Justin and Lisa discuss the different ways a consulting practice can help executives navigate difficult business challenges and adapt to today’s environment.
Key Takeaways:
- It’s all about Customer Service
- The main pain points customers are facing when they reach out for Lisa’s help in consulting are:
- Figuring out how to provide their customers with quicker shipping times
- Struggling with on-time deliveries
- Transitioning into e-commerce
- Finding cost savings
- Increasing cash flow
- She helps customers with initial supply chain studies to figure out if they should be expanding out of state and what the overall cost structure and implications would be of such a move
- Analyze when to utilize third-party logistics firms
- When to sell through the Amazon platform
- Know where your trade schooling and community resources are for your workforce and how they related to your location strategy
- Companies are continuously striking a new balance between offshore manufacturing, labor rates, and shorter lead times to deliveries.
- Maintaining backup inventory and even back up suppliers is becoming increasingly important as firms look to increase their resiliency to shocks.
Here is a 2-minute clip from Industrial Insights Podcast with guest Lisa Anderson
Listen to the full episode below and subscribe to the podcast on Apple.
Highlights
- Finding a consulting mentor – 2:44
- Calling Lisa to help you solve a problem – 4:56
- Customer, profitability and cash flow – 6:33
- When she started her career – 14:03
- Ecommerce has been increasing significantly – 16:21
- Packaging costs – 21:27
- What Amazon allows you to do – 22:54
- Where are your supplies located – 24:43
- The cost of real estate in the different locations – 25:29
- What is the company trying to achieve – 28:44
- The cost of producing in China – 34:34
Episode Resources
- Connect with Justin Smith
- https://smithcre.com/
- https://www.lee-associates.com/
- jbsmith@leeirvine.com
- https://www.linkedin.com/in/justinbsmith
- Connect with Lisa Anderson
- https://www.lma-consultinggroup.com/
- landerson@lma-consultinggroup.com
Justin Smith
Hey, Lisa. How’s it going?
Lisa
Good. Thank you. How about you?
Justin Smith
I’m doing all right. I got Grant here with me.
Lisa
Hello.
Justin Smith
So grant starting a second year in the business. Yeah. So he, he may have some good questions for us as well.
Lisa
Great. Good to have more questions.
Justin Smith
No doubt about it. And then it was a Brian Reed at Geodis that had introduced me to
Lisa
Oh, yeah, that’s right.
Justin Smith
Yeah. So I had interviewed him in the writing of my book, which Oh, congrats, by the way, I saw some of your stuff. You gotta vailable and Amazon, and yeah, thank you. And yeah. How do you figure out who was going to read yours?
Lisa
Well, when I put it together, I was thinking about executives that means thinking about manufacturing and distribution executives but knowing that people throughout the ranks would be interested in it. So that’s, that’s basically who I was writing it to.
Justin Smith
Yeah. And then were you tempted to read it on Audible? Or you said, No, that’s
Lisa
No, well, actually,
the audible thing came on because one of my, one of my key colleagues said,
I have time available. And I’d be interested in reading your book for audible. And I said, sure, that sounds like a great idea. So she did it. And then, of course, we had to, like, figure out how to get it to be approved by Amazon with all their requirements. But I got my web guy to do that. So anyway, so that was exciting to finally get that accomplished.
Grant
Oh, yeah. Did you complete the book?
Lisa
I did it early on in the pandemic. So I want to say, maybe May or June is when it came out. And then the audible just got loaded because it took forever. Well, she didn’t have the idea till late last year. But then it took me like two months to figure out how to actually like three months to figure out how to get it loaded onto Audible because they had so many requirements. And I had to get different people to help with the graphics, the audio, and everything else.
Justin Smith
Oh, yeah. Yeah. So kudos to that. And then that I was going back to some of your newsletters, and you’ve done a pretty good job of getting yourself out there. And, and being published and being in different, like conversations and discussions and magazines.
Lisa
Yeah, I mean, I found a consulting mentor. I’ve been consulting for almost 16 years now. And I’ve found a consulting mentor early on, and, and he basically talks about being a thought leader, and you have to get, you have to, you know, have all these things out there so people can get to know you, and you get your gain visibility, etc. And then a business partner and I took over his consulting society. A few years ago, that it’s, it’s a side thing, by no means do I make money on that, unfortunately. But basically, it is a really good value. So So anyway, it relates to how do you, you know, what do you do? And how do you get your word out there and that kind of thing?
Justin Smith
Yeah, I found it super helpful that she had some timely topics, but then also had a bunch of supporting materials if there were other things that you’re interested in or that you wanted to learn about.
Lisa
Great. Well, thank you. That’s great to hear.
Justin Smith
And then the reason I was interviewing Brian is I was thinking about when people who run manufacturing and distribution companies would need someone like him as they’re figuring out their supply chain. So he gave me some of them transportation and logistics side of things being the company that he works for. And increasingly, we’re doing more work in the Inland Empire. So he was like, Lisa’s, your gal, so. So I feel like I have to call you every time I go over there just to let you know I’m going into your hood.
Lisa
There you go. That’s good. Any sounds we’ll get together?
Justin Smith
Yeah,
Lisa
Hopefully, the pandemic passes by here eventually here. So we can go to more of a new type of normalizing.
Justin Smith
no doubt about it. So he, our clients are often the same types of people, right? They’re the CEO or CFO of these types of firms. So I was thinking through when we advise people, it’s always related to when they have to make a move, or they have to renegotiate a contract. So I’m thinking what’s usually happening when they call up, Lisa, and they say, Lisa, I’ve got a problem, what’s the problem they usually have when they call you up, or when it usually hits like an inflection point when it’s time for you to step in and help them think through stuff.
Lisa
Well, they, they’re usually thinking, what actually, they can be thinking many different things that don’t necessarily relate to what I end up working on. But the end root, the root cause of what they’re telling me, is what I ended up working on. So what they usually are thinking is, my customers are asking for quicker deliveries or, you know, I’m struggling to keep up with on-time deliveries with customers, my customers are asking for more ecommerce. And um, you know, like, basically one thing or another is happening on the customer experience side of things, and how do they grow their business successfully with their customers? And how do they accomplish what those customers are looking for? While making profits or increasing profitability depends on their situation. I mean, who doesn’t want to increase profitability? But basically, how do I meet these customer requirements and exceed them so they can grow their business? In a way, that’s profitable? And so the other thing that could be saying is, like, it could say a lot of things. But how do I, you know, I’m having trouble projecting what my costs will be, or, which means I’m also having trouble projecting what my profit will be, which usually they’re saying that because they have dip in their profit. Yeah. And so they could be saying things like that, or I’m looking for cost savings, and then the third area, so we have customers profitability, and the third is cashflow. But they don’t usually say that, but they are thinking, I don’t have inventory in the right place at the right time, which could mean it goes back to the customer. But it could be that because they don’t, they have too much inventory, or their inventory isn’t in the right places, where it’s all in the water. And it shouldn’t be, you know like it’s on the water? And is the wrong, wrong inventory for what their customers have changed their mind? And what now? Or who knows what, but basically, one way or another? Or should they even be? I don’t know? Are they producing it in-house? Are they getting it from overseas? Are they getting it from Mexico? Where should what should they really be doing? And, you know, who should they be sourcing it from? Should they be working with different partners? Should they be producing it themselves? What should they be doing? On all that relates to how do I have the least amount of how do I have a superior customer experience? So I can grow my business successfully, be profitable, and efficient? In that, that there’s a lot of things I could say there. And I’ll come back to that. But how are they profitable and efficient? And then how do they do it with the least amount of inventory, so they have more cash available is really the crux of what they’re saying. And when it comes to profitability, and capacity, a lot of times they also are saying and this might relate to what you do is, well, a lot of this might but they’ll say, I’m not sure if I can fit in my current warehouse or my current production area. I want to know, you know, I need to get in front of this volume to understand what types of how many people I need to hire, or if I should use temps, what types of skills because that relates to like, maybe there’s different machine groups that they have if they’re manufacturing, or if they’re in distribution, it could relate to, you know, ocean carriers and other in their production operations and wherever they’re producing, it could be in Mexico, or it could be in Asia or wherever. So a lot of those types of capacity type of questions as well.
Justin Smith
Sounds like any problem, so many challenges that people face. Yeah, but you have such a depth or breadth of experience that you can help them deal with a lot of challenges. Probably a lot of symptoms come back down to a lot of common challenges.
Lisa
Yes, that is absolutely true. They could say literally hundreds of things that all mean generally speaking the same thing. That doesn’t mean they all have the same problem because they don’t, but it means that it all comes down to the customer profitability, which relates back to efficiency and capacity and those kinds of things, as well as inventory levels and storage capacities and those types of things. So I find that that they do say many, many things, but they really boil down to some common themes.
Justin Smith
And how did you meet Brian in the first place?
Lisa
So actually, Brian and I met through a mutual contact at Harvey Mudd, who Bryan’s team, when he worked at Niagara, was working with Harvey Mudd to improve upon some other logistics expenses. And the head of Harvey Mudd manufacturing practice and clinic program, which is what they’re working with. And I put together some executive roundtables for CEOs and executives to get together to share, like best practices and those types of things. And that’s how we met originally.
Justin Smith
Awesome. Yeah, it’s, and Niagara continues to grow and has quite a presence.
Lisa
Yes, they definitely do. So they have quite a few students that have won several awards, because I relate to a couple of different groups were where they’ve won some awards, the Harvey Mudd folks, and specifically, some Niagara students have won the awards as well,
Justin Smith
For different contributions to the company or for different solutions, they’ve come up with.
Lisa
Yeah, so. So there are two, well, the ones that relate more to well, they actually both could relate to Niagara. Because what it is, is that so one of the words is an innovation award for the manufacturing Council of the Inland Empire. And then, we have multiple categories of the Innovation Award. So there’s the process, and we’ll call it process innovations. And then there’s a product like new products, innovations, there is like talent, innovation, and then there is I’ll see the talent and human capital, I believe there’s one more but at the moment is not occurring to me. And then there’s a student category. And so it’s like when companies work with students to achieve a certain outcome. And so the Niagara team won that innovation award for the manufacturing Council, one of the years and then another award is with the I also am the president of the Association for supply chain management in this area, which is also known as apex, which is affiliated a trade association that, that buys great fundamentals of supply chain and operations management. So that group on a yearly basis and the Harvey Mudd team has, well, they won the region a couple of times, and then they won the global competition once. And now whether those students relate to Niagara or not, you know, not necessarily at all, but some of them could have been.
Justin Smith
Yeah, and there’s project management; maybe we’ll get a grant into that. Someday, that’d be a good one.
Grant
One day.
Lisa
There you go.
Justin Smith
And then Inland Empire, that’s your focus.
Lisa
Yeah, I mean, well, I absolutely I have definitely been focused on the Inland Empire because it’s really strong in manufacturing, and in supply chain, and those are my strings. With that said, though, I actually am I’m focused on Southern California, but now more and more even the just if it’s a manufacturer or a distributor, and you know, supply chain oriented service, certainly in Southern California, I’ve gone to the hubs. So you know, there are manufacturing hubs throughout Southern California, and I’ve gone to them many times. It’s really more based on who my referral sources are and where they happen to be located that I happened to go to those hubs. With that said, and supply chain, certainly, both of them actually manufacturing and supply chain has a really strong presence in the Inland Empire. So I’m very focused out here because I’m also focused on several groups that relate to the Inland Empire, and you know, there’s a lot of opportunities and as close to where I live, so less traveling, it’s a good thing.
Grant
Has that been your base your entire career?
Is that where you started?
Lisa
No, no, not at all.
I started my career out of college, and I moved to California to go work at Coca-Cola enterprises. Yeah. And in that was started in downtown LA and then moved to Downey and planned what they produced at the various facilities on the west coast, and also their distribution network. And then, I went to a plastic injection molder, and I did planning and purchasing, and inventory control. And then, after that, I went to an absorbent product manufacturer that made both hospital products like adult diapers and products that folk that supported the grocery industry. So like the pads that go on in the grocery store. And in that case, I was it held several roles, and I ended up as the Vice President of Operations and supply chain. So those my career has been out there. However, even within that, it’s Southern California-based. And I just happen to live in Claremont. And the last, the last role I was in was close to close to here as well.
Justin Smith
And I think you and I had corresponded maybe six months ago on the requirement from a client you’re working with who have been in the Inland Empire or moving out to Reno and Sparks, Nevada.
Lisa
Yes, here they were evaluating the options. Exactly.
Justin Smith
Yeah. So maybe that’s a great example of someone that you would work with that would also have a warehouse or real estate implications. So what was the result there? What kinda if you could give us a little bit of what that was all about. And what ended up happening
during that. That’s a good example of a type of client.
Lisa
So they actually had a menu. So they had a value, add, I guess you’d call it facility in Corona, they didn’t manufacture their products there. But they did some repackaging those, a little bit of value, add frosting, and then they also did the distribution. They had typically been sending most other products by like the. I don’t know, the box, or the pallets or whatever you want to call it, to their customers. And of course, ecommerce has been increasing pretty significantly in the last two years. And it’s really was, you know, blown out of the park during COVID. With that said, though, they do have a manufacturing facility that their company owns in Mexico, it’s kind of located in not the best place, if you will, from a transportation point of view to get it here, but it is owned by them. And then they get most of their product from Asia. So they’re sourcing, you know, they’re coordinating the,
you know, ocean freight, as well. So anyway, what we were looking at is, should we wanted to redo their analysis? I did an analysis a couple of years ago and to see whether or not it made sense to look at is Corona, or is California still the right place to be? Because, you know, certainly there’s rising taxes and those types of things. But is it still there saying the right place to be and, you know, we wanted to relook at some of the other options. But we really, it was really more of a cursory view because we expected it to turn out the same which is how it did. I mean, generally speaking, because they get so much from the port’s currently. And a lot of their customer bases in Southern California, I mean, at least for what supported out of this facility we’re talking about. They have it, you know, it didn’t make sense transportation-wise to move to like Nevada, even though it would be less expensive in many other areas. So basically, that part was really more or less reconfirmed. And what we’re looking at this time is, should we do, should we utilize a 3PL to look at for e-commerce or for all other products or not? And we did look at that. So I worked with them maybe three, four years ago. And at that time, it really didn’t make sense to go to it. Three, 3PL because it really was just going to add cost into the equation is pretty much all it was going to accomplish. And the other thing, in essence, we were able to decide, yes, they could continue to fit in the building, it would not be like, it’s not as though they had a lot of space available, but they could fit in the building if they use some overflow warehousing. And it made the most sense to do that, because they had a, a, you know, they have, there’s a cost to moving as well. And they’re well-positioned. So in essence, we decided, let’s, let’s keep that, and then we’ll reevaluate the 3PL; last time, like I said, all it did his ad costs, but this time is a different situation because we were thinking maybe we do just look at 3PL for e-commerce only because that’s a whole different matter. And that is what we’re that is what we decided to do is the transition towards using a 3PL for just their e-commerce shipments. But they have two different kinds because they shipped to Amazon. And they also and the Amazon DCs, which is, strangely enough, not really e-commerce because they’re not shipping pieces. And then, they also have direct shipments to customers. And so we’re going to start with the Amazon just because it’s like a more stable understood, you know, process. And then we’ll work towards the other part, but basically, that allows them to basically provide, again, going back to the superior customer experience, they can over time, like the three PL partner is more geared to providing the 3PL, you know, the e-commerce, business, and the service levels, etc. So they can transition towards that at largely the same cost of, you know, what they can do internally, because, of course, they don’t have the same level of efficiencies built into their processor. And, you know, that would help them move towards the future. And then, like, you know, we can always reevaluate this again in the future as freight becomes a bigger component. Because right now, freight is not a big enough component to make it change the equation, but it may it that may change in the next several years. I mean, certainly, everyone knows e-commerce is on fire right now.
Justin Smith
I had spent some time talking with one of the executives at XPO about that conversation of when you bring them in as a partner. And it’s amazing, all of the advancements that they had made, I would imagine someone like your client, not only do you get the service, and once the cost becomes the same, then you get to go to school on all of their infrastructure and processes. And yeah, like there’s a lot to be gained from having that partner to work with who specializes in that, as opposed to trying to build it yourself.
Lisa
Oh, that’s very true. Because I mean, there’s packaging costs, and you know, like efficiencies and how you package individual pieces and of your product and their product was oversized. So that was that lends itself to a whole nother set of challenges. But absolutely, there’s a lot of advantages over time and the partner, because they would treat it like a partner, I think if you treat it like a supplier, it really doesn’t, you know, do much for you. But treating it like a partner, they can determine because there’s a lot of scenarios with Amazon. And should you stick with this program or that program? You know, what are the trade-offs? So if you can work with a partner that’s more familiar with how to navigate that successfully, you can, you know, make the right decision over time to grow the business in a way that’s profitable. And yeah,
Justin Smith
I hadn’t much experience or a discussion about when it’s you’re talking about Amazon as a partner in shipping to their building, as opposed to shipping straight to the customer. And how that changes the, like the calculus of how you figure out what your next step is. And you had said something about it wasn’t e-commerce because you’re not shipping pieces. What do you mean?
Lisa
Well, what I mean is, is that so Amazon has multiple different types of programs. So there are some, in this particular client’s case we had, we were shipping enough to Amazon that it depends on the volume and other factors, right. But Amazon allows you to ship direct to their DCs, and then they ship to the end consumer, but you do have to, you know, you have to get the product ready to to go to Amazon, which does require different padding and other you know, there’s different requirements for it. But it’s, it does mean you can ship it in more in bulk. So like meaning you could ship it in, like a truckload, let’s say. Whereas obviously, you’re not going to ship a truckload to one individual customer, consumer. Yeah, so basically, you know, you can ship a truckload, which is very much more, it’s much more efficient, doing that for free. So there are trade-offs there, where eventually you take over and shipped directly to their end customers, there’s different agreements. So, in essence, how to manage that and when to when one agreement is going to make more sense than the other because we had multiple arrangements with them already. But which one should we use? And how do we evolve that having an e-commerce partner that we could work with, with just add another, you know, somebody who’s skilled in that arena to the mix? So
Justin Smith
Yeah, I could imagine that’s its own specialty right there. Right. And as probably a specialty that’s in great demand, and it’s ever-changing, like, landscape or environment? For what when you do what? And for what customer?
Lisa
Yes, absolutely.
Justin Smith
How about different parts of the Inland Empire? When you think of why people move to different parts? In your experience with your clients? How do you look at things when it comes to location? And? Well, so big pocket?
Lisa
It depends on. I mean, if we’re talking about I guess we’re talking about distribution in this case, or I guess manufacturing would be the same. So you know, from a manufacturing point of view, it depends where are your suppliers located?
Justin Smith
Yeah.
Lisa
Where are you and your sources of supply? Because it could be that you have local suppliers, which then it matters where they’re located, or it could be coming from the ports, then then, you know, then it depends, because there’s going to be trade-offs between the price of the drainage, versus the price of the real estate, certainly, which you could talk to, right. But certainly, closer to the port is more expensive, but also, then access to words, your customers, because that’s that matters, too. Because if you shipped everything out to the Inland Empire, let’s say, and then your customers all happened to be located in Gardena, it makes no sense. However, that’s like a very strange proposition and probably would never hold true. But if that’s the case, you really should know where your customers are, I mean, or if you’re all of your customers are up north, I don’t know, you know, like you would have, you would locate your facility somewhere different than if they were all located in Phoenix or something. So understanding where your suppliers are, and the requirements and where your customers are and what their requirements are. And then, of course, what’s the cost of real estate in the various locations? What’s the cost to get it from those customers, from and to your customers and your suppliers? And you take all that into consideration, in addition to where the, where your workforce is because dependents do exist already, I assume you do. If you exist already? Do you have people there that are, you know, much like familiar with your products, and they can be, you know, there’s many times years of experience built into the people you already have. So how do you keep the good people you have, so you might, you know, you might locate in a slightly different spot, based upon where people are willing to go. And then and then let’s just say that’s the current people. But then also you want to think about what access to the types of skills you need. So if you’re a manufacturer, generally speaking, you’re going to need more skills than if you’re a distributor generally. But so let’s say, you know, in manufacturing, you certainly want to have access to I don’t know, like, the aerospace industry has certain skills that are good for certain types of manufacturing processes. And if you are, like from that point of view, Southern California is at least a good place to be, but you know, there are different skills in different areas and maybe access to different educational institutions. So some of them have, like programs that relate to how do you bring somebody up through like an internship or through a, you know, like,
Justin Smith
Gosh, like an apprenticeship
Lisa
shop training, there are various things that the community colleges and other programs like that will do. So, you know, there’s that to think about too. So there’s actually a lot of things to be thinking about. And then, of course, there’s taxes and, you know, those other considerations for where you might want to be.
Justin Smith
You find there are alike programs and your master algorithm for where all this raw data goes into, and your answer spits out the bottom or,
Lisa
well, you know, what, the funny thing about that is, is that there are those types of programs there are actually. However, most of the businesses in Southern California don’t, you know, like the really big companies in the area. I don’t know if they can afford, but you know, they can afford to, you know, to Hire hire on these, you know, high powered groups that have these programs, and they can load all those data and do all this number crunching to figure it out. And there’s, you know, nothing wrong with that approach. It’s a good approach. And you can also partner with some people like there’s people that I partner with that like run freight numbers and do some things like that. So some of that is true. But the funny thing is, is what I find out that really works is let’s use some uncommon common sense. And you take into account, you know, what is the company trying to achieve? What are their goals? What are those? Where are they going, and then you prioritize, and you do some, some key pieces of analysis underneath this, but then it’s really a matter of, like, looking at the equation for business. It’s really not sure some of this can go into a model and be number crunched. But the more valuable process is to crunch numbers that are more meaningful, and then like, make, you know, think about this strategically and have conversations with the client to figure out what’s really the smartest thing to do, because not everything goes into an equation. Real Life.
Justin Smith
Yeah, and I would imagine an engagement with you is an opportunity to stop and to pause and to have, like an inflection point or a moment to say, okay, it’s been one way for a long period of time, outside forces have changed for a long period of time. And is there some adjustment that we need to make? Or is there any mismatch? That’s especially painful or, you know, that needs to adjust?
Lisa
Yeah, exactly. Because there’s several, what I find is there’s a couple of key trigger points, I mean, that you think about strategically, and then some of the data can be number-crunching within that. But sometimes it makes sense not to do what’s the most cost-effective? I mean, you know, you could be talking pennies, if you will, I mean, you’re not talking pennies, but you know what I mean pennies compared to the rest of what you’re spending. And that doesn’t matter at all; if saving 10 cents means that you can’t gain $2 million of business, it does not make any sense at all. So we have to think in terms of the bigger picture, but there is number crunching, you know, as a part of the process, but I’d say the strategic viewpoint and looking at like what, what’s worked in other places, asking the right questions. And just taking a step back, like you said, and thinking about the equation is really what’s most valuable.
Justin Smith
Do you find many manufacturers are having a hard time with the availability of labor and housing prices? And trying to figure out where to be in the right place? It seems like that’s a big challenge.
Lisa
Yeah, it’s definitely a big challenge with labor. Because I’m, I’m seeing that there’s, you know, people are seeing they have more options now that COVID has been in place, because they realized that no, I don’t have to show up in person. Well, I mean, it depends on your job. If you’re obviously working on the manufacturing floor, you’re going to be showing up in person. But generally speaking, a lot of the support people can, you know, I don’t know, come in twice a week, or you know, there’s things like that, that, that just open up the field. And some people are going virtual, right. So and there are some roles even in the manufacturing facility where you can with the technology available, like virtual reality, you know, there’s a lot of things you can do, where you don’t have to be there every single day. And it makes it somehow makes a big difference. I know this from consulting too, because when I first started consulting, you know, I was driving like, really far, two days a week to go to a client’s and I thought, you know, this is somehow fine. But if I was to do this five days a week, it would not be fun. So I think the same thing holds true for you know, in house, but your, your points valid, is that that is definite, you know, having the best talent is probably what it’s gonna be about for some periods of time to come here because the other thing I’m seeing is with COVID a lot of the baby boomers that were thinking about sticking around for their five years are like, you know what, now I’ve had it, I’m gonna just retire and travel, etc., etc., if they can, so you know, like, some of them are retiring sooner, and there’s a lot of knowledge in their head. So you know, it could take several people to replace them if you don’t do it well and have a good transition plan. So there’s a lot of you know, you’re you really need to be thinking about where your partners are and potential partners and those kinds of things they most likely are not going to move an entire facility, just to locate it closer to a better labor pool. Probably Not gonna happen. On the other hand, if you’re thinking about moving anyway, then that’s something to consider.
Justin Smith
Yeah. Yeah, one of your prior, I think it was in your book where you’re talking about hanging on to your talent pool until your main human capital as being, like, one of your things you should be thinking about as you go into the pandemic, right? That makes perfect sense. Absolutely. And then I’m also seeing with food in particular, but with the companies, whereas they grow, a lot of the food groups are growing. Now, they don’t want to grow in Southern California. So they would keep what they have now. And then they would grow out of state. And then that would be one way to keep their current foothold and customers, but then be able to grow and other low-cost areas. have you dealt with many out of state moves or additional facilities, or other ways that people are expanding that are taken into account in different states in the west or in other ways that are domestic?
Lisa
Yeah, so like, so you’re thinking about reshoring? And, you know, and also diversifying the base, that kind of thing? Yeah, so I’m definitely seeing a rise in reshoring. Because even before the pandemic, the cost of producing in China, but just because, you know, China is the big dog, if you will, when it comes to manufacturing, there are other places Vietnam has been coming along, and lots of other places have manufacturing. But really, there’s such an infrastructure in China. It’s, you know, significant. So when I say China, we can think of Asia, but so the cost of producing China has come into alignment for non-commodity products. For the last several years, it’s been more in alignment, when you look at the total cost, not obviously just the cost of obviously not the cost of labor, but the cost overall, because the cost of labor was increasing in China, for sure. It has definitely been, but there’s IP, and there’s transportation, cost of inventory, customers changing their mind, lots of deadstock, all sorts of problems going on. So if you add up all those costs, it was already coming into alignment, then the tariffs came into play before COVID. And the tariffs were starting to get people to think, you know, the problem wasn’t that the cost wasn’t. Okay. I mean, we get we got to put the real commodities aside, but aside from those, the cost was about the same However, people didn’t want to have to put in, in the capital investment required. That was the issue. Because once they put set up plants in China, it’s not like they’re going to get their capital investment back by any means. So they’re, you know, they’re, they just were reluctant. So the tariffs had them thinking, Well, you know, maybe I need more control over this, I should start thinking about this. And they were starting to think about it, for sure. And some people were starting to bring it back because they also had the Amazon effect going on, regardless of who you’re producing. It’s just a metaphor, but it means that everyone wanted everything quickly. Around the Clock, they wanted to change their mind, none of which can happen when you have a 12 to 14-week lead time confirmation. If that. So you know, they were ready thinking about it. But then COVID came, and now they’re not thinking about it; they’re doing something about it. So they are actively reassuring. That doesn’t mean they’re reassuring everything because that’s not practical. But they’re reassuring what makes sense. And they’re the executives are actively doing it. And some of the, like, the clients in Southern California are preparing for people. Just because you’re bringing it back doesn’t mean you have to do it in-house; it could be that you hire a partner down the street that’s close to you. And Miguel, you’re bringing it back. Yeah, exactly. And you also can nearshore it to Mexico because there is US MCA agreements. And there’s more. I mean, it’s better relationships closer. You know, there are additional, you know, there’s always trade-offs, but they do have, for sure, smaller, lower labor costs than we do. Now. Does that matter? It depends; I mean, what kind of product are we talking about? And, you know, what are those customers looking for? So it’s not always a good idea to go to Mexico either. So people are now looking at reshoring for sure. And that’s happening. It’s just you don’t do it all in a day. You don’t build the plants in a day. You don’t change all this in a day, but they’re also looking at it from a national security issue like, how do we produce more pharmaceuticals? So they’re starting to realize they have to have more capabilities internally and like,
Grant
Can you go over the terms for reshoring and nearshoring?
Lisa
Sure, of course. So reshoring basically, I mean, it’s it, you know, it’s actually a fancy word that may not even be, like, completely true. But we use it to mean that something that’s being produced in Asia, we’re bringing that manufacturing back to the US. But that implies that we used to make it in the US, and a long time ago, we probably did. So that’s what that means. So you’re reshoring it from Asia, back to the US, generally speaking, I mean, now, Europe uses the same term. In their case, they were taking it from Asia back to Europe. Now, nearshoring simply means you’re bringing it back, maybe not to the US, which is where your customers; let’s just say your customers are generally speaking, in the US, you want to bring it closer to your customers, but it’s near your customers. So it could be Mexico, which is closer to your customers, because the idea is you want to produce as close to your customers as you can so that you can better support your changing customer requirements, and your, you know, like e-commerce needs, and those kinds of things, which you need to be located as close to your customer as possible. And you also may be utilizing more technology. So like 3D printing, why not just print it up really close to your customer? I mean, it’s not quite that easy. But in some cases, you can. And there’s more automation and technology. So like that, utilizing more technology means you can be located closer to your customers without adding a bunch of costs, basically really what that means. Does that make sense?
Justin Smith
And that’s been the talk of the town, right? As costs go up overseas, how does that affect the supply chain as it changes? And as people make capital investments over different time horizons, they have to factor in for this next investment? Where does it go?
Lisa
I think you may have asked this question earlier, too. So that’s the reassuring side of things. They’re also reevaluating their footprints, which could mean where I should produce in house? Should I produce it in Mexico, should I partner instead of produce it, etc. But it also could mean, who are my suppliers, because it could just be your suppliers. I mean, we all have suppliers, and we can still even be producing. But if our suppliers are all located in Asia, let’s say, well, worse yet all located move on China, that’s a problem because it will have gone goes down like all of them go down, which is what we learned. But being in China alone is not helpful enough. Because you know, the whole country was down for a while. And actually being in Asia, like being in Vietnam, maybe and we knew it was helpful. I had some clients that that helps them. But that whole region was had problems with, you know, like the transportation to end from and, and actually in Europe, I belong to a group of global consultants as well. And we are supply chain experts around the world. And Europe had the same issue like there was a colleague of mine, where their clients were getting products from Asia, and or I should say, from China and India, which is very different. But they still had a problem because even though they weren’t on the same schedule, if you will, with COVID challenges, they had enough of the same challenges to make it so that they’re reshoring, something closer, reshoring nearshoring, closer to Europe as well.
Justin Smith
Time as time becomes more component with delivery. And as you were saying, the Amazon effect. That’s part of the interplay.
Lisa
Yeah. And backup suppliers like I when I was the Vice President of Operations and supply chain, we had a source of supply from Brazil that was critical to our product. And luckily, there, I had a director of procurement that worked for me who was very good; knew how to navigate those waters, which I was actually learning from him. But he insisted that we keep a source of supply in South Carolina, which did not make our private equity backers happy because it was expensive compared to him. But it wasn’t good enough just to have. Yes, we have a backup supply. Of course, that’s what everybody thought, and during COVID, the backup sources of supply were busy, and they said sorry, we can’t supply you, but instead, what he did in our case We actually purchased from them 20% of our volume, which is why they weren’t happy about the cost. But we did run into a supply issue because, as you know, things are always going wrong with Brazil too. And they, it was an industry-wide issue. And we weren’t the big guy. But we did get supply from South Carolina because we were buying it all along. So, you know, there’s people rethinking those as well, which relates to your question earlier, because that’s, you know, it’s not like they’re reshoring or nearshoring. They’re just rethinking, like, who is my backup? How does that work?
Justin Smith
I’m sure people will think through disruptions and shocks differently now.
Lisa
Yep. Exactly.
Justin Smith
Well, I appreciate you taking the time. I realized we’re getting to the end of some time we spent here, which is what I love talking through this stuff with is really helpful—educating us a little about what you do and how you help people. I think that can help us know when we are on the phone with someone, and we hear them having a challenge that sounds like a Lisa challenge, then we can say go it. We know who to call and who to introduce you to.
Lisa
Yeah, thank you. It’s great to Great. Great to meet you. All right. Thank you have a great night.
Justin Smith
You too, but Okay, bye.
