Episode 1 – How Skullcandy Rocked S&OP

How Skullcandy Rocked S&OP

Show Transcript

There’s one word that I used to hate and fear. So much so, that I actually changed my major in college because of this word. And it’s only until recently, as I’ve come to understand the concept a little bit more, and how this word is correctly used in business, that I’ve come to hate it a little bit less. I don’t know if I’ve quite embraced it yet, but I understand it, and I’m not scared of it anymore.

That word is forecasting.

You see, back when I was in college, I was a marketing major. I thought that would be really fun and creative. And I eventually started to learn about promotions and how they affect pricing – and how it would affect the forecast.

At that time, I saw forecasts as just a no-win game. I saw it as taking post-it notes, writing numbers on them, putting them all over the wall. Then grabbing a dart, and chucking it at the wall – and there’s your forecast. If you got lucky, and your dart landed on a good number, and sales went above that number, then everyone celebrated. They thought you were a hero, and you got big bonuses. If for some reason sales didn’t meet that number, there was blame, excuses, and a lot of yelling. For me, that just did not seem appealing at all. Especially how I envisioned it.

So then I took my first operations class and just fell in love with supply chain. I thought to myself, “This is great! I can get out of marketing – I won’t have to touch forecasting anymore – and I can have fun in operations every day.”

Well, it didn’t take long into my first job to realize that forecasting is not a marketing only kind of thing. So I went along and forecasted. You know, put up my post-it notes. Threw my dart. And we had a lot of inventory buildup because Sales would have optimistic numbers, we’d buy to that, and then we’d have a lot left over. It became an uneasy, tension-filled relationship between departments just like I thought it’d be.

So I did some research and learned about sales and operations planning (S&OP), and I loved the concept. The idea of everyone gets together – sales, finance, and supply chain – and we all come up with our best guess. We all agree on one number, one forecast, and one budget, and we buy to that. We act to that. And even though it made sense to me, it was hard implement that across the entire company.

S&OP really didn’t click until I met Mark Kosiba. Mark was the VP of Operations for Skullcandy, the headphone company. He had built an amazing S&OP process that allowed that company to grow into what it is today. He joined them as employee number twenty-five, and built a team and built a supply chain and those processes that allowed them to become Target’s ‘Vendor of the Year’ and also go public.

Well a couple months ago, Mark came in and met with me, and met with our entire company – with all the departments – and explained the true vision of sales and operations planning. What it can do, and what it did do for Skullcandy. How it transformed that company, and how it could transform ours. It was then that I finally caught the vision and understood, “This is how it should be done.” Not only me, but the entire company caught that – and it changed the way we worked. It made everything a lot smoother, more collaborative, and we finally had more accurate forecasts that we all had agreed on.

So for the rest of the show I want to share an interview I recently had with Mark, during which we talked about S&OP and how to build that culture. I also talked to him about vendor scorecards because that’s a popular topic on our website right now.

So this is Mark Kosiba, who joined me by phone from his home in Park City, Utah.

Interview with Mark Kosiba

Q: So just to start and kind of get some background, maybe you can run down your resume. I know you started at Ford and went through a few things, so maybe give some background on where you’ve been.

I grew up in California, went to Purdue University. Studied engineering and I really liked industrial engineering. Back then industrial engineering was what supply chain was and Purdue is one of the best schools for that. Graduated with my bachelor’s degree in a bad economy, kind of like today. So I stayed for another year and a half and got a master’s degree in it. I went to go work for Ford Motor Company outside of Philadelphia in their main electronics facility. It was a brand new facility, and they were implementing a lot of the Toyota Production System (TPS) techniques, like just-in-time inventory and all these other cool things. As part of that, what they would do is they would put young graduates into a rotation program, and I liked that.

At that time, I decided not to become a master of anything. I like to learn all of it. I just started to seek out breadth of experience. I wanted to, probably in my late twenties, or whatever, I decided I wanted to build the whole thing. I wanted to manage the whole thing. So I would take jobs that weren’t necessarily being promoted with one of the pillars of supply chain, like sourcing, let’s say. I wanted breadth of experience. So I would take jobs that were side, lateral type jobs in order to get that experience. I think when you’re managing the whole thing, and you have a frame of reference of, “I’ve done this before, I know what your job is because I did your job,” it gives you a real credibility with the people, and it makes you a better decision maker.

So I left Ford because at some point they wanted me to move to Detroit, and I knew I didn’t want to be a car guy for my whole career. I went to a company called Lucent Technologies, which is a Bell Labs if you know what that is. They were building all the hardware around the internet bubble. And that bubble was not bursting yet, but it was definitely growing. It was a super exciting time.

Worked more jobs, different jobs, then moved to Boston with them. And then I got pulled – by someone I had worked with from Ford who was doing really, really well with his career – back to a startup in New Jersey, of all places. That company had a rapid supply chain – my first real startup. There was an IPO at that time, and I was able to learn from at least a couple really smart guys. This guy named Ron Krisanda, whose gone on and done fantastic things. To be able to watch and learn how you would do those sorts of things and then the internet bubble burst and it was a fascinating thing to go through. And that company got sold off or whatever.

And I went off and did work for a million dollar company called Hunter Douglas that does window blinds. It was slower moving, highly profitable business. It just wasn’t fast enough. So I got drawn back to work with Ron Krisanda, the same guy again, with a new company he had gone to work for called Tyco International, which at the time was the 24th largest company in the world, but was going through a whole bunch of problems with Kozlowski and all these other things, if you know that brand. But, it was a broke supply chain and needed help. Moved up to Canada to help build that. Again, learned under another great guy named Rob Guttentag, this guy was fantastic. I learned a ton from him. Rotated back to America, and at that point I was probably about 38 and I had done almost all the jobs at least partially, and I wanted to go find a small company to work with. I was lucky enough to find Skullcandy, with 25 employees and one single spreadsheet that was doing probably trailing $35-40 million in revenue. I interviewed my boss, because I get to choose who to work for. A big thing is pairing yourself with someone who you’re aligned with and a guy named Jeremy Andrews was a super, super smart guy. And his management style resonated with me. He was going to let me run and do my thing. Not free reign, but the ability to make decisions and hire a team – and the roller coaster at Skullcandy just started.

I never bought a house during that period because it was just so small and so fragile and so broken that I kept saying, “We’ll just rent another year.” Eventually the company just grew and grew and grew. A lot of great, great people, and the supply chain team there was just fantastic. I was able to build out. And then we got to a place where I was running a supply chain and not building a supply chain, and I wanted to go do something else. And I did. So, I’m currently now at a company called Traeger Pellet Grills, a fantastic product, not well known. Huge brand, great product, great team, all that sort of stuff.

Q: And as you built that team at Skullcandy, who did you look for and what kind of traits were you trying to bring on?

You know, companies attract different kinds of people and Skullcandy was this cool, action sports brand, and we had great partnerships with different artists. So it attracted a young group of people. I think at some point the average age at the company was 27 years old. So, I was an old guy. But we hired a whole bunch of people right out of school. Young people with an energy and that drive was super cool and resonated with the culture that we were creating at Skullcandy.

We would pull people in. You’re looking for people who – I always like to look at people who can handle pressure. I liked people who worked part-time during college. Because we were about to work a ton of hours, and I needed people who were calm under pressure and who liked it. We created a team of people who were willing to take risks in this rapid growing supply chain that we had to do. That team grew and grew and grew and right now the people who had gone through the experience with me will go on to do phenomenal things in their career if they choose to do that. Great people, great team. They got great experience with it, and they’re gonna take it and go do really, really cool things, and I’m excited to see what they end up doing.

Q: So, you go from one spreadsheet and you have in mind where you want to take the S&OP process. How did you go from there, and what’s your principles for building an S&OP process for a startup?

So for the S&OP process – and I’ll group that as a forecasting process – the first thing is having a basic forecasting process absent a history or having any sort of trending data on forecasting, which is very, very difficult. So, you’re constantly looking and keeping in the forefront of everyone’s mind what is coming and what the future of this process going to look like.

Although your sub optimizing the solution, the priority is getting ship history. Then the priority is forecast. Then the priority is a collaborative forecast. Then the priority is a collaborative forecast reviewed in S&OP form with leadership in the room. Then there’s a combined forecast between finance and operations. There’s all these little wins you’re trying to get, but what you’re always doing is telling the team where you are going or where the future is. For us, our goal was a deeper collaborative CPFR forecast process and the ability to forecast profitability – because we were going to be publically traded, and profitability is what matters

So you create a team that’s solving problems quickly, they’re taking risks, and as you solve a problem, you’re constantly saying, “OK, here’s what’s next.” That allows you to quickly create processes. And we were lucky enough to get all of that done. With that too, in entrepreneurial supply chain, is this lack of history and this rapid growth curve. We need to partner closely with our customers into understanding a key difference. Forecasting for a company, for us would be sell in to Best Buy. But for a consumer brand or a consumer electronics brand the key is our customer’s inventory levels and their sell through. And so when you partner with great partners like Target or Best Buy and a number of other ones, they want to look at your business in their stores closely. And so they make it easy, they facilitate that information and that conversation in a CPFR call. And then we get to really helping each other out and helping each other out through a very, very steep growth curve. So great partners matter and taking advantage of it matters. Moving fast, not waiting until you have the perfect solution. But keep reiterating that solution. S&OP became wholly cultural for us really early, and it got better and better and better.

Q: How did you create that culture of such importance on S&OP? Was it discipline or how did you create that?

So, you know, if you’re putting in S&OP, it’s easy. The single best gate you have to get through, there’s a couple gates, but the biggest one is, ‘Does the leadership believe in it, and do they support it?” And if you go into a job, whether you’re a consultant or a young person working for a big company, if you hear people talking about how great S&OP is, and the number guy doesn’t buy into it, it will not work. And so I spent a whole bunch of time with Jeremy, educating and explaining what it was. And then I did a little trick. The S&OP event that day, that depth that we made created a whole bunch of ops speak. It was a data rich conversation. And he happened to be a data guy, he loved the data. And I got his buy in, and once I had his buy in I knew it would work, because he could instill that as this is a pivotal process for our company.

The second big gate, and there’s two big ones that you had to get done, was I had to convince Jeremy and our CFO that this forecast was the single forecast for our business. And that our finance guys weren’t going to go do a different one, or the China team had a different forecast. We had one forecast for the entire company, and if that didn’t happen, then the weight and the power and the impact of the meeting would have dropped.  When I got Jeremy’s buy-in on that this “forecast in process” works, it’s transformative. And then I got him to believe that there was one forecast for the entire company, then it would work. And then we can get sales engaged and those sorts of things.

The other thing is, especially with a small little business that’s growing, is you need business cadence, or business rhythm, where the business acts the same way over and over and over again. I never missed an S&OP meeting. Even if I had the flu, I had that meeting on a monthly basis. And they knew I was never going away. Then it becomes part of our business – what we do. S&OP launched real, real early. I was there for 5 years and we probably had it running for 4 1/2 of those years. Never missed a meeting. Well-attended and people looked forward to it.

Q: And I know some things that companies kind of have problems with are getting the buy in of the sales team and getting them engaged in it. How did you convince them to give their input and give their opinion on the forecast.

So, there’s an art step of this. I always say that in forecasting, the demand planner is the artist in the supply chain world, because he’s got to look at history and deal with conversations with people and facts and then make a bet, make a guess. A data-driven guess but still there’s art to it. You create an S&OP process to fit your business. The S&OP process that we had at Skullcandy couldn’t be put anywhere else in it’s entirety because you fit the data and the process around it to the sales team that you have. More importantly, it’s not across the board. You may have a sales guy who’s very data centered, and he lives in the data. You’re gonna be able to go to him and get SKU-level forecasts for his major customers. And you may have someone else who doesn’t. So you provide a forecast to them, “Here’s our best guess at what’s going to happen.”

You have a really impactful meeting with them, meaning, you’re telling them stories about their sales team and their customer, that as a leader of a sales team you want to hear this because you’re not seeing this anywhere other than this data that we’re providing. And then you give them the ability to change the forecast. If they want to increase it, they can increase it. The trick for an impactful S&OP meeting is if you have one forecast, for a sales guy, you don’t change his forecast. You give him your recommendation exactly what you see of everything you know, and then you let him respond. And if he wants to raise your forecast, that’s great! We’ll raise my forecast. It now becomes your forecast, you own the forecast. And by raising the forecast you do something that’s a little tricky, but it’s really impactful. It becomes his sales goal to the company. So our sales leaders, as they would change our forecasts up or down, it became their commitment to the company for the budget spend and to Jeremy on what they’re going to sell. And when they missed it, there was an impact to it.

And so what happened is, they can ratchet up their forecast, we will build that inventory, but you better sell because that’s your new commitment to the company. It’s a big deal, it’s your sales target. On a reverse side, you could cut that forecast, and I just won’t build that product then. And so it created this check and balance between the sales team and this number, this event. With that, there’s other things you do. Because you are so data rich at this point, you start to bring into those meetings reporting, a whole bunch of data that the sales guys want access to. And now becomes, the gateway to that data becomes, this S&OP process. So in order for them to get this other data, or data in a whole bunch of different formats then they have to do this forecasting process with us.

Q: And I remember you said you tailor the data so you can hand the forecast to them on a silver platter, and they just have to take 10 minutes.

Well you want them to spend as much time as possible, but you speak the language of the person you’re having a conversation with. If we were to create a forecast for our vendor and gave it to them by dollars, by channel, that means nothing to them. So, we talk to vendors in units and SKUs, you talk to sales guys in sales dollars by period, by customer, by channel, by SKU. And so you create it, you adapt it to the sales guy you’re working with. We would provide data to different sales guys within Skullcandy in different ways because that’s what their preference was, and we were adaptive to that. Cause we wanted their eyes on it, we wanted them to agree to it, we wanted them to have this deep sales collaboration conversation every month.

Q: Another great thing you guys put in place was a vendor scorecard program, which seems kind of basic, but there’s still a lot of companies that still haven’t ventured down that road yet. How did you do it and what would you recommend to others that want to do it?

Now, let’s take a half step to that question, because in an impactful S&OP process you create something that’s very, very valuable to your vendor base, which is you create a vendor forecast. You implement a forecasting process, you send it through a DRP or an MRP and you create a vendor forecast. Our vendors really wanted that. And not only that, they wanted to have conversation about why it was increasing or why it was decreasing. And we would have a sales collaboration forecasting meeting with our vendors as part of our S&OP monthly process. So what we started to do is have conversations with our vendors about trend. “Hey, we just signed Best Buy” or, “The amount of space we have in Best Buy is increasing, the number of pegs,” and these sorts of things. And so what you’re doing is you’re extending to your vendors the sales collaboration process you had with your customers and sell through with your customers.

I think we were one of the people to really treat our vendors with that sort of respect and data, giving them that sort of data on things that were confidential data , but we shared it with them. And once we have trust around “we will provide you a great forecast, and we’ll explain forecast to forecast variation,” and that sort of thing, the next thing we did, we wanted to measure them. And what was important to all of this? Well, basic measurement. And things like lead time, lead time variation, very, very basic things.

We did something that I learned at Ford when I was 24 years old. When you create a vendor measurement system, you allow the vendor to measure you as a customer. So at the end of this very basic measurement, you ask them, “What can we do better?” And you can do it anonymous if you want to, and that worked for a period of time too where we said, “Ok, you can put anonymous and just send it to this address, we just want to know.” And we were shocked the first time we asked the question how they were annoyed about some things, but we were dealing with Asian vendors, and they wouldn’t speak up about being annoyed until we’d drag it out of them. They didn’t like how we forecasted, they didn’t like how we did certain things, they didn’t like how we treated them or spoke to them. And so as part of a vendor improvement plan, we want them to get better in these four areas, they want us to get better in our four areas. And we would.

And so it became a relationship, a true partnership, of giving much, much better forecasting information to them. Whatever they were asking for. And we would tell them all the time, and I will do this everywhere I go. I’ll go to my vendor base and I tell them,

“I will be your best customer. You will want me to be your customer. Now that doesn’t mean you’re going to be taking tons and tons of money away from me, but it means that I’m going to treat you with respect and as a partner, and I’m going to listen to you and I’m going to fix things that aren’t working as long as you do the same.”

And it really creates a unique environment where our vendors would fight for us because of these sorts of things that we did.

Q: Did you watch your vendors grow from these vendor scorecards and become a better vendor to you?

It was an iterative thing like we had talked about before. We wanted to measure something, and then it got better, bigger and bigger and bigger. We got manufacturing agreements. Then you go from vendor agreements to manufacturing agreements with contracts and sourcing solutions and commodity buying and some of these other things.

They absolutely got better. They got better in the areas that we wanted. In the early days, it was basic quality that we were struggling with, but then it became speed. We wanted them to be faster. “How do you get faster?” So we measured them on their speed, and we blind rank them among our other vendors. We started to dual source key commodities and say, “Listen, you’re too slow. You’re going to lose business.” We prioritized the things that were important to our business so they were aligned with what we wanted them to do. And they absolutely got faster and better, and we got new vendors who came into this process with this umbrella of collaboration that just – they loved it. They were able to come into this new environment running. Cost matters, measurement matters, and it’s all different for each one of your businesses. But if you’re not having a basic conversation on a monthly basis saying, “These are the areas we need you to improve on for these reasons,” and you turn and say, “What do you need us to improve on?” – and if you’re not both working together then it becomes confrontational. That’s not what you want.

Q: Was it difficult to get that feedback? Was your team able to implement it pretty quickly?

There’s differences in where you’re sourcing data. We had Asia vendors who weren’t comfortable being very honest with us. We had to work at the highest levels of the company because it’s very hierarchical in different places, to really have them understand there would be no retribution. We wanted them to be honest. And it took a number of dinners back and forth and really communicating, “This is real. We’re not just saying this. This matters to us.” And then the most important thing was when they tell us, then we would react with, “OK, this is an issue,” and then we solved it. We showed them that we would react to what they said. And that became a big moment. You get them to say it, and then you actually move and fix what the issue that they’re having with us. It just really turns on the spigot once you get passed that.

Q: Did you visit China a lot? I know you had a team over there. How do you recommend working with Chinese vendors, or even international vendors?

Yeah, I’d visit. Especially in the early days. We had one guy out there, and towards the end we had 40-50. Yeah, visiting matters, being face to face matters, relationships matter. So you need to engage them in that way. Vendors are business people, and you need to treat them with basic respect. Sometimes there’s a legacy of just beating the crap out of your vendors and just squeeze and squeeze and squeeze them and eh, you can do that, that can work for a period of time. But I found a more collaborative relationship where everyone is making money, that we know what they’re making, you know you do a bill of material pricing or negotiations. So we know exactly what their profit is, and there’s reasonable profit, and then you treat them with respect. It makes a huge difference. And like I said, you want to be the best customer to your vendors. You want them to prioritize your business over anyone else. You do that not by giving away gross margin, you do that by becoming more efficient and faster together. Fixing problems that they have. It becomes a relationship just like what you would do with your own employees. That impact is massive to a business.

Q: So you talk about the term “entrepreneurial supply chain,” and that’s kind of what drives you. It’s not just a stable system. You’re coming in building something up. Is that kind of what you’re experiencing now with Traeger? What are you taking from Skullcandy and trying to implement again in your new job? 

By the way, I’m only 90 days in so I’m not gonna talk too much, because like anything you need to really spend some time understanding what all the issues are. Traeger is a fantastic brand. It’s a differentiating product. It’s a disruptive product in an older market. The product works great. So for a supply chain guy, you’re always looking to make sure you’re building something that people want to buy and that you can continue to grow top-line revenue and this company is the same way. Every company is unique and different, and this company has different issues. It’s not going to be a raw buildup from one spreadsheet. It’s going to be an improvement in current processes and things around that into something that’s world-class. So a big part of coming into a new company is listening at all levels of company – listening to issues people are having and then trying to make a roadmap that people buy into and then sharing that roadmap through all levels of the company. And then the next step is a step forward into helping to fix it and improve it, and that’s what we’re going to do at Traeger too.

Q: So as a last question, what advice would you have for people in small companies trying to replicate the same success you had at Skullcandy – or maybe not replicate it – but trying to build their company to world class?

This is old advice and the reason you probably hear it over and over and over again is because it’s absolutely true. You need to find something that you’re passionate about and that you like to do. The stresses of building Skullcandy were massive. Time away from your kids, and constantly thinking about problems and so much – not enough time to do all the things that have to be done. And if I didn’t love it, if I didn’t love problem solving, if I didn’t love supply chain, when I had an extra minute – you know it’s 8 or 9 o’clock at night and I’m back home and the kids are asleep, turn on the TV – if I didn’t love it enough to open up my laptop and keep going, then I wouldn’t have been successful.

So the passion for the work, not necessarily working for a cool company and brand – although that is super cool – but loving what you do and wanting to do it when you have free time, if you can find that. And it’s not every day. Some days you need time off. But if you really, really love it, then you’re going to be great at it. It could be anything, it doesn’t have to be supply chain. But if you happen to love supply chain, then it’s a great industry. It’s an industry that will always be in demand. And like I said, if you love it you will do it and you will do it great. And so I was lucky enough to really like what I do and solve these types of problems, and I will do it for the rest of my career.

Mark, thank you so much. I appreciate you talking with us and sharing your wisdom, and I wish you luck moving forward.

Alright, thanks, Alex.

Show Sponsored by DemandCaster

Today’s show is sponsored by DemandCaster. DemandCaster is cloud-based sales and operations planning software that’s powerful enough for billion-dollar companies, but affordable enough for startups. Not only does DemandCaster offer robust forecasting and requirement planning modules, it has a vast array of options so you can tailor it’s recommendations to fit exactly what your business needs.

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