Navigating Expensive Freight & Supply Chain Disruptions with Francois Jaffres

Episode 81

Francois Jaffres is the closest thing to a crystal ball that we know of in terms of keeping his fingers on the pulse of global logistics. This is why he took a quick break from his position as Director of Business Development at Noviland to join us in this episode. Francois is a leading figure at Noviland in disrupting the traditional international supply chain through technology and customer-centric innovations. 

Tune in now and know how to navigate expensive freight and supply chain disruptions! 

[00:01 – 07:51] Opening Segment

• Our key takeaways from this episode

[07:52 – 17:08] What Big Corporations Are Doing

• Francois talks about the behaviors of importers right now
• Why this is a scary time for specific kinds of sellers and importers 
• Overcome logistics challenges like a big corporation  

[17:09 – 25:55] Is Q4 Gonna Be Better or Worse?

• His outlook for Q4 you need to hear
• The creative solutions we can try right now
• Want some Amazon refunds? Check out Getida
  • Promo code: FTM400

[25:56 – 36:22] What Sellers Will Face Soon

• Other manufacturers for sellers
• A tough decision for the sellers they need to think about 
• The formula that hurt the supply chain

[36:23 – 43:25] Building Relationships in a Business

• Relationships over transactions
• The unsexy talk that’s vital to any business 
• Know more about Francois in the Fire Round! 

[43:26 – 45:51] Closing Segment

• Connect with Francois. Links below
• Final words

Tweetable Quotes:

“We can only keep up through innovation. We can only keep up through creative solutions both on the buyer side, as well as on the seller side.” – Francois Jaffres

“The more information you have, the more people that you follow on supply chain, I think the more successful your business is gonna be.” – Francois Jaffres

Resources mentioned

• Podcasts
  • Let’s Talk Supply Chain
  • Supply Chain Now
• Individuals
  • Sarah Barnes-Humphrey
  • Scott Luton
  • Greg White
• Book: The Lean Startup

Connect with Francois by emailing francois@noviland.com or following him on LinkedIn. Visit their website and get the best products for your business! 

Check them out also on Facebook, Instagram, LinkedIn, and YouTube. 

Listen to Link Up Leaders Podcast on your favorite podcast player!

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David 0:00
Real quick before we get into the show, I wanted to share a new service called Getida that Ken and I have been using that has made us over $10,000 in Amazon reimbursements. The service requires no monthly subscription, and getida collects a small percentage of the money they recover for you. It takes less than five minutes to set up and works on all Amazon marketplaces. Go to getida.com GETIDA, and enter promo code FTM 400. That’s FTM for firing the man 400 to get your first $400 in reimbursements commission free, how much money does Amazon owe you?

Francois 0:41
So it’s like where are we going to find these opportunities in supply chain to optimize to make it more efficient to keep up with this massive demand that is showing no signs of slowing down? It’s a scary time I would say for a lot of businesses, for a lot of importers for a lot of those that don’t handle supply chain on a daily basis. And being in that mix, it’s even scarier because it’s just we’re seeing the nitty gritty we’re seeing freight forwarders are instead of going through their more traditional process of emails, they’re starting to rely on, let’s say WeChat. It’s really important to just tell them what those plans are, how you plan to grow, because they’re focused on growth. They want to see that you’re also focusing on what is the next step and how am I going to grow with my supplier.

Intro 1:30
Welcome, everyone, to the firing the man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you were capable of more than join us. This show will help you build a business and grow your passive income streams in just a few short hours per day. And now your host serial entrepreneurs David Schomer and Ken Wilson.

David 1:55
Welcome everyone to the firing the man podcast on today’s episode, we are joined by Francois from Noviland. In today’s episode, we’re gonna dive into global logistics and all of the challenges that have been brought on in 2021. Ken, we just got done recording that episode, and it was an awesome one. What did you think?

Ken 2:12
Yeah, absolutely. You know, Francois, he is like super, super smart and logistics. He covers the top three items that large corporations and high level sellers are doing. He goes deep. We discussed containers didn’t know there was a shortage of those belt road. We go deep on that. So yeah, the podcast covers a ton of stuff, the audience is gonna get a lot of value out of it, you know, perfect timing right before q4, you know, so take some of these tips and apply them. David, what’s your take?

David 2:42
You know, to the listeners, you’re really going to want to stay tuned for Francois’s prediction for q4 as well as 2022. Obviously, none of us have a crystal ball. But he’s the closest thing to a crystal ball that I know of in terms of keeping his finger on the pulse of global logistics. And so absolutely awesome episode. So let’s get into it. Here is the interview with Francois. All right, Francois, what’s going on man?

Francois 3:06
A lot. When it comes to supply chain, it is the craziest time I’ve ever seen. People that have been in this industry for decades have ever seen. So I’m excited for what we’re going to talk about here today.

David 3:19
Absolutely. Well, let’s start there. I couldn’t think of a better person to to get maybe like a state of the union on what’s going on in the global logistics world. We’re recording this in June 2021. So what’s going on?

Francois 3:33
Yeah, yeah. So, 2021 has been a weird year in regards to what 2020 first of all was the weirdest year. But the trickle effects from 2020. And leading into today’s supply chain has really caused issues that no one could have predicted. So when we’re talking about you know, and when I look at the supply chain, I look at it as a full stream. And you know, in school, they teach us there’s upstream and downstream, upstream, the more upstream you go, it’s like swimming up a river, you get closer to the source, right? Think about getting to the raw materials. As you go downstream it goes to materials, manufacturers, logistics, distributors, and then last mile delivery, right, just as a higher picture. So tracking back to all the way upstream, we’re starting to see these absolutely ridiculous raw material price increases across the board. There’s no particular industry that’s not been affected by this. And there’s a lot of different reasons for it. One of the main ones being the massive increase in demand that we’ve seen in 2021. With everything reopening and e commerce absolutely blowing up. It’s been a struggle for a lot of factories to just get their hands on raw materials that have been a breeze to get for the past decade. It’s then relying on new raw material suppliers. It’s then trying to source the raw materials from different areas. And so that itself is going to cause a lot of trickle effects as we go more downstream. But starting there, and then in regards to what we’re seeing with importers in the US and globally, but the levels and the volumes that they’re ordering are also through the roof. It’s something where rather than just lasting them through the rest of this year, we’re seeing orders go through next summer. So we’re seeing insanely elevated lead times when it comes to production. And of course, psychologically, for factories, that means, hey, we’re gonna have to prioritize our best customers first, of course, right? The ones that are placing largest orders that might be the easiest to communicate with. And so we are seeing that they’re struggling to take on some of the newer projects, because that development, of course, takes a bit more time, just all around. And so we’re seeing that issue with the demand for raw materials, the demand for production. And then as we trickle down even more to logistics, which is absolutely, to use a very technical term, bonkers, alright. When it comes to logistics, no matter where it’s going, or where it’s coming from, we are seeing prices that I don’t think we’ve seen in the past two or three decades, even in the worst times, we’re seeing a container that traditionally, let’s say, going from Shanghai, or Ningbo to Los Angeles or Long Beach in California. And traditionally, let’s say last year was about two $3,000, right, let’s say $3500 on the higher end, we’re seeing that same container, go for about $12,000. So four times the cost for containers just for the container just for shipping. And it’s getting even worse when it comes to going to the east coast. When we started seeing this massive port congestion on the West Coast all throughout California, we saw a lot of importers start to divert and go to Houston, for example, where Houston was the next reliable port. And it made sense, there’s a lot of distribution centers, it’s sort of in the center where you can send that out to different Amazon fulfillment centers or just fulfill direct to your consumer from there. You can access most the US within two to three business days through shipping. Well, we saw the ports of Houston also see massive congestion. So it took a few weeks to get checked in into the port, just the port. And then on top of that, we saw the rates to Houston, go to about $14,000 per container per 40 foot containers is what I’m referring to right now. And 20 foot is actually not that far off, the prices from 40 foot. But the thing is 20 foot containers are a bit easier to come by, than when it comes to 40 foot containers. There’s just a massive global container shortage. And I got this question in the office from few members of our team. You know, being in manufacturing, why don’t they just make more? Right? The natural question, and you know, looking more into and researching it more, they have no incentive to actually produce more containers, the manufacturers don’t, because they don’t make as much money on the containers as they would if they have a very high demand and a very low supply or let’s say the same output of supply. just basic econ 101, right, when the demand is through the roof and the supply is low, the price is always going to skyrocket. And so this is impacting supply chain across the board, not just from China to the US, but also from the US to China, where the agriculture industry is struggling to actually book these containers, these empty containers, which are pennies on the dollar, I would say about six to $800 for a container going from the US back to China. But freight forwarders and shipping carriers are saying, well, it doesn’t make sense for us to actually give you a six or $800 container when you’re going to have it for two weeks. And we can use those two weeks to get it back to China and then get another 12 to four depends on where it’s going and but from like a 12 to $16,000 return on that same container, we lose those two weeks if we give it to you. So, it is a lot of chaos. And with a lot of chaos of course we’re starting to see importers look elsewhere. So look at new supply chains in regards to maybe going outside of China or adding someone else outside of China, maybe starting to reshore potentially starting to go to Mexico or Canada, even producing here in the US. And the biggest struggle before was really that it’s not competitive with pricing. Right now no one is going to get a good price on shipping no matter who it is unless it’s a major corporation that locked in an annual deal with the shipping carriers directly. So let’s say Maersk, for example. And they locked in the six to $7,000 container contracts that they had last year where they guarantee they’re going to export a certain amount and the shipping carrier say okay, based on those volumes, we’ll give you this price. Well now they’re starting to diversify a bit more. And that’s definitely a great long term solution, to look at it as a china plus one model or an India plus one model, or wherever you have your core manufacturing. Only because even though it is going to be more expensive, right now, I would say over the next year or two, we’re going to see that it just makes more sense to have inventory to sell. Because right now, it’s not going to be a maximize profit time, unless you have the capital to order very large stocks of inventory to last you, let’s say half a year, at least maybe a full year even. But unless you have that capital, it’s a game of survival. It’s a game of, hey, my competitors are also sourcing from Vietnam, or they’re also sourcing from India. And they’re also running into the same issues we’re running into, well, how can I make that different? How can I make sure that I have stock and that they don’t, or I have stock when they don’t, and I can advertise against their listing, for example, on Amazon. So it’s a scary time, I would say, for a lot of businesses, for a lot of importers, for a lot of those that don’t handle supply chain on a daily basis. And being in that mix, it’s even scarier, because it’s just we’re seeing the nitty gritty, we’re seeing freight forwarders are, instead of going through their more traditional process of emails, they’re starting to rely on, let’s say, WeChat. And you book a container, you ask for a price for a container, let’s say, they say, Hey, this is $15,000, to go to the east coast, you’re like, that’s insane, I’m going to look elsewhere, I’m gonna find a better price. Everyone’s still keeping that very buyers market mentality of, there’s something else out there for me. Well, five minutes later, and I firsthand seen this five minutes later, you go back to them and say, Hey, okay, I want those seven containers, they say, well, it’s gone, you want the next containers, we’ll figure out what the next containers are. And guess what, they’re going to be $15005, they’re not going to be 1500 anymore. So it’s, it’s a very scary time, it’s a very tough time to navigate. It definitely has our team with all hands on board. And as much as I hate to say it’s a little fun from the supply chain end. Because we get to, you know, constantly solve problems day in and day out. We’re like, Oh, that’s new. We’re running into these issues. How can we solve these effectively? And how can we do that at scale? Do we have to build out new features or technologies. So it’s a little element of fun into it. And I think it also gives a lot of importers opportunity to be creative. So maybe not just doing business as usual, it’s finding new solutions to how to run your business even. 

Ken 12:43
Yeah, Francois, I like how you mentioned, you know, for you, like you said, it was fun, right, like, you’re up to new challenges. And I like to hear that, because all too often we hear people complaining about things that are wrong, and how am I going to deal with this? And how am I going to deal with that? Price is going up and you hit the nail right on the head, it’s like, this is fun, this is new challenges, and you just have to solve them with new solutions. So you unpacked a lot in that first statement. So let me rewind a little bit. So the container, like I did not know there was a container shortage, I thought it was, you know, the supply routes or something like that. So that’s very interesting to hear that. And I’m thinking maybe I’m in, you know, I need to start up a new brand and get with the steel. I don’t know who makes containers, but I need to go make some containers and sell those.

David 13:32
Ken, I have to I always I call this the Kanye West model, where you’re really fixing your supply. And who would have thought that the Kanye West model would work on shipping containers. So anyway, wild. So sorry to interrupt, go ahead.

Ken 13:49
Yeah, just let’s just stop there. So Francois, what are you seeing some of the big corporations or some of the, you know, the high level sellers doing to overcome these challenges?

Francois 13:59
So for one, we are seeing larger orders, and they’re not waiting as long. So two things, we’re seeing them put more capital into inventory, which is of course going to hurt their cash flow, but it’s a necessary evil, it’s necessary to have inventory to sell otherwise, you can’t sell anything, right? It’s just that basic, but getting creative in a sense, where, let’s say traditionally, they would ship directly to Amazon. And of course, Amazon, its own beast created all these supply chain and logistics issues with changing IPI’s constantly with limiting you know, the number of units you can send in and then changing that to more of a category limit. It really is putting a strain on even top sellers that have representatives that are in Amazon and advocating for them. But now we are starting to see them move more towards a steady supply of inventory and relying on partners and 3PL to actually help them not only Receive and store larger inventory, but diversify their sales channels. So if someone was traditionally more of just an Amazon business, if it was really just honing in on the Amazon model, which, you know, again, if that itself could be a pure business, and is for a lot of different retailers for online retailers. But now looking into Well, what benefits does Walmart have, they might not have all the traffic that Amazon has, they might not have the PPC capabilities that Amazon has, but it’s a growing market. So hey, we might have to invest a little bit more into diversifying our sales channels, building out their own Shopify stores, doubling down on marketing there. And making sure again, with all of these plans, you have to have inventory and you have to have partners in 3PL to help you fulfill. That can also help you expand to new sales channels, because 3PLs typically have pretty good relationships with some of the major platforms depends on the size of them, of course, but they can be a good resource to let’s say, find a representative at wayfair or at Home Depot, and just say, Hey, we’re selling this much on Amazon, do you know anyone at wayfair, because I’m doing a bunch of furniture. And I think it’d be great to do that to just expand on there, can you connect me with anyone. And we’ve had those conversations in the past too at our 3Pls. So it’s really just finding creative solutions to I guess, just finding a way to grow in a place where not many are. A lot of them are booming. And we have seen a lot of smaller sellers particularly take off because their competitors had no stock. But that’s very short lived if you don’t have a long term strategy, right? What’s it to you if you’re selling 1000 2000 units of one product, if you can’t get that same inventory level in two months when you sell out. It’s just going to die there. So it’s essentially a one time cash flow transaction of 1000 2000 units. So it’s inventory, definitely finding the right partners and 3PL diversifying your sales channels. These are just a few ways that we’re seeing some of the larger sellers at least survive in this ecommerce industry. 

David 17:09
So one follow up question that I have for you is obviously this supply chain disruption was caused by COVID. Right? Like, very simply, and we are approaching people are vaccinated, the world seems like it’s opening up. And it seems like this bubble, if you want to call it that this bubble might not burst. But like I would imagine that next year, we’re not going to be paying 11 bucks a kilogram for air shipping, which is, as you said, bonkers. And so two questions one, q4 is right around the corner, we’ve already started doing a little bit of q4 planning, do you think things will resume back to normal before or after q4? And then would you say that the worst is behind us or ahead of us, as it relates to some of these supply chain issues that we’re talking about?

Francois 18:01
Definitely ahead of us, we are nowhere near the thick of the weeds here. It is we’re going to continue probably seeing elevated shipping prices through 2022. And so you know, it’s been really bad this first half of the year and in 2021. Now picture that with the holiday rush, and picture that as we approach Chinese New Year. And so it’s just you know, with all these companies, you know, this is just my personal prediction, everyone’s gonna have something slightly different. When I’ve talked to Rafael at a unicargo, for example, he had a very similar prediction, it’s probably going to last through 2022. Like it or not, it’s just an elevated demand. We saw ecommerce boom, almost overnight, just within the past, you know, year and a half. It’s gone over 100 I think, I forgot who told me went over, I think it was Chris Shipferling of global wired advisors, I think he said it went up 300% in the past year and a half or two years. So it’s like, where are we going to find these opportunities in supply chain to optimize to make it more efficient to keep up with this massive demand that is showing no signs of slowing down. Amazon reported some of the highest earnings recently. So it’s like, you know, everyone is shopping online, partially because they had to partially because everything was closed down. But realistically do we think that’s going to go back to people wanting to shop brick and mortar, those people that were, you know, more traditional of going in store and buying things now found this new avenue of just shopping online, and Amazon makes it easy they have you know, ar for example, augmented reality where you can just point your phone at somewhere and say, Oh, that’s what that vase is going to look like on my countertop. That’s how that couch would look like in my living room. It’s just everything is moving digital. Everything is moving to this ecommerce space. We have to keep up and We can only keep up their innovation, we can only keep up through creative solutions, both on the buyer side, as well as on the seller side. So all the factories and manufacturers, they really have to find new ways to keep up with his production.

David 20:13
Man, I was really hoping that you weren’t going to say, I thought that was in the rearview here, man. But you know what, there’s a saying that I often cite, it’s bad news does not get better with time. So it’s good to know this and plan accordingly. But yeah, Francois the bearer of bad news today.

Francois 20:32
Someone has to break, I have still heard people saying that it’s going to get better in the next few months, where historically in the next few months, it gets worse. Historically, starting July, August we start seeing the shipping rates start to elevate, they dip down a little bit, we have Golden Week, we’re getting closer to Chinese New Year, they still keep going up and up and up, we get to Chinese New Year, there’s that break they’re still shipping things out, we tend to see a slight drop in shipping costs. And then right after Chinese New Year, of course, they’re working on that backlog. So there’s usually about a few weeks of containers being a reasonable rate, and then they shoot up again. So I mean, when we just compound all these current issues, and see that those aren’t going away, I don’t imagine it’s going to go away before, definitely not going to go away before q4. But I don’t imagine it’s even going to go away by q2 q3 of next year, I think, into q4, we’re gonna have to see this sort of go up up up, plateau somewhere. Hopefully, it’s not the new norm. But I mean, eventually, it’s going to be a slower decline than I think most are thinking or hoping at least. That’s why the long term strategy of diversifying your supply chain is so important, not just relying on that one supplier, maybe that produces all of your products, because they have, let’s say, a new major corporation that comes in and says, Hey, I need 10 containers, this one product yesterday, let’s say you’re ordering one pallet at a time from them. Now you’re gonna have to wait. Now, you know, if you’re fighting to get on a container in Shenzhen, so in the southern part of China, and you have another factory, let’s say, near Ningbo, those are two completely different ports. Let’s say Shenzhen is having a, God forbid a COVID outbreak, or we just saw a crane go down not too long ago. And that’s going to affect that major port as well. Well, if you have one up closer to Ningbo, well, now, you’re not going to have to wait a few weeks, because they’re cleaning up that port that we saw with the Suez Canal. I think that’s something that we didn’t even touch on today. yet. The Suez Canal impacted us globally, everyone thinks that it just impacted the EU, or at least a lot of businesses that I talked to. No, the containers that were held off and the carriers that were held off in that queue of waiting for this digger to dig out this huge boat with 1000s of containers. Well, they were all waiting in that queue. And you can’t use those containers for anything else. They’re just sitting there, right, and we have to ship them back. So it’s just not going to affect are severely impacting the supply chain more than most think. And it’s important to keep up with these things. It’s important, like a few podcasts I love, let’s talk supply chain. She is amazing when she talks about just like globally, how are companies dealing with the supply chain issues. Listening to things that are way more than just marketing are way more than just PPC or sales or listing optimization. And these are great podcasts as well. But let’s say supply chain now. They just had someone on today to specifically talk about their new brand when it comes to sandals, and how she’s weathering the storm of all these different impacts and how she grew her brand. And how she’s manufacturing out of Brazil. Well, hey, a lot of people don’t even know that Brazil is great at manufacturing, they don’t know what products Brazil produces. So maybe that’s an alternative to look at. It’s being informed on every level. And no matter what size you are, the more information you have, the more people that you follow in supply chain, I think the more successful your business is going to be.

Ken 24:06
So Francois, two part question here, after going through their offices, like Oh, man, I’ve got to ask this. So the first part of it your large clients, large corporations, are you seeing them put a lot of capital investing into reshoring. Because of you know, if you reshore your supply chain, you knock out a lot of the problems that we’re having right now, and especially if the long term vision is that it’s going to go into at least mid to end of 2022. But there’s no guarantee that it’s going to come back down. Right? So are you seeing large players in the space of a significant amount of capital into reshoring. And the second part is the Belt and Road initiative from the Chinese government like this is hurting them this supply pinch or whatever you want to call it. This is hurting China because the longer this draws out, you know, the harder it is going to be to source from them. So do you see anything from the Chinese government or like are they producing shipping containers, are they doing anything to try to resolve this?

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Francois 25:56
To address your first question, I have talked to a major aggregator recently that was looking to shift a good portion of one of the companies that they bought out closer to home because it made more sense. Now in that conversation, they very well admitted, hey, we can’t move everything, it’s absolutely impossible to just 100% ship out of China. China has huge benefits when it comes to manufacturing and cost efficient processes. It’s really just having to ride out this current logistics chaotic wave. And you know, again, whether that’s not booking and to just touch on that a little bit, when you book a container what larger companies do, as they’re growing, don’t realize this, you don’t just go to a freight forwarder or a shipping carrier and say, Hey, I need to book 10 containers and put it on one ticket, they go, Hey, I’m going to book 10 containers, but it’s going to be spread out across five different shippings that we secure those two containers at the very least. So you can make sure that you get those two containers. But then also just you know, maybe moving your supply chain to a different part of China could be part of the solution, finding new markets to sell in. So if it’s coming to the US, and it’s crazy expensive, well, maybe this pushes your incentives to start selling into the EU, where the shipping prices are still higher than they were. But they’re not as crazy as they are when it comes to the US. So I am seeing and I have had conversations where they are looking to invest more than they usually would into bringing it back to North America. So whether that’s in Mexico, whether that’s in Canada, or here in the US a portion of that might make sense to still produce here. Of course, you still have to look at all the cost effectiveness in that. And maybe it’s not making 100% of it here, but a portion of it here just to make sure you have a steady and reliable supply chain while you wait for that inventory overseas, that’s going to help you maintain, right and Mexico is still very cost efficient with a lot of products. It just depends on the products that you’re looking for. So building materials, a lot of building materials could be made very cost efficient in Mexico. And so it’s really just carrying over that China plus one model is what we’re seeing in the conversations that we’re having, which is reasonable. It’s reasonable for anyone that wants to scale up and mitigate the risks in their supply chain. But I forgot the second question on that tangent.

Ken 28:23
The second question is Chinese government announced I think it was 2013, the Belt and Road initiative. And so this pinch on supply chain is hurting them and the longer it goes on? Yeah, so that was the second part.

Francois 28:36
I haven’t done enough research to answer it effectively, in regards to what they’re doing, what I would imagine that they’re doing is actually investing in it more heavily. Because the whole reason of Belton road is to really, really make the supply chain, make the allies of China going west from China have the capabilities to where they can continue expanding manufacturing there where they can help smaller countries grow. And you know, it’s similar to what we saw in Vietnam. And let’s just take cabinetry, as one piece of it. We saw anti dumping and countervailing duties go to 220 to 260%. And these are duties on cabinets coming from China into the US. And what anti dumping means is that there’s a coalition of us manufacturers for cabinetry that say, Hey, we can’t sell our products at a competitive rate in this market because China is dumping their products into the US at a far more competitive cost. So when they implement these countervailing and anti dumping duties, a lot of businesses said, Okay, we have to look elsewhere. We have to look into Malaysia, we have to look into Thailand, we have to look into Vietnam. And so what a lot of larger Chinese factories did was go to these different countries and say, hey, how much is this real estate? Wow, that’s a great price. Let’s start setting up a factory here. So it’s still a Chinese owned and operated factory while they’re still using a local labor force. And I think that’s what they’re looking to do with the Belt and Road initiative as they expand out west. So I would imagine that they would be doubling down on that initiative they’ve diversified their knowledge and manufacturing in logistics and supply chain overall and create these infrastructures as hubs to essentially have, you know, Chinese factories in these different countries supporting their local labor forces. Does that answer your question?

Ken 30:35
Yeah, absolutely. I appreciate it. One follow on question? Well, not a follow on, one circle back question. Now, something that had me thinking earlier on, you had mentioned raw materials were, you know, hard to come by. And so I’m like, thinking in my mind, like the demand didn’t go up for raw materials, like we make the same amount of stuff. You know, it’s not like we had a ton of more people buying stuff. Can you explain to the audience like, why did raw materials, either they’re hard to come by or the cost went up? Can you explain that a little bit?

Francois 31:05
Well, it’s, let’s say, every company around the world was just the status quo of just in time manufacturing, right and what just in time or JIT manufacturing is carrying an inventory cost is possible. And this started with Toyota actually, where they needed to produce cars in an efficient manner where they didn’t have a big working capital at the time. So they said, Hey, we know that the demand is going to be to put numbers there, these don’t actually relate to anything. But let’s say 4000 cars in week one, and we estimate 4200 cars. So they’re producing only 4000 cars for that one week, instead of saying, Hey, we’re gonna produce 10,000 cars for that month. So they don’t have to put forth all that capital. But when everyone’s doing that, normally, factories have this whole schedule. Okay? Well, I’m going to work on Ken’s product now. And I’m going to work on David’s product next, because they’ve placed the orders and we have this steady line of orders. And you’re relying on again, just in time manufacturing, where you’re ordering the bare minimum for what you need. Well, now everything shut down, and then everything reopened, where everyone is placing larger orders. So where you were placing an order for 100 units before now you’re ordering 1000 units, and David’s ordering 1000 units all at one time. So even if everyone, let’s say all the consumers were buying exactly at the same levels, which we’ve seen the data that it’s not true that the people are buying more, and we’ve seen ecommerce boom, the factories are just inundated with orders, and they’re placing those orders to their raw material suppliers. So if the raw material suppliers can still only get, let’s say, 100 tons of steel, and they need 1000 tons of steel, because you’re ordering 1000 and David’s ordering 1000 what now what’s going to happen with all this demand, they’re going to say, Hey, we’re gonna raise these prices, and we’re gonna give it to the highest bidders. And another part to that is logistics, logistics is impacting the cost of raw materials, because it’s not all made in China. Right, they might source pulp from Russia, they might source pulp from Canada, or timber from Canada to make different products. And so it’s massive demand influx that’s really causing these raw material prices to go up. And I’m not a raw materials expert. This is purely from what I’ve seen firsthand. And these are a lot of the rationales that the factories are telling us. It’s just, hey, we can’t produce the product at same cost, because could be our previous supplier just doesn’t want to work with us, because we’re too small. So we had to find someone new. So the cost went up for that new supplier. Raw materials themselves, let’s say went up 30%. Well, my costs of that I need to still make 19% on that, you know, 30% increase, so marginally. That’s going to increase also. So as we go more downstream, we’re gonna see those costs continue to elevate. No one likes no supplier, whether that’s an Amazon seller, whether that’s a factory, whether that’s a freight forwarder, no one likes telling their clients that the costs are going to be higher than they used to be, right? You don’t like at least this is my comparison. I’m a big fan of Snickers. And when I went to the gas station and saw that they weren’t 99 cents that they were $1.29, a few years back, I was pissed. I was like, What is going on here. I was like this used to be $1.05. After tax, we’re gonna start to see that I would say in the consumer market over the next few years, and it’s going to be a very tough decision where a seller is going to either have to reduce their margins to you know, make sure that the consumers stay happy, or across the board. This is what we saw with the trade war, actually in 2018. Across the board, if everyone continues to be impacted, we’re going to start to see those costs of the final consumer goods start to go up. So when the trade war took an effect with all those 25% increases, anyone that was really impacted with that some of the costs but they passed along some of those costs to distributors and to consumers. So the more downstream or the more upstream these costs go, the harder it’s going to be for consumers in the next few years, I think.

Ken 35:04
Yeah, absolutely. I like the analogy, the Snickers that makes sense. And also the, you know, the flooding of, you know, we basically on COVID, we kind of had a pause for several months where everything was just completely interrupted. And then when that was over, everybody just kind of jumped in. And so you’re saying that pinch right there, cause that demand and the shortage and so over time, it will taper off. But, you know, what comes with that is increasing prices to keep up with it, which makes sense. Yeah, we’ve been testing some of that and moving in that direction, as well.

Francois 35:37
And the growth, the growth of businesses, the growth of e commerce and the growth of online retailers that they just saw this massive boom, and they said, Hey, I want to keep up with this. So I’m going to place larger orders because I can sell more. And so they had the pause, and the rebuy where naturally, they’re going to be placing larger orders to keep up with that initial demand, or maybe back orders or whatever the case may be. But also for the future. Long term strategy, hey, if we want to expand, let’s say internationally, or we want to even just expand to a different platform, we need inventory for that. So its growth combined with just that pause and re picking up of buying that I would say really, really hurt the supply chain. And it’s a tough time for everyone, not just factories, not just freight forwarders for everyone.

David 36:24
So Francois, one thing that, you had mentioned this earlier in the episode, that oftentimes happens when there’s a backlog is the highest profit customers or the factory’s favorite customers will be pushed to the front of the line. And then you may fall to the back of the line. And so what are some things that we can be doing to help out those relationships? Or when we place an order, try to be at the front of the line?

Francois 36:49
For one, it’s relying on relationships, not transactions, right? So it’s making sure that when you’re talking to them, you actually communicate? And far too many times I see someone just say, Oh, I just want a 5% decrease, because I need the 5% decrease? Well, why don’t you explain to your supplier? Why? Do you have a marketing plan in place to expand your volume, because everyone needs to make money, right, both on the supplier side, and on the buyer side. They’re not working for free, they’re not nonprofit organization. So keeping that long term vision is important and letting them know, Hey, you know, I want to get to $1.50. That is my target price. And I understand I’m just starting out, or let’s say business lacked before, but we’re having all these new marketing initiatives, and I’m expanding into Walmart, and I’m growing my brand on social media telling them all these plans will benefit your relationship. And sometimes I speak to growing sellers, and they don’t want to reveal that because they’re scared that the factory is going to do the same thing that they plan to do. But yeah, it’s really important to just tell them what those plans are, how you plan to grow, because they’re focused on growth, they want to see that you’re also focusing on what is the next step? And how am I going to grow with my supplier, telling them all this information is only going to benefit you, they’re not going to steal your idea, and then go and try to go behind your back, they’re going to look at it as an opportunity for manufacturing more products and have a more reliable customer. Right? Because otherwise, they’re sitting around twiddling their thumbs wondering if you’re going to reorder well, letting them know, Hey, I plan to grow two times as I did last year, or q4 is a great holiday season for me and I actually make these products into gifts. So I think I would benefit from ordering a bit more instead of ordering 1000 I plan to order 3000? Can I get some level of discount. That way I can finance this order better, and finding new payment terms. So aside from just saying, hey, I need a discount, or I need a cheaper product. It’s saying, hey, cash flow is really, you know, top of mind right now and I’m looking to place a larger order, do you think you can work with me to have net terms when they arrive to the US just so those 30 days, my cash isn’t held up and I can continue my advertising campaigns or marketing campaigns, whatever the plan is, transparency is really key. And that’s what we’ve been seeing a lot of major sellers and you know, the retail industry really relying on and doubling down on just that relationship management.

David 39:26
For sure, I really like that. And I’ve got a couple notes here on things that I’d like to do when talking with suppliers in the next couple months. So thank you for that. Ken, you want to go into the fire round?

Ken 39:38
Francois? Is there anything else you want to cover? Or do you want to go on to the fire round?

Francois 39:41
No, I think um, I think I’ve painted a dark enough picture for a lot of listeners, hopefully it’s not too you know morbid, but there is a positive outlook to this is that, you know, those that do invest in their supply chain and, again, follow great leaders like Sarah Barnes Humphrey, we just had her on our podcast from let’s talk supply chain. She’s amazing. And she talks, I think every Tuesday with just a coffee and talking about what’s going on with global supply chain with supply chain now with Scott and Greg, and they’re amazing. They’re just so knowledgeable. And they have such amazing businesses where you can hear from the top supply chain experts within very major corporations talking at a level where they’re just telling you, Hey, this is what we’re doing to navigate the waters that might spark an idea for your conversations with your suppliers. It’s something that we’re trying to do with linkup leaders where we’re just trying to really, you know, focus on supply chain and e commerce because there’s enough e commerce podcasts out there. I understand. We’re not.. we don’t sell on Amazon like you guys do. You guys know everything when it comes to Amazon, we’re really good at supply chain. So we try even in our conversations, you know, we try to poke at supply chain as much as possible, because that is a conversation that everyone needs to have. It is the unsexy conversation that is the most vital to every business and making sure that they survive, especially in these tough times.

Ken 41:09
Yeah, absolutely. So first of all, just to you know, it does look bleak for supply chain over the next year or two. But, you know, just to reiterate a couple things, you know, for the audience tips, Francois. Buy more inventory, if you have cash flow to do that, diversify your sales channels and utilize a three PL so you have a little bit of movement there. And I think most importantly, is what Francois touched on earlier was, you know, have fun with it and take on the challenge, you know, don’t get down because of the bad news or, you know, your suppliers raising your cost or, you know, freight went up, just take on the challenge and solve it and you know, figure it out, just push through because there’s going to be a lot of people that don’t and that they fall out and they go out of business and there’s more opportunity for the people that stay in. Okay, now we’re ready for the fire round. Francois, are you ready? This your second fire round?

Francois 42:00
Second fire round? I’m ready.

Ken 42:02
All right. We added a new one in there too. So it might stump you. No, I’m just joking. All right, what is your favorite book,

Francois 42:08
actually one that I talked about today with Amy wese. On our podcast, the Lean Startup by Eric Reese, I might have mentioned it last time. But you know, she even emphasized today that you know, when you are creating a product, the MVP or the minimum viable product is your best friend. So you don’t have to get extremely fancy in whatever it is you’re developing, because chances are it’s going to cost a lot of money. You want to make sure you save that capital for issues like these in supply chain and you have that risk savings. So hands down the Lean Startup by Eric Reese.

Ken 42:40
Nice. Great pick. Francoise, what are your hobbies?

Francois 42:43
I have spent a lot of time listening to podcasts. Actually, in my free time. I’ve just started going back to the gym. Thank God. I needed to. But I’m a big gamer. I do play a lot of Call of Duty.

Ken 42:58
Nice. Very cool. All right. Last one. What do you think sets apart successful entrepreneurs from those who give up, fail or never get started?

Francois 43:06
The successful ones will see problems as opportunities and an opportunity no matter how you make it an opportunity to be creative an opportunity to beat out your competitor, an opportunity to expand into a new market. I think with all the supply chain problems, if you see them as opportunities, you can tackle them more effectively.

Ken 43:24
Excellent. Very cool. Yeah. And Francois, how can people get a hold of you? And then also your podcast give that a shout out too.

Francois 43:30
Yeah, definitely watch the pod. Go back. Watch Ken and David’s episode. You guys had a great episode, I think very insightful. And that’s called linkup leaders. And it’s at linkup leaders if you wanted to follow us on Facebook as well. If you want to reach out to me, LinkedIn is probably the best method. There’s not too many people with my name. So just look up Francois spelled Fran cois COIS at the end jaffers JAFFRES. For any French listeners. It’s Jeff Ray. I know. LinkedIn is definitely the best way.

David 44:03
Awesome, and we’ll post links to all of that in the show notes. Well, thank you, Francois, for being on the show and look forward to chatting with you again.

Francois 44:11
Thank you guys for having me.

David 44:12
Thank you everyone for tuning in to today’s firing the man podcast. If you liked this episode, head on over to firingtheman.com And check out our resource library for exclusive Firing The Man discounts on popular e commerce subscription services that is firingtheman.com\resource. You can also find a comprehensive library of over 50 books that Ken and I have read in the last few years that have made a meaningful impact on our business, or that head on over to www.firingtheman.com/library. Lastly, check us out on social media at firing the man and on YouTube at firing the man for exclusive content. This is David Schomer

Ken 44:52
and Ken Wilson. We’re out

David 45:10
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Transcribed by https://otter.ai