Heroes of Traditional Industries: Eric X. Hernandez on Embracing Innovation in the Manufacturing Industry

Hello champions of traditional industries!

“Heroes of Traditional Industries” series of articles about stories and insights from people who make a difference in their respective industry, share their journey and story how they got where they are now, how they use technology to create impact and share their unique perspective on how innovation can impact the traditional industries.

Today our hero is Eric X. Hernandez founder of eXstrategy and investor. He helps manufacturing companies identify the challenges they have now and lead them to efficiency, productivity and synergy through a combination of business strategy, business optimization, process automation.

We sat down with him and had a very interesting discussion about how he got into manufacturing industry, his early years in the industry and how he thinks technology and innovation can really help manufacturing companies advance and move forward. Currently manufacturing industry stands at a crossroads, balancing traditional practices with the need for innovation.

🌟 So, Eric, how did you get started in the manufacturing industry, and what drew you to this line of work?

When I first started my college journey, my sights were set on becoming a mechanical engineer. My passion for cars, backed by a keen interest in physics and mathematics, fueled this ambition. This path took an exciting turn during my freshman year when I landed an internship at General Motors; this opportunity also came with a scholarship and summer internships for the next three years.

My love for automobiles wasn't coincidental; it was a passion inherited from my grandfather, a dedicated car enthusiast who owned an auto parts shop. My initial role at General Motors was in quality engineering, where I got my first taste of the manufacturing environment. One particularly transformative summer was spent at a plant producing catalytic converters, marking my first real exposure to the manufacturing field.

My journey in manufacturing deepened when I joined Ingersoll Rand in the early 2000s as a process engineer. My responsibilities revolved around supporting the plant and improving efficiencies. This role not only fueled my passion for the manufacturing sector but also paved the way for me to assume various positions, culminating in my role as a plant general manager by 2012.

🤔 You climbed the ladder in the manufacturing industry and worked in different roles. What was it like managing all manufacturing operations and teams at a plant?

Working at a plant you could be very focused on one particular area you start learning but let me take a step back. When you work at a plant you’re let’s say in a supervision position, which I had the opportunity to do, or now you start moving into a support role, support roles could be manufacturing improvement engineers, process engineers, maintenance. I had to supervise a maintenance team and that starts to give you exposure to other functions because you start managing people you’re going to get exposure to human resources and deal with issues that surface with employees or doing promotions.

As you start getting into managing a department, you also start working with finance and you start getting exposure to the finance aspect, you also start getting exposure to the procurement and supply chain, you have to maybe order parts, components, supplies for the plants.

As you start getting into functions like plant manager role you have these functions reporting to you, the finance person, maintenance person, production management group, engineers, you have other functions that support the plant operation like supply chain, sales that you have to interact with on a regular basis and it starts building a much broader understanding on how an operation should work and what it’s important what it’s important inputs and outputs that come out of that, external and internal factors that you need to consider.

So as you get higher levels, like a plant manager which I had the opportunity to do for several years, I got to appreciate all of the functions that really encompass an entire let’s say mini universe that support that plant and then you also have to learn to manage that. That’s where the beauty comes in where you have external inputs coming in from your sales team, customers, from suppliers through your procurement group and then you have company directives that come in from different functions so those are the external factors you need to manage.

Then the internal factors you have to manage are your employees, your different managers that are reporting to you and managing an operating agenda. You want to synchronize all of these and do your best to prioritize what’s most important for that plan to be successful. You get that exposure as you get into higher levels in an organization.

💡I noticed you were involved in some tech initiatives, including implementing an ERP system. How did that go? What was the process, and why did the company decide to implement it? What were the outcomes, and how did the ERP help the company?

Working in a plant meant that I initially started in a set area, but as time went by, I became familiar with various other functions of the facility. While in a supervisory role, I closely collaborated with people from all walks of life, which expanded my experience to include aspects of human resources and employee relations.

As I moved up to managing departments, I had the opportunity to work hand in hand with finance, procurement, sales, and supply chain teams. I learned the ropes of managing budgets, order to cash, procure to pay, and engaging with multi-functional teams during this phase.

Taking on the role of a plant manager was a significant step up, as all these different functions, including finance, maintenance, production, and engineering teams, now reported to me. This role broadened my perspective on plant operations and gave me valuable insights into the critical inputs and outputs, as well as the internal and external factors pertinent to our operations.

Reaching higher positions, like that of a plant manager, made me truly appreciate the numerous functions that converged to create a self-sufficient microcosm within the plant. This role required me to handle external inputs from sales teams, customers, suppliers, not to mention the directives issued by various company departments.

On the internal front, I had to steer employees and managers while directing the operating agenda. My main aim was to harmonize all these elements, placing priority on what mattered most for the plant's success. This level of exposure and responsibility only grew as I climbed the ranks within the organization.

🤔 Very interesting! When implementing the ERP, what specific challenges were you aiming to solve? What aspects of the business were you looking to streamline or make more efficient?

My main focus revolved around demand planning and resource management, including handling materials, resources, capacity planning, and personnel. The goal was to maintain operational flexibility to adapt to the varying demands of our customers.

For instance, we encountered customers who required a longer forecasting model, relying on a made-to-stock model that depended on forecasts and long production runs. Conversely, other customers needed a shorter production timeline in a made-to-order setting. This diversity in customer requirements significantly influenced how we structured all related processes.

The process began with understanding customer demand, which came from various inputs, including customer service and sales feedback. Then, it was essential to consider supply chain components like manufacturing planning, materials planning, inventory management, procurement management, and sourcing. The final step was to sequence orders in the plant efficiently to ensure timely output without compromising serviceability.

The critical challenge lay in synchronizing these two distinct methodologies to operate seamlessly within a single system.

🛠️ Aaaand… how did you solve this part?

Mapping out the processes, comprehending the capabilities of the ERP system and SAP, and either defining or adjusting legacy processes demanded considerable effort. We meticulously analyzed master data, customer configuration, materials configuration, and work center configurations to fine-tune the system to accommodate dual methodologies effectively.

This task needed contributions from various departments and key personnel across the organization. Some of the decisions made were met with resistance, as they represented a departure from the company's standard practices that had been in place for over two decades. It was imperative to conduct retraining sessions for employees at the plants and those in support roles, instructing them on accurately inputting information and tweaking the ERP system to fit new requirements.

Substantial time was devoted to organizing workshops, mapping out processes, and pinpointing obstacles stemming from both personnel and procedural issues. Maintaining open and clear communication was crucial in facilitating understanding among the workforce and easing the transition to new operational changes.

🧐 Sounds like it was a very complex process, but you managed it well! From your experience in the manufacturing industry, working in different positions and divisions, what are the common mistakes companies make when going through a digital transformation process, implementing an ERP, or any other solution to streamline their business?

Drawing from my experience in the manufacturing sector and now assisting a broader range of clients, I've identified three primary challenges that manufacturing companies currently face:

First, awareness of their capabilities: Many companies overlook the technological capabilities at their disposal. A common issue is a lack of detailed understanding of their own processes and practices, which makes it difficult to pinpoint areas of improvement. This gap in knowledge often results in uncertainties about their needs and abilities.

Second, understanding what's possible: Companies sometimes adopt new processes or enhancements without a comprehensive understanding of their existing capabilities or issues. They may integrate ideas from previous workplaces or jump on new trends without verifying if these changes will lead to better financial outcomes, improved serviceability, or operational enhancements.

Third, a lack of understanding of performance metrics: Many firms rely on standard industry metrics like OEE (Overall Equipment Efficiency) without fully comprehending how these metrics influence their financial performance. This misunderstanding can create a misleading confidence in their operational effectiveness.

Frequently, inaccurately implemented performance measurements can lead companies to make unfavorable decisions regarding investments, capital, and consulting support. Companies should instead strive to align performance metrics accurately with financial outcomes to provide a clearer view of their operational health.

In summary, to tackle these challenges effectively, the focus should be on:

• Understanding current capabilities

• Knowing where and how to implement improvements

• Ensuring performance metrics are properly aligned with financial performance

🤔 So Eric, you touched on two interesting aspects: understanding problems and capabilities, as well as working with metrics. How can manufacturing companies identify the issues and bottlenecks that influence their operations? People often don't know where to start. How do you think manufacturing companies should approach this process?

The starting point is to ensure at least one or two team members are well-versed in operational excellence methodologies. This capability involves proficiently mapping out processes, comprehending the inputs and outputs, and measuring them effectively. It's crucial to recognize that poor inputs can lead to diminished quality, delays, or increased downtime.

Furthermore, embracing the basics is critical. Actively walking through the plant, conversing with employees, and engaging with individuals directly involved in operations can unveil significant insights. Asking simple yet strategic questions like, “Have you encountered any issues today?” or “Is there anything I can assist you with?” often brings to light the obstacles employees face.

For instance, employees might report frequent shutdowns of a machine due to a recurring problem. Such downtime not only affects the quality but also leads to employee dissatisfaction. By attentively listening to the workforce and directly observing operations, one can pinpoint improvement areas.

Adopting these two strategies—comprehensively understanding the process and actively engaging with the workforce—constitutes a straightforward yet profound methodology. Through this approach, you can obtain critical insights and identify opportunities to refine your operations and alleviate bottlenecks.

🤔 But in your opinion, Eric, why do you think people are afraid of change, especially when it comes to implementing various tech solutions in certain areas of the business or company?

The apprehension towards change and enhancements often arises from leadership's inadequate explanation of their impact on both individuals and teams. This miscommunication is a principal factor behind people's resistance to change.

The solution begins with a crystal-clear identification and simplification of the issue. Providing a thorough explanation and engaging the affected individuals in the conversation can significantly alter their perception. It's pivotal for them to feel integrated into the solution and to grasp the motives behind the need for improvements.

For instance, elucidating the benefits such as enriched customer service, possible business expansion, and the resultant increase in satisfied customers — which in turn generates more work for the facility, potentially leading to an increase in jobs and operational efficiency — can be persuasive.

Moreover, pointing out how alterations can ease the everyday challenges posed by inefficient processes, thereby freeing up employees to dedicate time to more critical tasks, can be convincing. An example being, with reduced time devoted to cumbersome tasks, individuals could allocate more time to quality control measures, ensuring seamless operations.

Working in a setting that feels disorganized or ill-suited to its purpose is generally unwelcome. However, with a clear articulation of the advantages, there's a higher likelihood of employees embracing change, possibly even taking the initiative to advocate for it.

Effective communication and making employees a part of the process of improvement often results in a workforce that is not only willing to accept change but also support and propel it forward.

💼 So now you also work with other manufacturing companies and help them improve their operations and increase efficiency. Which areas of the business have you seen where technology hasn't been implemented?

 The adoption and understanding of technology in various manufacturing sectors can significantly differ, with discrete manufacturing involving machinery, molds, tools, and dies frequently demonstrating a notable resistance to technological advancements. A common issue observed is the gradual degradation of equipment and the necessity for maintenance to ensure optimal functionality. Failure to manage these aspects adequately can result in the production of defective goods and unexpected machine downtimes.

A recurring observation is the underutilization of technology. Modern advancements such as sensors and miniature cameras offer the capability to monitor pressure points, track movement, and gather critical data about manufacturing processes.

The integration of such technologies enables predictive analysis of equipment wear and tear and potential operational challenges, facilitating smoother manufacturing processes.

Furthermore, there is a noticeable scarcity of professionals adept in technology who can recommend and implement monitoring systems and process improvement solutions.

Many traditional manufacturing entities remain anchored to outdated practices and technologies, often spanning decades. Business owners may be unacquainted with the benefits associated with modernization and the principles of Industry 4.0.

Advising clients to reflect on and embrace operational modernization is a common task, highlighting that the right technological integration not only enhances efficiency but also boosts financial outcomes. Highlighting the connection between technological investment and financial performance is vital for sustained success.

🏭 Since you're also looking to acquire a manufacturing business, many of which are owned by baby boomers, how exitable are those businesses? Considering that some have operated the same way for 30 years and require changes they may not want or know how to make, how can this affect their exit price?

Manufacturing companies and their leaders must eventually acknowledge the imperative need to adopt new technologies. Ignoring this necessity heightens the risk of stagnation or even obsolescence, as competitors who embrace innovation will likely surpass them.

While traditional manufacturing methodologies still hold significant value and relevance in certain sectors, offering proven efficiency and effectiveness, their integration with new technologies is critical for a synergistic approach.

The adoption of advanced technologies not only revitalizes operations but also opens up transformative potential, propelling manufacturing processes toward enhanced progress and innovation.

A principal piece of advice I offer clients today is to synergize traditional manufacturing techniques with cutting-edge technologies. This approach not only improves operational outcomes but also increases the potential for more favorable exit valuations.

💻 How do you think digital tools can help operators and owners build scalable manufacturing businesses? And most importantly, if they plan to exit at some point, how do you think digital tools can play an important role?

In traditional manufacturing settings, it's common to see machine operators and supervisors manually inspecting equipment and recording data. This method can be highly inefficient and heavily dependent on the performance of individuals.

In contrast, modern manufacturing leverages digital tools like dashboards and monitoring systems that provide real-time data regarding machine performance. This technology enables operators to efficiently manage multiple machines simultaneously and supervisors to oversee entire departments from control centers.

Such technological advancements facilitate remote monitoring and diminish the necessity for extensive on-site support teams. The implementation of SCADA systems and similar technologies allow plant managers to monitor multiple facilities simultaneously, enhancing oversight capabilities.

This more streamlined and scalable approach not only boosts operational efficiency but also enhances the appeal of businesses to potential buyers. Digital tools offer transparency, allowing easy assessment of a business’s operational health, which can positively influence the exit price.

One final question is, How can business owners get started if they want to implement a tech transformation initiative? Where should they start?

To embark on a transformation initiative, it's essential to begin with a thorough self-assessment. Reflect on your operations: Have they remained unchanged for decades? Have your investments in new technology been limited to replacing old equipment with slightly updated versions, rather than making substantial, innovative changes?

If your improvements have been superficial and you lack a team member focused on leveraging technology for manufacturing enhancements, recognizing this is your starting point.

Your next step involves benchmarking. Given that your competitors might be facing similar challenges, broaden your search for inspiration to industries leading in technological adoption. Visiting their facilities, particularly those outside your direct competition, can provide valuable insights. These companies are often willing to share their technological journey and strategies.

Assessing your team's skill set is crucial. Identify one or two individuals passionate about technology and capable of developing a strategy for its adoption. It's a gradual process, but with dedication, your operations can experience marked technological advancements in two to three years. This approach doesn't have to be prohibitively expensive; even basic technological enhancements can significantly streamline your processes.

If immediate results are necessary and budget permits, consider hiring external experts, like us, who can quickly bridge the technological gap. Alternatively, appoint a dedicated technology implementation specialist within your organization, ensuring they have the required support and organization resources. Without these, even the most skilled technology professionals cannot execute the necessary changes.

In summary, success in technology adoption requires starting with a candid evaluation of your current practices, seeking inspiration from leading industries, ensuring your team has the necessary expertise, and committing the necessary support and resources to facilitate this transformation.

Thank you to Eric X. Hernandez for sharing his valuable insights and expertise. 🙏

Stay tuned for more thought-provoking discussions on the intersection of technology and traditional industries. 🌐

You can find and get in touch with Eric X. Hernandez here.
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