התמלול המלא של Jim Nelles, Supply Chain & Procurement Executive - Why Procurement Should Be a Profit Center

book that's going to be written. 00:02:05.120 --> 00:02:16.319 So, you know, there's people who are short-sighted when it comes to stuff like this, but there's always gonna be room in the economy for people with good ideas who can build a better mousetrap and do things better, stronger faster than the competition. 00:02:16.560 --> 00:02:17.840 Agreed a hundred percent. 00:02:18.080 --> 00:02:21.120 So, Jim, I'd love to hear about your first. 00:02:21.439 --> 00:02:22.639 I'm gonna go back to the beginning. 00:02:22.719 --> 00:02:27.919 You know, how did you first find yourself into the world of procurement and supply chain? 00:02:28.000 --> 00:02:29.840 I know you were at McKinsey and Company. 00:02:30.000 --> 00:02:36.080 I'm curious, were you just staffed somewhere, or did you study something related to operations and supply chain? 00:02:36.159 --> 00:02:37.680 How'd you get involved initially? 00:02:37.919 --> 00:02:46.080 No, so I was an econ and French major in college, and then I went into the military for five years where I learned how to shoot missiles and do things like that. 00:02:46.240 --> 00:02:54.479 So I was brought into a company called the Master Car Supply Company when I left the Navy, and they had a management development rotational program. 00:02:54.719 --> 00:03:01.199 And when I was doing my rotation in procurement, the procurement manager that was training me quit, and the next day I was a procurement manager. 00:03:01.360 --> 00:03:03.520 So that's kind of how I ended up in procurement. 00:03:03.680 --> 00:03:08.479 And then when I was able fortunate enough to get a job at McKinsey, they're like, Oh, you know about procurement. 00:03:08.639 --> 00:03:12.000 Well, we just started a procurement practice, so you're gonna be in that. 00:03:12.159 --> 00:03:15.919 And if you know anything about consulting, if you do something twice, you're an expert. 00:03:16.080 --> 00:03:22.319 So no one ever grows up saying, One day I want to be in purchasing, but that's how I ended up in a purchasing and supply chain and operation. 00:03:22.560 --> 00:03:23.439 It's amazing. 00:03:23.599 --> 00:03:30.560 And so I'm kind of curious, and this is a bit of an oddball question, but what is the weirdest thing you ever had to source? 00:03:30.719 --> 00:03:37.680 Is there anything where you're like, whoa, we had to buy XYZ, and that was a really odd one to try to find? 00:03:38.000 --> 00:03:47.439 There have been some uh without going too dark here, there have been some weird proteins that I've had to source for various companies who may have been in the artificial insemination business. 00:03:47.599 --> 00:03:48.639 I'll just put it that way. 00:03:48.800 --> 00:03:59.599 But the, you know, the the craziest time for me to have been in procurement supply chain was was during COVID, when for the first time and only time in my career, no one cared about how much something cost. 00:03:59.919 --> 00:04:02.159 They only cared about could you go find it for me? 00:04:02.319 --> 00:04:05.919 And so it was never save me 10% on the price of this. 00:04:06.000 --> 00:04:10.080 It was I'll pay double if you can just get it and get it here within the next six months. 00:04:10.319 --> 00:04:15.919 So that was the the probably the weirdest time, but the weirdest thing I ever sourced was actually bull semen for a company. 00:04:16.000 --> 00:04:18.319 And that's more fun thing to source. 00:04:18.639 --> 00:04:20.079 Okay, sounds good. 00:04:20.319 --> 00:04:33.120 Yeah, I think I I can't say that I've I've done that, but we do have a we do have a medical, a medical customer, med devices customer we work with, uh, and they have a category manager who sources uh had to source cadavers. 00:04:33.439 --> 00:04:36.720 And that's like a really yeah complicated supply chain. 00:04:36.879 --> 00:04:42.160 And uh and it's it's there's not a you know, a lot, not a huge number of vendors doing that kind of work. 00:04:42.480 --> 00:04:48.399 But I did we're dying to get into it, but um I love it. 00:04:48.639 --> 00:04:52.720 So I'm I'm I'm curious to get your take on a few different things. 00:04:52.800 --> 00:04:55.040 There's a lot of different topics we can cover today. 00:04:55.279 --> 00:04:58.639 You are an obvious expert in the procurement space. 00:04:58.879 --> 00:05:06.480 The second is I'd be curious to learn a bit about the world of private equity procurement and how that's different from corporate procurement. 00:05:06.639 --> 00:05:12.079 And then the third is I know you have a lot of a public persona related to politics. 00:05:12.319 --> 00:05:19.439 I'd be curious also to get your take on how to link some of the things that are happening in world events to what we're seeing in the procurement and supply chain space. 00:05:19.519 --> 00:05:26.560 So the broad, broad strokes, maybe what we can start with is a little bit about, you know, private equity procurement. 00:05:26.639 --> 00:05:30.160 I mean, how does procurement figure into the private equity equation? 00:05:30.319 --> 00:05:34.240 Why does private equity seem to care so much about procurement and supply chain? 00:05:34.399 --> 00:05:36.000 How do those businesses operate? 00:05:36.319 --> 00:05:46.160 Well, you know, when I first got into private equity about, gosh, over 10 years ago now, which makes me feel even older than I really am, private equity wasn't thinking very strategically about procurement. 00:05:46.240 --> 00:05:50.560 They were nibbling around the edges and they were thinking about it in terms of cross-portfolio. 00:05:50.720 --> 00:05:56.480 Let's go sign a contract with FedEx and have all of our companies use FedEx and we can save money. 00:05:56.639 --> 00:06:02.720 Let's go sign a contract with Dell or with Lenovo and they'll all buy the same computers and we'll save money that way. 00:06:02.879 --> 00:06:07.759 And when I got to my first PE firm as an operating partner, I started going through the spin.

00:06:07.920 --> 00:06:16.720 I'm like, you you realize that we're like a Fortune 75 company if you take all the direct material spin that we use, and the money's gonna be there. 00:06:16.800 --> 00:06:18.639 It's not by nibbling around the edges. 00:06:18.800 --> 00:06:27.839 So we really transformed how private equity started to think about procurement by going after direct material and and adding to Ebit Dot that way. 00:06:28.000 --> 00:06:36.079 Now, the reason it became so popular is that you can very, very quickly add ebit dot to the bottom line in a private equity situation. 00:06:36.240 --> 00:06:38.000 You can and it's dollar for dollar. 00:06:38.079 --> 00:06:43.680 You don't have to go sell with a 20% margin and sell five units to get a dollar's worth of margin, right? 00:06:43.759 --> 00:06:47.759 You can go and every dollar you save goes right to the bottom line for the most part. 00:06:47.920 --> 00:06:49.600 So you can do it very, very quickly. 00:06:49.680 --> 00:06:54.560 It's a one-for-one impact, and it doesn't necessarily impact people. 00:06:54.720 --> 00:06:59.120 So you don't have to necessarily get people to think differently about how to go to market. 00:06:59.199 --> 00:07:06.480 You don't have to go to your customers and raise prices, you don't have to go through a product development phase and introduce a new product. 00:07:06.639 --> 00:07:12.800 So it's quick, it's actionable, and most importantly for private equity, it's tangible and quantifiable. 00:07:12.959 --> 00:07:24.160 So you can sit in a management meeting when you're going to have a transaction and sell the company and demonstrate on a dollar-for-dollar basis the work that procurement has done, but also your value of the work that's left to be done. 00:07:24.720 --> 00:07:25.920 It makes a lot of sense. 00:07:26.160 --> 00:07:36.720 How much, how much work is done up front during the diligence process to figure out, you know, how much, how much you know, meat is on the bone from a procurement perspective? 00:07:36.879 --> 00:07:40.639 You know, be I mean, personally, like I'd you know, when I'm buying a car, I test drive it. 00:07:40.800 --> 00:07:52.480 If someone's buying a hundred, five hundred million dollar company and they their expectation is to be able to wring a bunch of cost out, I I would assume that they would take a sample of the spend cube and try to look through it, but I I'm not sure. 00:07:52.560 --> 00:08:00.000 Is that does that practice happen, or do people just make simplifying assumptions and say, hey, typically a company like this, this is what we think we can get? 00:08:00.079 --> 00:08:03.279 And or does that planning happen after post-acquisition? 00:08:03.439 --> 00:08:06.399 Yeah, it's incredibly inconsistent across private equity firms. 00:08:06.560 --> 00:08:11.680 Some private equity firms actually will involve the operating team during the diligence process. 00:08:11.839 --> 00:08:26.959 And if that's the case, then you can

do everything from a back of the envelope analysis to say, okay, here's what they spend uh, you know, here's what they spend, here's what they spend on people and on benefits, and the rest of it is stuff that they pay third parties for. 00:08:27.120 --> 00:08:29.439 On average, I get 10% whenever I do this. 00:08:29.600 --> 00:08:34.000 So let's say that we can go after$400 million, I'll get you$40 million over 18 months. 00:08:34.159 --> 00:08:37.120 That's real quick, dirty back of the envelope type of stuff. 00:08:37.279 --> 00:08:52.480 Other companies are more progressive, and sometimes it depends on the target, interviewing their operations leadership team and talking to their head of procurement and maybe some procurement managers and directors to see what work has been done in the past and what work they actually can quantify. 00:08:52.639 --> 00:08:59.759 You can actually learn a lot also by reading through the sims and understanding how they talk about procurement. 00:08:59.840 --> 00:09:05.919 And if they don't talk about procurement, that tells me that they haven't done anything with it and that there's a lot of ripe fruit there. 00:09:06.080 --> 00:09:09.759 So, you know, again, it's incredibly inconsistent across companies. 00:09:09.919 --> 00:09:22.960 The good companies will pull in someone to go through, hopefully look at a spin cube, but if nothing else, do the back of the envelope math and then do some interviews with the the folks in procurement before they uh go ahead and sign on the dotted line. 00:09:23.200 --> 00:09:23.919 Interesting. 00:09:24.159 --> 00:09:29.840 And how often do companies, when you meet with them, you know, have a spend cube already built out? 00:09:30.080 --> 00:09:34.240 And is that typically something that you would do or you'd task the team to do? 00:09:34.399 --> 00:09:37.759 I'm thinking about you as the private equity operating partner now. 00:09:37.919 --> 00:09:38.159 Yeah. 00:09:38.399 --> 00:09:46.720 And and how often is that in Excel, like one-time poll versus a spend analytics tool like uh Cievo or spend HQ, that kind of thing? 00:09:46.960 --> 00:09:50.559 So, first of all, it almost never exists before we get in there. 00:09:50.720 --> 00:09:51.679 Almost never. 00:09:51.919 --> 00:10:03.919 And 90 to 95% of the time, when we do get in there and they do have it, it's an Excel spreadsheet from a one-time data pool that they did specifically to talk about in that meeting for the the transaction. 00:10:04.159 --> 00:10:05.039 Very, very okay. 00:10:05.519 --> 00:10:12.879 People have a you know, a living, breathing spin cube that they use on a regular basis to try to make themselves better at what they do. 00:10:13.120 --> 00:10:13.679 Interesting. 00:10:13.919 --> 00:10:17.279 Here's my uh other question on the opposite side. 00:10:17.519 --> 00:10:25.440 Do you feel like procurement is the one of the first things that people do when they, you know, buy a new business? 00:10:25.600 --> 00:10:31.600 Is it sort of continuous throughout, or is it something that you do also towards the end when you're looking to sell? 00:10:31.840 --> 00:10:47.919 And part of the reason is that I was in a conversation recently with someone that suggested to me that they were not going to pursue certain cost reductions because they wanted to leave something on the table for the next private equity firm that bought the company after them. 00:10:48.080 --> 00:10:54.399 And that struck me as really weird because I I never want to, I never would run past a$5 bill just hoping I could pick it up tomorrow. 00:10:54.559 --> 00:10:55.120 You know what I mean? 00:10:55.279 --> 00:11:05.279 So I'm I'm curious to get your take about like when does procurement become like the big private equity eBITDA strategy and and you know, how do people think about it, like leaving stunk meat and on the bone for the next buyer? 00:11:05.840 --> 00:11:30.480 It's interesting because what I've seen since I've been doing it is that more and more procurement is one of the first things out of the box because it gives you that ebidab boost, but also then it starts to set the tone within the organization that change is possible and that you know it teaches people to think bigger because when we go in and would do a procurement, a procurement uh exercise, we don't go in there hoping to save three percent. 00:11:30.559 --> 00:11:35.120 We go in there telling them we're gonna save 17% and we keep going until we find it, right? 00:11:35.200 --> 00:11:37.759 You just keep digging and you keep digging and you keep digging. 00:11:37.919 --> 00:11:41.600 So it it helps to change the culture of the organization, number one. 00:11:41.759 --> 00:11:48.320 Now, you know, to the point of leaving some things on the bone, that's a very interesting approach. 00:11:48.480 --> 00:11:50.720 I I personally would never do it that way. 00:11:50.960 --> 00:12:06.799 I would go get all the money that I could get, but I would have a roadmap, and the roadmap for me that I would leave behind for the next ownership and what I present to potential ownership is here are the next generation, the level two, the level three, the level four things that we need to do. 00:12:07.120 --> 00:12:08.639 We've already done the level one. 00:12:08.720 --> 00:12:13.039 We we picked up, you know, we did we first we picked up all the fruit that fell out of the tree. 00:12:13.120 --> 00:12:14.240 We picked that up off the ground. 00:12:14.320 --> 00:12:16.000 Then we picked the low-hanging fruit. 00:12:16.080 --> 00:12:19.600 And now I just built the ladder and we're gonna climb up to the top of the tree. 00:12:19.679 --> 00:12:23.360 And here's the things we're gonna do when we get to the top of the tree, but we haven't done them yet. 00:12:23.519 --> 00:12:29.440 I would never like a big juicy category unaddressed just to have that in my back pocket for later. 00:12:29.840 --> 00:12:31.440 I think it makes a lot of sense.

00:12:31.679 --> 00:13:06.639 And how much of the, you know, just very concretely, how much of the work is in the bucket of, you know, what I would say just like brute force execution, like we're gonna build a spend cube, figure out what we sort of think is overpriced or underpriced, set up a bunch of projects, go execute them, versus these sort of technology tools and maybe even organizational training, you know, because I feel like to be honest, my experience, you know, seeing you operate Jim, I feel like you could go into almost any company and just find like a, you know, find opportunity. 00:13:06.879 --> 00:13:10.559 But the problem is, you know, there there aren't a thousand gym nailses. 00:13:10.799 --> 00:13:20.879 And so, you know, there is also an element where maybe some some maybe some private equity firms are more focused on, hey, we're gonna set up systems so the procurement team self-sufficiently gets better results. 00:13:21.039 --> 00:13:34.879 That might be, you know, engaging a GPO for the tail spend items or setting up a P2P system or setting up some kind of you know long-term category management or you know, center of excellence type function. 00:13:35.039 --> 00:13:40.320 You know, I'm curious which which of those do you see as a more common strategy and and which which really gets results? 00:13:40.480 --> 00:13:44.399 And and uh, you know, what would you advise people who are thinking about this kind of stuff? 00:13:44.639 --> 00:13:46.960 Well, I mean, my my playbook is is pretty simple. 00:13:47.039 --> 00:13:51.200 And and you know, going back to the first thing, you know, there's always money to be found. 00:13:51.440 --> 00:13:54.720 The question is, how much is there and how hard is it gonna be to get? 00:13:54.799 --> 00:13:56.000 So that's that's number one. 00:13:56.080 --> 00:13:59.039 But you always have to come in with the attitude that there is money. 00:13:59.200 --> 00:14:05.759 You know, the second thing to think about is usually unless they already have a system in place, it's gonna be brute force. 00:14:06.080 --> 00:14:08.240 But brute force is done in a couple of ways. 00:14:08.399 --> 00:14:10.080 One, you build that first spin cube. 00:14:10.159 --> 00:14:15.759 You don't even have to go and look to see what things you you might think are overpriced, you just run everything through the process. 00:14:15.840 --> 00:14:18.320 And when you run it through the process, the process works. 00:14:18.639 --> 00:14:24.879 You you take it out to bid, you create competition, you're you be willing to change specifications, those types of things. 00:14:25.279 --> 00:14:29.120 So you run the team through a process, but at the same time, you're you're doing other things. 00:14:29.200 --> 00:14:41.600 And this is where what I think is most important and most critical, and where some people in my roles fail is you have to start teaching the team what good looks like and then give them the tools so that they can be good. 00:14:42.000 --> 00:14:49.600 A lot of times these folks think that a three to five percent cost reduction every year is is great and that they're winning if they do that. 00:14:49.759 --> 00:15:11.440 They don't think in terms of 15 or 20 percent cost reduction, and so they don't understand what good could be or they don't understand the art of the possible, but they also then don't have tools, they don't know how to build a green sheet cost model, they don't know how to put a good RFP out there, and you know, gee, Spencer, if only there was a really cool tool that would help them with the LPs, then maybe that would help. 00:15:11.840 --> 00:15:22.799 You know, at the end of the day, unless they already have the tools, I start with the blunt force while I'm teaching the team, and then we start looking at things like light source to see if there's a good partnership opportunity there. 00:15:23.039 --> 00:15:30.720 And, you know, once that happens, then you really can put the team into overdrive and and do some really creative good stuff. 00:15:30.960 --> 00:15:32.000 It's it's interesting. 00:15:32.080 --> 00:15:33.200 I I completely agree with you. 00:15:33.279 --> 00:15:34.080 And it's sort of funny. 00:15:34.159 --> 00:15:40.399 Like I still, you know, I think you were the one who shared with me the example of the should cost model of a t-shirt. 00:15:40.720 --> 00:15:41.360 Is that you? 00:15:41.600 --> 00:15:45.759 Yeah, it's like the the material and the cut and sh the cut and sew. 00:15:46.080 --> 00:15:57.360 I use that example actually with my with my own team when I'm teaching them about not the actual, I don't have the slide, but you know, I I use that exact same example because it's very tangible for folks. 00:15:57.600 --> 00:16:01.840 Now, of course, the the easier the category, the easier it is to should cost. 00:16:02.080 --> 00:16:10.960 Unfortunately, like the hardest categories are the hardest to should cost because it's just very, you know, like I mean, I can't imagine should costing an NVIDIA GPU. 00:16:11.039 --> 00:16:15.039 I mean, it's like IP to the to the you know to the to the nines. 00:16:15.360 --> 00:16:26.639 I mean, I'm curious when you come in, like what are the most common pushbacks that you typically hear, you know, from the business or from stakeholders when trying to do you know cost takeout activities? 00:16:26.799 --> 00:16:33.120 Because there's always someone who is gonna, you know, have issue with something, right? 00:16:33.200 --> 00:16:36.240 And businesses are complex and people have their own incentives, you know. 00:16:36.320 --> 00:16:38.320 What are like the most common pushbacks you hear? 00:16:38.639 --> 00:16:41.600 Uh it's you know, we've tried this before and it didn't work. 00:16:41.759 --> 00:16:45.120 Ours and buyers are the only ones that can meet our needs, right? 00:16:45.279 --> 00:16:47.360 Those are probably the the two biggest things. 00:16:47.679 --> 00:16:50.320 You don't

understand our customer requirements. 00:16:50.399 --> 00:16:55.120 If we change one little thing, we've got to go to the customer and blah, blah, blah, blah, blah, blah, blah. 00:16:55.279 --> 00:17:00.080 So it's it's been the same pushback since I started doing this in McKinsey back in 1999. 00:17:00.240 --> 00:17:02.240 It's just that the categories have changed. 00:17:02.399 --> 00:17:04.079 And my answer is always the same. 00:17:04.240 --> 00:17:05.759 Let's see what's different this time. 00:17:05.920 --> 00:17:09.519 If we don't go get this$10 million from here, where are we going to get it from? 00:17:09.599 --> 00:17:11.359 I'm open to getting it from someplace else. 00:17:11.519 --> 00:17:12.799 It doesn't have to be from procurement. 00:17:12.960 --> 00:17:14.160 Where are we going to get the$10 million? 00:17:14.240 --> 00:17:15.440 Because we signed up for$10 million. 00:17:15.519 --> 00:17:17.680 So how are we going to go and how are we going to get that done? 00:17:17.839 --> 00:17:23.279 But at the end of the day, once you start putting wins on the board, people, you know, I call it feeding the greed. 00:17:23.440 --> 00:17:27.279 If you feed the greed, people see the money roll in and they want more money. 00:17:27.359 --> 00:17:30.160 And so the attitudes will change really, really quickly. 00:17:30.400 --> 00:17:42.160 You hope that it will go from the bottom up, but oftentimes it comes out of the boardroom when you're doing that first and second steering committee presentation and they're starting to see, you know, tens of millions of dollars of potential. 00:17:42.400 --> 00:17:49.039 The arguments of, well, let me tell you why supplier X is the only supplier in the world that can meet our requirements go away really, really fast. 00:17:49.200 --> 00:17:53.920 And what I the other thing I tell people is I don't like to have religious debates. 00:17:54.079 --> 00:18:01.680 So if we agree and we're going to do this process, we're not going to talk about anything in turn of about the process or about suppliers until we have some data. 00:18:01.839 --> 00:18:03.920 We're not going to have data until the RFPs come back. 00:18:04.160 --> 00:18:08.880 So let's let's set all that aside for now because everything else is a hypothetical and a religious debate. 00:18:08.960 --> 00:18:11.279 And I'm not going to have that with you here in a professional aesthetic. 00:18:11.599 --> 00:18:11.839 Right. 00:18:12.000 --> 00:18:12.960 It's interesting. 00:18:13.200 --> 00:18:14.240 It's really interesting. 00:18:14.400 --> 00:18:27.440 You know, I'll tell you like one sort of challenge that I I sort of encounter as a founder is that, you know, we'll we'll, you know, I'm a big believer that that tools and technology can be a huge enabling factor for folks. 00:18:27.599 --> 00:18:36.720 And, you know, the thing that really separates humans from animals is our ability at some level to use tools and build on our sort of collective knowledge and

extend ourselves, right? 00:18:36.799 --> 00:18:42.559 Like I can do the work of one person or I could do the work of thousands if I have the right stuff at my fingertips. 00:18:42.720 --> 00:18:49.440 But a lot of times, you know, we'll talk to a chief procurement officer, and sometimes they're feeling a lot of pressure to do something different. 00:18:49.519 --> 00:18:53.279 But a lot of times they will say, you know, hey, look, we've been doing great work. 00:18:53.519 --> 00:18:55.519 We already implemented something. 00:18:55.680 --> 00:18:56.960 It was really successful. 00:18:57.200 --> 00:18:58.559 We've looked at our costs. 00:18:58.640 --> 00:19:07.759 You know, sometimes AT Kearney looked at our process and said, we are in the top decile of, you know, best practices, best of breed. 00:19:07.920 --> 00:19:20.880 And it's very hard to get people to really sort of even consider the possibility that, hey, there might be, you know, realistically like 10 or 15%, you know, cost reduction that's on the table with the right, you know, the right sort of motivation, drive, and technology. 00:19:21.039 --> 00:19:30.720 I mean, you know, if you don't have, you know, literal control over the business, you know, how do you how do you get folks to sort of wake up to that possibility without offending them and indicting their previous work? 00:19:30.960 --> 00:19:31.119 Yeah. 00:19:31.279 --> 00:19:39.839 I mean, it's it's it's very challenging to walk into a company and tell someone who's been doing the job there for 15 years that you're going to take another 20% out of their cost base, right? 00:19:40.079 --> 00:19:46.160 So that's why the hardest person to sell any sort of procurement project to is the chief procurement officer. 00:19:46.319 --> 00:19:57.039 You know, it's much easier to get the chief financial officer or the chief, you know, or the CEO excited about that than it is to get the the chief procurement officer excited about that. 00:19:57.119 --> 00:20:01.599 Because again, they feel like they're coming in, you're coming in and you're telling them they've been doing a bad job. 00:20:01.839 --> 00:20:03.039 But you know, that's step one. 00:20:03.200 --> 00:20:13.759 Step two is you know, I tell folks, one any success we have here is not a damnation of the past, it's just looking at it with different set of eyes, different tools, different techniques. 00:20:13.920 --> 00:20:18.480 And I tell the team, I said, You guys probably have 95% of the answers here already. 00:20:18.640 --> 00:20:21.920 You've just been told no so many times, you stopped you stopped asking. 00:20:22.079 --> 00:20:29.519 It's it's like you know, you you can tell, like when you see an abused an abused dog, you know, the owner just has to raise the hand and the dog cowers, right? 00:20:29.680 --> 00:20:38.559 The owner doesn't get the dog anymore, and that's oftentimes how preterent people are, they've been told no so much that they can't do anything that they just stop trying. 00:20:38.720 --> 00:20:40.640 And it's it's understandable, right? 00:20:40.720 --> 00:20:45.519 The other part is that humans by nature are most humans are risk averse. 00:20:45.680 --> 00:20:50.400 Why would I want to take this local supplier that's two miles down the road? 00:20:50.559 --> 00:21:01.920 Our kids are in school together, we go hunting together, you take me to a golf album, a basketball game, and a football game every year, and you'll send guys over on the weekend to help out if something goes wrong. 00:21:02.079 --> 00:21:11.039 And then you want me to walk away from that guy who's helped me for 20 years and outsource something to some guy in Vietnam who I don't know, I don't necessarily trust. 00:21:11.200 --> 00:21:14.960 I'm now going to have a 12,000 mile supply chain to save 17%. 00:21:15.440 --> 00:21:17.680 I'd rather go to sleep at night than worry about that. 00:21:17.759 --> 00:21:23.759 So there's there's that aspect of human nature, and the only way to get around that is through success. 00:21:24.000 --> 00:21:29.119 You have to demonstrate the ability to be successful, and then people become more and more risk tolerant. 00:21:29.920 --> 00:21:31.680 What about what about incentives? 00:21:31.839 --> 00:21:38.000 You know, I'm I'm a believer that people play to their incentives, and one of the things I've always felt was such a big missed opportunity. 00:21:38.160 --> 00:21:48.400 I know we've talked about this before, is that sales teams get this big commission when they go and do uh, you know, a sale, they get a high fives, they're celebrated. 00:21:48.559 --> 00:21:50.240 Procurement does a bunch of cost takeout. 00:21:50.559 --> 00:21:59.759 You know, I would rather sleep at night, but if somebody told me that I could take home an extra hundred K this quarter, if I was able to find the company a million bucks, trust me, I'd still. 00:22:00.079 --> 00:22:01.440 They passed five o'clock, you know? 00:22:01.519 --> 00:22:20.960 And so have there, have you ever, so one, have you ever seen a structure actually like this in practice where people have had, you know, legitimate performance management of procurement to the point where they could get, you know, base and a performance that maybe matches their base salary, like a 50-50 split, like you see in sales. 00:22:21.200 --> 00:22:23.599 Has that conversation ever come up and been very real? 00:22:23.759 --> 00:22:24.559 Like where does it work? 00:22:24.640 --> 00:22:25.359 Where does it not work? 00:22:25.599 --> 00:22:28.799 Well, let me tell you about the first time I actually had that conversation. 00:22:28.880 --> 00:22:31.519 I was interviewing for a CPO job. 00:22:31.839 --> 00:22:40.319 And I, you know, I've talked to the CEO and I said, Look, I've been through your annual report, I've been through your quarterly reports. 00:22:40.480 --> 00:22:44.799 You know, I think that I can take out a billion dollars over the next five years. 00:22:44.960

--> 00:22:46.720 And he's like, There's no way you can do that. 00:22:46.799 --> 00:22:49.200 I'm like, Well, I'm willing to put my money where my mouth is. 00:22:49.359 --> 00:22:51.359 I'll take 20% of everything I save. 00:22:51.519 --> 00:22:53.759 And he's like, Well, that would be$200 million. 00:22:54.160 --> 00:22:55.759 I'm like, Yeah, that would be. 00:22:55.839 --> 00:22:57.039 That's too much money to pay you. 00:22:57.119 --> 00:22:58.799 I'm like, Well, I thought you said it wasn't there. 00:22:58.960 --> 00:23:04.799 So, you know, don't tell me you won't pay me and that my numbers are BS if you're not gonna be willing to put your money where your mouth is. 00:23:04.880 --> 00:23:14.400 But getting back to the the serious part of your question, yeah, most most procurement organizations, and it's not procurement's fault, it's the fault of the the organization itself. 00:23:14.559 --> 00:23:16.640 You know, procurement, they'll they'll pay a procurement manager. 00:23:16.720 --> 00:23:21.279 I'm making up the number,$120,000 a year and a 10% bonus. 00:23:21.440 --> 00:23:24.799 And they get that 10% bonus as long as they don't kill somebody, right? 00:23:24.960 --> 00:23:27.519 So you know, there's not a lot of incentive. 00:23:27.839 --> 00:23:31.759 It's not like in sales where the more you sell, the more commission you get. 00:23:31.920 --> 00:23:39.759 Now, sometimes the reason for that is quite good because in procurement, there it it can be difficult to measure if you do it the wrong way. 00:23:39.920 --> 00:23:45.599 You know, you you hear the horror stories of people who were evaluated on cost reduction. 00:23:45.759 --> 00:23:53.759 And one of the ways that they calculated cost reduction was initial RFP price, you know, down to what the negotiated price was and what that delta is. 00:23:53.920 --> 00:24:02.720 So you'd catch people telling the supplier, look, I'm gonna give this to you, but you need to come in at$200 a unit and then let me negotiate you down to 35. 00:24:02.799 --> 00:24:06.480 All right, because then I look good, you get the number that you want, and everybody's happy. 00:24:06.640 --> 00:24:08.960 You you can't accept that, you can't tolerate that. 00:24:09.039 --> 00:24:14.480 So you need to find ways to make sure that you're measuring folks on green money, not gray money. 00:24:14.799 --> 00:24:23.839 And, you know, there's there's no reason in my mind that if a pro if a procurement person drives$100 million in savings, they shouldn't get too extra salary and bonus. 00:24:24.160 --> 00:24:24.480 Right. 00:24:24.720 --> 00:24:25.839 More than, in fact. 00:24:26.000 --> 00:24:29.200 I mean, I guess, but then the question is how do you measure that, right? 00:24:29.279 --> 00:24:32.240 Because I think that with you know, people always say this to me. 00:24:32.400 --> 00:24:37.759 They say, you know, we can't do this in procurement because sales going up is always strictly good. 00:24:37.920 --> 00:24:44.319

And costs going down can sometimes mean that you've made a trade-off of performance or reliability or lead time. 00:24:44.400 --> 00:24:47.839 There's things that are non-price factors that you might be substituting out. 00:24:47.920 --> 00:24:53.200 And so the TCO basis might actually be worse, even though the person got a cost down. 00:24:53.680 --> 00:24:56.000 But I don't think that's also true for sales either. 00:24:56.160 --> 00:25:07.039 I mean, we have salespeople um who will sell and uh will leave expansion opportunities on the table that we could have gotten if they, if they, if they had just sort of like landed and expanded. 00:25:07.200 --> 00:25:18.400 Or, you know, I we don't have this at our company, but there are definitely sellers who will overpromise the product and under deliver what eventually is there, or will put gotchas in the contract, that kind of stuff. 00:25:18.559 --> 00:25:23.920 And so there are ways that sales can like land a sale, get the commission, and then have it not be good. 00:25:24.000 --> 00:25:29.920 Or like, hey, do we're just you know, don't, you know, you don't have to renew or whatever it might be instead of signing a three-year contract. 00:25:30.079 --> 00:25:35.839 So and then in procurement, I just I feel like it's it's hard for me to go to figure out at the same time like what is the right metric. 00:25:35.920 --> 00:25:41.599 And is it I do feel like private equity is one of these interesting places where you do have a clear before and after. 00:25:41.680 --> 00:25:44.559 You have a before spend cube and you have an after spend cube. 00:25:44.720 --> 00:25:48.960 And so people won't goose the numbers because they don't know they're getting acquired, you know? 00:25:49.200 --> 00:25:54.400 And so you're you're asking one of the age older questions about procurement is how do you measure success, right? 00:25:54.559 --> 00:25:55.839 And how do you prove success? 00:25:56.000 --> 00:26:03.759 Because the the tradition is the CFO says procurement keeps telling me they're saving me all these billions of dollars and I don't see it in my avatar, right? 00:26:03.839 --> 00:26:04.799 So where's it gone? 00:26:04.960 --> 00:26:12.240 So here's what I've I've learned to do over time is is one, you always have a steering committee who approves the decision. 00:26:12.400 --> 00:26:20.480 And the steering committee is you know made up CEO, CFO, and business unit head, because they're the ones that are gonna be impacted by any decision that's made. 00:26:20.559 --> 00:26:21.279 That's number one. 00:26:21.759 --> 00:26:34.319 Number two is I have I work with finance to look at savings calculations and basically certify not only how we're gonna calculate savings, but they're the ones that report the numbers, not procurement. 00:26:34.480 --> 00:26:42.559 The the finance community gets the data from procurement, they review it, they give it their stamp of approval, and it's the finance community that reports what those numbers are. 00:26:42.720 --> 00:26:44.319 And it has to be real dollars. 00:26:44.400 --> 00:26:49.920 It can't be, I went out to RFP and it came in at 100 and I negotiated it down to 50. 00:26:50.000 --> 00:26:54.240 So therefore, I've got, you know,$50 worth of savings times 100,000 units. 00:26:54.400 --> 00:26:55.680 That's not how this works. 00:26:55.839 --> 00:27:00.400 If it's a product you hadn't bought before, you might be able to do it against a clean sheet or something like that. 00:27:00.480 --> 00:27:05.039 But again, that comes back to what the finance community is willing to tolerate. 00:27:05.200 --> 00:27:12.079 But net net, it's got to be based against last price paid, average price paid over the last year, something like that. 00:27:12.240 --> 00:27:18.000 And then you have to build an even more complexity over whether or not you're going to account for inflation. 00:27:18.240 --> 00:27:23.839 If if if inflation goes up and you're in a variable contract, does that hurt the procurement person? 00:27:24.000 --> 00:27:28.880 Because if that does, then when inflation comes down and it helps the procurement person, are you still going to give them credit for that? 00:27:29.039 --> 00:27:32.079 Or are you going to find a way to adjust for inflation and keep it equal? 00:27:32.319 --> 00:27:39.759 But these are all things that you have to do at the beginning of the process so that there's none of that gotcha or none of those aha moments at the end of the process. 00:27:39.920 --> 00:27:42.000 And that's where I think a lot of people fall down. 00:27:42.240 --> 00:27:43.359 Yeah, it's very tough. 00:27:43.519 --> 00:27:50.640 I mean, you're right, because the thing is, like, you know, and then you start to look at it and it's like, okay, I, you know, maybe engineering has a design change. 00:27:50.720 --> 00:27:56.720 Like, you know, we're making the part more expensive because we realize the bumper needs to be thicker than it was before. 00:27:56.960 --> 00:27:59.279 You know, should that really hit the procurement team? 00:27:59.519 --> 00:28:03.920 The other thing is, by the way, this only affects like ongoing business, right? 00:28:04.079 --> 00:28:14.480 If you think about a new product introduction NPI process, that's where like you have a lot of direct material sourcing happening, but you know, there's no notion of cost reduction at that point. 00:28:14.720 --> 00:28:20.640 It's really about, you know, getting the right price and then trying to improve on cost containment metrics. 00:28:20.799 --> 00:28:30.559 You know, what one failure mode that a lot of our customers have seen before they start using Light Source is that they will negotiate a price with their suppliers when it's competitive RFP. 00:28:30.720 --> 00:28:45.440 And then the minute they've awarded the supplier and kicked off, you know, a PO and made tooling, then all of a sudden every five cent change becomes a 50 cent you know cost increase on the on

the part because it's you know the competitive leverage is completely flipped. 00:28:45.599 --> 00:28:52.240 And so I think the light source and tools like it at least give people a lot of visibility, if not an ability to sort of mitigate that cost creep. 00:28:52.400 --> 00:28:58.480 But I am curious, like, you know, could you measure people instead on process adherence? 00:28:58.640 --> 00:29:11.680 And what I mean by that is maybe if you you and I look at this, you know, we look at the ourselves and say, okay, you know, we can't plan for how materials will change, how engineering will change, we can't plan for how commodity prices are going to shift. 00:29:11.839 --> 00:29:31.279 But we do know that if every single time somebody gets a request, they're running a competitive RFX with the right analysis, that they're including a minimum of three suppliers that we believe, and then they follow some kind of TCO calculation to make the decision, they will tend to get the right outcomes. 00:29:31.359 --> 00:29:46.640 And if somebody does that consistently well, then I almost could sort of turn a blind eye to the results and just say, well, that they did really good process and intelligence adherence, then I know they're they're getting better results than the counterfactual person who's not doing that. 00:29:46.799 --> 00:29:48.000 But but I mean, what do you think? 00:29:48.079 --> 00:29:49.759 And I'm I'm trying to get to the bottom of this a little bit. 00:29:50.000 --> 00:29:51.440 Yeah, no, there's something to be said for that. 00:29:51.599 --> 00:29:52.240 Absolutely. 00:29:52.480 --> 00:29:59.359 You know, you do have to be careful though, because if you just have a person who follows a process but never gets the results, that's probably just a bad person. 00:29:59.440 --> 00:30:02.640 You don't want to, you know, you want to replace them, not pay them for that. 00:30:02.799 --> 00:30:04.720 But your your point is very well taken. 00:30:04.799 --> 00:30:08.720 But it also goes back to things that need to change within an organization. 00:30:09.039 --> 00:30:16.160 You should have, you know, what I always recommend in companies that are big enough, a category manager that does nothing but new product development. 00:30:16.240 --> 00:30:18.880 That person sits on the new product development team, right? 00:30:19.200 --> 00:30:26.799 And all the new product development sourcing decisions run through that person so that they can ensure that the process is followed. 00:30:26.960 --> 00:30:40.880 Because nothing is worse than an engineer with a new drawing and a new tool and a new product, because you're going to get a gold-plated left-handed monkey wrench every single time when a silver-plated right-handed monkey wrench would have done. 00:30:40.960 --> 00:30:44.720 And that's just human nature because engineers love the design band. 00:30:45.119 --> 00:30:46.559 Platforming is another one, right? 00:30:46.640 --> 00:30:48.400 You know, that we don't see enough platforming. 00:30:48.559 --> 00:30:58.480 Why do if you walk into a uh manufacturing facility, you see 1,700 different types of screws where they're all making the same machines, just different variations of the same thing. 00:30:58.640 --> 00:31:00.160 Why not platform the thing? 00:31:00.319 --> 00:31:04.240 So there are lots of things outside of just pure purchase price that can be done. 00:31:04.319 --> 00:31:07.119 And that's why, Spencer, you keep talking about total cost of ownership. 00:31:07.279 --> 00:31:10.960 That's super important here is to look at what is the total cost of ownership? 00:31:11.119 --> 00:31:12.240 How are we measuring that? 00:31:12.400 --> 00:31:17.200 And then are we getting the TCO better each and every time we do something? 00:31:17.519 --> 00:31:18.160 Interesting. 00:31:18.319 --> 00:31:18.799 Interesting. 00:31:18.960 --> 00:31:37.359 And so, well, I mean, I guess here's a question is this happening not already within, like, you know, for example, the big OEMs, where maybe they they try to commonize parts across programs, or or do you mean more like the sort of mid-market manufacturers where you know they they they don't really have the buying power to get to scale? 00:31:37.680 --> 00:31:52.799 Well, it's much more the mid-markets that that suffer for this, because if if you're a big OEM, let's say, you know, a Ford a GM, somebody like that, saving saving an eighth of a cent on a screw, you know, across you know, multiple platforms, that's serious real money, right? 00:31:52.960 --> 00:32:00.559 If you are a$300 manufacturing company, saving an eighth of a cent on a screw is going to be really, really hard to quantify. 00:32:00.720 --> 00:32:13.279 However, when you start to realize that there are, I'm making this up, you know, 75 screws across 45 different SKUs, and you're selling 10 million units a year, that actually starts to become real money. 00:32:13.359 --> 00:32:23.599 And, you know, one of the things I tell people, you made an allusion to it before, but I always tell people even Elon Musk, the richest man in the world, will stop, bend over, and pick up a$20 bill, right? 00:32:24.319 --> 00:32:28.640 Every single penny counts, and you need to be looking for every single penny. 00:32:28.799 --> 00:32:30.240 I agree a hundred percent. 00:32:30.559 --> 00:32:36.240 Question, is that hypothetical, or do you have evidence that Elon's actually picked up a$20 bill? 00:32:36.480 --> 00:32:40.640 I've never seen him, but knowing people who know him, I don't think he'd walk past it. 00:32:40.720 --> 00:32:42.480 I think he would definitely bend over and pick it up. 00:32:42.559 --> 00:32:45.599 He may give it away, but he's not going to walk past the$20 bill. 00:32:45.839 --> 00:32:47.440 Yeah, it's it's one of these funny things. 00:32:47.519 --> 00:32:59.920 I remember, you know, I thought, I mean, I'm sure it's more extreme now for Elon, but the time in the time it takes him to bend over

and pick up a$100 bill, he may have made$1,000 just from interest on his existing assets. 00:33:00.079 --> 00:33:02.960 I mean, it's it's mind-boggling where where he is right now. 00:33:03.039 --> 00:33:07.519 And, you know, when I knew him and worked with him, I mean, he was definitely the richest person I knew. 00:33:07.599 --> 00:33:14.960 I mean, like, you know, he's mm you know, multi-billionaire, but but he wasn't like, I mean, now it's like he's the wealthiest person in the world. 00:33:15.119 --> 00:33:17.359 I mean, that's that's insane, you know. 00:33:22.319 --> 00:33:24.240 Or maybe one of his sister wives, you know. 00:33:24.480 --> 00:33:25.039 There you go. 00:33:25.279 --> 00:33:28.799 So I mean, Elon's a quirky, quirky dude in so many ways. 00:33:29.039 --> 00:33:30.319 It is, it is interesting. 00:33:30.480 --> 00:33:43.359 I mean, I'm I'm kind of curious a little bit about, you know, how you see, you know, you know, how you see AI, and if you have an opinion on this, how you see AI really figuring into the way the procurement teams should be working. 00:33:43.519 --> 00:33:50.400 Because, you know, I think a lot of times, you know, there's sort of two kinds of companies out there in the AI space that I've noticed broadly. 00:33:50.640 --> 00:33:57.359 There are folks that are trying to replace human labor and say, okay, we're gonna do this process with a system instead of a person. 00:33:57.519 --> 00:34:02.000 Um, and then the other category are folks who are uh looking to augment, right? 00:34:02.160 --> 00:34:05.359 Say, okay, we're gonna take the person and make them super valuable. 00:34:05.519 --> 00:34:08.559 You know, which direction do you see that going for procurement? 00:34:08.719 --> 00:34:15.039 And uh, you know, what are the, or maybe better, more refined questions, what are the areas that you think are likely to be automated? 00:34:15.119 --> 00:34:24.000 And what are the areas where you just would die to see them automated, or the areas that you're like, hey, like really good people need better tools because I know they'd be able to do so much more. 00:34:24.320 --> 00:34:26.559 Yeah, so I I'm definitely in that latter category. 00:34:26.639 --> 00:34:30.480 You know, I'm I'm I'm not, you know, I'm an old man, but I'm not afraid of AI. 00:34:30.559 --> 00:34:36.239 I I'm I'm looking at AI as a as a way to augment the stuff that I do, make what I do a lot easier. 00:34:36.400 --> 00:34:40.000 Uh, remember, technology has always created more jobs than it's destroyed. 00:34:40.079 --> 00:34:48.480 You just end up usually with with one generation of workers who have to try to figure out what to do, but the next generation of workers embraces the technology and moves on. 00:34:48.559 --> 00:34:52.559 Remember, driving a stage coach at one point in time was a great job to have, right? 00:34:52.719 --> 00:34:55.119 And then it became driving a bus or driving a train. 00:34:55.199 --> 00:34:56.639 So you find ways to

do it. 00:34:56.800 --> 00:35:00.559 From an augmentation standpoint, the potential of AI is huge. 00:35:00.719 --> 00:35:03.840 Let's go back to uh we talked about uh should cost modeling. 00:35:04.000 --> 00:35:28.000 You know, back in the day, you either had to hire two analysts to spend three months to figure out what the should cost model for a fairly technical product would be, or now you can take chat GPT, put the parameters into it, and it'll come out with an 80% model that, if nothing else, at least gives you all the different variables that are that should be accounted for in that model, then you can go and do the diligence and the research. 00:35:28.159 --> 00:35:34.400 But you get that first bit of roadmap almost instantaneously, and that's that's a chat, that's something we should have. 00:35:34.559 --> 00:35:42.800 I know you guys are using AI a lot in in your product, and I'd love to hear how that's health and how that's changed over even like the last five years. 00:35:42.960 --> 00:35:52.639 But what I want to hear is I want to see AI be used by procurement as a way to make each person more productive and give them more time to think and be strategic. 00:35:52.800 --> 00:35:54.880 One thing AI can't be yet is strategic. 00:35:55.119 --> 00:36:23.119 So if I can get if I have an eight-hour day and I and I'm in procurement, and six of those eight hours are typically spent just executing, pressing the send button, placing and chasing orders, doing those types of things, and I can find a way to leverage AI and systems like Light Source so that only takes two hours of my day, and then I have six hours to be strategic, look for new suppliers, interview suppliers, take courses on how to be a better negotiator, these types of things, read about industries. 00:36:23.280 --> 00:36:32.719 I'm gonna be such a much better procurement person than if I spend all day long placing and chasing orders and maybe getting an hour or two a day to try to be strategic. 00:36:32.800 --> 00:36:33.599 It just doesn't work. 00:36:33.760 --> 00:36:34.880 This could flip that around. 00:36:34.960 --> 00:36:36.639 It to me is tremendously exciting. 00:36:36.960 --> 00:36:37.760 Fascinating. 00:36:37.920 --> 00:36:40.239 You know, I'm gonna, I'm gonna switch gears a little bit. 00:36:40.400 --> 00:36:45.519 I'm I'm curious to get your take on like global state of affairs. 00:36:45.599 --> 00:36:54.880 And I think that one of the biggest, you know, I will just say very candidly that there are certain manufacturers here in the United States that are very worried about China. 00:36:55.119 --> 00:37:09.280 And some folks, they look at it and it's sort of like a, you know, some people take a sort of this uh American exceptionalism view, like, okay, we're gonna, we're gonna pull through ingenuity, American grit, and are very, you know, US centric. 00:37:09.440 --> 00:37:13.039 And then there's some folks where I hear it's almost demoralized, right? 00:37:13.119 --> 00:37:20.400 Like, okay, like I've I was talking to someone yesterday where they were like, you know, I think that we've already lost in the manufacturing race. 00:37:20.559 --> 00:37:23.599 They have lights out factories in China, full automation. 00:37:23.679 --> 00:37:33.039 They've someone told me that they have a full lights out headlight manufacture facility where like in comes raw material and outcomes headlights, completely touchless. 00:37:33.199 --> 00:37:39.119 And I know that, you know, personally, I'm always, you know, we don't have a lot of BYD cars here in the United States. 00:37:39.280 --> 00:37:44.800 But when I went down to Mexico City, I took an I took an Uber and it was a BYD, and I felt around. 00:37:44.880 --> 00:37:47.119 I was like looking at the interior, I was looking at the specs. 00:37:47.199 --> 00:37:48.480 I was just really impressed. 00:37:48.639 --> 00:37:52.719 And I couldn't believe how much car there was for the money when I looked up the pricing. 00:37:52.880 --> 00:38:00.239 So I'm kind of curious, you know, what do you think is sort of the secret of the sort of Chinese success in manufacturing? 00:38:00.480 --> 00:38:02.559 How are you seeing it play out in the United States? 00:38:02.719 --> 00:38:04.159 How does this whole thing go? 00:38:04.400 --> 00:38:07.360 Is there a way to sort of course correct and what's that going to look like? 00:38:07.519 --> 00:38:10.719 I know it's a big question, but I'm sure you have a lot of thoughts on it, you know? 00:38:10.960 --> 00:38:12.239 There's a lot to unpack there. 00:38:12.480 --> 00:38:22.079 So in 2025, I spent five months in Asia, not all at one time, but this between all my trips to Asia, primarily Vietnam, China, and Thailand. 00:38:22.239 --> 00:38:30.320 They do have some incredible manufacturing facilities over there, uh, but they also have a lot of low-tech manufacturing facilities where they still use a lot of labor. 00:38:30.480 --> 00:38:38.480 I mean, I was in a I was in factories that make nails and screws, and the technology to make nails and screws hasn't changed since the 1903 1903, right? 00:38:38.559 --> 00:38:42.079 And some of the equipment that they were using looked like it was invented back in 1903. 00:38:42.239 --> 00:38:44.480 So you see the whole gamut there. 00:38:44.559 --> 00:38:52.480 You know, the one advantage or some of the advantages that that say the Chinese have is number one, they've been able to leapfrog technologies. 00:38:52.639 --> 00:38:57.679 If you think about China, they never had landlines for the most part, they went right to cellular, right? 00:38:57.840 --> 00:39:05.519 Because they they they went from being too poor to even be able to afford telephones and delay the copper wire and do all that to go, okay, everyone's gonna have a cell phone. 00:39:05.599 --> 00:39:13.840 And now, if you think about Chinese society, now part of it is the control of the government, but they do everything on their cell phone,

they they almost don't know what money is anymore. 00:39:14.079 --> 00:39:18.000 You try to pay something for something with cash over there, they look at you like you're crazy, right? 00:39:18.079 --> 00:39:22.639 Everyone uses their phone to pay for everything, and much more so than we do here in the United States. 00:39:22.800 --> 00:39:23.760 So that's number one. 00:39:23.920 --> 00:39:30.400 Number two, there are the regulations and the government support and the government barriers that that are created in places like China and Vietnam. 00:39:30.559 --> 00:39:36.800 When you live in a communist society, the communist government can make decisions that a democratic government can make. 00:39:36.960 --> 00:39:59.440 Think about in the United States, if if someone wanted to come and build a lithium battery plant in Iowa, the amount of environmental studies that would have to be done, and then all this other thing, and then all of a sudden they're going to find like some little tadpole in some creek somewhere that if they build a lithium-ion battery plant there, the little tadpole will go extinct, and then all the environmental people will go crazy. 00:39:59.599 --> 00:40:05.440 So it takes 10, 15 years to be able to go from idea to you know the first thing coming out the back of the factory. 00:40:05.599 --> 00:40:12.800 We can't we can't compete that way, and that's you know, love them or hate them, that's one of the things that the Trump administration has really tried hard to do. 00:40:13.039 --> 00:40:17.119 One of the things he loves to talk about is that they built the Empire State Building in one year. 00:40:17.360 --> 00:40:19.280 Can you imagine something like that today? 00:40:19.360 --> 00:40:19.519 Right. 00:40:19.679 --> 00:40:21.360 Just, I mean, they worked day and night. 00:40:21.440 --> 00:40:25.599 They now, granted, they had fewer, fewer safety concerns than we have today, right? 00:40:25.679 --> 00:40:30.400 People were falling off that building all the time, but they built it, they built it in a year. 00:40:30.559 --> 00:40:35.920 Think about the the construction of the interstate highway system, how quickly they did that after World War II. 00:40:36.079 --> 00:40:46.239 Now, think about the construction that's going on in your local area right now and how long that's been going on, and you don't get to see any progress because you've got one guy filling in a hole and five guys standing around looking at them, right? 00:40:46.320 --> 00:40:56.639 So, of course there there are there are constraints that we have put upon ourselves that we will probably never overcome because of our system of government. 00:40:56.800 --> 00:41:02.880 But I will also take our system of government over a communist or totalitarian regime any day of the week, twice on Sundays. 00:41:02.960 --> 00:41:03.119 Okay. 00:41:03.519 --> 00:41:13.599 The the other thing to to remember, and this is not very popular to say, the United States was never, ever, ever a manufacturing powerhouse. 00:41:13.840 --> 00:41:14.239 Ever. 00:41:14.559 --> 00:41:21.119 Our manufacturing height came in the late 1970s, where I believe 22% of GDP was from manufacturing. 00:41:21.360 --> 00:41:24.559 We were never that great of a manufacturing country. 00:41:24.719 --> 00:41:31.440 We were an agricultural company country, and then we became a services country that had some manufacturing in it. 00:41:31.760 --> 00:41:37.199 Our our strength lies in our ideas, our strength lies in our ability to come up with the next great thing. 00:41:37.280 --> 00:41:41.039 The like you know, we talked about earlier, the better mouse trap, right? 00:41:41.280 --> 00:41:42.800 That's where our strength lies. 00:41:42.960 --> 00:41:46.159 Our strength is never gonna lie in the manufacturing. 00:41:46.320 --> 00:41:49.039 Quite frankly, right now, we don't have enough people, right? 00:41:49.119 --> 00:41:57.199 There you can't there are still, I think last time I looked at the statistics, six jobs for every unemployed person out there right now. 00:41:57.519 --> 00:42:01.760 So there are plenty of jobs out there for people who want to come into the workforce and get them. 00:42:02.000 --> 00:42:12.079 So what we have to do, and again, without getting too political, and I don't necessarily agree with how he did it, but the idea was right, which is trying to level the playing field. 00:42:12.239 --> 00:42:14.000 Go back to the days of Adam Smith. 00:42:14.159 --> 00:42:17.679 If you're good at making cars, you should make cars and export them. 00:42:17.760 --> 00:42:22.880 And if I'm good at making shoes, I'll make shoes and export those, and we'll find a way to do free trade. 00:42:23.119 --> 00:42:29.760 The other thing is if we're gonna try to refocus in America on manufacturing, we've got to really focus on the right things. 00:42:29.920 --> 00:42:42.880 Jamie Diamond had a great quote last year, I think it was around March, where he said something along the lines of, I really shouldn't care where my t-shirt or my shoes come from, but I sure as hell care where my drones are manufactured. 00:42:43.199 --> 00:42:53.920 Really, you know, if we're going to invest in manufacturing in America, it should be manufacturing the right things, not on things just to say that we were able to make it here. 00:42:54.000 --> 00:42:58.880 Because let's be honest, we can't compete with making t-shirts or making shoes. 00:42:59.119 --> 00:43:09.440 We need to be focused on defense industries, on healthcare and and pharmaceuticals, on biologics, those types of things that are going to make a difference and that are strategically important. 00:43:09.599 --> 00:43:14.480 Think about all the things that went away during uh during COVID because we didn't have them. 00:43:14.639 --> 00:43:16.400 It was pharmaceuticals, right? 00:43:16.559 --> 00:43:20.159 It was things like it was computer chips, it was those types of things. 00:43:20.320 -->

00:43:21.679 That's where we need to be focused. 00:43:21.840 --> 00:43:30.400 But what I would really like to see as a free market capitalist is everyone at the same level playing field, and we just get back to trying to trade freely and trade fairly. 00:43:30.559 --> 00:43:31.760 Are we ever going to get there? 00:43:31.920 --> 00:43:33.360 No, but it's a night dream. 00:43:33.440 --> 00:43:36.159 And the closer we can get to it, the better off we're all going to be. 00:43:36.400 --> 00:43:36.960 It's interesting. 00:43:37.039 --> 00:43:39.280 I I agree with a lot of what you're saying. 00:43:39.519 --> 00:43:44.320 You know, I but as I think about it, you know, the secret of making chips, right? 00:43:44.400 --> 00:43:58.320 The secret of making of TSMC and the ability to make great small nanometer chips of the next generation is their ability to procure machine get machines installed from ASML and LAM and LAM research, right? 00:43:58.480 --> 00:43:59.440 So it's the equipment. 00:44:00.000 --> 00:44:13.760 And then when you think about those companies and you know what it takes to build, you know, I think there's one part which is the science, which is the intellectual capital, which I think we do have a lot of, although, you know, I think other countries are gaining on that as well. 00:44:13.920 --> 00:44:17.920 And then the second is the ability to manufacture those things, right? 00:44:18.000 --> 00:44:25.199 And you know, there because you know, you take something high-tech, it's made by something that's slightly less high-tech, which is made by something slightly less high-tech. 00:44:25.440 --> 00:44:32.079 And then eventually what you're doing is you're getting back to plastics, forging, stampings, and castings and wire harness, right? 00:44:32.159 --> 00:44:37.199 That's like ultimately the machines that make the machines that make the machine that makes the chip, right? 00:44:37.440 --> 00:44:44.559 And so, you know, if we can get to a place where we can make some of that stuff, I I I one, I mean, I'm look, I'm just thinking out loud here. 00:44:44.639 --> 00:44:49.599 You know, maybe, maybe there's a world where it puts us in an advantage for also the high-tech stuff as well. 00:44:49.760 --> 00:44:56.239 Otherwise, what we end up doing is we're still saying, hey, we're gonna buy the stampings and castings from, you know, overseas, that kind of thing. 00:44:56.400 --> 00:45:02.400 And at least automation should be able to, you know, reduce the reliance on labor for for at least the low-tech stuff. 00:45:02.559 --> 00:45:05.199 But, you know, it's it has been interesting, I think. 00:45:05.360 --> 00:45:25.039 One thing that I've found fascinating in the AI race is how, you know, I used to be of the view that, you know, the US can, I mean, this was for a long time in my space, at least in the automotive space, the view was that that China can make hardware, but they're not good at software, you know, and so they lose on like the software innovation front. 00:45:25.199 --> 00:45:35.599 But China has gotten a lot better at making software at some of their cars, like the Xiaomi Consumer Electronic Company made a car, very, very software savvy, very software-enabled product. 00:45:35.840 --> 00:45:42.159 When we look at something like, you know, Anthropic and Chat GPT, those are the leading companies in the AI space. 00:45:42.320 --> 00:45:46.400 But DeepSeek, right, is one of the one of the open source Chinese competitors. 00:45:46.559 --> 00:45:48.079 Manus was a Chinese competitor. 00:45:48.159 --> 00:45:56.880 I mean, we just saw the founders of Manus sold their company, I think it was, to Facebook or something like that for$2 billion. 00:45:57.440 --> 00:46:00.880 And now they're uh they're being barred from leaving the country, right? 00:46:00.960 --> 00:46:08.400 So it's there has been like, you know, I do think that there is like a lot of of really great innovation that's coming out of China. 00:46:08.480 --> 00:46:11.679 And I do think there is also we sometimes have an embarrassment of riches. 00:46:11.840 --> 00:46:18.159 And, you know, there is an innovation that comes from a lack of material resources that, you know, I do see happening over there. 00:46:18.320 --> 00:46:20.880 So, you know, that's sort of, you know, it's not pushback. 00:46:20.960 --> 00:46:25.440 I'm just sort of expounding on your thoughts with some other, you know, some other questions, you know? 00:46:25.679 --> 00:46:26.079 No, I think. 00:46:26.320 --> 00:46:27.440 So why yeah, go ahead. 00:46:27.760 --> 00:46:28.480 No, please, go. 00:46:28.800 --> 00:46:36.079 I was gonna ask, like, so you know, I I think that democracy, right, as a as a governmental system, I like appreciate living in a democracy. 00:46:36.239 --> 00:46:40.480 And there's that old adage which is it's like the worst system except for all the others, you know? 00:46:40.639 --> 00:46:50.239 But from a manufacturing supply chain perspective, purely, you know, what do you feel like are the the big disadvantages of not, you know, what advantages or disadvantages of a democratic system? 00:46:50.400 --> 00:46:59.119 Because clearly, you know, I think it has been challenging for business to have policy A or policy B doesn't matter as much as how much policies are shifting, you know? 00:46:59.280 --> 00:47:02.239 So there's a lot of things in there, but I I know I know your thoughts on them. 00:47:02.480 --> 00:47:12.960 Well, it's I mean, the number one thing for me is just the regulatory environment and or our tendency to over-regulate different industries and how long it takes to get something done. 00:47:13.119 --> 00:47:14.000 That's number one. 00:47:14.239 --> 00:47:22.239 Number two, and you just touched on it, is you know, you we only get policies for two or four years at a time, eight years if we're lucky. 00:47:22.400 --> 00:47:25.599 And then the next administration comes in and they totally reverse. 00:47:25.679 -->

00:47:28.639 So go back to 2000, right? 00:47:28.880 --> 00:47:42.800 E you know, e-vehicles, EVs, EVs, EVs, EVs, all the all the automakers were going to EV because you know they had decided that that uh that the area, the era of fossil fuels was over and we weren't going to do any more fossil fuels, etc. 00:47:42.960 --> 00:47:43.280 etc. 00:47:43.519 --> 00:47:48.480 Then another administration comes in and goes, we're sitting on an embarrassment of riches when it comes to fossil fuels. 00:47:48.559 --> 00:47:49.920 Why would we not take advantage of that? 00:47:50.079 --> 00:47:59.039 We can we can you know reduce the price of gas, we can reduce the price of energy, make people have a better set of standard of living, and we can export and make more money for the country. 00:47:59.199 --> 00:48:04.559 So, and again, I'm not saying which one is right and which one is wrong, but you only get it at four four or four years at a time. 00:48:04.719 --> 00:48:07.679 If if you're you know, take take two different companies. 00:48:07.760 --> 00:48:19.519 If if you were Ford in you know 2020, you're pouring as much money into EV technology as you can because that's where the government's telling you is gonna go, they're putting all these incentives in place, etc. 00:48:19.679 --> 00:48:19.920 etc. 00:48:20.400 --> 00:48:26.880 If you are Exxon, you're not drilling another freaking well because they're telling you they're gonna get rid of fossil fuels. 00:48:27.039 --> 00:48:27.920 So, what happens? 00:48:28.159 --> 00:48:36.719 Ford invested a whole bunch of money in something that one the American consumer really didn't want at the time, and two, the next administration said, Ah, not so much. 00:48:36.960 --> 00:48:45.280 And then Ecton found themselves without any new any new wells in place because they stopped drilling and they stopped exploring because the government told them that they weren't gonna do it anymore. 00:48:45.519 --> 00:48:47.760 So, you know, that doesn't happen in China. 00:48:47.840 --> 00:48:51.840 If China, if they need to build a new road to a port, they draw a straight line, right? 00:48:51.920 --> 00:48:56.960 And then they go to the people in the villages that are impacted by it, go, hey, uh, you need to leave here. 00:48:57.280 --> 00:48:58.480 You know, you're gonna get a new house. 00:48:58.559 --> 00:49:00.480 And they're gonna like, well, my family's lived here for 5,000 years. 00:49:00.559 --> 00:49:02.239 They're like, Well, it's time to move then, right? 00:49:02.400 --> 00:49:13.119 So, you know, they just think about it differently, and the way that we do it, you know, it it it's it's it's messy, but again, I'd rather live under this regime than under that regime. 00:49:13.280 --> 00:49:17.360 He but you know, you know, at the end of the day, human nature is gonna be human nature. 00:49:17.519 --> 00:49:19.679 Smart people are born all over the place, right? 00:49:19.760 --> 00:49:33.280 We we don't have any exclusivity on brilliance when it comes to to people, and just the fact that there are so many people in China and India, you would think that the concentration of smart people there just by percentages would be pretty darn high, right? 00:49:33.440 --> 00:49:37.280 You could get all those smart people in one room and it'd be as big as the United States. 00:49:37.519 --> 00:49:42.239 So you know, we're gonna we have to keep running really, really fast to keep up. 00:49:42.320 --> 00:49:50.320 But the other thing we can't do is is like the person you had the conversation with the other day, be sitting around lamenting the fact that life is hard, right? 00:49:50.400 --> 00:49:57.039 No, right, no great inventor, no great person spends any time thinking about how hard it's gonna be to do their idea, right? 00:49:57.199 --> 00:50:00.639 Think about you when you were sitting there hand drawing PowerPoint slides. 00:50:00.800 --> 00:50:03.440 You weren't thinking about, oh my God, this is gonna be hard. 00:50:03.599 --> 00:50:08.960 You were thinking, this is gonna be the coolest thing ever, and I'm gonna make sure that it works no matter what it takes. 00:50:09.199 --> 00:50:13.599 And that's the attitude that folks need to have if we're gonna be great. 00:50:13.760 --> 00:50:17.119 And you know, circle this all back to the the world of procurement. 00:50:17.280 --> 00:50:23.519 Procurement folks need to stop thinking of themselves as basically cost centers and need to think of themselves as profit centers. 00:50:23.599 --> 00:50:32.880 Number one, organizations need to stop looking at procurement as like the place where you send people to die because you don't want to fire them, but they're not really gonna add any value anyplace else. 00:50:33.039 --> 00:50:37.679 And then they need to be given the tools that they that they need in order to be successful. 00:50:37.920 --> 00:50:47.920 The other thing, going back to COVID and going back to your example of that every piece of really smart equipment is built by dumber and dumber things as you go down the line. 00:50:48.239 --> 00:50:52.800 Procurement is incredibly strategic, especially when you couple it with supply chains, especially today. 00:50:53.360 --> 00:50:58.079 And so, you know, we need to be recognizing procurement people for the value that they bring. 00:50:58.159 --> 00:51:06.239 We need to be giving them the tools like Light Source that they need in order to be successful, and then we need to compensate them for the value that they bring to the organization. 00:51:06.559 --> 00:51:07.599 I completely agree. 00:51:07.840 --> 00:51:09.039 Last question, Jim. 00:51:09.280 --> 00:51:10.719 Yeah, you've got kids. 00:51:11.039 --> 00:51:14.559 Would you encourage them to get into the field of procurement? 00:51:14.800 --> 00:51:15.920 Yes or no, and why? 00:51:16.159 --> 00:51:16.800 Oh, hell no. 00:51:16.880 --> 00:51:17.920 No, I'm joking. 00:51:19.599 --> 00:51:26.800 No, so you know, you

know, as a parent, you you'd like to tell yourself that you encourage your kids to go do whatever it is they're going to be passionate about. 00:51:26.880 --> 00:51:29.119 And that's that's to be honest to God's truth, right? 00:51:29.199 --> 00:51:33.599 My you know, my my son is in consulting and he does due diligence for private equity firms. 00:51:33.679 --> 00:51:47.199 So he spends his life running in two to three-week sprints, and and he absolutely loves it because in in three years of being out of college, he's been exposed to like 60 different industries, and so he's you know, really excited about everything that he's learning. 00:51:47.360 --> 00:51:51.199 My daughter wants to be an attorney when she graduates school this year, so she's gonna go to law school. 00:51:51.280 --> 00:52:04.639 And the only thing I've told her about going to law school is I said you better get into trial law because a lot of this technical law stuff is gonna be taken away by AI, and there'll be one attorney for every, you know, every 10 or 20 attorneys that they used to have. 00:52:04.800 --> 00:52:15.920 You know, from a procurement perspective, what I what I what I told my kids when they asked me about what I do is that the one great thing about procurement is you really do get to run your own business at a very young age. 00:52:16.159 --> 00:52:19.599 You are the general manager of your category, right? 00:52:19.760 --> 00:52:27.599 You are setting the strategy, you are executing the strategy, you are finding the supply base, you're negotiating, you're getting a whole lot of training. 00:52:27.760 --> 00:52:42.719 And that's why it's still very disappointing to me that you don't see more C level executives come out of the procurement organization because they get pigeonholed, they get pigeon-holed as buyers, and they're not buyers, they're actually entrepreneurs if they're being if they're doing their job the correct way. 00:52:42.960 --> 00:52:43.679 Interesting. 00:52:43.920 --> 00:52:45.519 I completely agree with you. 00:52:45.760 --> 00:52:50.320 Well, Jim, this has been, I could talk to you for frankly hours, and I know we do. 00:52:50.480 --> 00:52:53.519 It's just this is one of the rare occasions where it's like recorded. 00:52:53.760 --> 00:52:56.000 Just want to say thanks again for coming on the podcast. 00:52:56.079 --> 00:53:05.119 I think we've covered everything from private equity to procurement to global politics to uh, you know, even at the end, there a little bit of parental advice. 00:53:05.199 --> 00:53:11.679 And so I just want to say thank you again for being such a great uh supporter and advocate for Light Source, and thank you for sharing your ideas with our audience. 00:53:12.000 --> 00:53:13.119 Spencer, it's been my pleasure. 00:53:13.199 --> 00:53:15.280 And again, congratulations on the success. 00:53:15.440 --> 00:53:16.320 I hope it continues. 00:53:16.400 --> 00:53:19.199 I know it will continue and uh couldn't be more proud. 00:53:19.360 --> 00:53:19.760 Well done. 00:53:20.000 --> 00:53:21.119 Thanks, Jim.