Author name: Sam Gupta

In this episode, we have our guest Martin Cloake, who discusses different barriers associated with Artificial Intelligence and Industry 4.0 adoption. While technology has come a long way, he shares his insight into how behavioral challenges impact manufacturers to operate with a continuous improvement mindset. Finally, he discusses why siloed systems result in companies operating on two sets of KPIs and ledgers and the impact on the growth of this siloed mindset.

Chapter Markers

• [0:17] Intro
• [2:08] Personal journey and current focus
• [4:02] Perspective on growth
• [5:14] Why is data necessary for industry 4.0 adoption?
• [9:10] Key barriers for the industry 4.0 adoption
• [12:08] Industry 4.0 adoption challenges for manufacturers
• [20:03] The role of financial data with industry 4.0 adoption
• [21:46] The implications of siloed financial and operational data
• [24:39] The role of different data sources with industry 4.0 adoption
• [27:47] The challenges of integrating operational and financial data
• [33:24] Closing thoughts
• [37:03] Outro

Key Takeaways

• One of the things when you begin to capture the simple stuff, that’s really the first effective step on your digital journey, know what is happening, know what has happened. And then the next phase, once you’re confident that you have those, you can begin to understand why did it happen, which is kind of the next level of analytics, and then the next, the final step is to predict what’s going to happen and avoid bad things.
• A continuous improvement comes from a realistic and true view of where you currently are, which is a struggle and challenge for many organizations. I think our true view of where we are we typically rely on our feelings and instincts, which absolutely have value, but for the most successful organizations, they combine their instincts about where they are with data to support those instincts.
• The age of being able to rely on instinct alone is going away quickly in manufacturing. In some ways, I would say we’re often behind the times a little bit, but things are changing.
• It’s key for leaders to recognize that there’s a shift that’s accelerating right now and to take those same skills that made them successful in driving their businesses to this point and use that to find the right technology partner and service partners to help them jump to the next level.

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About Martin

Martin is an experienced executive and award-winning technology entrepreneur with a background in manufacturing, hardware development, and operations management. Martin holds multiple patents and is Mechanical Engineering and business graduate from McGill University in Montreal, Quebec.

Resources

• Connect with Martin
  • LinkedIn
• Connect with Raven AI
  • Website | LinkedIn

Full Transcript

Martin Cloake 0:00

Integrating new pieces of technology also requires that we change our behavior, and we don’t change as quickly as technology. You can buy a new piece of software, but to have that actually influence how you run your business is slower moving. So for leaders today, it’s important that they recognize that this change is coming.

Intro 0:17

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 0:53

Hey everyone, welcome back to another episode of The WBS podcast. I’m Sam Gupta, your host and principal consultant at digital transformation consulting firm ElevatIQ.

Data is the new oil, but collecting data could also mean distracting you operators from focusing on jobs. Moreover, just because you collected millions of data points, drawing insights or meaning could be challenging. This is especially true if your systems are siloed and don’t communicate with each other. Finally, the data quality issues may result in poor sales and operations planning, impacting your bottom line and growth.

In today’s episode, we have our guest Martin Cloake. He discusses different barriers associated with artificial intelligence and industry 4.0 adoption. He shares his insights into how behavioral challenges impact manufacturers to operate with a continuous improvement mindset. Finally, he discusses why siloed systems result in companies operating in two sets of KPIs and ledgers. Let me introduce Martin to you.

Sam Gupta 2:08

Martin is an experienced executive and award-winning technology entrepreneur with a background in manufacturing, hardware development, and operations management. Martin holds multiple patents and his mechanical engineering and business graduate from McGill University in Montreal, Quebec. With that, let’s get to the conversation.

Hey Martin, welcome to the show. Hey, Sam.

Of course, just to kick things off, do you want to start with your personal story and current focus?

Martin Cloake 2:39

Absolutely. So I work at Raven AI. We serve manufacturers helping them to improve performance with data. But maybe I’ll just describe sort of what got me into this. So my background is in high tech. I worked in telecom in sort of the boom of the 2000s. But when I graduated, I got recruited by a company called BlindsToGo in Montreal, which is a custom blind manufacturers.

So I was high tech, I jumped into manufacturing, which is where I got my start in this field. And one of the things that were most interesting was that my impression of manufacturing. And my actually seeing what it was in reality, once I got there, was completely different.

Martin Cloake 3:16

And one of the biggest challenges that I found was that the impression is from an engineering perspective and a technological perspective. It’s a series of processes and machines that have to be optimized with math, where we’re effectively manufacturing today is still very much a people-centric organization.

So that’s how I got into manufacturing. Then from that is really what triggered my observation that manufacturers struggle to use data in an effective way. And I found that Raven or co-founded Raven, partly based on my experience in manufacturing. The desire to make it so that manufacturers could spend the time they need with their operators to drive those kinds of behavioral changes to improve while getting access to all the real-time insights needed to guide their actions in the most effective way.

Sam Gupta 4:02

Okay, amazing. So obviously, there’s going to be a very exciting discussion here since you are doing some cutting-edge stuff. But there are going to be some foundational elements that you need to take advantage of this cutting-edge technology.

But before we do that, we have one standard question here. And that is going to be your perspective on the business growth, Martin. What does growth mean to you?

Martin Cloake 4:24

I would say that it means evolution and positive evolution in some ways in business and personally. In order to be successful, you need to have a growth mindset. And you can constantly be looking for opportunities to improve, so I associate growth with continuous improvement in a business setting.

And I would say in a business context. A continuous improvement comes from a realistic and true view of where you currently are. It is a struggle and challenge for many organizations. We typically rely on our feelings and instincts, which absolutely have value. But for the most successful organizations, they combine their instincts about where they are with data to support those instincts. And I think the first step is to know where you are and where you’ve been. And for those who are most successful, they’re able to take that information and change their behavior to continuously improve.

Sam Gupta 5:14

Okay, amazing. So this is a very interesting point. And that’s probably sort of truth if you ask any organization, they are going to say that I understand my business very well.

But in reality, they don’t have a thorough understanding because they don’t have either enough data or enough quality data. So in your opinion, Martin, what are some of the key growth barriers? And the challenges that you are seeing in the market at this point in time?

Martin Cloake 5:48

Well, and I don’t want to discount the power of instinct. So many say medium-sized organizations have become very successful based on the instinct of people in leadership positions. And I think there’s there’s a lot of power there. But growth and continuous development are slow as they are dependent on the instincts of leadership.

One benefit of a clear view is: you can share the burden with others because others don’t need to rely on instinct. Also, one main benefit of new technologies that are making it easier to see what things are happening is. It’s about making it easier to perform at that transformational level that typically only the top can do.

Just imagine, like a chess master, it took us a long time to be able to beat that chess master with software. If you compare today, if you take an average chess player and give them average chess software, they’re going to beat that chess master. It shows that a combination of good skills and good software can outperform skill alone. And that’s really the potential here where you can perform at a chess master level by combining your instincts that with software,

Sam Gupta 6:58

Yeah, and I completely agree with respect to your comment about these instincts. But you must have the quality instinct. If you look at some of the successful leaders, the reason why they have successful instincts is that they have lived through the quality information.

The way our human bodies and brains work is, the people who are really good at judgment, they are able to filter out the information, really quality information from noise. And that’s why they are so good at instinct, and they can make quality decisions.

So even our human bodies and brains do require quality data, a quality environment. A positive environment for us to be able to make decisions. What would be your thoughts on that? I mean, see, instinct is definitely foundationally reliant on the quality of data. And obviously, when you talk about the infrastructure that has to have the quality data as well,

Martin Cloake 7:45

And I would say that the age of being able to rely on instinct alone is going away quickly in manufacturing. In some ways, I would say we’re often behind the times a little bit, but things are changing.

And COVID has only accelerated that was for people to rely exclusively on instincts today to guide their business is a risky proposition. And those are the kinds of businesses that are not growing and are not evolving and will struggle to maintain competitiveness, as others are, as everybody’s diving into the bringing in technologies to support them here.

So I think it’s key for leaders to recognize that there’s a shift that’s accelerating right now and to take those same skills that made them successful in driving their businesses to this point and use that to find the right technology partner and service partners to help them jump to the next level. Because if they wait too long, at some point, they’re their competitors will be ahead.

Martin Cloake 8:36

And being ahead isn’t simply the fact that you do have software or you don’t have software. One of the biggest things that we often discount in this phase of growth is that adopting or changing our organizations. integrating new pieces of technology also requires that we change our behavior.

And we don’t change as quickly as technology. You can buy a new piece of software, but to have that actually influence how you run your business is slower moving. So for leaders today, it’s important that they recognize that this change is coming and don’t discount the fact that change management within their organization is likely going to be more difficult than simply purchasing or partnering up with a technology partner.

Sam Gupta 9:10

Yeah, I agree. And I’m actually going to go back to your comment about manufacturing being a people-centric organization. So when we think more from the data perspective, the more manual intervention that we have in the process, it’s likely that we are not going to have the data that either the machine or the software is going to require to be able to process so obviously, humans are very good at instinct.

And that’s what they should be looking at. They should be acting on the data. They should be making decisions on the data. So when you look at the current landscape of manufacturing, what are some of the key barriers that you see on the shop floor with respect to the system in having a lot of manual intervention in the process, and because of that, the barrier to the key insight that businesses can really utilize for their competitive advantage.

Martin Cloake 9:57

So I think there’s. I don’t know if you’ve heard the term data is new oil probably yes. So this is a very dangerous statement with regards to its impact on people on the shop floor. So by making the statement data as the new oil, what has happened is that many organizations are treating their operators on the shop floor as a source of data.

And to your point here, there’s a lot of data that we can get from them. But the reality is that by asking your operators to provide and feed these data systems, it is, by definition, a source of waste. So these systems are often set up in a way that discounts the fact that what our operators need is to be left alone to run their process. And they need a lever to apply pressure on the organization to get support, what they don’t need us to be constantly distracted by data.

Martin Cloake 10:38

So I think one of the fundamental mistakes is that organizations are having redefined what success is. And collecting data is not a success. Success is the better product, your customers better profits, better jobs for people on the shop floor. So I would say that one of the biggest challenges on the shop floor is just the whole frame of these transformations, where it’s centered around data and not centered around continuous improvement, which goes back to your comment about growth.

So the way to view this change our view here is I’m not sure if you’re familiar with just the concept of servant leadership. Yeah, sure, you are so. So effectively at a, if you are in a manufacturing organization, and you’re not standing in front of a machine, it is your duty to do whatever you can to help them be more effective in their job. And that could be to help them figure out how to not spend too much time doing setup and spent help them run their machines more effectively.

Martin Cloake 11:26

So what we don’t need to do is to slow them down with data collection. So I think one of the things that I question that people should ask is when and whenever we’re being asked operators to input data into the system, we should question how many questions we’re asking of them.

And we should question whether or not we’re asking dumb questions. if you’re asking a dumb question frequently, you probably don’t have the right system. So on occasion, you can ask questions to provide context if the purpose is to apply pressure to the organization to fix important problems.

I think that if you ask that question is that, are we asking too many dumb questions, it sort of frames kind of the technology solutions you have on the shop floor in a bit of a different way. And that’s the biggest challenge. So when people say data is the new oil, they are pointing themselves in the wrong direction.

Sam Gupta 12:08

Yeah. And those dumb questions are not fun, even for humans. I mean, they don’t appreciate procedural stuff. That’s data collection for the sake of it when they don’t know what you are going to be doing with this data.

So it’s an interesting dynamic there. So now what we are going to do, Martin, we are going to take the human side of the picture from the equation because obviously, people’s issues are slightly harder to solve in my experience. Okay, so let’s talk purely from the software and machine interaction perspective.

So again, going back to the landscape of manufacturing, typically small to the medium-sized manufacturer. So let’s say keeping the human element aside, what are some of the challenges that you are noticing in the market at this point of time, when you look at the kind of software these manufacturers may be using at this point of time, that kind of machinery they may be using at this point of time, and the challenges that they face? Number one with respect to data collection, and the key insight that can be that they can really utilize for their competitive advantage?

Martin Cloake 12:59

Yeah, I think in many cases, the story of digital transformation in industry 4.0 adoption, that’s being told by service providers and technology providers is not the story that’s most important to most manufacturers. And what happens is that manufacturers get overwhelmed with the idea that they need to digitally transform and with industry 4.0 adoption and perform predictive analytics and all this where effectively the kinds of things that they would benefit from now are much, much simpler.

There are many manufacturers today that have combinations of equipment that are legacy equipment from 30 years ago, equipment that they just got recently, and many manufacturers don’t have a clear view of what has happened recently. So and when I say what has happened recently, if we asked a manufacturer to reconstruct the timeline of what happened on a given station yesterday, they will struggle to do so. They will struggle to identify that they can capture how much it’s run.

Martin Cloake 13:51

But it’s difficult to understand why it wasn’t running or why it was slowing down. And this is kind of going back to the previous comment about capturing data from people like the context that people can provide to those systems is critical to understanding how they’re spending their time.

So the narrative should start off with the first thing is, Do you know what’s happening right now? Really? Do you know what’s happened recently? many manufacturers aren’t at that level because they don’t have that reliable true data set, even capture those most simple things. And one of the things when you begin to capture the simple stuff, that’s really the first effective step on your digital journey, know what is happening, know what has happened. And then the next phase, once you’re confident that you have those, you can begin to understand why did it happen, which is kind of the next level of analytics, and then the next, the final step is to predict what’s going to happen and avoid bad things.

Martin Cloake 14:36

But I think people don’t recognize that you need to go through those steps in that sequence. And one of the benefits of starting in that sequence is that it’s really easy to get operators to understand the first level; we just want to know what happened yesterday and then operate and understand. Okay, what happens is that vendors are pitching analytics tools and predictive tools which are jumping to the end, which are typically based on trying to squeeze value out of bad data and Be nobody understands in the shop floor because we’ve introduced this tool that’s not needed at the wrong time.

So you create disengagement in a system that doesn’t work here. So I would say that it’s shocking that too many manufacturers that they can start so simply and get so much value. And this is what we’ve done for Danaher and various other organizations. And Sanofi, the first steps on this journey don’t have to be that hard. In some ways, leaders should be discounting all the jargon-filled posts with a perfect hashtag on Twitter and LinkedIn and have a conversation about continuous improvement and see what technology is available to help them accelerate that.

Sam Gupta 15:34

Okay, amazing. So let’s start with some stories. And obviously, I mean, you are going to have tons and tons of fascinating stories, were using data, probably you have some sort of insight, and that actually rocked the world of, let’s say, manufacturers.

So do you have any specific stories that you would like to share? And typically, what I like to cover in the story is the previous situation. Whatever they were doing, it could be some sort of challenge that triggered what actually happened. And because of pledge, probably you were brought into the equation, your team analyzed the system, and then finally, some sort of outcome. Right. So do you have any stories that you would like to share?

Martin Cloake 16:07

Absolutely. So I have a great story about a Danaher plant in California we were working with for a while. Yeah, so Danaher is a multinational manufacturer with multiple different sectors. What they’re known for, they’re known for being experts in, in operational excellence, right? Their culture, continuous improvement culture, their team is extremely, extremely talented.

And it’s always amazing to go visit any of their plants here. So we started serving a plant in California, making small metal components, and beginning to sort of try and figure out how to allow for them to keep up with demand, and they’re there in the dental industry. So how can we help them keep up with demand and what their hypothesis was in, as we began to work with them was that they had issues with machine reliability, which is often what triggers a conversation with a technology provider, where we think our machines aren’t reliable, we’re spending a lot of time fixing them, let’s get some more details and data from the machine?

Martin Cloake 17:10

So we set up our technology with them collaboratively and simply did that first phase that I just described earlier, what is actually happening at the machines, and there were issues with machine reliability. But that wasn’t the main cause for lost productivity. when a machine breaks down, there are actually multiple segments of time that capture the different kinds of losses.

You can imagine that you and I are working at a machine and the machine breaks down. So the first time segment is the machine’s broken down. How long does it take for us to actually call for maintenance? So there’s a little segment there, which is we’re trying to figure out, and then the next segment wants maintenance has been called, How long does it take for them to arrive? And then once they got there, how long does it take to fix?

Martin Cloake 17:52

And then once they’re done, how long does it take for us to start up again. So when the time was split up into those segments, what we found out was that they were losing 600 machine hours per month waiting for maintenance to arrive.

So a machine our stay is worth $1,000 a product that is a tremendous amount of lost time. And now, if you were to chat with their maintenance team and a supervisory team, there wasn’t a lack of goodwill towards solving this. It was just there was a little tweak in their process that was making it, so maintenance wasn’t arriving on time. So with these insights, the next step was to how do alert maintenance when this has happened?

And how do we show them how well they are doing at solving this particular problem. So, in this case, your problem was how do we increase improve maintenance response time to service requests, and it sounds so simple.

Martin Cloake 18:40

So they reduced that loss from over 600 per month to under 100 a month in six months, resulting in millions of dollars of additional production and reduced costs. And it’s. It was shocking how simple it is.

So like when people begin the conversation about we want to predict when the vibration of this motor is going to get to the point where we’re going to it’s going to break, that is such a small of an opportunity, where if the goal is simply to continuously improve, provide products to your customers faster and reduce costs, and actually create a good job here because nobody wants to be waiting.

The first things that you’ll see are shockingly mundane. And I think time and time again, when we begin to work with world-class companies, we see the same thing where leaders are almost surprised to see how simple the first thing is.

Martin Cloake 19:24

And then, from a practical standpoint, I find that many organizations try to do too much at the same time. So if you’re running your operations, and if you were to focus on one or two things at a time, it’s way easier to drive gains and actually get your team on board with the initiative because it’s easy to wrap their heads around.

So now the machine is at that station. They don’t want to be waiting if you think of the system. The goal here is to get where maintenance comes sooner to fix their machines. There’s no operator that’s gonna fight that because it’s solving a specific problem. So that just, I would say a great example of how the narrative of the kinds of things that manufacturers need and the way To drive these massive gains is not as complex as people believe.

Sam Gupta 20:03

Yeah, it’s kind of interesting because of the kind of space that I operate in the SMB space. Sometimes they are not even tracking these machine hours or the product costs, they just don’t have a sense of how much time they might be wasting in between runs, and almost a product may be costing.

And sometimes that cost is not really counted towards the product. So they don’t really have a true sense of their product costs. So in this particular case, did they have a true sense of how much the time was wasted?

Can you talk a little bit from the financial data collection perspective, then what were their processes? And how did they recognize that they were wasting this time? Was it because just from the conversation that they felt that they were wasting 600 machine hours? Or were they did they have actual tracking of financial hours as well?

Martin Cloake 20:46

Well, so maybe I’ll also talk about it from an SME context. Danaher is an organization that has a very good sense of the connection between their operational data sets and their financial data sets. So like that’s something that, but I would say for many smaller manufacturers and some larger manufacturers, it’s always surprising how it seems like plant management has two sets of books.

They have the set of books that is looking at operational metrics, and then they have the financial metrics. And the connection between those two is often tenuous. And it’s almost like you see a plant manager with two ledgers on their desks. It’s always a bit of a joke here where, when you’re trying to prove the value of a system, they have to somehow map between the two, and they always get frustrated.

Sam Gupta 21:30

Yeah. So typically, I’m the finance guy on the floor. And I remember a lot of times I got kicked out from the shop floor because the team felt that I didn’t belong there.

Martin Cloake

21:40
What were you wearing, a white shirt and shiny shoes?

Sam Gupta 21:43

I have to. I’m an ERP consultant, brother.

Martin Cloake 21:46

There you go. See that as a problem? If you go on the shop floor in a white shirt and shiny shoes, then people will look at you find it easier. You have to dress for the right spot.

Sam Gupta 21:55

I was a rookie back then. And then I figured out I had learned my lesson. That’s good. Okay, Martin. So yeah, so you were talking about the financial and operational data? So do you want to touch a little bit on that from the SME perspective?

Martin Cloake 22:06

Yeah, so I think the, and maybe this is leading into a conversation just about how organizations tend to have data silos. One of the most obvious Data Silo is that between the planning and financial data and the operational data, and this is very much a function of how our systems are set up.

I know your space is kind of the ERP space. ERPs were not designed to facilitate connections between data in different sections. They were designed to have been a one-place store for all this different data. One of the challenges with the supply chain operates on a daily basis, or on a whereas an operation side. It’s in real-time. So you have these two different systems that are often we’re trying to optimize them in isolation, where they are absolutely connected. And I think the plant manager recognizes that but often that the technology solutions that we’re providing to manufacturers don’t play well together.

Martin Cloake 22:59

And if you have these two systems connected together that are being optimized separately, you are not setting yourself up for success to be efficient; you’re almost baking in thrash into your system that is going to make it inefficient. And I think that’s one of the reasons why many manufacturers are struggling to see the benefits of tweaking one aspect of their system, because optimizing supply chains are great, but if your operations can’t keep up, there’s not going to work.

And I have an example here, which is right now more and more people are consumers have a desire for quick delivery of customized goods and manufacturing has is way more efficient when you have slow delivery of the same kinds of things. The consequence of this shift to quick delivery of customized goods is there’s a lot more pressure on manufacturers to basically make up for mistakes in the plan.

It’s almost like the approach to come up with a plan for production and then execute that plan is failed from the start. What I see happening on the operation side is you have a production plant with a certain sequence that may be optimized.

Martin Cloake 24:01

But then, every day, there’s a backlog of orders that didn’t get completed the previous day. Then, because you all have a duty to your customers, you jam those orders back in your production lines, and you basically blow up whatever plan they add. Manufacturers have to switch from one job to the next to the next in an extremely inefficient sequence that results in very low performance and that this is not the fault of operations.

It’s not the fault of the planning is the fault of the fact that the two systems are not connected. The model of trying to plan a week out when that’s not how consumers want to consume is resulting in a lot of thrash. And I think the real opportunity here is to connect those two systems in a more practical way.

Sam Gupta 24:39

Okay, so let’s talk about the system landscape a bit more. You mentioned the operational and financial systems not being connected in most organizations. My assumption here is going to be, and you can correct me if I’m off here. So my understanding of the operating system that you are referring to is going to be some sort of MES system that actually talks to the machines, but there aren’t going to be many different data sources that are going to be there on the shop floor.

I don’t know how many data sources you typically utilize in the kind of data gathering that you guys do and data analysis that you guys do to be able to make the decisions for your engagement. Typically, what kind of data sets are going to be relevant? Is it going to be just the ERP data? Is it also going to be MES data? Do you acquire data sources from there? Do you look into the engineering data from the CAD system perspective? So what are the data sources that are really relevant from the operational and financial planning perspective?

Martin Cloake 25:34

Yeah, and I’ll talk about that from a practical perspective right now. And then also maybe touch on kind of how I see things changing here. But from a practical perspective, the most basic information is how much of a certain product is trying to be, are you trying to build, and when and that’s typically sitting on the side?

The second one is, what is the build standard? What is the standard cost for this product in the ERP? So, what do you need to build for the customer? That’s generally pretty clean data. And that’s easy to map. One of the biggest challenges is that the standards that sit in the ERP to describe how long it should take to produce products are typically a disaster. And because they’re done so infrequently and changed infrequently.

Martin Cloake 26:10

They’re frequently changing because it is disruptive on the financial side to be changing standards, but the fact that we have a disconnect between the capability that we believe we have and that we’re using for our plants and our actual capability is almost making the planning pointless.

We see cases, and one of the first things we do with our clients is a little bit of validation of their performances per SKU compared to what they think it is. And that first glimpse of that is just shocking. Just even the way that these standards are come up with, if you send a call up to the shop floor to perform a time study, really a time study shouldn’t be a one-time thing, you should have a 24 seven-time study that’s making sure that you have a clear and true view of what your actual capabilities are. So the two most simple things that we connect to is the MES. What are you trying to build? When is it due?

Martin Cloake 26:57

And we have examples of clients in the pharma space where delivering on time can mean the difference between getting a $40 million contract and not getting it. So it’s critical for us to understand what is their goal because we want to make our clients achieve those specific objectives.

Now, we’ve always set up our model, like we are a company, we work on a month to month basis here. So at some point, if we’re not earning our keep, we don’t get to stay around here. So yeah, like, what is your goal? What do you need to present products for when? And then what is your actual capability? And then with those two, I would say that those that are like no, as I mentioned before, with the example in the plants, and simply getting maintenance to be more responsive to these mistakes, I would say that if you just connect the plan to your build targets, to the shop floor and have a true view of your actual performance, that is a very big step for most manufacturers, and they and that that will take them a long way.

Sam Gupta 27:47

Okay, so do you have any stories around the challenges associated with integrating the financial and operational data? The people who don’t have, let’s say, software background, sometimes it’s just harder for them to understand why is integration so difficult when we are talking about two systems, and sometimes these two product could be from the same vendor? So why is integration so challenging? When we talk about two systems, let’s say operational and financial?

Martin Cloake 28:13

Well, I think there’s this bit of a mindset change where it’s hard for people to recognize the value of connecting these two systems. So there’s First off, it’s a mindset, I think, on the technical side, and I know consultancies that are aware of both datasets are aware of the planning data set, and the operational data set can connect these datasets in an effective way.

So I would say it’s the main challenge is for organizations to recognize the power of connecting planning to their true operational data set, and then find the right kind of service partner to connect those two, because at this point here are I would say the biggest challenges in our industry are no longer technological is behavioral that we’re not quick to jump on to new things.

And in some ways, we’re looking for that model here. So I would say it is just awareness, because technology is available both in service their service providers available that can create that strong connection so that you do not have to have two sets of books, you can understand what your operational performance means on the financial side.

Sam Gupta 29:09

Okay, so do you have any stories that you might be able to share around the integration challenges that you have seen in your space?

Martin Cloake 29:14

Often, when we begin to chat with clients, the first thing that they request is, let’s connect the data set to SAP, right? And what we can cover is part of that, and consultants can come in as well. I think organizations don’t often have an awareness of what’s required on their side to actually create those connections.

So often, what happens is that there’s a motivation to make the connections. Many organizations don’t have the internal, so one of the things that I’m sure you’re aware of here is you can’t create a live connection to SAP it wasn’t designed to do that. It’s designed to have intermittent connections from a data perspective.

Martin Cloake 29:49

So this is something that we come across again and again, and in some ways, the need to push to connect these two data sets and maybe just and I’m not even sure if the past That we will end up is one that goes through the ERP players that are currently in place. Because of the way that the ERP systems have been designed, the way that MES has been designed and these operational systems have been designed is with minimal interconnectivity.

And maybe this is getting into a bit where I see things going. But you know, there’s a challenge here where we have a bunch of legacy software systems, and even more importantly, legacy behavior that is struggling us to switch from the old way of doing things to the new way of doing things, which is to optimize for one thing, and that’s what I said on the top here, which is optimized for our ability to deliver value to the customers to maximize profits, and to make jobs better on the shop floor. To do that, you need to optimize one equation and not optimize these data silos. Yeah, so one of the things.

Sam Gupta 30:45

This is not really related to one specific vendor, in my mind, and again, when we talk about SAP, SAP has many different products, and they all have different versions. And that is good with any vendor out there, right.

So some ERP systems may be able to provide live connectivity, some ERPs may not be able to provide, some may be able to connect with the system. But again, the capabilities that some of these companies may require could be different. So there are a lot of different variables when we talk about the software landscape as well. And that is something I think everybody needs to keep in mind. So do you have any other stories that you could not cover as part of this episode? Well, okay, so maybe this goes back to sort of my experience in manufacturing as well.

Martin Cloake 31:00

But one of the consequences of not having a strong connection between the operational data set and the financial data set is you have many engineers, and I was one of these engineers when I was working in manufacturing, struggle to make a compelling business case to financially motivated leadership to get them to invest in improvement projects.

And what happens is that so this is something where many engineers struggle early on in their careers. And I think your background is one that as background in finance, which I think would benefit many engineers early on to understand how to follow the dollars all the way from the money coming into those projects here.

So I think a lot of projects start with best intentions, but the fact that engineers don’t have the skill sets to understand how to create that translation is making it difficult for them to be internal advocates to drive these improvement initiatives. So I think at some point, it’s, in order to unblock, we need to be able to change the way that leaders view operational performance and have a much stronger tie to financial data.

Sam Gupta 32:00

And one of the ways to do this is to technology. Absolutely. But I think this is something where there’s a bit of a shortcoming, on how engineers are trained, and even in organizations, how the engineering side of organizations are run, kind of as they’re project-based versus continuous improvement focused.

And I think that mentality, which has been in manufacturing for a long time, is kind of created this idea that engineering provides value by executing projects versus providing value by accelerating continuous improvement. So it’s not a specific story here.

But I think there are a bit of mindset changes that that’s needed in manufacturing, where if you are an engineering, you are almost, by definition, linked to continuous improvement and continuous improvement culture. Yeah, but that mindset of being project-based disconnects them from that because a successful engineer is somebody who executes projects on time and on budget versus who provides more impact to the business in a way that’s measurable financially.

Sam Gupta 33:24

Yep, completely agree. So that’s it for today. Martin, do you have any last-minute closing thoughts?

Martin Cloake 33:28

Yeah, no, I think just as far as how things are going, I mentioned that earlier, in some ways, the ERP is not in the middle of these challenges that we’ve been discussing, a lot of the data that we are of massive value sits there, the operational data that sits next to it would naturally flow into it. I think what’s going to transform the industry is by finding ways to leverage that data in a holistic way. What I mean by that is that to track, we do a lot of work in manufacturing to track how value is provided from the person at the machine to the customer, but to actually map that financially. And then optimize. That is really where I believe our industry is going.

Martin Cloake 34:07

One of the neatest things is that when and maybe this is only here in Canada, but when you Google manufacturing, the first company that pops up is Shopify, which is kind of shocking that Shopify has so, and I’m in Ottawa, Shopify town, and that sort of I think that is sort of pointing in the direction of where things are going here, where we’re going to have these systems.

And maybe at some point, your ERPs and operational data systems will simply be apps off the Shopify store, and why I see this happening is that the way to create really this to optimize manufacturing and achieve all the promises that industry 4.0 adoption requires is to connect that so if you are an app on a Shopify store, by definition, you have access to data on the sales and marketing side, but you also have access to influence on the sales and marketing side.

If you have access to the ERP data and costing and planning and operational data, you basically are creating that full data connection from the person to the customer.

Martin Cloake 35:02

And if we think about technologies that have been massively disruptive over the last ten years that the companies that come to mind are Uber and Airbnb. And if you think about Uber, it’s the first that you wouldn’t say it’s necessarily similar to manufacturing, but you have a person, and you have equipment providing value to a consumer. Now, in that case, the reason why it works, it works so well is because there is a direct connection between operational data sales and marketing. It’s all in one.

And they’ve cut out all the inefficiencies. And I’m not speaking about whether or not they’re, they’re profitable or not here, and there’s competition in that space. But to date, if you think about what Amazon and Shopify do, they don’t complete that loop from the sales portion of things all the way down to the person providing the value here. And the way to complete that loop is to connect those systems to the operational data systems.

Martin Cloake 35:50

And I think that is when we’re all looking for that Uber moment for the industry for auto, and the Uber moment will happen when that is connected, when it is so clear and simple for SMB leaders to see how they might be using this system can provide more value to their customers, more profits and better jobs for their teams.

And I think that’s completing that loop is what’s going to give our space that Uber moment where everybody will flip over. But until we do that, as long as we continue to optimize these different systems in isolation, there’s always gonna be thrash, and there’s going to be, and we’ll continue going through pilot purgatory, and where we install something, we think it should work.

Martin Cloake 36:27

But at the end of the day, we don’t see those financial benefits. And I think that’s kind of the big challenge for us that we need to now think horizontally and not vertically with regards to data. That’s an amazing and very interesting perspective. And my personal takeaway from this conversation is going to be everybody knows that data is the new oil.

But in the new world, I think connectivity is probably going to be the new norm. So the more connected we are, the better and more competitive we are going to be as a society and also as an organization. So on that note, Martin, I want to thank you for your time. This has been a fun conversation and very insightful. Awesome. Thanks for your time. Thanks for the invite, Sam.

Sam Gupta 37:03

I cannot thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learned something new today. If you want to learn more about Martin, head over to raven.ai. Links and more information will also be available in the show notes.

If anything in this podcast resonated with you and your business, you might want to check out our related episodes, including the interview with Dave Griffith, who discusses why manufacturers must look for low-hanging fruits when exploring the path of industry 4.0 adoption. Also the interview with Susan Walsh, who discusses how to normalize your product, customer, and vendor data to avoid planning and forecasting issues with your inventory.

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get out. Thank you, and I hope to get you on the next episode of the WBS podcast.

Outro 38:09

Thank you for listening to another episode of the WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guest Chris Harris, who discusses the importance of shop floor data collection for manufacturers. He also provides insights into how every machine has a story and how much you can learn from these stories by collecting and analyzing data. Finally, we discussed the nuances of digital twin and how that could help manufacturing maintenance departments become proactive and efficient.

Chapter Markers

• [0:25] Intro
• [2:58] Personal journey and current focus
• [3:43] Perspective on growth
• [4:09] Pulp and paper industries’ shop floor layout
• [5:21] Shop floor data collection
• [7:50] Your competitive advantage with shop floor data collection
• [8:57] Shop floor scrap handling
• [13:57] Recommended approach to shop floor data collection
• [19:59] The core challenges of a maintenance department
• [27:50] The implementation challenges of a digital twin
• [31:16] Closing thoughts
• [32:14] Outro

Key Takeaways

• It was that 80-20 rule. We’ve got so many other problems that cost so much more money and our business that scrap is not considered one of the high ends. And now, to have a green economy to have less of a carbon footprint, scrap is stuff that is considered. But some industries, more than others, are more reluctant to identify that, but everybody’s starting to do that.
• None of their problems are easily tended to because they don’t know what the problem is, they know there is a problem. They even may know that what the problem is, but to be able to take charge of what is required to fix it take more of an in-depth shop floor data collection.
• Everyone wants a widget that fixes everything. But no one wants to hear that everything needs to be looked at and analyzed individually.
• Shop floor data collection thus far has been strictly relatable to the machinery aspect. What is the status of the machine, and is that shop floor data collection is done by physically tying it into the machine? Or it’s when a supervisor sits down at the end of the shift and thinks about what happened?

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About Chris

Chris Harris is a mentor, coach, entrepreneur, process industry veteran, and patent holder. Following a twenty-year engineering and installation career at a custom conveyor manufacturer, he founded and continuously enhanced ​WPR Services​. The company’s primary product is a suite of hardware and software, including vision and voice-enabled devices and connected devices that assist customers in addressing, solving, and planning for various challenges in today’s manufacturing environment.

Resources

• Connect with Chris
  • LinkedIn
• Connect with WPR Services
  • Website

Full Transcript

Chris Harris 0:00

Yeah, what are you going to do with the digital twin now that you have a digital twin? What are you doing with it? And how is it adapting? How is it used? So that’s more than half of the battle having all of these data gathered, and every manufacturer that makes Electronics has a wireless way of connecting to so many different things. So now, I have this thing that I’m calling a digital twin. What am I gonna do with it?

Intro 0:25

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 1:01

Hey everyone, welcome back to another episode of The WBS podcast. I’m Sam Gupta, your host, and principal consultant at a digital transformation consulting firm, ElevatIQ.

Digital twin has been around for a long time. But is it just marketing hype? Is it just a fancy term for shop floor data collection? What are the core challenges digital twin solves? Is it supposed to help overworked maintenance departments and extract stories from each machine? Could it help in reducing waste and improving product quality? These are the questions you will have if you are in the process of exploring a digital twin for your organization.

In today’s episode, we have our guest, Chris, who discusses the importance of shop floor data collection for manufacturers. He also provides insight into how every machine has a story and how much you can learn from these stories by collecting and analyzing data. Finally, we discuss the nuances of a digital twin and how that could help manufacturing maintenance departments become proactive and efficient. Let me introduce this to you.

Sam Gupta 2:11

Chris Harris is a mentor coach, entrepreneur, process industry veteran, and patent holder following the 20 years engineering and installation career at a custom conveyor manufacturer he founded and continuously at WPR Services, the company’s primary product is a suite of hardware and software, including vision and voice-enabled devices and connected devices that assist customers in addressing, solving and planning for various challenges in today’s manufacturing environment. With that, let’s get to the conversation. Hey, Chris, welcome to the show.

Chris Harris 2:54

Thanks, Sam. Thank you very much. Appreciate your time and ability to talk here.

Sam Gupta 2:58

Of course, and we’re super excited to have you. Just to kick things off, do you want to start with your personal story and your current focus?

Chris Harris 3:06

Yeah, I’ve got 25 plus years of experience in manufacturing. We were a conveyor manufacturer. And I got to install equipment in a variety of demographics, as well as industries, and learn from that and created a product line today that is in retrospect of what I learned as a road warrior. And somebody they’re in a factory without how to handle the shop floor data collection that’s needed for manufacturers.

Sam Gupta 3:33

Okay, amazing, so obviously, we are going to be digging a lot into the shop floor data collection aspect and how we can make the shop floor more intelligent than we commonly see in the manufacturing world.

Chris Harris 3:43

But before we do that, we have a standard question for every single guest that comes on to the show. And that is going to be your perspective on growth. Chris, what does growth mean to you? Growth means me the ability to expand not only what I’m trying to do with my products but also the shop floor data collection techniques that I’ve started with and put forward to how shop floor data collection is done. And that would be a good growth platform.

Sam Gupta 4:09

Okay, so let’s talk about some of the industries where we were discussing in the pre-show. Chris, you have done a lot of work, let’s say in the pulp and paper and the corrugated box. So tell us a little bit about how these shop floors are for these industries, what you have seen in the other industries.

Chris Harris 4:31

Yeah, and the shop floor data collection thus far has been strictly relatable to the machinery aspect. What is the status of the machine, and is that shop floor data collection is done by physically tying into the machine, or it’s when a supervisor sits down at the end of the shift and thinks about what happened?

And so what I’m trying to do in my industry is make the shop floor data collection be inclusive of everything about a machine center. And so when we’re learning about the success of a production line, we want to understand what created that success and the aspects of everybody who touches the production, whether it be a maintenance, person quality control, who’s looking, trying to get all of that information out of one platform into the decision-makers to analyze that.

Sam Gupta 5:21

okay, so when we look at shop floor data collection, obviously, shop floor data collection could mean a lot of things to different audiences. So here, I believe that you are talking about slightly more operational data and the shop floor data as the product is moving through the production line, and you are talking about shop floor data collection directly from the machine as opposed to inputting this data.

Let’s say in some sort of ERP system, or whatever system they might have on the shop floor to be able to gather this data. So tell us a little bit more about what shop floor data collection means to you. And why is it different from what manufacturers may be doing at this point in time on their shop floors?

Chris Harris 5:59

Yeah, so the shop floor data collection for me has always been to be a wedge and to bridge into an ERP. So many software’s out there for a production facility are done from the outside into the machine, and I’m taking the whole idea from the inside of the machine and working back into the front side, a lot of that sales on the front end, and databases that are empty, ideas that we in a perfect world want to get all this data.

And I’m coming at it going here this data is possible to get this does not or here’s how the data needs to be shaped through then your platform your ERP system can take and do this magic that it says to do so looking again from the inside out and in creating the unicorn of the pull versus push and how do you run manufacturing and pulling versus pushing and so creating that environment and ERPs now go to the sales where the 20 years ago that wasn’t it, they were just production It was a loose connection to a sales platform, and I’m trying to feed all of that.

Sam Gupta 7:07

Okay, amazing. So So tell us some stories where you have done some work tell us the prior state of the shop floor, what kind of work you have done, what were the benefits of the work that you have done, and how that translated, let’s say, into either the revenue or business growth.

Chris Harris 7:25

Business growth that I’ve got is has been understanding how to build my product and listening to what is needed, so I’ve gotten a lot of sales inquiries for not necessarily a product, here’s a device, and you use it, and you do it I’m coming in with an idea, and that idea is shaped from what are the needs the customer has at that moment.

Sam Gupta 7:50

Okay, so tell us how you have helped some of the customers so customers or you might have some sort of stories where you saw a situation where they could have used shop floor data collection as they’re either a competitive advantage or maybe to reduce the costs or to improve their products.

Chris Harris 8:05

So tell us some of these stories from that perspective shop floor data collection with the material it seems to be raw material usage and scrap those from manufacturing those are the data is the primary data is that every manufacturing process is wanting to do reduce scrap make the most out of the raw materials and then ship something and so data has been limited to just that type of thing.

I’m trying to grab data for other departments, not just production or other plus saving revenue avenues in just raw material and scrap and then ship product and so how can I have a platform that is able to implement it and be able to touch all of the different departments to justify our allies in a variety of ways.

Sam Gupta 8:57

So okay, so many talks about this scrap, right? Is this a scrap problem going to be on every manufacturing shop floor, or is it limited to some shop floors?

Chris Harris 9:09

I mean, you got somebody in a CNC mill shop is putting scrap metal pieces all around for based on how they’re doing a pass of their CNC work. So there’s a lot of facilities that have scrap pizza dough. I worked in a facility that was just sweeping pizza dough off the floor. And so I’ve seen a with working with conveyor and conveying material from one side of the plant the entry of raw material and the exit of finished goods.

I’ve seen that there are a lot of parallels with wanting to do scrap and because a lot of industries do that. Other industries say let’s make our business model on reducing waste and whatever that is and making the most out of the materials that we have coming in.

Sam Gupta 9:56

So in your experience, let’s say if you talk about scrap. In my experience, a lot of manufacturers don’t even track that sometimes they are simply going to have scrap as the production output. They don’t even do the production casting. So how are they going to know how much space they are producing?

Chris Harris 10:13

So in your experience, do manufacturers practice scrap? Always? If not, what can they do to reduce the scrap? It’s not been a concern because it wasn’t known to be a concern until you started really doing finite analysis of your manufacturing process 20-30 years ago that it was discussed.

But it was that 80-20 rule. We’ve got so many other problems that cost so much more money and our business that scrap is not considered one of the high ends. And now, to have a green economy to have less of a carbon footprint, scrap is stuff that is considered. But some industries, more than others, are more reluctant to identify that, but everybody’s starting to do that.

Chris Harris 10:57

Because the shop floor data collection is easier to get, there are too many tools. There are so many tools that you can gather data that allow you to then validate that 20% of the stuff I didn’t think is needed. I can go grab that now. And again, the benefits of reducing waste, just waste handling waste, don’t waste away.

And knowing that you have so much in some industries may say you know what, we’re running 40% waste, we’re not getting any better than this. So then be creative on how to use that waste to do something else. And so there’s the analysis that’s being done, slowly but surely, that you see in the news? Oh, you’re finding more. You see more and more on the news.

Sam Gupta 11:35

Okay, amazing. So when you talk about this green economy concept, there are some regulatory agencies as well that are monitoring. So I don’t know if there is going to be any penalty or reporting required by the manufacturers if they are reducing the waste or not. Have you seen any of that by any chance, from the government agencies for manufacturers to be able to report the waste and what they are doing to reduce the waste in their facility?

Chris Harris 12:01

No, I haven’t. I don’t have any data on that. WPR is my product that has the ability to gather data, whether that be a metric, and the number of this, or the size of that. And so, the tools that I’m gathering are able to take and quantify that metric that’s needed.

Sam Gupta 12:21

Okay, amazing. So you spoke about finite analysis, and some of my audience may not be familiar with what finite analysis is. So tell us a little bit more about finite analysis and how that is relevant for manufacturers. And if you have any stories where they were not using finite analysis before, and maybe they started using afterward, what was the impact of using finite analysis.

Chris Harris 12:42

The Finite analysis is really just meaning that people can look into things a little bit more depth. So my reference to finite analysis was the path I was trying to deliver the message. So again, analyzing things one or two steps further and analyzing things with the answers that your original analysis creates, and so finite, then it has to do with the tools to be able to analyze that the computation of power to analyze that there that allow you to use words like the finite analysis.

Sam Gupta 13:18

Okay, so, give me some examples. So let’s say if I was not using finite analysis before, and maybe I did not have enough depth, but now I may be using finite analysis, and maybe I’m going to have depth. So let’s say if I’m the pulp manufacturer here, Chris, okay. And I am trying to take advantage of finite analysis on my shop floor. So what kind of insight. Am I going to get on the shop floor that I did not have before more data?

Chris Harris 13:40

Again, the finite and now the in-depth analysis is thinking about more ways of shop floor data collection? Again, is there additional data? We don’t know.

Sam Gupta 13:57

Okay, so tell us some of the challenges that you have seen in these industries when you are doing, let’s say, shop floor data collection. Okay, what are some of the challenges of do you find that the machines that you are interfacing with? Are they modern enough to be able to get the data from those machines? What kind of preparation is required? Do we need to upgrade the machines? Do we need to put any sort of sensors before we can get the data from the machines?

So let’s say if I take you to a manufacturing shop floor, what would be your approach recommendation, the steps that you are going to take in order to get the appropriate data that you need to be able to provide the insight to be able to grow the business?

Chris Harris 14:34

Yeah, every machine has a story to tell every factory floor has a story to tell all around the machine from raw materials in effort out, and cameras and audio data gathering from those two can extrapolate that data. A lot of people are taking an old machine that is mechanically inclined to run production but doesn’t think that you can update its technology of telling a story to get to a device because of primitive ways of running a machine.

But every machine has a baseline story and can tell you something you didn’t know yesterday. And with having the ability to gather more than one bit of information from a machine, now the machine tells you the story that you need and then tells you whether or not you really need to get a new machine and tells you if you really need to upgrade controls. But it starts with knowing what the root cause is? And what is it that we’re trying to fit?

Sam Gupta 15:39

Okay, so you mentioned that every machine has a story to tell. So tell us one story. And probably the last machine that you interfaced with that rocked your world completely, that was really fascinating for you to be able to find that you probably were not expecting when you started your process.

Chris Harris 15:58

The viscosity of the liquid. The temperature of the viscosity of a liquid. And how temperature and pressure affected glue, and how it was the thing that never was considered to then revolutionize the ability to glue in the boxing industry that was really unique. The other unique thing found is a bug zapper that was affecting laser LIDAR or laser pathway sensors that a handful of different companies make some of the electronics manufacturers, but obscure scenarios that you don’t know unless you’re analyzing a lot of things from the outside looking in.

Sam Gupta 16:45

Okay, so this is very interesting. And I’m super fascinated about this particular story where you are talking about the viscosity and temperature, and that is affecting the group process. So what was the original expectation of the shop floor when they did not have this insight, and then you started gathering the insight?

And then they came to know that there is something going on here that I did not know, and I got to know this only because of this shop floor data collection. So tell us a little bit about the situation before in terms of what was the insight that existed or the myths that exist around the shop floor and how that changed once you find this insight from your shop floor data collection process.

Chris Harris 17:24

Good luck not to see data that is changing. When you’re charting data, the inconsistent things are visibly there, more so than the consistent thing. Those ROIs allow you to see similarities and not similarities.

And so that tying into a variety of sensors that are existing, or tying into a maintenance technician who said I do this 17 times, and I always go to find this data out and then I go home because I know what that data is to tap into that and then to build trends and tendencies from that. And the data have shown that you can analyze quickly then allow you to allow me to come up with that let just because it was a variable that changed a lot that I didn’t know that you don’t know.

Sam Gupta 18:18

Yeah, so every story has some sort of trigger, right? I mean, the story starts from somewhere. So in this particular case, what was the original trigger? What were the core problems that the shop floor was having? And then probably you were brought in, or your team was brought in, or somebody was brought in that you knew. So what was the trigger?

Chris Harris 18:36

The problem was that they didn’t know that they were looking, they wanted to know, a factory goes through a new maintenance manager who tries something new, a new production manager does something different, a quality person who just attended some seminar that said, this is the buzzword that we’re supposed to use for our game, our thought process in our department of this year.

And so none of it was working because they’re all still changing. And so that trigger was how we’re going to get the data we don’t know to help us, we don’t know, and how to how do we get that data. That’s where my wedge data gatherers come into play. When you said none of it was working, so I want to dig a little deeper on that. So what was not working? The product quality wasn’t good enough. The efficiency wasn’t there.

Chris Harris 19:22

What were the problems? Now working is a harsh term. It could be more optimized. It could be better. There was always the challenge to get that extra 20% in the 80-20. No. And so, it wasn’t always a perfect thing.

So I learned from seeing lots of maintenance departments and seeing how maintenance works to see how production interacts with the production employees, production managers, and employees and seeing the need for all these things that are different. But the fact is that you need to gather the data, somehow raw machine metrics, and people met.

Sam Gupta 19:59

Great. So let’s talk about the maintenance department. So what are the core challenges that you typically see in a maintenance department that you have worked with? What are the core challenges?

Chris Harris 20:11

I have seen every maintenance department were overworked and underpaid, and we just had an employee quit? And the efficiency of our department just went to 75%, because we’ve lost one out of four. That’s a very real number. And now that three other maintenance, people have to take that other 25% without a pay increase, and now you have a moral issue.

And so those are the things that I’ve seen in maintenance departments. So why are the older work? What are the core reasons? Why are the award-winning is the there’s not money put in for budgets, there’s not there’s a maintenance that said, hey, we need to this money. After that, may I talk earlier about a different maintenance manager who has ideas and educated ideas from a college or from life experiences that they’ve gathered in, but everything costs money, and money’s not spent the maintenance, because 80% of maintenance is reactive?

And so companies know, maintenance can be a very expensive challenge. But 80% of it is reactive, and the latest people are just trying to get on the flip side of that to not have to become too reactive. So that’s the thing that I’ve seen with maintenance departments.

Sam Gupta 21:31

So obviously, when you talk from the CFO perspective and let’s say if I take the side of my manufacturing CFO, they have a lot of competing priorities, right? So from the CFOs perspective, or CEO’s perspective, maintenance, people are saying that I have tons of problems with my service, people are saying they have tons of problem production, people are saying they have tons of problems.

And marketing, people are saying they have tons of problems. So it’s not easy for a CFO to think about that. So in your experience, let’s say if you were to make some recommendations to a CFO, and again, the goal of this exercise is going to be to create some sort of ROI, so that whatever I’m spending today, either I can spend less. That’s what CFOs care for.

Chris Harris 22:11

You just said it. The CFO hears from the quality department. I have problems in every department. So I’m coming in from a product to understand that every one of those people has problems, but none of their problems are easily tended to because they don’t know what the problem is, they know there is a problem.

They even may know that what the problem is, but to be able to take charge of what is required to fix it take more of an in-depth shop floor data collection. And that’s where I’m coming in is tying into each of these departments and being able to get the data to take the pains away from that person. And it starts with talking to that person and cleaning and inquiring off of them the data that’s needed to make his life better than ultimately CFOs life.

Chris Harris 23:00

Okay, so when we talk about the maintenance, and I’m actually going to give you an example, right, so let’s say if I’m driving a car, and if I look at the maintenance, from the cars perspective, typically you are going to require a lot more maintenance and an old car, right. And this is what I see on the shop floors as well.

Whether you talk about ERP systems, you talk about the machine. Each of them is some sort of machine, right. So the reason why you would require a lot more maintenance in these machines is that they are probably too outdated. Right, and they are not getting things. They have fewer things, all machines have fewer things, they have fewer electronics, and new machines have lots of new electronics that then require new maintenance technicians to be able to attend to them.

Chris Harris 23:48

So yeah, there’s, they’re newer things. And they’re easier to obtain. And they’re easier to build. But they also add complexity to the whole process because they are new things. New things don’t always work out. And there’s another new thing that replaces the new thing. So when they put machines together, they really had to think what’s the simplistic way to do this.

So I see Emerson, both as a former machine builder and the company, we were making robotics and conveyor and other machinery. I’ve seen the migration with new stuff, old stuff, and I’m 50-50 based on the situation every situation is different. And knowing the analysis that needs to be done tells you whether or not you’re on this side of the 50 or that side of the 50. And those are things that my product can do ahead of time to justify how a machine performs. What’s the problem?

Chris Harris 24:40

What’s the root cause? Is it that I spit that the machine is broken down and the four operators hurt their foot because they kick it because they’re mad that the machine is broken down and always because it’s a mechanical nightmare because maintenance spends too much money on it, and we have technicians from the OEM that doesn’t exist anymore.

So you’ve got to analyze and look at it. And everyone wants a widget that fixes everything. But no one wants to hear that everything needs to be looked at and analyzed individually. But it does. And that’s where my tools come in, that allows you to do that to take on that individualized entity, that that machine interaction with a person operating, it has to be able to say whether or not a norm.

Sam Gupta 25:29

So tell us some of the examples or the stories of that 50-50, in which situations the new machine is going to be the right fit, and in which situations, the old machine may be okay. Do you have any stories or examples, or criteria that you would recommend?

Chris Harris 25:46

Not a story, conversations, and it comes down to where everybody knows what data that they want to gather to get that answer. But they have to speculate on a lot of the answers because it’s too hard to gather the data, or that employee doesn’t have time to gather the data.

And so, therefore, if decisions are made, wrong decisions are made because the assumption is maybe that this is a bottleneck for maintenance because they remember last week maintenance guy said the machine broke down.

So they immediately think, wow, my machines always broke down. But that may have been the only time it was broken down in 10 years, but that person remembers that and then makes an ill decision based on that. And that’s why qualifying the data is an important part of it.

Sam Gupta 26:35

Okay, amazing, and so so from the maintenance perspective, what other stories or recommendations that you might have, or maybe you have some other stories from the maintenance perspective that you would like to cover?

Chris Harris 26:45

Yeah, that’s not a product that I sell. Unless selling smiles is a product is the most important thing. The most important thing with the maintenance department is morale. And as a vendor, if I’m involved with it, I’m going to try to get a chuckle and try to take and try to create that because I’ve seen the success of good maintenance type. And how can you take him and leave the main shop and give the main his department the tools that they need and the data that they need to then make an informed action or decision based on that?

So that’s what I’m trying to do. But then it also goes in production and the folks producing. So, for instance, I did a report. And when we put the reporting together, we had no negatives; we had no downtime, not minutes off. Not that everything was uptime, and green and nice fiber colors, and not red and x’s and things like that. So shape your data in a kind way is one of the delivery messages that we want with our data gathered.

Sam Gupta 27:50

Okay, so obviously, you talk a lot about digital twins as well. So let’s talk about the complexity of the digital twin in implementing that. So let’s say find the manufacturer or the manufacturing CFO. Yes, I’ve heard that the digital twin is cool. But I’m looking to see if I can make the life of my maintenance people easier by implementing, let’s say, a digital twin of a machine or a process.

Chris Harris 28:13

In my opinion, a digital twin is a marketing word that, again, was talked about earlier. Offline, people don’t know what a digital twin but they know their competition bought two of them last week. They want to buy one now. They want to buy three now. So digital twin is just knowing the data and having the data pop up in front of you and telling you here it is.

And the digital twin is all of those bits of data that are pertinent. Someone can say I’ve got a digital twin, and I have all data pertinent, but I can’t read any of it. I don’t understand it. I don’t know how to extrapolate it quickly. And so my interpretation of a digital twin is the data that’s needed all readily available there in one page on one period.

Sam Gupta 28:55

Okay, so in your case, you are saying that digital twin is just a marketing term, clearly, the shop floor data collection, if you think about it, so basically from the resultant protected as long as the data is there, on one page, it describes, let’s say whatever trends you’re facing with respect to the machine, and it actually solves the problem.

That’s what you should be looking for. Right? So in your experience, tell us some of the, let’s say, well recommended digital twins. And if I were to implement a digital twin in my manufacturing plant, what are the attributes other than data being on one page, and the data is relevant to my process? What else should I be looking at? In the digital twin?

Chris Harris 29:33

What are you going to do with the digital twin now that you have a digital twin? What are you doing with it? And how is it adapting? How is it used? So that’s more than half of the battle having all of these data gathered, and every manufacturer that makes Electronics has a wireless way of connecting to so many different things. So now I have this thing that I’m calling a digital twin. What are what am I gonna do with that data? So that’s the whole digital twin 2.0.

Sam Gupta 30:02

Okay, amazing. So, that’s it for today. Chris, do you have any last-minute closing thoughts?

Chris Harris 30:06

Some of my challenges with using vision and video and audio, there are people who feel an invasion of privacy with cameras, and the challenge of how to address that has been a subject that I’ve been working with to try to offer up these solutions that help manufacturing environments and bring a lot of smiles to employees faces that then create a really good cohesive work environment.

So the challenges with that if you have any further shows that maybe touch base on that or you got topic or industry experts that know about that, I’d love to be able to participate in something like that.

Sam Gupta 30:44

Okay, amazing. We’ll definitely keep you in mind. And my personal takeaway from this conversation is going to be every machine has a story, and it’s up to you how you want to craft that story using the data. So on that note, I thank you for your time in class. This has been an insightful conversation.

Chris Harris 31:04

Yes, thank you. And it was really very impromptu. I had no idea that I was going to do this, and I would have worn more than a T-shirt for a verbal or audio-only call.

Sam Gupta 31:16

Alright, thank you so much. Thanks. I cannot thank our guests enough for coming to the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learned something new today. If you want to learn more about Chris, head over to WPRServices.net. Links and more information will also be available in the show notes.

If anything in this podcast resonates with you and your business. You might want to check out the related episodes, including the interview with Dave Griffith, who discusses why manufacturers must look for low-hanging fruits when exploring the path of industry 4.0. Also, the interview with Jason Chester, who shares his thoughts on how evolving consumer trends are forcing manufacturers to rethink their approach to managing manufacturing processes.

Sam Gupta 32:14

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I hope to get you on the next episode of the WBS podcast.

Outro 32:35

Thank you for listening to another episode of The WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guest Chad Moutray, who discusses the current economic conditions and manufacturing industry forecast. He also translates economic insight for small-to-medium-sized manufacturers who may not understand how these issues might affect them. Finally, we discussed several other topics, including supply chain, consumer behavior in the new normal, pandemic-driven business trends, changes due to new administration, and much more.

Chapter Markers

• [0:22] Intro
• [4:01] Personal journey and current focus
• [5:12] Perspective on growth
• [6:24] Impact of macroeconomic trends for manufacturers
• [11:53] Business growth during pandemic
• [13:07] Why is service industry not growing in proportion to manufacturing?
• [16:22] Manufacturing workforce challenges vs unemployment rate
• [19:06] Supply chain disruptions for manufacturers
• [23:42] Business model changes due to the pandemic
• [25:41] Using external market data for internal business decisions
• [33:05] Closing thoughts
• [33:50] Outro

Key Takeaways

• The skills gap is a structural problem. We’ve known this problem is going to be happening for the last decade. There’s the worry out there about where’s that next generation of workers going to come from. And so part of that is, I think, a perceptional challenge.
• Sometimes, part of the skill gap challenge is that not only do you have a skills mismatch, but you also have a location mismatch, and that is the challenge that we have quite a bit.
• Pre-COVID, packaged foods, were kind of starting to lose favor, especially amongst millennials. And yet, during this just crisis, as everyone has stayed home, packaged foods have gained favor, right? So if I was selling in the packaged food business, you’d have to ask yourself, is that a trend that’s going to stay?
• There’s an enormous amount of interest, not just in the economy, but in what’s happening in terms of the policy. I think to be a good forecaster. You almost have to kind of have a good handle about it.

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About Chad

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews and has appeared on various news outlets, including CNBC. In addition, he is the director of the Center for Manufacturing Research at the Manufacturing Institute, the social impact arm of the NAM, where he leads efforts to produce thought leadership, data, and analysis of relevance to business leaders in the sector.

Prior to joining the NAM, Dr. Moutray was the chief economist and director of economic research for the Office of Advocacy at the U.S. Small Business Administration (SBA) from 2002 to 2010. In that role, he was responsible for researching the importance of entrepreneurship to the U.S. economy and highlighting various issues of importance to small business owners, policymakers, and academics. In addition to discussing economic and policy trends, his personal research focused on the importance of educational attainment to both self-employment and economic growth.

Prior to working at the SBA, Mr. Moutray was the dean of the School of Business Administration at Robert Morris College in Chicago, Ill. (now the Robert Morris University of Illinois). Under his leadership, the business school had rapid growth, both adding new programs and new campuses. He began the development of an M.B.A. program that began accepting students after his departure and created a business institute for students to work with local businesses on classroom projects and internships.

Resources

• Connect with Chad
  • LinkedIn
• Connect with NAM
  • Website

Full Transcript

Chad Moutray 0:00

Manufacturing actually has been a bit of a bright spot in the larger economy. That doesn’t mean that we’re out of the woods. We’re clearly not back to pre-pandemic levels of employment or output at this point, but when you compare it to the service sector, we certainly have fared a little bit better. Overall, the manufacturing sector is just down 1% below where it was less prevalent, which is pretty impressive.

Intro 0:22

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 0:58

Hey everyone, welcome back to another episode of the WBS podcast. I’m Sam Gupta, your host, and principal consultant at a digital transformation consulting firm, ElevatIQ.

Are we already out of the woods from COVID? Should you be bullish on the economy? How should we plan your investments for this year? Can you comfortably plan for long-term investments? How would the new normal look? What disruptions can you expect in your supply chain? What new consumer trends can you expect? And what workforce changes can you expect? If you are a manufacturer, these are the questions you might have as you plan for 2021.

In today’s episode, we have our guest Chad Moutray who discusses the current economic conditions and manufacturing industry forecast. He also translates economic insight for small to medium-sized manufacturers who may not understand how these issues might affect them. Finally, we discussed several other topics, including supply chain consumer behavior in the new normal pandemic driven with the strength changes due to new administration and much more. Let me introduce Chad to you.

Sam Gupta 2:05

Chad Moutray is chief economist for the National Association of Manufacturers, also known as NAM, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews and has appeared on various news outlets, including CNBC.

In addition, he’s the director of the Center for manufacturing research at the manufacturing Institute, the social impact arm of the NAM, where he leads efforts to produce thought leadership data analysis of relevance to business leaders in the sector. Prior to joining the NAM, Dr. Moutray was the chief economist and director of economic research for the Office of Advocacy at the US Small Business Administration from 2002 to 2010.

Sam Gupta 3:01

In that role, he was responsible for researching the importance of entrepreneurship to the US economy and highlighting various issues of importance to small business owners, policymakers, and academics. In addition to discussing economic and policy trends, his personal research focused on the importance of educational achievement to both self-employment and economic growth.

Prior to working at the GSB. Mr. Moutray was the Dean of the School of Business Administration at Robert Morris College in Chicago, Illinois. Now, Robert Morris, University of Illinois. Under his leadership, the business school had rapid growth, both adding new programs and new campuses. He began the development of an MBA program that began accepting students after his departure and created a Business Institute for students to work with local businesses on classroom projects and internships. With that, let’s get to the conversation.

Chad Moutray 3:56

Hey, Chad, welcome to the show. It’s always great to be on your show, Sam. So nice to be on it.

Sam Gupta 4:01

So just to kick things off, do you want to start with your personal story and your current focus?

Chad Moutray 4:06

Sure, so my name is Chad Moutray. I’m the chief economist at the National Association of Manufacturers. I’ve been at the NAM for ten years now. For those of you who are not familiar with the National Association of Manufacturers, we are 125-years-old, the largest trade association dedicated to manufacturing in the US. And certainly, I think when you think of all of the members that we have a small, medium, and large, pretty much every sector across the country.

It doesn’t have to be necessarily a US company. We have a lot of global companies as well as long as there’s a US presence. The other comment to make is that I’ve had an interesting career. I started my career in academia; I was the Dean of the School of Business at Robert Morris College in Chicago, which is actually now part of Roosevelt University. And my passion there was was not only economics, but I also helped grow the MBA program or start an MBA program while I was there, and then After leaving Robert Morris, I moved over to the US Small Business Administration, where I was the chief economist for eight years. So kind of an interesting career from academia to government to now trade association.

Sam Gupta 5:12

Yeah. And it’s always fun to talk about any of the economic topics because that’s my favorite subject. And it has always been, so I’m super excited to talk about that. But before we do that, we have one of the standard questions that we ask every single guest that we get on our show, and that is going to be Chad, your perspective on growth.

Chad Moutray 5:31

Well, obviously, I mean, I think one of the things that you want to try to do as an overall economy, it’s just to continue to, to grow. I think if we think about Americans and our standard of living, you know, you always hope that your kids have a better standard of living than you do, right.

And so I think the key to all of that really is a growing economy. What can we do to make sure that we continue to grow our overall size of the pie right? Yeah, making investments in research and development and technology, making sure we’re smarter, right? I think continuous growth is important for us as a society, but I’ll certainly as an individual, as well. And all of those things have the tendency to make us richer, but also help us to keep our competitiveness. And so when I think of growth, I think, what can we do as a society to continue to make the pie bigger and to make ourselves better off as a result?

Sam Gupta 6:24

Okay, amazing. That’s a very interesting insight. I want to make sure that my audience understands this. And when we look at these small to medium-sized manufacturers, they are probably not going to have as much knowledge, or I would say, translation of how the global economic factor translates to their own personal interest. So I’m going to ask you a question. Okay. So obviously, the pie has to be bigger. But how does that benefit? Let’s say if I am a manufacturing CFO? How is it going to benefit me?

Chad Moutray 6:53

Well, I think every keep in mind that 90% of the members of the National Association of Manufacturers are also small and medium-sized manufacturers. And so I mean, all of them really are thinking about how can I continue to stay competitive? How can I continue to keep up with China? And in many cases, they are suppliers to the OEM. So those larger companies, right, and so when I speak to many of them, they are very interested in making investments, the right and smart investments in technology that are going to help keep them efficient and productive and competitive.

And so I don’t think the topic of growth is one that is foreign to the small and medium-sized manufacturer, I think that they are very keen on it. I think the challenge that smaller medium-sized manufacturers have is limited resources and limited bandwidth, right. And so they might not have a person who was dedicated to looking at some of these topics, the way that a large company might. And so I think that that is the way I typically think of it is that they are very in tune with what’s actually happening in the overall economy. It’s just a matter of the number of different priorities that are kind of at stake there.

Sam Gupta 7:57

Yeah. And I’m actually gonna give you a story of one of my recent conversations with one of my bank of America counterparts, and he was looking at one of the reports, and what I typically find with the macroeconomic data, and the research base data is there is always a little bit of disconnect, okay, versus what we are hearing in the community versus what the reports are telling us.

So when we looked at the report, it was telling that the manufacturing has grown during the pandemic, and which was eye-opening for me because I actually talked to a lot of sales and manufacturing executives, and I don’t really get the same impression. So what is your perspective with respect to the overall current economic conditions? And do you think that the data that we typically get, let’s say, from the research really translates into what the current SMB is feeling?

Chad Moutray 8:48

So that’s a great question. And just to kind of back up a little bit, yeah, obviously, last February to April, that was really peak to trough in terms of the steep decline that we saw on overall manufacturing activity at the beginning part of the pandemic manufacturing activity overall fell 20.1% over the that two month period, that’s looking just at manufacturing production, we lost more than 1.3 million workers in the sector, those numbers somewhat pale in comparison to when you look at the actual sector by sector breakouts.

The worst sector by far in that two month period was a motor vehicle and parts, which was down at 83.5% in that two month period. So flash forward since, since April, manufacturing actually has been a bit of a bright spot in the larger economy. It doesn’t mean that we’re out of the woods, we’re clearly not back to pre-pandemic levels of employment or output at this point, but when you compare it to the service sector, we certainly have fared a little bit better.

Chad Moutray 9:44

Overall, the manufacturing sector is just down 1% below where it was last February, which is pretty impressive. But we are down about 575,000 workers from where we were this time last year. So again, a number of things, a number of challenges out there, even as we are a quote-unquote, bright spot, what I continue to hear from our manufacturing members.

And this is something that I’m sure that you’re hearing in the companies that you’re speaking with as well, is a large number of supply chain disruptions in the overall sector, they just need, especially in an environment where manufacturing activity has been growing pretty rapidly.

It’s hard sometimes to keep up, especially in the COVID world as a result of the supply chain disruptions. And I guess I would add to that, there’s also a lot of challenges with workforce and getting enough workers, you’ve seen raw material costs skyrocket, especially for steel, and in the construction sector for lumber and a number of other commodities, you’re seeing very rapid increases in producer prices.

Chad Moutray 10:43

And I think those are really starting to have a little bit of a drag on the overall sector. Again, the service sector is faring worse, especially in Europe and other places, but you’re still seeing some lingering challenges that are out there. When it comes to the number one issue that I hear about in terms of our main manufacturers’ outlook survey, it’s once again not having enough talent that that is still the biggest challenge that’s out there.

And I’ve given a long-winded answer, but I don’t think I’ve actually answered your actual question, which is, even though the overall sector is down, just 1% below where it was at the beginning part of the pandemic, there still are a number of sectors which are down by double digits relative to where they were before.

Chad Moutray 11:25

So on a year-over-year basis, manufacturing production, for instance, for metals, is still down, roughly 6%. Right. For a lot of other sectors, even machines you get, you get the idea. This, it’s not as broad-based as you might expect. And so, we still are continuing to hear challenges. On the optimistic side, I do expect that by the time we get to the second half of this year, we will be back to pre-pandemic levels. But not that’s not true forever. One, I do think there’s still gonna be some lingering challenges out there.

Sam Gupta 11:53

Okay, so this is very interesting. And I want to dig a little bit deeper into this. So obviously, you know, some of the sectors are still down. But the overall pie is probably similar to what we had at the pandemic level, right. So there must be some sectors that must be booming at this point in time. So do you have a sense of those sectors that are booming?

Chad Moutray 12:10

So I mentioned motor vehicle imports earlier. They actually have fared pretty well, especially considering that they were down at 3.5%. Last year, at one point last year, overall motor vehicle and parts were up 1.7% in terms of production over the last 12 months.

So that’s a pretty impressive rebound considering what happened early on. The other sectors, obviously food is it’s benefited. Obviously, there’s a change in terms of where people are buying the food, but the overall food and beverage has just fared well, aerospace has bounced back chemicals is another sector. Keep in mind that chemicals include pharmaceuticals.

And so you know, obviously that’s part of the solution. But I think probably the biggest success story, and you know, you and I are talking remotely, I’m not actually looking at you in the eye here is computers, right? The technology and computers, everyone is looking more and more at how technology is changing the landscape. And so I would probably call that the biggest bright spot that’s out there right now. Okay, interesting.

Sam Gupta 13:07

And I’m actually gonna touch on a similar topic, based on your previous comment. And that is going to be you mentioned that manufacturers are always interested in the technology investment, right, from our perspective, and you talk about small to medium-sized business. I mean, we are a small to medium-sized business. We do business in the ERP space.

And obviously, our manufacturers are small to medium-sized businesses as well. So for us, as an executive for us, the economy is going to be what is my lead flow? Okay, so if I look at my lead flow, pre-pandemic level, obviously, it is not the same. So I don’t know if the sentiment is still the same, even though the market is up.

So I don’t really see that the interest in the investment in technology at this point in time among the manufacturing community. I don’t know if it is still the same. Or maybe it is because of the financial systems that they might not be as excited or but I mean, I keep hearing the same story, even in the industry 4.0 space, we don’t have the same lead flow at this point in time.

So, where is the disconnect? You are telling me that the manufacturers are definitely interested in growth, they are interested in the investment in technology, but we are not really seeing the same momentum. So what could be the disconnect here?

Chad Moutray 14:16

I would say is that manufacturers are always looking at and trying to look ahead and say what my facility is going to look like three, four, or five years from now. And as a result of that, do To be fair, I think the investments and technology were taking place well beyond well before the pandemic. So they already were starting to think, okay, what’s going to what is my facility going to look like down the line?

I think what the pandemic changed is now technology is sometimes the solution, right? When it comes to maybe re-engineering your production process with social engineering in mind. It certainly has changed potentially, maybe where there are possibilities for remote work, etc.

But I think the overall trend line is still there in terms of how I can use augmented reality to help train my workforce to be able to do new things. How can I actually incorporate some new form of robotics into the production process that will help keep me competitive, maybe also help me with that social distancing element, but also help to kind of streamline the overall production process?

Chad Moutray 15:18

And so I don’t think the conversation has necessarily changed, in many ways, relative to what it was before the pandemic, I think what you’ve seen happen, there was a survey that PwC did, I think, last May, that said, where companies were pinching pennies and other categories, they still were making investments in technology, largely because they saw that as a growth opportunity down the line, right. We also are currently doing we’re updating our skills gap study that we do with Deloitte every so often.

And I’ve asked a lot of these manufacturing member companies that we’re talking to what is the future of work looks like for your company? How does technology play into that space? And certainly, I think having that continuous learning, having that digitization and data background, I think is a helpful skill to have.

And I think certainly recognizing the future potential of where the sector is going. So I think maybe that’s where the disconnect is. I think, certainly right now, everyone is focused on the here and now, but I think most companies that I talked to are certainly focused on where are they moving down the line? 1-2-3-4-5 years from now.

Sam Gupta 16:22

Okay, so let’s talk a little bit about the workforce as well. Right. So you mentioned that the manufacturers have serious workforce challenges, but at the same time, the unemployment rate is still at a very high rate at this point in time, right? A lot of people don’t have jobs. So why is there a disconnect between these two data points?

Chad Moutray 16:40

So I call this the paradox because you’re right. The unemployment rate is 6.3%. Keep in mind this time last year was 3.5, which was a 50 year low. We have, you know, almost 10 million Americans who are out of work, in terms of the unemployment insurance rates were down 575,000 workers in terms of manufacturing employment, and yet time and time again, when I go out, and I survey our members about what are the top challenges, the number one issue is the inability to attract and retain workers.

To me, the skills gap is a structural problem. We’ve known this problem is going to be happening for the last decade, as long as I’ve been at the NAM. We’ve talked about the skill gap, largely because baby boomers are retiring, right? And there’s the worry out there about where’s that next generation of workers going to come from when they do retire? And so part of that is, I think, a perceptional challenge. I mentioned it a second ago. We’re doing a lot of interviews with companies as part of this Deloitte study. I said to many of them, you know, we have a lot of service sector workers who are out how to work right now, how are you going to get those people who were selling as a cashier or whatever, behind?

Chad Moutray 17:43

Or maybe a burger flipper? How are you going to get them into your shop floor? And the first thing they say is, well, we got to get them interested, right? They’re not thinking of us, right. And so I think that there are these perceptions out there that manufacturing is dark, dirty, and dangerous, which are not true. It’s certainly an enemy in a modern sense.

And yet, people have that stereotype out there. So we’ve got to get them interested in manufacturing in ways that they weren’t before. The second one is that because manufacturing is so technologically advanced, now, you need a different type of worker than we might have before, right? It’s not just a matter of doing the same routine over and over and over again, right? It’s now you need someone who can look at a computer look at you know, be able to understand what the computer spits printing out and spitting out to them, and maybe having some other type of trade or skill that requires some additional work.

Chad Moutray 18:31

So if you’re looking for a different type of worker, and that means that sometimes there’s a skills mismatch there. I guess the last thing I would say is that we as a society think we like to think of ourselves as being very mobile, but the reality is, we are not right.

I like to pick on my family here; I’m from rural Illinois, I have a lot of my family members who would never leave Illinois, despite the fact that there are probably greater opportunities if they were to move and go elsewhere. Right. So sometimes, part of that challenge is that not only do you have a skills mismatch, but you also have a location mismatch, and that is the challenge that we like that we have quite a bit.

Sam Gupta 19:06

Yeah, interesting. So let’s talk about supply chain disruption a bit. So what does it mean to, let’s say, if we talk about manufacturing, CFO, or CIO, so how are these supply chain disruptions translating to their challenges at this point in time, and what can they do to prepare for these disruptions?

Chad Moutray 19:24

Well, I guess the biggest supply chain disruption that you hear about just to kind of pick on some current events is obviously the lack of chips in the motor vehicle sector. Right, and just the huge ramifications that that is having on you know, you’re actually having OEMs major car companies saying that they have to shut down production for a while because they are waiting to catch up in terms of chips, but you see that even on a smaller scale with some other companies as well, some of that in adjusting time production process. If you’re waiting for one supplier to give you something and it’s not there, that really is going to hamstring the entire process.

Chad Moutray 19:58

You might have to shut down for a little while. The other thing that I continue to hear about is, again, kind of in that COVID world, you might just have one or two people who can do a certain task, and maybe one of them was exposed to COVID or potentially exposed to COVID.

Now you’ve got to be flexible with your workforce to be able to handle that load. And so there is this kind of unique challenge out there with number one, the fact that manufacturing is a bright spot right now. But also the fact that you have COVID, kind of underlying that and an adjustment time process. Suppose one of those dominoes doesn’t fall at the right time. That creates some backups along the process.

Sam Gupta 20:35

Okay, amazing. So let’s talk about some of the changes that we are going to see with respect to COVID. So I don’t know if there are going to be any changes in the way we do business. If manufacturers should be changing their business models or the way they interact with their customers, or the way they sell their stuff. Are you seeing any of that insight in your surveys or during your conversations with manufacturers?

Chad Moutray 20:58

Companies are trying to figure out what the new normal looks like? Right. Certainly, we spoke earlier about remote work, I think, yeah, to a large extent. But on the white-collar side of manufacturing, I think many of those people who are working remotely probably will stay remote.

So that certainly is a shift. I think beyond that. I think companies are clearly looking at all what can they do to re-engineer the production process so that there is social distancing so that if this were to ever happen, again, they don’t have to shut down the line, right to be able to make sure that those protections are there, that’s not always possible.

Chad Moutray 21:33

Oftentimes, production requires people to be in close proximity to one another. So that’s certainly something that will likely shift technology could be the solution there to a certain extent, because robotics might be something that could be placed into a kind of help that production process.

And so I do think companies are looking at number one, how can technology be incorporated to help not only with COVID but with any other future thing that might come up? I think everyone that I talked to says that they’re re-evaluating their supply chain. I’m not sure that every company knows what that means. Right? Does that mean that the US is going to benefit from that? Does that mean they’re going to be doing more onshoring? Maybe it might, but I think companies are looking at, again, is a duplication in the production process or in terms of suppliers? Where else can I get parts? If this one is down, or maybe I can move stuff closer to home so I can monitor a little bit better? Right.

Chad Moutray 22:23

So I do think companies are reevaluating their supply chain. To be fair, I think they were already doing that before COVID, largely because of the trade war. So there’s that element. So that’s all on the production side. I think the bigger challenge the manufacturers have is, how has the consumer changed?

Because I think consumers also have shifted their thinking, this has been a huge game-changer, right? I’ll pick on packaged foods here, you know, pre-COVID of it, packaged foods, were kind of starting to lose favor, right, especially amongst millennials. And yet, during this just crisis, as everyone has stayed home, packaged foods have gained favor, right? So if I was selling in the packaged food business without picking on any company, you’d have to ask yourself, is that a trend that’s going to stay?

Chad Moutray 23:06

Are you going to revert back to the way things were pre COVID? And so I do think some trends have changed so dramatically that some of them are gonna stick others might not as many millennials, we’re not buying cars pre COVID.

Now, suddenly, they are because they realized that that that was a way that you could have appropriate social distancing, right. And so I think that there are some definite consumer trends that have shifted, and I think as a manufacturer, you’ve got to figure out which one of those are going to stick post-COVID and which ones aren’t, because you’ve got to be able to be appropriately aligned with. However, those consumer shifts have happened, have moved.

Sam Gupta 23:42

Okay, so let’s talk about a little bit with COVID. I was speaking to one of the persons from the wine industry, and the wine industry has changed completely because now they don’t really have that in-person interaction.

Pre-COVID, what they used to do is they used to go to different restaurants, they used to have this wine tasting event, even at the retail outlets, but they don’t have that anymore. So what they have started doing is they are doing a lot of zoom calls, and you will be surprised. I mean, they are actually shipping the wine packages before the zoom call starts.

So this is a very interesting way of doing business. Have you seen any similar trends? Or have you come across any similar stories because of COVID if any manufacturers have changed the way they were doing business, and that is completely a surprise when your hardback?

Chad Moutray 24:31

Well, I mean, honestly, what you’re describing there is the sales techniques of a lot of manufacturers, right? They were making a lot of in-person sales calls right now. They’re doing all that from home. And so, I think that’s one of the new normals that we hear out there.

If people are moving much more virtual, yeah, I used to be on the road myself, right. If I was giving a presentation, I would be out. You know, pretty much at least once a month, get a meeting with member companies kind of fit getting a sense of what was happening in terms of the overall economy as it relates to what they were seeing.

Now we’re doing all of these briefings virtually right. And so moving into that new normal fact, at some point, we’ll be getting out there and still doing business trips, just because I think there’s value in getting out there and seeing people face to face and seeing what’s really happening on the ground.

But I think that there’s also going to be a trend there that says, hey, we’ve learned that this works, the virtual, and this works, right. And I think you’re gonna see perhaps a lot fewer business trips than what you saw pre-COVID, just because there’s no reason for me to get on the plane and fly 1000 miles or something for a 30-minute presentation when I can do it virtually. So I think that is also what you see in terms of sales calls, etc.

Sam Gupta 25:41

Okay, and what are your perspective on the macroeconomic data? Right, so let’s talk about some of these small to medium-sized businesses, right? I don’t know if any of those really use the macroeconomic data to actually make the decisions. I don’t know if they buy this data from a source.

They might go to, let’s say, a lot of different events, and they might be making decisions based on whatever they are hearing. But number one, should they be using this data for any of the decisions that they are making? Let’s say if they are launching new products? Are they using this data right now? If not, why should they be using this data?

Chad Moutray 26:15

See, most of the manufacturing companies that I speak to, even the small ones, follow what’s happening in the news and in the economy pretty closely. So they know, they’re looking at GDP, they’re looking at the Purchasing index, they’re looking at the employment numbers. And I think that for the most part, those companies are looking at it just from a general gauge of okay, what’s happening in the larger economy.

How does that affect me? Right? Yeah, you’re right. Most of them don’t have an economist. In fact, in many ways, I am kind of their quasi economist as the chief economist at the NAM. And they and they certainly read my Monday’s report.

But I think the value that companies get in looking at macroeconomic data is to look at some just general trends as it relates to sentiment, right? You certainly look at consumer confidence, or what the PMI numbers show what’s happening in terms of what future sales might be. You know, they’re looking at it from that lens.

But I think the other element to that and one to not be forgotten is that they also follow political news pretty closely as well, right? Because I think nowadays, to be a good economist, or to be a good business leader, you’ve got to understand what’s Washington is doing or what the state capitol is doing in your state, because that really affects not just the economy, but certainly, it could affect what’s going to happen down the line for you, right.

So everyone’s looking now at what will the Biden administration do in terms of taxes or regulation, or some type of infrastructure investment or whatever else that might be right. And so, as I’m traveling around, there’s an enormous amount of interest, not just in the economy, but in what’s happening in terms of the policy. And I think to be a good forecaster. You almost have to kind of have a good handle about it.

Sam Gupta 27:57

Yeah, so let’s talk about I mean, that was going to be my next question, man. So it’s segwayed nicely for you.

Sam Gupta 28:05

I know the radio is helping me out. So okay, so let’s talk about the policies and forecasting. So if we look at different sectors, right, and if I’m the manufacturing, CFO of, let’s say, either the metal organization or the motor parts of the position of the machinery organization, so how are these policies going to affect me as the CFO or the CEO?

Chad Moutray 28:25

Well, I think the first thing to say is that this is going to be a really strong rebound year and the economy, right. And I think people know that. I mean, I expect to see 5% GDP growth, right? Okay. I already mentioned to you that I expect manufacturing production to actually break back to pre-pandemic levels, probably before the middle of the year.

So I think that’s nice encouraging signup. So what does that mean? Right, I think when you’re looking at overall policies as well, we already got a stimulus from the end of the Trump administration last year. We’re likely going to get another $1.9 trillion package passed in the coming weeks as part of the Biden administration.

And they’re looking at making some additional investments later this year, likely in terms of infrastructure. And the way that I think of that, I think of that not just as your traditional roads, bridges, that kind of stuff, but also broadband, also probably some green, some green energy, or green grid kind of stuff.

Chad Moutray 29:20

And so if you’re looking at all of these things coming down the pipe, that certainly means an enormous amount of stimulus for the economy, right, which means, if I’m a business leader, that means that my demand is going to be pretty, pretty strong. If I’m selling, for instance, machinery, if there’s going to be a major infrastructure package, you know, that construction companies are going to love that, right?

Steel, all these companies are going to love the fact that you’re going to be making some pretty major investments in the economy into the infrastructure. And so I think that knowing those, I think certainly helps you be able to plan not just for this year, but for next year, knowing that those are possible things on the agenda. So those are positives on the negative side.

There are also conversations about what will happen with tax policy, right? Yeah, in the Trump administration, we had pretty significant tax reform. Most of our companies loved the fact that taxes were lower and much more competitive globally. And the administration has said, at least in their campaign, that they want to raise corporate rates up to 28%. Right.

Chad Moutray 30:17

So what does that mean for you as a company if that were going to happen, and certainly the NAM will be, you know, pushing back against that, but it’s certainly something that’s part of the conversation. And we would also expect a much more aggressive regulatory stance from the part of Washington, again, probably much more akin to what we saw in the Obama years.

So as you’re looking out, not just at the favorable, but you’re also looking out at saying, Okay, what new regulations might be coming down the pipe that could affect my business, not just this year, but next year?

Sam Gupta 30:45

Okay, amazing. So let’s talk about some of the manufacturers and the resources. So obviously, you mentioned that 90% of the manufacturers are probably involved with NAM, right. But I don’t know how involved they are. So and because of that, I don’t know if they are going to be aware of all the resources that they can utilize. So do you want to talk about some of the resources that they can take advantage of, or should they take advantage of?

Chad Moutray 31:08

So I mean, certainly, hopefully, you’re a member of a trade association, right. So obviously, I would be pushing the National Association of Manufacturers. We’re a great nation. But there are also a lot of state associations that, particularly, give us a lot of policies that come from your state government.

Yeah, hopefully, a member of one of those as well. And we actually are affiliated with, you know, a manufacturing Association in every state. So you can go on our website and see who we’re affiliated with. But there also are a lot of vertical associations. So one for steel, another for aluminum, or another one for electronic components, etc.

Chad Moutray 31:43

So we have about 250 vertical associations that we also partner with, right. So that helps expand the overall breadth of our reach. But you know, each of those associations gets much more tailored into either state policy or to regulations or policies that might be more specific to that specific sector, as it relates to the NHS while we’re out there doing people join the NHS, largely because we’re out lobbying on their behalf for tax policy or regulation, regulatory policy, looking at infrastructure investments.

You had a lot of people last year who were looking to the NAM, particularly at the beginning part of the pandemic, for looking for some guidance on how do I continue to make my business deemed essential, right? I bet state governments were closing a lot of facilities or in terms of vaccines, or in terms of other things that are coming out.

Chad Moutray 32:29

So I do think that there’s an enormous amount of intellectual knowledge that our policy leaders have in terms of some of these topics. And the advantage I think that members have of the NAM is that you have pretty instant access to that knowledge, right? People who want to know about the economy will call me, and I’ll pick up the phone, right?

If you’re looking at tax policy, or trade policy, or whatever else, a similar type of knowledge is there on some of those topics as well. So I would encourage folks to go to the NAM website, nam.org. And we can certainly email me as well, and I can hook you up to our membership folks.

Sam Gupta 33:05

Okay, amazing, so that’s it for today. Chad, do what do you have any last-minute closing thoughts for manufacturers?

Chad Moutray 33:10

No, I think what I would say is that I’m bullish about manufacturing as a sector. I think that we’re coming through this pandemic. Obviously, we were hit pretty hard by it.

But I do think that not only are we the bright spot now, but I think that there’s a lot of optimism for the sector moving forward. And if anyone wants to get my regular thoughts on the economy, I would encourage you to either follow me on LinkedIn or on Twitter. I’m at Chad Moutray.

Sam Gupta 33:37

Okay, so my personal takeaway from this conversation is going to be there are there is going to be exciting times, probably the worst is over. So on that note, thank you so much for your time and insight. It was a fun conversation.

Chad Moutray 33:48

Thank you. Hope to do this again soon.

Sam Gupta 33:50

I cannot thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you’ll learn something new today. If you want to learn more about Chad, head over to nam.org. Links and more information will also be available in the show notes.

If anything in this podcast resonated with you and your business. You might want to check other related episodes, including the interview with Harry Moser from reshoring initiatives, who discusses how to compute the total cost of ownership of reshoring initiatives. Also, the interview with Amanda Schelede, who discusses how manufacturers and retailers can better manage disruptions associated with COVID spread.

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I hope to catch you on the next episode of the WBS podcast.

Outro 34:47

Thank you for listening to another episode of The WBS podcast. Be sure to subscribe on your favorite podcasting platform so you never miss an episode and for more information on growth strategies for SMB using ERP and digital transformation. Check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guest Gill Walker, who discusses the overlap of CRM vs ERP and how they fit among other systems such as E-commerce. He also shares several best practices for executives embarking on a CRM implementation journey. Finally, she shares several stories about the poor implementation she has seen and the lesson learned from them.

Chapter Markers

• [0:18] Intro
• [2:53] Personal journey and current focus
• [5:09] Perspective on growth
• [7:29] The difference in CRM vs ERP needs for a product vs. service industries
• [5:09] The role of CRM vs ERP, and E-commerce systems
• [15:42] The customer hierarchy in CRM vs ERP, and E-commerce systems
• [19:01] CRM functionality list
• [22:42] How to take advantage of a marketing automation system?
• [25:40] CRM implementation stories
• [33:54] Closing thoughts
• [35:02] Outro

Key Takeaways

• If you select technologies that are known to work well together, it is going to be a lot easier than if you just get a good CRM and a good ERP that are not working well together.
• One area of education that I think is very, very important is that everybody inside the organization who is going to be involved in key decisions should understand the functionality of the technology that they’ve invested in.
• Even though you as a CFO, CIO, COO, may not be as involved with your CRM implementation, be entering leads, entering customers, creating email templates, adding products, and a million other things, it is worth investing the time to have that education, when you do that stuff, purely to cement it so that then you can have those conversations about the implementation.

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About Gill

Gill Walker is “Your CRM Success Catalyst. She has been helping clients achieve success – better return on effort and better return on investment – with CRM for almost three decades, and for the past seventeen years she has focussed on Microsoft Dynamics 365. She is a Microsoft Certified Solution Architect and Microsoft Certified Trainer. Listen to Gill as she explains her philosophy of avoiding project calamity with education.

Resources

• Connect with Gill
  • LinkedIn
• Connect with Opsis Pty Limited
  • Website

Full Transcript

Gill Walker 0:00

And that might have happened because somebody who we thought we could trust said it wasn’t necessary. And even that deserves a why is an implementation partner telling you that this broader education is not necessary.

Intro 0:18

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 0:55

Hey everyone, welcome back to another episode of The WBS podcast. I’m Sam Gupta, your host and principal consultant at digital transformation consulting firm ElevatIQ.

As your company grows, you might feel the need for software as you encounter each problem. The software landscape is hard to navigate. And if you don’t understand the role each system such as CRM vs ERP systems play, you could create an extremely patchy architecture which typically results in significant admin overhead and conflicts among teams causing your growth to slow down.

In today’s episode, we have our guest, Gill Walker, who discusses why CRM vs ERP distinction is important, and how that fits among other systems, such as e-commerce. She also shares several best practices for executives embarking on a CRM implementation journey. Finally, she shares several stories about the board implementation she has seen and the lessons learned from them. Let me introduce Gill to you.

Sam Gupta 1:53

Gill Walker is your CRM success catalyst. She has been helping clients achieve success, better return on effort, and better return on investment with CRM for almost three decades. And for the past 17 years. She has focused on Microsoft Dynamics 365. She’s a Microsoft Certified solution architect and Microsoft certified trainer. Listen to Gill as she explains her philosophy of avoiding project calamity. With that, let’s get to the conversation. Hey, Gill, welcome to the show.

Gill Walker 2:26

Thank you, Sam. It is awesome to be here from sunny Queensland all the way to freezing Toronto.

Sam Gupta 2:32

Okay, amazing. So this is not the first time we have had somebody from Australia, even though we are in North America. So I’m super excited to have this conversation.

Gill Walker 2:41

Of course, it’s not the first time you’ve had people from Australia. There are so many good people over here. But that’s because we’ve got so many good people.

Sam Gupta 2:53

Yeah, whenever I’m bored, I’m actually bringing a lot more people from Australia. Okay, so here’s what we are going to do today. So just to kick things off, do you want to cover your personal story and your current focus?

Gill Walker 3:03

Sure, I am your CRM success catalyst. And what that means is I work with you to get a better return on effort and better return on investment for your CRM project. And I do that by unpacking the mystery of CRM success. I’ve been in the CRM space now for about 30 years. And like many of the people I meet in this area is happened by accident. I morphed from teaching to consulting to IT training and back then to consulting, specifically in the CRM space.

And for the last nearly two decades, I’ve been working almost exclusively with Microsoft CRM, Microsoft Dynamics 365. And now, of course, power platform, my main point of difference is I help you understand your technology from bottom to top, whether you’re an end-user, an executive, wanting to get the best of the implementation, or anything in between, the more you understand of the technology and the processes that need to be involved, the more successful your project will be.

So that is my mantra. Educate, educate, educate.

I now live in Australia, in Sydney, moved here 20 years ago when I was headhunted for a role helping a CRM company that now no longer exists because of the mergers and acquisitions that occurred in this space in the first decade of this century. And I now live in a suburb in Northern Sydney. I live with my husband, no pets, no children at home, we generally have a pretty good life, and as you know, Sam, I am also a Toastmaster. I joined Toastmasters seven years ago, eight years ago, and achieved my distinguished Toastmaster earlier this year.

Sam Gupta 5:09

Okay, that’s amazing. I always enjoy talking to Toastmasters because we get a lot more stories. So today, we are going to be covering a lot more stories from your work perspective. But before we do that, we have one standard question here, which is going to be your perspective on growth do What does growth mean to you?

Gill Walker 5:30

It means making more profit so that the company is more successful. But of course, there are five things that you need to do to make more profit. You can get more leads into the business of those leads. You can convert more of those leads into initial opportunities and ultimately into customers. Once you’ve got those customers, you can increase the frequency that they buy from you, and you can increase the size of every purchase they make from you. And finally, of course, you can increase the profit of each of those sales. And a CRM can help you do all five of those.

What is particularly interesting is that while a 10% increase sounds eminently achievable, and for most people, it is, if you focus on achieving 10% more leads, and 10% more conversions, and 10%, more sales, 10%, bigger sales, and 10%, bigger profit, you don’t achieve 10% overall, you don’t achieve 50% overall, you actually achieve 61% more profit.

And that is one of the reasons why you should get your CRM to be fully rounded, why you should not only do marketing with it, not only do sales, make sure that those existing customers are kept happy. So they come back and back and back and back and eventually become raving advocates of your organization. And maybe even to the point that they’re almost as good as your salespeople, and you don’t have to pay for them.

Sam Gupta 7:29

Okay, so the organizations that we work with, typically and or my vision that is listening to this podcast, are going to be slightly more manufacturing, distribution, and retail-centric organizations. So these companies are not scrum-heavy. Their processes typically start with, let’s say, the order because let’s talk about the distribution or the retail organization. Right? So they are going to be starting from the order and not from the lead. So have you seen the application of CRM in the manufacturing, distribution, and retail verticals?

Gill Walker 8:07

I have, and one of our long-term clients did exactly as you’re suggesting Sam, so their CRM did start specifically from the order. And they were working then from the order through to the invoice, and we were able to do some fairly clever stuff. So they had one invoice document containing multiple of the actual invoices that were raised in CRM.

But even in that instance, there are opportunities for you to look earlier in the sales cycle and use that to a degree to keep topping up your customers. Because as we know, there are very, very few organizations in this world that have no competitors. If you have competitors, you are going to lose some of those customers. And you, therefore, do need to keep replacing them. And that requires some sales effort.

Sam Gupta 9:07

Okay, so how would you define, let’s say, you know, typically, manufacturing and distribution organizations have some sort of ERP because they need to do product costing, their accounting is going to be slightly more involved, their operations are going to be involved from the planning perspective as well.

So for them, obviously, the ERP is going to be slightly more important. So how would you draw the boundary between these two systems? They’re probably going to have a third system, which is going to be e-commerce, and e-commerce has its own way of tracking, let’s say, the customers.

Sam Gupta 9:39

So let’s say if you are in a manufacturing, distribution, or retail organization, where you have to have these three systems because they have their own roles and responsibilities, and they have their own way of doing things. Now, if you try to get customers and three different systems, you can imagine how bad the problem is going to be.

If so, how would you design the architecture for a company that has to have some sort of ERP because you cannot put this functionality, the functionality that belongs to CRM vs ERP, and the functionality that belongs to, let’s say, ecommerce in CRM either? So what will be the ideal architecture recommendation from your side if you were to recommend manufacturing, distribution, or retail company,

Gill Walker 10:23

it will vary depending on the business and how they operate. But given that we don’t have this level of detail in our hypothetical company, yeah, in general, the approach that I try to take is something that I call WORM, and what WORM is when we’re looking at WORM. That is, Write Once Read Many, so what we are trying to do within the system as a whole, and I agree totally with you, Sam. This is a system that comprises e-commerce, ERP, and of course, CRM.

But across that three systems, we’re trying to apply the right ones read many principles. So we need to make sure that certainly all of the data, specifically the customer data, but not only the customer data, as relevant is synchronized. So as you said a moment ago, we only want to enter those customers and that those customer details once in general, the customer details will get entered into the CRM system, because that is the first contact with our hypothetical organization will be before back about to be a customer is a customer because that organization is probably weighing up your organization with a couple of others, which is the best organization for them partner with obviously, we hope it’s you, but they may decide otherwise.

Gill Walker 12:03

So at that first level of interaction, we should be capturing as much of that general the company name, their address, that general background information should get captured in CRM, and then should flow from CRM through probably to ERP. And finally, on to e-commerce. But the will, of course, variations of that another point of contact between those systems is the orders.

So once this organization becomes a customer, they will be placing orders, and they will be placing lots of orders, maybe multiple per day, certainly several per month. Usually, we then need to look and think at what point does the information need to flow into an ERP, and again, keeping things very, very general, we can have that information flowing up the quote level at the order level. And at the invoice level, I would guess that for most organizations using ERP, the data is going to flow across at either the quote or maybe the order option. But occasionally invoice is the better option.

Gill Walker 13:18

And then, we need to think about what data needs to flow back to the CRM. Is it beneficial for the sales team to have visibility of invoices raised, the payment history of the customer, the products that they those customers buy, the frequency that they buy, and all of those other questions? And if it is relevant, does it make sense both from a usability and a cost perspective for that information to be made available to them inside the CRM system, rather than asking them to go to the ERP system.

So if those salespeople are comfortable using their CRM system, taking that data back from the ERP or the e-commerce system into CRM, quite possibly read-only, also makes a lot of sense. So salespeople, from a usability perspective, are only using CRM. They do not have to flick between CRM vs ERP, and e-commerce. So their life is made easier. And from a financial perspective, there may also be a benefit because you may well save on licenses for the ERP and the e-commerce solutions. Keep those so that at a user level. They are the only people who do need to interact with that data and update it, and so on. People who would use CRM feel they have the data but give it to them via the tool that they use all day and every day.

Sam Gupta 14:56

Yeah, that’s a very interesting perspective. And in fact, I would like to dig a little deeper into the customer definition. Because from the finance perspective, if you think about it, the customer is going to be slightly different. And what CRM cares for is going to be slightly different information.

For example, in the case of CRM, you guys are going to care for more of the psychographic information. And I think you already mentioned that they address the buying habits and interactions, so anything and everything that actually helps you in finding out, okay, how can I find other customers that are going to be similar to this customer? That’s what CRM is in my mind.

Sam Gupta 15:42

And with the ERP perspective, the customer hierarchy is going to be very different. His ERP does not care for as much of the psychographic data. What it cares for is it care for the bank account. It keeps all the financial details. It also cares for the hierarchy in terms of where the product is going to be shipped, who is going to be billed. So the customer hierarchy that you are going to see in the case of your ERP system may be completely different from your CRM system.

And by the way, if we expose all of this data, let’s say a field, people want to look at the invoice, or they want to process the order in the CRM, then they would probably need the pricing data, they would need the product data. Right? Then we are trying to replicate pretty much everything that exists in any ERP, which becomes a very difficult job because of keeping this data in two different systems. So as you mentioned, your philosophy is right. Read multiple times. But it’s easier said than done. So how would you approach the customer hierarchy?

Gill Walker 16:45

I made it sound very simple when I went through WORM. I agree with you. Yeah, but the other thing, and it does, of course, the answer, the detailed answer that we came to with any particular client or any particular implementation, will, of course, vary on the particular technologies that they have selected.

And if you select technologies that are known to work well together, and that would certainly be my recommendation, it is going to be a lot easier than if you just get a good CRM and a good ERP that are not working well together. However, we don’t necessarily need to take everything back. So with products, for example, we probably if there is an ERP, in place of the net in the way that you discussed a moment ago, Sam, yep, we probably could take the product, but we don’t need all of the product catalogs.

So it’s just enough to make the order make sense. If that level of detail is necessary, we may choose just to take the value of the order. So we might take the order information but not worry about the line item information that would give our CRM users the frequency and the value of the order, but not worry about the details. So that might be a solution. That works great.

Sam Gupta 18:17

But I mean, if they are getting the orders in the CRM system, they will need to know the line item details as well. In fact, then CRM is going to be the driver to create the orders.

Gill Walker 18:31

Maybe we don’t go that far. Maybe we stopped before they created the order. I think it is one of those that we could do in so many different ways. It would be wrong to say you must do it this way until we’ve got a lot more information about the particular implementation. At this level, let’s keep it up. We could move the data through at any one of the sales stages.

Sam Gupta 19:01

Yep. So when we come across these implementations, typically, we come across two different scenarios. Obviously, CRM plays a very important role. There is no question that the functionality that CRM is going to have is most likely not going to be available in ERP and your ecommerce system because CRM is designed for a purpose. It is designed to do a lot more things from the customer’s perspective.

If ERP systems try to do that, then they are simply overlapping CRM systems. That’s not the intent of all of these systems. They all have their own places. So some of the specific functionality from the CRM system that you have seen is commonly not available in other systems that are designed to make the CRM process slightly simpler. They are not for complex CRM organizations.

So tell us some functionality that you have seen in your CRM implementation, which is not going to be available in the case of an ERP, and these companies would probably require a sophisticated CRM system.

Gill Walker 20:05

Where we go-to for that is looking at the beginning of the sales process. So we’re possibly into marketing automation, which is, of course, another whole system the sales organization may well need. How do we get people from the world out there? How do they, first of all, establish that they have a problem that we as an organization can solve? Secondly, how do they then know that we exist and could solve that problem? All of that is covered off by marketing, and marketing, if we don’t have marketing automation in place can become very, very, very expensive.

So having an overall system where the prospects are doing some of the work for themselves, they’re finding your website, from the website, they’re getting a very good understanding of the services you offer, the problems that you solve, they are then entering some data. And whether that’s because they’re making a simple inquiry, they’re downloading something, or even placing an order. They are doing the work. And then marketing automation takes that into the CRM solution.

Gill Walker 21:27

And then, if there is an order in there, passing that through to ERP, even though it might go straight through CRM, that is probably a simpler overall solution than trying to integrate the website directly to ERP. But there are always options. And then, with marketing automation, we can also see how effective our marketing is. So, how effective are both the website and individual pages on the website? How effective are particular campaigns, and knowing the effectiveness of anything like this does, of course, then mean that you can do more of the good stuff and not waste time, money, and effort on doing the stuff that you that doesn’t work?

Anyway, I’m sure many of the listeners will be familiar with the phrase, I know that 50% of my marketing budget is working, but I don’t know which 50% of that is. I am so getting that whole flow from the very, very early interaction of a prospect. And then all the way through is so important.

Sam Gupta 22:42

Typically, in our listener base and the audiences well, the majority of the organizations are going to be slightly more sales driven. So the way they acquire leads and the way they acquire their customers is going to be from the tradeshow. So let’s say if they are not utilizing the marketing automation at this point in time, what would be your recommendation in starting on this journey, number one, and how we can take advantage of marketing automation initiatives to increase the effectiveness of their marketing, as well as sales.

Gill Walker 23:17

So if we look at the whole trade show scenario, you’ve invested the money and the time of people for somewhere between a day and a week to go to this trade show. And we want to get the maximum possible return from that. So we want to get back data of everybody that expresses an interest in the system.

And we’ll probably do that by a range of different methods, we may well have some form of business card collecting vessel on the stand, and any cards that are then dropped into AP business card, whether they that business card container, whether they do it because they really want to talk to a sales rep, or whether they are just interested in the free bottle of whiskey or whatever.

Let’s not worry about that for the moment. What we then want is a business card scanner that can get the relevant data from those cards into the relevant fields in CRM. And then once they’re created, we want an automated email probably going out that thanks them for dropping by the stand and how can we help further depending on the particular scenario in place.

Gill Walker 24:38

Another alternative is to have a tablet of some description. So prospects themselves enter their own name and address and company and inquiry reason into that tablet under course that tablet then takes the information directly into CRM and has the appropriate order. Follow on from it.

And the third possible option is that your staff members on the stand enter the data, possibly using the same tablet application, possibly using a different direct CRM application. But all of those want to then be following up it as soon as possible with automated communications, getting to the point where, where relevant, and we need to have something in that whole process that estimates the relevance where we can get an appointment between a salesperson and a prospect.

Sam Gupta 25:40

Okay, so obviously, you see a lot of different CRM projects, and you talk about CRM project management as well. So from your experience, can you share some of the stories where the CRM implementation did not go as well as you would like?

So, for example, in my mind, the CRM project of any project, for that matter, is an art. Okay? And it’s really up to the artist how they want to draw it. So sometimes it goes. Well, sometimes it does not. So what I’m really interested in knowing is when it did not go well, and what are the mistakes that you have seen. And if you have any lessons learned from these stories.

Gill Walker 26:23

I could talk on that point for days. Let’s think of a couple of useful ideas and lessons that we can then broaden out. I think, for the purposes of this conversation, I’m going to focus on CRM as a discrete and worry a little bit less about the ERP and e-commerce that may or may not be in place.

But if we generalize, where do I see problems? One of the biggest problems that I see is when people make design decisions. And the design of the CRM itself doesn’t understand the technology that they have invested in. So I remember one instance, probably ten years ago now, where I came to know a client who absolutely insisted that we created a custom entity, a custom table in the system for suppliers, and in the CRM that was selected that is not appropriate.

Gill Walker 27:35

And it’s not a good idea. Because suppliers are just one group of organizations with whom you have a business relationship. And that data of organizations with whom you have a business relationship should all be held in accounts, but they’ve got this warped idea that an account had to be an existing customer.

And that is not true. It is a much bigger group than that, although we hope that many of them will become customers. So this client asked me, first of all, to create the custom entity. And then, of course, the custom entity didn’t have all the functionality that the account entity had in the system.

So they wanted us to add this and this and this so that we could email from it and do this and do that and do the other. And it just didn’t work. And if the client had just been prepared to take their suppliers, put them into the account, differentiate them with a flag, which then allows you to see only suppliers, or accounts that aren’t suppliers, and so on. Everything would have been better.

So that’s certainly one area I have also seen people have. In fact, I’m helping a client now, where the entire sales process has been put into the lead entity. So this is using Microsoft Dynamics, and we have got 400 custom fields.

Gill Walker 29:11

It is so bad. I am engaged for is to unwind that and split that lead across the lead opportunity, quote, product, product line, contact, and account. And we’ve got a few other problems, but that’s the major one. And I am going back to my earlier example of failing to understand the technology.

I worked with a CIO last year, and I honestly believe that he thought any problem in CRM could be solved by adding another field or another couple of forms. It’s a completely different organization different project follows On nicely from our friends with their 400 custom fields on the lead.

So rolling those three stories into one, my advice to anybody, even a CIO or CFO, CIO, who is leading championing a CRM project into their organization, is to be prepared to invest both financially and timewise in education. And this brings me to another point that, for me is really important that education is way more than end-user training.

End-user training is, without a shadow of a doubt, hugely important and must be part of your project if your project is to be successful. That, again, is a topic I could talk about till Christmas. The only education that we should have in the project. And one area of education that I think is very, very important is that everybody inside the organization who is going to be involved in key decisions should understand the functionality of the technology that they’ve invested in.

Gill Walker 31:14

And that education is not going to be weeks and weeks and weeks of training, although it should be fairly hands-on because as anyone who’s been in the education space will tell you anything that you learn, you learn far more effectively when you practice it at a practical level.

So even though you as a CFO, CIO, COO, may probably will not in your CRM implementation, be entering leads, entering customers, creating email templates, adding products, and a million other things, it is worth investing the time to have that education, when you do that stuff, purely to cement it so that then you can have those conversations about the implementation.

You can make the right decisions for the design and not get yourself into the sort of pickles that I’ve highlighted in the last few minutes. And while I’ve only focused on three of those projects, I’ve worked on more than three projects in the last 20-25 years that I’ve been in this space. And I could, as I said, talk for a lot longer and a lot more samples.

Gill Walker 32:36

But one of the things that I feel when I look at projects that have gone wrong, and the failure rate is horribly high, is upwards of 60%. And some things that you read have it even as high as 85%. When we drill into the reason behind those failures, I think nine times out of 10, the root cause may be not the visible cause, but the root cause of failure is a lack of understanding, which in turn has come from a lack of education. I think of it as all roads lead to Rome.

So all of those reasons for project failure. When do you ask why did that happen? Why did that happen? Why did that happen? The answer to the final question will be we didn’t invest, or we didn’t prioritize the understanding of the technology that we were taking on. And that might have happened because somebody who we thought we could trust said it wasn’t necessary. And even that deserves a why is an implementation partner telling you that this broader education and understanding isn’t necessary?

Sam Gupta 33:54

Okay, Gill, this was a very insightful conversation. Do you have any last-minute closing thoughts, by any chance?

Gill Walker 33:59

I think my closing comment has to be the education piece through that education, and really do it. There’s a lot more to doing education than just signing up for a course signing up. So part of it, but obviously, you need to go along to the course, or it may well be virtual in the current world.

And of course, when you’re in the course, you do need to do it, not spend the day or however long it is on your phone nipping out doing emails, whatever else you may be doing, engage with that course take on board the education and then apply it to your project in conversations about the design, about the implementation.

Sam Gupta 34:43

Great, amazing thoughts there. My personal takeaway from this conversation is going to be there are two critical aspects of any project success. And that is going to be the number one education of your core team. And the second is going to be end-user training. On that note, Gill, I wanted to thank you for your time and your insight.

Sam Gupta 35:02

I cannot thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learned something new today. If you want to learn more about Gill, head over to obsess.com.au. Links and more information will also be available in the show notes.

If anything in this podcast resonated with you and your business, you might want to check other related episodes, including the interview with Jeff White, who discusses why it is so important to identify the ideal customer profile for your offerings to streamline your growth. Also, the interview with Chris Grainger, who discusses why his company EECO, a large electrical distributor, needed to change the way they sold to their customers.

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I hope to get you on the next episode.

Outro 36:08

Thank you for listening to another episode of the WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guest Mark Jaffe from Strategic Growth Consulting, who discusses how macroeconomic trends impact consumer behaviors. He also shares his insights on what business owners might do to combat uncertainty associated with macroeconomic factors by understanding customer behavior better and shifting the mindset from cost-saving to opportunistic organization. He also shares several stories of companies that faced macroeconomic uncertainty but ended up growing instead.

Chapter Markers

• [0:23] Intro
• [2:47] Personal journey and current focus
• [5:04] Perspective on growth
• [18:50] The role of marketing
• [8:25] Macroeconomic factors driven consumer behaviors
• [13:06] How to take advantage of macroeconomic conditions?
• [22:31] How to instill marketing mindset?
• [26:05] The motivation of decision-makers
• [27:43] Closing thoughts
• [28:31] Outro

Key Takeaways

• An inflection point is usually between decision or no-decision. And oftentimes, the mistake that people make when running companies is they elect to make no decision because they don’t realize they’re at an inflection point.
• When you are siloed in an organization as a CFO or as a marketing professional. You oftentimes focus on “what is” you don’t focus on “what should be”.
• Companies often silo their core value proposition to those audiences that they’re most familiar with or that it was originally intended, when oftentimes, even more, valuable targeting can occur with two completely different target audiences.

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About Mark

With over 40 years of experience, Mark Jaffe grew Walt Disney Records from a $30M company to a $120M company while he was President. He has also grown topline revenues for over 100 clients in the last fourteen years with a cosmetic company achieving a revenue jump from $2M to over $60M in five years and many client companies doubling in size in less than two year’s time.

Resources

• Connect with Mark
  • LinkedIn

Full Transcript

Mark Jaffe 0:00

And again having an entertainment experience that not only could be experienced by children alone but shared with their parents, once again, not fighting the lack of traffic in the in these resort destinations, but expanding the definition and the execution of the core value proposition to where the customer is going now.

Intro 0:23

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations are finance leaders looking to learn growth strategies from your peers and competitors. You’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 1:00

Hey everyone, welcome back to another episode of The WBS podcast. I’m Sam Gupta, your host, and principal consultant at digital transformation consulting firm ElevatIQ.

No one appreciates uncertainty. It is even more frustrating when the uncertainty may not be in your control. And if you’re an executive of a company, navigating through difficult times has a toll on everything. The uncertainty could be related to macroeconomic trends such as recession, trade tensions, or merely changing consumer behaviors. These macroeconomic factors directly impact not only the top line but also the bottom line. What would you do if your job was to help a company navigate through difficult times?

In today’s episode, we have our guest Mark Jaffe from strategic growth consulting, who discusses how macroeconomic trends impact consumer behaviors. He also shares his insights on what these owners might do to combat uncertainty associated with macroeconomic factors by understanding consumer behaviors better and shifting the mindset from cost saving to an opportunistic organization. He also shares several stories of companies that faced macroeconomic uncertainty but ended up doing well instead.

Let me introduce Mark to you.

With over 40 years of experience, Mark Jaffe grew Walt Disney records from a $30 million company to a $120 million dollar company while he was president. He has also grown top-line revenues for over 100 clients in the last 14 years, with a cosmetic company achieving a revenue jump from $2 million to over $60 million in five years and many client companies doubling in size in less than two years time. With that, let’s get to the conversation.

Sam Gupta 2:42

Hey, Mark, welcome to the show.

Mark Jaffe 2:44

Oh, thank you so much. I’m really glad to be here.

Sam Gupta 2:47

Okay. It’s my pleasure, Mark. And I’m super excited to dig into your experience. But before we do that, just to kick things off, do you want to start with your personal story and your current focus?

Mark Jaffe 2:55

Yeah, I would love to do that. Sam, thank you. So it’s interesting when we all think about our careers, you know, they’re the people that have it all planned out at 25. I’ll do this at 35. I’ll make triple my age at 45. That was never, ever my approach. I was always the guy who just wanted to do things I was passionate about. I mean, it sounds like a crazy career path. But it really does work. And the one thing I’ve always been passionate about is really figuring out what the other person needs, and how, as a company, I can give it to them, not for free, but give it to them, how can I satisfy their needs.

And I remember my first job. My first job was with A&M Records, which, as you might remember, was this massive pop label with all sorts of hits from the police to Janet Jackson. And, you know, all I mean, there, Peter Frampton, I mean, all these great hits of the 70s, 80s, and 90s. And they said, how about if you start a children’s label, and I said, I’m willing to do that, as long as we do it differently than it’s ever been done before, because back then The Walt Disney Company at all this music out for $1.99 for cassettes, and I said, That’s not what parents want. The macroeconomic trend for parenting in the 80s. And 90s was not to lock your kid in the room with the music and say, come out when you’re done because I can’t stand it.

Mark Jaffe 4:16

It was participatory involvement with kids. So I said, we can’t do it the way it’s always been done. Let’s do it differently. And I discovered this guy in Canada named Rafi and grew the A&M children’s entertainment group from zero to $15 million dollars in five years as a result of understanding this coordinate for parents to bond and be with their children and giving them the products that enabled them to do that.

Similarly, right after that, when the Disney Company recruited me to run Walt Disney records, I grew that division from $30 to $120 million dollars over a five year period, not only by releasing soundtracks like the Little Mermaid, Beating the Beast in the Lion King but developing products that allowed parents to equally enjoy the music and enjoy their work. At the same time, children were enjoying the music.

So in essence, what we were able to do was to truly understand what those consumers of media needed at the moment, and how we can give them products that satisfy their current needs, as opposed to what many companies still do, which is say, here’s what we got. Here’s why you’ll like it. And that never really works. And they don’t even have the statistics to back it up.

Sam Gupta 5:04

So those are some compelling stories that we want to dig deeper into. But there is one standard question that we ask all of our guests, and that is going to be your perspective on growth. What does growth mean to you, Mark? For me, growth is when revenue is increasing at an increasing rate, oftentimes was in a sustainable and replicable way. It’s important to add that because we’re not going to increase revenue in a way that’s not sustainable, replicable, or profitable.

But what I often find is that many CFOs, CEOs miss the moment of inflection. A lot of people think an inflection point is when you go right or left, you’re at a fork in the road. But most of the time, that is not the case.

Mark Jaffe 6:17

If you’re on the road, and you don’t realize it’s time to make a decision. So it’s not between decision A or decision B. An inflection point is usually between decision or no-decision. And oftentimes, the mistake that people make when running companies is they elect to make no decision because they don’t realize they’re at an inflection point.

How do you know that this is the moment for you to consider your an inflection point to do an examination of your business to understand the next horizon of growth you need to be on it could be either because your revenues are increasing at a decreasing rate because your marketing spend becoming increasingly inefficient. And as we know, in digital marketing now, there are so many measurements that could help you figure that out or that your operating income is dropping for reasons that you don’t understand.

Mark Jaffe 7:11

Now, these horizons of growth are really interesting because when you consider the average growth curve, as you add curves up at an increasing rate and then slowly starts to flatten, one might think the time to consider the inflection point is at the moment you start to see it start to flatten, I would suggest it’s before that because what you’re doing is creating a new growth curve that sits on top of the old-growth curve.

I remember I had a company that developed makeup application devices. We completely altered their core value proposition to reflect the fact that women had different needs than they had originally thought. And as a result, they were on an exponential growth curve. I came to them and said, You’re at an inflection point. They looked at me like I was crazy. They were increasing at an increasing rate.

Nevertheless, we embarked on a very exhaustive strategic analysis and realized that there was another growth curve that was possible by venturing into an adjacent space. I mean, this is a company that’s grown from $2 million to over $60 million in five years as a result of aggressively challenging its current business model at the right time and acting appropriately.

Sam Gupta 8:25

Okay, amazing. So when we talk about understanding the customer needs, truly, if I actually did the study with a lot of companies, I mean, they probably all are going to claim that they really understand their customers, right? But growing something from, let’s say, $30 to $120 million dollars is a big deal.

And you like to emphasize a lot on the macroeconomic factors to be able to understand these consumer behaviors, and that I find fascinating. So do you have any stories that you would like to share regarding these macroeconomic trends? How were you able to capitalize on them, and how were you able to grow these companies?

Mark Jaffe 9:03

Well, yes, I do. As a matter of fact, one of my favorite stories involves a B2B supplier of production materials to entertainment studios and television production companies. As you might remember, a number of years ago, there were threats. Ultimately, those threats were realized that China was going to raise tariffs on aluminum and steel materials, which was a large majority of the raw materials that went into the production of these products.

The companies heard from customers, and they have petrified themselves that they were about to engage in a huge drop in sales as a result of the price increases that would be imposed upon them and their customer’s inability to pay, and we went into a meeting to try to talk about how we could say reduce production time how we could save expenses, and in that meeting, I realized that was not the answer. In essence, we were fighting the macroeconomic trend, and for any of you who are horseback riders, what it’s like to fight the horse when it’s ready to go back to the barn.

Mark Jaffe 10:05

That is not a strategy. So I said, how do we ride the horse in the direction it’s going? How do we use this macroeconomic trend to our advantage so that we can increase our top-line revenues at a reasonable cost? And we realized that as afraid as we were for these tariffs to impact our sales, because of the dramatically increased costs, so afraid, where our customers and what we did is we have relatively simple ideas, some greatest ideas tend to be that way, we instituted a pre-tariff sale at full price for our customers to not only order in advance but scheduled delivery in advance of all of these products, without any tariff increase.

And we were able to do that because we ordered all the raw materials in advance at the pre-tariff prices. As a result, their sales on that pre-tariff sale, which wasn’t really a sale, because it was a full price, was 200% higher than any other sale or promotion they had ever put together. And it’s all because we took advantage rather than fight the macroeconomic trend of macroeconomic conditions that we were facing at that moment.

Mark Jaffe 11:23

Another one that comes up, and I just think it’s so fascinating, involves the response to the pandemic. There’s been so much written on how everything is changing as a result of the pandemic. I think what it does is it creates a construct where we’re doing things we might have considered even sooner necessity becoming the mother of invention.

This particular company is a B2C company that sells products at retail in resort destination areas. These products are customizable toys. What they noticed was that their customers’ overall toy sales have decreased dramatically as a result of the lack of visitors during the pandemic. And they’re like, what can we do. So we decided to engage again, in a reexamination of what their customer needs, and why their customer is going, and patronizing their store. And we quickly realized that it was not to buy a customizable toy. They were customers that were going to an entertainment destination in search of entertainment.

Mark Jaffe 12:25

So, we were actually more of a location-based entertainment environment that made money not by charging admission fees but by selling customizable toys. And so what we’re doing currently This is a current client is we are transferring that entertainment experience to an online environment where people are very accustomed to having entertainment.

Again, having an entertainment experience that not only can be experienced by children alone but shared with their parents, again, once again, not fighting the lack of traffic the in these resort destinations. But they are expanding the definition and the execution of the core value proposition to where the customer is actually going now, which is online.

Sam Gupta 13:06

Okay, so obviously, these stories are extremely exciting. And as a manufacturing executive, if I think about it, obviously, who doesn’t want growth, but getting from point A to point B is always sort of difficult. So what I would like you to touch is an order of operations here. Let’s say if I would like to explore some of these macroeconomic either conditions or levers in my organization, and I want to take advantage of them.

So what will be the process of number one studying and number two, taking advantage of them. Now, you can talk about this from the perspective of the existing examples that you have already provided. So it could be breaking down these stories one level down, or it could be you could take a hypothetical example in creating this process in understanding how we can go from point A to point B.

Mark Jaffe 14:09

Just for fun, I’ll bring up a new story if you don’t mind. So the more, the merrier. I love telling stories. Who doesn’t? So it’s a client that is a furniture manufacturer that came to me right after the recession and said,

Now what I mean, in essence, sales are dropping dramatically. How can we increase our sales in a period of recession? And what we did is we did an exhaustive examination of the conditions at retail to understand what the buyer wanted. It’s so interesting. You would think, oh, furniture, a B2C customer, let’s understand what the consumer wanted.

But in this case, and this is where it’s applicable to B2B sales. In this case, the issue was not what the consumer wanted. The issue was what the buyer wanted. And what the buyer wanted was a way to have dramatically increased sales with dramatically decreased access to inventory because they’re buying less inventory and assistance of unfair salespeople because they’re firing on poor salespeople.

Mark Jaffe 15:09

So we realized that what this customer was was a brand-centric furniture manufacturer. And for any of you look around the furniture in your home, you don’t really know who makes it. So how could you be brand-centric? How could you be fashion-forward brand-centric because there is a real way that they put together furniture that resonated with these target consumers?

So how did we satisfy the buyers’ concerns? We basically realized that in that environment, when there’s no backup on-site or off-site inventory that is easily accessible, and the long lead times to selling in furniture, that when a furniture group of three, or five or six pieces were taken away by someone buying two or three off the floor, you now had three orphans that were taking up more space and not producing sales.

Mark Jaffe 15:58

And we realized that the first way to solve that was to create a larger group of inventory across a number of different styles that people can mix and match together. So we took our top five best-selling models, adjusted the colors, adjusted some of the finishing touches on how they were designed so that they all work together, and then encouraged each of the retailers to not buy a grouping of five but by three groupings of five.

Now you’d naturally say, well, that’s not going to work, because they don’t want to buy the first five, why would then buy three groups of five? Well, a number of months earlier, I was strolling through the warehouse, which by the way, I think every executive, no matter how you’re consulting, a company should stroll through the warehouse and the manufacturing facility.

Mark Jaffe 16:46

Because if you don’t understand where the battle is fought, you will never win the war. And off in the corner, I remember seeing this massive mound of I don’t know was dusted the what it was? And I said to the CEO, I said, What is that massive two-story mound of stuff. He said, For the last 40 years, we’ve been throwing away all of our scraps of material, and we really need to get rid of it. It’s a fire hazard. I know we’re gonna get cited.

And I said, Now, don’t get rid of that. Those are assets. Those are millions of dollars and written-off assets. And we can make pillows, and not only will we make pillows, but we will solve our problem of getting the buyers to buy our extra inventory by giving them away because that fabric which is a beautiful, fashion-forward fabric that you’ve been using on your furniture can make beautiful pillows and pillows, as you know have very high-profit margins.

Mark Jaffe 17:42

So we took a lot of leftover lumber, created beautiful furniture, what pillow walls, stocked them with furniture, and said to the buyers, they’re free, they’re absolutely free. And the buyer would say, well, these are 1000s of dollars worth of inventory you’re giving us for free. What do we have to do?

And we said buy three groups of five pieces of furniture and allow us to have our self-directed sign telling people how to play and use the furniture since we know you don’t have any salespeople. The result? I found out three years later. It was even greater than I had thought they invited me out to dinner to tell me that their $55 million company three years later had gone over $100 million.

And I said to them, what else have you been doing besides those strategies? They said nothing else. That’s all we need to do. We wrote up this recession and nearly doubled our company’s revenue as a result of the strategies that you talked about virtually no cost of goods sold on the pillows, and minor design and manufacturing tooling costs on the changing the furniture.

Sam Gupta 18:50

Okay, so. It’s a very fascinating and interesting story. In fact, I mean, I remember my conversation today, and I appeared on a podcast as well. And we were talking about why everybody either should have the marketing mindset in the company or marketers should be involved beyond sales as well. Marketers should not be just limited to three tails. And that’s how the majority of the organizations operate, that they are limiting their monitors only before the peace process.

Sam Gupta 19:19

So this is what we did. We were discussing that when CFOs or CEOs look at anything, their perspective is very different because their perspective is going to be slightly more efficiency-driven, the cost-driven what when marketers look at the same problem be looked at from a very different perspective, they look at it from the opportunity perspective, and you could have a lot more innovation just by changing the messaging or just by changing the packaging, and you could create an additional product line, you can create additional revenue. So this story sounds similar. What would be your thoughts on that? Mark?

Mark Jaffe 19:52

Absolutely. And I would add one other thing when you were siloed in an organization as a CFO or as a market being professional. You oftentimes focus on what is you don’t focus on what should be. You focus on what is, and you’re doing incremental steps to change what is. I want to give you a great example of a company that was decided that they were not going to do that.

It was a company that I worked with extensively a number of years ago, back when there were tremendous financial irregularities in financial reporting. This company’s value proposition was to assess accuracy in corporate financial reporting and to report that to individual investors so they can make better investment decisions.

The head of the company was troubled by the fact that they were getting high turnover high churn with this B2B or B2C service. And I said it’s the wrong way to go. They are not the big consumers of that information to make important and valuable decisions.

Mark Jaffe 20:59

There are B2B companies that need to know whether or not the financial reporting to the SEC is correct. And those are your bigger customers; they have those needs; what would be great examples of that DNO insurance companies are getting sued right and left as a result of the fact that the actual reporting was incorrect that investors relied upon it.

And they went to the Board of Directors as a result of allowing that incorrect reporting to occur. They were our biggest companies. I spent so much time in Bermuda talking to these insurance companies and signing them up. As a result, you’re not going to believe this one. But the SEC was a big customer. Why? Because as the head of corporate enforcement told me, you do the first 80% of our work, not only do you identify every single one of the metrics that could conceivably be out aligned, but you tell us exactly where we do the next 20% in identifying the specifics and the kind of corporate enforcement work that we do to identify companies that may be incorrectly reporting.

So what I find particularly interesting is that companies often silo their core value proposition to those audiences that they’re most familiar with or that it was originally intended, when oftentimes, even more, valuable targeting can occur two completely different target audiences. And this is a great example of really bridging that divide, abandoning the B2C approach, knowing that more fertile pastures are in B2B sales.

Sam Gupta 22:31

Amazing. So very interesting story again, and now I’m actually going to ask you for some advice, right. And that advice is going to be for the executives. So, Mark, you have been president, yourself of a company, and then you will have a significant marketing background.

But if we look at the state of manufacturing, especially in the SMB business, most of the SMB businesses start just because they are good at something, they have creators, they are not as sharp marketers. So let’s say if you have a President, I mean, who might not have a sharp marketing background, they would have got a bunch of customers, they would have succeeded, they would have survived.

But now, they want to instill this marketing mindset in every single employee that they have. So what would be the process for that? Is it going to be to hire a marketer and involve them in every single process, and some of those processes could be, for example, ERP implementation?

This is what we were talking about this morning that marketers are very rarely involved in the digital transformation initiatives or the ERP implementation. So as a president, let’s say if you don’t have any marketing background, what do you do to make sure that you are able to capitalize on these opportunities inside your organization?

Mark Jaffe 23:44

I really think that it is involved in utilizing each of the different departments to get their expertise in pursuit of a common goal. And perhaps the easiest common goal to go after is to try to understand what the catalyst is for a purchase decision. I remember I had a B2B company that sold UV lighting systems as a customer to create reduced air pollution and reduced bacterial involvement in air conditioning dogs because these UV lights using UVC light actually kill bacteria.

And they’re which was a wonderful value proposition who wouldn’t want cleaner air, but they didn’t understand. The CEO didn’t understand why marketing and sales couldn’t deliver more customers. And when we did the analysis with marketing and with sales and did a deep-dive interview with each and every one of them, we understood that the catalyst for driving a purchase decision was not air purification as valuable as that is or health benefits as valuable. It was really economical.

Mark Jaffe 24:55

These owners of office buildings, these owners of factories, these owners of hospitals, when you think hospitals would care more about health? Nope, they cared about economic. Why? Because they would have fewer maintenance costs, there’s less bacterial buildup on the airfoils in the ceiling. They would have a greater reduction in energy bills because with reduced bacterial goes up. There’s less airflow, less energy required to generate that airflow.

This all came as a result of having these types of in-depth conversations, having people not continue to work in the business but work on the business. And as a result of that, the insights that are actionable are incredible. And it’s a result of these types of conversations. We developed vertical marketing plans that isolated each of the economic benefits in the different vertical markets. And that became the focus for the increased sales that this company realized and ultimately was able to sell out.

Sam Gupta 25:55

Okay, amazing. So this is an amazing story. And you said that you know, you have so many stories. Mark, I want to give you one last chance. Do you have any other stories that you wanted to share but could not?

Mark Jaffe 26:05

Wow, I don’t know where to where to take that anymore when I think about the stories. But the most important message that I want to leave is understanding the motivation. Alright, fine. I’ll do one more story related to the motivation of the decision-maker; I remember there was one software company that I was working with that developed a solution that made the lives of workers easier, that made them more efficient, that made them better at what they do. And that gives that gave them higher enjoyment of their task and their responsibilities.

And naturally, you would think that these workers would be the ones who would bubble up to their bosses. The bosses would obviously recognize this and make a decision to purchase this enterprise software. But it didn’t. They didn’t. And what we realized is that the purchase motivation of the head of the company was not to make the head of this classification of companies, was not to make their workers’ lives easier.

Although that seems like it would be a very admirable motivation, it was actually to make them more informed by the data that was being assembled in a more effective way for them to make better decisions. And so we wound up adding a data analytics tier to this already very highly functioning software engine so that the decision-maker was able to realize a benefit that they personally wanted to realize, in addition to the benefits for those who reported to them.

Sam Gupta 27:43

Okay, amazing. So that’s a good remark we have any last-minute closing thoughts, by any chance?

Mark Jaffe 27:47

Well, I think I go back to what we said originally, which is, it’s a simple equation. But if you were to keep your eye on this ball, you’ll hit it out of the park every time you find out what your customer needs, and give it to them in a way that they know that you are the best and potentially only provider of that solution in that way that 100% satisfies their needs.

Sam Gupta 28:12

Okay, amazing. My personal takeaway from this conversation is going to be understanding your customer needs is a much deeper exercise than you would think. So make sure that you really understand your customer needs. So on that note, thank you so much for your time and insight, Mark.

Mark Jaffe 28:28

Well, thank you so much, Sam. I really enjoyed the conversation.

Sam Gupta 28:31

I cannot thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learned something new today. If you want to learn more about Mark, head over to MarkJaffe.com. He can help you create new revenue for your company. Links and more information will also be available in the show notes.

If anything in this podcast resonated with you and your business. You might want to check out the related episodes, including the interview with Jim Gitney from Group50, who shares his thoughts on each inflection point for companies and what they need to know to identify them and move to the next by making necessary changes. Also, the interview with Jeff White, who discusses why it’s so important to identify the ideal customer profile for your offerings to streamline your growth.

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I hope to catch you on the next episode of the WBS podcast.

Outro 29:37

Thank you for listening to another episode of the WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guest Enrico Parodi, who describes the sales organization’s key components. He also discusses different sales organization structures and how their roles vary, including direct, hybrid, and channel-driven. Finally, he had a chance to touch on sales and marketing alignment and why that is important for an organization’s sustained growth.

Chapter Markers

• [0:24] Intro
• [2:49] Personal journey and current focus
• [3:49] Perspective on growth
• [4:46] Sales organization through an inflection point
• [9:30] Sales organization for B2B companies
• [12:06] Selling through partners vs. direct
• [19:54] Generating net-new sales for brands
• [23:55] The role of marketing in a sales organization
• [27:24] Demand generation challenges in a hybrid salesorganization
• [29:13] Closing thoughts
• [30:36] Outro

Key Takeaways

• Around the $5 million point, there is no destination, the compensation plan, most of the time doesn’t exist, there is not even a sales organization, because most of the time the business is driven by the family, or it is driven by the owner, and there is no size later.
• At $25 million, sales strategy starts to appear. But still, there is a problem because there is no formal structure. There is no CRM, or if the CRM has been bought by the company is not used, it is just there to support the operation in a passive way.
• There is a very tight correlation between not growing the company and not having a sales strategy. So when you talk about strategy, you need to start from your customers and your potential customers and define an approach to the market. Once you have identified and that approach, you then decide how do you sell? How do you reach out to those customers?
• You want harmonization between the channels, and again, the starting point is your sales strategy, which channel do you want to use to reach what type of customers and to sell what type of product or service and you need to have a kind of a mapping process here. So, through that process, then you define precisely which is the role of each one of the channels.

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About Enrico

Enrico Parodi has 30+ years of global experience, including leading direct and indirect go-to-market channels, with specialization in small and mid-sized companies. He earned multiple Presidents club awards over his career, with the most recent being at Sales Xceleration. He is also credited to have the first rank among 150 advisors in 2020. He currently consults with small-to-medium-sized businesses in the capacity of fractional VP of sales.

Resources

• Connect with Enrico
  • LinkedIn | Twitter
• Connect with Sales Xceleration
  • Website | LinkedIn

Full Transcript

Enrico Parodi 0:00

You need the high octane gasoline for the car. That is the compensation plan that fuels the behavior of your reps. As well as the leads, you need a sports team to support you. So that means that you need to hire. The right says you need the dashboard and the windshield in order to drive.

Intro 0:24

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 1:00

Hey everyone, welcome back to another episode of the WBS podcast. I’m Sam Gupta, your host, and principal consultant at digital transformation consulting firm ElevatIQ.

Building a high-performing sales organization requires more than just winners and the winning product. It requires the right compensation structure, refined customer groups, and a deep understanding of their needs. But is that enough for sustained growth? What do small to medium-sized businesses miss that struggle to grow? Whose responsibility is it to generate leads? Is the sales organization accountable for everything? Or should marketing share some accountability of missing growth targets?

In today’s episode, we have our guest, Enrico Parodi, who describes the sales fields organizations’ key components. He also discusses different sales organization structures and how their rules vary, including direct, hybrid, and channel-driven. Finally, he had a chance to touch on sales and marketing alignment and why that is important for an organization’s sustained growth. Let me introduce Enrico to you.

Enrico Parodi has 30 plus years of global experience, including leading direct and indirect go-to-market channels, with a specialization in small and medium-sized companies. He earned multiple president club awards over his career, with the most recent being at sales acceleration. He is also credited with having the first rank among one PP advisors in 2020. He currently consults with small to medium-sized businesses in the capacity of a fresh new VP of sales. With that, let’s get to the conversation. Hey, Enrico, welcome to the show. Hey, good

Enrico Parodi 2:46

Good afternoon, Sam. Thank you for having me here.

Sam Gupta 2:49

Of course, it’s our pleasure. Just to kick things off, I do want to start with your personal story and your current focus.

Enrico Parodi 2:55

Yes, thank you so much. So you can understand my accent is a little bit that I am not American. I’m Italian. I came to the United States twenty years ago. I came here. I was working for corporate at the time I was in the information technology was with IBM great experience. I was in that business for almost 30 years.

And then, a couple of years ago, I decided that to get out of it. I wanted really to go into something in which I could help companies and CEOs. And so I decided to become a fractional VP of Sales Empire now have a network of people across the country. It is called sales acceleration. And we really to help CEOs of companies to have a high-performing selling organization. That’s what we do.

Sam Gupta 3:49

Okay, amazing. So before we get into some of your backgrounds, and obviously we want to hear some of those exciting stories that you might have, from your fractional sales experience, one of the standard questions that we have for all of our guests, and that is going to be your perspective on business growth. What does business growth mean to you, Enrico?

Enrico Parodi 4:10

I mean, business growth is the life of a company. You cannot stay in business without growing. So my contribution to all the discussion of the growth is around how you can connect the growth to your sales organization. You cannot grow if you don’t have a sales organization. And I would even say the more. Specifically, you cannot grow and sustain growth if you don’t. They’re in high performing selling organization. So that’s so crucial for the success of the company. That’s where I spend my time with my customers.

Sam Gupta 4:46

Okay, so do you believe that the sustained growth that you are talking about from the sales perspective does change at each stage of the organization, so as organizations grow through their inflection points, are sales organizations going to change and be changed for structure in the fields of migration? Is that going to change as well?

Enrico Parodi 5:08

Absolutely. If you allow me, I usually use a comparison between high performing selling organization and a sports car. So this car performs if all the pieces are there. But that’s not enough. They need to work all together, you need the driver, and you need the destination. And the trick is really to make all these things work together.

So for example, if we look at the key components, and we do a review this comparison between a scorecard in a sales organization, you need the destination, those are the sales targets, you cannot operate in a sales organization without having sales goals, you need the high octane gasoline for the car. That is the compensation plan that fuels the behavior of your reps, as well as the leads.

You need a sports team to support you. So that means that you need to hire the right team. You need a dashboard and a windshield in order to drive the car. And this is going to be your CRM, a customer relationship management that and your forecasting system. And then you need the driver. And this is your sales leader. So I just focused on a few of these five components.

Enrico Parodi 6:00

Now, when a company goes through an inflection point, some of these components and in their early stages do not exist. And then, the more they grow, the more they have to add those components. Otherwise, they cannot grow at a certain point is not only the key is not only adding the components.

It is how they work together, how they can scale, what is the skill of the people that you are using in the different stages. So if we go through the different stages of a company, let’s assume that we started normally. The inflection point is around the beginning of $10 million.

But I have to say from a system point. There is one even below that identifies around the $5 million. At that point, there is no destination, the compensation plan, most of the time doesn’t exist, there is not even a sales team, because most of the time the business is driven by the family, or it is driven by the owner, and there is no size later.

That’s what I find that the $5 million, then if we go to the next level, if you go to the $10 million, then obviously the company realizes that they need some people, it’s unwraps some sellers be as call them as you want.

Enrico Parodi 8:00

So they start to hire people, and they put some kind of compensation plan, but all the rest is not there yet there is no sales target. There is no customer relationship management system. There is not a sales leader. So those compensation plan is there. But there is very often a situation of frustration, wherein in the end, the CEO is not satisfied with the sales team because they don’t do what he or she wants.

And the reason is that the compensation plan is not really aligned with the said strategy, but there is no said strategy. So that’s the problem. Okay, then as you grow to the next level of $25 million, sales strategy starts to appear. But still, there is a problem because there is no formal structure. There is no CRM, or if the CRM has been bought by the company is not used, it is just there to support the operation in a passive way, you move to the 50 million, and you start to see the need of establishing a sales leader.

But very often, I still see situations where there is no CRM in place. And finally, when you go to the 100 million, the business is at the point where there is no way to grow if you don’t have very structured processes. Now at that point, really, as I said before, the secret of the successes are all those components that I just mentioned working together, are they designed to be complimentary, and do you have the right people in place so that the machine can scale.

Sam Gupta 9:30

Okay, amazing. So when we talk about sales strategy, obviously, my assumption here is going to be this is going to be primarily B2B play, so if we look at the state of the B2B organizations, especially the in our target audience, which is going to be the manufacturers, distributors, retailers, and some of the e-commerce B2B players, right.

So when if I look at their field structure at this point in time, their primary channels, or distributors. So these are two primary channels that they acquire their customers from. They are going to have some web presence, which is very rare, okay, so even if you have a web presence, they might not get any traffic from the web at all, just because they’re not spending as much money, they probably don’t trust on this channel.

And when I speak to my marketing audience here on this show, they have a comment that these organizations are extremely sales-focused. They are a sales-driven organization. So now, looking at the structure the way I described here, and we go, do you feel this is the fields-driven organization? If yes, why do you feel? If not, why do you feel?

Enrico Parodi 10:41

To answer your question, the same strategy is so crucial to the point that there is a very tight correlation between not growing the company and not having a sales strategy. So when you talk about strategy, you need to start from your customers and your potential customers and define an approach to the market. Once you have identified and that approach, you then decide how do you sell? How do you reach out to those customers?

And that drives then the type of people and the type of channel that you want to use? Are these salespeople, though, that work directly with customers? Or are you working with this with channel and distributors, and that is so crucial, because the skill of people that you need from a sales standpoint, that is really dependent upon what type of customers you are, if you manage the relationship with a network of partners, you require a totally different skill than selling directly to customers.

So today, I agree with you. You need that type of the right channel that either manager, customers, or managers partners to be successful in this arena.

Sam Gupta 12:06

Okay, so let’s talk a little bit more about this specific scenario, right? So there could be three scenarios. In one case, the manufacturer might be selling directly to the customers, which is rare because pretty small manufacturers, they will not really sell direct, they were selling through distributors, and distributors were selling through the retailers, right?

That’s the retail value chain. So now, with changes in the marketplace, now there is a lot of overlap. Distributors are trying to manufacture their own goods. And then manufacturers are trying to go to the consumer, end customers directly, right. So we typically see three different business models from the manufacturer’s perspective, one is going to be very distributed or the partner-driven, the way you mentioned, one is going to be completely focused on the customers, and the third is going to be mixed. I’m interested in knowing this mixed mode. There are going to be a lot of channel conflict issues. So how would you approach a model where you are trying to sell through partners as well as direct?

Enrico Parodi 13:09

Yeah, this is a great question, Sam and I have seen many, many companies failing it because they were not clear and crisp on this point, right. So channel conflict, there is one answer you want to avoid, you want harmonization between the channels, and again, the starting point is your sales strategy, which channel do you want to use to reach what type of customers and to sell what type of product or service and you need to have a kind of a mapping process here. So, through that process, then you define precisely which is the role of each one of the channels.

Now, that is the starting point. Then in execution, inevitably, you will find situations where there is some overlapping. So at that point, you need to be very crisp on how do you manage the conflict, and all comes first, no comes second. In my experience, I have to tell you that if you do not put your partners ahead of you or your internal salespeople, you will not be very successful in implementing in hybrid channel go to market that’s crucial to show that you are supporting your partners your there is a value-added component in their selling activity. They can trust you. They will stay with you. If you are not walking the talk there. You’re building an app a says strategy on it on the sand.

Sam Gupta 14:55

Okay, so tell me some of the nuances associated with selling through partners versus selling the right how the sales strategy is going to differ. What are some of the things that executives need to be aware of? Let’s see if they have never sold through partners, or they have never sold, right? What are some of those nuances?

Enrico Parodi 15:14

I think that in a nutshell, selling direct to customers is today. I mean, you can be successful. If number one, you will listen to your customers. And second, you help them to solve their problems. This is a skill that can be built in an individual and requires a severe predisposition to listen and to be curious and be able to go in solution mode. I call it a selling scale.

When you go in there with a network of distributors or resellers, sometimes, I mean, it could be even integrators or influencers, then, and I’m talking about not the influences in the digital world or the people that influence customers. And then it’s all about business development. You need to have a salesperson that understands that his or her role is to develop the capability of your partner.

So the partner can be effective in the market, the person needs to understand that the business has to make sense for the partner first and second for your company. So it’s a totally different DNA, a totally different type of go-to-market approach totally different people. When I hire people to do these different roles, I look for completely different job descriptions and completely different types of profiles profile of the candidates.

Sam Gupta 16:51

Okay, do you have any stories that you might be able to share around the hybrid structure, or maybe direct to sales? So just tell us some stories in terms of the structure? What may be your customers had before? What problems do you see with the kind of changes you made? Just from the structural perspective, there? Yeah, that’s exactly what he decided he wasn’t aligned.

Enrico Parodi 17:12

So this is a technology company that is really integrating. So they are acting as a distributor for a technology product. And at the same time, they also have a network of partners. Okay, so it’s a kind of a hybrid model. So their value proposition is really they are various experts in their industry. And before I joined the company, the company was able to really assess the organization with no specialty.

So the salespeople had both coverages for resellers and end-users, there were not enough salespeople, and one of the salespeople was the CEO of the company. And so COVID caps, and the business, obviously is getting impacted. They have huge challenges in reaching out to customers. So what they did in this context, I looked at the organization, every shaft of the organization, we made sure to have the right people in the right seat.

One of the things that define a sales organization is the people, and you need to add high-performing people doesn’t matter what they did in the past. What matters is are they able to be high performers in this new environment, and maybe they were successful before, but they are not successful anymore.

Enrico Parodi 18:50

So we said, I selected the right people in the job, I’d find different roles, we segmented the customers in different sizes, and we separated approach between supporting resellers and selling directly to customers.

For example, one of the things that we are doing today is we want to sell value, okay, and to sell value, you need to be able to solve problems. So we are introducing an assessment methodology that we do directly with customers. And the purpose is to identify their issues and to come up with some solutions. This is the approach for the direct customers. The approach for the partners is going to be different. We want to enable the partners to do the same with their own customers.

So it’s more about sales enablement than says execution with a purpose. I don’t know if this gives you an idea, but it’s really interesting because we double the organization even in a difficult situation like this, but now there is clarity. People know exactly what are the customers that they have to target. They know exactly what to do, what their goals are, and what their expectations are of them.

Sam Gupta 19:54

So I guess when things go well and then sales or big vision, I have not seen much of The problems, right? Because if you have tons and tons of leads, then things are easy. But if you don’t have much of the business flowing at the top of the funnel, that’s when the problem is going to be there. So what do you believe? I mean, do you believe that it is going to be the responsibility of the salespeople to be able to deliver the results isn’t going to be the responsibility of the partners to be able to deliver the results?

Who is responsible, number one, for generating the demand? And number two, do you have any stories where the demand was really low? And you did something because of which you created tons and tons of demand that everybody got busy and busy? Meaning closing deals? Right, that’s what everybody wants?

Enrico Parodi 20:41

Yeah, I mean, this is a question I get a lot, Sam. There is, in my view, a clear distinction between the sales role and the marketing role. And those are two different professions that you need people with a different profile. Obviously, the two organizations have to work together and support each other, but they should be accountable for their part of the job. So in terms of ensuring the sales goals are achieved, this is a responsibility of the sales organization, there is no doubt.

And so, you need to have an accountability system that holds the salespeople accountable for the different parts of the business they are responsible for. Okay. Now, as you noticed, I didn’t say that the salespeople are accountable, in my view, to generate leads or to do demand generation. That is the responsibility of the marketing team. And that is to be very clear so that everybody works on their own piece of the puzzle.

And many times, I find situations where there is not even a marketing part of the organization. And salespeople are accountable for generating demand, cold calling, and things like that. Unfortunately, it doesn’t work. You want to spend the money of your salespeople to make the biggest impact that is really to talk to customers that are interested. Okay, so how do you get to customers that are interested?

Enrico Parodi 22:00

This is why your marketing. So the story I can tell you his story of a customer where the customer was launching a new product is it was targeting new customers different from their traditional customers are and what we decided to do for the first time in a survey company to use an external company to do qualification of customers. So we could know an in the company ABC, there is a person that is interested about what we are trying to sell to them.

And then to do appointment setting. They were never used to doing that. Their model was or relationship-based. Their apps were going to customers and finding opportunities. The problem was that this new product they were bringing to market was different. They didn’t have the traditional people they were using to talk to as their counterparts.

So the process proved to be very successful, we were able to get a lot of interest from nontraditional customers, and we are now selling this new product. And really, their reps are involved. Just when the customer says, hey, I’m interested, I want to see it. Come here. And obviously, there is much more productivity and success rate. Right?

Sam Gupta 23:55

So let’s look at this from the manufacturing executive perspective. So let’s say if I’m the CFO or the CEO of the organization, and I want to create some sort of sustained growth in my organization. Now, if I go to my marketing, you know, marketing is going to say that you know what, I should not be accountable. Because I don’t know, I can write my content.

But I don’t know whether that is going to generate the leads or not. If I go to my sales leader, the sales leader is going to say that unless you have leads, I will not be able to close anything. So as an executive, obviously, I’m looking for tons and tons of investment. Number one, I’m looking for tons of investment in the marketing department where I don’t have much of the hope, whether those initiatives are going to be converted or not.

And then I’m talking to my sales team, and sales teams are saying unless you give me the leads, I will not be able to deliver on my targets. So obviously, there is a huge risk here with respect to sustained growth. So how in your recommendation, how do you think executives should approach number one, how should they approach what’s the structure of the organization? And how can they ensure that their investment is not going to be wasted?

Enrico Parodi 25:07

Again, this is a very common case, Sam. It happens, not only is more business, but it’s also in big corporations in my experience, and usually, it becomes a finger-pointing contest, then at the end of the story, right, it is never my fault. And in order to keep it simple, First, you need that to set up clear roles and clear responsibilities. Marketing, in my view, has a responsibility to generate a pipeline of leads that I will call marketing, qualified leads, and sales as the responsibilities than to take those leads and move them through the funnel.

So they have to work together, then you need to put in place a Sam system that makes them work together and rewards them for doing that. Once that system is in place, then the next step is to be extremely crisp on what is the definition of a sales qualified lead and the marketing qualified lead marketing is going to be accountable to generate a certain number of marketing qualified leads and says, we’ll take those leads, and then using whatever is the conversion rate be accountable for the revenue for the company, it is philosophically not complicated, it is difficult to execute in my experience because there is lack of clarity.

Enrico Parodi 26:50

But if you have clarity and teamwork, it is doable. My part of what I do I’m really focused on says, I work very closely with the CMOS and fractional CMOS, and they are part of my team, we work together, we define this together with how to enable the salespeople we define together, what is the value proposition for the company because you need to have a value proposition in order to be selling to your customer.

So it’s totally relying on the numbers. There are other components of integration between the two organizations, and in the end, you can be successful, but it doesn’t come out if you don’t have the number one predisposition to work with another organization. And second, you have a clear approach.

Sam Gupta 27:24

Okay, so this is going to be an even bigger problem when you are working with a partner, right? So let’s say if you’re working with a distributor, now, what distributor is going to say if everything I’m going to do from the sales and marketing perspective, if you’re not going to be providing me any leads, and in most cases, I think that’s where the definite finger pointing is going to be my distributors gonna say, you know, what, if you aren’t providing me any leads, then what I’m really going to do is I’m simply going to carry your competitor’s product, and you know, whatever my customers are going to buy, I’m going to sell them, because now I’m a distributor, right?

So this problem can be for fear when you are working with the partners. So what will be your recommendation in structuring the KPIs in the case of the distributor-driven organization?

Enrico Parodi 28:06

When you work with partners, it’s, yes, it is more complicated. But you also need to be very crisp about setting up the expectation with balance. All right, it might not be providing the latest part of the value proposition and a managed partner organization across the world and for different products.

And the topic about generating leads was really to me is a signal from the partner telling me I do not know how to go after the market opportunity. I do not know how to differentiate myself. Can you help me to be more effective in the marketplace? And that’s why it’s called partnership because there is not an answer that is a short answer to that question. It has to be developed in the man’s in the near side because the market changes. So if you’re there for the long run and you work on partner enablement, that becomes really the real route to success.

Sam Gupta 29:13

Right, and we go, that’s great. Do you have any last-minute closing thoughts, by any chance?

Enrico Parodi 29:18

I can say that there is really a couple of things that are crucial if you want to be successful. First, you need to have a destination. You need to be very crisp about what your goal is, which are the customers you want to target are the market segments we want to target. Who are you using to do that? Second, you need the system to go after the meaning you need it clearly defined sales process. You need the technology to support it like CRM, customer relationship management system. I mean, and then you need an accountability system.

The reason why reorganizations fail is that these pieces are missing. They have to be managed as a car altogether. You cannot have a car with three wheels. It doesn’t go very well. You cannot have a car where the windshield is obscured, and you don’t see that the road ahead, you’re going to go against the wall, right? So that’s really the most difficult thing. Keep the added pieces, but make them work together.

Sam Gupta 30:36

Okay, amazing. So my personal takeaway from this conversation is going to be it’s all about structure and alignment. So on that note, thank you so much, and we go for your time. I really enjoyed your insight and had fun with it.

Enrico Parodi 30:48

Thank you so much, Sam, and good luck to you.

Sam Gupta 30:51

I can’t thank our guests enough for coming on the show for sharing that knowledge and journey. I always pick up learnings from our guests, and hopefully, you learned something new today. If you want to learn more about Enrico, head over to salesacceleration.com. Links and more information will also be available in the show notes.

If anything in this podcast resonated with you and your business, you might want to check other related episodes, including the interview with Jeff White, who discusses why it is so important to identify the ideal customer profile for your offerings to streamline your growth. Also, the interview with Gil Walker who discusses why CRM is important and how that fits among other systems, such as ERP and e-commerce.

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get out. Thank you, and I hope to get you on the next episode.

Outro 32:10

Thank you for listening to another episode of the WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guest Matt Guse from M.R.S. Machining, who discusses the challenges associated with manufacturing complex parts in short runs for a CNC machine shop. He also shares his insights into the process changes he made to his company that resulted in significant quality improvement and growth opportunities. Finally, he shares several stories of where he was able to save significant costs and grow his customers by simply replacing a material or improving the design of a part slightly.

Chapter Markers

• [0:18] Intro
• [3:33] Personal journey and current focus
• [4:14] Perspective on growth
• [5:28] People, process, and product
• [8:58] Incentive structure to improve quality
• [15:25] How to reduce setup times between runs?
• [23:01] Product costing implications of siloed systems
• [32:28] Closing thoughts
• [35:00] Outro

Key Takeaways

• Everybody has a gift, and you have to empower them to become part of that gift. So by doing that, they had invested interest in it because if they made a mistake, they scrapped the part. So essentially, that was money out of their pocket.
• When we put the incentive plan in, a lot of guys weren’t really filling out their process sheets.They weren’t taking pictures of the parts as much as they should have. But now, when they took ownership of the process, sheets were filled out to almost every detail where anybody could read it.
• We all fail. It’s a given. Fix it and then forget. If you’re gonna sit there and dwell on the mistake you made, it just kind of put your head down. That’s just cancer, and you got to get over it and just move on.I always use three Fs: fail fast, fix fast, and forget fast.

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About Matt

Matt Guse is President of M.R.S. Machining. Matt and his wife Vicki own M.R.S. Machining that was started by his father in 1986 in his garage. Matt has been in the manufacturing industry for over 30 years. In 2007 M.R.S. Machining was named one of American Machinist Magazines Top Ten CNC Machine shops in the nation and most recently was named a 2017 TOP SHOP by Modern Machine Shop Magazine.

Matt has also been very active in his community by serving on his local school board, Chippewa Valley Technical College Machine Tool Advisory board, and his local church board. Matt also was part of the startup of Cardinal Manufacturing at the Eleva-Strum school by donating equipment. He continues to contribute his time and expertise to this excellent educational opportunity regularly. He is keenly interested in developing new talent and ideas for the manufacturing industry and holds two patents for cutting tools that he developed. Matt was also one of the faces in the IMTS 2016 and 2018 ad campaigns.

In his spare time, he enjoys being a Basketball and Football official. He has a passion for cycling and has successfully cycled up Pikes Peaks to an elevation of 14,115 feet. And this past year, he put over 9,000 miles on his bike and is always up for a ride.

Resources

• Connect with Matt
  • LinkedIn | Twitter
• Connect with M.R.S. Machining
  • Website | LinkedIn

Full Transcript

Matt Guse 0:00

Well, I was blown away by when I told my employees that we would give 40% of the profits to our employees. My quality went from 3% down to one and a half percent. My revenue grew 20 to 25% in the first year, and it’s maintained that since then, and as a business owner, that’s kind of a no-brainer.

Intro 0:18

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 0:54

Hey everyone, welcome back to another episode of the WBS podcast. I’m Sam Gupta, your host, and principal consultant at a digital transformation consulting firm, ElevatIQ.

Running manufacturing operations is not easy. But if you’re running a CNC machine shop that produces complex parts in short runs, the switchover time between jobs or additional time spent in bringing material to CNC machines could add significant profitability and growth challenges. Also, the field data collection and entry are primarily manual. You might run into significant operations bottlenecks and might not be able to compete.
What process changes could you make to your operations to improve your quality and reduce costs.

In today’s episode, we have our guest Matt Guse from M.R.S. Machining, who discusses the challenges associated with manufacturing complex parts in short runs. He also shares his insights into the process changes he made to his company that resulted in significant quality improvement and growth opportunities. Finally, he shared several stories of where he was able to save high costs and grow his customers by simply replacing a material or improving the design of a part slightly. Let me introduce Matt to you.

Sam Gupta 2:05

Matt Guse is president of M.R.S. Machining. Matt and his wife Vicki own M.R.S. Machining that was started by his father in 1986 in his garage. Matt has been in the manufacturing industry for over 30 years. In 2017, M.R.S. Machining was named one of American machinist magazines’ top 10 CNC machine shops in the nation, and most recently was named 2017 Top Shop by modern machine shop magazine. Matt has also been very active in his community by serving on his local school board, Chippewa Valley Technical College machine tool advisory board, and his local church board. Matt also was part of the startup of Cardinal manufacturing at the labor from the school by donating equipment. He continues to contribute his time and expertise to this excellent educational opportunity regularly.

He is keenly interested in developing new talent and ideas for the manufacturing industry and holds two patents for cutting tools that he developed. Matt was also one of the faces in the IMTS 2016 and 2018 ad campaigns. In his spare time, he enjoys being a basketball and football official. He has a passion for cycling and has successfully cycled up pikes peaks to an elevation of over 40,000 feet and his past to you. He put over 9000 miles on his bike and was always up for a ride. With that, let’s get to the conversation. Hey Matt, welcome to the show.

Matt Guse 3:30

Thank you, Sam. I’m delighted to be here today.

Sam Gupta 3:33

Okay, amazing. Just to kick things off, do you want to start with your personal story and your current focus?

Matt Guse 3:38

Yes, I started machining back in high school, I had a tech ed class, and I got exposed to it. And my dad also was a machinist. So I actually grew up on a farm. And I had that work mentality. So we sold our farm when I was in eighth grade. And when I got exposed to it in high school, I decided, hey, manufacturing is a way for me to still use my hands and my mind. And I basically started working out of my dad’s shop, but my dad’s work at a CNC machine shop, and I just fell in love with machining. It just, you know, I took art classes, and I played sports in high school, and I knew I had that kind of talent. So that’s why I got into it.

Sam Gupta 4:14

Okay, so obviously, we are going to be talking a lot about CNC machines. What’s going to be a good CNC machine versus a bad CNC machine. And obviously, our customers and listeners can take advantage of your machining expertise. But before I do that, we are going to have one standard question that we ask everybody because the focus of this podcast is growth. So what is your perspective on growth? Matt, what does growth mean to you?

Matt Guse 4:38

Yeah, growth is a big word. Over the years, I’ve learned a lot of things. And you really got to define what growth is. Some people think growth is growing your sales, but in order to have grown sales, you got to have the right equipment, but you got to have the right people. I always do the three Ps. You gotta have people process and a product in place for you to have sales growth without one of those three, you really can’t grow.

So when you think of growth, how much do you want to grow? Do you want to grow at 5% a year, 10% a year, 15% a year, or more? And I found over the years, if you’re growing more than 15%, then your year may be getting out of control, and it’s hard to zone in on it, and you start having a lot of waste. So I try to keep my growth under 15% as a goal of growth. And your goal without a plan is called failure. So you need to write down your goals and then execute that plan.

Sam Gupta 5:28

Okay, amazing. So you mentioned the right equipment, right. And one of the things that you mentioned is people’s process and product. So typically, in the ERP world, we talk about people processes and technology, but you are talking about a product, and I completely agree with you that getting the product right is definitely important. And to get the product right, obviously, you need to have the right equipment. So tell me from your experience from any of these stories that you might have, tell me what the right equipment is and what is not the right equipment, and how that might impact the product that manufacturers might be producing.

Matt Guse 6:02

You got to look at what kind of product you’re making. And if you’re looking at a simple, easy job, a high volume, yeah, no, you’re gonna, you’re gonna lean towards a Swiss CNC machine or screw CNC machine, you’re gonna look at complex short run. And all that we do here is we are high mix short run, we have over 500 active jobs in our system, and we ship over 35 jobs a day out of here. So our equipment got to be real versatile and easy to set up and program.

And when I started out, I wanted that’s kind of what our focus was. And M.R.S. is to be a quick short-run turnaround. So we actually partnered up with a company called Mazek. They’re out of Florence, Kentucky, and their control, their control is really user-friendly, and which makes our guys on my shop floor. I have 32 machinists, and over 80% of my guys are able to set up a program.

Matt Guse 6:47

That’s because the use of the control is so simple and easy, where most people have one programmer or two programmers in a shop, and they write all the programs, and the people on the floor are allowed to make changes or edit programs.

And for us to grow. At that time, I had to give my people that the control the ownership, put that into their hands, because when you’re on the run in two or three parts, and you see something need to change or tolerance or dimension, they got to have that otherwise, they have to go back to the art camp system update program, download it and just waste I mean, it would take them up to a half-hour to 45 minutes, where if they could just adjust it on the fly within, you know, really, really seconds.

Our volumes are once I implemented that our sales almost grew 20 to 30%, which gave our employees the ownership of doing that. That’s where people come into place in. You got to envision got to build a culture of people. And that’s where growth comes in.

Matt Guse 7:39

Because when I did three years ago, I was just floating along year by year, our sales were just kind of maintaining, and our quality was we didn’t have a quality problem, we had less than 3% that wastes you’re doing that 35 jobs a day, that’s quite a bit, you know, I thought a lot, that’s not bad, because a lot of setups, short runs, you can make mistakes, but I just know there’s something better.

So what I ended up doing is I ended up putting a profit kind of but not a profit-sharing but incentive plan in place. So I’d give 40% of the profit back to the employees, I didn’t know what to expect. First, I just knew I had to do something better what I was blown away by when I told that my employees that we will give 40% back. My quality went from 3% down to one and a half percent. My revenue grew 20 to 25% in the first year. And it’s maintained that since then, and as a business owner, that’s kind of a no brainer, grow, your company profits and quality went up, quality went up, and profits went up and really did nothing, then my return on my investment of that 40% was well over 20%.

So that’s why I talked about building the culture and let envisioning people, and letting them do their thing. Because really, they’re in the trenches every day doing everything. They’re the best people out there. They see it every day. We’re business owners. You don’t get to see it every day. So you’re probably not the expert in that area. So let them do their thing.

Sam Gupta 8:58

Yeah, I completely agree with your assessment there. If you enable your employees, and you have the incentive plan, and obviously that is going to help, but what I’m really interested in knowing is what were the core reasons why they were not able to maintain the quality before and how the quality improved. And it seems like you improved by almost 100% or 50%. So what were the core reasons why you were not able to accomplish the same quality before? But you were able to do that later on once you have the incentive plan in place.

Matt Guse 9:32

Everybody has a gift, and you have to empower them to become part of that gift. So by doing that, they had invested interest in it because if they made a mistake, they scrapped the part. So essentially, that was money out of their pocket. And that’s really what I think inspired like the quality. They didn’t want to make bad parts. And so they took that extra second that extra time just to focus on what they’re doing where before they would just punch a number in Oh, it’s a bad part.

But so that, to me, really sparked a lot of interest. They don’t work that just gave them ownership take total ownership. And what I do here at M.R.S. is that I just stay out of the way. I let them run the show because they’re the best at it. And when they have a problem, they come to me, and I try to help as much as I can put this given them. I think the ownership part of it, and it makes it a part that they felt was really good and is what really set it apart.

Sam Gupta 10:28

Great. So I get that you’re taking the ownership. You are probably going to be slightly more driven, slightly more passionate about the part that you’re producing. But I’m still looking for the underlying technical problem, what was the core reason for the quality issues before, and how they resolved that by taking the ownership isn’t just the attention is the drive is that the passion. And because of that, you had quality issues,

Matt Guse 10:51

I just felt like I guess it came back to a story where my dad passed away in 2013, he passed away, and you go through the emotional stress of your dad, my dad was actually half of myself, and I was struggling for six months. Those people stepped up to the plate and took care of business here to rest without really me being here. My philosophy was I always wanted to give back to them.

Previously, we looked at an employee-owned business. And every time I went down that road, I just kept hitting dead ends. And I knew that wasn’t the relative route to go at the time, not that he stopped or a bad thing. But it just felt like it just wasn’t great for us. So that’s why I came up with an incentive program. I wanted to give back to my boys. And I wanted quality to get better, which wasn’t bad. But just I guess that was a wildcard. The quality thing went down one and a half percent.

Sam Gupta 11:47

So basically, what I’m trying to understand here is from the process perspective, so if the quality is improved, there is going to be an underlying reason, right? Either the engineering improved, or you improved from the machining perspective, or you improved from the operations perspective. So what was the underlying reason for the improvement? Yes, the motivation is there. Yes, the incentive plan is great. But there has to be an underlying reason for the improvement in product quality.

Matt Guse 12:13

Yeah, the quality was better. As far as dollar-wise, we chart our quality every month, and every course every six months here, we post it so people can see it. Some companies I go into it, you can see all these charts and charts and charts. And they have all this if I don’t do that, because what happens is people stand there looking at it, and they get confused by it.

So I always try to keep things as simple as possible. But, overall, when you’re looking at one and a half percent and quality, you know, we’re about 140 to 150,000 a year in scrap waste, and that’s a lot of money. But when you have a multi-million dollar company, it’s that’s 3% probably what we’re after this we’re down you know, 70%-80% of scrap tell that’s a lot of money. We figure in a scrap percentage because nobody’s perfect. And when you’re setting up a pretty complex job with over 150 dimensions on features under a print, it gets pretty complex, whereas if you’re just making a simple washer with three dimensions on it, that’s a whole different story.

Matt Guse 13:11

But the driving factor is, you know, I’ve just wanted to I wanted that scrap number to come down. And I wanted to give that number back to my employees as much as I could. And what we did without that money is we actually turned around and invested in our Q.C. department with better tools such as a vision system, which also drove the quality down probably another half a percent, because when we had better tools for our checking our parts. So what we do is we document all our processes, we have computers and all ourselves, we’re trying to be as paperless as much as we can.

Matt Guse 13:53

So when people we put the incentive plan in, a lot of guys weren’t really filling out their process sheets weren’t taking pictures of the parts as much as they should have. But now, when they took ownership of the process, sheets were filled out to almost every detail where anybody could read it. So we could get actually when you go to set that when a picture’s worth 1000 words, I don’t care what anybody says, because your memory isn’t as good as other people.

But when you see a picture like, oh, yeah, I remember that. So those are getting filled out. The pictures are getting downloaded to your computer. So we have repeat runs. All that information is right there. And we know what tools we have, what the tools are, we know what the picture the part looks like. Because sometimes you get a 2D drawing, it’s hard to envision the part where we got a picture of the finished part.

Matt Guse 14:38

Okay, that makes a lot more sense. Of course, you get nowadays you get models, and you can take the model, but still, a picture is really worth 1000 words. And then along with that, when are you know we have our inspection sheets for our parts, you know, we blew in our prints but all the dimensions that were also saved, so we weren’t reinventing the wheel there. It was all there documented.

So when people got to quit quality, then we would fill our sheets. You mentioned we had a little bit of problem people knew, they would check the parts, but they weren’t documented. Well. Now, when they would miss something or are not documented, well, then you have a chance of making a bad part. So by them doing that, then we would highlight the really critical tape dimensions, and we put a yellow in our inspection sheet, the one that that’s a tight tolerance. And that all that’s what all came out of this people just took it to the next level. And of course, as a business owner, that makes you happy.

Sam Gupta 15:25

Yep, definitely. And you mentioned one comment about reducing the setup time, and a lot of manufacturing companies are going to have issues with the setup time, as well. So let’s say if they asked you your advice, in terms of how we can reduce the setup time between runs, what would be your recommendation?

Matt Guse 15:41

First of all, you need to ask yourself the kind of part you’re making? We fell in love with is our 5-axis Mazek integral axis. And the reason we fall in love with them is they have big tool magazines in a standard turret lathe is like 12 tools, or standard V.T.C. is probably you know, 20 tools, if everybody’s going to start a shop, don’t I know, it’s a lot of money to invest in another set of tool magazines, but get the most tools you can in the magazine.

Because without these tools in there, we have a matrix of tools where we know that CNC machine, we have like a family of parts where we use a quarter 20 tap the half-inch half. We leave those we did those tools in there. We don’t touch them. It’s like our personal tool crib right in our CNC machine. And that’s where the integrants do come in nice. And they’re 5-axes.

Matt Guse 16:23

So you can get at all angles on features, you can have sub-spindle, the part you can pull the part off complete, that’s just, that’s what we excel at, we’re not if you’re going to be running 10s of 1000s of parts. No, that’s not the CNC machine that you really want. You want to get into a fourth axis where you have two-thirds of twin spindle parts coming in. But that’s not who we are. We just never had very good luck doing high-volume parts.

So we just kind of stayed away with not that we can’t do it someday. But so the readers’ setups you just the tools got to be there, you just don’t cut short on tools and don’t cut shorter magazines, we have all our jobs numbered. When you like the lay, if we have pilots, we have it all there, right, and our work, so people don’t have to go searching.

And one of the biggest things we’ve done in our computers where we have in our cells, we have this little thing called A.B. notes. Like for $200. It’s the software you can get, and you can internally email everybody in their cell. So if you’re running apart, and you’re not making the time where you have a quality question, you don’t have to leave yourself and go walk around, find that person to go back to the customer go back there are so many here, we can sit there and keep running production or keep running on another CNC machine.

Matt Guse 17:27

Until we get that answer, that alone, I’m a kind of a numbers guy. Yeah. And that we reduced our setup down by 25 minutes per job just because of that, because a lot of times the communication wasn’t there. Now the communication is there. And that all gets documented and downloaded into our process files. So if that question comes up again, it’s right there.

You just pull up the job process for the job number, boom, everything’s there. So it’s all that tribal knowledge, save it and keep it in your computers. And everybody has access to that there was another thing that we brought up parts anywhere from eight-inch diameter up to 2000 pounds.

And I was tracking that one day, and I did a little survey, and we found out it was taking us anywhere from a half-hour to 45 minutes to get the material to the CNC machine. Well, that ain’t good enough. So what I did is I hired a valedictorian out of a local high school here was super smart was going to go into computer software, and I gave him an internship, and I told them what to do, here’s what I want you to do.

Matt Guse 18:20

So he developed the software, well, we can barcode our job travelers, and where it goes back to our shipping people. And also we put computers on our fork trucks. So when they scan that traveler, if someone’s across just we have two buildings here, if someone’s across the street and sees it comes up on your computer, they can grab it, bring it over.

So we went from an average of 30 to 45 minutes to fit in our material to our CNC machines or work cells down to less than five to 10 minutes per job. And you can do the math on that one. That’s a substantial saving. Personally, I haven’t even put a number or percentage or cost savings on that, but for hiring a high school valedictorian for summer, he was a pretty sharp individual. We actually tried to hire him full-time.

But he went on to go work for some big aerospace company. He’s doing really well. I always take no for an answer. And when I was in high school, I was always told that you don’t go to a four-year college, you’re not going to succeed in you know, you’re going to end up, and I know that was never good enough for me.

Matt Guse 19:13

So I always try to find a way around it. You got to be creative in this today because everything’s changing so fast. So just don’t ever take no for an answer. That’s where the barcoding system came into effect. We had material when we bought a lot of material. We can’t even you know we buy millions of pounds of material a year and we you buy 12 feet, you can’t buy a revenant because the four feet you’ll be paid for anyway, so why not keep it so we just started our shelf and then we tried to do an inventory, and they would take us four days to do inventory, and nobody wanted to do it, and it wasn’t accurate.

So there again, we have to find a better way. So we developed there, but I couldn’t find out. I tried to buy something I couldn’t find it. And so the first problem was if you buy material, you get stickers on the material in our people, you buy it from distributors, they put stickers and tape and ends up falling off, and now you got to pay color-coded whatever distributor has a different color code on their bar ends in the material. So one’s red can be 1045.

Matt Guse 20:06

And other companies could be red could be 4140. So we ended up storing the wave because you didn’t know what it was. So we found a sticker. And it took us a long time to find the right sticker that actually stuck on the material.

I actually even took it and tried to sandblast it off, and I couldn’t even get it off. So I knew we were set. So then we created our own software or Excel where we can barcode it, or we can tell it the peel number we ordered on under it tells us what type of material it is.

And then it also tells you the damaged material. So now when we put an inventory, we can just scan it, and we have our handheld computer, and we say we got three feet in this storage bin, everything’s numbered alphabetically in A.B.C., and then 123. So we know what the material is.

Matt Guse 21:00

And we know how much we have it in. And we took that data, and we downloaded it into our ERP system, which is called JobBoss. And that thing is live. And now when you want to go to inventory, you just get your get our gun, we can scan it, and then we basically put a tape measure on it, it’ll take us four days to do inventory.

Now we can do it in four hours and used to try to buy the whole team here try to get people to do what they want to do it now everybody volunteers for it because it’s so simple. to them. It’s like taking half a day off with pay. And you know, we used to be off 10s of 1000s of dollars. Now when we do inventory orders, you’ll shoot in less than $200. And that’s usually just because that’s because you’re down to inches. We measure everything in feet. We don’t measure in inches.

Matt Guse 21:26

Yep. So what does that do? Well, where we on average, that will save us probably three to $4,000 a month, just material we weren’t scrapping out that we paid for. And I have to say says we implemented it probably five years ago, six years ago, I bet you we save over hundreds of 1000s of dollars, Sam, it’s just it’s amazing.

And I have customers that come in it always aerospace. We’re starting to get a lot of aerospace work. And when they come in, they see that like where did you get that system? Oh, it’s homemade. Or can I buy it? Well, I don’t sell software. I’m not into it works for us. I can tell you how we did it and tell you what we use, and you guys can try doing it.

I have several customers at big companies buy that, but I helped them set up their own system, which I feel more comfortable about just some of the things that we’ve done. Never take no for an answer. You can always get better, and you can always figure it out. So one of the things that we tried to do here also I never asked, as I call it QVS, which stands for quality, value, and service.

Matt Guse 22:19

And that’s what we’re about. We’re about the quality. We’re about value. We are about service. It was a service that comes in when you call M.R.S. You don’t get voicemail is when someone calls you. They’re not looking for a talk to a CNC machine or looking for an answer. And I’ll be honest with you. Sometimes you call it may not be the answer you want. But it’s an answer. That’s the key eight. Wait for an email 48 hours later. You’re not waiting for someone to call you back a week later.

And that’s what our customers came back to us as they tell us every day Hey, we like when you call M.R.S. we get an answer may not be the answer we want at least we get an answer. And that’s what we love about it. And that’s where the value comes in. There’s not a lot of people that respond that fast these days. It’s just, especially with COVID. It’s hard, but we still hold those Morales.

Sam Gupta 23:01

Okay, and how are you doing product costing? Because your ERP seems to be separate? You have that in a JobBoss, and then you have to collect this data, you have to dump it in your ERP? Are you able to track the cost of each of the parts? The way you are building it? Or do you not have a sense of your parts?

Matt Guse 23:19

Yeah, we track. Yeah, we tracked across the best we could. The one thing that’s hard for us sometimes is that when we get busy, we can’t always run that specific part on a CNC machine. And so we have to pull it important and undersell just to get the customer out the door. So there is a very answer or be recorded on integrex where you got all the tools there, you know, your setups probably can be less than 30 minutes, where you have to pull it and put it on a four-axis lathe where they had no tools in there, whether you got like tooling less or horsepower, it your setup can go from like get up to two hours.

So it varies a little bit. A lot of all our guys log into their jobs in like everybody else you do make a mistake once in a while where you’re logged into there, you forget to log on, if you get to go home, we have little green slips, we have to manually put the job number down and deduct the hours. But that’s how we cost our parts. We also have an in each operation, we have a part to part-time, or people write down their part to part-time just to make sure that it matches because sometimes if you log on, you can do the math. If it takes three minutes and you make it in 10 parts, that’s 30 minutes. So if you log in 10 hours, well, there’s obviously something wrong.

Matt Guse 24:21

What are the key factors that came out of there, Sam? We’ve done all our work orders are color-coded. Yeah. And why do you color-code your work orders? Well, a green job, for example, green jobs are brand new jobs we have no programs, we have no processes, we have nothing.

So that tells everybody if a high alert, we have to really document this. We have a white traveler. What is the job we ran before, so everybody knows they see a white traveler? It’s a job; we have everything documented, everything should be there. And then we can get on to Orange traveler is a rep change.

So there are actually some customers who change the dimension or change something on that part. Now, these are all quality things that people don’t think look at as quality, but it is you can keep printing the same print, and you don’t have a visual. How do you know there’s a rep change in that print? You really don’t.

Matt Guse 25:05

So you can make a part to the wrong row. And usually what happens is our customer will get parts, and you say, hey, you made us the wrong dimension, what happens is that they don’t want to change it in their system.

So we’ve already changed it in our system. And if they do send a P over, we can catch that. Well, they’ll send a P over for a rep B.S.A. and our system saying a rep. See, because we’ve had that orange traveler, and we know our ERP system or flag and say hey, there’s a rep change. So we can call him and say, Hey, you know, you just sent over a P, or it should be rev C.

And another thing we did that helped it was we scanned all our documents. And so we have all our material certs, we have all our inspection sheets, we have all our travelers, we have the print, we scan and under each job, and that also goes in our job file. So our customer can call up and say, hey, this, we have a little problem with this part, or something’s not right, but I get the dimensions within a click of a button, we can email, and we don’t have to go searching for hours or sometimes days looking for all that is all electronic. It’s all simple, quick, easy. That’s where the value comes in. And the quality comes in.

Sam Gupta 26:06

Okay, so when your customers are sending their specs. Are they sending in terms of, let’s say that file a design a spec, and then you are manually entering this data in your system? Or how is that process?

Matt Guse 26:16

Yeah, well, we have to enter it manually because that’s how JobBoss works because everybody’s got a different peel number. And you have to actually change the peel number and then all the models and the prints, we actually can come in, or we can convert them into the job process file. So when they come on the new job, we’ll put the job number in there. And then we’ll put the latest and greatest print that they sent with us.

And then the models also going there, the models are kind of the thing we get now, and it’s funny about models is you really have to be careful, we have some customers that have great models, and we can use them right to the team. And then we have some models where you can’t trust them because the dimensions change.

And they say we’ll make the print off the model. But it’s hard for us to do that. Because then we have to start. Okay, what’s the tolerance on the part? Or is this a press-fit bore? Is this a location, or that’s where things get a little tricky? So we always ask for a model and also a dimensional print.

But then we can kind of compare apples to apples. And I can’t tell you how many times that we’ve gotten print dimensional print or in the model where they don’t match up, things get changed and don’t get updated. So we like to prevent that kind of stuff before it happens.

Sam Gupta 27:20

So let’s go back to the model. So you talk about model light. And my customers or the listeners may not be familiar with the model. So are these CAD files that you are getting from your customers? What exactly are you getting from your customer when you get their specifications from them in terms of designing the parts?

Matt Guse 27:37

it’s a 3D model. I don’t know if most people know what a model is. It’s just like a video game or whatever. But you just take it, you could spin it all the way around, you can look at it. And then you can go into a wireframe, and you can click on it and get your points and get your dimensions.

And you can also download it into our computer system, where it’ll program you can use those numbers to create your program. That’s some amazing technology. And that’s just hitting the floor right now. If anybody’s looking to up their game a little bit, I would definitely ask them to look into Mazek because it takes a lot of the human error out of it. But again, it also boils down to the model.

Matt Guse 28:24

And you got to make sure that model is right. And sometimes model like I said, sometimes models don’t come across that great. But the problem or the problem is schools are there’s so much technology out there, and you go to to your college or for your college. There’s only so much time in the day of the year where you can learn so much. And you learn most you’re starting to feel in the trade.

And I tell kids you know, once you get done with school, you get your diploma, you’re not set for life, you’re set for maybe three to six months, you have to take and go on the internet, learn more, you got to go and trade magazines, it’s continuous improvement. That’s how you advance companies. The more you know, the more you’re going to make, and the more you can devote to just giving it your all. And that’s an aspect of a school that just can’t physically learn it all.

Sam Gupta 29:04

Okay, so when you talk to these customers, let’s say in the aerospace, do you have any stories that you might be able to share about if they need to know anything about the parts and the machining? So do you have any stories which impacted the growth of these companies just because they were not, let’s say, as innovative as you are in terms of streamlining your processes? Do you have any stories that you might be able to share?

Matt Guse 29:30

Yeah, I actually got several such as DFM, which stands for design for manufacturing. We’re the experts here on how to use a CNC machine and make a part, or sometimes the design people have never made a part. So they just think it miraculously can pop up. I love that. I’m the DFM guy.

I just know there’s always a better way of doing things. And I had a customer come to us, and they were making this part and they they were making 40,000 parts a year, and we started making it, and I just questioned them one day, and on the material, they’re making ETD 150, which is really a double tamper material. That’s why they’re doing that. Well, it’s better machining. And I kind of paused them all better machining, I said, There’s also 4143 are the exact same thing.

It just CNC machines a little different. I said with today’s technology. The CNC machine is not the problem. And I said I’ll tell you what, I’ll make you six free samples, and I’ll have you test them. And I guarantee you that 4143 I wrote last ETD 150 point oh, well, anyway, they have the CNC machine where they have this product, and they test it and they run it through like 50,000 cycles.

And then they pull it under a vision system to look for wear and tear, whatever we’re getting about 30,000 cycles off at 150.

Matt Guse 30:34

So they wanted out their game, and they said, Okay, we’ll show Matt. So they went up to 70,000 cycles, and they pulled it in the vision system. That thing looks brand new, yet also they got their attention. The materials, half this class was half the price. And we ended up saving them $100,000 a year on that product alone.

And on top of it, they actually got a better product, though, because you have the word factor in 4140, which is a little better than ETD 150. So that’s the kind of stuff that I like to do. That’s where you kind of my goal every day is to learn something new. And if you’re not safe, you’re not growing. You’re dying. Yeah. So you’re learning new things, then.

Sam Gupta 31:08

You can help people with the material problem that you identify. Do you have any other stories that you might be able to share that were not related to material, anything else that you highlighted that could be exciting for our customers that they can learn from there was another product?

Matt Guse 31:21

This was actually a kind of an automotive aftermarket part where they were welding in their precedent together, and we’re all in it. And they were breaking in the field. And so I kind of looked at it. And I actually reached out to them and said, hey, I think I can make your product a little better, not offending anybody and or you mean so that I took part I said. Can I design something and give it to you? So I took that part and actually made it a solid billet. And they’re like. There’s no way the cost savings can be the same.

So I designed it, we made it, and actually, I was saving them 10% making out of the style of the prusa weldment. Plus, I put in some key factors in there because when they’re out, this product is actually for emergency use kind of away. And in the middle of the night, you can’t take a part that’s painted, it was slipping out of your hand, and it was getting lost in the mud.

So I actually put a neural on it. And now the grip factor was much better, and the paint was chipping off so that I actually chrome got him zinc plated, so though they weren’t rusting and I saved him 10% and all the parts and butter part and now their sales won’t triple just because the part looks better is safer, and they’re happy and all that opened doors for more parts to look at so it was a win-win for everybody.

Sam Gupta 32:28

Okay, I think do you have any other stories that you would like to share? Your stories are definitely very interesting, and I’m really enjoying them.

Matt Guse 32:35

Yeah, I do a lot of fishing, a ton of sports, and I always think they run hand in hand, and I have several quotes that I just came up with that I could share if it helps or not I can probably maybe put some of them on your on a link to the page in my story that helped me along there’s some of them are kind of long, but you know when someone comes to you and gives you feedback, don’t pick as an insult, but take it as a gift.

One of the things I tried to do here is someone makes a mistake. Some guys are going out there and just start yelling, um, you know, what are you doing? Like your dogs at home are being yelled at and he kind of goes leaping to the corner. But that’s not how you treat people here. I always the first thing in my words is what have you learned by how can we improve it? How can we make it better? So don’t ever put fear into somebody; I always use three Fs fail fast, fix fast, and forget fast.

We all fail. It’s a given. It’s how you how you’re going to fix that and then figure it out, fix it and then forget, you’re gonna sit there and dwell on the mistake you made it just kind of put your head down. That’s just cancer, and you got to get over it and just move on.

Because that’s what happens when you appreciate I made a bad call. I fix it. I clean it up. I go tell the coach. I clean it up, and then I forget about it. Otherwise, it’ll affect your whole day or your week.

Sam Gupta 33:42

On that note, I wanted to thank you for your time, Matt. And my personal takeaway from this conversation is going to fail fast, fix fast and forget fast. That’s very insightful and very deep. Again, I want to thank you for your time. I appreciate your insight. This has been a fun conversation.

I cannot thank our guests enough for coming to the show and sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learned something new today. If you want to learn more about Matt, head over to mrsmachining.com. Links and more information will also be available in the show notes.

If anything in this podcast resonated with you and your business, you might want to check other related episodes, including the interview with Randy Johnson, who discusses how the metal fabrication industries manufacturing processes differ from generalized manufacturing. Also, the interview with Max Krug who discusses what actions businesses need to take if they don’t have product quality or business performance issues.

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I hope to get you on the next episode of the WBS podcast.

Outro 35:00

Thank you for listening to another episode of the WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMB using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guest Harry Mosner from Reshoring Initiative, who discusses how to compute the total cost of ownership of reshoring initiatives. He also shares several stories of manufacturers where they could reduce the costs and increase sales through reshoring initiatives. Finally, he sheds light on manufacturing verticals and components that benefit most from the reshoring initiatives.

Chapter Markers

• [0:19] Intro
• [2:30] Personal journey and current focus
• [4:02] Perspective on growth
• [5:36] How reshoring can help
• [7:42] Offshoring vs reshoring
• [13:11] TCO computation for ERP initiatives
• [14:03] Profitability because of reshoring vs offshoring
• [16:31] The process for sourcing from China
• [19:31] Mexico vs China sourcing
• [29:16] Resourcing resources for manufacturers
• [30:43] Closing thoughts
• [31:34] Outro

Key Takeaways

• 66% of companies look only at the FOB price. They don’t even look at the landed cost. And so by looking only at the FOB price, they are ignoring duty freight packaging, carrying cost of inventory, no travel costs, intellectual property risk, the benefit of having engineering and manufacturing close to each other, in the same time zone speaking the same language able to improve the product and the process together, the risks may be to stock out.
• 80% of consumers say those US consumers say they’ll spend 10% or more extra forum made in USA product as opposed to say a Chinese product.
• The reason why businesses might not be computing the landed cost at this point in time is that the model could be too complex. But at the same time, when you look at maintaining the ERP system or maintaining the IT system to be able to compute that, then you are going to require more manpower, you are probably going to require system, and so there is going to be some cost associated with that tool.
• The US is 97% dependent on imports of apparel and footwear. And that seems seen as a trend back partially driven by automation, that’s making it a little more competitive to produce those things in the US. The average consumer appears to be favoring domestic consumption because of the benefits of the environment and sustainability, and things like that.

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About Harry

Harry is the founder of the Reshoring Initiative after being president of GF Machining Solutions for 22 years. His Awards include Industry Week’s Manufacturing Hall of Fame and his active participation in President Obama’s 1/11/12 Insourcing Forum. He is also a member of the Department of Commerce Investment Advisory Council. Harry is frequently quoted in the Wall Street Journal, Forbes, NYT, New Yorker, and USA Today and seen on Fox Business, MarketWatch, and other programs. Harry holds a BS and MS in Engineering from MIT and an MBA from the University of Chicago.

Resources

• Connect with Harry
  • LinkedIn | Twitter
• Connect with Reshoring Initiative
  • Website | Blog | Twitter | LinkedIn Group | Facebook

Full Transcript

Harry Moser 0:00

So the companies go from looking at just the FOB price or price to add 25-30 other costs and risk factors. And when they do that, they see that in many cases, they’ll be more profitable, producing the product in the marketplace.

Intro 0:19

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 0:55

Hey everyone, welcome back to another episode of The WBS podcast. I’m Sam Gupta, your host and principal consultant at digital transformation consulting firm ElevatIQ.

It’s very rare to relate reshoring initiatives with cost savings and sales growth. It’s typically the opposite. However, if you account for all the costs and risks involved with offshoring or nearshoring, including geopolitical risks, reshoring initiatives can outgrow a company.

In today’s episode, we have a guest Harry Moser from the Reshoring Initiative, who discusses how to compute the total cost of ownership of reshoring initiatives. He also shares several stories of manufacturers where they could reduce the cost and increase sales through reshoring initiatives. Finally, he sheds light on manufacturing verticals and components that benefit most from the reshoring initiatives. Let me introduce Harry to you.

He is the founder of the Reshoring Initiative after being president of GF Machining Solutions for 22 years. His awards include Industry Weeks Manufacturing Hall of Fame and his active participation in President Obama’s January 11, 2012 insourcing forum. He is also a member of the Department of Commerce investment advisory council. Harry is frequently quoted in the Wall Street Journal, Forbes, New York Times, New Yorker, and USA Today and seen on Fox Business Market Watch and other programs. Harry holds a BS and Ms in engineering from MIT and an MBA from the University of Chicago. With that, let’s get to the conversation. Hey, Harry, welcome to the show.

Harry Moser 2:28

Great to be here, Sam

Sam Gupta 2:30

Just to kick things off, do you wanna start with your personal story and your current focus?

Harry Moser 2:36

Sure. So I grew up in Elizabeth, New Jersey, right across the river from the New York ancestral area. My ancestors were the original founders of New Jersey. And the biggest thing in town was the Singer Sewing Machine Company, which my grandfather worked at. My father ran a big part of the factory. The factory was the biggest factory anywhere in the world, in any industry at the time. And I went past five years ago, 10-20 years ago, actually, and the whole thing’s gone.

There’s no singer sewing machine made there anymore. Everything was important. So that personal background was the motivation for my eventually founding the reshoring initiative to bring manufacturing jobs back to the US. Growing up in Elizabeth, went to MIT, got two degrees in engineering, eventually went to the University of Chicago, got an MBA, worked in industry, starting at GE, eventually ran a large Machine Tool Company.

So a company providing CNC machine tools company’s name was Schar. It now is called GF machining solutions. So we sold EDM machines and high-speed milling machines, sold them all over North America, the US, Canada, Mexico. We had a great job, love the job. I was president for 25 years. And we had a wonderful, wonderful record. So it was an I’ve been blessed, have a great family and sons are professor, no great wife, no grandchildren. Everything has been very good.

Sam Gupta 4:02

Okay, amazing. So I definitely want to dig into your story a bit more. But before that, we have one standard question that we asked everyone. And that is going to be your perspective on business growth. What does growth mean to you, Harry?

Harry Moser 4:21

I’ve always been in, especially in sales and marketing. So for me, growth is more orders, bigger order book, but more, more business. And when I joined that company, we were sitting may be seventh in the industry in North America. And within about six years, we were number one, and our sales had tripled or quadrupled. So do growth. That’s my definition of growth. And this is an established solid industry. Not it wasn’t a startup, electronic kind of industry, or software industry.

So then the question is, how did we do that? When I got there, the company was a mess, heart treated the customers horribly. And I got to know the customers, got to know the Salesforce, listened to them all about what their issues were, what were the problems, what do we need to do better. I supported our team to achieve those things. And they understood, and it worked. And like I say, our sales tripled or more in six, seven years. So it was, it was a blessing to have that growth opportunity.

Sam Gupta 5:36

Okay, amazing. So your mandate is to make sure that companies are doing reshoring. Can you tell me how reshoring can help with the business, though?

Harry Moser 5:49

Our mandate is not to do reshoring. Okay, our mandate is to bring manufacturing back. For any given company we are in, our mandate would be to help them make a smarter business decision, which some of the time is reshoring. And some of the time it might be to offshore might be to go some to put the work somewhere else. So we’re not adamant about it.

But we’re objective and logical and measured about it. So for a US company or Canadian company thinking about reshoring, they would choose to reshore because they would be more profitable if they reassured that what we do is help them understand all of the costs and risks associated with offshoring, or reshoring, as the case may be, but there’s a lot more cost and risk associated with offshoring.

So the company’s go from looking at just the FOB price, 25-30 other costs, and risk factors. And when they do that, they see that in, in many cases, they’ll be more profitable producing the product in the marketplace in the US or in Canada, as the case may be. And when they do that, their sales grow.

If they bring the work back in-house, their production grows, their employment grows, their profitability grows, and they’re a better citizen. They’re a better, more responsible part of the community.

Yeah, you’ve probably heard of ESG and corporate responsibility for the environment for the society for improved governance. And a lot of the big companies completely ignore that when it comes to deciding to keep the work in China, say to somewhere far away, which does not support the environment or the community.

Sam Gupta 7:42

Okay, so you mentioned some of the comments. The offshoring could have a lot of costs and risks associated with that and reshoring, maybe more profitable, so touch on the differences between reshoring versus offshoring. If, let’s say we have a manufacturing or a distribution CFO, who is comparing the differences between offshoring and reshoring, what would be some of those differences?

Harry Moser 8:09

Okay, so we would suggest that they do the calculation, calculating TCO (total cost of ownership), which is a fairly well-established methodology or definition. And specifically, the TCO estimator is free software online at our website that they can use, they sign up, they sign in, they answer questions about the US source, or they say the North American source and the foreign source and, and the software does quantify all these other costs and risks based on their input.

But some of the costs and risks that about 66% of companies look only at the FOB price. They don’t even look at the landed cost. And so by looking only at the FOB price, their adoring duty freight packaging, carrying cost of inventory, no travel costs intellectual property risk, the benefit of having engineering and manufacturing close to each other in the same time zone speaking the same language able to improve the product and the process together, the risks may be to stock out. In total, we’ve got the value of a made in the USA or made in Canada label that 80% of consumers say those US consumers say they’ll spend 10% or more extra forum made in USA product as opposed to say a Chinese product.

Harry Moser 9:34

So you put all these together, and it turns out that there are 15-20-25 points like percentage points of these costs and risks that can be quantified. Now the difficulty is that it’s easy to look at the FOB price now in the US is ten and drop from training it’s eight that did really easy that whereas the total cost of ownership requires some assumptions.

It requires some judgment requires to gather, bring data from various places in the company or in the ERP system and bring them together to put them into our TCO estimator or into their own if they’ve developed one of their own. So it’s somewhat more work, but it produces a better decision and is good for society. It’s good for the community in which the company is based.

Sam Gupta 10:22

Great. So if you look at it from the CFOs perspective or from the business perspective, we have to make a conscious decision in terms of business profitability, right. So if we compare the FOB price versus the landed cost, and you did mention that he or he can probably hope in determining the landed cost.

And the reason why businesses might not be computing the landed cost at this point in time is that the model could be too complex. But at the same time, when you look at maintaining the ERP system or maintaining the IT system to be able to compute that, then you are going to require more manpower, you are probably going to require system, and so there is going to be some cost associated with that tool. So do you account for that when you are calculating your TCO?

Harry Moser 11:18

I understand that I think the cost you’re talking about is minimal to do the typical TCO calculation using our system. Our online system might take an hour the first time and maybe half an hour the second time. Yeah. So if we’re talking about a product that’s $100,000 worth of purchase price per year or a million dollars worth, and that’s insignificant, I’d say not worth calculating.

But it would suggest that and in the same sense, if you’re only buying $200 worth of some custom made product from China, then you’re crazy to have done that in the first place, the sooner you can find a local source that could have made it for you. So I think that’s a de minimis factor. But we’re thinking about what some companies have done. There’s one that we helped in Vermont called Hubbardton. They took our TCO estimator that has 29 cost factors in it.

Harry Moser 12:15

And they were only buying one category apart. The aluminum dies castings from China or from the US. And so they took our 29-factor model and said, of those 24 of them are always constant, the value of manufacturing and engineering being close to each other, the risk of stocking out, all these things, all of a sudden, is okay.

That’s all that is worth 7%. And then they said, here are the other factors that are important variables, the weight of the product, obviously, the price, the quantity, a few other things like that, and four or five things, and therefore they simplified the model. So that on that whole range of products, all of which had the 25 cost factors cost and risk factors are essentially identical. They made it, so they only had to calculate the four or five. So to further reduce the cost of the calculation, they simplified the model.

Sam Gupta 13:11

So you talk a lot about the TCO computation for ERP initiatives as well, and any of the ERP initiatives are going to be similar. Whether you are talking about planning for the parts or doing the ERP initiative, it’s the procurement initiative that you have for the company. So tell us what is involved in doing the TCO computation for the ERP initiative?

Harry Moser 13:36

Again, the TCO calculation is only for manufactured products. So it’s these are ours as we’ve designed it is only for comparing two different sources of a component or product a physical thing, and the data that goes into the TCO estimator comes either from bunches of people’s pieces of paper and spreadsheets or where possible it comes out of the ERP system.

Sam Gupta 14:03

Okay, so tell us some more stories about where you have had the cases of profitability because of either reshoring or offshoring initiatives. So do you have any other stories that you might be able to share?

Harry Moser 14:18

So I’ve got a friend who runs a die casting shop in a contract manufacturer in Illinois. Yeah, in his one of his good customers had been buying housing from China, and the customer had a problem with the quality of the housing and the customers’ customer force, yet either customer to find a US source to overcome the quality problem.

And when they did that, they audited the results. And they found that they had cut their inventory of the component. So the because they, when they were getting it from China, they would get, let’s say, a container full of the product once every quarter baby or because the Chinese foundry insisted on container shipments, and so they get huge quantities coming in.

Harry Moser 15:20

And they would never know when the container was going to arrive or for sure what the quality was or what demand would be over the months in between. And so when they went to having local sourcing shipped just in time as they needed it, inventory was down by 94%.

That’s something any CFO can relate to another company that happens to be in Illinois is an EMS company. They make printed circuit boards and assemblies from those circuit boards. And they came to me that they wanted to use TCO as a sales tool instead of a sourcing decision tool.

So they had a US customer that was about to leave them and buy from a Chinese competitor, the Chinese company offered a lower price. And so the VP of Sales, with my help, did the TCO calculation and showed his customer that even though his price was higher, his total cost was lower. And he credits that with being the key to winning a $60 million order by helping the customer understand all the factors that would hinge on sourcing domestically or offshore.

Sam Gupta 16:31

Interesting story. So tell us a little bit more about, let’s say, if somebody is working with vendors in China versus working in the US, what is involved in the process? What are some of the cost factors that they need to be aware of? So let’s say if I have the manufacturing CFO or the CEO, and they are trying for the new procurement that they have not done before, they are trying to offshore some of the things for the first time. So what is going to be involved in sourcing from China?

Harry Moser 17:08

That’s generally not the direction I go. I go the Richard way. I haven’t studied the offshoring process as much as the reshoring process, where someone’s going to offshore to China, for example, they want to think about one thing they should certainly think about is, is their contract with that company.

So lots of cases where someone is having a product made in China, and there’s an injection mold or a die casting involved in the process. And then, the company eventually decides for whatever reason to reshore or bring the work back to the US or to some other country.

And they’ve been unable to obtain the tool because their contract with the Chinese manufacturer did not specify that they had the right eventually to recover, recover the tool, even though they had paid for it. So there’s the legal system that works differently, the ability to be flexible that way is different in China than it is here.

Harry Moser 18:06

So the companies have to be very much aware of those considerations. Yeah, there are obvious advantages to China. I mentioned China because about 40% of the reshoring has come from China. Then you know, there are stories about the Chinese, working all night long and seven days a week and how they went to Foxconn, which makes most of the products for Apple, they finally got the final design the final component or whatever they were waiting for.

They go to the dormitory, and they wake up 100,000 people hand him a bowl of rice and a cup of tea, and then they work for 12 hours on the assembly line at midnight. And in America or Canada, that’s not going to happen if you told people to get up at midnight on Saturday and come in and start working, they quit. They go to work for somebody else. So there are two, the Chinese are very hardworking, you’re very disciplined.

So there are reasons for companies to go to trial. And China has the best supply chain of components, especially for electronic products and some textiles and a bunch of things where you can get in China, and you’re almost cannot get it anywhere else. And if you’re going to assemble a product from all those things, China makes a lot of sense. But that all of those benefits should be reflected in the FOB price. And then what we do is help the companies calculate everything other than the FOB price.

Sam Gupta 19:31

Okay, so let’s talk about comparing China versus Canada or Mexico. Would you consider Mexico as reshoring as well? Or, in your opinion, reshoring is going to be either the US or Canada or only the US. So talk about some of the differences between sourcing from China versus Canada versus Mexico or locally in the US.

Harry Moser 19:53

Yeah, so the definition of reshoring is to produce the product once again or again. Now in the country in which the product will primarily be sold, so if it’s you have is a US company reshoring is only producing it again in the US. If it’s a Canadian company, then in Canada. If it’s a Mexican company, reshoring means to produce it again in Mexico. And if it’s a US company, or Canadian company, that have offshored the product, they’re buying castings, machine parts, wire harnesses, something from China, India somewhere else, and they choose to bring that and have it produced in Mexico, then we would call that nearshoring. So it’s being produced at nearshore rather than at the home shore, the reshore, so to speak, and there’s certainly been a good trend of work to Mexico.

Harry Moser 20:46

Why is it that the Mexican wage rate today is lower than the Chinese wage rate? And the Mexicans are hardworking people. And they have pretty good technology, but they also have the advantage of US and Canadian technology not too far away. The brand for the US company that is sourcing the product. Mexico, Monterrey, for example, is if you have a company in Massachusetts, Monterrey is probably just about as close as California.

So the distances, the time zones, etc. The language is quite good. The risk is the violence, some of these problems that are still, unfortunately, too common. In Mexico, if it weren’t for that, I think there’d be more work in Mexico. But our view is that companies should try to bring work home to their home country, wherever their companies are located when they can if the economics favors.

And in North America, if it does not favor that, if you cannot automate enough to get the work into Canada or the US, then Mexico is a great choice. And specifically, for example, from the US perspective. If a product is coming out of Mexico has about 40% of our content, one coming out of Canada has about 15% of our content, and one coming from China has 5% of our content, so if you can get it to Canada or Mexico is far better off than leaving it in China from a national perspective.

Sam Gupta 22:18

Okay, interesting. So let’s talk about some of the manufacturing verticals do you recommend? Or do you find reshoring to be valuable across every manufacturing vertical? Or are there specific manufacturing verticals where reshoring is going to be slightly more beneficial?

So some of these examples of the manufacturing verticals are going to be, let’s say if you talk about the contract manufacturing, or the electrical or electronics manufacturing what it says the industrial automation, so, or food and beverage? Do you recommend really showing for any of those verticals? Or there are verticals where we should it would not make sense?

Harry Moser 22:57

I’ll tell you where the most reshoring has happened yet. And that is in transportation equipment, as has been a huge percentage, maybe 30% of the total. So automotive, truck, airplane, things like that. Yeah. So transportation equipment, both at the OEM level and at the supplier level.

Second is electronics and electronic assemblies of some kind, I think, third is appliances, and then machinery. And not too far down the list is textile and apparel. The US is 97% dependent on imports of apparel and footwear. And that seems seen as a trend back partially driven by automation, that’s making it a little more competitive to produce those things in the US. The average consumer appears to be favoring domestic consumption because of the benefits of the environment and sustainability, and things like that.

Sam Gupta 24:03

Okay, and let’s touch on the same question from the parts perspective or the component that we are sourcing either locally or from offshore. So let’s say if you were to decide between different parts that you are sourcing, would you recommend any specific parts to be resold versus the other parts that the manufacturing company may be using?

Harry Moser 24:22

Most of what’s actually come back has been outsourcing, so purchase from other companies from either contract manufacturers like machine shops or foundries or from sub-assembly producers like motors and pumps and things like that, perhaps brand new product. And so we see a lot of both the contract manufacturer and the product, we see strength, especially in where the product can be automated.

So if the production lends itself to automation, preferably at a higher level than what’s been achieved in China or India, then it’s possible to overcome a portion of the wage differential. So if you can get the labor cost, total labor costs direct, indirect sigma labor, get that whole thing and get that whole thing down to in the US two to 20% or 30%, or something like that, then the wage differential is isn’t going to make it impossible to bring the product back paralyzed, I’m surprised, but it’s done pretty well. We see quite a bit of machine parts, some foundry, some wire harness, a fair amount of furniture, woodworking, things like that coming back.

Sam Gupta 25:33

okay, and what is your perspective on some of these geopolitical risks, especially in the last four years? As you know, things have been pretty shaky, right? Anytime there’s going to be a change from the geopolitical perspective, that is going to change the duty. And because of that, your cost is either going to go up, or it’s going to come down.

So that actually makes everything very uncertain in computing. So what will be your recommendation to hedge some of these geopolitical risks? And obviously, if you have the nearshoring, or the reshoring, in that case, your risk is going to be reduced, but the geopolitical risk may have an implication on your domestic parts as well because they are going up and down because of these geopolitical issues. So what is your perspective on that?

Harry Moser 26:24

Certainly, during the Trump years, things were going up and down. They were chaotic, not as well planned, as I would have liked. We perceived him as having the right objective; he wanted to balance a trade deficit, bring back millions of manufacturing jobs.

So we agreed with his objectives, but not his methods. So we disagreed with tariffs on steel and aluminum, with allies. But we were overall supportive of most of what he did with China. But now we’ve got President Biden, and I’ve just written an article that did a report on like a report card on President Trump’s performance.

And he did some things well, and some things poorly. Overall, he did not achieve the objective. He did not reduce the trade deficit. And that was, that’s what he should have been his main objective. I critique President Biden’s plans. In some cases, he has the right ideas; he wants to bring back 5 million manufacturing jobs just like we do exactly the same number.

Harry Moser 27:24

He recognizes that no skilled workforce can be an important part of it. He’s pushing for apprenticeship programs and things like that. But he does not understand the underlying problem because the underlying problem is that he does not appear to at least. The underlying problem is that the US manufacturing cost is about 20%, higher than Europe and about 40% higher than China.

The best way to overcome that is to get the dollar US dollar down by about 20%. And so far, treasury secretary Yellen has said that they’re for a strong dollar, and they’re not going to do anything to make us competitive that way. And that’s the single best way to do it, the fastest way to do it. The other ways to do it are immensely better-skilled workforce to have an apprentice program like Germany’s which goes against the US tradition of everybody going on to university and studying, liberal arts things, whether there’s a job for them or not when they get done, so we recommend a lower dollar huge shift of resources from liberal arts university to engineering and technical apprentice programs, probably having a value-added tax, as most countries do.

And we have a series of other programs like that, that we’d recommend getting the US medical costs we spend down we spend about 17% of GDP on Germany spends 10, or 12. If we could give just as good results, that we get it down to the German level benefit cost in us to the manufacturer would come down. And US manufacturing costs would drop by 5% just because of that, which would bring about 400,000 manufacturing jobs back to the US.

Sam Gupta 29:05

Okay, so let’s talk about some of the resources that manufacturing executives can utilize if they are exploring resourcing initiatives. Do you have any resources that you would like to recommend them?

Harry Moser 29:16

Sure. Well, of course, the first one I’ve mentioned a couple of times is the TCO estimator to help them make a more objective decision. When they’re sourcing or citing a plant, then it’s free online at www.reshorenow.org. TCO estimator is

It’s free to use. It’s also, as I mentioned, usable for the sales team to take advantage of the customer to make a smarter, more objective decision. That’s the first free tool. Then we have paid services, the most obvious of which is the import substitution program. So a company, US or Canada, can identify a product they’re really good at making a certain kind of shaft Or casting or a wire harness or chemical or something that they’re one of the best in North America and making.

And we can tell them who the biggest importers are of those products, what tonnage they’re bringing in, whom they’re buying them from offshore, and roughly what they’re paying for that product. And then we train the company to use the TC estimator to go to those importers and convince some 10-20%, maybe convince some of them to source from our client company, instead of continuing to source from offshore plus the import substitution program, again, identified under resources on our website.

Sam Gupta 30:43

Okay, amazing. So that’s it for today. Harry, do you have any last-minute closing thoughts, by any chance?

Harry Moser 30:47

We work in the US directly with companies, and we work through MEPs manufacturing Ascension partnerships, which is one in every state connected to the state and to the US Commerce Department. We work through economic developers, all those things in the US and Canada. We’ve done some consulting work with invest Quebec, and we have had discussions with Ontario and some of the other provinces. So then, we’re delighted to hear from our companies or Canadian or Mexican companies and do our best to help all of them bring as much as possible back to North America.

Sam Gupta 31:27

Right. Amazing. Thank you so much for your thoughts. Really appreciate your time. This has been an insightful discussion. Thank you, Sam.

Sam Gupta 31:34

I cannot thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learn something new today. If you want to learn more about me or reshoring initiatives, head over to reshorenow.org. Links and more information will also be available in the show notes.

If anything in this podcast resonated with you and your business, you might want to check out the related episodes, including the interview with Max Krug, who discusses what actions businesses need to take if they encounter product quality or business performance issues. Also, the interview with Ian Pratt, who discusses how to distinguish between the need for additional resources and operational bottlenecks that need to be optimized before investing further.

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I hope to catch you on the next episode.

Outro 32:37

Thank you for listening to another episode of The WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. And for more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guests Sarah Scudder from Real Sourcing Network and Roger Buck from Corporate Development Associates. They discuss some exciting trends in the print industry to create a compelling customer experience. They also discuss how print innovation could help manufacturers increase their sales. Finally, we discussed some interesting use cases of print and how they have helped manufacturers increase profits.

Chapter Markers

• [0:36] Intro
• [3:43] Personal journey and current focus
• [12:29] Perspective on growth
• [14:56] How manufacturers can increase their sales using print innovation
• [26:52] How print innovation and packaging strategies can help increase profit
• [29:19] Customer experience use cases through print innovation
• [31:01] Closing thoughts
• [32:37] Outro

Key Takeaways

• The packaging is essential to brand building and brand awareness. And so it’s really important for manufacturers to spend time and resources designing packaging that is not only functional but it’s going to protect the product, so the customer doesn’t get something damaged.
• Gone are the days now where companies are spending significant amounts of money just sending out bulk generic direct mail, maybe still if you’re a pizza company and sending out large amounts of coupons. But in general, especially for higher ticket items, customization, which has been able to be really accelerated because digital printing is really important in helping manufacturers close more deals and obtain new customers.
• The post office has a really cool little process called EDDM, which stands for Every Door Direct Mail and allows companies who have a very small geo area to do very inexpensive mailings to a pocket of people just in their immediate zip code areas. And that can save the company a lot of money at the end of the day because you’re mailing to people who are never going to drive to that location.
• Every business is different. Every channel is different. Every customer is different. You have to understand your customer base. You have to understand what version of content, text images is going to impact that recipient. But if you do your homework on that and get with the right print vendor or print supplier, it works.

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About Roger and Sarah

Roger Buck is a 50-year veteran of the print industry and Managing Director at Corporate Development Associates, a merger and acquisition advisory firm specializing in the print space. He is a past recipient of the PSDA Manufacturer of the Year, PSDA Member of the Year award, and serves as the chairman for the Print Education and Research Foundation (PERF), a non-profit foundation supporting education in print industry. His background includes print production processes, sales management, marketing, and new product development. Roger resides in St. Louis, Missouri with his wife Deborah who is a 35-year veteran in the print industry. 

Sarah Scudder is President of RSN. Sarah is honored to win awards, but she is not defined by them. She loves helping procurement professionals transform the way they buy print and marketing services. She speaks at industry events, serves on panels, hosts webinars, and writes articles for Sourcing Industry Group (SIG) and Procurement Foundry. Sarah created ProcuRising, a magazine that uncovers the unique stories of doers in our sourcing community. Sarah created ProcuremenTalks, a monthly series that features procurement leaders.

Resources

• Connect with Roger
  • LinkedIn | Website
• Connect with Sarah
  • LinkedIn | Website

Full Transcript

Sarah Scudder 0:00  

There’s this misconception that print is dead. Nobody prints anymore. It’s not worth spending any time or resources on print. That is not the case. And when you look at the data and the hard facts, the print was actually a growing industry in 2018. The spend was about $820.4 billion in the global printing market in 2019. So just a year later, it increased to $826.5 billion.

Intro 0:36  

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 1:12  

Hey everyone, welcome back to another episode of The WBS podcast. I’m Sam Gupta, your host, and principal consultant at a digital transformation consulting firm, ElevatIQ. 

When you think of print marketing, what comes to your mind, perhaps flyers or coupons with print marketing, but it is much more than that. There have been some exciting trends lately with print marketing, where the printed packaging includes QR codes that can take you to a web page to improve customer experience. The print industry is way cooler than you would think. 

In today’s episode, we have our guests, Sarah Scudder from real sourcing network, and Roger Buck from Corporate Development Associates. They discuss some exciting trends in the print industry to create a compelling customer experience. They also discuss how print innovation could help manufacturers increase their sales. Finally, we discuss some interesting use cases of print and how they have helped manufacturers increase profits. Let me introduce Roger and Sarah to you.

Sam Gupta 2:13  

Roger Buck is a 50 year veteran of the print industry and managing director at Corporate Development Associates, a merger and acquisition advisory firm specializing in the bridge space. He is a past recipient of the PSDA manufacturer of the year, PSDA member of the Year award, and serves as the chairman for the print Education and Research Foundation, a nonprofit foundation supporting education in the print industry. His background includes pre-production processes, sales, management, marketing, and new product development. Roger resides in St. Louis, Missouri, with his wife Deborah, who is a 35 year veteran in the print industry. 

Sarah Scudder is the president of RSN. Sarah is honored to win awards, but she’s not defined by them. She loves helping procurement professionals transform the way they buy print and marketing services. She speaks at industry events, serves on panels, hosts webinars, and writes articles for sourcing industry growth and procurement foundry. Sarah created ProcuRising, a magazine that uncovers the unique stories of doers in our sourcing community. Sarah created procurement talks, a monthly series that features procurement leaders. With that, let’s get to the conversation. Hey, welcome to the show, Sarah and Roger.

Sarah Scudder 3:38  

Hi, Sam. Hi, Roger. It’s a pleasure to be here. 

Sam Gupta 3:43  

So this is the first time I am adding two people to my show. And on audio, it’s going to be slightly different. So what we are going to do is we are going to take one turn each time. So I’m actually gonna start with you, Sarah. And can you start with your personal story and your current focus these days?

Sarah Scudder 4:03  

Absolutely. So I was planning to pursue a career in fashion. I love clothing. And I used to do runway modeling. So I went to school and Sonoma County, so Bay Area, and I was planning to go work at an agency that produces fashion shows, and I wanted to actually eventually have my own company producing fashion shows. 

And my senior year, I had finished my presidency at my sorority, and I decided that I was going to do my last hurrah, my big effort, and my sorority and I co-chaired our major fundraising event called LipJam, where we raised a significant amount of money for diabetes research. And I had a full course load was super involved in just about everything you could be on campus. And in order to produce the event, we needed to procure lots of printed materials.

Sarah Scudder 4:58  

So all of the paperwork printed, all of the promo, all of the apparel, and I had no idea how to source or buy things yet. So I was introduced through a friend on campus to a local company that was a managed print company, meaning they would go out and source print items. 

So I contacted them, really hit it off, and hired them to source and procure and manage all the printed products that we needed for our event. Well, after the event was over, they offered me a job. And I’m thinking in my head, why in the world would I want to go into print? 

I don’t even know what the print is. Let alone I have absolutely no idea what procurement or what sourcing is. And I had, I said that sounds so uncool, I want to go into fashion. But I also know that it’s important to take every opportunity as a learning experience.

Sarah Scudder 5:56  

So I went in, and I met with the team. And I actually realized that it would be an incredible opportunity for me to come into a very, very male-dominated industry, an industry that I felt was really behind the times and technology. And that didn’t really have any young people. So I decided, you know what, I’m going to go for it. And so I took the job. So three days after I graduated, I started at this local company, and I was on the marketing team. 

So I helped kind of position the company and built the brand. And we were acquired a few years later by a much larger organization. And through the transition, I actually shifted and shifted into doing marketing procurement, which is where I would help global companies set up and execute very strategic print sourcing programs. So in both of my roles, like sales and marketing, and then doing marketing, procurement, I thought this is really, really manual. 

There is a lot of email and spreadsheets and back and forth. And there’s got to be a better way to manage this. So two and a half years ago, I decided to take the entrepreneur leap and run a tech startup in the print space. And we have a very, very niche and innovative software that helps companies better by all things print.

Sam Gupta 7:26  

Okay, so now we are going to start with Roger, and I want you to touch obviously on your personal story and current focus. But moreover, I want you to touch on whether you feel print is cool or not because there are definitely things that print a score. 

And the other thing that I wanted to touch on is about the male dominating aspect. Do you agree with her? Do you not agree with her? So can you start with your personal story and current focus? And on those two questions?

Roger Buck 7:54  

Certainly can start, thank you. And I can agree with everything she said. But my personal story, which was really easy that back in the late 60s I got into printing, my dad worked in a print shop. So I started working in the print shop, but I really wanted to be a rock guitarist. So the print shop was a way to make money to buy all my hardware and guitars and amplifiers. 

After a few years, I found out I was a lousy rock guitarist, but I became a pretty good printer. And that kind of started my career. In fact, I’ve got a picture of myself when I was five years old standing in front of the crate that held a Heidelberg windmill letterpress, and ten years later, I was running the press that came in that box, so that that’s how my career got started. 

Roger Buck 8:42  

I’ve been in manufacturing. I’ve been in sales and marketing management for printing companies for over 50 years now. So when she references there are no young people in the industry. She’s talking about me. Yeah. So I gotta tell you, but no, she’s absolutely right. It’s always been male-dominated, mainly because it was heavily manufacturing-oriented. 

But it is changing. There are more females and young ladies getting into it. There are more people coming up through the marketing area. And the procurement area like Serra’s operation is in print is cool. It’s never lost that I joke with printers all the time because the only time I ever hear the word print is dead is coming from a printer trying to debate the subject. 

I’m not sure whoever made a comment, to begin with. It’s not dead. It’s very cool. It’s got a lot of growth potential and a lot of different areas. And I’m 67 years old. I’m not quitting. I’m still having a lot of fun with it.

Sam Gupta 9:36  

Okay, so I want to touch on one of the things that you mentioned, which is going to be you being young, right? But what do you feel when you see other young people coming to your industry? Do you feel excited? Do you not feel excited? Do you feel that you and Sarah are of the same age right now? What’s your perspective? I mean, young people, when they are coming to your industry, you are probably going to have some feelings, Roger, so tell me, What do you feel about that?

Roger Buck 10:01  

Oh no, I’m excited whenever we see young people come in. As a matter of fact, I sit on the advisory board of a graphic and technology department at a college back in Kansas. I get excited when I see young new talent coming into this part of the industry. They’re excited. They’ve got new ideas. They challenge old, old guys like us. It’s fun. I just don’t want to compete with them. They wear me out.

Sam Gupta 10:23  

Okay, so Sarah Rodgers is changing his story. Initially, he said that he was super young. But now he’s saying he’s old. So what do you feel? Is he young? Or is he old?

Sarah Scudder 10:32  

Oh, Roger is one of my favorite people in the printing industry. I met him very early on in my career. And he’s just been a tremendous resource and mentor to me. So I’m a millennial. I’m old enough to be his daughter. And 

I think it’s actually a really cool meshing of age difference and experience differences because I’m really focused on the technology procurement sourcing side, and Roger and people of his generation have so much industry knowledge about manufacturing and production and how things work. So I think there’s an incredible blend to take the new millennial tech-focused up and comers in the industry and pair them with people who have decades of experience.

###Sam Gupta 11:22  

Okay, amazing. So let’s talk about growth. Right? This is the question that we ask every single guest, and we are going to be talking about this question in turn. So I’m actually gonna start with you, Roger. So what is your perspective on growth?

Roger Buck 11:37  

Okay, business growth is tons of opportunity. It depends, of course, on the manufacturer or the company and how they approach their business growth because you can do it through marketing. And you can say certainly there’s, there are tons of opportunities for using print innovation and marketing for print and kernel to just improve operational flow and improve the profitability of the company. 

So there are lots of opportunities to infuse print innovation into operations to improve your company and prove that growth. The challenge is getting the right marketing processes and the right internal processes, the right communication processes because that’s what you’re talking about is print as a communication tool. 

It’s a matter of getting those processes in place and alive. So there they’re ongoing, and they’re self-surviving year after year. Too many companies fail in that area because it’s a one-shot wonder it fails, and they never do it again. 

Sam Gupta 12:29  

Okay, so Sarah, now, I’m going to turn back to you. Do you agree with Roger, his definition of growth? What is your perspective on growth? And how do you define business growth?

Sarah Scudder 12:39  

Yeah, so I’m gonna take a little different perspective and talk about growth in general in the print industry, and then I’m going to relate it specifically back to the manufacturing space. So as Roger mentioned earlier, there’s this misconception that print is dead. Nobody prints anymore. It’s not worth spending any time or resources on print. 

And that is actually not the case. And when you look at the data and the hard facts, print is actually a growing industry. In 2018, the global printing market spend was about $820.4 billion in 2019. So just a year later, it increased to $826.5 billion. In the US, the print market is growing as well. In 2018, it was about 199 point 4 billion in 2019. It was about 199 point 6 billion. 

So organizations are spending more and more on print, within that the biggest print industry growth categories this year are packaging, labels, and direct mail. And the reason for that is companies consumers have shifted a lot of their purchasing habits to buy things online.

Sarah Scudder 14:00  

So I know for me, I love fashion, I don’t now go to brick and mortars. I’ve been on lockdown in California for a few months when I need something and then order it online, whether that’s food, whether that’s ordering from a clothing manufacturer, so with the rise of online ordering, companies need to get their products to the end customer or to the distributor or to the end-user that is causing a significant increase in packaging and labels. 

And the third that I mentioned is direct mail. And the reason for that is so many people are now working from home. They’re not going into offices at all, or they’re going into offices a lot less than I think we’re going to continue to see a hybrid mix of people working from home and not so in order for a manufacturer to get in front of an end customer. They’re now sending things to their homes where they didn’t use to do that as much.

Sam Gupta 14:56  

Okay, so I have learned about the print industry so much, Sarah, since I came in contact with you,. And the print industry is fascinating, obviously. And one of the things that I learned because of your introduction with Mark, and he does packaging, right, so one of the fascinating conversations that I had with Mark is just because of the changing in packaging. 

You can launch a new product, a completely new brand new product. I’m sure manufacturers can do this as well, especially the manufacturers in the CPG community. So let’s say if they were trying to increase their sales primarily using print, oh, can they do it? Can you tell me about it?

Sarah Scudder 15:41  

Yeah, so I’ll touch on the packaging first. And then there are some other really cool things that kind of tie into packaging as well. So the packaging is essential to brand building and brand awareness. And so it’s really important for manufacturers to spend time and resources designing packaging that is not only functional but’s going to protect the product, so the customer doesn’t get something damaged. 

And then the manufacturer has to re-send out a product, which of course is eating away all their profit but also having that experience. So when the customer receives it, they’re going to remember that company based on that packaging and the experience of opening the product. So I’ll use an example that’s, that’s close to me. So there’s a shoe manufacturer called Freebird. And they make really stylish but comfortable shoes. And those two things don’t always go hand in hand. Yeah, and this is a higher price point. Their shoes range from two to $500, on average.

Sarah Scudder 16:48  

And when you order a product from them, you’re going to get a really amazing experience when you open their package because they do such a good job with packaging with branding their packaging. So when you get the box, every part of the box is branded, it has its logo, it has the website, it has a cool message, then when you take the shoes out of the box, the shoe box is also branded. 

So it’s all part of that experience of this luxury higher-end item. Then when you open the box, there are additional print items as well. So I think it’s really important for companies. Ted Baker is another example. I recently got something from Ted Baker, and the packaging is bright orange, and it looks like an envelope. But it’s a box. So it’s really unique and stands out. 

So I think manufacturers can really increase sales by focusing on the design and coolness factor and messaging that they use to communicate on the packaging. The second thing, and I’ll let Roger chime in about QR codes. So another really important innovation that manufacturers can use is something called a QR code. And it looks like a square with a bunch of boxes. 

Sarah Scudder 18:00  

And when you put your phone over it, you put your camera on top of it. What it does is take the customer to a website or to another site. And I recently ordered something from a company called a manufacturer called the YZR., And they are making these spacesuits for COVID protection, they go from the waist up, and they allow you to wear the suit outside and traveling and protect yourself from COVID. 

So when I got my product from them, there were several QR codes. Some of them were on the packaging, but some of them were also on the tags. And when you screen the QR code on your phone, it takes you to a video that shows me, as the customer, how to actually put the product on and how to use the item. 

So QR codes are another great way that manufacturers can use print innovation as a part of the packaging and other printed items to provide additional information and provide value to the customers.

Sam Gupta 19:22  

Okay, so Roger, we are going to start with you now. Number one thing that we need to assess here is whether you agree or disagree with anything that Sarah said. And number two, obviously, you have been around the block for a very long time. So what is your perspective on the strategies that manufacturers can use in increasing their sales using print innovation?

Roger Buck 19:42  

She’s spot on when you’re talking about engagement. Whether you’re using packaging or direct mail starts with visual someone receives a printed something, so you got visual that generally leads them to a digital experience either go online, look up something, check their order, and then you get a personal experience beyond that they’re either touching the product or getting it, or they’re calling in to order something, and they’re visiting with a salesperson of some sort. 

So there are different levels of engagement that print drives. But a good example of like the packaging she was talking about, I always like to go back to the iPhone, if you get a new iPhone, when you pull the box open, Apple spent a lot of money developing that box because they wanted a certain amount of pull. And when you open that box, you get this little wind sound like little, and it adds to that experience. And they spent a lot of money designing because that’s what they wanted.

Roger Buck 20:36  

And that creates that cusp of that first customer experience even before they started using the phone. And that’s what we’re talking about with print and how you can increase sales, is; you have to think what that engagement what that first customer experience is going to be like, and how you can manage that. 

Now she mentioned QR codes. I tell everybody it was a toe in the water. Because what QR codes taught people is they could take their phone, and they could scan something. And now you’re seeing augmented reality come around, which is QR codes on steroids. Instead of using a Data Matrix code, a barcode that you can, and you get driven to a website. 

Now you put your phone over an augmented reality image, and there’s a marker in that image, and you get a video engagement while you’re looking at the page on your phone. So it’s that engagement can be lifted, but you’re going from a printed engagement now to a virtual digital engagement. And that starts when you start reaching those levels. That’s when you start grabbing customers, you get their attention, and they start buying more.

Sarah Scudder 21:39  

And Roger, to piggyback on that, you mentioned augmented reality, or some people know it as AR. And I think there are two industries in the manufacturing space that have really started using this one is wine and beverage. 

And the second is clothing and apparel. So there are when you go to a grocery store, and you look at wine bottles, some of them now allow you to scan the label. So you’re going to put your phone on the label, and it’s going through to a QR code, it’s going to take you to a video, and that video can have a message that really helps close the customer or talk about the brand. 

So for instance, if I was running a food manufacturing company, and it was a family business, it’s been around for 100 years, I might want a message from our CEO, communicating and talking about our company story, and some of the unique things about our food products. If I’m a wine company, and I’ve got a cool wine collection, I might have different characters on the wine bottles, and I’ll have the characters speaking in their voice and in and communicating a story or message. 

So I think augmented reality is really, really key and combining print with digital to increase sales. And Roger, one of the other things that I know that you and I have talked about before is lenticular printing. And that is where you combined several images into a single print. So when you look at a product, it has an image, but when you change your angle or move the product, the image changes with it. And that’s a really cool way to engage customers and really stand out amongst all your competitors. 

Sam Gupta 23:28  

Do you wanna piggyback anything? Roger?

Roger Buck 23:31  

Yeah, yeah. ticular is cool. It’s been around, actually, since the 40s. But they’ve improved the technology so much now that it’s gotten much more cost-effective and usable. In fact, you used to see it on cereal boxes. And the reason it was so effective is when people would walk down the aisle past a cereal box. When they went from the left side of the box to the right side of the box, the image on the box changed. 

So you see something subliminally out of the corner of your eye, or your peripheral vision picks up, hey, something moved. And when you walk backward, it goes back to the other way. Because it’s a flip effect, it goes from one image to another. If you’re old enough and neither a wonder, you probably are. 

But when you used to get prizes and a crackerjack box, that lots of times that were a lenticular image it was a little helicopter or something that the image would flip back and forth. So yeah, that’s it’s another very cool technology, and it drives engagement, and it drives people to you want to.

Roger Buck 24:29  

I want to pick that up, and I want to take that home. I want to buy that. You can also, besides good manufacturing you let’s talk to your auto manufacturers or get your manufacturer to make hard equipment. They can use QR codes or AR tags on equipment. A user you know someone at a plant with this piece of equipment can scan that and show how to repair something, you rather than having to go search out a repair manual and figure out what part you’re looking at. 

They can move their iPhone over a part that part can actually be the AR-tag, and it can run a video to show them how to repair that part. They’re doing that with vehicles right now. Yeah.

Sarah Scudder 25:06  

And let Roger. To piggyback on that, I think let’s talk a little bit about targeted direct mail because I think that is so important for manufacturers. So I’m looking at actually some direct mail that my boyfriend received this week. And it’s important because of two things. It’s customized specifically for him. So it’s from Toyota, they know that he has a Toyota Camry. 

So the entire piece is targeted at Paul because they have insights and information about him and what he likes. And they know what he’s purchased in the past. So instead of sending a generic postcard in the mail, they’re sending him something very targeted and specific with his name with a photo of a vehicle that he may want to purchase based on his purchase history. 

The other thing is, this direct mail piece actually has a QR code, so I can actually hold my iPhone, then it takes me to a website to offer me a promotion, and also gives a unique coupon code promotion, which is printed on the piece, and it specifically has his first and last name. So I think Gone are the days now where companies are spending significant amounts of money just sending out bulk generic direct mail, maybe still if you’re a pizza company and sending out large amounts of coupons. But in general, especially for higher ticket items, customization, which has been able to be really accelerated because digital printing is really important in helping manufacturers close more deals and obtain new customers.

Sam Gupta 26:52  

Okay, so my audience here is going to be CFOs. And CEOs get very excited to hear about the sales aspect, but what they really care for is the bottom line. So the next segment that we are going to have is going to be related to profit. So, Sarah, I’m going to start with you. So obviously, I am very excited to hear what print innovation can do to increase sales. But what can it do to increase the profit?

Sarah Scudder 27:16  

Yeah, and Sam, I think it’s. A lot of times, companies think print is just kind of a wasted expense. And it’s only something that’s used for marketing, but especially in the manufacturing space, print is an incredible resource and can actually be used to significantly increase profits. 

So a couple of examples that I have to share about this. The first one is about inventory control and reducing inventory obsolescence. So if you are producing large amounts of product and storing it in a warehouse or fulfillment center, one of the challenges that you have is having to destroy and pay for a product that you actually never used. 

And that can be a high cost to organizations through the use of bar-coded labels and labels incorporating something called RFID tags. You can actually bet much better manage your inventory and reduce obsolescence. The other thing that you can do is barcodes can be used in production to manage and improve workflow. Improved workflow can have a very, very positive impact on the bottom line.

Sarah Scudder 28:32  

And then in regards to manufacturers that are producing products that may be expired, or that can go bad. I know, for instance, I like hummus. Well, the hummus in my fridge has a shelf life. And at some point, that product is going to expire. But it also needs to be kept at a certain temperature before I buy the product to make sure that when it gets to my fridge, that it’s not going to be bad, it’s not going to be moldy. So you can actually use printed labels to help track the temperature on products or other factors as well other than temperature to realize what the product may have been exposed to. 

Sam Gupta 29:19  

Okay, so, Roger, we are going to start with the same question with you as well. Obviously, you are going to have very different perspectives just because you have been around the block for a very long time. 

So tell us Do you agree with Sarah, do you not agree with Sarah? And what are other use cases that you have seen in increasing the profit for manufacturers using print innovation?

Roger Buck 29:37  

I really like the way you keep reminding me I’ve been around a very long time. No, I’m in total agreement, but there’s a couple of other areas, and you mentioned that you know some of the listeners are going to be chief financial officers, and you really want to look to save your money. 

And I’m going to go back real quick to an analogy that Sarah referenced for pizza companies when you’re a pizza company. You probably are marketing to people within specific geospace. Because once you get five miles from your pizza location, there’s going to be another pizza location. 

So your target area is very secluded. It’s very geo-based within an area. And a lot of companies spend a lot of money doing big mass mailers and everything, and they mail to people who are never going to come because your mailing too far away.

Roger Buck 30:24  

And the post office has a really cool little process called EDDM, which stands for Every Door Direct Mail and allows companies who have a very small geo area to do very inexpensive mailings to a pocket of people just in their immediate zip code areas. And that can save the company a lot of money at the end of the day because you’re mailing to people who are never going to drive to that location. 

On the flip side of that, if you’re a company and you’re selling Maserati, there are very few people that are probably going to go buy a Maserati, it’s not going to be geo-based, but you’re going to have to get the attention of someone who can afford a Maserati. And you can send video postcards or video brochures where when the recipient gets it. 

They open it up, there’s a screen there the size of an iPad, it’s a high D screen, it automatically plays a video talking about the aspects of a Maserati or a Lamborghini, or whatever the vehicle might be, well, that’s highly, highly engaging, but you’re targeting that very, might only send out 50 or 100 of these on a regular basis, because you’re targeting very, very specific people who will appreciate the vehicle and more importantly, can afford the vehicle.

Roger Buck 31:31  

And that saves you money because you’re not mailing to a whole ton of people that will never be able to go forward one. And we see that all the time in the direct mail world, people are mailing product offerings to the completely wrong recipient, so that’s one way to do it, and another aspect that we probably ought to touch on is if you’re a manufacturer of almost any sort of product, you’re probably being impacted by counterfeiting.

Product counterfeiting in the United States is absolutely huge. I think it costs $300 billion now, and a lot of people don’t realize how that can impact it. But I’ll give you a quick story example of this. I worked on a project a number of years ago with a security company and the client who was a manufacturer of recliner chairs, and they were getting fake recliners back into the repair department because they were being sold on the open market as one of their chairs. 

And the hinge system in the chair would break. And that chair would come back into their repair department, and they had a hard time telling if it was one of their chairs or not because the counterfeit was so good. And they had no way to authenticate it. So they actually ended up using a series of security tags and labels inside this. So when it comes back into the repair department, they can scan it and really authenticate it and find out whether it was not one of their hinge devices or not. So loss from counterfeiting is another thing manufacturers need to take a hard look at.

Sarah Scudder 32:54  

Yeah. And a couple of other things. Roger, what are your thoughts on one of the other things that I’ve seen manufacturers starting to do is use printed GPS tabs. Can you talk a little bit about what you’ve seen in regards to manufacturers using those types of tags?

Roger Buck 33:12  

It’s getting more and more frequent, both GPS and NFC tags. And NFC is near field communication tags. Your NFC tags require a shorter distance between the tag and the scanner GPS can be read at longer distances. I’ve seen more GPS tags now on the skids. And I’m seeing it on rail cars. As a matter of fact, if you walk through a local Costco or Sam’s wholesale, and if you look at the skids on the bottom of all the underneath all the shelving, everything looks on the side of the skid, the skids probably going to be a plastic material. 

And on the side of that, you’ll see one of these GPS pegs. And what they’re doing now is giving them better inventory control because they can track the skids as they’re literally in transport, whether they’re in transport on a truck going down the highway or train or sitting in the Costco warehouse. So yeah, that’s tracking in real-time delivery. What they call last-mile deliveries is this is going to be driving an awful lot of that.

Sarah Scudder 34:09  

Yeah. One of the other things Sam that I have seen manufacturers starting to do to improve profit is focused on safety. Okay, so we have some clients that are in the manufacturing space that do major production and have pretty large facilities. And there have been some pretty major safety issues, people coming into work and getting really injured. And that’s a big problem. And that can be a huge, huge impact on a company’s profit, not only from dealing with people out on disability, having to bring in temp labor, but also potential lawsuits and things that can come from it. 

So one of the things that companies can do is huge, wide-format printing to provide Wayfinding directions inside their facilities. So What it does is it makes sure that there’s signage on the walls, signage on the floors, making sure that all of the employees that are working in the production facility or the warehouse and fulfillment center are really focused on safety, and making sure they’re warned of any dangers that may take place. Amazing. Roger, do

Sam Gupta 35:21  

Do you want to piggyback anything? Are they, by any chance? Do you have any other comments? 

Roger Buck 35:25  

I will. Because when you when you’re talking about profit, there are two ways to view profit, you can either increase profit, or you can reduce costs. And there are various types of costs. And there is some subliminal cost. They’re a little bit difficult to track that has to do with your employees and your staff and how well they like their work environment and how they work within that work environment. Do they enjoy it? Or are they stuck into a little cubicle, and they have a hard time focusing because it’s not fun, if you will. 

A good example is I’ve got a friend of mine that owns a company, and he’s got a wide-open front office space. And it’s really nice, big open, it’s typical cubicles and everything, but it was flat, boring. And his work staff is relatively fairly young. So he wanted to give them that industrial look that she also many millennials like to work in.

Roger Buck 36:13  

So what they did was they painted their walls with a special material that would accept magnets. And then they went to a wide format printer, and they had wall graphics printed to look like brick, and it looks like old brick. And then they came in, and they just literally slapped these up. The magnetic material of the substrate adheres to the walls. And within a couple of hours, this entire office was converted, converted to what looks like an old brick warehouse. And all the people in there, they enjoy it, they like coming in it gives a better I just more creative ideas because the environment change. 

And if they ever want to change the environment, again, all they have to do is go back print some more magnetic wide-format graphics slab up on the wall again. So you know there’s you can get some lips some liberal dollars, and increase your profit by making your workers just in a better space like that. 

This is kind of a cool little tactic that has more to do with improving employee morale and trying to reduce some of that cost that might be due to lost efficiencies, as opposed to just trying to raise your percentage points on your margin a little bit.

Sarah Scudder 37:18  

Yeah, Roger, great example. And I have a similar example. So my sister just started at a new company two weeks ago, she lives here in the Bay Area, as well. And one of the things because of COVID, most of the tech companies are completely shut down. And so you’re having challenges with team members being remote. And this is even in the manufacturing space, where you may now have remote sales teams, remote channel partners, people who are not necessarily coming into the office every day. 

And so what they did is they used print innovation to create this really cool welcome kit for my sister. So at her house, it was delivered. And I haven’t seen it yet, but it was a really cool box with a QR code. And then there were all these really cool, unique branded items in the box, things that she could actually use for her day-to-day work. 

So I just thought that was a really unique idea. I mean, it was, it was so cool that she actually texted us about it and said, I got this really cool thing delivered to my office, and they want to make me feel welcomed. And they’re using print innovation as a way to do that. So I think employee engagement, you can do a lot using print to really make people feel engaged and stay connected.

Sam Gupta 38:42  

I agree. And that is so exciting. But we are about time here, guys. So, Roger, I’m gonna start with you. Do you have any last-minute closing thoughts, by any chance?

Roger Buck 38:51  

you preserved for the people that are listening to this, they may need to take a hard look at their different uses, both internally and externally save money internally there can certainly generate sales externally. Every business is different. Every channel is different. Every customer is different. You have to understand your customer base. You have to understand what version of content, text images is going to impact that recipient. But if you do your homework on that and get with the right print vendor or print supplier, it works. 

It’s been proven for years and years. And the one thing I always remind people is there’s no delete button on your mailbox right now. Do right now digitally. You know, emails and text messaging had just gotten overboard, and people are just not responding to it. And that’s why direct mail and print marketing are becoming more and more viable every day is. It just has to be seen when it gets in your mailbox or in your hands. You have to physically dispense of it. You don’t just hit a button on the keyboard.

Sam Gupta 39:50  

Okay, Sarah. So I’m actually going to start with you now. Do you have any last-minute building thoughts, by any chance?

Sarah Scudder 39:55  

Yeah. So being that I’m on the procurement side in the print industry, I would encourage manufacturers to think about using print-specific technology to source and procure all the print that you use to significantly reduce costs and increase efficiencies. 

So the old way of sending an email or sending spreadsheets, there are many more innovative solutions in the market that can help you better source and procure buying the printed materials that you need.

Sam Gupta 40:30  

Okay, my personal takeaway from this conversation is going to be print is really cool. On that note, thank you so much for your time.

Roger Buck 40:38  

Really appreciate Roger and Sarah enjoyed it as well. Appreciate it, Sam. Thanks, Sarah.

Sam Gupta 40:42  

And I cannot thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learn something new today. If you want to learn more about Roger, head over to printmergers.com. If you want to learn more about Sarah, head over to rsnetwork.com. Links and more information will also be available in the show notes. 

If anything in this podcast resonated with you and your business, you might want to check out the related episodes, including the interview with Aman Ailani from the Sah.ol cold brew, who discusses the unique challenges and important metrics for a consumer brand and a food and beverage company. Also, the interview with Kevin Lawton from the New Warehouse podcast, who discusses why standardization plays a key role in inventory planning. 

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I hope to get you on the next episode of The WBS podcast.

Outro 41:56  

Thank you for listening to another episode of The WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.

In this episode, we have our guest Nelson Aberu from 3050 Imports, who discusses the wine importer and distribution business’s nuances and supply chain challenges. We also had a chance to touch on the different contracting and system interaction requirements of the wine importer industry. Finally, we touched on the nuances associated with Wine importer and distribution businesses in Ontario and Canada.

Chapter Markers

• [0:17] Intro
• [2:26] Personal journey and current focus
• [4:18] Perspective on growth
• [5:09] Vendor relationships in the wine distribution industry
• [8:25] Sales and purchase order structure of a wine distributor
• [9:57] Inventory and warehouse processes of a wine distributor
• [15:13] How to work with international wine exporters?
• [22:56] Quality and testing processes
• [28:57] Wine distribution in other provinces
• [31:01] Closing thoughts
• [32:37] Outro

Key Takeaways

• The LCBO, as some of us might know, it is a monopoly. It controls all liquor flow and sales through the entire province. Okay, so any single purchase at any retail point, whether it’s a government store, whether it’s a brewery, whether it’s a winery, whether it’s online, it’s all LCBO sales, every single bottle.
• The LCBO has issued forms for all of these processes. And basically, we enter all the product information into their system and into their ordering system. Basically, that system generates codes for everything, purchase order numbers, item numbers, so on and so forth.
• We can’t establish specific payment terms with each of our suppliers, that would be a unique and appropriate situation agreement for that particular relationship, you’re dealing with one system, one set of rules, some producers in some regions, they don’t find doing business in Ontario attractive, because it’s such a rigid system. It’s a take it or leave it kind of market to be for that reason, because of the rules.
• A lot of people do want to be here because you’re dealing with one purchasing power that buys for the entire population. So really, some producers find it really attractive to be here for that reason. Some of them find it to be quite frustrating to do business in Ontario.
• The system in Quebec is very different from the one in Ontario, and the one in Manitoba is very different from the one in Ontario as well. So every province has a different way of seeing things and running their business to make it even more complicated.

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About Nelson

Nelson Abreu has invested 17 of his professional career years in the wine importer business and is founder of 30.50 Imports Inc., an Ontario wine agency dedicated to the marketing and sales of imported wines; and co-founder of WineWire.ca, the first web portal in Ontario to offer consumers direct access to imported wines usually only available at restaurants.

Nelson is a WSET Diploma graduate and an elected member of the Wine Judges of Canada. In 2012 Nelson achieved 1st place and became Grand Champion of The Wine Tasting Challenge.

Resources

• Connect with Nelson
  • LinkedIn
• Connect with 30.50 Imports
  • Website | LinkedIn

Full Transcript

Nelson Abreu 0:00

The way wine is traded in Canada is deeply rooted in prohibition days. And they’re getting looked at differently right now. If you think of what happened this summer with restaurants for the first time, we’re able to sell alcohol off-premise in Ontario for the first time.

Intro 0:17

Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.

Sam Gupta 0:53

Hey everyone, welcome back to another episode of the WBS podcast. I’m Sam Gupta, your host, and principal consultant at digital transformation consulting firm ElevatIQ, who doesn’t enjoy drinking wine. But did you know that the wine importer and distribution business is very complicated, similar to cannabis or tobacco businesses? And if you’re selling in Canada, especially in Ontario, there is a different complexity level as everything is so monopolized and government-controlled.

In today’s episode, we have a guest, Nelson Abreu from 3050 Imports, who discusses the wine importer and distribution business’s nuances and its supply chain challenges. We also had a chance to touch on the different contracting and system interaction requirements of the wine industry. Finally, we touched on the nuances associated with wine distribution businesses in Ontario and Canada. Let me introduce Nelson to you.

Nelson Abreu has invested 17 of his professional career years in the wine importer business and is founder of 3050 imports, Inc, an Ontario wine agency dedicated to the marketing and sales of imported wines, and co-founder of winewire.ca, the first web portal in Ontario to offer consumers direct access to important wines, usually only available at restaurants.

He is the best diploma graduate and an elected member of the wine judges of Canada in 2012. He has achieved first place and became the grand champion of the wine tasting challenge. With that, let’s get to the conversation. Hey, Nelson, welcome to the show. Thanks, Sam.

Nelson Abreu 2:25

Good to be here.

Sam Gupta 2:26

Just to kick things off, do you want to start with your personal story and your current focus these days?

Nelson Abreu 2:32

Yeah, absolutely. So I’ve been in the wine importer business for about 17 years now.

Nelson Abreu 2:38

Yeah, well, you find your groove, and you go with it, right?

Nelson Abreu 2:43

So 17 years in the wine importer business. I started importing as an entrepreneur and have built my business since we focused on bringing in wines from all over the world really, and we distribute them within the province of Ontario. So we’re a licensed agency. Our specialty is to bring in wines and sell mainly our legacy businesses is to restaurants or business to business, we also sell a lot to retail we’re selling mostly to retail these days in this in this environment in the COVID environment.

And we have a new and strong customer base, which we call corporate. We are doing a lot of wine tastings with corporate clients where we actually entertain their clients virtually online with winemakers from overseas, giving them an opportunity to spend some casual time with their clients. So it gives them the opportunity to meet their clients’ friends and generate referrals during these online chats and stay top of mind with their clients, which is really difficult to do these days.

Because we can’t socialize like normal and or we can’t golf with our clients and we can’t eat with them. So really, we’ve taken our product and the lifestyle that goes with it. We’ve brought it online to this type of platform that we’re on right now. We’ve made a business case for it. And we are finding ways to carve new paths and during COVID right now, by continuing to sell wine and, you know, the lifestyle that comes with it.

Sam Gupta 4:18

It’s amazing. So obviously, I want to dig deeper into a lot of those things. And in my experience, the wine importer industry is very complex overall, from the contract perspective and the processes perspective. So it’s going to be a fascinating conversation. But one of the questions that we always ask our guests and is going to be your perspective on growth. What does business growth mean to you, Nelson?

Nelson Abreu 4:41

Well, business growth means taking on. As I said, we’re forging ahead in a difficult time because our legacy customers have been shut down essentially. The entire hospitality industry has been closed. So really expanding and retail getting aggressive with the having an online presence growing through different means, as I mentioned through corporate channels, increasing our retail presence in the retail system being the LCBO stores a lot of growth ahead.

Sam Gupta 5:09

Okay, so let’s talk about the supply chain a bit in terms of the supply chain. The wine importer industry is completely different. And as we were talking ERPs, so the way you guys make the contracts is completely different, the way you’re going to relationships are going to be completely different, the way you will products, our inventory is going to be completely different.

The kinds of roles you have in your supply chain, the role that LCBO is going to play is going to be completely different. So from the wine importer and distributor perspective, can you walk me through how the vendor relationships are going to work? What relationship is LCBO going to play? And what relationship you as a distributor is going to play?

Nelson Abreu 5:45

Yeah, so, the LCBO, as some of us might know, it is a monopoly. It controls all liquor flow and sales through the entire province. Okay, so any single purchase at any retail point, whether it’s a government store, whether it’s a brewery, whether it’s a winery, whether it’s online, it’s all LCBO sales, every single bottle. And what the LCBO does is it controls three functions in the process, okay, very much like the way it controls cigarettes, tobacco, the way it controls cannabis, the way it controls gasoline, alcohol is very heavily taxed.

And that’s why it’s an expensive product, it’s only food, and it’s not as expensive as it should be in the parts of the world. But the reason is that the government controls and generates a lot of revenue by controlling the importation and distribution of alcohol. Essentially, what happens is they do fulfill all of the administration with suppliers around the world that are exporting their products to Ontario.

Okay, that means cutting purchase orders and cutting payments back to the suppliers for the goods that they ship here. So all of the paperwork is arranged through the LCBO to the suppliers. Secondly, they control all of the transportation. So whatever way, shape, or form that product arrives from the seller, the supplier seller to the warehouse in Ontario, that shipping was arranged by the monopoly by the government, okay.

Nelson Abreu 7:00

And thirdly, it is a warehouse by the government. So once it gets here, it isn’t a government. It is stored in a government warehouse until it leaves for the retail destination where the consumer can buy it or to the hands of the distributor who takes it to a consumer or restaurant, hotel, etc.

We don’t work like other food products, let’s compare us to food, the food industry, because that’s in my eyes, wine is just food, and it’s consumed with food. It’s a consumable product in the same way. So if I import cheese, I can find my supplier, I can find my transporter, I can arrange my payment terms, I can negotiate my prices, I can find the best shipping rates, I can buy my own currency, to pay my supplier, I have control the entire process. And when it lands at my facility, I’ve got control over the storage of the goods. Well, in this scenario, everything I just said is out of my control. The only thing I do there is to negotiate the price of the product. That’s it.

Sam Gupta 8:25

Okay, so let’s talk about your sales order and purchase order right. So obviously, you are acting as a sort of the agent or the broker, right? And you are representing your vendors, and you are trying to negotiate with the LCBO. But from the legal perspective, from the contract perspective, and also from the sales and purchase order perspective, how is your documentation look like?

So let’s say if I review your sales order, purchase order, what kind of line items it is going to have, and what kind of line items it is going to have when you are interacting with? And what kind of line items you are going to have when you are interacting with your supplier. Can you touch on that?

Nelson Abreu 8:58

Sure. Yeah. So basically, the LCBO has issued forms for all of these processes. And basically, we enter all the product information into their system and into their ordering system. Basically, that system generates codes for everything, purchase order numbers, item numbers, so on and so forth.

And we basically take the information that our suppliers gave us, we process it through the LCBO system that so that attaches codes to all of the items, and we use their forms to generate purchase orders. So we input all the information into the LCBO system.

But the forms that the actual supplier or producer receives are on the LCBO letterhead, not our letterhead. So essentially, we’re populating all the information, and they are creating all the forms we don’t get involved in the customs process. Okay, because they control all of that.

Sam Gupta 9:57

Right. So your role here, it seems like that If you are not maintaining any of your inventory, so you don’t have any warehouses. So your role, I mean, you almost become a service agency. Because you are not even touching the inventory, the only thing really you are doing is you are looking at a transaction, and you are processing it. And I don’t know, even if you have a sales order on your paper, right, so let’s say if you were to implement an ERP system, you are not going to have any sort of order or the purchase order because you are putting this on the LCBO system.

So the only thing you need is the file that you need to upload on the LCBO. And everything is really taken care of by the LCBO. The only thing you really need to do is you need to maintain the customer information that customers are buying from you. But at the end of the day, they are going to place the order in the LCBO system.

Nelson Abreu 10:47

There’s some little tweaking to you know, to make your comment, but that’s pretty much it, Sam, then you have to realize that this is a government-controlled industry, it is very, very rigidly structured, okay, so we the only time that we actually get the product in our hands is when we’re delivering it to our customer.

Okay, so we have to buy it from the warehouse, and we do invoice the customer for the product. And that’s the only transportation we do our transportation is all local and regional. Okay, it doesn’t move across borders. It’s strictly from warehouse to end-user or restaurant, which is a reseller business client.

Sam Gupta 11:28

So basically, once it lands in the LCBO’s warehouse, then you are buying, so you are getting a purchase order may be to LCBO, and then they are sending over that wine to you, then you are sending it to your customers, right? Because you are sending the invoice to your customers, and you’re getting paid by them.

Nelson Abreu 11:47

Exactly, yeah, but I wouldn’t say that we’re cutting a purchase order to the LCBO, that stock is assigned to us in their warehouse, so nobody else has access to it, you can say that it is our property, but we don’t own it until someone buys it.

Sam Gupta 12:05

and what is buying? And that’s where I’m not sure if I followed everything.

Nelson Abreu 12:09

Yeah, so we don’t have to send in a purchase order. We just have to create a customer order in the LCBO system, basically. So the purchase order, the term that we use for the purchase order is something that is issued to the vendor that is producing the product, okay, what we’re doing is we’re creating order in their system for our customer, so that they know where that product is destined to.

Because obviously, there are huge tax implementations here. A large part of our business is business to business, it’s to restaurants and hotels, okay, and they are reselling the product. So when we receive it, it’s been we’re paying sales taxes on it when we sell it to our customers, okay, they’re paying sales tax on it.

And then when they sell it to their final customer who’s sitting in their restaurant dining, there, again, they’re selling it at an increased cost, and they’re generating sales taxes for the government. So the reason that the government wants to know who we’re selling it to is so that they can track all these businesses’ purchases and make sure that they are collecting all of the taxes. So if they know how much alcohol they purchased, then there’s no way that business will be able to circumvent sales taxes.

Sam Gupta 13:22

Yeah, it makes complete sense why they are tracking that. I’m definitely following that. So let’s talk about you know. Let’s say if you get an order from your customer, and your customers are placing an order with you, right?

You need to have a sense of the inventory that you have stored with the LCBO. So, at any given point in time, how do you verify what kind of inventory do you have in with LCBO? Is that going to be in the LCBO system as well? Or do you maintain that in your system?

Nelson Abreu 13:50

Yeah, so that information is available to you through the LCBO system, okay, and they generate reports for us. We can go in and man, you know, manually go through the system and assess our inventory situation. But they also do issue reports to us daily that show us our inventory levels, how far things are, where things are rapidly ordered from overseas, and what the ETA is so that we can track the movement of the product as well.

So it’s really up to each individual business owner, whether they want to create a system that sort of mirrors the LCBO system and tracks information and is able to, you know, coordinate all of their company’s activities, or whether they just want to use a simple call it like a QuickBooks.

Most people that start out new in the business as single owner-operators usually start out with QuickBooks and just look after their own invoicing. And then at some point, they grow up, and they expand their business, and they expand their Salesforce and then to get into more complex systems that will track that will do their own kind of forecasting on to how much lead time do we need? What are our sell-throughs on certain items, and would we be able to track all that information?

Sam Gupta 15:13

When you work with these international suppliers, do you have any specific requirements in those countries as well? Or is it fairly straightforward? LCBO is going to take care of all of that when they are working with the supplies and when you’re putting the purchase order now, this would be called a purchase order.

Nelson Abreu 15:33

Yeah, exactly. Yeah. No. 100% Yeah, it’s kind of a disjointed system when you compare it to a normal system where goods flow freely, and businesses really, really dialed down and have a lot more control over the entire process. Yeah, like our discussions with our suppliers are about allocations that we need from them on an annual basis to service the market and the growth that we’re expecting in the market.

That’s as far as it gets. But all of the system’s interaction is through the LCBO. We essentially feed their system with our requirements, and we just wait for that product to come in. And we can monitor it through their system. Interesting. But I mean, from the international perspective, since Canada is obviously super regulated when it comes to wine and some of the products that you mentioned, right? Some other countries are going to be similar in that regard.

So my assumption would be, they would like to track who is importing or exporting. So there are going to be some restrictions there. Well, when you are dealing with these international suppliers, do you experience any of that? Whether you buy from Italy versus France, it’s all the same? Yeah,

Nelson Abreu 16:44

I mean, it varies from producer to producer, really, in terms of the laws, there isn’t a region in the world that doesn’t export to Ontario or to Canada. Now, a lot of suppliers, individual producers, because of the rigidity of our system, it is very rigid, okay, you deal on their governments pay payment terms, you deal with their system, and the way it is built to work here in Ontario.

So we can’t establish specific payment terms with each of our suppliers, that would be a unique and appropriate situation agreement for that particular relationship, you’re dealing with one system, one set of rules, some producers in some regions, they don’t find doing business in Ontario attractive, because it’s such a rigid system, it’s a take it or leave it kind of market to be for that reason, because of the rules.

And the fees associated with being in our system. Because in a government system, they offload most of their fees back on to vendors, much like large retailers will do to suppliers. So and the other side of the coin, a lot of people do want to be here because you’re dealing with one purchasing power that buys for the entire population. So really, some producers find it really attractive to be here for that reason. Some of them find it to be quite frustrating to do business in Ontario. They’ve tried it. And they don’t like the terms. They don’t like the way costs are pushed on them.

Sam Gupta 18:27

So then, let’s say if you are sourcing a supplier for LCBO, and now they are doing business with the supplier. So what is going to be your protection, because obviously, you invested your money in sourcing the supplier, creating a relationship with them, can LCBO go ahead and do business with the supplier for their own retail store? Is that possible? Or is that supplier always elevated to you?

Nelson Abreu 18:57

Every single supplier is represented by a unique agency. So relationships are exclusive in the market, and they pay you free from a relationship. I mean, anything’s possible. Does it happen? Probably but it doesn’t happen very often that I know of.

So it’s as likely for the LCBO to be able to pry business away from an agent who has developed the demand for a specific brand in the marketplace. It’s as likely as it is for one of my competitors to try to do that as well. So it’s possible in any business in any business environment. But that comes down to your strength in your relationship with your supplier.

Sam Gupta 19:45

Okay, interesting. And how is the LCBO process work? How difficult is it to get the license? Let’s say if somebody is starting new in selling to LCBO, Is it a very difficult process? Does it require a lot of fees? How is the process for acquiring a license to sell with LCBO

Nelson Abreu 20:02

Yeah, so the license fee is $30. You, you apply for it through the alcohol and Gaming Commission, very inexpensive, it’s very easy to do. That’s not the difficult part. As long as you have a clean record in terms of criminal record, you should be able to get the same, with applying for a restaurant license would be the same thing.

The difference is, is that depending on what channel you want to be in if you want to sell products to the stores, you’re going to have to attract brands with pre-big volumes to supply that retail system, you know, there’s over 600 LCBO stores in Ontario. So you’re gonna have to find suppliers that are willing to trust you to represent their brand, you’re going to have to be able to get them into the system and then be you’re going to behave to prove to them that you can keep them in their system.

Nelson Abreu 20:5

Because if you don’t hit your numbers, you’ll be out as fast as you got in. So to get a license is quite easy to actually get operating in into the system, it’s extremely difficult, it takes a lot of investment time, it will take years of investment time, there really is no quick way to succeed unless you buy another business that’s existing because they start your quantities very, very small.

And but they train companies upward. Or they say like, Okay, you’ve proven that you can move certain volumes will increase your capacities to do business. So it’s not uncommon for people who start in this business to have two careers and do the best part times and then grow them. And then when their wine importer business or their alcohol importing business grows to the point that they can make the leap. They do that

Sam Gupta 21:38

Interesting. So tell me, why are these businesses and you are supplying to the restaurants and businesses? Why are they not buying directly from LCBO? Why are they buying from you?

Nelson Abreu 21:49

So there are two types of products. One guy per product is the product that is destined for the retail store, the retail system, and that has to be those opportunities have to be won by tenders, you have to submit your products to their buying team, just like you would approach a big-box retailer and you have to present it you have to make a business case marketing plan, and then they decided to buy it.

You ensure that you can sustain it the other way is to import privately. And it’s kind of where my company is founded and grown on you start your business, you identify the brands that you think work in the market based on your experience, and you grow those brands. And in this way, I’m not dealing with the buyer for the retail system. I’m dealing with independent or individual business owners or business groups that are purchasing.

So I can start with a brand that was never here before. And in years, I can build that into a very recognizable brand because I take it from customer to customer, and I increase the distribution of it. And I do that through the private distribution channel of the LCBO.

Sam Gupta 22:56

Okay, and how does the quality testing process work? So let’s say if the suppliers already doing the business with the LCBO directly, and they are the ones who are actually testing the product, and if there are going to be any issues? So is LCBO directly communicating with the vendor? And what if the vendor does not respond? We have to get into that process from the coordination perspective.

Are you always going to be looped in the communication? Do you have an account manager from the LCBO perspective? Who is going to call you if there are going to be any issues with your vendor? Tell me a little bit more about that process.

Nelson Abreu 23:29

Yeah, all of the above? Yes. Basically, the quality assurance lab tests everything as it comes into the province for the first time. After a year, they’ll retest the product. It’s all based on CFIA standards, Canadian Food Inspection Agency standards. And they are the only lab in the province that does this type of testing because there’s only really one importer, a physical importer that they work for.

So it’s their division. They don’t release any product, Sam, until it’s actually tested. You know, so recalls are very few because everything gets tested. And you know, they don’t release it until it passes on all levels, not just chemical analysis, but actual label analysis and everything right.

So it’s an internal quality assurance control. And because they also control the warehousing and distribution of it, they don’t let the product into the market until they give it the green light. So it’s a food product. So the standards they’re using are far they are National Food Standards that they comply with.

Sam Gupta 24:32

So some of these international suppliers that are actually trying to sell in Canada obviously are not going to be aware of the processes that are prevalent in Canada.

So is LCBO going to coach them in terms of what is required here, what they are supposed to be testing what they are supposed to be supplying? As part of the product, do they supply any certifications when they try to sell their wine here?

Nelson Abreu 24:54

So you know every product produced around the world has its own testing. I’m producing wine in France. I have local authority. If I’m going to put the local designation onto the wine, then they are going to have to get it tested before they’ll authorize that their name goes on to the bottle as an approved product, right?

So there are all kinds of local but the LCBO, even though products are tested globally, or locally, everywhere around the world, based on their own standards, the LCBO still has Canadian standards that these products have to clear. So there’s a lot of discrepancies.

Yes, we are responsible for making sure that our suppliers understand the compliance process and what they have to go through, and what it costs. And what the costs are. If the products don’t comply. Because there are fees associated with repackaging, there are fees associated with returning the product if it doesn’t get fly on a chemical level or disappear to have been destroyed if they don’t comply.

Nelson Abreu 25:5

So really, they give them the booklet, they give them the book, it says okay, well, you’re signing a contract that you want to do business with us. So here’s what you need to know. And they can look at it, and it’ll just be like, what, and then we’ll have to physically, we’ll have to physically take them through all of those guidelines and digested for them and say.

This is what you have to be prepared for. So yeah, that we do get involved that there is interacting directly with the supplier, it’s black and white to the LCBO. But we’re the ones who really make all of that technical jargon realistic as to what passes what doesn’t, how do they interpret it compared to their own standards, so on and so forth? And that’s where our expertise comes in, as well.

Sam Gupta 26:39

Yeah. So you play a much bigger role, I would say, in the process, because what LCBO is really doing is they are simply creating the educational material for you, and you are keeping up with that educational material. I’m pretty sure there are going to be updates with respect to quality as they come across these scenarios and issues in the real world that is going to be issues, and I’m pretty sure they have some sort of briefing sessions for us so that you can be educated about these changes and the regulatory changes as well.

So that you can brief your suppliers. 100%. Yeah. Okay. And from the binary perspective, let’s say, you know, if somebody’s trying to export wine from Canada to other countries, is LCBO trying to control that as well. Is the process going to be similar there? Or is it going to be different?

Nelson Abreu 27:28

Yes, his term as far as the export is concerned, the products are produced here. Anything that is sold here is considered an LCBO. Sale, whether it’s made in this country or imported into the country, anything that is traded in Ontario is considered an LCBO. Sale.

So there are guidelines for people that produce alcohol here and export it, there are very strict guidelines to which they have to like the product, whether you’re buying it here, or whether it’s being exported, there are taxes that are applied to the product, because it is an alcoholic product that producers cannot escape.

And it’s a cost of doing business for them. So when they quote, the cost of the product overseas, they still have to accommodate for the local taxes that they have to pay to the government for producing it here.

Sam Gupta 28:17

Okay, but the warehousing and inventory processes are going to be similar in the case of exporting, or the only thing they really need to worry about is going to be the taxes.

Nelson Abreu 28:31

That is a better question for an actual wine producer. I’m not up to speed on the intricacies the details of the flow of product and how much of it they have control over whether they get to assign, you know, figure out their own shipping freight lines and everything like that, and their shipping terms, or whether that’s also controlled through the government. I wouldn’t be the guy that asked for that because of the side of the business that I see this importation and distribution, not export.

Sam Gupta 28:57

Interesting, though, from the perspective of LCBO. I think you mentioned that Ontario is determined. I don’t know if LCBO is really a national organization or a provincial organization. So do they control these things at the province level? Or are there any regulations at the national level as well?

Nelson Abreu 29:18

Yeah, so you probably never realized, but Canada is full of borders, provincial borders. Yep. Every province you cross has a different liquor board. So they are all provincial like India, in Quebec, it’s the SAQ, and legally, you’re not supposed to take alcohol across the border, or even though there’s no physical border, you’re not supposed to fly it in one province and take it to another province.

That’s another one of these archaic kinds of outdated prohibition laws, and producers are not supposed to take orders from people that are out of province. Ship them out of the province. Now that might happen, I’m guessing. But that is the way the systems are built up. Every single province has its own liquor jurisdiction with particular requirements and functions.

The system in Quebec is very different from the one in Ontario, and the one in Manitoba is very different from the one in Ontario as well. So every province has a different way of seeing things and running their business to make it even more complicated.

Sam Gupta 30:30

So the supplier that you are working with, let’s say, we are supplying in Ontario, as well as in Quebec, so they will be working with another agent like you in Quebec to be able to supply these wines there. And they have to go through that provincial process again to be able to sell their right.

Nelson Abreu 30:46

Yeah, they have to know it’s like selling to different countries for the—different forms, different forms, different languages, different rules, etc.

Sam Gupta 31:01

Yeah. All right. That’s it. I think this is it for today. Do you have any last-minute closing thoughts, by any chance?

Nelson Abreu 31:06

I would love for you to share with me your opinion on what I’ve just described to you as a government-regulated industry as it applies to enterprise requirement planning systems and how you see it compared to the non-monopolized the non-controlled free-market world? What does it look like to me? Because I know I’m on one side of the fence, and I can’t see over the wall.

Sam Gupta 31:34

Right now, my head is spinning, to be honest, just because of the complexity and also because of the nature of the industry. So I don’t think the plain vanilla ERP system is going to work for your industry. Just because you are literally doing more of the contracting, you are not a traditional either food business or the e-commerce business, right?

Your contracting is going to be very different. The way you interact with LCBO is going to be very different. I don’t know how the larger distributors are managing their business. Obviously, they have to do their financials. They have to manage their processes. So they must have customized the ERP for your industry. There are customized ERPs available for the wineries and also for the spirit industry that has been built over the standard ERP systems that are available in the market. But for the most part, the whole business is going to be extremely difficult, of course. So thank you so much for your time, Nelson.

Nelson Abreu 32:35

Hey, Sam, thanks for having me on. I really appreciate it.

Sam Gupta 32:37

I can’t thank our guests enough for coming to the show and sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you’ll learn something new today. If you want to learn more about Nelson or 3050 imports, head over to 3050 imports.com. Links and more information will also be available in the show notes.

If anything in this podcast resonated with you and your business, you might want to check other related episodes, including the interview with Aman Ailani from the Sah.ol cold brew, who discusses the unique challenges and important metrics for a consumer brand and a food and beverage company. Also, the interview with Chris Grainger, who discusses how his company EECO, a large electrical distributor, needed to change the way they sold to their customers.

Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get out. Thank you, and I hope to catch you on the next episode of the WBS podcast.

Outro 33:40

Thank you for listening to another episode of The WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.