Art Koch, Art is a globally recognized supply chain transformation expert and consultant with over three decades of transforming business performance at mid-market and Fortune 500 companies. He’s increased corporate valuations by over a billion dollars, utilizing his proprietary methodologies to improve customer loyalty, reduce inventory by over $250 million, and increase EBITDA by $100 million-plus annually. His new book is now available, titled The Supply Chain Revolution: Unlocking the Sustainable Profit Chain.

> Here’s a glimpse of what you would learn….

In this episode of the Ecomm Breakthrough Podcast, host Josh Hadley interviews Art Koch, founder of Art Koch Management Consulting and a renowned supply chain expert. Art shares his insights on the critical role of supply chain efficiency in e-commerce, emphasizing the pitfalls of excessive inventory. He explains how inventory often masks deeper operational issues and depreciates over time. Art introduces “Art’s Law,” which highlights the disproportionate complexity driven by a small percentage of sales. He offers actionable strategies, including evaluating low-performing SKUs, ensuring data integrity, and hiring data experts, to help e-commerce entrepreneurs streamline operations and drive sustainable growth.

Here are the 3 action items that Josh identified from this episode:

Action Item #1: Streamline SKUs to Reduce Complexity: Analyze your sales data to identify low-performing SKUs that add complexity without contributing significantly to revenue. Consider eliminating or consolidating these SKUs to simplify inventory management and lower operational costs.

Action Item #2: Ensure High Data Accuracy for Effective Inventory Management: Aim for near-perfect data accuracy (99.999%) when managing inventory, especially if using third-party systems. Invest in software tools like Power BI to track and report data accurately in real-time.

Action Item #3: Foster Strong Supplier Relationships for Reliability: Build long-term agreements with suppliers rather than relying on spot buying. Maintain open, regular communication to keep suppliers informed about your inventory needs and forecasts, ensuring better support and reliability.

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Josh Hadley 00:00:00  Welcome to the Ecomm Breakthrough podcast. I’m your host, Josh Hadley, where I interview the top business leaders in e-commerce. Past guests include Kevin King, Michael Gerber, author of The E-myth, and Matt Clark from ASM. Today I am speaking with Art Koch. He is the founder of Art Koch Management Consulting, and today we are going to be talking about why inventory is evil and art has a fantastic response as to why inventory is evil. This episode is brought to you by Ecomm Breakthrough, where I specialize in investing in and scaling seven figure ecommerce businesses to eight figures and beyond. If you’re an ambitious e-commerce entrepreneur looking for a partner who can help take your business to the next level, my team and I bring hands on experience, strategic insights, and the resources needed to fuel your growth. So if you or someone you know is ready to scale or looking for an investment partner, reach out to me directly at Josh at Ecomm Breakthrough dot com. That’s e-comm with two M’s and let’s turn your dreams into reality.

Josh Hadley 00:00:47  But today I am super excited to introduce you all to Art Koch. Art is a globally recognized supply chain transformation expert and a consultant with over three decades of transforming business performance at mid-market and fortune 500 companies. He’s increased corporate valuations by over $1 billion, utilizing his proprietary methodologies to improve customer loyalty, reduce inventory by over 250 million, and increase EBITDA by over 100 and 100 million plus annually. His new book is now available titled The Supply Chain Revolution Unlocking the Sustainable Profit Chain with that introduction. Welcome to the show Art.

Art Koch 00:01:20  Thanks, Josh. Looking forward to having some fun and walking through any of your questions today.

Josh Hadley 00:01:25  Art, I’m really excited to have you on because I think too many of us kind of overlook, a lot of the efficiencies that can be improved upon in supply chain. most of the audience that’s listening to this, they’re, you know, I would say they’re more visionaries in the business, right? They started this brand by themselves. They’re really good at sales and marketing. Thus, they’ve crossed the seven figure mark.

Josh Hadley 00:01:44  on Amazon or other e-commerce sales platforms. But the problem is they’re probably not the data analytics person. They’re probably not in the person. That’s all about operations and efficiency and supply chain. They do it just because it’s a necessary evil, obviously. but before we dive in. I really want to hear. What is your background? Obviously, you’ve got decades of experience in management consulting, process improvement, working with various stablished businesses. So tell me more about your background and what makes you an expert?

Art Koch 00:02:13  my background is going in the Wayback machine. I started off my career as a machinist in Flint, Michigan, and I worked at earned a journeyman card as a machinist, and I saw Flint close up with the automotive. And during that period of time, I saw many of my friends lose their jobs or family members, parents, etc., lose their jobs due to the shuttering of automotive, and many of them become obsolete because all they knew was one company. They might have worked at it for 20 or 30 years, and I decided that I needed to do something different besides being a machinist.

Art Koch 00:02:43  And the second thing is, I went to college, earned a bachelor’s degree in biochemistry, went and got an MBA and operations from Michigan State. And I focused on operations because my machining background, I figured I kind of like this. I might be good at it. And when I got out of school, I made a conscious effort to move businesses every few years to where I did not become obsolete, and the idea was I didn’t want to be pigeonholed, and I wanted to keep learning to where I could always be employed. And the second part, as I kind of matured a little bit more, I said, I want to give something back to the companies I work for or the United States and say, how do we not let what happened in the 70s happen again? How do we invest in ourselves? How do we improve our processes, our businesses to where we can compete on a global market? So I’ve always had that in the back of my mind as I went into something. How do we become better than anybody that’s out there, and how do we learn from the best? Well, that was a mouthful, but that kind of sums up who I am.

Josh Hadley 00:03:35  That’s a great, I think, great mindset. You know, how do we become the best at what it is that we’re doing. So our, you know, we we preface this episode by saying, you know, inventory is evil. And that’s something that you talked to me about before we hit the record button. So I’m going to ask you the question, why is inventory evil?

Art Koch 00:03:52  Perfect question Josh. Perfect lead in. And if I go too long, I can go too long on this. Interrupt me and we’ll take a breath and we’ll come back on some different things. But first thing everybody has to understand is you need inventory to serve your customers. Okay? Absolutely. You have to have it. It’s a lifeblood of your business. However, inventory is there for to, is there to hide problems if you’re in a perfect world that your supplier would automatically have it and be able to deliver it to your customer, and it would never have to hit your, warehouse or your store room or transit or whatever.

Art Koch 00:04:27  But inventory is there to buffer against supply variability, customer variability, and variability within your operations. So you have safety stocks, you have inventory minimums, maximums, whatever they may be. But inventory hides problems. All right. And by hiding problems it delays problem resolution. And by delaying problem resolution it cost you money. So that’s why I say it’s evil dovetailed into that most every business that I walk into, they’re all happy with how much inventory they have. They might say they have too much, but they’re proud of their inventory numbers. And the first thing I try to explain to everybody is inventory is not an appreciating asset. It doesn’t go up with the stock market, okay. Inventory is a depreciating asset. In the longer you keep inventory, the more that’s depreciated. And once you get that into people’s mind and it’s a shift in mindset and behavior for people to understand that inventory does depreciate over time, they start to change their behaviors.

Josh Hadley 00:05:27  I love that. And art you also talked about I think this would be a perfect segue into you have a law or a principle here.

Josh Hadley 00:05:33  the arts law is 1% equals 50. Tell me more about that and give me some examples.

Art Koch 00:05:39  All right. So whenever I get into a business I start you know, you go meet the people. You got to meet the people that are doing the job and sit down. You got to hear their pain points with their proud of what they’re struggling with. And I also dig very deep into the numbers, and I dig deep into the how many suppliers they have. how many purchase orders they cut in a year? How many receipts they do in a year? what’s their demand for their parts? And virtually every business I go into, I find that the last 1% of either their sales to their customer and their purchases represent 50% of their business complexity. So what you’ll see in many cases, or virtually every case, if you’re dealing with a lot of SKUs, part numbers, is that last 1% of your sales will represent 50% of your product offering and 50% of your customers. And that will drive back into the supply chain to 50% of your part numbers or and 50% of your suppliers, because you need to have that to meet that demand.

Art Koch 00:06:41  Now, it’s not exactly 50%. It ranges between 4746 and 6263%, but 50% is a good number. Now, working with customers or my clients, think about this in your business and the people are listening. If you go do that analysis, what could your business look like if you did not have that? And about ten, 15 years ago I was working with a client and they want they brought me in to put in a new ERP in. The gentleman that was the general manager was sold the ERP by it wasn’t sold by the software company. He was sold by a fellow CEO that lived in his neighborhood. They had drinks with and their wives were friends, and it was sold to him because he wanted to keep up with the Joneses. So and so was putting in a new ERP and our ERP 15 years old, and we better get a new one in because this is the new best thing. And when I was talking to Jeff and he brought me in, I said, well, you know, you want to do this.

Art Koch 00:07:32  And I go, well, why do you need to spend $50 million on this new ERP? Well, they come in, they scaled it for our complexity, who our customers are. We need to do this. So I said, okay, perfect. And I went and did my analysis. Just my normal thing. I do my analysis. And I stopped the general manager and I said, you know, did you realize that your last 1% of your sales. And if I, Josh, if I remember right, I think it was 67% of their partners. 67% of their part numbers went for that last 1% of the sales. And that drove all the way back into the supply chain with their purchases and with the suppliers. So I sat down with them. I said, you know, if you did not have that, you would not have to spend $50 million on a new ERP. So we went through all the numbers. He went and got everybody together, and he told his team, you have to eliminate it.

Art Koch 00:08:20  They eliminated all of that. There was some that they had to keep, but it wasn’t nearly all of those parts. And by doing that, they did not spend 50 million on a new ERP. I think they spent 5 million. They only lost about $300,000 a year in sales, where customers said, you know, we have to go somewhere else. But they were they already had products that serve the purpose, but the customer wasn’t required to take them. Nobody put their foot down, drew a line in the sand, or they showed them other products that hey, it will meet the needs and can you do this? And they go, okay Ken. But they lost a little a few customers. But by doing this I didn’t spend the 50 million. If I remember correctly, they had open FTS in the cost on an annual basis was maybe $15 million, and they saved not having to do that. So they redesigned their business and they took all that complexity out. And I think that’s a real important lesson for anybody that’s growing a business, especially in the e-commerce world, because if you’re not manufacturing many cases, you’re buying from a supplier or you’re moving it through a distribution center and it’s going out the door and you’re printing money early on, but very quickly, a blink of an eye, you have a complex nightmare.

Art Koch 00:09:31  And too often people think that they can solve it through the computer systems. You can solve a lot of problems within that. However, what you have to do is you have to determine what your niche is, okay, because it’s a completely different animal dealing with something that’s high volume and something that’s low volume. And I think what entrepreneurs forget is what I call the order. Winning the order. Losing the order. Qualifying attributes. And how that relates to the people that they hire. So if you’re running high volume, it’s a real simple animal. And you can work by on thin margins because you know, you’re just moving high volume. But if that last 1%, if you’re going to play in that market, it’s not the same people that are going to manage your business. It’s not the same systems that you’re going to need. It’s not the same distribution center or the same cross stock. It’s a completely different animal. And you have to hire different people based on the business that you’re within to be successful.

Art Koch 00:10:21  And people miss that. Yeah.

Josh Hadley 00:10:23  I love that that case study that you shared in that client that you worked with. So I think to to dumb it down, even for myself and the listeners here, the, the 1% equals 50 rule is saying, hey, the out of all the sales that I generate, the bottom 1% of sales that I’m generating. So if I’m generating $10 million in sales, it’s going to be that $10,000, right, that I’m generating. You’re saying that there’s going to be a lot of products that are going to add up. Sorry, $100,000 did my math wrong there. $100,000. You’re saying that 50% of my SKUs potentially are making up that $100,000 in sales?

Art Koch 00:11:02  Absolutely. And it can be also 50% of your customers. They might not buy they do not buy anything in that top 99%. They’re just buying that item down there in your servicing that you can be servicing that customer just for that part. Or it could be your bigger customer, but they’re buying in that one part from you.

Art Koch 00:11:21  And often there’s another part that will do the exact same has the same fit, form or function that you may, you know, you use to you built to replace it, but they were never made to take it.

Josh Hadley 00:11:33  And I love that principle, though, that you shared that. Like if you can reduce many of those SKUs that are equaling 1% of your sales in total, right, you’re going to remove arguably maybe 50% of your complexity in your supply chain. You’re going to free up cash, obviously, because as you said, inventory is a depreciating asset. In addition to that, I think that as our SKU count and I’m definitely guilty of this, as our skew count grows, we think that we need more complicated software systems. We need more people. We need more team. We need more and more and more. And if you really boil it down and you, you know, skinny back up, you could be, you know, ten times more efficient. so I would be curious, like, I would be curious to hear your thoughts on that.

Josh Hadley 00:12:11  And then I would be curious to also know for other businesses that you’ve consulted for and other clients that you’ve worked with. Give me a few other like case studies of people having inventory. What were some of the biggest issues that you found when you walked in, and kind of did your analyzing of their reports and data?

Art Koch 00:12:26  Okay, well, let’s let’s go let’s spend a little bit of time diving into that last 1%. You know, customers do want parts. One of the things I would say is, you know, create a separate business division if you want to keep that last 1%, okay, the KPIs that you’re going to use to measure the performance of that division will be completely different than your high volume division. You know, you might have to rent a separate warehouse. You might. I would separate if it’s enough sales and you think you need it. Create a separate division to separate them completely. Hire a different general manager. Hire a different team because it’s completely different core competencies if you need to keep it, if you elect it, in many cases you can get rid of it.

Art Koch 00:13:04  It depends on what your long term strategy is, and you have to make a real deep gut check of what you’re going to do. I’ve seen it successful both ways. I’ve seen it successful eliminating it, and I’ve seen it successful keeping it because it’s a higher cost to maintain, you likely are going to have to increase the price on that ten fold, 15 fold, or maybe even 20 fold to be profitable. But when it’s buried within your high volume, the actual cost to doing that is lost. Okay. All right. So then jumping back to your other question, the biggest thing that I see companies have a time transitioning with a mindset is what what happens is they’ll bring in somebody To the CEO gets pressure from the board to say, you’re having, you know, you want to go do XYZ. You don’t have enough cash flow. So the CEO is talking with the operations person and saying, you know, we need to reduce inventory. We need to reduce inventory, we need to reduce inventory.

Art Koch 00:14:02  And what happens where you need to improve cash flow. And they do all the buttons they can push. They go in and they, push out accounts payable okay. Which upsets suppliers. All of a sudden they were working for getting paid in 30 days, and now they’re getting paid in 90 days. Is that the right thing to do? We can debate that in a whole nother discussion. They go back to their customers and they want terms to where they can get paid sooner, things like that. And those are some of the levers they can pull pretty easy. But then what happens is they keep going back to purchasing and the materials team and the supply chain team and saying, reduce inventory, reduce inventory, reduce inventory. And they don’t always have the right tools or the right understanding on how to do it. And then I edit comes down from the CEO reduce inventory or else will they go in and reduce inventory on the wrong items, or they don’t have an overall strategy to where they can take an area and do what they think is right in reducing it, and measure it, and watch it like a hawk to where if it doesn’t work, they can course correct quickly to where the customer doesn’t see it.

Art Koch 00:15:02  But what they’ll do is they’ll get an edict and they’ll go do it, and they stub their nose. Okay. And then what happens is sales and marketing. Go see what do we tell you? We need to have all that inventory to support our customer. And so they’ll work themselves into this frenzy that the amount of inventory that they have is what they need to support their customer and their processes. And they feel it’s a fixed number. So that’s one of the biggest challenges that I see. earlier when we were talking about analytics, I work with, three professors at different universities, one at Michigan State, one at Florida Atlantic, and one in, University of Maryland. And what I’m doing stuff where I’m talking about different things. I’ll call them up and go, you know, tell me if I’m crazy, okay? Just to get another person’s view on it. And one of the things that I feel is missing today and they’ve substantiated it in MBA programs are talking a lot of analytics, okay, analytics is the sexiest thing out there right now because with the generating power that we now have that we didn’t have five years ago, 15 years ago, you can you can slice and dice data like there’s no tomorrow.

Art Koch 00:16:09  But what’s missing is the ability in businesses to take, what you’ve learned and take and bridge that gap to apply it to where you hit on the three things that I talk about that I think is so important, you want to establish the corporate culture that you want in your business. And I always feel you want to create a business where others aspire to work at. You want to sustain your profits to where it’s not a surprise. From quarter to quarter, you’re always meeting or you’re exceeding what you think you’re doing. And the third one is you want to have loyal customers. So within that you have so many people that have great analytical backgrounds. However, there’s a gap between applying what they learned in school to achieving the goals.

Josh Hadley 00:16:53  Yeah, that makes a lot of sense. On that note then our my question would be with these clients that you’ve worked with it seems to be that mindset. that needs to be changed. But give me some maybe actionable strategies or maybe some case studies of like when you’ve gone in and somebody and the CEO was saying, hey, reduce inventory, reduce inventory, reduce inventory, what are the actual levers that you think especially e-commerce business owners should be doing to make things more efficient?

Art Koch 00:17:20  I’m going to give you kind of four higher level things to think about.

Art Koch 00:17:25  one of them is accuracy of inventory and accuracy of data. Okay. So if you’re if you’re running an e-commerce business and you have you might have a third party managing your inventory demand from them with the inventory accuracy is and make sure that is something that’s in it’s, you know, 99 if you’re an e-commerce, if you’re an e-commerce, typically if you’re a coder or you created something like that, you have a strong analytics in a math background. What’s the combined probability of, 99.7% over 100 SKUs. And if you run that out, I think it’s in the neighborhood of 80%. So that means 20% of the time, if you have 100 SKUs, you’re selling to your customers 20% of the time, you’re not going to have parts on the shelves to sell to them. Okay. So you need to have inventory accuracy in the 99, 99.9% demand that from your, if you’re doing it internally from your team that’s doing it, or if you have a three PL doing it, then data integrity, you got to have data integrity.

Art Koch 00:18:21  I look at both of those. Those are intertwined. Those are together. The other one is work with your suppliers and what I call eliminate the spot bi tax. Okay, I, I spent two years working with a client and they had been in business for 40 plus years ever. They were buying the same parts from that supplier for 40 plus years. Every time they bought it, they issued an individual spot buy to buy it from that supplier every time. They never went and sat down and said, hey, by the name, by the way, Josh, we’re going to buy. You know, we’ve been buying this part from you. We plan on being a business for the next 40 more years. And how about if we set up a relationship where I say, I’m going to take approximately this money for a year, and here’s a long term agreement. Here’s a long term purchase order, here’s a long term agreement. Here’s a memorandum of understanding to say we have a relationship, and I’m going to buy this from you.

Art Koch 00:19:11  Okay. So as long as your quality is good, you meet delivery and you meet our requirements. I’m going to buy this from you. Well, when the pandemic happened, all these people that they thought were wonderful suppliers to them, they went and they sold their limited supply to other customers because these other customers had a better relationship. They weren’t just dropping in orders. So that’s really important. As you grow a business, build a relationship with your supplier, okay. Get that to where they know who you are and they know how important you are to them. Then the next thing is work within down your supply chain and up your supply chain and ask your customers what can you do to be a better trading partner? Talk to your suppliers. What can you do to be a better trading partner and work on that to take the cost out and streamline your business? All right. And by doing that, you build that relationship. The fourth thing within this is hire professionals. Okay. And I’m not saying get rid of your people that have come up through the organization and know about the business, know you need them because, man, they know the intricacies of the business better than that, better than most.

Art Koch 00:20:17  But what you want to do is get them certified, get them certified through a professional agency, work with them to go get a college education. Some of them can’t because the kids at home or parents that they’re taking care of. But you can work on certification programs or specific classes that ups their game in demand. The aspect of professionalism through your organization when supply chain. So those are for big ticket items that people can go to tomorrow that will make a difference for their business and get you well on that way of sustainability.

Josh Hadley 00:20:47  That’s great. And I love that you gave those kind of four high level levers. Now, I would love to go into each of those levers. and let’s let’s start at the top. So data integrity, you know, a lot of people have their, their, their inventory stored at Amazon’s warehouses. Right. And so you’re just beholden to Amazon’s inventory counts. And Amazon’s always losing inventory shifting inventory. It’s in transfer and whatnot. But what are some of the mistakes that you see maybe other clients have made with data integrity.

Art Koch 00:21:17  The probably at the top of the list and data integrity is, lead time. Okay. And this is one of this is one of the things that I hope with AI happens. Okay. You know, you think back and you think back. Most in my career, there’s been two things that have been two false dawns, okay? And false starts. In the 80s, they talked about the lightless manufacturing facility that was 100% automated. That never happened because people did not fix their bill of materials. They did not fix their processes. some companies were able to do it, but it was very narrow. Okay. Then most recently there is a big, push if you remember, about blockchain. Remember blockchain five years ago, blockchain was going to solve everything in supply chain. Blockchain works within, very controlled instances, you know, currency, you know, with with cryptocurrency. It works within that and it works within certain elements of pharmaceutical for maintaining lots. It’s perfect for that. Now, the new the new buzz is, artificial intelligence in AI.

Art Koch 00:22:21  And I feel I can solve a lot of things in supply chain, but you have to take the person out of it, okay? And what you see happen, what I see everywhere is purchasing or the, replenishment planning team will send information out to their suppliers and say, can you update your lead times, update your lead times and their pricing, and they send it to an Excel spreadsheet, or they send it in an email with the parts list while the supplier does their other work and sends it back to them, and it sits in the supplier’s inbox for, I mean, the purchasing agent or the replenishment planner’s inbox for weeks, months before they get to it. And by the time they get to it, it’s outdated information. And oh, I can’t put that in because I know the lead times listed, I did not die. Well, what I really think could happen with AI is that if we take the people out of it and we allow it to update, some of the key parameters, it can be, it will be a game changer, but it’s going to have to be the people that trust it to take the people out, take the people out, and using the high level mathematics to calculate it and update it, that’s one of them.

Art Koch 00:23:29  Does that make sense?

Josh Hadley 00:23:30  Yeah, it makes a lot of sense. Any tools that you’re lacking on that front right now?

Art Koch 00:23:34  no, I can’t put my fingers on anything specific because the arena I’ve been playing in right now is so rudimentary, and it’s just getting the foundations in place. There’s a group I work with out of, Washington, Seattle and and Indianapolis, Marquis, Arvada. They’re doing really good work with, analytics of that nature that I really believe in. So, talking with Paul, I can drop you his name offline. Paul usher, he can really help you out. But they’re doing a lot of great things within that.

Josh Hadley 00:24:04  Okay. Fascinating. Lots to come in the AI world. We know that.

Art Koch 00:24:08  Yeah, yeah, yeah.

Art Koch 00:24:09  Got to keep people’s fingers out of it. Gotta build. What I recommend is we talk about taking a niche and go narrow and go deep within that. So take a handful of parts that you can watch real close and really do it right and show everybody what it works.

Art Koch 00:24:24  Then once you see that, start replicating it further out with more and more parts. And then I think that’s the way to win. win the naysayers.

Josh Hadley 00:24:33  Great, great recommendation. All right, all right. So the next one you talked about eliminating spot buys and actually building relationships with suppliers or your manufacturers. So I’d be curious to hear from your perspective, what have you seen successful businesses and clients that you’ve worked with. How have they built good relationships and solid relationships with their suppliers so that just like when Covid happened, you’re the you’re the client or the customer that that supplier is willing to make a priority and say, hey, I’ve only got X number of units or widgets left, I’m going to allocate them to you instead of these other guys. How do you build that?

Art Koch 00:25:06  you know, it’s it’s pretty simple. It’s it’s pretty simple. You can’t do it with all your suppliers. Okay? You can put in long term agreements. Blanket pos, an MoU memorandum of understanding with, you know, your biggest clients.

Art Koch 00:25:22  Okay, but your biggest suppliers. But what you where you want to dive deep in that is with suppliers that have, suppliers that make you better by having a technology that you might not have, okay, IP that you might not have or you don’t have time to go develop. All right. So you want to look at doing those first and go narrow within that to make sure you do it right. Some examples that I have with that are just recently variable drive units for capital Equipment. The company I was working with, they just did the spotlight ever every time they got a new piece of capital equipment, a purchase order from a customer, they would just go put a purchase order to this supplier to buy it from them. And they basically said, you know, we don’t know if you’re going to switch over to our competitor. So what we did was we sat down and said, okay, here is an agreement for the next five years. So long as you get us a quality part on time, we will continue to buy from you.

Art Koch 00:26:24  And this is our estimated quantity that we’re going to buy over time, okay. Each year we don’t sign in to say we’re going to buy exactly this. But we said, this is what we plan on buying because it’s a commercial. It’s a commercially available part. Then what we did was we invited them in. This was a manufacturing company. We invited a man and made them part of the daily meetings that went on for the status of the business. So they come in three days a week, and they heard what the status of all of our builds were, the new orders coming in, so on and so forth. So they start feeling the skin in the game that we had. Okay. And then what we did was we created a visiting supplier desk to where they had a gate key to come in. All right. They come into the business, they could sit down. They had access to not everything. We made sure they couldn’t have access to our IP, but they had access to the engineers.

Art Koch 00:27:16  They would sit down, design reviews, so on and so forth. By doing that, all of a sudden there our relationship, it started merging together and it started becoming this to where we had less and less problems. They all didn’t go away because during that time, during the pandemic, it was a nightmare of everybody getting parts, but now we were playing on the same page, so that’s one element in another. So when you think about it from an e-commerce business, if you have if you have daily meetings with your team going through what’s, you know, what parts are short, where you’re below safety stocks or where you might be delayed, or if you’re all of a sudden seeing a tick up in sales on a certain item. If your supplier is involved in that, immediately, they can start asking different questions that you would ever think about. Is this just a blip? Is there a marketing? Is there a sale going on to where it’s a discounted product, etc., etc.? Or is this going to be a long term trend? They’ll start asking different things.

Art Koch 00:28:06  The other thing that I’ve been very much a part of is building supplier portals to where a supplier can come right into your business, see all your demand, see what the inventory is stocked at your locations, and what you do is you build the parameters in and you take your hands off and you let them fulfill everything. Going through and putting in a supplier portal is a huge way of building that relationship and getting them to where they are part of your business. Now I want to emphasize you want to build the portal yourself. You want to own that because if you take what the supplier has done, they entwine you and you can’t get rid of them if they’re a bad supplier. But if you do it yourself and you develop it and they’re coming into yours, if you have problems with them, it’s easier to move away. And a lot of suppliers, I’ve been part of this. I had a company, we built these complex linkages with our customers and it was hard for our customers to leave. So I learned not to do that with suppliers.

Art Koch 00:29:07  Okay.

Josh Hadley 00:29:09  I love that. But you’re basically saying like make them part of the business. And I also think that I this can also help you when it comes down to negotiating terms with your suppliers. This is going to help when it comes to negotiating the actual costs that you’re paying for these products. If you can say, hey, look, I’m going to work with you for the next five years, and here’s my expected sales, my forecasts that I anticipate purchasing from you. Can you give me. That’s much easier to say. Hey, in order to do all of this, and in order to meet these goals, I’m going to need to have, you know, shift from net 30 days to net 60 or net 90 days. In addition to that, can I get a 10% discount on our current unit prices? But I think what you basically said here is you’ve got to intertwine them into your business and help them feel like they’re on your team. You even have include them in some of those meetings.

Josh Hadley 00:29:54  I love that the.

Art Koch 00:29:55  Whole yeah, the whole idea is taking costs out of the pipeline, of reducing the pipeline inventory and working together to take cost out. And, you know, I’m talking you know, a lot of this is talking utopia. But as you build that, there’s, you know, huge areas of successes where you can do that. So you want to reduce that pipeline inventory. You want to look at non value added, non value added task non value added attributes that are in the product that the supplier might be making and adding to it that you really don’t need in our customer. Your customer doesn’t need so you keep working at that. And the idea is you want to have you want to have them. You got to make sure your suppliers profitable, okay? Or they go away and you know, if they’re, you know, and they got to make a fair profit, okay. But at the same time you got to make a fair profit. And it’s a balancing act in the more you work together in, the more they understand the constraints that you have.

Art Koch 00:30:50  You can work up work solutions together. And I’ll when you do this, you can’t do it with every supplier. You got to pick and choose who the ones are that best fit, who make you a better supplier to your customer, who have a critical demand, an item that has a critical demand in nature that you have to work through, or a big element of cost that you want to make sure. And you do that, and you do that with the right, the critical few. It will make it make a huge difference for your business. Then on top of that, what it does is the other suppliers see, you do that in your buying team changes their behavior of how they treat suppliers because now it’s more collaborative. It’s not the old school where you just beat on the table. You will give me 5% or you will go elsewhere, you know. Sometimes you got to do that, but it’s not. It should not be the way business is done on a regular basis.

Josh Hadley 00:31:41  Well, I think that perfectly bleeds into your other topic that you talked about, like how do I become a better trading partner with my supplier? Right.

Josh Hadley 00:31:48  Any quick hitting tips on that that you see? Like what what is it that a manufacturer is looking for from a good client that’s purchasing from them?

Art Koch 00:31:57  You know, streamlining the paperwork, are your, you know, are you supplying are you shipping it with the right barcodes, you know, on your when you ship in a box, you know, what’s Amazon’s requirements to land on their doorstep. And is it is it getting there to where the barcodes are legible for it automatically go through. And you’re not paying Amazon, you know, $25 a box or some number that they’re going to charge you because they had to manually punch something in. Are the boxes coming in damaged? How many of them are coming in damaged? So, so much of it is looking and go see, you know when your product go with a supplier and say, okay, we’re going to watch this come in at Amazon. If they let you and what does it look like. And watch Amazon receive it and put it up.

Art Koch 00:32:42  What can be done to make that process streamlined where you take cost out of the, picture and the cost? What I mean by cost is variability. If you can reduce variability, you reduce cost, okay. And a lot of it is, you know, you hear the term six sigma in business. Most businesses can’t run at three seconds. So let’s let’s talk about getting to four and five Sigma before you talk. Six in so much of it you can go fix by just looking at little things in the receiving process and the put away in the pic. And that would save tons of money for somebody.

Josh Hadley 00:33:13  Awesome. Now our on this final topic, you said hiring professionals, making sure you have wicked smart people working in your business. They can actually troubleshoot problems for you. Do you have any quick hitting wins for us as it relates to how do you go find these amazing professionals? They’re going to make a difference on your team.

Art Koch 00:33:30  Look within your business first, okay? And I use a term finding genius in the castaways.

Art Koch 00:33:36  Okay. Many two. Too often in businesses we bring pros and Maria, John, Sally. And we say, here’s the job for you to do. And they come in and they walk in the door and they check their brain at the door, okay. And then they start doing XYZ processes. go meet and get to know your team first before you go looking outside, okay? Find out what their skills and their core competencies are and look at the job itself. In my book, there’s a chapter on and if you go to my web page, you can get a printout of what the skills and core competencies are in all the jobs within supply chain, everything from receiving through a, the head of supply chain, what you should be looking for. Then find out what the gaps are. What I what I’ve found too many times in businesses is that you have people there. there’s one time we don’t. Okay.

Art Koch 00:34:31  On time.

Josh Hadley 00:34:32  We’re good. Keep going.

Art Koch 00:34:33  So, one time we had this process and it kept breaking.

Art Koch 00:34:39  And when it would break, the all the workers would, they’d get assigned to different jobs. And I was head of operations at this facility. And this really, you got to think. But it will definitely relate. The story will relate to it. Every one of the people that are listening to this podcast, everybody, we reassign them, they go different areas. One day I was standing there in one of the guys was still cleaning up and I said, hey, can you come over here and, tell me about what’s going on? He told me, give me a couple things. And we talked for a few minutes. Then one day later on, a couple of weeks later, I was sitting down and I went to lunch, and this gentleman was sitting there by himself, and I plopped down. I said, hey, what’s going on? And I said, you know, I see you at work. Tell me about your family just BSing. So this guy was, you know, he’s probably about my age now.

Art Koch 00:35:21  This happened about 15 years ago, probably about my age in the early 60s. And, well, you know, my one, my one kid’s an M.D., my other kid is a lawyer and my other kids a school teacher, and the other one’s the chief of police in town here. Okay. This guy was doing manual labor, all right? Just happened to be of the generation. He didn’t have college. He didn’t have this and that to think about going to. But him and his wife made a point. They’re smart people. They made a point to make sure that their kids were in a direction, to have great careers. And so the next time the machine broke down, I called him over and I made all the people stay there and I go, can you tell me what’s going on? And they started telling me what was going on, and this gentleman had more and more information. Well, as we he got more and more comfortable giving information. We got to the root, the root cause of what was really going on over time.

Art Koch 00:36:08  And we fix this machine. So the story is I talked professionals and I agree with professionals and certification. But before you go out and hire somebody and say they’re going to run the business for you, find out who the hidden geniuses are and the castaways in your business. Find out who they are. Get them the the training and development that they need to shine. Then you start looking at what the skills that they are have gaps in, and the core competencies that they have gaps in. And you fill in the blanks, and then you make sure who you bring in from the outside doesn’t run over these people and incorporate them into the process. That’s critical. And if you do that you will win every you won’t win every time, but you’ll win more times than not.

Josh Hadley 00:36:50  Brilliant. recommendation and advice. There are now. As we wrap things up, I’d love to leave the audience with three actionable takeaways from every episode. So here are the three actionable takeaways that I noted. Number one, I think, is understanding that 1% equals 50% loss that you talked about previously.

Josh Hadley 00:37:06  And so my encouragement would be for the listeners. Go find what is generating what SKUs are generating 1% of your sales. Right. Typically it’s your bottom skews. And what can you do to be more efficient with those skews. Can you cut them? I loved your example where, you know, they were able to cut more than 75% of those SKUs, and it was able to reduce their overhead in the burden to manage the complexity of all of those SKUs. So that would be my recommendation. Take a deep, hard look at what those SKUs are. And is it worth the overhead to support those? Yeah. Action item number two is going to be getting data integrity. So I think the premise of all of this is you have to have really good documentation and reports that show you exactly where your inventory is. So on the Amazon side of things, we use the software so stocked up. We also have used inventory planner. a big thing that we have done is we’ve basically custom built our own dashboards at this point utilizing power BI, because we’ve never found one software that is a one size fits all.

Josh Hadley 00:38:07  Every e-commerce business is very nuanced. You have different suppliers, you have different lead times, you have different seasonality for SKUs, you have different purposes for each of those SKUs as well. And so we found the best thing that we could do is building our own custom dashboards through power BI, which then would lead to kind of my third and final action item, which is this. You talked about hiring smart people, adding in professionals into your business. For those visionaries that are listening to this. If you don’t have somebody that is a data geek, a data nerd, a data whatever you want to say, you need to go find a data scientist that can come join your team, that can help you build those type of dashboards that can help you understand and gain business insights from the data. Because, as you mentioned, there’s more ways now to slice and dice data than there ever have been before. But it’s not just looking at the data that’s going to give you the answer. You need to have somebody that actually can interpret the data and then turn it into true business insights.

Josh Hadley 00:38:59  Absolutely. And so bringing on an expert, I think is more than worth its weight in gold on that front. So I think that’s a key hire that people if you don’t have right now look internally. Like you said, we actually found our guy internally. I didn’t see we originally didn’t hire him for his data, you know, scientist background. But over time, I learned and through taking personality tests and the Colby assessment that we did with him. He was off the charts, data. And, and he loves it. And he does an amazing job of that. So those are my three recommendations or anything else that you feel like I missed.

Art Koch 00:39:29  I think within that person that you look for, you need to have you need to have some people that give you the unfiltered truth. You know, somebody that you know, you might have to tell them, you don’t want to tell that in front of everybody, you know what I mean? But somebody can have that unfiltered truth conversation with your core team that comes in and says, you know what? I know you guys believe this, but you have to look at it this way, that unfiltered truth.

Art Koch 00:39:50  And hopefully that same person can be an accountability partner that says, you’re going to go do X, y, z, that we’re going to hold you to do x, y, z and come back and don’t chase this. Don’t chase this shiny new object. Stick with the fundamentals. Drive the fundamentals. When something new and sexy comes along, do the gut check and say, all of the tools that we have today, are we using 80% of their capabilities? Before you go look at changing something, if you’re using a 80 or 80% of the capabilities, then maybe it’s time to go look at new tools. But if you’re not using those shy, not shy away from chasing the new shiny object.

Josh Hadley 00:40:25  I love that. That’s a great point. And I think there’s a lot of people that get shiny object syndrome when it comes to software and new shiny bells and whistles, so it’s sexy stuff.

Art Koch 00:40:33  It’s fun. It’s a it’s a heck of a lot more fun doing that than working on the basics and the fundamentals.

Art Koch 00:40:38  The basics and fundamental are not sexy. It’s just being in the trenches. But man, it pays off.

Josh Hadley 00:40:43  You’re 100% correct. Now, as we wrap things up, I’d love to ask each guest the following three questions. So number one, what’s been the most influential book that you’ve read and why?

Art Koch 00:40:52  It’s one by Dorie Clark and it’s the long game. Okay. I feel myself personally, and what I work with my clients to do is, go with the long game. So, you know, my book is the most influential, but but outside of myself, I would say Dorie Clark’s The Long Game because it was such a reinforcement in what I do to realize that I’m not out.

Art Koch 00:41:16  There.

Art Koch 00:41:16  Alone.

Josh Hadley 00:41:18  Great book recommendation. I have not read the long game, adding it to my list as we speak. All right. Question number two. What is your favorite AI tool that you’ve been utilizing and why?

Art Koch 00:41:26  For what I use, I use ChatGPT 4.0 or the latest version, and I don’t put a lot of analytics through it.

Art Koch 00:41:33  But what it’s done for me is I’ve taught it how I write. So if I need to have a I’ll take and I’ll write a newsletter and I’ll throw it in there and I’ll say, make this keep my same voice, but put that out there. Then the other thing I do is I use it to poll the current market conditions within supply chain with nine different drivers, from the price of containers to what’s going on within London Metals Exchange. what’s happening with the New York Fed and what’s happening within supply chain. And I use that to poll quarterly. And it kind of gives me a snapshot of where the market’s moving, so it makes me a more intelligent person.

Josh Hadley 00:42:18  I like that idea of you utilizing it to keep you abreast of, like, what’s going on in the market where things are trending. I like that use case. Yeah.

Art Koch 00:42:26  And then after I pull each one of those, I put it in and I said, give me a synopsis. And sometimes I don’t agree with the synopsis.

Art Koch 00:42:31  It’s executive summary. And I say, no, I think you’re missing this. Go look at it and they’ll come back and say, yes or no, but I’ll tell you something that’s crazy. My friends think I’m batshit crazy on this, but I always am nice to my bot because you never know in 20 years if that bot’s going to remember where you’re nice or not. I always say please and thank you.

Josh Hadley 00:42:49  I love that. All right, there’s there’s the tip of the day. Be nice to your bot because you don’t know when that bot revolutions can take place.

Art Koch 00:42:57  Yeah.

Josh Hadley 00:42:58  Yep. Awesome. All right, our final question. Who is somebody that you admire or respect the most in the e-commerce space that other people should be following and why?

Art Koch 00:43:04  Elon.

Art Koch 00:43:05  Elon Musk and I know that’s probably divisive. whether whether you agree with him or not. I feel you have to admire him for standing his ground and being a voice out there, challenging what’s happening in the world. He he is he’s challenging the world to look at its turnaround and look at itself into beer.

Art Koch 00:43:26  And I really appreciate that. And we I feel in the United States at this moment, we need more of that. I think we have too much of following the herd, and we really need to take a hard look at ourselves. And whether you agree with his delivery on that message, I think it’s all about the delivery. On the message. I think the message is right.

Josh Hadley 00:43:44  Yeah. All right. This has been a great conversation. Thanks for your time today. If people want to learn more, they want to learn more about your book or your services that you offer. Where can people reach out to you at?

Art Koch 00:43:53  you can go to two places. Arthur Koch, mgt comm again, Arthur Koch mgt. Com or go to the website the supply chain revolution.com. And that will take you to where I’m at. And Josh on that. I cannot thank you enough for spending this time in your busy schedule for both of us. Sit down and chat. It’s been fabulous. So thank you.

Josh Hadley 00:44:12  Well, thanks again for your time, Art.