The Manufacturing Executive
The Manufacturing Executive

Episode · 3 months 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 thesethings get better, that the supply chain issues are get better or that thepeople 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 planabout 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 toshare about their successes and struggles, and you'll learn from B tob sales andmarketing experts about how to apply actionable business development strategies inside your business. Let'sget 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 manufacturingleaders since early two thousand and twenty one, the labor shortage and to supply chaindisruption. The former was clearly a problem prior to two thousand and twenty. That was only exacerbated by the arrival of Covid the ladder, whether weshould have seen it coming or not. It's probably more a product of thepandemic. 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 lookingat these two issues, labor and supply chain, as being here for thelong haul and how they can shape their strategic plan accordingly. Rob Tracy isthe president and founder of Rob Tracy Consulting. With more than thirty years of leadershipinside 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 bothlarge and small companies, with titles like CEO, CEO and VP of operations. In addition to being highly experienced with lean, rob holds a bachelor ofscience in industrial and operations engineering from the University of Michigan and is a graduateof Minnesota Executive Program at the University of Minnesota's Carlson School of management. InTwo Thousand and Nineteen Rob released his book how to fix a factory, inwhich he gives practical advice on how to lead a plant when things have gonesouth. Rob, welcome back to the show. Thanks, Joe, goodto be here. Awesome Wi. Rob, I'm interviewing you right now for whatI believe is going to be episode seventy of this podcast. You arealso my guest for episode six, which was a good fourteen or fifteen monthsago, so good to have you back. Thanks for have you back and congratulations. Well, thank you. Yeah, I think you're my only one oftwo or three that's been a return guest here, so I guess youdid 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 didour episode together, you and I kind...

...of struck up further conversation and thenour company, Girl is seventy six, actually wound up hiring you to helplead us through strategic planning. What you've been doing with us since, Iguess, December, and it's been an awesome experience and I've learned a lotfrom you in that time and wanted to get you back here to share moreof your knowledge and wisdom with our listeners here. Well, appreciate that's beena great relationship with you guys. Yeah, likewise, I would say exactly thesame. So well, let's dive in here, Rob Obviously we've beenliving 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 aguy who has led manufacturing organizations from inside and more recently, consulted from theoutside, can you tell us from your perspective what has changed? I wasthinking back to eighteen months ago and what that felt like and even if thepandemic was starting to happen. We're going through one set of change. Sothere's just a ton of change for the last eighteen was at first, youknow, factors are shutting down, we're all going under quarantine and we hadto figure out how we're going to survive through this, not knowing what wascoming at us, deal with the whole myriad of issues from HR policies evenfinancing in some cases, you know. So that was going on and thenwe get to the middle of pandemic and well, a lot of manufacturing didwell. If you're in the right market, you did really well. If you'reserving hospitality and aerospace, you weren't doing well. But a lot ofmanufacturments doing okay. But here we are, and I guess I didn't anticipate thishappening. 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'stalking about it, but it's also the the supply side and available the materialsand logistics. And in my career I've only seen one other time where we'rein this capacity can strain environment and it was a business I was running inKatrina has struck in the Gulf and I just couldn't get materials. But Iknew there was an end of that. This is different. This this feelslike 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 listenersare two and living and experiencing. And so as we look at what haschanged, it kind of begs the question you can today's manufacturing leaders just puttheir noses down and grind through it and hopes that they come out in onepiece, or is it time that they start to think more strategically about allthis disruption we've seen and look at it as more of a long term issuethat they're going to be dealing with? Yeah, you know, that's athere's a lot of fastest that question. On one hand, you look andsay, back in the the old days, I won't say the old normal maybeit was kind of a given that there is adequate capacity in the supplychain, which put a lot of power in the hands of the buying sideof transactions. You know, if you weren't working out, they knew whereto go. And it seems like now we're almost at a point that justhaving 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 interms of whether this is a short term deal or a long term everybody's gonnahave to make their decision for themselves.

But you know, I think there'senough to see that some of what we're going through won't be fixed in thenext few months. You know, the supply chain issues, everything. I'mhere even the chip shorty for the manufacture. If the auto industry is predicted togo through two thousand and twenty two other supply chains, it's hard tosay how long it is going to take for those to recover. And thenyou the other side of that, which is the people side, in leastin the US. Here I'm not seeing an end to it. Other peoplemay see where where that's going to go away and not be as big ofan issue, but I think there's been a fundamental shift in the availability ofpeople for manufacturing organizations in as something we're going to have to come up witha each organizations going to come up with a plan for how they're going toattack 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 Laborside of what you just talked about, and you know different solutions, fromdiversifying the workforce and looking in other places to you know, things you cando to engage the schools and bring younger people into you know robotics and automationand for the most part everybody seems to be an agreement that this problem isnot 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 thisis a problem that I keep her in time and time again, is thewelding industry, where you have just people exiting the workforce at such a fasterrate than entering, and so, buddy hat. It seems to be sortof 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 lotof different people. When I think about if I were back, you know, still in a CEO 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, andbut that I'm talking about how am I going to handle the fact that Idon't have enough capacity to meet customer demand and and which means in general leadtimes go out, and what's my practice from our policy? Am I goingto treat all my customers the same I'm going to give our frenial treatment tosome so that that'd be one tier. I think there's product choices to makeabout do I want to continue to make all the products that I've got xamount of capacity? Do I continue? Do I want to continue to makeeverything? Or should I be saying I'm going to take away some of theseproducts because they consume more capacity, they don't bring margin dollars there for acustomer group that isn't really who I want to grow the business with. MaybeI 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 toman or other pricing choices that I should be thinking about in the shorter andso those are all kind of customer facing strategies. Then the other piece thatcomes to mind for me from a managing the business perspective is I think theEcho I'm makes of how you make investments have changed. So I don't justgive an example when there is adequate capacity and everybody had capacity. If youwere thinking about investing in automation, it was for a cost reduction. Youknow, the the Labor reduction or something...

...was you're going to take cost outof the equation. Nowadays I think that's change. You could be investing inautomation because, a, the Labor is unavailable, and be it helps youcreate throughput, it helps you produce more which turns into revenue, which hasa 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, ifit's going to lead to additional throughput, I think that's got a huge impacton the business. That is a real difference from back prepandemic when everybody feltlike 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 tofill 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'remanufacturers can choose to make decisions that, you know, in response to thissituation where in the first one that comes to mind is lead times and thelead times to customers, and most manufacturers, I don't know if it'supposed, alot of manufacturers have already had to extend lead times just because the volumecoming in for orders exceeds their ability to produce them, whether that's being causedby a Labor constraint or a supply constraint, and it usually starts early in thatprocess by missing on time delivery and then they face reality and once they'vemissed on time deliveries, they start to extend lead times, which makes theircustomer upset. But I think it's become kind of the norm now, islead times are going out and we're all sensing that. I think the questionthat manufacturing leaders can ask themselves is, do I want to spread this aroundlike peanut butter and treat everybody the same, or do I want to give preferentialtreatment to some and and that can be a pretty charged questions because itmakes you hit face and say, do I have preferential customers? Do Ihave some customers I want to call a B and C, where the acustomers get their standard lead time that they're used to, some get me somethingin the middle and some will get their product when they get it. We'dlike 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 thediscussion we had inside our walls, and so this might be a time whereyou say, you know what, I want to make sure that my bestcustomers are still getting treatment, in the customers that I want to build thecompany around are getting better treatment than those that I don't want to build aspart of my future. That's a pretty deep conversation and I've been part ofthem where they can get pretty controversial or pretty heated. Oh for sure.I mean, you know, it's like the common you know, like thecliche things here is like all customers are most important customer. And I mean, come on, let's be real here, like yeah, you should. Shouldyou treat them that way? Does everybody to deserve to be serviced whileand treated the right way? Yes, but there's also ways to, youknow, set expectations accordingly, right, and I think that's that's something that'sthat's really important on that front. Is You can't promise the world to somebodyWHO's one tenth of the volume as another customer and lower level of profitability atthe same time. Like we just need... set proper expectations, I think, with customers. I think that's worthy of a really healthy discussion with asenior leadership team about where do we want to go? And now there couldbe long time consequence that you ask the question earlier about whether this is somethingthat's going to be around short term or long term. If you make achoice 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 beyour 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 theroad. But that's why leaders get paid as leaders, is to make thosekind of calls in those judgments. That said, if you give that shortlead time to a really strong customer, they're going to have to keep morebusiness with you and increase their loyalty to you because you took care of themduring 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'tknow 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 ascustomers right. It's a charge for these days, but that's a you aremaking a choice around customers and how in some customers will get treated differently thanothers, and I think your highest fine customers, your biggest customers, wouldsay 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 commonto see a cluster where there's a whole twenty rule, where twenty percent ofthe products general eighty percent of the volume, and then there's this long tail ofoptions and my experience has been as that long tail consumes and Inordin amountof resources, and sometimes it's people on the floor, in the time onthe floor, but it's engineering and customer service and people doing the catalogs andsales are marking, doing the promotional literature, and it just creates complexity in theorganization. One question to ask is is this the right time to saylet's liberate some of our capacity that's being consumed by that twenty percent of thevolume, 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 thattailoff, and you can do that a lot of different ways. You dothat either through pricing or you can actually just say we're going to start obviousleading certain product lines where we just don't offer those any longer. But trimminga 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 reducingthe amount of capacity and energy that's allocated to you know, that long listof things is can really be a kind of dramatic effectory end up having alot more resources available for the majority of the capacity. You continue to growin that majority of your capacity or majority of the volume. I like thatone a lot. I mean I run a very different business, obviously thatI'm manufacturing business. We've been through this ourselves many times over the years andwe're going through right now to or we're looking at like why are we doingthis, this, this and this still, or how did we ever wind updoing this thing over here? We're not even good at this and wedon't make any money doing it right, and so it's like you've some pointyou 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 arewhere we make money, this is what we should be doing right in insidethat the manufacturing plants. What's interesting is you got to be really careful notto use a gross margin report to tell you which ones you ought to bekeeping in not, because the gross margin is just the things that have beenput into the bill of material about what it should take for labor and whatit should take form material. It doesn't capture all that up front customer servicetime and engineering time and management time, dealing with or accounting having to dealwith a small customer that doesn't pay in their bills quite as well. Itdoesn't deal with all those things that are the real capacity consumers. So thisis when you have to do a gut check with your team and say whereare we consuming energy, which are those customers are, which are those productsthat 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 withlead times, it's not easy conversations. It's hard to look and say we'regoing to make a choice not to do some things and walk away fromsome volume. But in this time of being capacity limited, it might bea different mindset that we need to embrace. So extending lead times, creating tearsof 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 whendemand was plentiful or when supply was plentiful, the buyers had the upper hand andif you are running a B tobe shop or contract manufacturer, you feltthat 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 knowthey'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'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 alsoknow that demand is high and availability of scares. Is it time to goget some of that stuff, that margin? That has been your road it overyears of the shoe being on the other foot in the buyers having somuch of that power. Again, you talk about a gutsy call, becauseyou can always think that you're going to get left out, but right nowbe having availability of capacity and being able to make product is a competitive advantagein 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 muchabout those. I would call those left first for, you know, ourcustomer facing choices. I think the next category for leaders to really think aboutis how are they evaluating their investments that they want to make in I'll startwith just thinking about capital investment. You know, historically, when it cametime to buy a piece of automation and put on floor, the primary drivefor that was cost reduction, like, if we automate this, we cantake 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 demandis we need some extra capacity when we put that automation in, that weneed first of all, means what person went want to hire with. Itmay not be available, but if that allows us to get extra through putthrough the plant. And if you for those people who have read the goaland then no theory of constraints, they...

...defined through put at the rate atwhich the factory generates money. So it's got to turn into an investment thatbrings that. So that's a constraint operation. If you're able to invest in theconstraint, that allows for more throughput now that the payback isn't the costreduction is premised on the amount of revenue you're able to bring in because youyou no longer have that constraint in the organization. So in the economics arejust very, very different. You know, taking the Labor out, which ismaybe ten percent or fifteen percent of your costs, is one, onething, but when you start talking about being able to some more where yourmargins might be thirty, forty, fifty percent, now you have that wholemargin stream coming in instead of just the cost reduction. So rethinking how youevaluate investments. I think it can really help you think about what that futuremight look like and where you want to allocate your capital investment. You know, even things like pay and benefits. You know, adding pay and benefitswould have just been on the cost ledger before, but now if it's onthe capacity side of the equation. Well, by doing this, our assumption isby bringing by you doing this with you know, making this change andpay 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 itas an investment in not just a cost. Yeah, really smart perspective there.I like that. So those are the four that I had. Youknow, lead times, making product choices, looking at pricing and then just beingreal thoughtful about whether you consider things a cost or throughput generator for yourinvestment strategies were out. Let's bounce over to another topic here. I knowthat 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 basedon traction by Geno Wickman. I know you've created your own operating system thatyou call mls, which is short for the manufacturing leadership system. Given thechanges 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 outthere. You know. Eos is one. I've taken what I've seenthink are some best practices from a lot of different operating systems and put themtogether, 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 ofthese 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 implementinga strategy. The under Leo, the the imply implication is, or thewhat the implied assumption is with an operating system is that you have a strategyand that strategy is working in and if that, you already know where youwant to go and in where you want ahead with your organization and the operatingsystem helps you get their faster, better, smarter. With the changes we're seeingin 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 yougo faster, but you need to make sure you're going in faster in thedirection you want to go and if you need to really rethink some of thethings like it. Let's just use lead...

...times as an example. You wantto have direction on that before you start getting really good at the before youjump into just how do we execute faster? You know your capital investment. Youcould take a bunch of piecemeal decisions from capital investment and do a fasterbut you made without thinking back about what your strategy is. You may bedoing those investments 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 love operating system, a big Fan. But maybe a good timeto dust off what you've got in your strategic plan because it may be alittle dated at this point and it may be time to ask the question aboutis it time to put some of the new world perspective into our strategic planand think about what that means for the future of the company? That's goodadvice. I like it. About anything else that I didn't ask you aboutthat 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 towhat Jim Collins said in his book good to great is he one of thethings that separates the good from the from the great is the willingness to confrontthe rule facts, and I do feel like we're a little bit in thathas that you can hope that some of these things get better, that thesupply 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 waythings are, and then come up with your plan about what you're going todo with it. I've run organizations that are in there, were in troubleand even when, when your face with options that aren't great options, havinga plan and having a mate, having made conscious choices about how you wantto handle it and what you're going to do, makes you sleep while atnight, and so I did. I'd encourage everybody to take stock or wherewe'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 audiencehow they can get in touch with you and where they can learn moreabout the manufacturing leadership system, as well as kind of what you're doing tohelp business leaders like those are listening right now. Yeah, absolutely, Ican 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 toconnect with everybody. I do have a I'm a consultant, so I dothis 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. Soif 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 gocheck out what he's doing on Linkedin because, Robbin, you're one person who Ithink is is really doing a nice job with your personal brand and you'recreating a ton of value through the content, a lot of the video content you'vebeen filmings but really thoughtful. You're giving helpful advice without, you know, promoting yourself, which is exactly what we're advocates for. So you cango learn for something from rob. You and if you're not going to hirehim, go look at what he's doing out there and Linkedin, and you'vegot some good stuff on your website as well. So really good resource forfor manufacturing leaders to appreciate that. Thanks,...

Joe. Awesome. Will Rob,I guess we'll put a wrap on it here. I appreciate you doingthis today again. It was really great being here, a good talk withyou 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 forthe rest of you, I hope to catch you on the next episode ofthe Manufacturing Executive. You've been listening to the manufacturing executive podcast. To ensurethat you never miss an episode, subscribe to the show in your favorite podcastplayer. 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 forBTB manufacturers at gorilla seventy sixcom learn. Thank you so much for listening.Until next time,.

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