing that’s the absolute pain in the butt that you’re having to deal with, you know, sales and supply chain don’t really see eye to eye sometimes, and the biggest issues I’m seeing is that the system is telling me one thing.
The system is telling me that your customer is overusing or under-forecasting, okay? I’m ordering for what they should be receiving, but they’re telling me, ‘No, it’s our fault, it’s our issue. We’re not forecasting, we’re under-forecasting them.’ But I don’t see that’s the case at all. They’ll ask me for Gap buys when I, you know, essentially, you know, we, as a matter of fact, we over-ordered and they used everything that we took from them in a month that should have lasted them two months. So I need to know why, and is your customer going to cover the charges for the Gap? Because the gaps are so expensive. I’m buying them overseas for pennies on the dollar. You know, here in the States, you know, it’s a buck something, you know, that it’s crazy. And they’re only asking me to do a gap for six days. But you know what happens after six days? I’m going to have to do another gap. I need to know why, where’s the shortage, what happened on their end? Because from what I’m seeing in our system, it’s back in my claims, as far as, you know, we ordered correct. We ordered per the lead time, inside the lead time, everything was fine. As a matter of fact, we got parts released earlier from the port. So I don’t understand why, you know, the shortage. That’s the biggest issue in fighting with them as far as not fighting but like, you know, going back and forth as far as, ‘Okay, we need to figure out the root cause of why this happened prior to us spending money and going outside of what we’re proposed to do.’ So it’s just, you know, a little back and forth here and there, and a lot of the times, the customer is liable, you know, and it’s just they don’t want to go to their customer and say, ‘Hey, you know, Mr. Customer, we don’t wanna, you know.’ So it’s just one of those things, you know, my system is telling me, you know, it’s, it’s, it’s the Bible, it’s telling me this is wrong, don’t do it, you know, and I’m explaining to them why we can’t do it, you know, it’s just one of those things.
So that’s probably the biggest thing. They’re asking me to Air Freight because they’re scared of the ports, you know, that’s another one, you know, they know a part shipping because I have to update my notes per, you know, what the bill of leading or the packs are telling me on prior to shipping. So I’ll go in, I’ll update my, my ship dates. I’ll update my quantities that are shipping because we have a plus and minus, you know, 10%. So it could be over or under. So I have to adjust those quantities. They have to be exactly per the invoice or I’m going to have trouble with the Brokers. So they will see that when it’s shipping, they say, ‘No, no, no, we need those air-freighted.’ Well, why? It should be, you know, we’re on time. Actually, they’re actually shipping a week early. No, no, no. I, I, I don’t want to, you know. I’m worried about the port delay. Well, we’re talking about this is a really heavy part. This is a kilo apart. We’re talking about $50,000, $40 to $50,000, just because you’re scared of the ports. It doesn’t work that way. We updated our lead time, the lead times, we’re including the transit of 56 days, you know, and that’s even being generous because sometimes it could be even less. So if anything, we might even get them sooner than later. That’s another one. Oh, another issue too is my suppliers for my smaller quantities are consolidating my orders. So if I had a part that was supposed to ship today on the 25th, I might not have it shipped until the 10th, you know, of November. That’s because it’s just a small order.
This is a new one that I haven’t heard a lot on our show yet, this supplier consolidating order piece for smaller quantities. Smaller quantities will do that. What, for you, is considered a smaller quantity, just for context from overseas? Quantity of like 5,000 or you know what even 6,000 or less, they’re not going to ship that by itself on a container. They’re not. They’re going to fill the container prior to it going. And you know why would they spend the money and then, you know, at the end of the day, have it, you know, for a small quantity that we’re at that point? We’ll, I’ll look at the forecast. I’ll look at the monthly usage. I’ll ship a partial via DHL just to get them through maybe three to four weeks and then ship those ocean. Once those ship, once those ship ocean and they port, we can have an Expediting team kind of move the process a little sooner from the ports with our transportation team, so maybe it doesn’t have to be there that long. We’ll pay a small fee versus air freighting the whole entire order, but they will, yeah, they will consolidate small orders.
We’ve since told them not to do that. We’ll pay the additional cost if need be because it kind of messed with our system a little bit. As far as when the customer’s line down, you know, it could have, you know, shipped on 11/10, and I was, those days, that week or a couple weeks is huge. Because again, I don’t know what’s going to happen over there. You know, am I going to have invoicing issues with at the PTS? Am I going to have inspection issues which I’ve had before too? Something as little as dust on the container or on the pallet or some weird smell coming from the pallet, they will stop it, they’ll quarantine it, and who knows when it’s going to get released? And at that point, I’m looking at a part with 189-day lead time. You know, what am I going to do now? I’m stuck buying here domestically. And if I’m looking at a level three PPAP part, I have to get, I have to submit an ISIR, I have to get samples, I have to get it tested. It becomes a whole day just for one single part. My whole day, you know. And then following that until we get the parts in, you know, that’s going to consume your week.
So we had to have them stop doing the consolidations. If we had to order more, we ordered more. For a lot of them, I was actually able to increase the quantity with a price break. So actually now we don’t even have to worry about it. But there’s some that, yeah, you know, that seems about right. You know, we’re ordering about 5,500, you know. Yeah, let’s just please make sure that we’re not consolidating this one. And whatever the fees are to just ship this if need be, early on a smaller container, whatever it has to be, we’ll take it because these consolidations are costing us line down, which is essentially a lot more than just the cost of the container.
Well, thanks for coming on the show today, Dave. Where would you like to send people to find you? You can find me on LinkedIn. It’s just David Alexander. I’m right there. 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. 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.