The Manufacturing Executive
The Manufacturing Executive

Episode 90 · 6 months ago

Strategic Sourcing During Volatile Times w/ Jim Pratt

ABOUT THIS EPISODE

Underlying supply chain problems, only exacerbated by pandemic disruption, have plagued every industry the past few years.

But our guest today thinks we may be seeing the light at the end of a long tunnel.

And now is the perfect time to shore up weaknesses exposed by the demand spike.

Jim Pratt is the Co-Founder and Managing Partner at Forsyth Advisors, and an expert at solving sourcing problems and creating operational strategies that work.

Join us as we discuss:

  • Lingering supply chain challenges
  • Finding opportunities for savings, automation, and streamlining
  • Networking to find alternate sourcing
  • The new normal 

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All of the problems that were out there the supply chain? None of them really. What we saw is a big surgeon demand breaking a lot of these out at the same time. Welcome to the manufacturing executive podcast, where we explore the strategies and experiences that are driving midsize 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. It's no secret to anyone that the past couple of years have been pretty ugly on the supply chain front. So where exactly are we in this crisis? Is there a light at the end of the tunnel, and what exactly you can manufacturing leaders learned from everything that's transpired in recent times? My guest today is a true supply chain expert and will tap into his experience to touch on all of this and more. Let me introduce him. Jim Pratt is a cofounder and managing partner at Forsyth Advisors, a sourcing insulting firm based in St Louis, Missouri. Since two thousand and two JIM is worked exclusively with small to midsize companies with revenues ranging from ten million to over seven hundred fifty million. Jim Creates operational strategy, manufacturing implementation and sourcing improvements in a wide range of industries including aerospace, automotive, consumer package goods, contract filling, electronics, heavy industrial, light industrial safety and value added distribution. His previous experience includes...

...leading the first Asia Sourcing Group at GE transportation, creating a domestic supply chain for Allstom and driving sourcing cost savings across harbor group's portfolio of middle market companies. Jim is an engineering graduate of W PI with a master's degree from RPI. Jim, welcome to the show. So, Jim, you are a supply chain guy that has had eyes and ears inside of a lot of manufacturing organizations. Tell us, from your perspective, where we're at in the current supply chain crisis and what the outlook is. I think probably the current crisis peaked for five months ago where really everything kind of the most critical shortages. People have largely kind of maintained and figured out the the short term recovery and are now looking at how they're going to make that steady state. You know, we're starting to see some using and the heavy commodity price inflation seals kind of Plateau. Aluminum's looks like it's hitting its pike. Plastics gone down a little bit, so we're kind of coming over the big peak. People have started filling up inventories again. The container shortage still seems to have high pricing, but it's kind of leveled off as far as people being able to find containers and getting product here. So we're seeing a lot of the critical issues being resolved, but there's still the sense that we need to shore up the things that kind of were weaknesses or exposed by that big demand spike. Great. What would you say manufacturer should be doing right now in terms of risk mitigation? I think it's really looking through the the current supply chain and looking for where their soul source, looking for where they have a lot of country risk, single country exposure, and looking for some of the gaps where they have long lead times, long supply chains, difficult free challenges that and pushing...

...to kind of look at those areas and figure out where mitigation is worth while? Would you say that cost savings are something that should still be pushed in an inflationary environment where, I mean, I know you mentioned that prices of steel and plastic and lumber, etc. Are maybe starting to level, but you know, we know they're still high. We know that's still an issue and causing you know, causing issues or companies. Yeah, it's it's challenging with the current suppliers because all of their costs have gone up. So if you go back in your you're asking your current guys for lower pricing. They're they're very quick. Answer is, what are you talking about? Freak gots of got up. I can't get labor, it's more expensive, I can't get materials. You know, everything's driving up. Why are you asking about cost savings? I want to increase your price. But what we find, is we're working with companies, is there are segments where there are big strategy improvements that can be made, kind of step function changes, and certain commodities so well. Well, I don't think it's a good time to try to leverage your suppliers into lower pricing. It's not a good idea to go out and just blindly quote a big pool of suppliers. Looking and talking strategically about individual big ticket spend categories and figuring out where improvements can be made of that twenty, thirty, forty percent kind of cost savings. Those are the types of things that that we're finding the most impact from doing right now in this environment. Are there is there anywhere else where you feel like companies should be focused on eliminating costs? You know the the Labor challenges that are out there right now and are kind of all through the supply chain and and in house. I think in addition to kind of looking at what's being made, looking at opportunities for changing levels of assembly, if you're buying something as a finished good, buying those components or subassemblies and then doing labor in house, that...

...might might kind of get both a cost advantage as well as some of the RIS mitigation of being able to control that that process. We've seen people looking at restoring and ear shoring initiatives. You diversifying country risk, so if they're buying from one supplier in China looking at both getting it so they're not soul sourced with someone and so they don't have pure country risk in China and trying to do something either other low cost country's offshore or Mextico or, you know, if it's a product that's suitable for automation, that can be done competitively in the US. We've been helping a lot of folks do that as well. Jimmy said to be in a previous conversation that during maybe more stable times, supply chain folks tend to focus on managing existing suppliers to make sure you have what you need when you need it. He also said that it takes kind of a different skill set when you hit more of a crisis mode like we've been in over the last year to can you let elaborate on what you mean by that? Sure, yeah, we have. You know, in normal times buyers, purchasing managers are really focused on managing the supplier relationships with the folks they have working on fulfillment, so making sure they're getting parts on time, resolving quality problems and working continuous improvement projects with their supplier. The type of crisis that we're in and hopefully coming out of soon. Really he pushed it so suppliers were just unable to deliver. You know, companies had high demand were unable to get the components and raw materials they needed to fulfill that demand and that took a different set of challenges than just working the relationships you had with existing suppliers. It took networking to find alternate sources. It took dealmakers to be able to really kind of figure out how to position you as a buyer, as an important potential customer for a supplier, so they...

...would go above and be out and look at you as a good target, a good opportunity and push to get the product that was needed. So most of the calls we were getting weren't from sourcing managers fires, they were from CEOS, fee piece of sales, C Fos, folks that, you know, had now been, you know, mired down into the task of working with suppliers and finding new sources and getting product through the door. It's a different skill set that was that was required by them, one that I think that wasn't in kind of the daytoday. Job Description to a buyer, Jim, are there any examples you can give of you know, real life challenges with real manufactures that you've seen during the supply chain crisis and sort of how they've dealt with some of those things. Yeah, yeah, I guess on the commodity increase side, companies end up having to pay the higher prices for their inputs, the steel moment up last, electronics, things like that, and then they have to figure out how to get that through to customer pricing in a way that's fair. They're ending up paying their pricing before they're they're passing out of customers. So we've often had to work with them to look at, in very vollable commodity times, how are they doing customer pricing, how are they doing supplier pricing, and getting those two things to match. Part of that is going back to the basic commodity end seats formula, creating formulas to do pricing adjustments and making sure that what you can pass out of customers is track the same way as what you do with suppliers. And then we've had a number of companies we've worked with it just got really out of wine on that, causing big swings and as their prices were going up, they weren't able to pass them out of customers. Then they implemented some price changes and follow the commodities down without making up the the uphell that was already...

...there, really kind of creating that lack of back to back pricing that that put them in some real cash flow and and earning situations. We also have seen a lot with shortages on individual parts causing companies to really just not be able to meet their their customer to dance. So they've got everything to build a product except for a couple of pieces, maybe a control board because of the chip shortage, or possibly some oponent that's coming from China because there wasn't container availability. And you know the the buyers are trying to figure out ways around that but often aren't put to really kind of go through and get to or the other people that have bought this one. Are the secondary markets available to purchase this type of component or product, and we're finding that a lot of kids people going and using tools like Linkedin to find people that they're loosely connected to, especially up at the C suite, and use those connections to kind of navigate and find other people that are also using that product might be able to help them out that have kind of network their way to a solution for that problem. The other thing we've had of seen is just that general cost increase for a lot of companies kind of hits them to a pricing point where they're not able to sell the product anymore. You know the the reaction time that's required for people that were important toys from China to be able to switch to that. When the container ends up going up three times that, you know you now have what was a dollar novelty toy that caused four dollars to get into the country. Really put situation companies into a situation where they were unsure on what to do. Many of them didn't react to that quickly enough or just gave up on being able to find the solution, but a...

...lot of the ones we were able to work with, it took kind of these rapid redesigns, working with local colleges, working with design firms, working with shops in Mexico and the US, to come up with some kind of an alternative with that huge increase in free cause I could still be competitive while the situations seeming to kind of be at the peak now. You know, toy manufacturers, people with Christmas type goods really hit a problem because prices we're peeking and continuing to go up right through that that Christmas season. So the the urgency and the time side of things really became an issue there. What do you what do you think, Jim, in terms of one of the things they start to let a lot of better is there going to be? Is there a new normal now is are we going to get back to more regular times in terms of what's going on in this supply chain? What's your perspective? Yeah, I mean it does have to have to go back, you know, the the spikes and demands or things that people put production in place for the chip shortage. You know, people are building capacity now anticipating later in the year. You know they'll be able to be kind of up with that new demand and new requirements. You know the commodity markets steal aluminum, those types of metals. You know that that demand will kind of subside. People will go up. We've seen things like lumber already kind of come back down off the off the peak and normalize. Freight is slowly going back down. Over seeing containers today and around Elevenzero dollars from prices that were in these to thirtyzero dollars last year, but it's it's still got a ways to go before it's getting into the three to five thousand dollar range again. You know, companies have passed along some price increases, many of them have. A lot of those are sticking. You know, there's probably more inflation than...

...there would have been if we hadn't had a massive demand spite but it should. It should normalize to something more realistic. I think there's always certain sectors and specific products that get hit and won't come back, but for the most part we're starting to see things normalize. There's there's a light, maybe quite a ways down the tunnel, but but there's a light at the end of it and companies are going there. I think the biggest challenge we have now is preparing so we learned something out of this and have a more nimble supply chain that can react when there are crises in the future. All of the problems that were out there the supply chain, none of them were really what we saw is a big surge in demand breaking a lot of these out at the same time. So we've had container shortages, everything from West Coast Port strike a few years ago to some of the other problems that have caused an inability for people to get ocean freight over the Pacific. We've had commodity spikes routine like in the past, but we've had weather shut down different industries and that create commodity problems before you know. It's just right now we've had a lot of those happen and we've had a twenty percent demands fight coinside so highlighted it kind of something water level. So all the rocks and peace are showing through. But I think it's raised awareness out of the management teams of manufacturers that we don't want to go through this again. We're going to figure out a way around it and we're going to fix it. So we're seeing people really making that effort to get there. It's good. Everybody who comes out...

...in one piece will hopefully be the more prepared for the next time around. Yeah, yeah, another side of the manufacturers that we get into is the mergers and acquisitions that we work primarily with private equity portfolio companies, but help a lot of private equities when they're going through due diligence at companies and then when you're buying a company you're looking at all of the risks and how they're maintain managing it. What's going on? So in times like these, they are looking at buying a company, they see someone with soul source issues in China, you know, big demand coming in from from covid they're trying to piece all this together and say, you know, where are the risks? Are they manageable? Can I fix this after I buy this company? And prices for companies are really high right now, so I willing to they a premium with all this risk out there. And what we're seeing is, you know, it takes a little bit of effort, but putting a plan to mitigate this risk isn't, you know, overly complex. It doesn't cost a lot of money, it's not raising companies costs permanently offen at stating on money. And you know we can we can do all of that with the equity groups to kind of show them how this risk can be mitigated and how, you know, they can feel comfortable with this company they're buying. In Times like these. The the other thing that often highlights is, you know, some of the steps that people take to to get around pressures don't closely follow the kind of the ethical side of things. We see people kind of fraudulently adjusting prices on the customs documentation to avoid higher tariffs and offset some of the the increases and in tariffs and freight and doing other actions that you know aren't aren't too exactly legal or ethical to get around this. So we found this...

...is a time that it's also important that management teams are our kind of hyper visual and kind of keeping the high ethical expectations most companies have, not letting people cut corners to make up for for some of the other challenges that are out there. Well, Jim, this is a really great conversation. I appreciate you doing this today. Can you tell our audience how they can get in touch with you and also where they can learn more about forsyth advisors? Yeah, for set advisors, our website is for Advisorscom. We're in St Louis. All of the contact information for our teams on their perfect will. Jim, once again, thanks for doing this today and 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 bedb manufacturers at Gorilla Seventy sixcom learn thank you so much for listening. Until next time.

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