The Manufacturing Executive
The Manufacturing Executive

Episode · 1 month ago

Planning for the Long Haul with Supply Chain and Labor w/ Rob Tracy


You probably don’t need another reminder that the pandemic changed the world — when it comes to manufacturing, the deepening labor shortage and increased supply chain difficulties are obvious.

And there are two ways you can think about these issues:

You can either hope that they’re temporary and wait for them to get better — or you can face the world as it currently is and do something about it.

Today, I’m speaking with Rob Tracy , Consultant at Rob Tracy Consulting and author of How to Fix a Factory, and for him, the c hoice is easy — let’s do something about it.

In this episode, we discuss:

- The root of the supply chain and labor issues

- 4 ways to proactively do something to address them

- Why now is a good time to rethink your organization’s operating system

Subscribe to The Manufacturing Executive on Apple Podcasts, Spotify, or our website.

Listening on a desktop & can’t see the links? Just search for The Manufacturing Executive in your favorite podcast player.

You can hope that some of these thingsget better that the supply chin issues would get better, that the peoplesituation will get better or you can just confront the brow facts that thisis the way things are and then come up with your plan about what you're goingto do with it. Welcome to the manufacturing executivepodcast, where we explore the strategies and experiences that aredriving midsize manufacturers forward here, you'll discover new insights frompassionate manufacturing leaders who have compelling stories to share abouttheir successes and struggles, and you will learn from bt sales and marketingexperts about how to apply actionable business development strategies insideyour business. Let's get into the show, welcome to another episode of theManufacturing Executive Podcast, I'm Joe Sullivan Your House and a Cofounder of the Industrial Marketing Agency guerrilla. Seventy six two majorissues have dominated the many conversations I've had withmanufacturing leaders since early two thousand and twenty one, the laborshortage and to supply chain disruption. The former was clearly a problem priorto two thousand and twenty. That was only exacerbated by the arrival of Ovid,the latter, whether we should have seen it coming or not. It's probably more aproduct of the pandemic, but what we know now is that neither is a shortterm issue. These are realities that manufacturing leaders will be dealingwith for the foreseeable future. So today my guests will talk about whymanufacturing leaders need to start looking at these two issues, labor andsupply chain as being here for the Long Hall and how they can shape theirstrategic plan. Accordingly, Rob Tracy is the president and founder of RobTracy consulting with more than thirty years of leadership. Inside ofmanufacturing companies rob provides practical advice, that's grounded inexperience before founding his consultancy Rob Haud a number of seniorleadership roles in both large and small companies with titles like CEO,Coo and vp of operations, in addition to being highly experienced with lean,rob, holds of Bachelor of science in industrial and operations, engineeringfrom the University of Michigan and is a graduate of Minnesota ExecutiveProgram at the University of Minnesota's Carlson School ofmanagement in two thousand and Nineteen Rob released his book how to fix afactory in which he gives practical advice on how to lead a plant whenthings have gone. South Rob Welcome back to the show thanks joe good to behere. Ossime Rob I'm interviewing you right now for what I believe is goingto be episode. Seventy of this podcast. You were also my guest for episode, six,which was a good fourteen or fifteen months ago, so good to have you backthanks for heavy back and congratulations? Well, thank you yeah.I think you're, my only one of two or three that's being to return guestshere. So I guess you did something right. Huh or you're desperate were I'mdesperate yeah. I guess I guess maybe that's the case. No, I'm just kiddingbut well, I guess wouldn't know this,...

...but after we did our episode together,you and I kind of struck up further conversation and then our company girl,O Seventy six, actually wound up hiring you to help lead us through strategicplanning. What you've been doing with us since I guess December- and it'sbeen an awesome experience- and I ve learned a lot from you in that time andwanted to get you back here to share more of your knowledge and wisdom withour listeners here, lapre IAT, that's been a great relationship with you guysyeah. Likewise, I would say exactly the same so well, let's dive in here robobviously we've been living in what's a very different business environmentright now, compared to where we were say a year and a half ago, pre pandemicand as a guy who has led manufacturing organizations from inside and morerecently consulted from the outside. Can you tell us from your perspectivewhat has changed? I was thinking back to eighteen months ago and what thatfelt like, and even if the pandemic was starting to happen, we're going throughone set of change, so there's just a ton of change for the last eighteenmonths at first, you know factors are shutting down, we're all going underquarantine and we had to to figure out how we're going to survive through this,not knowing what was coming at US deal with the whole myriad of issues from hrpolicies to even financing. In some cases you know so that was going on andthen we get to the middle of pandemic and well, a lot of manufacture did wellif you're in the right market. You did really well if you're servinghospitality and Arrow space you weren't doing well, but a lot of manufacturewas doing okay, but in here we are- and I guess I didn't anticipate thishappening- we're in a different world where it's we're constrained, we'reconstrained with on capacity and it's both the talent side which wokeeverybody's talking about it. But it's also the supply side and the availablethe materials and logistics and in my career, I've only seen one other timewhere we're in this capacity can strain environment and it was a business I wasrunning in Catrina hits struck in the Gulf and I just couldn't get materials,but I knew there was an end of that. This is different this. This feels likeit's got a little longer legs to it, yeah for sure, I'm here in kind of thesame thing, ASD, I'm sure most of our listeners are to and living andexperiencing, and so as we look at what has changed it kind of begs thequestion you can today's manufacturing leaders just put their noses down andgrind through it in hopes that they come out in one piece or is it timethat they start to think more strategically about all this disruption?We've seen and look at it as more of a long term issue that they're going tobe dealing with yeah. You know that's a there's, a lot of fascist that questionon one hand you look and say back in the the old days. I won't say the oldnormal: Maybe it was kind of a given that there is adequate capacity in thesupply chain which put a lot of power in the hands of the buying side oftransactions. You know if you weren't working out, they knew where to go, andit seems like now we're almost at a point that just having capacity and theability of the fill customer demand is becoming a competitive advantage. Sothat's a that's something to think about from a positive perspective interms of whether this is a short term deal or a long term. Everybody's gonnahave to make their decision for...

...themselves, but I think there's enoughto see that some of what we're going through won't be fixed in the next fewmonths. You know the supply chain issues, everything I'm here. Even thechip shorty for the manufacture of the auto industry is predicted to gothrough two thousand and twenty two other supply chains. It's hard to sayhow long is Goin to take for those to recover, and then you, the other sideof that, which is the people's side, in least in the US here. I'm not seeing anend to it. Other people may see where, where that's going, to go away and notbe as big of an issue, but I think that there's been a fundamental shift in teaavailability of people for manufacturing organizations and asomething we're going to have to come up with a each organization is got togo up with a plan for how they're going to attack that handle it. I don't youcan choose to grind it out, but I think that's doing at your own risk. Now thatmakes sense. I had a lot of people come on this show and talk about the Laborside of of what you just talked about, and you know different solutions fromdiversifying the work force and looking in other places to you know things youcan do to engage the schools and bring younger people into you, know roboticsand automation, and for the most part, everybody seems to be an agreement thatthis problem is not just going to get better right. It's going in the otherdirection, like the one of the extreme points of of you know, areas where this.This is a problem that I keep here in time and time again is the weldingindustry, where you have just people exiting the workforce at such a fasterrate than entering, and so but y seems to be sort of a microcosm of what'sgoing on across the manufacturing sector. It's on that front, I mean wecould talk about the different avenues to bring people in, but that's beentalked about a kind of Ad Nazan lot of different people. When I think about,if I were back, you know still in a cl role trying to fire. What am I going todo to navigate this there's two things that come to mind from inside theorganizations. One is what are my customer facing strategies you know andby that I'm talking about how am I going to handle the fact that I don'thave enough capacity to meet customer demand and which means in general, leadtimes go out and what's my practice for my policy, am I going to treat all mycustomers the same? I'm like no get preferential treatment to some so thatthat'd be one tier. I think there's product choices to make about. Do Iwant to continue to make all the products of I've got x amount ofcapacity. Do I continue do I want to continue to make everything, or shouldI be saying I'm going to take away some of these products because they consumemore capaci? They don't bring Martin dollars there for a customer group thatisn't really who I want to grow the business with. Maybe I should bethinking about truncating some product choices, or even some customerrelationships and the third one is pricing. You know when you're there'ssupplying to man are there pricing choices that I should be thinking aboutin the shorter man, so those are all kind of customer facing strategies.Then the other piece that comes to mind for me from a managing the businessperspective is, I think, the economics of how you make investments havechanged. So I think I just give an example when there is adequate capacityand everybody had capacity. If you were thinking about investing in automation,it was for a cost reduction. You know...

...we labor reduction or something wasyou're going to take cost out of the equation. Nowadays, I think that'schanged. You could be investing in automation because a the Labor isunavailable and be it hopes to create, through put it, helps you produce more,which turns into revenue which has a much different economic equation thanjust a cost reduction of labor reduction, and so how you think aboutcapital investment and in investments in general. If it's going to lead toadditional throughput, I think that's got a huge impact on the business thatit is a real difference from back pre pandemic when everybody felt like theyhad capacity. Okay, ROB! So let's talk about some options here. So if we agreethat yes, there is a greater demand than ability to fill it. What consciousdecisions can a manufacturing leader make? You know, that's a great question.I think there are four kind of areas that where manufacturers can choose tomake decisions that you know in response to the situation we're in thefirst one tempt that comes to mind is lead times and the lead times tocustomers and most manufacturers. I don't know its post. A lot ofmanufactures have already had to extend lead times just because the volumecoming in for orders exceeds their ability to produce them, whether it'sbeing caused by a Labor constraint or a supply constraint, and it usuallystarts early in that process by missing on time delivery, and then they facereality and once they've missed on time deliveries. They start to extend leadtimes which makes their customer upset. But I think it's become kind of thenorm now, as lead times are going out. We're all sensing that I think thequestion that Manu fashioning leaders can ask themselves is: Do I want tospread this around like peanut butter and treat everybody the same or do Iwant to give preferential treatment to some and, and that can be a prettycharged questions, because it makes a hit face and say: Do I havepreferential customers? Do I have some customers at what I call a B and cwhere the at customers get their standard lea time that they're used tosome get me of something in the middle and some will get their product whenthey get it we'd like to think that all customers are the same and treat allcustomers the same, but that at least in the businesses I've run reallywasn't the discussion we had inside our walls, and so this might be a timewhere you say you know what I want to make sure that my best customers arestill getting treatment in the customers that I want to build. Thecompany round are getting a better treatment than those that I don't wantto build as part of my future. That's a pretty deep conversation and I've beena part of them where they can get pretty controversial. WHO ARE PRETTYHEATED? Oh for sure I mean you know it's like the common. You know like thecliche things he hear is like all. Customers are most important customerand I mean come on. Let's, let's be real here like yeah, you should shouldyou treat them that way. Does everybody do deserve to be serviced well andtreated the right way? Yes, but there's also ways to set expectationsaccordingly. Right, and I think that's that's something. That's that's reallyimportant on that front. Is You can't promise the world to somebody WHO's?One Tenth of the volume is another customer and lower level ofprofitability. At the same time like we...

...just need to set proper expectations, Ithink with customers. I think that's worthy of a really healthy discussionwith a senior leadership team about where do we want to go now? There couldbe long time consequence, as you ask the question earlier about whether thisis something that's going to be around short term or long term. If you make achoice to give some people preferential treatment in others, don't get that,but the people that that don't get the good lead times. They may not be yourcustomers long term, and so it this ends up being a short live thing thatyou may be making a choice to not work with some people down the road. Butthat's why leaders get paid as leaders is to make those kind of calls in thosejudgments. That said, if you give, that short lead time to a really strongcustomer, they're gonna have to keep more business with you and increasetheir loyalty to you, because he took care of him during the tough times soextending lead times creating tears of customers or kind of deciding if we'regoing to essentially discriminate it. So I don't know if that's the rightword right, but that's essentially what you're making conscious decisions aboutwho you're going to give some preferential treatment to potentiallyas customers right it's a charge for these days, but that's a you are makinga choice around customers and how, in some customers will get treateddifferently than others, and I think your highest fine customers, yourbiggest customers, would say. That's only fair, that's the right thing to doso. What else? The second one would be! Just product choices, we've all got a K,W A portfolio products that make or manufacturers do, and it's prettycommon to see a a cluster where there's a whole ghtened. Twenty percent of theproducts generally, eighty percent of the volume and then there's this longtale of options- and my experience has been- is that long tale consumes aninorder amount of resources and sometimes it's people on the floor inthe time on the floor. But it's engineering and customer service andpeople doing the catalogs, and then you sales and marketing doing thepromotional literature and it just creates complexity in the organization.One question to ask is: Is this the right time to say: Let's liberate someof our capacity that's being consumed by that twenty percent of the volume?That's that long tale of products and reallocate that to a simpler, easier torun business that drives good volume and let's start trimming that that tailoff, and you can do that a lot of different ways. You do that eitherthrough pricing or you can actually just say we're going to startobsoleting certain product lines or we just don't offer those any longer, buttrimming a product line is an you could say the same thing about customers.They probably got that same relationship, but making theorganization less complex and reducing the amount of capacity and energythat's allocated to you know that long list of things is, can really be aCamoodi effector end up having a lot more resources available for themajority of the capacity you continue to grow. In that majority of yourcapacity or majority of the volume I like that one, a lot I mean I run avery different business, obviously that a manufacturing business we've beenthrough this ourselves many times over the years and we're going through itright now to or we're looking at like. Why are we doing this this this andthis still or how did we ever wind up doing this thing over here? Weren'teven good at this, and we don't make any money doing it right, and so it'slike you ve some point. You just you...

...realize you look at your productportfolio, your service, but fully, and you just saying like these are thethings we're good at these are where we make money. This is what we should bedoing right and inside the manufacturing plants. What'sinteresting, is you got to be really careful not to use a gross marginreport to tell you which ones you got to be keeping in? Not because the grossmargin is just the things that have been put into the bill of materialabout what it should take for labor and what it should take for material? Itdoesn't capture all that up front customer service time in engineeringtime and management I'm dealing with or county having to deal with a smallcustomer that doesn't pay in their bills quite as well. It doesn't dealwith all those things that are the real capacity consumers. So this is when youhave to do a gut check with your team and say: Where are we consuming energy,which of those customers and which are those products that are a real pain andthat are consuming more effort than they're worth and start making? Somecalls so yeah, it's a again just like with lead times. It's not easyconversations, it's hard to look and say we're going to make a choice not todo some things and walk away for some volume, but in this time of beingcapacity limited, it might be a different mindset that we knew toembrace so extending lead times creating tears of customers making someproduct choices. Anything else you'd do dad to that list, or is that kind of wegot two more things that maybe to think about one is just pricing there. Thereis supply and demand when things were when demand was plant or when supplywas plentiful, the buyers had the offer hand and if you are running a be to beshop or contract manufacture, you felt that price pressure every single day.The shoe is on the other foot now and so whether that's an employe lookingfor a job, they know they've got leverage and now, for the first time ina long time he was the manufacturing have leverage as well, and I think it'sa strategic question to start asking saying where you look and say you knowyour inputs. Not only are your direct cost going up, but you also know thatdemand is high and availability of scare is a time to go. Get some of thatstuff that margin that has been eroded over years of the shoe being on theother foot and the buyers. Having so much of that power again, you talkabout a gutsy call, because you can always think that you're going to getleft out, but right now, behaving availability of capacity and being ableto make product is a competitive advantage in a lot of supply chains,and maybe it's time to take advantage of that. So I'd be the third one andthe fourth one isn't so much about those. I would call those let first foryou, you know our customer facing choices. I think the next category forleaders to really think about is how are they evaluating their investmentsthat they want to make in well start with just thinking about capitalinvestment. You know, historically, when we came time to buy a piece ofautomation and put on the floor, the primary drive for that with costreduction like if we bottome this, we can take labor out of the equation andthat Labor cost goes away. Well, things have changed now. If what we're reallylooking for to meet customer demand is we need some extra capacity when we putthat automation and that we need first all means what person won't have tohire with that may not be available, but if at allows us to get extrathrough quit through the plant, and I for those people who have read the goaland the no theory of constraints they...

...define through put it the rate at whichthe the the factory generates money. So it's got to turn into an investment.That brings that. So that's a constraint operation if you're able toinvest in a constraint that allows for more through put now the the paybackisn't, the cost reduction is premised on the amount of revenue you're able tobring in because you you no longer have that constraint in the organization. Soin the economics are just very, very different. You know taking the Laborout, which is you know, maybe ten percent or fifteen percent of your costis wont one thing, but when you start talking about being able to sell morewhere your margins might be thirty, forty, fifty percent, now you have thatwhole margin stream coming in instead of just the cost reduction. Sorethinking how you evaluate investments, I think it can really help you thinkabout what that future might look like and where you want to allocate yourcapital investment yea. Even things like payin benefits, you know, addingpan benefits would have just been on the cost ledger before, but now, ifit's on the capacity side of the equation. Well, by doing this, ourassumption is by bringing by you doing this with you know, making this changeand pay or this change in benefits. Yes, our cost for people go up, but if thatallows us to bring more through, but through the operation, it may be a very,very good investment and should think about of it as an investment and notjust a cost. Yeah Really Smart Perspective there. I like that. Sothose are the four that I had you know lead times, making product choices,looking at pricing and then just being real thoughtful about whether youconsider things a cost or through put generator for Your InvestmentStrategies, Rob let's bounce over to another topic here. I know that you're,a major advocate for running a business on a structured operating system. Manyof our listeners are probably familiar with EOS with the entrepreneurialoperating system based on traction by Gino Wick men. I know you've createdyour own operating system that you call mls, which is short for themanufacturing leadership system, given the changes we're seeing how dooperating systems fit into this picture. From your perspective, it's a greatquestion. You know there's a lot of operating systems out there. You knowus is one I've taken. What I've think are some best practices from a lot ofdifferent operating systems and put them together, especially you knowsmall and midsize manufactures, but they're scaling up. You know becausesome people embrace the management and but all of these systems are focused onexecution they're about getting things done. They're about you know gettingreally proficient and getting an organization aligned towardsimplementing of strategy the under on the the imp implication is or the whatthe implied assumption is with an Pran system is that you have a strategy andthat strategy is working and if it that you already know where you want to goin where you want to head with the organization and the operating systemhelps you get there faster, better, smarter with the changes were seeing inthe world today and as we just talk through some, I think what ave somereally important discussions and decisions that you can make. You haveto be almost careful with an operating system because it'll help you go faster,but you need to make sure you're going in faster in the direction you want togo and if you need to really rethink...

...some of the things like, let's just useleague times as an example, you want to have direction on that before you startgetting really good at the before you jump into just. How do we executefaster? You know your capital investment. You could take a bunch ofpiecemeal decisions from capital investment and do a faster be madewithout thinking back about what your strategy is. You may be doing thoseinvestments in all the wrong places, because you don't know what that Arrowis and where you're pointing to you know in this new world. So I loveoperating system. I M A big Fan, but maybe a good time to dust off whatyou've got in your strategic plan, because it may be a little dated atthis point and it may be time to ask the question about is a time to putsome of the new world perspective into our strategic plan and think about whatthat means for the future of the company. Let's good advice, I like it,rob anything else that I didn't ask you about that you'd like to touch on today.I don't have much. I guess the only thing that I was reflecting on is I gotback to what Jim Collins said in his book good to grade. Is he one of thethings that separates the good from the from the grade? Is the willingness toconfront the brutal facts- and I do feel like we're a little bit in that-is that you can hope that some of these things get better, that the supply chinissues a get better, that the people situation will get better or you canjust confront the brow facts that this is the way things are and then come upwith your plan about what you're going to do with it. I've run organizationsthat are in that were in trouble and even when, when you're, faced withoptions that aren't great options, having a plan and having a mad heavingmade conscious choices about how you want to handle it, and what you'regoing to do makes you sleep well at night, and so I did that encourageeverybody to take stock at where we're at a stacker. The situation. Don't justFree Act Day today and create that plan going forward. It'll make you sleepwhile great way to wrap it up. Well, Rob: can you tell our audience how theycan get in touch with you and where they can learn more about themanufacturing leadership system, as well as kind of what you're doing tohelp business leaders like those who are listening right now, yeah,absolutely I can be found a few different places. You can go to mywebsite, Rob Tracy Dot net. That's Rob Tracy that net, I'm on linked inactively you'll, see me out there you just I connect with me. I like toconnect with everybody. I do have a I'm a consultant, so I do this for a livingI like to work with small and midsize manufacturers, helping them implementan operating system to do do strategic plan as well. So if that's somethingyou feel like, you want a little bit of facilitation with. So let's be theeasiest way to get hold of me great yeah. I encourage anybody listeninghere, who's intrigued by what robs been talking about, go check out what he'sdoing on Linkedin, because robber you're one person who I think is isreally doing a nice job with your personal brand and you're. Creating aton of value through the content, a lot of the video content, even filming, butreally thoughtful you're, giving helpful advice without you knowpromoting yourself, which is exactly what we're advocates for. So you can go,learn for something from rob. Even if you're not going to hire him go, golook at what he's doing out there and Linkedin and you've got some good stuffon your website as well, so really good resource for for manufacturing leaders.To appreciate that thanks, Joe Awesome...

Will Rob, I guess, we'll put a rap onit. Her appreciate you doing this today again, it was really great being here,a good talk with you and hope your listeners got a little bit of value outof this yeah. Maybe we'll have you back for around three some day yeah. I hopeso I be great all right. That's for the rest of you! I hope to catch you on thenext episode of the Manufacturing Executive. You've been listening to themanufacturing executive podcast to ensure that you never missed an episodesubscribe to the show in your favorite podcast player. If you'd like to learnmore about industrial marketing and sales strategy, you'll find an everexpanding collection of articles, videos guides and tools, specificallyfor B to B manufacturers at grilla. Seventy sixscore Ahwar. Thank you somuch for listening until next time, e.

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