Supply Chain Now Radio Episode 172
Supply Chain Now Radio, Episode 172
“8 Proven Steps for Optimizing Your Manufacturing Plant Tour Approach”
The Procurement Pros Series featuring Rod Sherkin of ProPurchaser.com
Exclusively on Supply Chain Now Radio
Rod Sherkin is the founder and president of ProPurchaser.com. Prior to entering cyberspace, he was the senior executive responsible for supply chain for both Pillsbury and Ball Packaging, where, for 15 years, he honed his negotiating skills with suppliers. Rod has spent the last 20 years sharing what he learned with other procurement professionals. Learn more about the company here: www.ProPurchaser.com
Scott W. Luton is the founder of Supply Chain Now Radio. He has worked extensively in the end-to-end Supply Chain industry for more than 15 years, appearing in publications such as The Wall Street Journal, Dice and Quality Progress Magazine. Scott was recently named a 2019 Pro to Know in Supply Chain by Supply & Demand Executive. He founded the 2019 Atlanta Supply Chain Awards and also served on the 2018 Georgia Logistics Summit Executive Committee. He is a certified Lean Six Sigma Green Belt and holds the APICS Certified Supply Chain Professional (CSCP) credential. A Veteran of the United States Air Force, Scott volunteers on the Business Pillar for VETLANTA and serves on the advisory board for the Georgia Manufacturing Alliance. He also serves as an advisor with TalentStream, a leading recruiting & staffing firm based in the Southeast. Connect with Scott Luton on LinkedIn and follow him on Twitter at @ScottWLuton.
Scott Luton welcomes Rod Sherkin, Founder and President of ProPurchaser.com, as they discuss the steps for optimizing your approach to manufacturing plant tours.
[00:00:00] It’s time for Supply Chain Now Radio Broadcasting live from the Supply chain capital of the country. Atlanta, Georgia. Supply Chain Now Radio spotlights the best in all things supply chain the people, the technologies, the best practices and the critical issues of the day. And now here are your hosts.
[00:00:29] Good afternoon, Scott Luton here with you live on Supply Chain Now Radio. Welcome back to the show. We are really excited to be continuing our procurement pro series here today where we’re going to offer a supply chain leaders several new ideas and best practices.
[00:00:46] Today’s episode, we’re gonna be touching on two main things. First off, the value of creating a shared goal and especially that value and how it can help you contain costs and supply chain. And then secondly, we’re going to discussing how you can get the most out of your plant towards especially related to supplier selection and development. So a quick programming note, like all our series on Supply Chain Now Radio, you can find our replays on our broader channels, Apple, podcasts, SoundCloud, Spotify, wherever else you find your podcast. As always, we’d love to have you subscribe to almost anything. Supply Chain Now Radio is also brought to you by a variety of sponsors, including the Effective syndicate, Talentstream, Verusen, Supplychainrealestate.com and several other leading organizations. Be sure to check out the show notes to learn more about our valuable sponsors. OK, so let’s welcome in our featured guest today Mr. Rod Sherkin President ProPurchaser.com Joe Rod.
[00:01:38] Time to find Scott.
[00:01:40] How are you to order a fantastic and really looking forward to this second installment. Always a pleasure to collaborate with you and pick your brain. And I think, you know, I’m a big fan of practical insights and practical best practices. Nothing. That’s really what we’re gonna be talking about today.
[00:01:56] Thank you for having me back. It’s it’s a pleasure to be here.
[00:02:00] Absolutely. We’re wasting time. We’re going to dive right in.
[00:02:03] And so Rod, we are going to first talk about this creating a shared goal and how really effective it can be. But let’s first talk about consumption behavior and how you see its relationship to cost.
[00:02:18] And Supply chain, we know Supply chain professional. So when I worked for Pillsbury Ball Packaging, I used to focus mainly on costs, mean service quality, etc. But unit price was the most important cost factor. But there were areas where it didn’t seem to matter that much. You know, for example, if I booked at car rentals and you know, we’ve got a 10 percent discount or some discount from the car rental agency, it really didn’t matter what we booked if people weren’t booking the most economical car, if everybody’s booking a luxury car. It really didn’t matter. We blow our budget on a car rental. So there are examples where consumption behavior is the main cost driver. So, you know, examples are hotel rooms, car rentals. I just mentioned travel expenses, meals. They’re all examples of spend areas where we’re prudent. Consumption is more important than the actual rate that you negotiate with supplier. You know, the travel agents had a lot of people book online, but a lot of people still use travel agents or there’s corporately mandated. And so remember, you know, negotiating a travel agents booking fees was always something we did, but they only make maybe five or six percent.
[00:03:35] It depends on the travel agent. So if you if you’re not even if, you know, go shaved a 20 percent discount off, their fee would only be a one percent discount off the rate of the fare. Sophos, a thousand dollar fare, you’d be ten dollars. And we all know that if you look at the last minute, you’re going to pay a lot more than if you look, you know, well in advance or, you know, if you book a direct flight is often more expensive than going indirectly.
[00:04:01] So we all know these things because personally my travel or book hotel rooms are booked, car rentals or eat meals. If when it’s our own money involved for you, we know how to consume prudently in most cases. And the trick is to encourage that prudent consumption when people are spending the company’s money as well. So the good news is that changing behaviors really isn’t as difficult as people think. And especially if you can figure out a way, as you were saying, to create a shared goal, a common goal, and you can kind of engender a good team spirit. Hey, let’s see if we can’t work together into, you know, accomplish something as a team.
[00:04:43] So when we talk about creating a shared goal and kind of, you know, driving some maybe some internal competition or a very positive version of peer pressure, is that is that kind of along? That’s what we’re talking about. Rod.
[00:04:55] Yeah, it’s a little bit of, you know, peer pressure comes into it and there’s. There’s always I mean, there’s the stick and the carrot. I guess the stick is you don’t want to be a poor performer, but the carrot is everybody wants to be part of a team that had achieved this goal. Everybody wants to be, you know, share in the there’s a satisfaction or a part of a group that whether you’re playing in an orchestra or on a football team or, you know, it doesn’t matter if if you achieve what what the group’s goal is and you’re part of that and you can see your contribution, that’s an important part. We’ll talk about it, the communication, it goes along with it. But if you feel that your contribution is being recognized and that it’s all leading towards the team achieving what whatever the goal is, then it’s a lot more than just saving money. It’s actually fun. So gratifying. Yeah. So we’ll talk about that in a while. We’ll give you some examples. Having done that a couple of times in real life.
[00:05:55] Absolutely. So let’s talk about the approach in one conversation in some of our previous conversations, you’ve given some examples of some approaches you’ve used that really focus on creating this shared goal, that it’s really gotten some some some bottom line results.
[00:06:12] Tell us more about that. Rod.
[00:06:14] Great. Hello. SEUS. I can I can explain some graphs and involved here and I’m going to have to try to paint a picture so people listening can see a spreadsheet. I’ll try to do it. But, you know, first of all, changing consumption behavior, I think most people would agree that it’s great in theory, but in practice it’s not so easy. And in fact, some people argue that putting policies in place to change people’s behavior can actually be counterproductive.
[00:06:41] You know, they can inhibit people’s behavior and keep them from going after opportunities that could easily outweigh savings. A lot of people think, you know, mandating, you know, staying at, you know, less expensive hotels or only flying economy. They see that could be penny wise and pound foolish, that it’s it’s not really good use of companies money in all cases. And of course, it’s demotivating. I mean, nobody wants to feel that the companies kind of spying on their you know, that the meals they buy and stuff like that. And they’re right because, you know, sometimes, you know, the extra cost of a last minute air ticket is more than justified if jumping on the plane means closing a deal that they can’t wait. If you’re in the sales group, for example, or if you’re in sales and you stay at an upscale hotel and upscale hotel and it has a great dining room that can help you turn a prospect into a customer over dinner. So there’s no argument. There are lots of occasions when, you know, upscale hotels are expensive. Plane tickets make really good business sense. But but it’s simply not true all the time. That’s that’s the key. And you don’t stifle bee behavior with a blanket rule.
[00:07:55] You say, you know, you do you trust people and you allow them to use their discretion in what you really need to do is also give them a motivation to to be prudent when they when they can. Not all the time. So in my case, I remember doing a study of this a few years ago to find out how often, you know, are there really special circumstances that justify, you know, pricey purchases, plane tickets and things like that? In my experience, it represents less than a quarter of the times that you would use an airplane or rent a car or a hotel room. And in many cases, it’s even 10 percent. It really depends on the business here.
[00:08:35] And clearly sales reps to people and sales are going to need luxury hotels more than, you know, people in operations there. So savings opportunities don’t come from forbidding high priced purchases or making people jump through hoops to get approval. That won’t work. But as I said, it comes, I think more Froome encouraging. Prudent consumption or usage, whenever that’s possible.
[00:09:02] And so you’re asking for an example. Here’s a simple example. Actually, something we did. First of all, suppliers are a great resource to help start by explaining that you need their help. And instead of going after a price concession, which is what they’re expecting, you know, you go to suppliers, say, look, we need to save money. The first thing they’re going to think is you want to shave their margins and you say no. What we really want is for you to produce a simple monthly report that shows usage by department. And my experience was most are more than happy to comply, in fact, relieved because know you’re not going after their margins. And I remember doing a simple one for hotels first time we did it. So this is you’ve got to imagine this. Now, imagine the spreadsheet where you’ve got the first column says department in underneath there you’ve got sales, marketing, finance, operations, whatever the major department is would be like a cost center. It would have a director of V.P. in charge. And then the next column says hotel nights. And so there’d be a number there, a hundred and fifty for sales, one hundred for marketing, whatever the numbers are. Then the next column says total dollars spent and then dollars per night.
[00:10:18] So you could say that, you know, sales spend, say, one hundred and seven dollars a night on average when they stay at hotel marketing, spends one hundred and twenty finance, spends whatever. Ninety seven and the last column says last quarter. So if sales were spending one hundred and seven dollars for this quarter because it’s a quarterly report in this case, it shows you what they spent last quarter. So one hundred and ten last quarter, hundred and seven this quarter. So there’s been an improvement. Same thing with say operations might have only been seventy seven dollars this quarter. They’re a lot less than sales and say it was seventy two though, the quarter before. So they’ve actually gone up. So if you can imagine that there’s variation all over the place. And then that this is where it really gets interesting, because even though just there’s you highlight the variation and you really focus on driving down the average. So when you imagine at the bottom of this spreadsheet, there’s something as his totals there were four hundred and twenty one hotel nights in this case and they averaged one hundred and eighty dollars for the whole company.
[00:11:24] So just to clarify the whole team in this example, as we’re painting a picture for our listeners, this team, this whole organization across all functional areas in order. Twenty one total nights in the hotel, if you look at the total spin again in in this example might be forty five thousand dollars and roughly even averages out to one hundred eight dollars per hotel.
[00:11:50] My right Rod for the hotel and that’s that that’s the shoe that becomes the shared goal. That’s the core. That’s what you focus on. You focus on driving down the average, not so much on your wise operations. Only 77 bucks in sales is 1 0 7. So you know the variation SCAC sales spends one hundred seven per night. As I’ve said, operation is a 77. And as you were saying, the the average is 1 0 8. So what conclusions would you draw from that? Well, it’s a bit too simplistic to say that salespeople pamper themselves and squander company money profitably. It’s probably good for business that they stay in higher into hotels sometimes, at least, especially if that’s where customers want to meet. And moreover, salespeople tend to make calls in large city centers where hotel rates are higher than Industrial areas. And that’s where operations people tend to work in Industrial. So there’s you know, there’s a reason for variation and that’s really not what you should focus on because that isn’t a shared goal and it’s not team building. The real thing we focus on is 108. And the way to do that is you set a corporate goal, circulate the report. So, you know, once you’ve got this kind of data, as simple as it is, you can set a goal.
[00:13:02] Let’s say in our case, it was 15 percent. We tried to drive the 1 0 8 down to 92. And here’s the key circulate a copy of this new report, widely publicized. The goal, we’re going to go from one way to ninety two and then ask everyone for their help in achieving it. You asked for ideas. You make a point of offering help to anyone who asks. You finished by stating you’re confident that the goals will be met and that we can get there as a team. And it is fun. You just wait for the reaction. So this is you’re right. There’s a little bit of peer pressure. Some managers might be upset at first, especially those who run the departments for the high numbers. But, you know, you’re kind of the voice of reason and you can do this all with internal e-mails. You calmly point out that, you know, it’s understandable that their numbers will vary because the nature of work, you explain that there are no bad people, they’re just bad numbers. And that’s the numbers that should focus on, not the.
[00:13:58] Ultimately, I bet you got that when you were.
[00:14:03] You’re using this method, you’re getting folks to maybe book reservations far further in advance and taking advantage of those rates or maybe doing a little just a little extra homework when it comes to, you know, uncovering all of your hotel options in a market, right.
[00:14:19] Well, just like we all do in our personal lives. Right. We we knew we. And though that this was a two layer report. So that report by department. But you could click on each department. So if you were that, you know, the head of finance, you could click on finance and then you would see your employees and what their individual habits were. So if you notice that one of your employees was always spending, you know, twice as much as the average in your department, you could ask them why. And then they might say, well, you know, they are looking at the last minute so you can modify behaviors by just measuring what’s happening and then that kind of. And so. Yeah, exactly. But what really happened was that the. The managers or directors who ran the day hike, the height, taller departments. They would. They would phone up their their peers and ask, hey, you know, what is it you’re doing in then? You know, how. How do you get your number so low or how do you manage it? There are all kinds of great ideas and those are the kinds of it. Yeah. I always say to my, you know, if you’re going to travel and you got travel the last minute, that’s fine. But you come to me first. You explain please explain why you didn’t know a week ago that you were going on this trip. You know, if you’re an operations or a or you know, if you’re in H.R., there’s a great example. Each hour, people off to make routine trips to plants and those can be planned in advance.
[00:15:48] And every now and then there’s an industrial accident or something. So there that is a last minute kind of. But once its employees know that there’s this measurement going on. And once managers of each department have the ability to look individually at their employees, the people who report to them, and as long as there are no bad guys, you know, of course, if you’re an H.R. person, you travel at the last minute, of course, or if you know, if you’re a sales rep and you’ve got a customer who wants to travel business class and you get to talk about a contract, you’re going to do that. So all of that’s permitted is just one. It just doesn’t become a habit. You don’t get into you know, you stop and think. And if you can book ahead, you do book ahead and you don’t leave it to the last minute. Oh, geez, I forgot to book that airfare. You phone up and pay. You treated like it’s your own money. And that’s really the secret to it. And it’s this isn’t new stuff. Jerry, you know, Deming came out years ago and talked about, you know, you know, measuring for variation. Of course, Peter Drucker, as a famous quote, what gets measured gets managed. So this is this is just an adaptation really of of some pretty basic but very effective management tools that have been around for a few years. So just applying them to a world of procurement. Sorry.
[00:17:08] Let’s talk about a second example where you saw some some really nice bottom line savings as it relates to travel.
[00:17:14] This notion of creating a shared goal as your last point there can be universally applied. But I think some some of these these simple to relate to examples, just like the hotel and what you’re going to talk about my travel perspective, I think that helps paint an easier to understand picture in our listeners minds. I hope.
[00:17:37] Well, this is this is this actually happened. So if this happened to me years ago when I worked for a large food company, we were spending about a million and a half a year on air travel. And indeed, it came down from head office that we had to save 10 percent of our overhead costs or as Jenny costs because profits were down and the head office was demanding we did that. And it really meant letting people go. We had to save about three or four hundred thousand dollars unless we could find ways of cutting back other kinds of overhead costs. We were going to have to let people go. And so we looked at travel. Travel was a high cost area, but it always been kind of a no touch zone. You know, asking people to fly on the cheap was frowned on actually by management. And they felt quite rightly that traveling employees made personal sacrifices in terms of lost time, family time. And the least the company could do was make the traveling as pleasant as possible. You know, within budget restrictions. So this meant no new rules, no new rules about mandating weekend travel or red specials or or cheaper non direct flights, etc. So we tried it. We established a shared goal. So what we did was we went to our travel agent and explained our pressing need to reduce costs, the travel agents. Once they realized we weren’t asking them to shave their commissions, they were quite enthusiastic. They they that’s creating a report that we asked for.
[00:19:06] I’ll explain a report in a minute. Was was easy to program. And moreover, they knew lots of ways to save money, especially with a little cooperation from our travelers. And then, by the way, if not everybody uses travel agents anymore. But most ERP systems, you know, modern financial systems, you can. They’re easy to custom programs. So a lot of the reports I’m talking about, even if you don’t have a supplier to read, is to furnish them. You can probably get your own finance company department to do it. But let’s let’s just go with the travel Liegghio in this case. So we explained that a few rules. First of all, the final purchase decision on was always the travelers. There are no blanket rules and no mandating. The other thing we did is we kind of measure travel satisfaction is really simple to do. We just want to all the travelers and we ask them to rate on a scale of one to five how happy they were with. Current travel arrangements. You know, nothing. You know, we didn’t ask a bunch of questions, really, just the one overall question. Are you happy with the way the company handles travel? 5 was extremely happy and one was very unhappy. That I think was four point two or something. So then we went to the agent. We said, look, we’ve got three key corridors. That was the other thing, which was Chicago. Atlanta was a key corridor. We have offices and plants there, Chicago, L.A. and Atlanta, L.A..
[00:20:39] Those are the three key corridors. And they accounted for roughly half the travel. And all the other travel was, you know, we didn’t make a quarter. There were just too many places to go. There wasn’t enough money in each one. So now everyone’s going to ask your listeners to imagine another spreadsheet. So it says air travel and air travel for four months, ending in this case April 30th. And then again, just like before down in the first column. The different departments, finance, marketing, operations, SARDI, etc. And then the first column is Chicago, Atlanta. And in that column, number of trips, total dollars, dollars per trip. So I’m looking finance took twenty two trips at five hundred and ninety three dollars a trip. SALES took forty five trips at seven hundred ninety three dollars a trip. So that’s the first column. The second column is Chicago, L.A. same thing. Number of trips cost per trip. Atlanta. Same thing. The only difference is when you get to the all other categories, the number of trips, but it’s the percent of full fare because there’s so many destinations you can say, well, they took 34 trips, for example, this case finance took twenty five trips and they averaged 84 percent of full fare, whereas sales took 90 trips and averaged one hundred and five percent for full economy fare. When I say full fare, I meant to say full economy fare. So this is a gauge of how much money you spend versus some measure. In this case, the better measure is the cost of the full economy ticket.
[00:22:11] So in this, if I look at the bottom here, there were five hundred and thirty seven trips taken and the total spend was five hundred and five hundred sixty nine thousand dollars. So our goal was to save 10 percent on the average trip. So we got the first report. We made it visible to everybody and then then the peer pressure. You’re saying it’s that none of the managers want to be seen as poor performance or poor performers. So the high cost department has started asking their counterparts, know, what do you do? And there are you know, this this is what the travel agent is. One of the rules was, hey, don’t come to me. You know, we don’t allow last minute travel unless you’ve got a good reason. And you know that that was seem to be one of the most the easiest thing to do to prevent people from spending way more than they needed to. And the other thing we did is they they we made ourselves available. If any of the department has wanted any kind of advice, we think they could ask us. And of course, we would then refer them to the travel agent who would, you know, tell them about, you know, special deal. We had deals with certain airlines. If they you know, they maybe didn’t get their points of personal travel points, but certainly saved the company money. There were lots of little tricks that that were available. And of course, the report is second level.
[00:23:33] So just as the hotel reported that if the marketing person, one marketing manager wanted to find out why his costs were high that particular quarter, he could drill down, he could click and see by employee who was traveling. And of course, in many cases it was totally legitimate. They were you know, we had a higher quarter because they were more emergency trips. So, again, there were no bad people. It was just bad numbers. We were blown away by the results. Payback was exceptional in six months. Everyone pulled together. And, you know, people find it hard to believe was 27 percent is what we saved on. On the average corporate travel budget, which was more than enough to save the money we needed on the total overhead account. And the other thing is that when we measure general satisfaction, it was four point one. The other was four point to eight was there was virtually no change in the overall travel satisfaction. So management’s concerned about employee morale was never an issue. And the other thing was clear, as people were quite willing to make reasonable adjustments to the travel booking habits whenever they could, especially if they knew a they didn’t have to do it and b that the fruits of their labor were made clearly visible. And of course, with a report like that, not only did your boss see what you’re doing, but the whole company actually gets to see how your department’s doing. So everybody came away. A winner. Senior management was pleased with the savings.
[00:25:00] The travel agent was delighted to keep the business at normal merchants. Layoffs were avoided. Which was a huge for everybody. Great for the Spirit, company spirit. And of course, the purchasing department are supply chain and we called it purchasing in those days. We received the kudos for it, which we we accepted. So this idea of sharing goals and monitoring progress creates a wave of goodwill. If you do it right and you can also act like a rising tide, you know where it creates an atmosphere of voluntary behavior change, it becomes the norm. It raises all the boats. Most people are actually happy to participate because they feel good about contributing to the greater whole. And it doesn’t take that much to do it. It is just need to get either your supplier or your finance people to help you create these these reports that that focus on a shared goal. So choosing the goal is important. Making sure is something that you you want to move. And if it moves in the right direction, you’re going to get the results you need and then making sure that you’re communicating it effectively to everyone and just let people go. Just just trust them. And we’ve done this many times. This is just one example. But I’ve done this approach many times for the game. These areas where you it isn’t the cost per unit that’s important. It’s how wisely things are consumed. So whether it’s hotel rooms or meals, things like that. It all seems to work this way.
[00:26:35] So choosing to go, obviously. The other thing that I heard you speak to out each of these examples is, is not just communicating to go internally, but also to your suppliers and your vendors and and going to them with communication that they may not expect you to look to earlier in the case, the hotel, you’re not communicating a marked down. You’re communicating how you’re trying to find different ways of finding some creative savings.
[00:27:06] I think the vendors are you know, they you’re not just your customer to them, but they have to make a margin. And once they realize that you’re not trying to it’s you know, it’s not a zero sum game. You’re not saying you yo, give me some of the money that you make when you do business with us. Once they realize that’s not that’s not the only way you can save money. I’m not saying you should negotiate. Of course, if you if you can, you should. But in some cases, the savings that are available through getting the vendor to help you help yourself and then your job is kind of condition your peers and colleagues to start accepting this kind of help. And that’s how the shared goal kind of works. Then the vendors, as long as they understand what you’re after and what they can and can’t do, for example, you know, no blanket rules. So they can’t they can never be the policemen, but they can be the implementer and the enabler of the programs that you want. So, yes, absolutely. Communications, not just inside but outside the company are really important.
[00:28:13] And it’s not always it’s not as painless as a lot of folks might think going in. There are opportunities to be had. And I bet going back to the tribal example, you say 27 percent. I bet that it sounds like in that environment it might save the job or two.
[00:28:28] Oh, is it? Yeah. Because we needed to say I think was 350 to 400 thousand in overhead. I think that was about 10 percent of our overhead and 27 percent of a million and a half. That was pretty darn close. We didn’t lose anyone. Nobody lost a job because of the mandate from head office to reduce overheads by 10 percent. And 90 percent of the reason for that is we were able to save the money on travel.
[00:28:55] So creating a shared goal, using positive peer pressure, cultivating a healthy sense of competition while also leading by the numbers and communicating the numbers and not just making assumptions. But I like especially as it relates to the travel that you are really focused in on all the three quarter words or the three three main flights that even though it wasn’t 80 percent still it was. It was a chart. It made losses to focus there. So that focus on Twitter in this case brought a lot of momentum and you were trying to boil the ocean. You’re really kind of focusing on these three things.
[00:29:41] Yeah, and you’re right. And once because almost everybody traveled, at least sometimes to the three corridors, the habits they developed and flying from Chicago to Atlanta would have worked, you know, flying from Miami to Dallas. They would do once you you get used to, you know, not booking at the last minute and and maybe not worrying about your personal points so much and going with the airline that that has the lowest rate, then that you’re right. It became they practiced on the three corridors, but that those those good habits pervaded all the purchases.
[00:30:18] Ok, so let’s shift gears.
[00:30:21] A second best practice that we wanted to dive into on this episode is really using plant tours, especially, you know, site visits to your suppliers in a way that it is much more productive than normal. And then that you and you in your career as a supply chain leader, this was one of your go tos. But before we talk about that approach at eight or nine point approach, let’s talk about how important, important it is in this day and age to find great suppliers that are a great fit to the business.
[00:30:58] Yeah, I think this this idea of a good fit, it’s all part of the, you know, win win strategy. I know it’s used so much nowadays it’s almost losing meaning. But you don’t want to beat up a supplier who really can’t give you what you need. Simple example is you buy you you go to a printer to have forms printed off and you know, you ask them for a hundred of this form and a hundred of that form. And then you don’t realize they’ve got giant machines there that are really hard to set up. So you’re asking a supplier to give you small runs when in fact they’re set up for large runs. If you did a plant tour and you sell, my goodness, they got big machines that are made for doing, you know, hundreds of thousands of copies. And they’re setups are three hours, not three minutes. Then you would know that no matter how much you negotiated, no matter how much you know, how good you were negotiating the suppliers, just not a good fit. Now, that’s a simple example. But if you can go out there and find the best fit supplier my experience, then you’ve got the best chance of putting a deal together that works for both parties and is sustainable.
[00:32:13] Yeah, that’s kind of how that works. And I was just going to say it’s never been more important than right now because, you know, global competition that we talked about that a little bit last time was, you know, has basically forced the prices down for media items. And that in turn has exerted pressure on margins and profitability. And and as a result, driving down costs has become imperative. It’s really survival mode now and certainly cranked up the pressure on supply chain professionals and in some cases. You know, I had a consulting practice for a while. The very survival of the companies depended on the efforts of their procurement professionals. So they couldn’t buy it. Right. They couldn’t stay in business. So you really need to figure out how to make sure your suppliers are capable of going the distance and consistently providing you with price quality service. Your company needs to compete successfully and not their attitude. Doesn’t matter how much they want to do it, it’s really their capability that matters. So the way to do it really is as physical tour. I think you can’t do it virtually. You’ve got to get. You got a.
[00:33:22] Learn about your suppliers capabilities, their control over their costs, their quality commitment, their service culture and most importantly, you know, are they able to make a profit and still give you the pricing and service that you need?
[00:33:35] To that end, let’s walk through your tried and true approach to truly optimizing the value of these site visits or these plant tours that your current suppliers or potential suppliers.
[00:33:48] Well, I it’s this interesting plant. Tourists weren’t ever something any buddy teach, at least in my experience when I was a, you know, the feel they were you know, my boss never took me on a plant tour and said, OK, Rod here, say you do a plant tour. And maybe it’s because my background, I’m an industrial engineer. And so I just you know, I was trained to go through factories and understand how you would put together. So I kind of had an advantage. And maybe it’s an unfair advantage because most supply chain professionals aren’t, you know, that didn’t have that background that I did. So this is a structure that I came up with. It’s it’s an eight step approach. It’s what I used as a framework. And I’ll go through it. And it hopefully it’ll it’ll resonate with some people and maybe help people, you know, make better time, I guess, or get more information or value out of the plant tour. So the first thing you got to get the tour guide. Right. You know, you really should ask for an operations person, conduct the tour.
[00:34:52] Not not so much a sales rep. I mean, they’ll be there. Of course, they’ll they’ll they’ll want to be there. And it’s quite normal for that to be there. But they probably don’t know for sure. They don’t know as much about their plant as the operations person. So if the operations person’s he or she will be pleased, usually proud to show off their plant and they’re certainly more likely have information you need. So that’s number one, get through tour guide. Number two is start at the receiving door if you started receiving door and follow the production chain. And you can go right through to the loading dock. And there are a couple of reasons to do that. First of all, you’ll remember it a lot better because it’s in a logical sequence. And secondly, you’ll miss anything, right? Because the plants are very confusing. I mean, industrial engineer, but I just can’t go into a plant and see what’s happening. You’ve really got to have somebody take you through a logical process. And the logical process is to start receiving. And so. So here’s what you do. You look you learn a lot. It’s receiving door if you know what to look for. For example, a small raw materials inventory reveals that there are just in time manufacturers. So that would be a good fit for you if your own requirements are fairly predictable.
[00:36:10] So the supplier can make what you need and without tying up a lot of space or capital. So if you’re a predictable ordering, if you’re production planning, people can give you predictable orders, then a good fit supplier would be somebody who’s a just in time manufacturer. And you can tell that by looking at their raw materials inventory. But, you know, on the other hand, if you’re ordering habits aren’t predictable, maybe, you know, your customer demand is unusual or you have seasonality, then a small materials inventory is a red flag for prudential short shipments, and especially if they don’t keep finished goods inventory. So there’s no one answer to this. So you need to physically go and look, because I don’t know how you know what they’re finish because they’re raw materials inventory where any other way other than actually going and looking and saying so. So you start receiving and you observe all of these good things. And then while you’re doing it, I guess the third thing is you’re always, you know, shaking hands and meeting people. You know, make sure you stop. You look around, you chat with the operators as you follow the production line. You’ll learn a lot by observing and listening. And, you know, are there work areas clean? Are they safe? Are there large piles of scrap or reject going up to the operator? You know, if the operators really see really are she really involved, they’re just pushing buttons.
[00:37:32] You ask questions. You know, an involved operator is always happy to explain. And more importantly, an involved operator usually means a competent operator, you know, because the competency of each of the operators and the operations is vital. If you’re going to produce a consistently high quality, low cost product, quality is built. I’m sure this everyone knows this, but quality isn’t something you inspect into a product’s quality, something you build into a product. You certainly can’t build it in unless the people actually operating the equipment are involved and knowledgeable and enthusiastic. So you can look at their control charts and almost all machines nowadays have a control chart to tell us who tells you if the process is under control. You ask the operator to explain with the lines and figures mean and how they’re used to control the process. You can ask about run sizes. Can I ask how long changeovers take? You can ask what their biggest challenges are. You know, what causes scrap? What causes rework? You explain what your company does with the products that he or she makes. And you thank them very much for their efforts and contribution.
[00:38:38] It’s not just with the tour God, it’s really engaging with folks that are up and down the flow of the production, right?
[00:38:49] Absolutely. Yeah. And because you’ve got an operations person taking you through, they’re going to be able to introduce you and they’re going to be quite proud and pleased. I mean, unless there’s something they’re trying to hide, which is very unusual, you’re going gonna be a refreshing presence in a factory because, you know, customers don’t usually do these kinds of things. They don’t you know, they don’t ask questions and they don’t explain how their products are being used. And they don’t show appreciation and say thank you. So that’s really a heck of an advantage to a supply chain professional to be able to develop these kinds of contacts and relationships in there. These are key suppliers. You certainly don’t do this with how your suppliers, but certainly your key suppliers, you do this. And the other thing you’re doing while you’re asking what you’re going through, you’re also asking. The fourth thing is you’re asking general questions, you know, as you’re walking around observing. You should be kind of filling in if you can’t write it down. And sometimes hard to carry no patter with you.
[00:39:48] But you should be at least a mental checklist that you’ve got, you know, about their overheads and structure. You know, what’s their total headcount? You’d ask, you know, how many production workers are there? How many people in total? How many shifts do they run? How many square feet are devoted to production? How many square feet in the whole building? What’s the total output of the facility? Know in dollars or units? I’ll explain later. But all these things become really important later on when you actually go and try to figure out how you can work together and help each other.
[00:40:18] So taking these mental notes is really important to make sure that we’re really wrapping our head around the operation and its capability. Right.
[00:40:29] Yeah, and so that when you’re sitting and talking with your supplier and trying to figure out ways you can both win, you know, how can we make the fit even better? Oh, yeah, wood. Wood. Changing a specification slightly. I mean, maybe you saw a big scrap piles and recheck piles and you found out that the reason they’re doing that is they their control charts. They can’t. You look at the control tower and you see only good as they went out of control and under control, there’s a scrap bunch of scrap that’s usually associated with each of those little blips in the I talk to the operating operator says, yeah, you know, we can hold a file, but we can’t hold half a file tolerates. And then you go back to your engineers internally and you say, why are we specifying half a file? And the engineer says, well, I’ll be okay, but I don’t trust they’ll do it that way. I say half a file for sure. We get a file. Well, that’s that’s a great thing to discover because you can then go back to your supplier, say as long as you hold a file, you know, you can run it. And all of a sudden, you know, the controls shirts are much more, you know, in control or the operators are much more in control because now be the upper and lower limit of the control chart have been gone.
[00:41:39] Instead of a half hour, they go to a FAO office on the recheck piles, drop the they can probably speed up their equipment and everybody’s going to be a winner with that kind of. So that’s why it’s important to ask those questions and understand and basically understand how they make a buck and what their problems are so that you can see what you can do if you’re in to become, you know, help them, help them. So help them help you. Number five. Sorry to keep getting distracted. Here’s my fault. Finish up a shipping. Shipping. You’ll probably learn as much or more than you did receiving. You look for the inventories again, this is course finished goods inventories and then you can again, same question. Are they just in time shippers or do they store finished goods? And how does that relate to your needs? And you asked to see where your products are stored. Note the quantities in space and money tied up. Get a feel for what you know what it costs them to have you as a customer. The other thing you do it. I used to do at least the shipping was always request a person from production planning to join you a shipping. And then you ask the magic question what can we do to be a better customer? And you know, you’ll melt their hearts half the time.
[00:42:56] They can’t. Well, you know. Yes, but changing your order practices make life easier. What would it help reduce, setup or facilitate materials planning? What a small change. I just mentioned that small change suspects alone and run faster. All that bigger batches. Changing your order quantity. Fill up a pallet. Changing the number of pallets with that fill up a truck. Those were I thinking back in my career. I mean lots that I did come out of a plant and I go, my goodness. We’ve been really stirring this up in Hawaii. Be so difficult. We don’t. Some of the things we had to do. OK. We couldn’t order twice as much as they wanted, but we could order 10 percent more in lots of times. Those little things would go a long way from the supplier’s point of view. I was usually pleasantly surprised and even more so by the the ideas that flowed from the other side of things I hadn’t even thought of. So you wind up playing a really important foundation, I think, for future projects and idea sharing. So what you wind up doing this is number 6 is you’re building a broad base of relationships. You know, you meet as many people as you can. Yeah. You ask the thoughtful questions. You solicit their ideas. You really listen. You know, the art of listening is probably more important than hearing of asking questions.
[00:44:12] Even you can only benefit by creating these new relationships and nobody opening wider channels of communication that don’t depend on your sales rep being your only contact point. That’s a huge thing. Once you’ve got this broad base, you can start bringing your suppliers in and introduce them to your people, your engineers and your production people, your operations people. And once you’ve got these this this this broad web of connections, that’s when the really good ideas are circulating this everything you do. OK. The moment you’re alone, OK, you finished the plan to where you’re in your care, you get your notebook, go to your laptop and you write it all down while everything still fresh in your mind. I used to do a quick schematic, really messy, didn’t matter showing the lines and how they’re, you know, kind of how the plants set up, because you can still remember because you’ve been through it logically. You jot down what you saw. The key raw materials setup times, your impressions, you know, clean, dirty sides of scrap piles, operators, knowledge and involvement. Don’t forget the answers to the general questions, you know, square footage, number of people and brief shifts. But of course, all the good ideas that surface and the the names and emails of the people you met because you want to send a thank you note, which is always a really good touch.
[00:45:27] So. And the other thing, when you if you do all of this, when it comes time to model their costs or organize joint savings or, you know, cost initiatives, all this information is is invaluable. And it’s in your mind. You can actually and you can visualize what the suppliers are talking about when they say, you know, our scrap piles are caused by your tight tolerances. It isn’t an abstract concept anymore. You actually remember you can remember exactly what happened. Because because as you know, you physically were there. It isn’t just a I guess if you if you talk about something, you can remember and half, half the time. But if you actually do something, you remember 99 percent of it. So and the only thing and this always blows people away is after you’ve done all this work, you go and you visit competitors. Ticket. What? You’re crazy. Where do I find time to just go and look at, you know, one plant? I mean, I’m really busy. Even one tour. Now you’re talking about several and the answers. Yeah, that’s probably most important thing because learning about your suppliers capabilities is really important, but understanding his competitiveness even more so. And the only way to get understand is competitiveness is to get comparative data.
[00:46:36] So yeah, maybe he’s not a supplier. Maybe his competitors say, hey, I’m thinking of know would you give us a plant tour? Course they’ll give you a plant tour. I mean, they want your business and then they would be delighted to. Same thing. You had an operations person take you through and you’d be surprised how quickly and easily you can detect differences between suppliers, you know, their inventory policies, the competency of their operators, the size of the scrap piles, you know, how long they’re setup to times or how tight their control charts are and how involved their operators are. The amount of space staff relative to output, cause you’re in the output figures. And armed with this information, it isn’t as difficult as you think to pick out the best fit supplier. And if it’s the one you’re currently dealing with, that’s that’s really good. And if it’s not the one you’re dealing with, that’s even better because it means you’ve likely uncovered an opportunity to make a deal with a better fit supplier, which means you can reduce your costs and prove your quality and service and strengthen your supply chain and become competitive in this global marketplace. It’s certainly a fitting reward for all your hard work. So that’s so that’s the eight step structure that I kind of used when I was doing this for a living.
[00:47:46] So let’s recap that real quick. Number one, you get right to our. Number two, you started receiving. So it’s an intuitive tour that you remember. Number three, shake a few hands. Talk to the employees. Talk to the folks you meet across the operation. Number four, make sure you’re taking great mental notes. Number five, finish up its shipping. Number six, know, Bill, you know, you talked about making sure you’re making a good impression. You’re building a broad base of relationships so that you can always follow more folks rather than just the sales professional or the post talk basis. Number seven or right. When you get into the car, get time to yourself. But all those mental notes down on paper so that you can you can take action on hold those after the tour and Miura benchmarking gives it competitors. So you can kind of put what you see in context. But all of that Rod. One of my favorite things that you recommended to our audience to do is asking that question what can we do to be a better or that that is something. Some of these folks never hear from their customers. That’s a very powerful question.
[00:48:53] And if you really and if you’re sincere, which you are, because that’s how you learn, then it’s going to resonate. And Elvis, sudden you’re starting to form this. It’s a little bit like the first thing we talked about. It’s a little bit of team spirit starts to happen. We have these meetings between your preferred suppliers, your key suppliers and yourself. And if you some of the people you’ve you’ve met and they know you’re sincere and you know you’ve done things to help them, you know, reduce or scrap piles and things, they’re going to want to. It’s just human nature. They’re going to want to reciprocate. So it’s very powerful approach.
[00:49:27] One last thing before we move on. I want to make sure our listeners are familiar with ProPurchaser. One of the last things I want to make sure we’ll circle back to it.
[00:49:39] It’s important to have healthy suppliers. Right. You alluded to a couple of times, you know, making sure your your suppliers can, you know, how they make a buck. But it’s also important that they do make a buck, right, so that they can be stable wires.
[00:49:56] And there is not a zero sum game. It’s not win lose. I mean, they can make more money and you can save more money by taking kind of the waste out of the system. That’s you know, Edward Jay was Deming. And that’s this whole thing about creating like a one team. You’re really not one team. I mean, nobody’s where it would be a little naive to say, you know, you’re on the same side. You’re not quite on the same side. But there’s no reason you have to be competitors. And there are things you can do that actually help both parties. And those are things you. It’s and you wind up. Yeah, with very profitable suppliers and you’re happy they’re profitable because they’re more stable and they’re more profitable because they’re dealing with a customer who’s a better customer and they won’t. Wouldn’t be as profitable with other customers. So they’re going to want to stick with you and you’re gonna want to stick with them so you won’t end up with this kind of super solid supply chain, that low cost and high quality, and you’re fit to compete in the global economy that way. That’s that’s why I think you do it.
[00:50:59] So after we are creating shared goals and optimizing our plant tour approaches, let’s also kick the tires or ProPurchaser, because that’s an avenue that can help optimize your overall supply chain success. Tell us about what ProPurchaser is. Gives the Reader’s Digest version Rod.
[00:51:22] One thing that helps you understand your suppliers costs or help you understand how to negotiate with suppliers and when it comes to cost is understanding their costs and not just the cost of labor, but the raw material costs. So for example, if you buy fasteners, steel fasteners and the price of steel goes up, you’re going to get a call quite rightly from your supplier asking you to pay more because they’re paying more for the raw material. But what doesn’t happen and we all know this is that when the cost of steel goes down, they don’t call you to reduce the price. And you can’t expect them to. You know, everyone’s in business to make all the money they can and they probably get fired. They phoned you up to reduce the price unless, of course, they checked it out with their boss. But nobody we’re all in business to make all the money we can’t. So what ProPurchaser does is keeps track of suppliers, raw material costs. So when they go down, you get an email from us to say, hey, steel’s down, go know, negotiate a better price on this fastener. So it’s really as simple as that. We just help you keep track of your suppliers costs and you use that information to negotiate better deals and basically come up with fair pricing and fair relationships, which is kind of ties into this whole idea about, you know, creating a win win situation. You don’t know. It would be unfair to ask a supplier reduces costs when you it boosts prices when its costs have gone up so that you’re not doing that. But what you are doing is asking them to play fair and reduce someone where, in fact, they can’t. So suppliers, good suppliers, low cost producers, cost proud suppliers. They don’t mind transparency, this kind of cost transparency. In fact, they welcome it. They’ll focus on the things that they do well. And they’ll you know, if their raw material costs go down, they’ll give you a discount. Then it works both ways. And that’s kind of what we do.
[00:53:09] Data at your fingertips so you can ask them the questions that can lead to savings that you may not have been aware of earlier. Right.
[00:53:18] Right. And it’s custom to likely, you know, you don’t get everything. You just tell us what your suppliers buy. Maybe you buy packaging, maybe you buy chemicals or wood products or metals or plastics. And then those are the things that we inform you. I mean, you might only have 10 items if you really think about it. Most people can probably get away with 10 to 15 different raw materials and that because that would cover the vast majority of what their suppliers purchase to make the things that they need.
[00:53:47] And Rod is always as well. Always ask each of our featured guests on our podcast. How can our listeners get in touch with you to learn more about ProPurchaser?
[00:53:57] Well, this go to just w w ProPurchaser dot com. That’s one way you can. There’s a contact us there. You can certainly send me an email. Rod dot Sherkin Sherkin spelled like a gherkin with an S instead of a G. It says s h e r cayenne. So Rod dot Sherkin ProPurchaser.com. Be happy to answer any questions people have. And I guess it’s alright with you, Scott. They could maybe go through Supply Chain Now Radio and just say Attention Rod and you could maybe pass it on to me if that’s easier.
[00:54:34] Absolutely. In answer to our audience, you can always she doesn’t note at connect at Supply Chain Now Radio dot com and we’ll get that to the right folks in Rod. You also you do a variety of keynotes. You do I know you do lots of successful webinars that really resonate with folks in procurement in the greater Indian supply chain. So we also might encourage our listeners if they’re looking for. Or a great speaker to reach out Rod as well, right?
[00:55:03] Sure. That’ll be great. Thank you. Yeah, I do that. Yes. If they’re interested in webinars to send me an email and we can send you links to webinars as well.
[00:55:11] Fantastic. Rod is always really enjoy our conversations. I love how how practical your advice is and how it is proven right. You’ve been there and done that and so many different ways. So underwear conversations together.
[00:55:26] I do too. Thank you.
[00:55:27] All right. Speaking to Rod Sherkin, president of ProPurchaser.com, we invite you to connect with it with Rod and with us after the show, if there’s anything we can do to help, we’ll take that. Let us know again. Our email address is simple. It is connect at Supply Chain Now Radio. Become Rod again. Thanks so much. And stick with us as we wrap up with some upcoming events.
[00:55:48] As always, want to invite our audience. Come check us out in person. We are at a variety of that.
[00:55:53] We just got back from North Charleston, South Carolina, where we were at the AIAG SCAC Supply chain and Quality Conference, which really focused on the world of automotive. Really enjoyed our time conducting about 15 interviews there with folks from Volvo Cars, U.S. and Bosch and a number of different attendees and keynotes. But upcoming looking at schedule ahead, we’re going to be at the Georgia Manufacturing Alliances Georgia Manufacturing Summit on October night here in Atlanta at the Cobb Galleria. Not only are we going to be broadcasting, but we’re also going and leading a panel session focused on the topic of trends to track across supply chain. We’re going to talk innovation, sustainability, continuous improvement, technology and transportation with some of the leaders in our industry. So registration is still open and that you can go to Georgia manufacturing alliance dot com to learn more and to register. Really neat side sidebar to the summit. Is Jason Moss, the CEO of the Georgia manufacturing alliance is freed up 50 seats specifically for veterans. You know, we always talked about how important it is to help our veterans make connections in the private sector, whether it’s for transition. And maybe they’re looking for that. Right. Their first job in the private sector, or maybe they’ve already transition. And like most veterans, you know, you’ll have an opportunity when you’re serving to really cultivate a private sector network. So these events are great opportunities to do that while gathering best practices and market intel. So 53 seats, if you’re a veteran listening to this, you can use a promo Code U.S.A. bet at the registration side to take advantage of those seats as they last. So October knocked Georgia Manufacturing Summit.
[00:57:36] We’re going to be in Austin in November at the 2019 Logistics CIO forum with our friends at EMT working on a couple events to wrap up in the year own. But looking at early 2020, we’re looking forward to being at Las Vegas with the reverse Logistics Association Conference and Expo. And in March 20 21 here in Atlanta, we’re on welcome mode X 2020, which is one of the largest supply chain trade shows in North America. About thirty five thousand folks, they’re inviting out to Moto X 2020 or expecting to be in attendance. We’re going to broadcast live throughout the four days. And the great folks at Remote X are going be hosting have agreed to host our 2020 Vetlanta Supply chain Awards right here in the Supply chain City. So looking forward to that. It is free to attend Mode X. You can go to Moto X showcase of the X show dot com a great deal and come out and join us. Surf those Lu broadcasts. Once again, big thanks to our guests today here in Supply Chain Now Radio Rod Sherkin, president of ProPurchaser.com. We invite you to check out his organization or send us a note if we can help you get connected to our audience. Be sure to check out other upcoming events, replays or interviews, other resources that Supply Chain Now Radio. Com. Again, financial NAPO, podcasts, SoundCloud, Spotify, YouTube, all leading sites for podcasts can be found. Be sure to subscribe. So don’t miss anything on behalf of the entire Supply Chain Now Radio team. This is Scott Luton wishing you a wonderful week ahead and we’ll see you next time on Supply Chain Now Radio. Thanks so much.
Upcoming Events & Resources Mentioned in this Episode:
Help with Hurricane Dorian Relief: https://www.alanaid.org/
Connect with Rod on LinkedIn: https://www.linkedin.com/in/rod-sherkin-6b64661/
Sign up for a free trial of ProPurchaser.com: https://tinyurl.com/y6l2kh7g
Connect with Scott on LinkedIn: https://www.linkedin.com/in/scottwindonluton/
Georgia Manufacturing Summit on October 9th: https://www.georgiamanufacturingalliance.com/annual-summit
SCNR to Broadcast Live at SC Logistics 2019 Fall Tech Talk: https://tinyurl.com/y2mttrg8
eft Logistics CIO Forum in Austin, TX: https://tinyurl.com/y5po7tvw
Reverse Logistics Association Conference & Expo: https://rla.org/calendar/1
SCNR to Broadcast Live at MODEX 2020: https://www.modexshow.com/
SCNR on YouTube: https://tinyurl.com/scnr-youtube
Check Out News From Our Sponsors:
The Effective Syndicate: https://www.theeffectivesyndicate.com/blog
APICS Atlanta: www.APICSAtlanta.org
Spend Management Experts: https://spendmanagementexperts.com/
Georgia Manufacturing Alliance: www.georgiamanufacturingalliance.com
Supply Chain Real Estate: https://supplychainrealestate.com/
Vector Global Logistics: http://vectorgl.com/