The Manufacturing Executive
The Manufacturing Executive

Episode · 1 year 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.

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You can hope that some of these things get better, that the supply chain issues are get better or that the people situation will get better, or you can just confront the brew effects, that this is the way things are, and then come up with your plan about what you're going to do with it. Welcome to the manufacturing executive podcast, where we explore the strategies and experiences that are driving mid size manufacturers forward. Here you'll discover new insights from passionate manufacturing leaders who have compelling stories to share about their successes and struggles, and you'll learn from B tob sales and marketing experts about how to apply actionable business development strategies inside your business. Let's get into the show. Welcome to another episode of the Manufacturing Executive podcast. I'm Joe Sullivan, your host and a cofounder of the Industrial Marketing Agency guerrilla. Seventy six two major issues have dominated the many conversations I've had with manufacturing leaders since early two thousand and twenty one, the labor shortage and to supply chain disruption. The former was clearly a problem prior to two thousand and twenty. That was only exacerbated by the arrival of Covid the ladder, whether we should have seen it coming or not. It's probably more a product of the pandemic. But what we know now is that neither is a short term issue. These are realities that manufacturing leaders will be dealing with for the foreseeable future. So today my guests will talk about why manufacturing leaders need to start looking at these two issues, labor and supply chain, as being here for the long haul and how they can shape their strategic plan accordingly. Rob Tracy is the president and founder of Rob Tracy Consulting. With more than thirty years of leadership inside of manufacturing companies, rob provides practical advice that's grounded in experience. Before founding his consultancy, Rob held a number of senior leadership roles in both large and small companies, with titles like CEO, CEO and VP of operations. In addition to being highly experienced with lean, rob holds a bachelor of science in industrial and operations engineering from the University of Michigan and is a graduate of Minnesota Executive Program at the University of Minnesota's Carlson School of management. In Two Thousand and Nineteen Rob released his book how to fix a factory, in which he gives practical advice on how to lead a plant when things have gone south. Rob, welcome back to the show. Thanks, Joe, good to be here. Awesome Wi. Rob, I'm interviewing you right now for what I believe is going to be episode seventy of this podcast. You are also my guest for episode six, which was a good fourteen or fifteen months ago, so good to have you back. Thanks for have you back and congratulations. Well, thank you. Yeah, I think you're my only one of two or three that's been a return guest here, so I guess you did something right, Huh? Or you're desperate or I'm desperate. Yeah, I guess. I guess. Maybe that's the guys now. I'm just kidding, but well, I our guests 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 is seventy six, actually wound up hiring you to help lead us through strategic planning. What you've been doing with us since, I guess, December, and it's been an awesome experience and I've learned a lot from you in that time and wanted to get you back here to share more of your knowledge and wisdom with our listeners here. Well, appreciate that's been a great relationship with you guys. Yeah, likewise, I would say exactly the same. So well, let's dive in here, Rob Obviously we've been living in what's a very different business environment right now compared to where we were, say, a year and a half ago pre pandemic. And as a guy who has led manufacturing organizations from inside and more recently, consulted from the outside, can you tell us from your perspective what has changed? I was thinking back to eighteen months ago and what that felt like and even if the pandemic was starting to happen. We're going through one set of change. So there's just a ton of change for the last eighteen was at first, you know, factors are shutting down, we're all going under quarantine and we had 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 HR policies even financing in some cases, you know. So that was going on and then we get to the middle of pandemic and well, a lot of manufacturing did well. If you're in the right market, you did really well. If you're serving hospitality and aerospace, you weren't doing well. But a lot of manufacturments doing okay. But here we are, and I guess I didn't anticipate this happening. We're in a different world where it's we're constrained. We're constrained, but on capacity, and it's both the talent side, which were everybody's talking about it, but it's also the the supply side and available the materials and logistics. And in my career I've only seen one other time where we're in this capacity can strain environment and it was a business I was running in Katrina has 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 like it's got a little longer legs to it. Yeah, for sure, I'm here in kind of the same thing as I'm sure most of our listeners are two and living and experiencing. And so as we look at what has changed, it kind of begs the question you can today's manufacturing leaders just put their noses down and grind through it and hopes that they come out in one piece, or is it time that 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 to be dealing with? Yeah, you know, that's a there's a lot of fastest that question. On one hand, you look and say, back in the the old days, I won't say the old normal maybe it was kind of a given that there is adequate capacity in the supply chain, which put a lot of power in the hands of the buying side of transactions. You know, if you weren't working out, they knew where to go. And it seems like now we're almost at a point that just having capacity in the ability to fulfill customer demand is becoming a competitive advantage. So they that that's a that's something to think about from a positive perspective in terms of whether this is a short term deal or a long term everybody's gonna have to make their decision for themselves.

But you know, I think there's enough to see that some of what we're going through won't be fixed in the next few months. You know, the supply chain issues, everything. I'm here even the chip shorty for the manufacture. If the auto industry is predicted to go through two thousand and twenty two other supply chains, it's hard to say how long it is going to take for those to recover. And then you the other side of that, which is the people side, in least in the US. Here I'm not seeing an end to it. Other people may see where where that's going to go away and not be as big of an issue, but I think there's been a fundamental shift in the availability of people for manufacturing organizations in as something we're going to have to come up with a each organizations going to come up with a plan for how they're going to attack that handle it. So I don't you can choose to grind it out, but I think that's doing at your own risk. Now that makes sense. Had A lot of people come on this show and talk about the Labor side of what you just talked about, and you know different solutions, from diversifying the workforce and looking in other places to you know, things you can do to engage the schools and bring younger people into you know robotics and automation and for the most part everybody seems to be an agreement that this problem is not just going to get better right, it's going in the other direction. Like the one of the extreme points of you know, areas where this this is a problem that I keep her in time and time again, is the welding industry, where you have just people exiting the workforce at such a faster rate than entering, and so, buddy hat. It seems to be sort of a microcosm what's going on across the manufacturing sector. It's on that front. I mean we could talk about the different avenues to bring people in, but that's been talked about and kind of add nas going by buy a lot of different people. When I think about if I were back, you know, still in a CEO role trying to fire, what am I going to do to navigate this? There's two things that come to mind from inside the organizations. One is what are my customer facing strategies, you know, and but that I'm talking about how am I going to handle the fact that I don't have enough capacity to meet customer demand and and which means in general lead times go out, and what's my practice from our policy? Am I going to treat all my customers the same I'm going to give our frenial treatment to some so that that'd be one tier. I think there's product choices to make about do I want to continue to make all the products that I've got x amount of capacity? Do I continue? Do I want to continue to make everything? Or should I be saying I'm going to take away some of these products because they consume more capacity, they don't bring margin dollars there for a customer group that isn't really who I want to grow the business with. Maybe I should be thinking about truncating some product choices or even some customer relationships. And the third one is pricing. You know, when you're there's supplying to man or other pricing choices that I should be thinking about in the shorter and so those are all kind of customer facing strategies. Then the other piece that comes to mind for me from a managing the business perspective is I think the Echo I'm makes of how you make investments have changed. So I don't just give an example when there is adequate capacity and everybody had capacity. If you were thinking about investing in automation, it was for a cost reduction. You know, the the Labor reduction or something...

...was you're going to take cost out of the equation. Nowadays I think that's change. You could be investing in automation because, a, the Labor is unavailable, and be it helps you create throughput, it helps you produce more which turns into revenue, which has a much different economic equation than just a cost reduction or a Labor reduction. And so how you think about capital investment and in investments in general, if it's going to lead to additional throughput, I think that's got a huge impact on the business. That is a real difference from back prepandemic when everybody felt like they had capacity. Okay, rob so let's talk about some options here. So if we agree that, yes, there is greater demand than ability to fill it, what conscious decisions can manufacturing leader make? You know, that's a great question. I think there are four kind of areas that we're manufacturers can choose to make decisions that, you know, in response to this situation where in the first one that comes to mind is lead times and the lead times to customers, and most manufacturers, I don't know if it'supposed, a lot of manufacturers have already had to extend lead times just because the volume coming in for orders exceeds their ability to produce them, whether that's being caused by a Labor constraint or a supply constraint, and it usually starts early in that process by missing on time delivery and then they face reality and once they've missed on time deliveries, they start to extend lead times, which makes their customer upset. But I think it's become kind of the norm now, is lead times are going out and we're all sensing that. I think the question that manufacturing leaders can ask themselves is, do I want to spread this around like peanut butter and treat everybody the same, or do I want to give preferential treatment to some and and that can be a pretty charged questions because it makes you hit face and say, do I have preferential customers? Do I have some customers I want to call a B and C, where the a customers get their standard lead time that they're used to, some get me something in the middle and some will get their product when they get it. We'd like to think that all customers are the same and treat all customers the same, but that, at least in the businesses that I've run really wasn't the discussion we had inside our walls, and so this might be a time where you say, you know what, I want to make sure that my best customers are still getting treatment, in the customers that I want to build the company around are getting better treatment than those that I don't want to build as part of my future. That's a pretty deep conversation and I've been part of them where they can get pretty controversial or pretty heated. Oh for sure. I mean, you know, it's like the common you know, like the cliche things here is like all customers are most important customer. And I mean, come on, let's be real here, like yeah, you should. Should you treat them that way? Does everybody to deserve to be serviced while and treated the right way? Yes, but there's also ways to, you know, set expectations accordingly, right, and I think that's that's something that's that's really important on that front. Is You can't promise the world to somebody WHO's one tenth of the volume as another customer and lower level of profitability at the same time. Like we just need... set proper expectations, I think, with customers. I think that's worthy of a really healthy discussion with a senior leadership team about where do we want to go? And now there could be long time consequence that you ask the question earlier about whether this is something that's going to be around short term or long term. If you make a choice to give some people preferential treatment and others don't get that, well, the people that that don't get the good lead times, they may not be your customers long term, and so if this ends up being a shortlived thing, you may be making a choice to not work with some people down the road. But that's why leaders get paid as leaders, is to make those kind of calls in those judgments. That said, if you give that short lead time to a really strong customer, they're going to have to keep more business with you and increase their loyalty to you because you took care of them during the tough times. So extending lead times, creating tears of customers, are kind of deciding if we're going to essentially discriminate. I should I don't know if that's the right word right, but that's essentially what you're making. Conscious decisions about who you're going to give some preferential treatment to, potentially as customers right. It's a charge for these days, but that's a you are making a choice around customers and how in some customers will get treated differently than others, and I think your highest fine customers, your biggest customers, would say that's only fair. That's the right to do. So what else? The second one to be just product choices. We've all got a, you know, a portfolio of products that make our manufacturers do and it's pretty common to see a cluster where there's a whole twenty rule, where twenty percent of the products general eighty percent of the volume, and then there's this long tail of options and my experience has been as that long tail consumes and Inordin amount of resources, and sometimes it's people on the floor, in the time on the floor, but it's engineering and customer service and people doing the catalogs and sales are marking, doing the promotional literature, and it just creates complexity in the organization. One question to ask is is this the right time to say let's liberate some of our capacity that's being consumed by that twenty percent of the volume, that's that long tail of products, and reallocate that to a simpler, easier to run 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 either through pricing or you can actually just say we're going to start obvious leading certain product lines where we just don't offer those any longer. But trimming a product line is in that you can say the same thing about customers. They probably got that same relationship. But making the organization less complex and reducing the amount of capacity and energy that's allocated to you know, that long list of things is can really be a kind of dramatic effectory end up having a lot more resources available for the majority of the capacity. You continue to grow in that majority of your capacity or majority of the volume. I like that one a lot. I mean I run a very different business, obviously that I'm manufacturing business. We've been through this ourselves many times over the years and we're going through right now to or we're looking at like why are we doing this, this, this and this still, or how did we ever wind up doing this thing over here? We're not even good at this and we don't make any money doing it right, and so it's like you've some point you just you realize you look at your...

...product portfolio, your service portfolio, and you just saying like these are the things we're good at, these are where we make money, this is what we should be doing right in inside that the manufacturing plants. What's interesting is you got to be really careful not to use a gross margin report to tell you which ones you ought to be keeping in not, because the gross margin is just the things that have been put into the bill of material about what it should take for labor and what it should take form material. It doesn't capture all that up front customer service time and engineering time and management time, dealing with or accounting having to deal with a small customer that doesn't pay in their bills quite as well. It doesn't deal with all those things that are the real capacity consumers. So this is when you have to do a gut check with your team and say where are we consuming energy, which are those customers are, which are those products that are a real pain and that are consuming more effort than they're worth, and start making some calls. So yeah, it's a again, just like with lead times, it's not easy conversations. It's hard to look and say we're going to make a choice not to do some things and walk away from some volume. But in this time of being capacity limited, it might be a different mindset that we need to embrace. So extending lead times, creating tears of customers making some product choices. Anything else you'd add to that? Less there's that kind of they got two more things that maybe to think about. One is just pricing. There is supplying demand. When things were when demand was plentiful or when supply was plentiful, the buyers had the upper hand and if you are running a B tobe shop or contract manufacturer, you felt that price pressure every single day. The shoe is on the other foot now, and so, whether that's an employee looking for a job, they know they've got leverage and now, for the first time in a long time, you, as the manufacturer, have leverage as well, and I think it's a strategic question to start asking, saying where you look and say you know your inputs, not only are your direct cost going up, but you also know that demand is high and availability of scares. Is it time to go get some of that stuff, that margin? That has been your road it over years of the shoe being on the other foot in the buyers having so much of that power. Again, you talk about a gutsy call, because you can always think that you're going to get left out, but right now be having availability of capacity and being able to 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, and the fourth one isn't so much about those. I would call those left first for, you know, our customer facing choices. I think the next category for leaders to really think about is how are they evaluating their investments that they want to make in I'll start with just thinking about capital investment. You know, historically, when it came time to buy a piece of automation and put on floor, the primary drive for that was cost reduction, like, if we automate this, we can take labor out of the equation and that Labor cost goes away. Well, things have changed now. If what we're really looking for to meet customer demand is we need some extra capacity when we put that automation in, that we need first of all, means what person went want to hire with. It may not be available, but if that allows us to get extra through put through the plant. And if you for those people who have read the goal and then no theory of constraints, they...

...defined through put at the rate at which 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 to invest in the constraint, that allows for more throughput now that the payback isn't the cost reduction is premised on the amount of revenue you're able to bring in because you you no longer have that constraint in the organization. So in the economics are just very, very different. You know, taking the Labor out, which is maybe ten percent or fifteen percent of your costs, is one, one thing, but when you start talking about being able to some more where your margins might be thirty, forty, fifty percent, now you have that whole margin stream coming in instead of just the cost reduction. So rethinking how you evaluate investments. I think it can really help you think about what that future might look like and where you want to allocate your capital investment. You know, even things like pay and benefits. You know, adding pay and benefits would have just been on the cost ledger before, but now if it's on the capacity side of the equation. Well, by doing this, our assumption is by bringing by you doing this with you know, making this change and pay or this change din benefits. Yes, our cost for people go up, but if that allows us to bring more through put through the operation, it may be a very, very good investment and should think about of it as an investment in not just a cost. Yeah, really smart perspective there. I like that. So those are the four that I had. You know, lead times, making product choices, looking at pricing and then just being real thoughtful about whether you consider things a cost or throughput generator for your investment strategies were out. 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. Many of our listeners are probably familiar with Eos, the entrepreneurial operating system based on traction by Geno Wickman. I know you've created your own operating system that you call mls, which is short for the manufacturing leadership system. Given the changes we're seeing, how to operating systems fit into this picture from your perspective? It's a great question. You know, there's a lot of operating systems out there. You know. Eos is one. I've taken what I've seen think are some best practices from a lot of different operating systems and put them together, especially if you on small and midsize manufacturers. But they're scaling up, you know, because some people embrace the in management and but all of these systems are focused on execution. There about getting things done. They're about, you know, getting really proficient and getting down the organization aligned towards implementing a strategy. The under Leo, the the imply implication is, or the what the implied assumption is with an operating system is that you have a strategy and that strategy is working in and if that, you already know where you want to go and in where you want ahead with your organization and the operating system helps you get their faster, better, smarter. With the changes we're seeing in the world today and we, as we just talked through some, I think, what are some really important discussions and decisions that you can make. You have to 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 to go and if you need to really rethink some of the things like it. Let's just use lead...

...times as an example. You want to have direction on that before you start getting really good at the before you jump into just how do we execute faster? You know your capital investment. You could take a bunch of piecemeal decisions from capital investment and do a faster but you made without thinking back about what your strategy is. You may be doing those investments in all the wrong places because you don't know what that Arrow is and where you're pointing to, you know, in this new world. So I love operating system, a big Fan. But maybe a good time to dust off what you've got in your strategic plan because it may be a little dated at this point and it may be time to ask the question about is it time to put some of the new world perspective into our strategic plan and think about what that means for the future of the company? That's good advice. I like it. About 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 that I was reflecting on is I got back to what Jim Collins said in his book good to great is he one of the things that separates the good from the from the great is the willingness to confront the rule facts, and I do feel like we're a little bit in that has that you can hope that some of these things get better, that the supply chain issues are get better, or that the people situation will get better, or you can just confront the brew facts, that this is the way things are, and then come up with your plan about what you're going to do with it. I've run organizations that are in there, were in trouble and even when, when your face with options that aren't great options, having a plan and having a mate, having made conscious choices about how you want to handle it and what you're going to do, makes you sleep while at night, and so I did. I'd encourage everybody to take stock or where we're at. Take stock of the situation, don't just react day to day, and create that plan going forward. It'll make you sleep. Well, great way to wrap it up. Well, rob but can you tell our audience how they can get in touch with you and where they can learn more about the manufacturing leadership system, as well as kind of what you're doing to help business leaders like those are listening right now. Yeah, absolutely, I can be found a few different places. You can go to my website, Rob Tracy dotnet. That's our OBTRA acy dotnet. I'm on Linkedin actively. You'll see me out there. You just connect with me. I like to connect with everybody. I do have a I'm a consultant, so I do this for a living and I like to work with small and midsize manufacturers, helping them implement an operating system and do do strategic plan as well. So if that's something you feel like you want a little bit of facilitation with, so those with the easiest ways to get hold of me, great. Yeah, I encourage anybody listening here who's intrigued by what Rob's been talking about go check out what he's doing on Linkedin because, Robbin, you're one person who I think is is really doing a nice job with your personal brand and you're creating a ton of value through the content, a lot of the video content you've been filmings but really thoughtful. You're giving helpful advice without, you know, promoting yourself, which is exactly what we're advocates for. So you can go learn for something from rob. You and if you're not going to hire him, go look at what he's doing out there and Linkedin, and you've got some good stuff on 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 wrap on it here. I appreciate you doing this today again. It was really great being here, a good talk with you and hope your listener's got a little bit of value out of this. Yeah, and maybe we'll have you back for round three some day. Huh? Yeah, I hope so. It'd be great all right. As for the rest of you, I hope to catch you on the next episode of the Manufacturing Executive. You've been listening to the manufacturing executive podcast. To ensure that you never miss an episode, subscribe to the show in your favorite podcast player. If you'd like to learn more about industrial marketing and sales strategy, you'll find an ever expanding collection of articles, videos, guides and tools specifically for BTB manufacturers at gorilla seventy sixcom learn. Thank you so much for listening. Until next time,.

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