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Spencer Penn, CEO & Co-Founder at LightSource talks with procurement and supply chain leaders, operators, and builders about what's actually happening in direct materials sourcing. The tradeoffs. The lessons that came hard. Where the industry is headed. For anyone building, sourcing, or trying to untangle a supply chain that won't stop getting more complex.
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Nico Orduz from Time Manufacturing - Why Procurement Should Be Involved From Day One of Product Development
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Nico Orduz shows why strategic sourcing is not just “get it cheaper.” It is getting involved early, protecting the business, and making trade offs you can stand behind before the design locks you into the wrong costs and the wrong suppliers.
Nico is the Global Director of Strategic Sourcing at Time Manufacturing. He built the function from scratch, grew a full team, and learned that the job is as much about people as it is about pricing, you have to sell the value internally, not just negotiate externally.
In this episode, Nico breaks down how procurement should partner with engineering from day zero, how to balance price with quality and risk in safety critical products, and how to avoid vendor lock-in by protecting IP and being clear about who owns the drawings. They also talk about supplier led value engineering, should cost modeling, and what tariffs look like once they stop being noise and start showing up on invoices.
Key Topics:
-Why procurement should be in new product development from day zero, or costs get locked in before anyone notices
-How to make price vs performance trade offs, start with what the business truly cares about, not a spreadsheet fight
-Why “cheapest” fails in safety critical products, quality and risk control come first
-Why vendor lock in quietly destroys leverage, protect IP and be clear who owns the drawings
-Why great sourcing is part selling, you negotiate the deal, then you sell the value internally
Timestamps:
01:53 Nico’s path into strategic sourcing started by accident, then turned into building a function from scratch
03:03 MBA lesson, go broad on learning, even if you stay deep in the same career lane
06:35 Marketing thinking shows up in procurement as stakeholder influence, not just numbers on a slide
07:40 The “untaught skill” inside big companies, sales is everywhere, even in procurement roles
09:53 The flip moment in sourcing, after the deal is picked, you become the supplier’s best friend and sell it internally
11:44 Conflict rarely ends with math, it ends with a clear value prop people can feel and accept
13:35 The hidden trade off, saving small dollars can waste big company time, so frame value beyond price
15:12 Price vs non price is not a formula, it starts with what the business truly cares about
16:04 In safety critical products, “cheapest possible” is not a strategy, quality and risk control come first
18:01 The sourcing advantage, stay close to engineering, because design choices create cost and supply risk
19:44 New product development gets faster when procurement guides early, before engineering releases drawings
21:36 Stage gate is a triage system, cut bad projects early, avoid sunk cost momentum
23:37 Supplier led value engineering, use suppliers as subject matter experts to surface better ideas
25:22 Vendor lock in is real, protect IP, define drawing ownership early, or you lose leverage later
27:14 When you cannot share drawings, share requirements, and let capability become the filter
30:09 In a duopoly, leverage gets thin, and insourcing becomes the hard but real alternative
31:11 Should cost modeling matters, it helps you ask better questions and build price logic into contracts
33:29 The clean line, strategic sourcing should not be writing purchase orders, that is operational procurement
35:01 Value is not only “hard savings,” cost avoidance is real impact even if it does not show in the P&L
36:06 Tariffs pain was the noise, now the real hit is showing up in invoices and margins
38:22 The smart move, keep modeling where tariffs hit the bill of materials, just not at daily panic speed
39:24 What keeps a procurement leader up, when capital equipment demand actually inflects, and whether the market pops or stays slow
41:03 Macro pressure point, lower interest rates can unlock investment, but timing is still the unknown
Connect with - Nico Orduz:
LinkedIn - linkedin.com/in/nicorduz
Connect to Lightsource.ai:
LinkedIn - https://www.linkedin.com/company/lightsource-ai
Website: https://lightsource.ai/
When we're talking new product development, I've made it my mission internally to kind of illustrate to everybody look, the strategic sourcing and procurement functions are most effective when we're involved in new product development from day zero.
SPEAKER_00How do you figure out where to set the bar between making trade-offs between price and non-price factors?
SPEAKER_01You have an idea.
SPEAKER_00And then I'm I'm also curious specifically how you got into the world of procurement.
SPEAKER_01Yeah, absolutely. So I'm Nico Orduz, I'm the global director of strategic sourcing for Time Manufacturing. As you know, I've been here for a little over two years now, really starting to build from scratch what is the strategic sourcing function at time. That's been the role. Happy to say we have a full team now, and and things have changed a lot uh in the two years since I've been here. You know, my start in sourcing was kind of by happenstance. Uh I used to work in inventory at Sears Horlicks uh a long time ago. Someone approached me, like, have you heard of this thing called strategic sourcing? I'm like, no, honestly, I have no idea what that is. But took a couple interviews, and next thing you know, I was in uh in the thick of it in my first uh role as a strategic sourcing analyst.
SPEAKER_00That's amazing. I I'm kind of curious, like when you went to do your MBA, when you I mean, I I remember correctly you went to Kellogg. Was there some supply chain and procurement content that you engaged in there? Or were you like, I'm gonna try to do everything but because that's my professional life? And how how did that I'm an MBA myself, so I'm always curious how the how the sort of education does, you know, does or doesn't actually affect the work life, you know?
SPEAKER_01Yeah, no, absolutely. I mean, so obviously Kellogg is is best known for its marketing programs, right? So I did do quite a lot of marketing classes, did some finance, did a little bit of supply chain as well. But no, I tried to keep my MBA very general and kind of just just broaden my horizon away from supply chain because that's the world I come from, right? It's like, okay, I'm gonna spend this, you know, a lot of money to get an MBA. I wanna I I wanna go broad, right? I don't wanna I don't wanna keep focusing on on what I've been doing. Now, that said, you know, a lot of people use their MBAs to like try and pivot into a new career or a new space. I chose not to. I'm still in very much deep into strategic sourcing and and supply chain procurement uh functions within my company. Not to say that one day I won't, but for now it's it's been kind of going deeper into that. So I really took the MBA as an opportunity to to explore other things and other parts of business that I I don't think I'd I wouldn't have had any exposure to otherwise.
SPEAKER_00That's amazing.
SPEAKER_01Can I ask, what what did you do? Did you have an internship between your first and second year? So I actually did the part-time program. I was working the whole time. Go to work, normal hours, and then 6 to 9 p.m. several days a week, I'd have to go to Kellogg. You know, the the nicest thing, and funny enough, one of the things that swayed me into going to Kellogg is they actually feed you.
SPEAKER_00That's great. One less thing to worry about. That's convenient. And it's also like driving distance for you, right?
SPEAKER_01So yeah, it's not bad. You know, I live in uh one of the outer neighborhoods of Chicago itself, and well, Kellogg is downtown, the the Weebolt campus downtown on Chicago Avenue. So it's it's manageable. Makes a ton of sense.
SPEAKER_00I'm kind of curious. Like, did when you were in your MBA, I mean, how many folks were coming from the supply chain procurement world? Were there other people like being like, Nico, like how do I get into this space? Or was it like totally foreign to people? Was it all mostly marketing folks?
SPEAKER_01There's a little bit of everything, but yeah, I got uh you still got a lot of blank stares when I said, you know, I'm in strategic sourcing, you know, like what do you do? There was a little bit of everything. There were some engineers, there were some people in sales, folks in marketing, a lot of broad backgrounds. I think that was one of the best parts about it. Just so many different people from so many different areas and and in different stages of their careers, too, trying to um either pivot or or just broaden horizons, right? Like I was trying to do. A little bit everything, but no, it definitely wasn't overrepresented in like supply chain.
SPEAKER_00There are some programs that are definitely more oriented toward it, like Michigan State, of course, you know, yeah, very, very supply chain heavy. MIT has actually a great supply chain and logistics program, but it's more like the mathy side as I understand it. But I I knew some professors there at different times. So you took some marketing though while you were at Kellogg.
SPEAKER_01Yeah.
SPEAKER_00I did. And and this might be like asking you to recall ancient knowledge, but do you remember anything that you learned from these marketing programs? And I'm to thread the needle one step further. Like, is there anything from marketing that you feel like you've been able to apply to the world of procurement in your current job? I know that's like a big question, so I I'm just kind of curious if we can riff on it, you know?
SPEAKER_01I'll tell you, I'm not gonna remember specific examples or even who the professor was, probably. Yeah, I mean, we I absolutely think I do use a lot of those things that I learned in Kellogg every day. I think in just in the way you present yourself, right? And the way you present your ideas, once you've kind of been exposed to that train of thought of, okay, it isn't just the simple supply chain question or equation of what not simple, but the rigid kind of supply chain equation of when is it going to be here and how much is it gonna cost me, right? There there's much more to it. And then the way that you present that to stakeholders internally is a very different conversation than just, hey, here are the numbers. It it kind of gives you some angles into okay, hearts and minds of convincing people to do what you already know is right based on the numbers that you as a supply chain professional really understand. And that someone else in sales is gonna be like, I don't care about that. I just want to know if this is good for me to sell more. I think it really helped me think from that lens. I took a few entrepreneurial classes actually while I was at Kellogg, and I thought those were those were really interesting. Like I took entrepreneurial sales for one thing. That is one professor I do remember very, very fondly. His name is uh Craig Wardman. He's done a ton of work at Kellogg to really put forward kind of a sales-driven curriculum, not just in entrepreneurship, but just sales in general. Speaking of how sales can be sometimes the the untaught skill. Few, if any, don't quote me, but sales bachelor's degrees or or or master's degrees or or any sort of formal education out there that really says, hey, come here, we're gonna teach you how to sell, right? It's a big gap. And I think Kellogg and and Craig uh in particular, and Craig has several colleagues now. I think the program has expanded. Uh, he collaborates with other professors there too, is really putting the effort into expanding that.
SPEAKER_00Amazing. Yeah. I'm kind of curious, like, there's been a few folks I've known in the procurement space that have had a sales background. It's kind of interesting. I'm thinking of, you know, just top of mind, Eugene Galdi from Arcsada. He's always telling his teams like you're always selling and they're they're procurement folks. The other is Steve Patton from Amazon. So there's a few different folks who I've known who are, you know, procurement leaders who have like a sales background or very strong sales bend. I'm kind of curious, like, where do you see sales fitting into the role of a pr you know a procurement or category manager? And if you have any examples of times where you've had to really sell an opportunity to a supplier, I mean I'm sure that it if you're at a big three-auto OEM, you can kind of you can kind of you have a lot of power, but sort of sort of the biggest companies in the world, there's always some sales aspect. So I'm kind of curious if there's in how that's figured into your world, you know?
SPEAKER_01Yeah, absolutely. You know, I think I've always told suppliers during negotiations and conversations about programs, because I guess backing up a little bit and talking about the the kind of company that I've worked at in strategic sourcing for most of my career is matrix organizations, right? Where you have basically a an umbrella corporation that owns, in some cases, thousands of businesses that have their own independent PLs, right? What I used to always tell suppliers, especially when I was at bigger corporations that had that problem, uh, I came from ITW, which not problem, that situation where there's just thousands of companies underneath that umbrella, right? You know, we're gonna negotiate hard. Here's the RFQ, we're gonna go through all this process. And then at the end of it, when I've already determined that you are the best partner for this, my role as a strategic sourcing professional flips from your worst enemy to your best friend. No, it turns into very much a sales role internally, because in that scenario, those local, those child companies have a lot of autonomy, right? They have the freedom of choice to say, okay, I'm gonna work with X, Y, or Z supplier, here are my reasons. And and corporate, you know, by design, does not normally come out and say, hey, you have to use this supplier because I said so, and end of story. So I think throughout my sourcing career, it's been very much a sales effort where I have to go, you know, on the front end, of course, negotiate, make a great deal, have great value proposition, you know, dollars, of course, then you know, what are they gonna do for innovation and what other support are they gonna give me? But then turn around and convince my stakeholders that this is the right choice, and here's why. And that's where that really that that sales had of coming in. And even in in some scenarios, there might be some winners and losers internally. It might be a great deal for company A, but not so great figures are one, right? They might have to pay a little more to make the whole deal work. Lots of sales skills involved in that process.
SPEAKER_00Do you remember a time where you ever really got into like a very tough conflict with a stakeholder where it was like, okay, like we were really not seeing eye to eye on something. We were really locking antlers. I'd love to understand like what was the nature of the disagreement and like how did it ultimately kind of get resolved?
SPEAKER_01Most of the disagreements when you're doing these multi-site negotiations turn into what I just dis R I just mentioned, right? Where sometimes some get a better deal than others, or they're reluctant to work with a supplier because of history, you know, things like that. But just comes down to explaining the value prop, right? And that is not necessarily a numbers thing.
SPEAKER_00Right. What would be an example of a value prop that you would say, like, hey, like a matrix organization, theoretically you can work independently of you, different people, but I want like I want us all to get on the same page because either we have more leverage or we can have like better terms, or we can have we can do more industrialization of that supplier and work with their build out because we can make a bigger investment. But how does that but I understand it from our perspective? How does how do you translate that to the individuals that you're working with?
SPEAKER_01Depends a lot on like putting yourself in their shoes, right? What is what is the thing that matters to them? And in some cases, that is, you know, corporate compliance. Sometimes there is an incentive to say, you know what, yeah, you know what, maybe I should. It's minimal, it's not gonna make or break my business. Maybe I should just play along. You know, there is some of that. But I think it's it's really about showing them how it's gonna make their life easier, especially if it isn't necessarily a cost thing. I think a lot about travel programs. I've implemented a couple now in in my career in sourcing, and you know, that there's there's always a cost associated, right? You're going from and a hidden cost. Well, it's a cost that is hidden under the previous setup, right? You're going from a scenario where everybody kind of goes their own way, goes to united.com, goes to uh booking.com, goes to whatever makes their travel arrangements. You have complete freedom, complete autonomy to do whatever. And they say things like, you know, I'm always very cost conscious, so I always grab the cheapest, you know, et cetera, et cetera. But then here comes corporate sourcing saying, This is our new travel program, you have to use this. Uh, please make sure you do all your bookings inside that. And they'll come up and say, But, you know, that isn't the best deal, or it's not the most expensive, or you know, it's not the cheapest. There's better deals out there. And it's like, okay, you have to pause for a second and factor in the value of your own time, right? When you when you have that autonomy and you're going out there and shopping, you're saving what, five, ten, maybe a hundred dollars, if if you know it's some crazy uh deal that you found, you know. But how many hours does it take you to accomplish that, right? Time, how much company time did you waste spend trying to save a hundred dollars when you could have just click-click done and saved your time too, right? So it's it's a little bit of framing that's helping people understand how how this makes their life better beyond the dollars and sets.
SPEAKER_00It's interesting. And then if you have to change something, you know, maybe the program for better terms versus like how many times have you been stuck in oh, you bought basic economy, sir, so you like can't use the bathroom or upgrade, change the seat, or you know, you cancel, you can't cancel, we'll give you you know $50 credit a million times. So I I can I can see the performance also being different. I I guess I'm kind of curious how do you make these kinds of trade-offs? And this is a very big question for which there is no right or wrong answer, but how do you think about making the trade-offs between, you know, price and performance, or price and lead time, or price and flexibility, or supplier stability? Because like I feel like those questions are so core to the procurement function, and it's just really difficult to answer, right? But I'm kind of curious, like, how do you figure out where to set the bar between, you know, making trade-offs between price and non-price factors?
SPEAKER_01Yeah. Yeah, I think that's that's where the strategic sourcing and and procurement functions get a little bit into the art of the deal rather than the, you know, the hard and fast. And I think it it comes back down to what do you as a company care about, right? If price is all you care about, because you make widgets and they don't really matter, like they're not gonna kill anybody, discretionary spending. You know, you can go to a low-cost country and say, hey, I want this for the cheapest price possible. I have no other consideration. I don't care. I want to s if you can save me a penny, I will switch from supplier A to supplier B for a penny. Let's go, right? Okay. Yeah. That that's one extreme, probably rare. Then it it's really my very much understanding, right? Like your core business, right? Like you I work at at Time Manufacturing, we make manlifts, aerial platforms, you know, bucket elevators that hold a person, hold a human, and hold them in some cases a hundred meters in the air. That's three hundred and thirty feet in the air. We can't necessarily, but we cannot say that, hey, make it for as cheap as possible. I don't care if it fails, because if it fails, high likely are we gonna go kill somebody by by you know negligence. And so we we don't negotiate and structure our deals that way, right? We are obviously quality first, right? It needs to be it needs to meet our engineering specifications and requirements, it has to be structured sound, etc. etc. Right. So so it's very much, I think, based on on what your company cares about. You know, we are, like I said, heavy engineering company. We need really good quality, we need basically perfect two-print parts, otherwise we can't produce because we're we're not gonna take the risk, obviously, of putting the machinery in the market. So we care very much about that. Other companies might be more lenient. So it really depends on on what your specific needs are and how how you tailor that. Because obviously, like you like you said it very well, the the more of those requirements you have that correlates to cost. If you need perfect every time, well, you're gonna pay more. No, it's simple kind of logic of the equation behind it.
SPEAKER_00Yeah, I agree with you. And and look building on that, eventually, if you have so many requirements that are so hard, you get down to the Venn diagram, you got one supplier left. I need someone who's local, who has this lead time, who has this quality, one vendor that we can work with. So then there's not much competition. I guess something you brought up that's sort of interesting is the interaction with the engineering team. Like, what does the interaction with the engineering team look like for you and your business? Is there any difference between when you're doing like an NPI project where it's like something that's new, you know, maybe higher velocity on iteration versus a sustaining project where you know engineering might not be as frequent a touch point. I'm kind of curious what that relationship looks like.
SPEAKER_01Yeah, no, absolutely. You know, that I think that was one of the first challenges that that I think I recognized coming into this role where you know strategic sourcing didn't exist uh two years ago, right? Something I think every strategic sourcing professional knows, at least if you're in machinery, you you need to be very close with your engineering team, right? They they're the ones that, with good reason, design everything to fit your spec, right? They design the criteria, they determine how thick the steel needs to be to hold a human up, you know, 300 feet in the air. Having a very strong relationship there is key, but there are different degrees of freedom, I guess, depending on what product we're talking about, right? To your point, if it's an established product that doesn't have any design changes, it's in you know steady state production. Yeah, engineering is still very much the very first partner that I go reach out to and say, hey, I see an opportunity here. What do you think? What can we do? Can we reduce the thickness of the steel? Can we change this, the position of this within the weldment a little bit? It saves us six thousand dollars, whatever it might be. Right. I think it always starts with them, especially on structural components or critical components. Uh starts with the engineering team's involvement. But beyond that, there's again, and when you're in steady stick production, there's a lot of items that engineering will just tell you, you know what, that that's off the shelf from no, you can find a better source and it fits this, this, and this, great. Form fit function, let's go. Right? Talking, you know, fasteners, bearings, things like that. Not always, right? They're we have very special fasteners in certain critical applications that have to be, you know, incredibly strong or this thing's gonna break. Same thing. But there are some areas of opportunity in steady state that are a little easier to take the lead on without so much engineering involvement. When we're talking new product development, you know, I I I've made it my mission internally to kind of illustrate to everybody, look, the strategic sourcing and procurement functions are most effective when we're involved in new product development from day zero, right? Like you have an idea, you want to go build a new machine, talk to me, right? What do you want to do? Where are we gonna source it, right? What's gonna be different about it? And we can, you know, at the beginning, our I think as sourcing professionals, our involvement's a little lighter, right? We'll probably just buy and tell you, you know, what, oh, you want to buy some sort of aerospace steel? I mean, that's gonna be very expensive. Can we try nothing else? Like it might be high-level stuff like that, right? But we'll we'll guide the conversation at least a little bit. And then that way, when engineering starts, you know, actually releasing drawings, uh, we can be a real partner going out to market, finding the right partners that can make these things. And I think it just shortens the the new product development cycle. Because, you know, without that, what happens is engineering goes out, does their work, does it well, right? Designs a very good, good, cool machine that we think we can sell, but then procurement is in reactive mode, trying to go out there and find people that can make these things at scale. You know, maybe we source a specific component from a supplier that we probably shouldn't do business with. You know, you open yourself up to a lot of risks when you don't involve uh the procurement function in new product development. So I think we're there, right? We've developed a lot of new processes, you know, uh revamped the kind of our our stage gate approval process for new product development. You know, this involves a lot of functions across the company, not just procurement. But I'm happy to say that I think we're we're in we're in a good place now where we're involved early and we're really helping to get new product development through the finish line in a really, really good way.
SPEAKER_00That's great. What's the stage gate process? Maybe we can just like talk about that for a sec.
SPEAKER_01Just, you know, simple toll gate approval, right? Like you get to a certain point in your new product development and you say, okay, now, you know, engineering has come up with this idea, let's say, from the very beginning, and then take it to all the stakeholders at the executive level, right? Marketing, sales, head of engineering, head of procurement, be like, okay, we want to do this. What do you guys think? And kind of do start doing market study. And well, if marketing comebacks and says, Yeah, that's cool, but I'm gonna sell one every 10 years, well, maybe not.
SPEAKER_00Yeah.
SPEAKER_01Cut your losses and move on to a different project, right? That that that's what it is. It's designed to kind of triage along the way, help avoid uh honestly the song cost fallacy, right? Yeah, of course. To a point where it's like, oh, I've invested a hundred thousand dollars in this thing, so I'm gonna keep going. It's like, well, sure, but every other dollar is also a waste because we can't sell.
SPEAKER_00Well, I'm kind of curious, like, you know, when you're you're talking about, you know, this sort of cost and ease of manufacturing or supplier industrialization question, like, oh, you use aerospace steel, that's gonna be possible, but much harder. How much of these sort of design inputs do you find are coming from procurement versus coming from the suppliers themselves responding to the design and making alternative proposals?
SPEAKER_01It's a tough question to answer. Uh I don't know that I know an example where we're really pulling that level of idea directly from procurement. You know, obviously we do the best we can to diligence, but none of us are, I guess I shouldn't say none of us. I myself am not an engineer. I'm not a technical person, right? So, you know, I'll I'll suggest, and folks on my team, I've seen them do it too. We'll suggest kind of common sense things, you know, like okay, can we do this a little bit differently? But the real value comes from from that support of kind of provoking the thought of, okay, what does this actually do from a supply chain side of things? Because again, engineers are focused on form fit, right? Function, not necessarily cost or availability or et cetera. Not always, but that tends to be the role, right? To the other side, one of the things we're really trying to leverage is the knowledge of our suppliers as subject matter experts within their within within their space, right? So we're we're working on um, you know, value add, value engineering projects, bringing in the suppliers and telling them, hey, this is what uh you sell us today, based on the process and what you know about it and what you know about the application. What will you change? What would be impactful to not just the cost, but you know, all the other factors you mentioned, the lead time, the quality, et cetera. If we just tweak this that you happen to know about, Mr. Supplier, because you do this for a living and we don't, help us help us uh understand what those opportunities are. We started with a couple of those this year. As anybody that's been in a VAV, there's always some really nice surprises. Uh, I mean, you start with a broad funnel of ideas and it it narrows down pretty quick. But anything that makes it through the bottom of that funnel it is very impactful to the business.
SPEAKER_00How do you think about the risk of sub vendor lock-in? One of the things that I feel like is always a little bit of a sliding scale, I would say, for um for design is sometimes the engineering team will own like the full thing, everything end-to-end. They develop every screw, nut, bolt, surface, and then you have the liberty to go and source it from anyone to your heart's content, right? But then there are some times where it's like, hey, we don't have the engineering resources, or developing this mechanism is just like simply not something that we should be doing. And so then you end up designing in somebody else's IP. And on the supplier side, we talk to a lot of suppliers and they'll offer. And use things like, hey, we develop IP, we develop assemblies as a as a way of protecting margins. They're not competed down as much. So how do you think about this sort of design ownership, vendor lock-in? I mean, how does this all work in your world?
SPEAKER_01Yeah, that's a great question. It's it's uh it's a big challenge for us, frankly, for anybody, I suppose, in strategic source and buy in, right? Because you're the the number one lever to to go out and source is that availability of the IP, right? You can't very well take supplier A's drawing and intellectual property and give it to supplier B. That's against the rules, right? You don't want anybody doing that to you, you're not gonna do it to anybody else, and it's very much illegal, or et cetera. So no, it's it's a real challenge. I think it's a challenge my team faces, and the the way we're working through it is being very upfront when we do have the liberty to source when we own the drawings, right? Being very upfront and very clear that these are our drawings. At no point do they become your intellectual property, Mr. Supplier. I don't care how much modifications you make to it, I don't care that you improved it by a thousand percent. Anything you do, it's mine, right? Because yeah, it's an incredibly important thing to protect, right? If if you lose that autonomy, you open yourself up to a lot of cost ups and supplier law. You said you're kind of captured prisoner, if you will, certain suppliers. But yeah, it's a real challenge. And and honestly, you hit the nail on the head that it's it's oftentimes a engineering resource challenge, right? If you have uh a very large or or even a legacy of of a lot of engineering design work, like we're fortunate to have, you know, it gives you one degree of freedom. But on the other hand, if if you haven't had that, it's a long path, I think, to to get to a point where you will. And and it comes down to just like anything else, negotiating with your suppliers, so that what you need to be able to go to RFQ, that intellectual property does become yours. You know, there's ways around it where you can basically, you know, you can't share a drawing, clear. It's not your IP. Yeah. You can always share your requirements, right? I need a cylinder that'll do this. That's not intellectual property to anybody. That's your thing. Right? I need it to do this, how you design it to make it do that. That's your problem, Mr. Supplier. So on the flip side, that can also be kind of a capability filter from new suppliers you're looking at, right? If you're able to share and tell them the true requirements of what the end product should do, based on that, they're not able to design something for you, then they're obviously not the right supplier to be considering. Sure, they can make widgets, but they can't design or innovate for you, especially in a situation where you're not engineering heavy, right? Where you don't have engineering resources, I think it becomes even more critical to make sure that suppliers you do work with are.
SPEAKER_00Yeah, it makes a lot of sense. When you do have vendor lock-in, let's say it's just inevitable, right? Like, you know, I remember at Tesla we had certain suppliers where we couldn't, I can't even say I shouldn't say the names, but um, we had certain suppliers where it there was just no way to get around it, especially in the safety systems arena. That that was a particularly hard one. But because there's not, you know, safety critical and you know, that kind of thing. Like there's not a there's not a huge number of companies. If you remember, I don't know if you remember Takata, but there was like a big you remember this? I mean, that was a crazy situation. It was like I don't know how close you are to airbags, but there's like broadly two parts of the airbag. There's the bag, and then which is like a nylon denier bag, and then there is uh the puck, which is the it's basically just like a small, it's like a grenade designed, like engineered for specific, you know, amounts of inflation of specific bags. But then there was an issue where in hot climates, you know, we had uh not we, but actually toccata's inflators, the something about the propellant was getting congealed or whatever, and it was it was burning too fast when deployed, and it was actually not just it was actually blowing the puck up, and some metal shrapnel was going and shooting out. So it went from being like a grenade to being a grenade, and then all of a sudden, you know, one out of the three major, you know, airbag suppliers is out of the game. And so that was a a real uh what they call a duopoly situation. So I'm kind of curious, like when you have these kinds of situations where you're with a supplier and there is some sort of, hey, there's only they know each other and there's only two options. It's they know each other's pricing kind of through tacit knowledge. You know, how do you actually come into those negotiations and make real headroom?
SPEAKER_01Yeah, you know, that's that's a a tough scenario, a real, real difficult environment to kind of play in, right? And I I guess I would say in a scenario like that, if we're gonna stick sticking with the airbag example, I would say there's always the opportunity of insourcing, right? I guess if you're talking about leverage, right? Like I wanna I wanna tell them, you know what, you're either gonna gain this business or or maybe not, right? In a duopoly, I mean you can bid them against each other, sure, see what happens, right? Give them best. And again, if you're talking gigantic volumes like automotive, you'll probably get somewhere doing that, right? Because shifting it from A to B will be a huge impact for A or B. There's not that many players in the space and they depend on volume. So there's there's some levers there, but in a situation where you're completely stuck, yeah, your avenues are kind of slim, right? Like there's really not too many you can do. It's a tough scenario. I'd have to think about that more to be honest. That one's that's difficult. You know, insourcing, like I said, it is real, but it comes with a huge capital investment and the the huge engineering investment too, to figure it out. You know, can I make it better than the guys that already do? Or should I even enter that market? But you know, we can get into economic theory about new market entrance, etc.
SPEAKER_00Oh, for sure. Here's the question how you found should cost modeling to be like a useful or not so useful activity, like I think should cost modeling is a must.
SPEAKER_01You have to do this, especially in areas where you don't have inside knowledge of how these materials are costed, right? As a sourcing professional, you have to develop some sort of understanding, right? I think they're incredibly powerful, but they wouldn't be powerful in a monopoly because they don't care. Like you can tell them that we have 50% margin, they're like, okay, great. Now your margin's 60%. You near has to go. So it is there's scenarios where they're utterly useless, right? But in in understanding your supply base and understanding, you know, what am I actually paying for? They're they're incredibly powerful. And they do open up a lot of avenues for questions of and that they're helpful in VAV exercises, et cetera. Trying to understand, okay, this material it's it's 70% steel. So hey, Mr. Supplier, the steel market just came down 20%. Why hasn't my price changed? Right? Let's talk about that. Let's build that in the contracts, you know, incredibly impactful and helpful in all sorts of ways. I think if you're not doing should cost modeling and then total cost of ownership, et cetera, you're not doing strategic sourcing, you're not doing it properly.
SPEAKER_00Yeah, it makes sense. Well, what I'm I'm kind of curious, like, you know, and this might be very elementary, but you know, I'd love to get your perspective on the definition of strategic sourcing, right? So, you know, you came into I I I know it's it's like both a simple and not a simple question at the same time. Um, and I feel like there are a lot of definitions out there, but but you came into time and you built up the strategic sourcing function or functional thought. You know, what do you feel like are the sort of for you in your experience, like the most important, you know, two or three defining aspects of what makes somebody a strategic sourcer or doing strategic sourcing versus what's the opposite of that? Transactional or just buying? Like what's the what is the opposite also? I guess it's a good question. Yeah.
SPEAKER_01Yeah, no, absolutely. So uh I think there's the way I tell my family what I do. In its simplest form is I I negotiate contracts for things that if you want to boil it down to one sentence, right? I negotiate contracts. That's that's what I do. Or more so what my team does nowadays. But anyway, the the getting into like what it is, you know, I always tell my team if if you find yourself writing a purchase order, then I did something wrong. Nobody in my strategic sourcing group, from my point of view, should be doing operational procurement work, right? And I say that because operational procurement work is a bear, right? It's it's a mountain of work, it's incredibly difficult. You're always chasing, uh, there's always either too much or too little, right? There's no happy medium where you hit the nail on the head and you had exactly what you wanted, exactly when you needed it, that never happens, you know. So it's a huge amount of work. And from my point of view, if you're trying to do both that operational procurement and strategic sourcing, well, the operational is always going to take precedent because that's in a way more critical, right? If the parts don't get here, well, it doesn't matter how great a price I negotiated, the parts aren't here. I can't build, I can't sell, etc. That aside, what strategic sourcing does, right? Negotiating contracts, building relationships with your suppliers, protecting the company. We we back to negotiating contracts, we protect the IP, the financials of the company, right? That's our job, right? Otherwise, you're operating out there on purchase order terms and conditions, which are generally pretty broad. You know, they don't give you a lot of warranty, a lot of recourse if things go sideways, you know. And we create value. All right, it's not just price, right? It's it's building that partnership, it's seeing what else can be delivered. You know, there's always this this discourse, I think, in strategic sourcing and in procurement of is it hard savings or is it cost avoidance? Right? I think if you look at the cost avoidance bucket and think of what that is, there it that's pure value to the company. It doesn't show up in the PL, etc. But if you think of it in the absence of a strategic sourcing team, well, he could have paid X thousand dollars more or not gotten this additional service or et cetera, right? That's all in a cost avoidance bucket. So I think that more or less is what strategic sourcing does.
SPEAKER_00Yeah. I think it makes sense. I I guess um I know this is sort of a topic that shouldn't leans a little bit. You know, I know that Ben wanted us to hit on a little bit of some of the things that have happened since we last spoke in this kind of format. You know, I I'd love to get your take. I mean, how are you feeling about the global trade environment right now? What have been the changes you've seen? I guess what actions or inactions are you sort of feeling like it's it's wise for people to take at this moment.
SPEAKER_01Yeah. No, I remember my my biggest points back then, time we talked about tariffs was, you know, it's all pain right now because of the uncertainty, right? Like at that time it was, you know, you'd you'd flip on the news in the morning and there was a new 30% tariff, or or a 30% tariff went away, or whatever, right? It was day-to-day, and you know, see your pants, what's what's happening? It's it seems like things have calmed down a little, right? There's still some noise of tariffs here and there, a lot less. I think we're starting to see a lot of them actually cement now and like show up in in invoices and start to hit the bottom line, right? Where you know, cash, real dollars are going out to pay for tariffs, and that's that's starting to eat into margins, and you're starting to see a lot of that pass through into what customers have to pay. And I'm not talking about, you know, staples right or you know, me going out grocery shopping. I'm talking about what I see in the business when I'm out there trying to buy things or or or sell things for that matter, right? Like cost of goods has simply gone up, right? Like we're actually seeing the impact of it now. And that's not a bad thing. I am not still convinced if terrorists are gonna be good for us or bad for us in in the long run, right? I don't know what they're gonna do. You can find pundits talking in either direction. They're the best things since sliced bread, they're the worst things to slice bread, yeah. I'm very encouraged that the noise has stopped, at least, or or slowed down.
SPEAKER_00It feels that way, it doesn't. It feels like there's not as much changes happening on a daily yeah. I mean, it's crazy, and in some ways it's like thank God people weren't taking them as gospel when they came out. Because if you thought there was gonna be a hundred something percent tariff, like and you totally changed up your supply base, I mean, that would be a lot of thrash, you know?
SPEAKER_01That'd be a lot of pain.
SPEAKER_00Yeah. A lot of pain. But I guess I'm I'm like curiously, are you you know, I remember you guys were actively managing I remember a few levels. One was like the the expected base case and then like the potential value at risk across the bill of materials. Like I remember you guys had a really great analysis around this. Is that still something that's being refreshed on a weekly basis, or is it like, hey, we're we feel this is more under control, so like let's focus on other stuff now?
SPEAKER_01No, it's it's well, I wouldn't say it's weekly anymore, right? Again, because things have slowed down quite a bit, but we still do quite a lot of of modeling in that in that space, kind of trying to think of um, okay, where is this going to affect us, where in the bill of materials is it going to show up, and what is the actual impact to our full cost of goods sold, right? So so we still do a lot of that, but it is easier now because we know where it's hitting and what's happening. Not much has changed except for that things are a little more certain.
SPEAKER_00Yeah, of course. Here's my last sort of question, which is what's keeping you up at night? Like what's like what's the thing that you're like, you know, when you're like, okay, when I get off this call, the thing the like this has been an enjoyable, you know, oasis away from the the trials and tribulations of of being a procurement leader. But then what's gonna creep back in? What's the first thing that you're gonna have to like get back on top of? The fire or like the persistent grind? Like, what's the thing that's really like the number one thing on your mind right now?
SPEAKER_01You know, I think what's what's gonna happen to the capital equipment world, right? The one the one that we live in my industry, right? I think everybody was expecting to see a a giant pop in investment in in machinery and other things when uh the presidency came into office, right? And I think for a lot of industries that hasn't materialized. So I'm still wondering, like, is it gonna continue to be kind of a slow burn? Like it's not like the industry's dead or anything. The one who gives that impression, right? Things machines are selling, uh, we're still producing, of course, day in, day out. But is there is there going to be at some point kind of an inflection point where we're gonna start to see all industries, not just uh the machinery, you know, for the utility and and telecom industries kind of pop off like everybody was expecting. Fortunately, we're poised and ready to to do a something like that. We have, you know, shortest lease times in the industry at this point, I think. So we're we're very much ready, but when's it gonna come?
SPEAKER_00Yeah. Well, what's the what was the thought? Was that was that the promise with the new presidency that there would be a lot more investment in like in machinery and capital equipment?
SPEAKER_01Yeah, you know, just an impression for me. I mean, I'm not gonna so cite a source, but yeah, it it certainly seems like there was a lot of pent-up demand from last year coming into this year, thinking of, okay, when this happens is gonna free up a lot of dollars, you know, a lot of federal funds and stuff like that. And right, we're gonna see the investment come through into our bottom line. But as you know, the the federal funds has been, I think, different than anybody expects.
SPEAKER_00Yeah, it's interesting. I mean, look, I mean, there could there's a lot of pressure, as you've seen in the news for to Jerome Powell, the Fed Reserve Chairman, uh, to lower rates, lower interest rates. And by the way, when you lower interest rates, what that means is that it feels cheaper to make investments now, you know, because the you're not competing with like five percent interest you could keep on cash in the bank. You're competing with one percent interest. So, you know, it's worth spending money today for future returns, and that's that's investment, capital investment is one of those things. So we'll see, but it's it is becoming a hotly debated political issue, and that's uh that's where I have to draw the line, you know. But uh Nico, thank you so much for the time. This is really amazing. I love our conversations like always, and so having an opportunity to actually like record it, snippet it, uh, and then share it out with folks is a real joy. So thank you so much for joining.
SPEAKER_01Yeah, thanks for having me, Spencer. Like, yeah, likewise, always a pleasure to chat. Uh looking forward to the next one, hopefully at some point.
SPEAKER_00Yeah.
