Before You Add Another Building: Manufacturing, AI and Capacity

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We have Lisa Anderson of LMA Consulting with me today on the show, Industrial Insights Podcast. And Lisa was a guest in 2022 and fresh off of authoring a book. And she has survived COVID and made it through. So uh yeah, it's fun to connect with you now and then see how you weathered the storm and learn more about where your practice has taken you and where you're helping people today, because today is not without different types of challenges. So I'm sure your practice has evolved much like ours has. Absolutely. Glad to be here. Yeah, and then you are in the ASCM Association of Supply Chain Management and run the Inland Empire chapter. Tell me more about that 'cause I had uh looked into it a little bit when I was doing my supply chain masters and then I was like Lisa's in there and I hadn't had a chance to circle back around and check in with you about it. Yeah, actually I just went to the annual conference, uh which is called CHAINge, but it's in essence uh it was in Long Beach this year.

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And you know it's just it's a good uh organization, keep up with the latest trends, what's going on in supply chain and really what the organization is most known for is its training and education certification program. So you know, it does a good job of providing the what I would call the fundamentals of supply chain uh for folks so that that so that you're working with a common tool set, a common knowledge. So you know I I've found it to be valuable over the years. so I'm glad that I participated. I was able to see some old friends as well. yeah, that's the best. And and who'd who, uh let's say you're a CEO of a manufacturer in the inland empire and you're sending your people over there to train up, who would be the typical people you think they would send over there that would like to participate? Well for uh ASCM you're typically focusing on planners, buyers, you know, it could be like operations managers, uh also logistics uh type folks.

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So it's it's generally analysts, planners, uh planners, buyers and managers 'cause it's a good idea. And really we've had directors, um, and VPs in our uh training and education programs as well. It's it you know, who who can can't use like a tool set and common language, right? And so that they can uh help their teams. So, you know, it there I I see some value for like the fundamentals no matter who no matter who you are in the organization, but traditionally it's been those types of folks. Yeah, and I would imagine a lot of new hires. I know hiring is challenging and uh when you finally find good people, like how are you investing in them and this is probably a good opportunity for that. Absolutely. It's uh I mean really I think and one of the trends that I'm seeing in my clients today is that uh there's so many things changing and you really have to do a good job of educating

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your team and making sure that they're you know, that they can keep up with all these changing conditions so that they can be successful. Yeah. For those who don't know you, uh your practice, like uh what are the main food groups you would say? Like for me I like uh supply chain is such a big umbrella that it it means uh damn near anything from the start to the finish and everywhere in between. So maybe you could help people just understand like when I call Lisa, what is it I'm looking help for? Or like where is it you might help people out? Absolutely. Well We talk about the end-to-end supply chain, but really our specialty and focus is on uh what's called the forecast to fulfill process. What does that really mean? It's in essence uh from understanding the demand coming into your organization, could be sales forecasts, quotes, orders, and then how do you uh produce, uh purchase, distribute

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uh in the most uh profitable uh manner and then you know how do you in the end what you want to do is serve customers so that you can support growth and do so at while maximizing margins and um accelerating cash flow so in essence that's that's our specialty and it's it's broadly called supply chain management I would say like sales inventory operations planning which I think we talked about previously but it's uh in essence how do you align your demand and supply and And the whole planning topic. So how do you you know know what to produce in what order and to meet customer needs profitably and successfully in essence is is what we uh what we focus in on. Yeah. Um tells me you get to deal with uh all of the C suite and the VPs and everybody 'cause uh has operations implications and it has finance implications, amongst everyone else.

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Yeah. I mean, really it depends on the organization, but generally speaking, the P&L leader is the one who uh brings us on board because they're interested in well, wh who isn't interested in growing your revenue and predictable, right? It uh actually the one of the real keys that we've been known for here is creating predictable profit and predictable revenue fulfillment for manufacturers and distributors. And that that's really uh what the CEO and I mean if it's a smaller company it's probably the CEO and for the mid-size and and or large, you know, it's like a P[unclear]L owner of some kind. It could be like a general manager or you know like you said, it could be could be a lot of different types of people.

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Uh I mean interestingly Sometimes the VP of like sales and markets customers is m interested and might uh introduce us to the organization because they wanna fulfill orders, of course, successfully. And at other times it's gonna be the uh finance person because they're interested, you know, the VP of finance or w whatever their title might be, CFO, uh, 'cause they're interested in uh well, they're interested in maximizing margins and who doesn't wanna have predictable revenue if you're in finance, right? And predictable profit and increasing your profit, right? So it could be any of those folks and all of them have brought us on board. Strangely, it's oftentimes not operations that bring us on board, but we always work with operations. So it just depends. If they're more strategic in nature and or have a PL responsibility, you know, then they'll reach out as well.

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W w and why would you guess uh operations people aren't usually the people saying, uh, I have a problem. I need I I need I need your help. Like they're concerned about saying they they need help, exactly. Yeah. and then would you say half of your practice is manufacturing? I would say really it's more like seventy, eighty percent um is manufacturing and then the you know, all manufacturers in essence distribute it to to varying degrees. Some have a very simple distribution s system, meaning they ship it, and others have like a distribution network. Um but uh in addition, we do work with distributors as well, and some of them, strangely enough, call themselves manufacturers. because they consider their suppliers their partners. So, you know, 70%-ish uh manufacturers and value add distributors, and we also have you know

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It distribution is um you know, it's uh it's more focused on like the customer service side, inventory, um, maximizing like efficiencies, but there's there's less levers, right, that you can pull you know, in terms of like y you can't do anything about the production end of things. Yeah, less moving parts. Less moving parts, exactly. I mean not that there's not complexity. I mean there's storage but for sure. We d actually we just uh worked with a distributor and we we actually did improve their operational efficiencies, provided better visibility, you know, better like BI type reporting for critical metrics and helped them figure out how they could scale up operations and you know, fit in essence fit more into their facility, which is a big deal because otherwise, you know, any time you have to uh bring on extra facilities, you own you not only have overhead

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well, you're totally right because there's extra freight involved. I mean unless there's a strategic reason, it's way better to find solutions, like go up. I mean it's not that simple, but you know, we we found some um ways to not only improve their efficiencies but some and new equipment and put together some ROI analysis on how they could um store more in the same space. Make better use of what you have before you go out and go get something new. Tot totally agree. And you know what? Whether you're a manufacturer or a distributor, that is vital advice. Yeah. And then um we have all sorts of different manufacturing clients that uh on one hand may have uh premium product and high demand. And uh that's a great thing to have now to ha be a source of growth. And with those types of clients they've s really scrutinized um should they go further.

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to have lower cost of labor, lower real estate, even though it might be at the expense of more expensive logistics and in search of economic incentives and any other like incentives you might get by virtue of playing on a more regional level. Uh and the cost of utilities is uh like uh variable between areas and is like uh there's a wide swing depending on what area that you land in. And then we've had some other ones that are on like the lower margin, some of like the auto guys maybe that are more sensitive to tariffs and more sensitive to whether manufacturing is in the US or in Mexico. And so manufacturing is uh kind of going through its own like evolution. How would you describe the state of manufacturing right now, since that's a lot of where you like your practice is focused on?

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Well and we can we can talk about both actually 'cause you brought up a couple of really important topics about the um pre margin pressure going on in distribution. So it does provide some critical pieces. But let's start with manufacturing since you brought that up. Uh and it was our first topic. So the state of manufacturing is um I mean, the good news is that it's it's starting to grow again, thank goodness. Uh I would say since twenty twenty three, somewhere in there. like manufacturing has been in a recession. you know according to all the um government statistics as well. It's been it's been tough in manufacturing. So what we saw is a a lot of our clients I mean of course it depends on which industry they're in, but generally speaking, their backlog started like shrinking um around that time. So, you know, it it makes things more challenging to be sure.

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If you don't have the volume to, uh, you know, offset your co your fixed cost base. That's a serious problem. So it just depended, right, on on who you were. Now with that said, there were certain industries like defense as an example that you know was uh successful, you know, regardless throughout. And you know, we had if we were working with clients already, they were wanting for sure to like how do I do what we were talking about earlier? How do I maximize my margins and you know reduce inventory and you know be more efficient so I can improve upon these times. However, now that uh it the uh tax tax law changes have gone into effect last year. That's made a significant difference because it provided some incentives for um increasing manufacturing domestically um and or restoring, which they're not the same, but they you know they're both um are you know This is like the big, bad, beautiful bill and depreciation or w yeah, which ones uh yeah.

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so they are able to expense their equipment much faster, which is provides a tax benefit. there's there's a lot there's like special loans for manufacturers. There there is a lot of uh a lot of incentives tax wise for manufacturers. That's not the only thing though. So I would say the the tax um incentives are significant and are encouraging manufacturers. Manufacturing to take place. Um in addition, the risk that's been going on globally is is, you know, just crazy. It's insurmountable, the amount of risk that's happening in the global marketplace. And we're very dependent, like broadly speaking, on China. And that's a real problem. If you uh if you wanna you don't r really wanna be dependent on anyone for m pharmaceuticals, medications, defense equipment and critical materials and components, uh,

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to these electronics, you know, like your autonomous cars, etc. So, you know, There's just a lot of not only is there risk like you know, what could happen national security wise, but there's just been a plethora of of activities and wars, you know, the Russia-Ukraine war, the Israel Hamas, the Iran uh conflict going on and there's uh you know, strikes and there's or potential strikes, there's uh, you know, weather events. So there's just a plethora of risk out there. And so manufacturers have realized that they have to take more control if they wanna be successful. Now, does that mean they need to reshore everything? By no means. Uh are they still gonna purchase from China?

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Absolutely. Uh but you know, how much and of what is a very different matter. So what I'm seeing is is that critic what I'll call critical, which is really, you know, could be defense, you know, like national security related items, but you know. People don't maybe think of food that way, but it is I mean if you uh can you do all the basics, right? It's it sounds very much sounds easy. It's absolutely not. Because do you have your entire your t entire food supply chain and your electronic supply chain, like you know, how do you get from place to place with a car even? So, you know, anyway, there's there's a lot of risk. So I would say number one is tax. Number two is companies have started to think I need to diversify my risk because this is just too much risk if I want to stay in business, and it really is. And then there's also then there was also. The tariffs, which went in both directions. So, you know, the tariffs did incent uh companies to start producing specific items like the ones that I'm talking about oh in the U.S., it's not like you snap your fingers and it

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happens, but it's there there is movement in that direction. On the other hand, tariffs also at first cause a lot of instability in the marketplace, which caused our customers to have issues with their customers. Because their customers were like, well, you know what? I'm gonna wait until I know my business environment before I place these like long term POs, especially in like industrial equipment kind of manufacturers, as an example. And so their backlogs went on hold, if you will. Like, you know, customers weren't sure. So they were buying, but they were buying just what they needed. So that was the negative impact, which extended that whole recession we were in since twenty twenty late twenty. 2022-2023, it extended it longer because, well, it at least extended that piece of it because of the instability.

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With that said, though, the tariffs also did has stimulated some manufacturing to take effect, and it has stimulated some of the actions that they wanted to happen, but it's just not quick, right? So so anyway, so I guess what you could say is that now I'm seeing concentration. Industries with high growth because the the fourth thing that happened is AI. So AI has really spurred on. That's right. Well, AI is key because it's you know it's spurred on all these data centers and a lot of growth in all sorts of surrounding industries. There's massive growth in manufacturing to support. even talk about it in twenty twenty two. It wasn't even on the radar. I just yeah. So I mean with that said, there's a lot of concentrated growth in manufacturing.

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But in some industries, it's it's it's not like tanking, but it's just not really I mean it's growing slightly, right? So it very much depends on who your customer base is. So you have to be proactive to be successful because there's a lot of opportunity for sure. And a lot in there's capacity constraints. however, if you just stick with exactly What you've been doing all along, and you aren't thinking about how can I use my capabilities in a different way. Well, I believe that the winners are gonna be a so are gonna uh move forward, and the losers are gonna, you know, obviously gonna deteriorate, and there's just gonna be less of the middle because you either are gonna be proactive. doing the right things, investing in the right technologies, and upgrading your processes, or you're not. And unfortunately, or fortunately, I don't know how you want to look at this, there's gonna be more opportunities than ever before.

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But at the same time, if you aren't gonna be moving forward, you are gonna have a problem. Can be tough. Yeah. I remember seeing last year, year before, any supply chain conference that you went to was like uh AI something or other, how it's into the and it was all software providers talking about how their new stuff it's everywhere. And it was before I had had at least two, three years ago, any experience whatsoever to really know what they're talking about. And I was like, that's great. new flashy, shiny something or other. And then now if you go to conferences like it's uh still a hot topic, maybe even a hotter topic, and then I would imagine more of the assignments you go into, you get to then see what people have done, what new software has led to, what new processes and what new expense, and then maybe a good or bad result that still needs more like a refining.

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So how has your practice changed as a result? And I'm sure you had to like you've been absorbing it probably pretty quickly and just having that be in your world. For us in real estate, like uh on one hand, like we see it as practitioners and we see it in the work we do with people, but um how often is it something that comes up that's a critical part of a facility move? or of a transaction. And so far it's zero, zero, zero and zero in that like it helps here and there, but like rarely is it like a cornerstone piece of a particular deal that we're working on, though everybody is using it to some extent. It's more like the professional services knowledge worker type of use case, as opposed to like a processes that are happening in the warehouse that are leading to something different that's leading to a real estate transaction that is part of

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The conversation and is like a part of the assignment itself. Right, right. Well, I think for in manufacturing and distribution it is it is coming up more and more. so uh the manufacturers and distributors utilize ERP software, so like like an SAP, Oracle, JD Edwards, um You know, there's all sorts of them. Uh so ERP suppliers are s somewhat slowly, it depends on which ones, but slowly but surely, and some of them relatively quickly, building AI capabilities into the ERP system. So that's definitely happening. And it and it's it's um you know, it th that's the best in a way it's great because they own the ERP software and they need to they can keep up with changing conditions that way. So if you have a modern ERP Software they're going to build the capabilities in. So that part is good.

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Um, however, you know, it's really not enough. So I am definitely seeing, I mean, there are some traditional things like sales forecasting. We talked about that. Sales forecasting has always utilized AI. I mean, and it's as AI has gotten better, it's gotten better because I mean, if you think about it on like in distribution, a lot of the a lot of times you have B2B, B2C type requirements. And you have customers, customer trends. I mean, you have that if in manufacturers as well, but it depends on who they're supporting. Like consumer products has more uh promotions and like consumer trends. Well, no one can keep up with all of those changing conditions, um, and so it's uh it's AI has it definitely helps with um being able to do that successfully, and so eh it's built into the Forecasting systems is also built into like advanced planning systems. So how do you like allocate products between your sites and you know, should I make or buy something?

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So it it is involved in many and from a manufacturing point of view, like there's uh you know, you can connect the data from your machines and you can do predictive maintenance and you know, you it it's built into a lot of the manufacturing arena. With that said, there's also AI for like automating your entry of your orders as an example. Like like an you know old-fashioned EDI, but it also could just be like taking them from emails and and entering uh orders. So, you know, basically there's a lot of uses for um for AI in manufacturing and in distribution. Uh in distribution for sure. Because like, you know, how do you optimize your inventory and look across sites? So there's there's lots of uses, but a lot of these These are different softwares um and or you know like that are incorporating AI in it and or ERP system.

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However, like the district distributor that I recently wrapped up a project with, we like we helped them utilize Claude and did a like a freight analysis as an example, but it's more one-off in that type of scenario. Yeah, I would just think everybody would have their whole business p piped into Claude and then next thing you know, Claude is in the logistics and manufacturing space. uh Exactly. Yeah. It's uh sure amazing to think of uh how many sensors, how many connections, everybody's gonna be a IT person someday to some extent. And even with that being the case, if you walk the floor in a manufacturing building though, it's not gonna look like that most of the time. You still just have workers and machines, raw materials, work in progress, things getting palletized.

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And I get that like uh that's uh funny to say, but it sure takes a long time to turn into like uh the capital equipment purchasing cycle is still slow. And it's still expensive and with rates going up is probably a bit of a headwind to transformation. Yeah, exactly. It's there is uh it it's definitely uh critical to you know, it's it's more and more if you aren't utilizing AI, you are going to have you're gonna be left in the dust, um, no matter who you are. And like that's for sure true in manufacturing and distribution. So now you asked me also how we're using it as far as like working with clients. Right. Well there's there's a lot of ways that you can utilize AI to help you.

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Um, you know, like copilot is one of the things that we're using a lot of because it it you know, I you can find what you're looking for, you can have it build some base based documentation from webinars that you record or uh teams meetings that you record. Uh and then you you know, you can't just use it and leave it, but you have to be able to, you know, add your expertise to it. But it certainly has made us much more efficient and quicker. Which is important because if you're not quick, you're not gonna succeed in today's environment. Yeah. Y you have to. It's uh you turn into four people's worth of work that you get done in a day or in a week. Yeah, exactly. Yeah. I'm finding some of these conversations are leading to people doing a little bit more of the network optimization as they start to try to take all the increased costs and make

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sense of them and then say like, Okay, base because things are all everything is inflating to some degree, how do I deal with that? Maybe that then means I need to go find lower cost places of doing business or I need to reorient. Do you deal with that? Do you see that? Are you uh experiencing much of that? for sure, for sure. Everyone is looking for how do I reduce my costs? And so um, you know, I think uh well, I mean AI can be one of those, like well it's AI itself isn't gonna do it, but it can provide uh it it can evaluate opportunities, right, to help you figure out how to reduce costs. Like that distribution example, we built a model that's like s an AI enabled type model to like how do we opt The storage space, how do we optimize our movements in the warehouse? and we used Claude as an example to do that freight analysis uh in manufacturers the same.

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I mean, there's like there's a plenty of opportunities, like really just even utilizing your ERP system to a greater degree. I just uh was doing a podcast on utilizing what's called MPS, which is the master production schedule. Um, clients are very interested in how do we I use how do I improve from forecasting to figuring out what I need to produce so I can produce it in an optimal order so that I can basically they're looking to save money, be more efficient, increase their outputs with the same people, right? That's what they want to do. And there's a lot of ways you can do that by optimizing your what broadly is called supply chain processes, but it's really that forecast to fulfilling the forecast process that I was telling you about earlier. a lot of opportunities in there. I mean, but you can also use SIOP to make should I make or buy something? We've had clients that utilize the SIOP data to figure out like maybe I should um

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produce this particular item type of item in this other facility because I have some cac excess capacity and uh have less labor costs or it's looking to be less freight costs or I can ab better absorb my overhead costs. There's there's a lot of opportunities. are always doing that. They're always like shutting down one line and moving something else back to their other building that they'd shut down and trying to make use of existing facilities. And it's uh that's such an expensive type of business to build out that those guys, I feel like they're always trying to they always end up making lots of moves like that. I I don't know if it's always a sign of progress or a sign of like survival, but I feel like I see that quite a bit. Yeah, I'm working with a couple of food companies right now actually, food manufacturers. And uh yes, they're both looking at um how do I plan more efficiently, how do I you know, how do I optimize what I have here?

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How do I better utilize my system so that my team can focus more attention on I mean really that's the key. Is my is my team gonna be spending all their time in Excel trying to figure out how to like get customer orders out the door? That's important. Or can they utilize systems and and you know, process improvements to so they can just focus twenty percent of their time optimizing the plan and spend more of their time figuring out how to like improve, increase uh you know, increase their, you know, output and, you know, improve their revenue, that type of thing. Yeah I I managed to gosh, none of them don't have any work to do. What's uh so w what's the impediment to progress a lot of times? Do you think it's just like institutional baggage or just this is how it's always been done, or not having the authority to make changes or like fixed investments that you like

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have to use 'cause that's what you have? What would you say are some of the big impediments that people face that you then being there can help people like overcome? Well, you know, a lot of times they have some sort of ERP system. I mean they may need to like expand upon it or better utilize BI or something. But generally speaking, it's how do I how do I get from like how do I meet these customer requirements? 'Cause customers always have like special requirements for this, that and the other. But how do I how do I put that into my system in a way where it gives me directionally correct information coming out of it so that I I can actually utilize it and I don't have to redo all this stuff because I have I can trust it. So th that oftentimes is really a big part of the problem. And it relates to the setups behind the scenes and it also relates to educating people because like you know it there's always some disruption as we were talking about originally, right?

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There's something goes on. I have a supplier that's impacted by um you know what's going on in the Strait of Hormuz or the Suez Canal or th these days, the Panama Canal, because it was having like like lower water levels. So you know it it's impacted by something. And then how do you like uh change the appropriate how do I make that ripple through my supply chain quickly, efficiently, and how do I make sure I can still support customer needs? basically efficiently and profitably. And that sounds much easier than it is. So many times it's how do I it's not all about the systems, but it's a tool. So how do I optimize my use of my tools? You know what? Just even starting a basic SIOP process. This you know, aligning your demand and your supply, uh, and figuring out how you can stay in front of these changing conditions. So many times it's like how do I put in a simple forecasting process? Don't wait for perfection.

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Let's start somewhere and then it'll tell us like, we have like this issue coming up. And if we find we have a data integrity issue, fine. That's a great use for AI actually. Um we've built like a model where we can like fill in some missing data so that we can get a directionally correct answer. Doesn't mean that we shouldn't still update the system to be, you know. great across the board, but we need to you know, continue to uh you know, utilize the tools we have and so there's there's a lot of a a lot of potential there. Yeah, it's uh for me when I was first going through doing some network optimization, constraints, juggling constraints, I feel like that's another way of saying that maybe that like is diff it's hard to prioritize w each constraint and then to have them move and change in uh decision making that oftentimes isn't as flexible as the constraints are in

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like uh providing difficulty and challenge. You're absolutely right, 'cause they're uh constraints is actually what's been coming up and one of the reasons why folks are interested in implementing these uh additional functionality for planning in the systems because they have constraints of exactly you know, the raw material constraints 'cause their suppliers have delays or they don't have enough capacity or something. They have internal constraints 'cause they need to bring like production lines out of commission to uh upgrade them or to, you know fix them and or whatever, you know, they just they don't have enough capacity one way or another. And so how do we handle that constraint or you know, there's just plethora of constraints here. Do we have enough uh trucks and of what type and are they the most efficient ones and you know like to to deliver to our distribution centers um, you know, that do we have enough storage, right? 'Cause we run out of storage in the distribution centers and labor, right?

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Because we can't find enough people So there's all sorts of constraints. You're you're absolutely right actually. Y yeah, and how often does your work uh involve some for transaction where someone goes bigger, goes smaller, closes up shop, moves to another area? Do you find that's a ten percent of the time? Or since uh everything you get involved with ultimately leads to there's no way we can do that in this? Or uh we now have extra we need to get rid of, or we're getting purchased by somebody, therefore they'll have overlapping that like a redundancies. Well you see that often and uh how does your work intersect with uh what ends up being some form of real estate implication? Well, I would say, you know, it's actually pretty significant o overall because uh most clients have either been acquired, they're looking to acquire someone so a lot of PE activity, that's for sure.

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Yep. you know, there's you know, if you're in distribution or or even manufacturing, you may want to consolidate some of your distribution centers or you may want to add because like customers are always changing, the requirements are changing. So I'm seeing that there's a lot of activity there. Like I even worked with like an industrial equipment well um they ha they fed into distribution centers and even like uh build you know new buildings. but a lot of distribution centers and like they you know like they were looking at like should I how do freight was a big deal because these racking systems and building structures are rather um Well, large. And so how do I how do I like optimize freight in my network based upon where customers are and which customers are building new sites in what area?

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So, you know, it's it was a a big thing, but then do you have the labor there? Uh because you know, labor was a definite uh critical item. And actually the supply chain because like your uh your like steel aluminum suppliers aren't you know those aren't things that can easily be transported um you know if it's a larger um item so anyway so there's there's a lot of that type of uh work that comes up throughout and I would say that a lot of companies are also you know if they're a family owned business they might be looking to sell or they're preparing for sales so there's there's a lot of movement and if they sell I mean it depends sometimes they'll keep the core facility but they'll shrink it it if it's like in California as an example because there's so such high energy costs and some other things, but they may like increase their facility in Texas. I mean I'm just you know making things up but a lot of changes tend to occur

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Yeah. It's uh especially yeah, privately held companies. I feel like they uh have a lot of um acquiring rather than organic growth and then like packaging it all up and then getting it ready for sale to some extent. Um you brought up power. Uh is power anything you hear people talking about? It's hard to get or it's uh critical. I mean obviously manufacturing is uh like uptime. And making sure they're always like a delivering and providing service levels that are acceptable. But with new facilities, we see people having a hard time finding what they need. But uh a lot of manufacturing also doesn't need like ridiculous amount of power. Like developers do build with power in mind and they do try and put in as much as they can to meet the market and match demand within the constraints of the utility.

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But I'm curious if that comes up in your conversations and in your work with people and how it does. It does for both manufacturing and distribution 'cause in manufacturing as an example, I worked with a a rubber uh producer. They they made piping and you know, it was uh a significant cost. Uh electricity is definitely uh not inexpensive and of course you have peak season and peak hours. So, you know, we were trying we you know, we looked through different options of staffing, how we level load. so that we can spread out the power usage. We also uh worked with some Harvey Mudd students um and um and pursued several projects of how do we like um make some equipment upgrades so that we can, you know, decrease the electricity usage. That was like one example. But there's there's a lot of clients have spent uh time because it's a significant cost.

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So how do they how do they minimize their um electricity needs and or um you know put them in off peak hours as an example. In distribution though, that can be significant because th these days you really have to have the technology to be successful. You can't just have old style distribution. I mean you really can't do that in manufacturing either but it's slightly different because you know you may have some robotics and automation equipment. But in distribution significant power usage is needed because there's significant robots uh you know automation systems I mean it's it's it's significant and so new build like I should say new buildings like that's like sometimes the crux of the matter can can they get enough power and is it reliable? Um actually I also worked with a manufacturer and distributor that had their power turned off multiple times because I guess they were in a poor area that like was in the like you

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have to to shut it off in advance uh to make to prevent a fire situation. So they just happen to be in a very bad area because that's that's like um rather unacceptable to have your power going off all the time because if you think about it, you're struggling to uh maximize your profit and you're gonna be down, you know, like randomly and you can't meet customer needs. That's just like a severe problem. So you have to be thinking about that. So it it comes up in uh i i in manufacturing and distribution and in this case like distribution may be even more impacted just because there's so much I mean if you're not pursuing an automated AI enabled distribution center, you probably are going to um Well you're gonna struggle long term. You should be. You should be, exactly. you should be. Because even if your product is not the type that's like going to lend itself well to automation, 'cause we worked with a client like that, even in that case, you still need to

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you can s you can always do something um to improve upon your process and automate some addition you like in that case you could go vertical and like put your smaller products in like a vertical lift and you know, like the no matter what, it's going to involve more electricity. So you you need to be you need to consider a lot of things. Not just the risk that we were talking about earlier, but infrastructure like water, um and but electricity is key, especially in California. We were touring uh automotive manufacture through a plant in the Inland Empire East in Colton. And when we were touring the building, the building across from us was a manufacturer and they had one of these rolling brownouts. And then they had uh backup power that was a big rig, more or less, that was like a mobile generator for a plant.

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And uh all the executives were like, What is that? I is that what I think it is? How often does this happen? And then that became something that became like a risk for them of like, hmm, should I be over here if this is a thing? And of course this isn't something that happens all the time, but just to have it happen the one time we were touring some big facility right across from there, sure like made a mark and left an impression with them that was uh we need to look into that. And like now we're a concerned about moving into that area. If this is a thing we can't afford to have stuff like that happen. Well, there's some there are certain areas that are more of a problem than others, either because of uh policies or because position, I guess you could say, because of where they are. Based upon the uh equipment, right?

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So it's it's it is uh you have to be you have to be thinking of a lot more things 'cause you have to be thinking about technology, uh how things are gonna change and evolve with AI, electricity. I mean, there you go. 'Cause the AI uh The data centers are using a lot of e electricity, but it's not as though we don't all use AI. So, you know, there it's just gonna be a significant requirement. Yeah. Um and then I don't see a whole lot of people putting solar up as much as I would have expected. You would think that in Southern California would be a bigger solution and perhaps it will be in the future and it is increasing to some extent. Um I would imagine I'd I surely hear manufacturers talk about it and have a desire for it and they think that that's something they should have on their radar, but how often do I actually see them Do the analysis, it pencils, and they do it.

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And so far, I'm like oh for 25 of companies that have done that. I don't think I know of any either really. I think that I mean, I I think it can make sense. I think the problem is is that if they're gonna get into all the upgrades and equipment and everything else, they may w start reevaluating where they are and like are there other options, right? 'Cause that that's what it leads you to. And then they're like, Well, maybe if I'm gonna spend this kind of money I should move somewhere else or I should do this or that so you know, I mean so there's there's There's a lot of options. So I don't know, but I agree with you. It seems like more would pursue it. I think it's a it's a massive undertaking is I is a is my guess as to why it may not like you said, it has to pencil out, it has to make sense versus other alternatives. And I gotta think it does somewhere, but I haven't seen it um happening too much.

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you're in the utility business or some landlords are starting to put this more increasingly on their buildings. Some like uh of the public REITs are uh like putting significant money into this. But I still feel like of all the in existing stock, like it is still um we have a long ways to go perhaps. But it seems like it's a trend that has to increase over time just with usage. And it's interesting to see when that turns the corner and being more like pervasive and more accessible for like more companies to utilize. Yeah, yeah, exactly. Well, you know, it doesn't relate to industrial building, but I was actually looking at it yesterday and working with ChatGPT and uh saying like, you know, d does would solar make sense? Does the battery make sense? And I think the payback is pretty long. so that that's part of the problem. It depends, of course, on the situation, but a house where the person who's selling it just puts solar on.

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Yeah, that's exactly right. That's exactly right. Like I had a friend who they bought they bought a house that had solar and they they're h very happy with that. Of course, you know. It's a easier way to go buy. periods is perhaps a theme we hear more often that like people need to see that and so long as that is the case, then that drives a lot of prioritization of capital decisions. Yeah, I agree. I think that's absolutely true. Everybody wants everything faster and they want rapid paybacks and I mean I think that in a way AI has misled companies 'cause they're like, Well, I could just use this and I ha actually had a a client, uh this uh distributor, uh potential one and they were saying like, Well, I just wanna can I use an AI enabled system to do my demand planning and my uh supply planning. I I want You know, my s my current system is just like too arduous uh and too expensive.

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And I was like, well, yes. However, it's you know, like there's there's a foundational element too. So unfortunately it's not quite as easy as just saying, Well, just replace it with AI. On the other hand You know, these stodgy systems that have made a ton of money and are very expensive, millions of dollars to implement, um, have to be watching what they're doing here because Companies are going to find solutions because you can utilize, like for example, I was telling them, there's a lot of options. We have to assess the situation, but we could use the ERP system in combination with like an AI enabled system. There's software that's m far less expensive that's gonna do the um 80-20, and like do you really need that last 20? Because in your business it's not like complex. Um, or you know, we've built a model for uh these.

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types of situations that's like a AI enabled model that does demand and supply planning that might be a solution but what's the most sustainable approach? We have to look at this. It's not just plugging in Claude necessarily. That could be one of the solutions. Yeah. Well w well, I think we've covered it, Lisa. This is our time. That was a good uh refresher and it is wild to think how much has changed since. It's good to see you're out there thriving and growing and helping people do the same. Yeah, yeah, absolutely. I think I think what I would say is is that one of the key pieces I'm seeing in con in uh as one of the hot topics in both mis manufacturing and distribution is the need for building capacity and capabilities. Um, even more capabilities that are flexible so that you can scale up quickly with changing requirements and you can um pivot and maximize your margins.

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So that that's like one of the key uh trends I guess I'll leave you with and I think you can utilize AI to accomplish part of that, but it's a again, it's not just throwing AI at the problem, but it's a piece of the puzzle. But I think that's Yep, that's I I'm seeing that come up more over and over again. And of course the use of technologies, but that's part of the cap capacity and capabilities. Yeah. The two Cs. That's a good framework to leave us with. Um, super awesome. thank you, Lisa. Thanks for spending time with me and for going over this and helping people do good work out there. Yeah, I've enjoyed it and it was great to talk to you again and uh thank you. Alrighty, we'll see you later. Have a good one. Yeah, bye bye.