Transcript: What the Duck?! Episode 67

What the Duck?! Episode 67 Transcript

USING YOUR ERN-TUITION: Supply Chain Dynamics and Strategic Sourcing with
Ernie Hernandez

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.

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 and manufacturing. I’m @SarahScudder on LinkedIn and @Sscudder on Twitter. I’ve decided to change things up a bit and incorporate past interviews I’ve conducted from our LinkedIn live events because I feel the content is good and relevant to our podcast audience. So, today, here’s an interview from a LinkedIn live show I hosted earlier this year.

So today, our guest is my very dear friend, Ernie, who I have known for I’m not even sure how long—a very long time, pre-COVID. Ernie actually came to visit me in Austin a few months ago, which was an absolute blast. He got to go to an Elon Musk shareholder meeting and stayed a couple of nights. Hoping that he’ll come back and visit me again sometime in the fall.

So, Ernie, you’ve had a very, I guess I would say, non-traditional career path.

Yeah, yeah, which is one of the things I really like about you because I think you’ve learned and lived so much because of what you’ve experienced. So, what did you think you were gonna do after high school as you were starting to prepare?

I really didn’t know. It’s weird because I went to a college preparatory magnet program where 95% of the people went straight to college, but I didn’t yet know what I wanted to study in college. I knew I wanted to go to college, but why go to college and go through all that if you don’t know what you want to study? And I just didn’t feel like I was prepared for it. So, I joined the army. In fact, I was 17 years old when I signed the contract, had to have my parents sign it as well. The whole point of that was, since I wasn’t ready to go to college and I didn’t have the money to go to college, I needed to come up with a plan to come up with some money for college. And I wanted to travel a little bit, so I did that. In fact, the first time I’ve ever flown in my life was when I went to basic training with the army.

And then, my specialization in the Army was a supply specialist. My initial job in the Army was actually supply chain management. So, that was quite a while ago. There was no intent for me to continue in that kind of path of supply chain management, but that’s where I started a long time ago.

One of the other things that I find interesting about your background, Ernie, is that you kind of started your supply chain career on the consulting side, actually, yeah. Which is interesting because the more traditional path is you get your years of procurement and supply chain experience and then you pivot into consulting. But you kind of went through reverse. So, tell me about how you got into consulting and why you decided to stay in that role in that capacity for as long as you did.

Yeah, it was an interesting path. I think some people do leave MBA programs and go straight to work for the big consulting firms, but you’re right. A lot of people get industry experience and later in life pivot to consulting. It worked both ways for me, but there was this opportunity. This was after that sabbatical in Costa Rica and then Panama. Cooper’s & Libren at the time was the name of the company. Price Waterhouse bought them, so it became PricewaterhouseCoopers. They had this really odd small boutique consulting practice called Engineering and Construction. And back in the day, we didn’t have LinkedIn to find jobs. It was an ad in the back of the Wall Street Journal. And I sent mailed, snail mailed, in my resume and surprisingly got a callback. It was such a unique practice that they wanted engineers that had experience in design and construction management that had an MBA. And so, I checked all those boxes. It was a fascinating work, again, once again to focus on capital program oversight, contract audit with the construction firms, advisory services for the owners of big capital projects. It was fascinating. It was good.

And then, after about four years, the industry started to change. These accounting and audit firms needed to get out of the consulting and advisory business. So, they were going to spin off PWC’s consulting arm. And then IBM stepped in at the last minute before we spun off and did an IPO and bought PWC Consulting. So, suddenly, I was an engineering construction subject matter expert in this mega IT company that also did management consulting as well. But it was another incredible, serendipitous opportunity that I got in my life to go to work for this big, bigger consulting firm focusing on technology. So, my focus there, and I was plucked into this supply chain operations group, was you’re going to do some strategic sourcing and you’re going to occasionally do some system implementation or those types of technology engagements as well.

So, I, this was kind of like my first entry into strategic sourcing and category management, to learn that six-step, seven-step process, depending on how you count them, to kind of take a step back and look at the spend across the enterprise and identify who are your key suppliers, where are the opportunities to take out costs or change processes and things like that. So, it was, to me, it was the best of all worlds to do that type of work. So, that was about a decade of my life focused on all those things that I was doing for PWC and then IBM. It was an incredible proving ground for me.

I’d say the biggest takeaway of what you gain from management consulting with these big firms is that you have to use both soft skills and hard skills. And what do I mean by that? The soft skills are the things that are related to relationships, so building trust, communicating, stakeholder management. Those are very key skills that a sourcing and procurement and supply chain professional needs to have. But you also need to have those hard skills as well. The hard skills meaning the analytics, the process improvement, the strategic sourcing methodology, the problem-solving. So, that time consulting with PwC and IBM was just foundational to the rest of my career, and it opened up a lot of doors for me.

So, your first pivot, I guess, after your several years of consulting, was going into biotech. So, why biotech? And I would like to have you kind of walk through what you did in your first biotech role.

So, another lucky break. This, at the time, one of the biggest biotech companies that pure biotech plays, I know there’s Pharmaceuticals that do biotech as well, one of the biggest pure biotech plays was Amgen, and they were growing super fast. Back in the day, they had a $10 billion capital expansion program, and they were building a new plant in Ireland. They were doubling the size, the capacity of plants in Puerto Rico and Rhode Island, and in the Los Angeles area, in Northern California, and Denver. It’s just mega, mega construction work going on, and all these projects need equipment, manufacturing equipment. So, think about the type of equipment you would have manufacturing biotech stuff. So, formulation and fill equipment, valve-fill syringe fill, bioreactors, autoclaves, all these vessels, all these specialized equipment that are obviously very expensive. But we had an opportunity at Amgen to consolidate requirements across all these projects, which is one of the key fundamentals of strategic sourcing. So, multiple projects in different locations, but if you consolidate and say, “Well, I need a vial filling. I need two vial filling lines in Puerto Rico, I need three in Ireland, and one in Los Angeles,” and the list goes on, then you consolidate, you negotiate directly with the supplier, the manufacturer of this equipment, to say, “I don’t just need one for $2 million, I need three. So, you’re gonna save some money, and we’re gonna both share the benefit in that.” And so, that was an exciting opportunity. Just to give you an example, I mentioned it was an $8 billion capital expansion. That was about $500 million, $500 million worth of capital equipment that we could then go out and secure preferred pricing with the OEMs and things like that.

So, what’s, but I, you did ask what was challenging about the biotechs. I’ll say, bottom line, is that many, all the life sciences, including biotechs, pharmaceuticals, and medical devices, etc., are highly regulated, specifically by the FDA. And they had this concept called Good Manufacturing Practices. These are guidelines that the regulators give guidance on how to manage your processes, your procedures, your documentation. This was kind of a challenging business requirement that was just kind of foundational for everything that we had to do. Everything had to be compliant with GMP, and so it was challenging in that sense, in addition to all the other challenges that we had.

Yeah, I mean, to me, Ernie, I think I would struggle working in a highly regulated industry because I feel like it would limit innovation and creativity and some of the more scrappy things that a buyer or someone in strategic sourcing or in supply chain might do. Was there anything that you did that you can share that still allowed you to be innovative and creative in such a highly regulated space? Because I’m sure some of our listeners today are also kind of struggling with this.

Well, I don’t know if it was innovative to consolidate your requirements across all the different locations that were doing the work, and I wouldn’t agree that it stifles innovation. I mean, there’s so much innovation going on in the biotech and the cell and gene therapy space today. It’s amazing what I see. I guess when I said that, I may mean on the sourcing side where finding suppliers, working with suppliers can be a little bit more limiting. Yeah, there is such heavy regulation. Yeah, you’re right. You can’t just go out and source anything from anybody. Not only does the biotech pharmaceutical company have to comply with GMP, but the suppliers are having to do a lot of the same stuff as well. So, it doesn’t limit the pool. And then, because you have such specialized equipment, you have a lot of single sole source requirements by necessity, and that creates the need to directly negotiate and be creative in negotiations. Yeah, you’re right.

o, after your time in biotech, what did you do next?

Next, we pivoted. My wife wasn’t thrilled. I was living in Puerto Rico. For Angela, my wife just was not thrilled living there. We had three little kids at the time, twins and a new baby that just came along the way. Going to the doctor was challenging and, you know, other minor things. We lived in paradise as far as I’m concerned. I loved it, but we wanted to get back to the states. So, I took a role at a pretty large wholesale distributor, HD Supply, which some of you may have heard of. That was my opportunity to source a very specific category that I hadn’t sourced yet. So, distribution and logistics is what I was responsible for sourcing for the company. As you can imagine, distribution and logistics is the core competency of any good distributor out there, anybody that’s in the distribution business. And HD Supply was one of the best, in my opinion, at distribution at the time. As an example, if you can get your freight cost below three or four percent, you’re doing good. And they were way below that, one to two percent freight costs to sales. That was just phenomenal. So, it was a great opportunity to learn about the business side of trucking and freight, moving freight around, and fleets, managing fleets, not the management of the fleets, but sourcing the fleets.

That’s a pretty big delivery truck fleet. I think it was about 8,000 trucks, delivery trucks, and freight-wise, there was a lot of small parcel and less than truckload (LTL). So, huge, huge opportunity to learn and deliver some results. What would you say, Ernie, was the hardest part of working in sourcing and distribution and logistics? It is not an easy space. It is complicated. It’s weird. It’s funny. Every category is complicated in its own way, but this one’s really different in that there are so many carriers and there’s so much non-transparency in pricing. And these carriers who are doing heroic things, they got to make money, and they do it on the non-transportation charges, all the necessary charges on fuel surcharges. There’s all these things, and the pricing is many times confusing in that they have all these rate cards, these tariffs they call them. Each of the major carriers has their own customized rate cards that give you a point-to-point type price just for transportation. I mentioned the accessorial charges. There were charges for everything you can imagine. If there was a liftgate on the truck, if they had to use a liftgate, if it was delivered to a residential area, there was a $50 upcharge, you know, $75 on the liftgate. And there’s a list of 20 to 30 or maybe 50 different accessorial charges, and that’s where companies lose a lot of value, as having to pay all those accessorial charges and not planning through how they’re going to deliver things.

Plus, on the small parcel side, there were only two competitors at the time. DHL had exited the market. It was just FedEx and UPS, and they knew how to negotiate. They had the power. But we managed to break through and deliver some savings in both those areas.

What advice do you have for someone who is new in that space and doesn’t have a lot of background and knowledge? What would you say are one or two key things they should prioritize or focus on if they’re new in distribution and logistics sourcing? Yeah, number one is always talk to your stakeholders. So, in this case, if you’re sourcing freight or fleet or fuel, you have a stakeholder, a functional expert in that space that can tutor you, that can explain how that market works. There are many suppliers that are willing to educate you as well, and I was lucky enough in that there was a pretty strong distribution and logistics functional team. It was a pretty big group that managed that, that was patient, that told me what was important and what is not important, explained to me the service levels that are important for them in general for logistics, but specifically for the company. You know, next-day delivery was important for small parcel. That was a non-negotiable thing, and it had to be achieved at a 98% service level type requirement. So, I’d say get with your stakeholders, get with your suppliers, and go to conferences. There are some really good conferences for every functional area, every category you manage. There’s going to be a conference for that, and distribution and logistics was no exception to that. There was a conference called NasTrack. That’s what it was called. NasTrack is the name of the conference that is for these functional subject matter experts, and they allow procurement people to show up and learn. So, that’s what I did.

Ernie, the lobby crasher. I learned that from the best, you, Sarah. So why’d you leave? Yeah, I left HD Supply because I was being in the Army Reserve. You’re subject to being mobilized, activated, sent overseas, and this was 2014, and my Army reserve unit was missioned to handle the logistics and what we call the sustainment mission in the region. So, I was deployed to Kuwait. We had half the team in Afghanistan. It was fascinating because it was not only providing the services, supply, and services required in that theater, but it was also about the drawdown. It was fascinating because it was not only providing the services, supply, and services required in that theater, but it was also about the drawdown. So, in 2013-2014, we were actually talking about leaving Afghanistan. So, as you can imagine, in the previous decade, we had accumulated a lot of crap there that we had to move out. So, over ten thousand containers had to leave. So, I learned a lot about reverse logistics, which is natural for the military because that’s what they do. We go places and then we bring everything back, typically. And so, that was fascinating.

The other fascinating part about my year in Kuwait and that region was, most people don’t know, the army not only has more airplanes than the Air Force, we have more ships than the Navy. There are these littoral heavy lift ships that move big heavy equipment like tanks and personnel carriers between different locations based on contingency operations and cool stuff like that. So, I had the opportunity to support that fleet, and it actually set me up for my next job, having supported a fleet of ships.

So, I honestly did not know that that’s how you made your way into the cruise industry. So, kind of cool. So, tell me, well, the cruise industry is very different, very unique, and you have a lot of really unique experiences, which I love. Talk to me about what you were hired to do at Carnival Cruises. Let’s start there. Another position called Director of Strategic Sourcing. So, I was hired to do strategic sourcing specific categories were ship operations, they call it technical, but it’s marine technical. It’s all the equipment. Again, once again, because of my engineering background, I always get the pleasure to source all the highly technical electrical and mechanical type equipment. So, I was hired to manage a category called Marine Technical, and the stakeholders you’d imagine would be the engineers, the ship operations chief engineer, and what’s in that category. So, imagine all the engines, propulsion systems, power systems, life and safety systems, HVAC, elevators, navigation, communication systems, all those very technical things for 25 ships, about $500 million worth of spend. Again, and I was hired to lead that team of four category managers. And when I joined, there were two vacancies. There was no one in that role for the previous six to eight months, so there was not a lot of activity going on in that space. So, it was a tremendous opportunity that I could just dive in and do what we do in strategic sourcing, and that’s to understand the spend, understand your stakeholders, understand the supply base, and look for opportunities. So, it was another great opportunity.

what would you say was the biggest impact you had to pick one thing that you and your

What would you say was the biggest impact you had? If you had to pick one thing that you and your team… We got to build out the team and build out a strategic roadmap and build a dashboard with specific KPIs. And we kept it as simple as possible, thanks to the leader that was working for the VP of supply chain. He helped us develop a KPI dashboard, which is basically three things that you have to do, Ernie. Number one, save us money. $35 million a year. Number two, automate, automate, automate. And what I mean by that, the buyers were inundated with requisitions that they didn’t have catalogs and contracted pricing. So, they had to go out to bid, three bids in a buy, old-school way. And we’re talking hundreds of thousands of PO lines per year. It was a massive undertaking. And I’ll tell you those results in a second. But the third thing that we were responsible for was reducing lead times. So, as you can imagine, this is specialized equipment, just like in the biotech space. Long lead times, sometimes 12 to 18 months. Sometimes, so you had to plan, you had to work with the planners and know when maintenance was going to happen and things like that. So, what I’m really proud of what we did, number one, in the three, four years I was there, validated through finance, $18 million worth of savings with just five people, me and four category managers. Automation, we increased the requisition to PO automation. From, it was 18 when I started, and we hit 50%. You can imagine that was a phenomenal amount of productivity boost for the buyers. And we hit our targets on delivery lead times, reduced by two weeks. So, that was I’m very proud of what the team was able to accomplish in that.

What was your technology strategy in all of this? I feel like there’s a lot of solutions out there that can be very overwhelming, and it can be challenging to figure out, “Okay, what do we actually have that we should be using more of? What do we actually need to go get?” And then the whole change management around, “If we implement, are people actually going to use it?” Yeah, so there are two ways to think about the technology strategy. The P2P system that was used, the procure-to-pay system that we used, was not part of the Oracle instance. It was a separate system that did have some tie-ins to Oracle, so the financial information could pass, but it was a system called InfoShip. And basically, what InfoShip was, it’s like a maintenance management or an asset management system, where you have an asset, you have all the components. The asset, you imagine a cruise ship, is a million different components to it, and it tracked all those things and the specifications for all those parts and the maintenance history of all those parts. So, we were stuck. I couldn’t do much about that but managed to learn that system and was able to download it to Excel and do my spend analytics in Excel. So, I got really, really good at Excel.

But on the other piece of the technology, we didn’t have the tools in place to do strategic sourcing-type work. And what do I mean by that? We didn’t even have a contract repository or a contract lifecycle management system. We didn’t have an e-sourcing tool. We didn’t have spend analytics tools. So, you think of the strategic sourcing suites out there, the Coupa, which is ERP plus all those things. Oracle’s got their bit. SAP’s got that. SAP bought Ariba, so Ariba was in the sourcing tool with lots of capability to do some of those things that I mentioned.

So, we did manage to make some change while I was there. We brought in a contract management system. We did bring in an e-sourcing tool as well.

So, I would describe you as someone who’s drawn to disruptor industries.

So, what industries, in particular, are of interest to you this year? Because there’s been a lot going on. Yeah, there’s a lot going on in the clean energy space and the life sciences space. What’s fascinating to me is startups in clean energy. And what I mean by that, obviously, electric vehicles, solar energy, battery storage, and the integration of those three things: EV charging, solar, and battery storage. I think it’s the way of the future. I think we are going to transition over time in each of those spaces. Companies like Tesla, obviously, but there are some other great companies that are doing some cool things in that space as well. I love to follow them, love to learn about their supply chains. I love startups in this space too. There are some small companies doing well. Besides clean energy, I’m a big fan of the life sciences, specifically cell and gene therapy. It’s fascinating what’s going on there. Either of those industries are interesting to me because they have a bigger mission in mind. Obviously, life science is about saving lives. And I’ve seen it in companies I work for, where someone had a genetic defect that they were expected to live until their mid-20s. And I’ve seen their therapeutics from companies I was working for eliminate that defect through doing some weird science fiction-type stuff. So, pretty exciting things going on in those two spaces.

So, I want to pivot our conversation a little bit and have you maybe share some more general career advice for people who are in the industry and wanting to advance. And one of the things that I find really interesting about you is you’ve done a very good job of moving up quickly in your career. I feel like you didn’t get stuck in a specific role or pigeonholed doing one or two different things. You were able to go work in many different industries and have many different types of leadership positions.

Yeah, I think I’ve been lucky, and I think the reason I’ve been lucky is because I’m kind of fearless in some senses of the word. That I don’t mind leaping into something that I know very little about, and I think I can figure it out real quickly. So, to answer the first part of the question, what advice would I have for somebody? I would say, seek and take on difficult assignments, always stretch yourself, constantly learning. Partner with your stakeholders and suppliers. I mentioned this before, partner with your stakeholders, suppliers, to learn and break down the business, and break it down in business terms. How supply chains drive growth and profitability. Think about the big picture, think about the business strategy. CEOs and C-suite always talk about their business strategies, about the company’s direction. So, translate that and, okay, if we’re in growth mode, or if we’re in survival cost-cutting mode, or if we’re integrating major acquisitions, all these things have different procurement and sourcing strategies to support that. So, think of it that way. I’d say also, get involved, collaborate in a professional community. Procurement Foundry, ISM, ASCM, there’s lots, attend the conference, network. These things are very, very important to kind of help people get exposed to these opportunities and improve yourself, to stay at the company you’re at and move up in the company you’re at or get exposed to opportunities outside. What two or three skills would you say are important for somebody in the industry today? I would say that what was needed five or ten years ago is potentially very different skills and abilities in 2023.

Yeah, it depends if we’re talking about strategic level or operational level. I’d say that the kind of core competencies or the attributes that are important for a leader are the ability to have a vision, so assessing where your organization is, your team, assessing how well they perform to achieve the objectives for the company, and envisioning a future that improves that ability. I think individuals need to have the ability to critically think about things, at the risk of sometimes being called a party pooper because you’re pointing out some issues. I think it’s important to have that ability to think critically and criticize solution sets that someone might present. I think people have to be good at solving problems, they have to be good at making decisions. What else? I think people have to always be learning. It’s key. In your spare time, you should read, listen to books if that’s your preference, listen to podcasts, and for industries that you’re interested in, things like that. These are all things that I think each of us could benefit from.

Thanks for coming on today, Ernie. I encourage all of you to reach out and connect with Ernie on LinkedIn. He’s an awesome resource and mentor. Send him a note, give them a shout.

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.