October 3, 2024 • 33 mins
In between Seasons 2 and 3, co-hosts Ted Stank and Tom Goldsby were at the Council of Supply Chain Management Professionals (CSCMP) Conference, where they caught up with Kate Vitasek, a GSCI Fellow and internationally renowned business leader, educator, and founder of Vested, a model for creating highly collaborative business relationships in which both parties are equally committed to each other’s success.
Vitasek and her Vested model were nominated for the CSCMP Supply Chain Innovation and Teaching Innovation awards.
Later this month, she will operate back-to-back courses on UT’s campus: Vested Executive Education (Oct. 28-30) and Collaborative Contracting (Oct. 31-Nov. 1). She also offers virtual courses and opportunities worldwide. You won’t want to miss out!
***Vitasek is offering a full scholarship to Ports and their management to send a group to Knoxville to attend either course***
The episode was recorded live on September 30, 2024, during the CSCMP Edge Conference in Nashville, Tennessee.
Related links:
- Learn more about Kate Vitasek and the Vested business model
- Download Vitasek’s full library of white papers and case studies in English, Spanish, French, Swedish, Dutch, and Portuguese
- Dockworkers go on strike, snarling traffic at East and Gulf Coast ports
- Hurricane Helene may devastate tech and health supply chains
- Register for the Fall 2024 Supply Chain Forum, Nov. 12–14 in Knoxville
- Become a Supply Chain Forum member
- Download GSCI’s latest white papers for free
- Subscribe to GSCI’s monthly newsletter
- Read the latest news and insights from GSCI
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to the Tennessee on Supply Chain
Management podcast.
Listen in as co-hosts Ted Stankand Tom Goldsby set sail into
the world of end-to-end supplychain management, diving deep
into today's most relevantbusiness topics.
They'll share insights inpressing industry issues and
tackle the challenges keepingsupply chain professionals up at
night.
If you're enjoying the ride,download and subscribe to
(00:22):
Tennessee on Supply ChainManagement on your favorite
podcast platform now.
Speaker 2 (00:28):
Hello and welcome to the Tennessee on Supply Chain
Management podcast.
I'm your co-host, Tom Goldsby,joined by my dear friend and
colleague, Dr Ted Stank.
Hey, Ted, how you doing?
Speaker 3 (00:38):
Hey Thomas, Good, I'm doing well.
I'm getting all my steps in.
We're here at the GaylordOpryland in Nashville and this
place is like bigger thandowntown Knoxville, you know
what's funny is you go to aconference like this, you get
locked in here.
Speaker 2 (00:50):
I remember when checking in on Saturday, a few
days ago, I kind of took a lookat the sun.
There was no sun to be found,of course, because we've had
torrential rains because of thetropical depression.
I'm thinking I won't see thesun again for three, four days.
But you're right, that'susually a sedentary lifestyle at
a conference, but not whenyou're at the Gaylord.
Speaker 3 (01:08):
No, no, no.
And you know what Armageddoncould have happened outside of?
Us, we wouldn't know until weall left.
Speaker 2 (01:13):
It very well could have.
But yes, we are at the CSCMPEDGE conference.
Ted and I have been on handhere for a few days because the
academics converge here usuallyover the weekend.
We have our academic researchsymposium, and Ted's been in
front of the room on a number ofoccasions espousing big ideas
and shaking the world up ofacademia, which we all need that
(01:34):
, ted, you've been doing a greatservice this weekend.
Thank you, yeah.
Speaker 3 (01:37):
I've done a lot.
I went a little bit horse,mainly from the sessions, not
entirely.
A little social life was thrownin there.
Speaker 2 (01:44):
Well, they seem to put us in these tiny rooms with
300 voices in there.
And then, of course, what meand some of the other folks did,
we headed to Broadway and triedto talk over the honky-tonks on
Saturday night.
So my voice is a littlestrained, but hey, talk about
strain.
There's a lot of strain on oursupply chains.
How's that for a transition?
Speaker 3 (02:03):
So today, for those of you who are listening, today
is September 30th 2024.
A lot of things happening today.
Midnight tonight, east and GulfCoast port strike is imminent.
The existing contract expirestonight at 1159.
There have been no talksbetween the port workers and the
port management, and so it'simminent that we're going to
(02:24):
head into a strike which willhave huge implications across
the economy on various thingsthat typically come into East
Coast ports.
At the same time, tom, youmentioned Hurricane Helene,
which blew through Florida andup through Georgia and the
Carolinas on Thursday and Friday, leaving massive destruction.
Highways I-40 and I-26 throughwestern North Carolina, both
(02:47):
major thoroughfares for economictransport, are flooded and
closed for who knows how longthe foreseeable future.
All roads through there, noside roads are open.
Really, really terriblepersonal tragedy, but also big
economic challenges.
Gas, electricity, water are alllacking in that area, and so
there's going to be some ripplesthrough our economy from that
(03:08):
as well.
So there's a lot of thingshappening in the supply chain
world.
Speaker 2 (03:11):
No for sure.
And again it's supply chain.
We're kind of bearing the bruntof it, as we always do, and
we've been fielding a number ofmedia requests around the port
work stoppage and I've beensaying that's the worst kept
secret in logistics.
You know, for more than sixmonths we've been looking toward
this and I think it's kind ofthose East and Gulf port workers
are saying now it's our turn.
Speaker 3 (03:33):
Yeah and oh.
By the way, hanging over all ofthis, over everything, over
Opryland Nashville, is somethingthat's going to happen November
5th, the federal presidentialelection.
What's that?
I haven't heard anything aboutthat.
Well, you've been locked insideof here.
It's happening.
You know, in other timesperhaps the federal government
(03:53):
would have gotten involved inthis port workers issue.
I don't think anybody wants totouch it because of fear of
offending either the unions, ifyou go one way, or management,
if you go the other way.
So the federal government isstaying out of it.
There's so much uncertaintybased on the results of that
election that I don't thinkwe're going to make a lot of
progress in many things untilafter that election, and we know
(04:14):
what the direction is of thefederal government.
Speaker 2 (04:16):
Yeah, no, I think so.
I mean we'll see Again thistime tomorrow there will
probably be a work stoppage inprogress.
Speaker 3 (04:27):
And with each day there's going to be mounting
pressure.
I do think for intervention.
I saw $5 billion in economicdisruption per day with the port
strike.
Now how they got to that numberI don't know, but it's big.
It's that way, it's going to bebig.
Yeah, and we are approaching theholiday season and ordinarily
cargo is making its way to ourshores and its way through
distribution networks to retailshelves, and I do know that the
(04:57):
season got advanced by virtue ofagain, loggies were aware of
the very real propensity of thestrike and also because supply
chain people are used to pendingdisruptions and finding ways
around it.
A lot of product has beenflowing through West Coast ports
in advance and anticipation ofthe East and Gulf Coast ports.
Speaker 2 (05:08):
Yeah, just as the East Coast ports picked up some
market share right out of theWest Coast disruptions of two
and three years ago.
Speaker 3 (05:15):
But that doesn't mean we're going to be immune
economically.
The oil refineries on the GulfCoast, automotive on the East
Coast, that's all things thatare going to be Well and also
that the East Coast ports andGulf Coast to some extent are
not just import ports.
Speaker 2 (05:30):
We're talking about goods coming in, but the East
Coast ports probably are alittle more export-driven than
what we see out West as well,given the manufacturing capacity
.
Here I mean the fact that BMWcars produced in Spartanburg,
south Carolina, are going up anddown the Audubon.
So it is not just the goodscoming in but also handicap
(05:51):
access to those global markets.
Speaker 3 (05:52):
Now to paint a little bit of a silver lining the Port
of Baltimore.
The channels in Baltimore areopen as compared to a couple of
months ago.
Right, the Panama Canal hasplenty of water these days.
Speaker 1 (06:02):
Good point, so you can transit through the Panama.
Speaker 3 (06:04):
Canal.
So we're not totally a disaster, but still things are
challenged.
Speaker 2 (06:08):
And those Canadian ports are saying, hey, we're
open for business up here.
Speaker 3 (06:12):
Although not Montreal .
Montreal is supposed to go on athree-day stretch.
Oh, is that right?
Okay, it's all aboutrelationships, right it is?
Speaker 2 (06:18):
And it occurs to me we've got a resident expert
seated here between us that weshould probably bring into the
conversation.
You want to do that, Ted.
Speaker 3 (06:25):
Yeah, let's do that.
A good friend of mine for many,many years, kate Fatasic,
faculty member at University ofTennessee, working in our
Graduate and Executive EducationCenter.
I got to know Kate probably 21years ago when she was really
first developing this idea thathas evolved into what we know
today as vested outsourcing.
At the time, working with Kateout of the Executive Education
(06:49):
Center, she was doing someresearch that was really
initially based inperformance-based logistics and
contracting with the military,but she's taken that idea to
great heights.
I think many, many people inour world are aware of the work
that Kate has done, boththeoretically, around this
notion of win-win-winrelationships.
Early on, kate was showingpictures of that movie, a
(07:10):
Beautiful Mind, and how some ofJohn Nash's, the great economist
, nobel Prize winning economistconcepts could apply to this
notion of relationships.
And now Kate does a lot of workwith industry across various
different verticals, variousdifferent applications and
contexts in the relationshipworld.
Kate, welcome, so good to haveyou with us.
Speaker 4 (07:32):
Well, thanks for having me.
It's exciting to be here atCSCMP because we're up for a
couple of innovation awards.
Speaker 2 (07:39):
That's right.
Speaker 4 (07:40):
And so that's super cool.
Speaker 2 (07:41):
That's awesome.
Can you tell us a little bitabout the work and the awards
that you're up for?
But then I do, before we gettoo far away from it.
I do want for you to weigh inon the news of the day as well,
but let's first hear about thoseinnovation awards that you're
up for.
Speaker 4 (07:53):
Well, as Ted, you mentioned, we've been
researching and studying thisconcept of vested since 2003.
It originally came and wasbirthed out of work around
performance-based logisticscontracts and the government
said you know, why do some ofthese relationships work so well
?
Why is the GE Navy 404 enginemaintenance contract in
(08:14):
Jacksonville so successful andthe other GE contracts in the
Air Force don't?
And that was a real gift for usas a curious person and
academic.
We could go in and start tolook at why you know and ask
those questions.
And that birthed a series ofresearch projects and questions
that, in 2010, led to the bookVested Outsourcing Five Rules
(08:37):
that Will Transform Outsourcing.
Getting a call from aprocurement person in Intel and
he goes I hear rumors, you'redoing some applied game theory
work in procurement and I amstuck, I'm losing and I need to
change the game.
And so today, intel has threevested deals, all very, very
successful, and the more peopleare successful, the more they
(09:01):
tell other people.
This week, bp andJones-Ling-Sol are one of our
more recent case studies.
We submitted an innovationaward for their amazing results
and we're up for an award onthat, as well as a teaching
innovation award.
Speaker 2 (09:16):
Oh fantastic, that's fantastic.
Yeah, well, we'll have to hearhow the results turn out in that
regard.
But speaking of results and,like I said, the news of the day
, I'd just be really curious.
Ted and I were waxingphilosophic about the East and
Gulf Coast longshoremen strike,and you've got some experience,
in fact, in working withgovernments and bringing labor
(09:37):
and government together.
What's your own perspective onwhat we're looking at and maybe
what the longer view solutioncould be in those circumstances?
Speaker 4 (09:45):
what we're looking at and maybe what the longer view
solution could be in thosecircumstances.
Yeah, well, I think we get herebecause everybody wants to win
but they're not looking at thebigger picture.
And so, as you mentioned, wehave done some work with the
Canadian government, especiallyin labor services.
So the Canadian government youknow, if you're a doctor you
have no employer option exceptfor to work for the government
because it's government healthcare.
(10:06):
So it really is a monopoly forthe labor services to work with
the government.
But likewise the Canadiangovernment only has one option.
You know they're equivalent toa union for their doctors.
So Vancouver Island Health had avery tenuous relationship.
Actually, we do a compatibilityand trust assessment and they
(10:26):
called the relationship toxic,bullying, distrustful, and think
about that.
That's what we say in the press.
The United Auto Workers we'retalking about flamethrowing same
thing we have now with the portstrikes and so they were stuck
and they invited us in to seehow can we get to a contract.
Now, when you're in agovernment contract like that my
(10:49):
husband's a firefighter they'renot allowed to go on strike,
and so the workers, the doctors,had to continue to work.
They didn't have a choice, butthey're locked in on both ways
and so we put them in a room forthree days.
We call it an alignmentworkshop and seriously there was
no alignment.
And we start with putting thatelephant in the room about trust
(11:10):
.
What got you here?
And it's relationships and thissevere lack of trust.
And what people realize is thattrust, that's not an
environment they want to be inand they project that.
The reason why this environmentis all your fault.
It's all your fault Thomas,it's all your fault Ted.
Then you start to see that it'severyone's fault.
(11:32):
They've created thisenvironment and so we simply go
through the vested process.
There's five rules, 10contractual elements, and they
collaboratively contract Insteadof negotiating.
They're using our methodologyto collaboratively contract
their contract and it takesabout six months to go through a
contract.
(11:52):
But that's in a large strategicrelationship.
That's about how long it takesanyway, and even worse when
you're in a tenuous relationship.
It goes on and we start to havestrikes.
But it is amazing the results.
And so here they went fromheadlines in the news, like we
have with the strike, toheadlines in the news after the
pandemic.
You know, as pandemic persists.
(12:13):
Island Health and theHospitalist are innovating and
we do a compatibility and trustassessment of that relationship
and to this day, it is a veryhealthy relationship.
So I'm going to give you somestatistics, 2015,.
We did the very firstcompatibility and trust
assessment before that workshop.
84% of the adjectives peopleuse to describe the relationship
(12:36):
were negative In 18 monthsafter going through the vested
methodology.
85% were positive.
After the pandemic, businesshappens right.
We have disruptions.
Eighty-nine percent arepositive.
Speaker 2 (12:52):
That's unbelievable.
Speaker 3 (12:54):
And that's the real, true test of time, isn't it when
you have real crisis situationand people still trust each
other through it?
Speaker 4 (13:01):
Exactly, and they actually got more trust because
we teach them how to have theserelationships.
And that's what's missing is,everybody knows relationships
are important, but they don'tknow how to create them or, when
they're stuck, how to get outof it.
And so what do we do?
We hire negotiators,professional negotiations, and
we're trying to double down onnegotiation instead of doubling
(13:23):
down on collaboration andbuilding the relationship.
And when you do that, when youfollow the process, you get an
amazing win-win contract.
Speaker 2 (13:31):
So, Kate, does it just seem like your research and
practice are largelypsychological therapy?
Speaker 3 (13:38):
Yeah, it did, it did sound a bit like couples therapy
.
Speaker 4 (13:41):
You know people do say that that sounds a bit like
couples therapy.
You know people do say that,but you're helping people
unlearn these dogmas that it'sus versus them.
Or what's even harder is whenpeople think they have a good
relationship, oh, you're astrategic supplier.
So I have a joke that asupplier said yeah, I hate to
hear the word strategic supplier, it means open your checkbook.
Speaker 2 (14:03):
Right Flattery will get you everywhere.
Speaker 3 (14:05):
Hey, Kate, can you unpack a little bit for our
listeners, just like Vested 101?
Speaker 4 (14:11):
Yeah, so Vested is a formal relational contract.
So if you're not familiar withthat, I encourage people to just
go online.
It's an open access articlefrom Harvard Business Review
that we wrote with Oliver Hart,a Nobel Prize winning economist,
and David Friedlinger, anamazing Swedish attorney, and so
it is a formal relationalcontract.
(14:31):
So we're bringing thatrelationship in front and center
as we go through thecontracting process.
But the contract itself isabout the relationship.
So you're putting therelationship above the deal
points, and that's importantbecause business happens.
So when business happens, wehave to go back to the
relational constructs, which arevery formal.
(14:53):
The governance structures arevery formal.
We get out of economicalignment.
Therefore we have to come backand make it fair.
So instead of a price, you havea pricing model.
Right, you do thingsdifferently.
So it is a formal relationalcontract, but it's also based on
outcome-based economics,outcome-based economics.
So instead of I buy and sell, Igive you a dollar, you give me
(15:16):
a unit of service.
Or, in the case of the ports, Igive you how many dollars an
hour and you give me an hour oftime.
We're looking at the businessoutcomes Now.
At the end of the day, youstill have to pay for the
transactions, but you're lookingat total cost of ownership.
It's highly transparent.
So now we're looking at how doI optimize?
(15:37):
And when you start to do workto optimize, it creates value.
We're going to share that value.
So think about with the ports.
Right, we're bickering over howmuch per hour to pay these guys
.
And what if we actually workedand collaborated under a vested
agreement to improveproductivity and to bring in new
(15:58):
technology?
We create value, we share thevalue, but buyers don't want to
share.
Oh, I want you to create value,I want you to work faster and
harder, but I get all thebenefits and then the worker
loses.
It's the same thing with asupplier.
We say win-win, we knowintuitively we're supposed to do
(16:19):
it, but then we turn around andwrite transactional contracts
and so it's a system issue.
Speaker 3 (16:24):
Yeah, so you've been doing this a long time.
I don't know if you can talkabout Intel and Jones Lang
LaSalle.
Speaker 4 (16:30):
Intel has three case studies and, by the way, their
supplier, jones Lang LaSalle,actually won a huge award from
Intel two years in a row.
They've been working togetherfor over 10 years.
Flip that to Vested so you cango on the Intel website and just
see Jones-Langisaw SupplierAward.
We're working on a case studynow about that case study.
Speaker 3 (16:53):
So tell us some of the outcome economics benefits
to both parties in some of yourgreat Vested examples.
Speaker 4 (17:00):
Yes.
So BP.
The results have beenabsolutely amazing and that case
study is public, so it is onour website.
We can download it.
Anyone can read that.
But they do it throughinnovation.
So in the first year afterflipping to a vested agreement
they documented over 100innovations.
So things that are going toreduce your cost.
(17:22):
Remember, in the last few yearswe're in a time of inflation
They've had double digit yearover year cost savings.
Wow.
So cost of the cost of the costright?
So now Jones-Lingasol is apartner with BP to reduce the
cost structure.
What innovative things can I doto be better, faster, cheaper,
(17:42):
safer, more sustainable?
What innovative things can I doto be better, faster, cheaper,
safer, more sustainable?
So they come up with these tinyinnovation.
You know could be a littleworker who says, hey, here's an
idea or it could be somethingbig that you're going to invest
in, but those innovations thendrive performance and results.
They create value that isshared between the two.
So double digit cost savings,sustainability.
(18:05):
So this is a big deal for acompany like BP.
I don't know if many people knowthey're actually transitioning
from an oil and gas company toan energy company, so they want
to be out of the oil and gasbusiness, so the transitions
that they have to make aroundsustainability of just their own
buildings is massive.
So sustainability goals arebeing hit and exceeded Super
(18:28):
cool.
Speaker 3 (18:28):
So what are the benefits to Jones Langless out?
Speaker 4 (18:31):
More money, contract extensions.
So you're going to peg valuethat the supplier wants, usually
incentive money.
You save me money, you get ashare, you get a contract
extension.
So a long-term contract withvery robust incentives so that
every time the supplier achievesgoals they are rewarded.
Speaker 2 (18:55):
Well, I love that dynamic nature and that's
something we've talked about inthe past.
Right, I mean traditionalcontracts, very static and
locked up somewhere, and it'sthe gospel until it's time for
renewal and revisiting it.
And then, what do you know?
That's when the supplier thenbrings forward the innovation.
They've had these ideas byvirtue of observing the business
(19:15):
and learning, but there's nobenefit to the supplier.
Absence some performance basis,as you indicate, to bring those
good ideas forward until thebuyer comes asking.
Speaker 3 (19:26):
There's often a disincentive.
Well, that's right, Because thebuyer will then say oh, there's
this great innovation that youcame up with.
Let's take this and market itto all your competitors and see
who will give it to us cheaper.
That's right.
Speaker 4 (19:36):
Yeah, one of the tricks that we use for a
contractual basis is called anearned evergreen contract.
So an evergreen contract meansit's going to renew.
So if I have a five-yearcontract, I'm going to
automatically renew that.
So I'm not going to go out tobid.
But then the downside issuppliers get lazy.
Oh, I just automatically renew.
So what we do is we create atthe end of year one, the
(20:01):
supplier can earn your six, andat the end of year two they can
earn your seven.
At the end of year three, theyearn your eight.
So it's in their best interestto hit it out of the park every
year, year over year.
Speaker 2 (20:14):
Keep bringing the good stuff.
Speaker 3 (20:15):
Exactly Sounds like what innovative sports agents
have done with coachingcontracts.
Right, you keep doing.
Well, it's going to extend youa year, but so to that point I
mean, I'm kind of half jokingabout that Are there outlet
clauses?
If either one of the partieswants to break this contract,
what are the outlet clauses.
Speaker 4 (20:34):
Yeah.
So this is kind ofcontroversial among the legal
community.
When they first hear about itthey freak out because there's
no termination for convenience.
Because, because you'restrategic, why could I just
terminate you for convenience?
So a typical contract will have, say, a 60, 90 day very
(20:57):
generous would be a six monthtermination for convenience.
But the supplier hasinvestments.
You want them to innovate, youwant them to make investments,
but they don't have enough ROI.
And so by having thattermination for convenience,
that threat that we can justpull out, it actually squishes
the supplier's willingness toinnovate.
So we replace the terminationfor convenience with what we
call termination for justifiedbusiness reasons.
(21:19):
So let's say the costs are nolonger competitive.
That would be a justifiedbusiness reason.
You know there's alwaystermination for cause, that's,
you know, bad supplier need toget out of it.
So you replace that convenienceclause with justified business
reasons and the simple fact thatsuppliers can earn the right to
(21:40):
make more money and earn theright for contract extensions.
Earn the right to make moremoney and earn the right for
contract extensions.
They hit it out of the park andthis is why these are so
successful.
So it's not real rocket science.
The problem is people don't knowhow to do it, and I think
that's the benefit of ourresearch.
It's not just theory.
It's teaching people how to dothese things intuitively.
(22:03):
They know they have a strategicsupplier, they know their
unions are important, but thenthey fall back into negotiating.
Speaker 3 (22:10):
So there's a lot of cultural things that come into
this and it's, you know, yourperspective on trust and your
perspective on what thetimeframe is that you expect in
ROI right, you and I've had someof these conversations around
short-term perspective versuslong-term.
Have you noticed that this kindof thinking is more successful
with some other cultures and notUS and North American cultures?
(22:33):
And how do we change that NorthAmerican culture that if I do
well next quarter, I reallydon't care that it's going to do
good for me in two years?
Speaker 4 (22:42):
Yeah, actually it's staggering the majority of the
students who come through ourprogram are actually not from
the United States.
Speaker 3 (22:50):
Is that right?
So you do see that it is.
Speaker 4 (22:53):
It's amazing, and so, if you look at the different
countries that they come from, Ihave the most graduates from
the Nordics.
So, Sweden, Norway, Denmark,Finland.
You know, when we go over andI've taught our open enrollment
class as pre-COVID I would goover every year and teach in
Stockholm.
I've gone over to Denmark andtaught our open enrollment class
(23:14):
and people go that's how I wassupposed to do that.
Ah, thank you, I knew it and Iwas like stuck.
And then you teach to NorthAmerica, the US in particular,
and we go yeah, that's different.
Speaker 2 (23:29):
Right right.
Speaker 4 (23:30):
Wow, that's a paradigm shift and it's just
because we're taught, and youthink about, from the time we're
little kids, we're taught to gowin.
We laughed about this, but theAlabama-Georgia football game,
you know, their star player hadkill everybody on his nose Right
, right, right you know, that'sthe mentality that we're taught.
Speaker 3 (23:51):
You drive around any city in the United States on a
Saturday morning in the fall andthe spring and there's anywhere
from four-year-olds up to highschoolers playing soccer.
And we always say that at thefour-year-old level we don't
keep score.
All those kids know the scoreand if they don't, their
red-faced screaming parents onthe sidelines know the score and
are screaming it at their kids.
(24:12):
And that's that culture.
We have A win, win, win.
Speaker 2 (24:14):
And now half of them will have to kill everybody.
Face paint on running up anddown that field.
You know.
Speaker 4 (24:18):
But to talk about football, because you know I do
love football and I make a joke,you know.
I say oh, oh, you're fromTennessee, oh, you know.
And I say I love everybody inthe SEC, except on one day a
year.
If it's, we're playing Alabamathat one day.
But I'm going to respectfullycompete with you.
You know, not try to killeverybody.
Speaker 3 (24:41):
Right yeah, Because you know the cliche of a rising
lake floats all boats.
Speaker 4 (24:45):
Right yeah, and I want to play on that because
people intuitively get you know,win, win.
But a great vested relationshipis also a lose-lose.
So if you only want to sharewhen you're winning and you
don't want to share when you godown, and this is what causes
people to be like, oh, I don'twant to lose, but you have to,
(25:06):
and this is where we get theword vested from.
I have a vested interest inyour success and you have a
vested interest in my success.
We win together and we losetogether.
Business happens and we're init through the thick and the
thin.
Speaker 3 (25:20):
I'll tell you, during the early days of COVID, I had
the opportunity of sitting in onsome war rooms, particularly in
the pharmaceutical industry,when borders were closed, we
couldn't distribute productsinternationally, and some of the
conversations that were goingon between the big pharma
manufacturers and theirthird-party providers, some of
the stuff that was happeningbecause everybody recognized we
(25:43):
were in a crisis.
This was a crisis that impactedhumankind.
What they were doing for eachother to help out in this
situation so distributors thatthey didn't have a contract with
in a certain country, but thatdistributor had capacity, they
were saying we'll take that loadand we'll fly it into this
country for you, even though wedon't have contract there.
The kind of let's break downthe formal rules and let's all
(26:05):
join together to do what we canto make this happen was really
cool to see.
Speaker 4 (26:09):
Yeah, hbr actually came back to us during the
pandemic as a follow-up and saidhey, how have these vested
relationships fared during thepandemic?
So you know, when it was easybusiness, easy times, that they
do well.
And actually they did waybetter.
And it's because, again, wehave a vested interest in each
(26:29):
other's success and so when youdouble down with those suppliers
, they will double down with you.
But you have to craft that dealright.
You can't just say strategicsupplier and oh, I'm sorry I
have a termination forconvenience, or you know, hey,
you're a strategic supplier.
What I'm really saying is whatkind of volume rebate can you
(26:50):
give me?
Speaker 3 (26:50):
I mean, just even think about the word convenience
.
You're strategic to me, I'minvested in you, tom oh, but
it's inconvenient right now, soyou're out of here I've been
with Kate, by the way, whenshe's done presentations.
Close your eyes and think of thestereotypical senior
procurement manager.
This is stereotypical, but Ican do this because I am an old
(27:11):
white boomer male.
This is stereotypical, but Ican do this because I am an old
white boomer male.
This was an old white boomermale challenging you in front of
the whole room about oh this is, you know, such Pollyanna.
Nobody can do that.
We're all about reducing costand the only way for me to win
is to make my supplier pay, andit was great to see how you
diffuse that.
And you know I mean the proofis in the pudding and the vested
(27:33):
opportunities you've been ableto bring to success.
Speaker 2 (27:37):
Well, kate, I'd be interested because traditionally
we've seen that costcontainment, cost down
expectations, and you say vestedcan present those opportunities
right when you workcollaborative and you ask what's
in it for we as opposed towhat's in it for me.
But it does seem to fly in theface a little bit of this notion
of redundancies that we need ineverything, whether it's
(27:59):
facilities, inventory and, yes,suppliers.
And vested means doubling downon relationships, achieving
maybe greater dependence inrelationships, greater
dependence in relationships.
So how are you countering thatdiscussion or addressing that
debate that we're having rightnow about resilience and the
need to have a broader portfolioof options in the market?
Speaker 4 (28:23):
Yeah.
So that's a fantastic question,and I would put the resiliency
elephant straight in the room,and so you can partner with your
supplier to have a resilientsupply chain.
There's lots of ways you canbuild resiliency without having
multiple suppliers.
So I used to be a supplier, Iused to work for Microsoft and
(28:43):
then I worked for Microsoft'slargest supplier, and so we
would build this resiliency inby having multiple plants within
the supplier.
So how can I still cover youright?
And so, using data technology,doing things together, I would
submit that collaboratively youcan build a better resilient
(29:04):
supply chain versus having abunch of transactional suppliers
.
Speaker 2 (29:08):
That sounds like smart resilience as opposed to
dumb resilience right, I meanjust simply throwing more
resource at the problem might bethe way to get to that dumb
resilience.
It's a knee-jerk reaction.
You're saying fight thattemptation.
Speaker 4 (29:20):
Yeah and so remember, in a vested agreement we have
outcomes.
Put the outcome front andcenter, so the supplier is
rewarded for improving theirresiliency.
Speaker 2 (29:29):
With accountability toward it.
Speaker 4 (29:30):
Exactly.
It's in their best interest tobe resilient, because if they go
down, you go down.
So P&G is one of our casestudies.
They're in the book Vested howP&G, mcdonald's and Microsoft
are Redefining Winning inBusiness Relationships and they
have three critical successoutcomes that they look for, and
one of them is never, ever,ever let the lights go out.
(29:50):
Right, and I have seen JonesLanga Saul do a presentation and
they have this picture and thisis the only building that has
lights when the power was out,because it's in their best
interest.
Speaker 3 (30:03):
So, quite literally, never let the lights go out,
never let the lights go out.
Speaker 4 (30:06):
So who's going to get the best from Jones Langa Saul?
The P&G account right, or theIntel or the BP account?
Because the buyer has doubleddown and they're going to double
down.
So if resiliency is important,which I agree, it should be put
it as an outcome.
Speaker 2 (30:22):
Well, Kate, I always feel one smarter and more
resilient when we're togetherafter a conversation, but I also
always feel like we're justscratching the surface on these
complex issues.
Speaker 3 (30:31):
I know we could trap Kate in this corner of Opryland,
I think, for the next eighthours and just keep going,
because you know there are somany layers to this and you are
the expert at every layer and Ithink you're right.
I think most of us can hearthis and conceptually say that
just makes such sense, but wedon't know how to go about it
and make it happen.
And that's where God is in thedetails, right?
Speaker 4 (30:53):
Well, and with that I want to pitch in back to the
news about this strike.
Speaker 2 (30:57):
Please.
Speaker 4 (30:58):
We have our executive education courses coming up,
both our vested andcollaborative contracting course
.
Open enrollment starts the weekof October 28th and runs the
whole week.
I am personally offering a freescholarship for the ports and
the management to send a groupto our class in Knoxville to
(31:19):
start to think differently.
Speaker 3 (31:20):
Wow, I hope everybody's hearing that out
there.
Speaker 2 (31:23):
Fantastic.
We'll make the space availableto make that happen.
Speaker 3 (31:26):
That's absolutely.
That's great.
I would love to see that, kate.
We should get lots of mediacoverage for that, if you could
pull it off.
Speaker 4 (31:33):
I definitely hope they take me up on it, because
they're stuck and I mean you goback to.
Island Health.
People just need to find outhow a new way, a third way and
negotiating harder is not goingto get you there.
Speaker 3 (31:47):
So I really do think you need a new title
organizational marriagecounselor, therapist, whatever.
All right, tom.
By the way, this is a bonuspodcast.
We finished our second seasonback in August.
This is a bonus podcast thatwe're bringing to you.
We had the chance to be atCSCMP with Kate and we just
wanted to be able to get her onhere as a guest.
(32:09):
We will start with our seasonthree podcast coming in late
October.
Speaker 2 (32:15):
More to look forward to.
But hey, kate, thank you somuch for joining us today,
carving out a little bit of timein this busy schedule.
Best wishes on those innovationawards, and we'll be crossing
our fingers, but we know thatyou put forward a great foot.
Thank you so much for all youdo for the University of
Tennessee.
It's amazing.
I've been traveling quite a bit.
I was in DC a few weeks ago andI had the chief economic
(32:37):
advisor say do you know KateVitasic?
I said well, she's a member ofour faculty.
Of course I know Kate and Isaid she's always going to stand
out donning that orange, youknow.
So thank you so much for allyou do for us on Rocky Top and
taking us out into the world.
Speaker 4 (32:50):
Well, awesome and, as I say, change the world.
One deal, one relationship at atime.
Speaker 2 (32:55):
There you go.
Thanks so much, hey.
We'll wrap it up and again lookforward for more from us at the
Tennessee on Supply ChainManagement podcast coming up
real soon as we start that thirdseason.
We'll close out today, Again,bidding you adieu from the
Gaylord Opryland Resort,Nashville, Tennessee.
You can reach us anytime atgsci at utkedu.
Speaker 1 (33:16):
Thanks for tuning in to Tennessee on Supply Chain
Management.
If you enjoyed the episode,subscribe today on your favorite
listening platform to get allof our episodes as soon as they
drop, and don't forget to take amoment to leave us a rating.
Have any questions, thoughts orfeedback?
We'd love to hear from ourlisteners.
Email us at gsci at utkedu.
Join us next time as wecontinue pulling back the
(33:39):
curtain on the world of supplychain, educating and
entertaining you along the way.
Until then, listeners.
Welcome to the Tennessee on Supply Chain
Management podcast.
Listen in as co-hosts Ted Stankand Tom Goldsby set sail into
the world of end-to-end supplychain management, diving deep
into today's most relevantbusiness topics.
They'll share insights inpressing industry issues and
tackle the challenges keepingsupply chain professionals up at
night.
If you're enjoying the ride,download and subscribe to
(00:22):
Tennessee on Supply ChainManagement on your favorite
podcast platform now.
Speaker 2 (00:28):
Hello and welcome to the Tennessee on Supply Chain
Management podcast.
I'm your co-host, Tom Goldsby,joined by my dear friend and
colleague, Dr Ted Stank.
Hey, Ted, how you doing?
Speaker 3 (00:38):
Hey Thomas, Good, I'm doing well.
I'm getting all my steps in.
We're here at the GaylordOpryland in Nashville and this
place is like bigger thandowntown Knoxville, you know
what's funny is you go to aconference like this, you get
locked in here.
Speaker 2 (00:50):
I remember when checking in on Saturday, a few
days ago, I kind of took a lookat the sun.
There was no sun to be found,of course, because we've had
torrential rains because of thetropical depression.
I'm thinking I won't see thesun again for three, four days.
But you're right, that'susually a sedentary lifestyle at
a conference, but not whenyou're at the Gaylord.
Speaker 3 (01:08):
No, no, no.
And you know what Armageddoncould have happened outside of?
Us, we wouldn't know until weall left.
Speaker 2 (01:13):
It very well could have.
But yes, we are at the CSCMPEDGE conference.
Ted and I have been on handhere for a few days because the
academics converge here usuallyover the weekend.
We have our academic researchsymposium, and Ted's been in
front of the room on a number ofoccasions espousing big ideas
and shaking the world up ofacademia, which we all need that
(01:34):
, ted, you've been doing a greatservice this weekend.
Thank you, yeah.
Speaker 3 (01:37):
I've done a lot.
I went a little bit horse,mainly from the sessions, not
entirely.
A little social life was thrownin there.
Speaker 2 (01:44):
Well, they seem to put us in these tiny rooms with
300 voices in there.
And then, of course, what meand some of the other folks did,
we headed to Broadway and triedto talk over the honky-tonks on
Saturday night.
So my voice is a littlestrained, but hey, talk about
strain.
There's a lot of strain on oursupply chains.
How's that for a transition?
Speaker 3 (02:03):
So today, for those of you who are listening, today
is September 30th 2024.
A lot of things happening today.
Midnight tonight, east and GulfCoast port strike is imminent.
The existing contract expirestonight at 1159.
There have been no talksbetween the port workers and the
port management, and so it'simminent that we're going to
(02:24):
head into a strike which willhave huge implications across
the economy on various thingsthat typically come into East
Coast ports.
At the same time, tom, youmentioned Hurricane Helene,
which blew through Florida andup through Georgia and the
Carolinas on Thursday and Friday, leaving massive destruction.
Highways I-40 and I-26 throughwestern North Carolina, both
(02:47):
major thoroughfares for economictransport, are flooded and
closed for who knows how longthe foreseeable future.
All roads through there, noside roads are open.
Really, really terriblepersonal tragedy, but also big
economic challenges.
Gas, electricity, water are alllacking in that area, and so
there's going to be some ripplesthrough our economy from that
(03:08):
as well.
So there's a lot of thingshappening in the supply chain
world.
Speaker 2 (03:11):
No for sure.
And again it's supply chain.
We're kind of bearing the bruntof it, as we always do, and
we've been fielding a number ofmedia requests around the port
work stoppage and I've beensaying that's the worst kept
secret in logistics.
You know, for more than sixmonths we've been looking toward
this and I think it's kind ofthose East and Gulf port workers
are saying now it's our turn.
Speaker 3 (03:33):
Yeah and oh.
By the way, hanging over all ofthis, over everything, over
Opryland Nashville, is somethingthat's going to happen November
5th, the federal presidentialelection.
What's that?
I haven't heard anything aboutthat.
Well, you've been locked insideof here.
It's happening.
You know, in other timesperhaps the federal government
(03:53):
would have gotten involved inthis port workers issue.
I don't think anybody wants totouch it because of fear of
offending either the unions, ifyou go one way, or management,
if you go the other way.
So the federal government isstaying out of it.
There's so much uncertaintybased on the results of that
election that I don't thinkwe're going to make a lot of
progress in many things untilafter that election, and we know
(04:14):
what the direction is of thefederal government.
Speaker 2 (04:16):
Yeah, no, I think so.
I mean we'll see Again thistime tomorrow there will
probably be a work stoppage inprogress.
Speaker 3 (04:27):
And with each day there's going to be mounting
pressure.
I do think for intervention.
I saw $5 billion in economicdisruption per day with the port
strike.
Now how they got to that numberI don't know, but it's big.
It's that way, it's going to bebig.
Yeah, and we are approaching theholiday season and ordinarily
cargo is making its way to ourshores and its way through
distribution networks to retailshelves, and I do know that the
(04:57):
season got advanced by virtue ofagain, loggies were aware of
the very real propensity of thestrike and also because supply
chain people are used to pendingdisruptions and finding ways
around it.
A lot of product has beenflowing through West Coast ports
in advance and anticipation ofthe East and Gulf Coast ports.
Speaker 2 (05:08):
Yeah, just as the East Coast ports picked up some
market share right out of theWest Coast disruptions of two
and three years ago.
Speaker 3 (05:15):
But that doesn't mean we're going to be immune
economically.
The oil refineries on the GulfCoast, automotive on the East
Coast, that's all things thatare going to be Well and also
that the East Coast ports andGulf Coast to some extent are
not just import ports.
Speaker 2 (05:30):
We're talking about goods coming in, but the East
Coast ports probably are alittle more export-driven than
what we see out West as well,given the manufacturing capacity
.
Here I mean the fact that BMWcars produced in Spartanburg,
south Carolina, are going up anddown the Audubon.
So it is not just the goodscoming in but also handicap
(05:51):
access to those global markets.
Speaker 3 (05:52):
Now to paint a little bit of a silver lining the Port
of Baltimore.
The channels in Baltimore areopen as compared to a couple of
months ago.
Right, the Panama Canal hasplenty of water these days.
Speaker 1 (06:02):
Good point, so you can transit through the Panama.
Speaker 3 (06:04):
Canal.
So we're not totally a disaster, but still things are
challenged.
Speaker 2 (06:08):
And those Canadian ports are saying, hey, we're
open for business up here.
Speaker 3 (06:12):
Although not Montreal .
Montreal is supposed to go on athree-day stretch.
Oh, is that right?
Okay, it's all aboutrelationships, right it is?
Speaker 2 (06:18):
And it occurs to me we've got a resident expert
seated here between us that weshould probably bring into the
conversation.
You want to do that, Ted.
Speaker 3 (06:25):
Yeah, let's do that.
A good friend of mine for many,many years, kate Fatasic,
faculty member at University ofTennessee, working in our
Graduate and Executive EducationCenter.
I got to know Kate probably 21years ago when she was really
first developing this idea thathas evolved into what we know
today as vested outsourcing.
At the time, working with Kateout of the Executive Education
(06:49):
Center, she was doing someresearch that was really
initially based inperformance-based logistics and
contracting with the military,but she's taken that idea to
great heights.
I think many, many people inour world are aware of the work
that Kate has done, boththeoretically, around this
notion of win-win-winrelationships.
Early on, kate was showingpictures of that movie, a
(07:10):
Beautiful Mind, and how some ofJohn Nash's, the great economist
, nobel Prize winning economistconcepts could apply to this
notion of relationships.
And now Kate does a lot of workwith industry across various
different verticals, variousdifferent applications and
contexts in the relationshipworld.
Kate, welcome, so good to haveyou with us.
Speaker 4 (07:32):
Well, thanks for having me.
It's exciting to be here atCSCMP because we're up for a
couple of innovation awards.
Speaker 2 (07:39):
That's right.
Speaker 4 (07:40):
And so that's super cool.
Speaker 2 (07:41):
That's awesome.
Can you tell us a little bitabout the work and the awards
that you're up for?
But then I do, before we gettoo far away from it.
I do want for you to weigh inon the news of the day as well,
but let's first hear about thoseinnovation awards that you're
up for.
Speaker 4 (07:53):
Well, as Ted, you mentioned, we've been
researching and studying thisconcept of vested since 2003.
It originally came and wasbirthed out of work around
performance-based logisticscontracts and the government
said you know, why do some ofthese relationships work so well
?
Why is the GE Navy 404 enginemaintenance contract in
(08:14):
Jacksonville so successful andthe other GE contracts in the
Air Force don't?
And that was a real gift for usas a curious person and
academic.
We could go in and start tolook at why you know and ask
those questions.
And that birthed a series ofresearch projects and questions
that, in 2010, led to the bookVested Outsourcing Five Rules
(08:37):
that Will Transform Outsourcing.
Getting a call from aprocurement person in Intel and
he goes I hear rumors, you'redoing some applied game theory
work in procurement and I amstuck, I'm losing and I need to
change the game.
And so today, intel has threevested deals, all very, very
successful, and the more peopleare successful, the more they
(09:01):
tell other people.
This week, bp andJones-Ling-Sol are one of our
more recent case studies.
We submitted an innovationaward for their amazing results
and we're up for an award onthat, as well as a teaching
innovation award.
Speaker 2 (09:16):
Oh fantastic, that's fantastic.
Yeah, well, we'll have to hearhow the results turn out in that
regard.
But speaking of results and,like I said, the news of the day
, I'd just be really curious.
Ted and I were waxingphilosophic about the East and
Gulf Coast longshoremen strike,and you've got some experience,
in fact, in working withgovernments and bringing labor
(09:37):
and government together.
What's your own perspective onwhat we're looking at and maybe
what the longer view solutioncould be in those circumstances?
Speaker 4 (09:45):
what we're looking at and maybe what the longer view
solution could be in thosecircumstances.
Yeah, well, I think we get herebecause everybody wants to win
but they're not looking at thebigger picture.
And so, as you mentioned, wehave done some work with the
Canadian government, especiallyin labor services.
So the Canadian government youknow, if you're a doctor you
have no employer option exceptfor to work for the government
because it's government healthcare.
(10:06):
So it really is a monopoly forthe labor services to work with
the government.
But likewise the Canadiangovernment only has one option.
You know they're equivalent toa union for their doctors.
So Vancouver Island Health had avery tenuous relationship.
Actually, we do a compatibilityand trust assessment and they
(10:26):
called the relationship toxic,bullying, distrustful, and think
about that.
That's what we say in the press.
The United Auto Workers we'retalking about flamethrowing same
thing we have now with the portstrikes and so they were stuck
and they invited us in to seehow can we get to a contract.
Now, when you're in agovernment contract like that my
(10:49):
husband's a firefighter they'renot allowed to go on strike,
and so the workers, the doctors,had to continue to work.
They didn't have a choice, butthey're locked in on both ways
and so we put them in a room forthree days.
We call it an alignmentworkshop and seriously there was
no alignment.
And we start with putting thatelephant in the room about trust
(11:10):
.
What got you here?
And it's relationships and thissevere lack of trust.
And what people realize is thattrust, that's not an
environment they want to be inand they project that.
The reason why this environmentis all your fault.
It's all your fault Thomas,it's all your fault Ted.
Then you start to see that it'severyone's fault.
(11:32):
They've created thisenvironment and so we simply go
through the vested process.
There's five rules, 10contractual elements, and they
collaboratively contract Insteadof negotiating.
They're using our methodologyto collaboratively contract
their contract and it takesabout six months to go through a
contract.
(11:52):
But that's in a large strategicrelationship.
That's about how long it takesanyway, and even worse when
you're in a tenuous relationship.
It goes on and we start to havestrikes.
But it is amazing the results.
And so here they went fromheadlines in the news, like we
have with the strike, toheadlines in the news after the
pandemic.
You know, as pandemic persists.
(12:13):
Island Health and theHospitalist are innovating and
we do a compatibility and trustassessment of that relationship
and to this day, it is a veryhealthy relationship.
So I'm going to give you somestatistics, 2015,.
We did the very firstcompatibility and trust
assessment before that workshop.
84% of the adjectives peopleuse to describe the relationship
(12:36):
were negative In 18 monthsafter going through the vested
methodology.
85% were positive.
After the pandemic, businesshappens right.
We have disruptions.
Eighty-nine percent arepositive.
Speaker 2 (12:52):
That's unbelievable.
Speaker 3 (12:54):
And that's the real, true test of time, isn't it when
you have real crisis situationand people still trust each
other through it?
Speaker 4 (13:01):
Exactly, and they actually got more trust because
we teach them how to have theserelationships.
And that's what's missing is,everybody knows relationships
are important, but they don'tknow how to create them or, when
they're stuck, how to get outof it.
And so what do we do?
We hire negotiators,professional negotiations, and
we're trying to double down onnegotiation instead of doubling
(13:23):
down on collaboration andbuilding the relationship.
And when you do that, when youfollow the process, you get an
amazing win-win contract.
Speaker 2 (13:31):
So, Kate, does it just seem like your research and
practice are largelypsychological therapy?
Speaker 3 (13:38):
Yeah, it did, it did sound a bit like couples therapy
.
Speaker 4 (13:41):
You know people do say that that sounds a bit like
couples therapy.
You know people do say that,but you're helping people
unlearn these dogmas that it'sus versus them.
Or what's even harder is whenpeople think they have a good
relationship, oh, you're astrategic supplier.
So I have a joke that asupplier said yeah, I hate to
hear the word strategic supplier, it means open your checkbook.
Speaker 2 (14:03):
Right Flattery will get you everywhere.
Speaker 3 (14:05):
Hey, Kate, can you unpack a little bit for our
listeners, just like Vested 101?
Speaker 4 (14:11):
Yeah, so Vested is a formal relational contract.
So if you're not familiar withthat, I encourage people to just
go online.
It's an open access articlefrom Harvard Business Review
that we wrote with Oliver Hart,a Nobel Prize winning economist,
and David Friedlinger, anamazing Swedish attorney, and so
it is a formal relationalcontract.
(14:31):
So we're bringing thatrelationship in front and center
as we go through thecontracting process.
But the contract itself isabout the relationship.
So you're putting therelationship above the deal
points, and that's importantbecause business happens.
So when business happens, wehave to go back to the
relational constructs, which arevery formal.
(14:53):
The governance structures arevery formal.
We get out of economicalignment.
Therefore we have to come backand make it fair.
So instead of a price, you havea pricing model.
Right, you do thingsdifferently.
So it is a formal relationalcontract, but it's also based on
outcome-based economics,outcome-based economics.
So instead of I buy and sell, Igive you a dollar, you give me
(15:16):
a unit of service.
Or, in the case of the ports, Igive you how many dollars an
hour and you give me an hour oftime.
We're looking at the businessoutcomes Now.
At the end of the day, youstill have to pay for the
transactions, but you're lookingat total cost of ownership.
It's highly transparent.
So now we're looking at how doI optimize?
(15:37):
And when you start to do workto optimize, it creates value.
We're going to share that value.
So think about with the ports.
Right, we're bickering over howmuch per hour to pay these guys
.
And what if we actually workedand collaborated under a vested
agreement to improveproductivity and to bring in new
(15:58):
technology?
We create value, we share thevalue, but buyers don't want to
share.
Oh, I want you to create value,I want you to work faster and
harder, but I get all thebenefits and then the worker
loses.
It's the same thing with asupplier.
We say win-win, we knowintuitively we're supposed to do
(16:19):
it, but then we turn around andwrite transactional contracts
and so it's a system issue.
Speaker 3 (16:24):
Yeah, so you've been doing this a long time.
I don't know if you can talkabout Intel and Jones Lang
LaSalle.
Speaker 4 (16:30):
Intel has three case studies and, by the way, their
supplier, jones Lang LaSalle,actually won a huge award from
Intel two years in a row.
They've been working togetherfor over 10 years.
Flip that to Vested so you cango on the Intel website and just
see Jones-Langisaw SupplierAward.
We're working on a case studynow about that case study.
Speaker 3 (16:53):
So tell us some of the outcome economics benefits
to both parties in some of yourgreat Vested examples.
Speaker 4 (17:00):
Yes.
So BP.
The results have beenabsolutely amazing and that case
study is public, so it is onour website.
We can download it.
Anyone can read that.
But they do it throughinnovation.
So in the first year afterflipping to a vested agreement
they documented over 100innovations.
So things that are going toreduce your cost.
(17:22):
Remember, in the last few yearswe're in a time of inflation
They've had double digit yearover year cost savings.
Wow.
So cost of the cost of the costright?
So now Jones-Lingasol is apartner with BP to reduce the
cost structure.
What innovative things can I doto be better, faster, cheaper,
(17:42):
safer, more sustainable?
What innovative things can I doto be better, faster, cheaper,
safer, more sustainable?
So they come up with these tinyinnovation.
You know could be a littleworker who says, hey, here's an
idea or it could be somethingbig that you're going to invest
in, but those innovations thendrive performance and results.
They create value that isshared between the two.
So double digit cost savings,sustainability.
(18:05):
So this is a big deal for acompany like BP.
I don't know if many people knowthey're actually transitioning
from an oil and gas company toan energy company, so they want
to be out of the oil and gasbusiness, so the transitions
that they have to make aroundsustainability of just their own
buildings is massive.
So sustainability goals arebeing hit and exceeded Super
(18:28):
cool.
Speaker 3 (18:28):
So what are the benefits to Jones Langless out?
Speaker 4 (18:31):
More money, contract extensions.
So you're going to peg valuethat the supplier wants, usually
incentive money.
You save me money, you get ashare, you get a contract
extension.
So a long-term contract withvery robust incentives so that
every time the supplier achievesgoals they are rewarded.
Speaker 2 (18:55):
Well, I love that dynamic nature and that's
something we've talked about inthe past.
Right, I mean traditionalcontracts, very static and
locked up somewhere, and it'sthe gospel until it's time for
renewal and revisiting it.
And then, what do you know?
That's when the supplier thenbrings forward the innovation.
They've had these ideas byvirtue of observing the business
(19:15):
and learning, but there's nobenefit to the supplier.
Absence some performance basis,as you indicate, to bring those
good ideas forward until thebuyer comes asking.
Speaker 3 (19:26):
There's often a disincentive.
Well, that's right, Because thebuyer will then say oh, there's
this great innovation that youcame up with.
Let's take this and market itto all your competitors and see
who will give it to us cheaper.
That's right.
Speaker 4 (19:36):
Yeah, one of the tricks that we use for a
contractual basis is called anearned evergreen contract.
So an evergreen contract meansit's going to renew.
So if I have a five-yearcontract, I'm going to
automatically renew that.
So I'm not going to go out tobid.
But then the downside issuppliers get lazy.
Oh, I just automatically renew.
So what we do is we create atthe end of year one, the
(20:01):
supplier can earn your six, andat the end of year two they can
earn your seven.
At the end of year three, theyearn your eight.
So it's in their best interestto hit it out of the park every
year, year over year.
Speaker 2 (20:14):
Keep bringing the good stuff.
Speaker 3 (20:15):
Exactly Sounds like what innovative sports agents
have done with coachingcontracts.
Right, you keep doing.
Well, it's going to extend youa year, but so to that point I
mean, I'm kind of half jokingabout that Are there outlet
clauses?
If either one of the partieswants to break this contract,
what are the outlet clauses.
Speaker 4 (20:34):
Yeah.
So this is kind ofcontroversial among the legal
community.
When they first hear about itthey freak out because there's
no termination for convenience.
Because, because you'restrategic, why could I just
terminate you for convenience?
So a typical contract will have, say, a 60, 90 day very
(20:57):
generous would be a six monthtermination for convenience.
But the supplier hasinvestments.
You want them to innovate, youwant them to make investments,
but they don't have enough ROI.
And so by having thattermination for convenience,
that threat that we can justpull out, it actually squishes
the supplier's willingness toinnovate.
So we replace the terminationfor convenience with what we
call termination for justifiedbusiness reasons.
(21:19):
So let's say the costs are nolonger competitive.
That would be a justifiedbusiness reason.
You know there's alwaystermination for cause, that's,
you know, bad supplier need toget out of it.
So you replace that convenienceclause with justified business
reasons and the simple fact thatsuppliers can earn the right to
(21:40):
make more money and earn theright for contract extensions.
Earn the right to make moremoney and earn the right for
contract extensions.
They hit it out of the park andthis is why these are so
successful.
So it's not real rocket science.
The problem is people don't knowhow to do it, and I think
that's the benefit of ourresearch.
It's not just theory.
It's teaching people how to dothese things intuitively.
(22:03):
They know they have a strategicsupplier, they know their
unions are important, but thenthey fall back into negotiating.
Speaker 3 (22:10):
So there's a lot of cultural things that come into
this and it's, you know, yourperspective on trust and your
perspective on what thetimeframe is that you expect in
ROI right, you and I've had someof these conversations around
short-term perspective versuslong-term.
Have you noticed that this kindof thinking is more successful
with some other cultures and notUS and North American cultures?
(22:33):
And how do we change that NorthAmerican culture that if I do
well next quarter, I reallydon't care that it's going to do
good for me in two years?
Speaker 4 (22:42):
Yeah, actually it's staggering the majority of the
students who come through ourprogram are actually not from
the United States.
Speaker 3 (22:50):
Is that right?
So you do see that it is.
Speaker 4 (22:53):
It's amazing, and so, if you look at the different
countries that they come from, Ihave the most graduates from
the Nordics.
So, Sweden, Norway, Denmark,Finland.
You know, when we go over andI've taught our open enrollment
class as pre-COVID I would goover every year and teach in
Stockholm.
I've gone over to Denmark andtaught our open enrollment class
(23:14):
and people go that's how I wassupposed to do that.
Ah, thank you, I knew it and Iwas like stuck.
And then you teach to NorthAmerica, the US in particular,
and we go yeah, that's different.
Speaker 2 (23:29):
Right right.
Speaker 4 (23:30):
Wow, that's a paradigm shift and it's just
because we're taught, and youthink about, from the time we're
little kids, we're taught to gowin.
We laughed about this, but theAlabama-Georgia football game,
you know, their star player hadkill everybody on his nose Right
, right, right you know, that'sthe mentality that we're taught.
Speaker 3 (23:51):
You drive around any city in the United States on a
Saturday morning in the fall andthe spring and there's anywhere
from four-year-olds up to highschoolers playing soccer.
And we always say that at thefour-year-old level we don't
keep score.
All those kids know the scoreand if they don't, their
red-faced screaming parents onthe sidelines know the score and
are screaming it at their kids.
(24:12):
And that's that culture.
We have A win, win, win.
Speaker 2 (24:14):
And now half of them will have to kill everybody.
Face paint on running up anddown that field.
You know.
Speaker 4 (24:18):
But to talk about football, because you know I do
love football and I make a joke,you know.
I say oh, oh, you're fromTennessee, oh, you know.
And I say I love everybody inthe SEC, except on one day a
year.
If it's, we're playing Alabamathat one day.
But I'm going to respectfullycompete with you.
You know, not try to killeverybody.
Speaker 3 (24:41):
Right yeah, Because you know the cliche of a rising
lake floats all boats.
Speaker 4 (24:45):
Right yeah, and I want to play on that because
people intuitively get you know,win, win.
But a great vested relationshipis also a lose-lose.
So if you only want to sharewhen you're winning and you
don't want to share when you godown, and this is what causes
people to be like, oh, I don'twant to lose, but you have to,
(25:06):
and this is where we get theword vested from.
I have a vested interest inyour success and you have a
vested interest in my success.
We win together and we losetogether.
Business happens and we're init through the thick and the
thin.
Speaker 3 (25:20):
I'll tell you, during the early days of COVID, I had
the opportunity of sitting in onsome war rooms, particularly in
the pharmaceutical industry,when borders were closed, we
couldn't distribute productsinternationally, and some of the
conversations that were goingon between the big pharma
manufacturers and theirthird-party providers, some of
the stuff that was happeningbecause everybody recognized we
(25:43):
were in a crisis.
This was a crisis that impactedhumankind.
What they were doing for eachother to help out in this
situation so distributors thatthey didn't have a contract with
in a certain country, but thatdistributor had capacity, they
were saying we'll take that loadand we'll fly it into this
country for you, even though wedon't have contract there.
The kind of let's break downthe formal rules and let's all
(26:05):
join together to do what we canto make this happen was really
cool to see.
Speaker 4 (26:09):
Yeah, hbr actually came back to us during the
pandemic as a follow-up and saidhey, how have these vested
relationships fared during thepandemic?
So you know, when it was easybusiness, easy times, that they
do well.
And actually they did waybetter.
And it's because, again, wehave a vested interest in each
(26:29):
other's success and so when youdouble down with those suppliers
, they will double down with you.
But you have to craft that dealright.
You can't just say strategicsupplier and oh, I'm sorry I
have a termination forconvenience, or you know, hey,
you're a strategic supplier.
What I'm really saying is whatkind of volume rebate can you
(26:50):
give me?
Speaker 3 (26:50):
I mean, just even think about the word convenience
.
You're strategic to me, I'minvested in you, tom oh, but
it's inconvenient right now, soyou're out of here I've been
with Kate, by the way, whenshe's done presentations.
Close your eyes and think of thestereotypical senior
procurement manager.
This is stereotypical, but Ican do this because I am an old
(27:11):
white boomer male.
This is stereotypical, but Ican do this because I am an old
white boomer male.
This was an old white boomermale challenging you in front of
the whole room about oh this is, you know, such Pollyanna.
Nobody can do that.
We're all about reducing costand the only way for me to win
is to make my supplier pay, andit was great to see how you
diffuse that.
And you know I mean the proofis in the pudding and the vested
(27:33):
opportunities you've been ableto bring to success.
Speaker 2 (27:37):
Well, kate, I'd be interested because traditionally
we've seen that costcontainment, cost down
expectations, and you say vestedcan present those opportunities
right when you workcollaborative and you ask what's
in it for we as opposed towhat's in it for me.
But it does seem to fly in theface a little bit of this notion
of redundancies that we need ineverything, whether it's
(27:59):
facilities, inventory and, yes,suppliers.
And vested means doubling downon relationships, achieving
maybe greater dependence inrelationships, greater
dependence in relationships.
So how are you countering thatdiscussion or addressing that
debate that we're having rightnow about resilience and the
need to have a broader portfolioof options in the market?
Speaker 4 (28:23):
Yeah.
So that's a fantastic question,and I would put the resiliency
elephant straight in the room,and so you can partner with your
supplier to have a resilientsupply chain.
There's lots of ways you canbuild resiliency without having
multiple suppliers.
So I used to be a supplier, Iused to work for Microsoft and
(28:43):
then I worked for Microsoft'slargest supplier, and so we
would build this resiliency inby having multiple plants within
the supplier.
So how can I still cover youright?
And so, using data technology,doing things together, I would
submit that collaboratively youcan build a better resilient
(29:04):
supply chain versus having abunch of transactional suppliers
.
Speaker 2 (29:08):
That sounds like smart resilience as opposed to
dumb resilience right, I meanjust simply throwing more
resource at the problem might bethe way to get to that dumb
resilience.
It's a knee-jerk reaction.
You're saying fight thattemptation.
Speaker 4 (29:20):
Yeah and so remember, in a vested agreement we have
outcomes.
Put the outcome front andcenter, so the supplier is
rewarded for improving theirresiliency.
Speaker 2 (29:29):
With accountability toward it.
Speaker 4 (29:30):
Exactly.
It's in their best interest tobe resilient, because if they go
down, you go down.
So P&G is one of our casestudies.
They're in the book Vested howP&G, mcdonald's and Microsoft
are Redefining Winning inBusiness Relationships and they
have three critical successoutcomes that they look for, and
one of them is never, ever,ever let the lights go out.
(29:50):
Right, and I have seen JonesLanga Saul do a presentation and
they have this picture and thisis the only building that has
lights when the power was out,because it's in their best
interest.
Speaker 3 (30:03):
So, quite literally, never let the lights go out,
never let the lights go out.
Speaker 4 (30:06):
So who's going to get the best from Jones Langa Saul?
The P&G account right, or theIntel or the BP account?
Because the buyer has doubleddown and they're going to double
down.
So if resiliency is important,which I agree, it should be put
it as an outcome.
Speaker 2 (30:22):
Well, Kate, I always feel one smarter and more
resilient when we're togetherafter a conversation, but I also
always feel like we're justscratching the surface on these
complex issues.
Speaker 3 (30:31):
I know we could trap Kate in this corner of Opryland,
I think, for the next eighthours and just keep going,
because you know there are somany layers to this and you are
the expert at every layer and Ithink you're right.
I think most of us can hearthis and conceptually say that
just makes such sense, but wedon't know how to go about it
and make it happen.
And that's where God is in thedetails, right?
Speaker 4 (30:53):
Well, and with that I want to pitch in back to the
news about this strike.
Speaker 2 (30:57):
Please.
Speaker 4 (30:58):
We have our executive education courses coming up,
both our vested andcollaborative contracting course
.
Open enrollment starts the weekof October 28th and runs the
whole week.
I am personally offering a freescholarship for the ports and
the management to send a groupto our class in Knoxville to
(31:19):
start to think differently.
Speaker 3 (31:20):
Wow, I hope everybody's hearing that out
there.
Speaker 2 (31:23):
Fantastic.
We'll make the space availableto make that happen.
Speaker 3 (31:26):
That's absolutely.
That's great.
I would love to see that, kate.
We should get lots of mediacoverage for that, if you could
pull it off.
Speaker 4 (31:33):
I definitely hope they take me up on it, because
they're stuck and I mean you goback to.
Island Health.
People just need to find outhow a new way, a third way and
negotiating harder is not goingto get you there.
Speaker 3 (31:47):
So I really do think you need a new title
organizational marriagecounselor, therapist, whatever.
All right, tom.
By the way, this is a bonuspodcast.
We finished our second seasonback in August.
This is a bonus podcast thatwe're bringing to you.
We had the chance to be atCSCMP with Kate and we just
wanted to be able to get her onhere as a guest.
(32:09):
We will start with our seasonthree podcast coming in late
October.
Speaker 2 (32:15):
More to look forward to.
But hey, kate, thank you somuch for joining us today,
carving out a little bit of timein this busy schedule.
Best wishes on those innovationawards, and we'll be crossing
our fingers, but we know thatyou put forward a great foot.
Thank you so much for all youdo for the University of
Tennessee.
It's amazing.
I've been traveling quite a bit.
I was in DC a few weeks ago andI had the chief economic
(32:37):
advisor say do you know KateVitasic?
I said well, she's a member ofour faculty.
Of course I know Kate and Isaid she's always going to stand
out donning that orange, youknow.
So thank you so much for allyou do for us on Rocky Top and
taking us out into the world.
Speaker 4 (32:50):
Well, awesome and, as I say, change the world.
One deal, one relationship at atime.
Speaker 2 (32:55):
There you go.
Thanks so much, hey.
We'll wrap it up and again lookforward for more from us at the
Tennessee on Supply ChainManagement podcast coming up
real soon as we start that thirdseason.
We'll close out today, Again,bidding you adieu from the
Gaylord Opryland Resort,Nashville, Tennessee.
You can reach us anytime atgsci at utkedu.
Speaker 1 (33:16):
Thanks for tuning in to Tennessee on Supply Chain
Management.
If you enjoyed the episode,subscribe today on your favorite
listening platform to get allof our episodes as soon as they
drop, and don't forget to take amoment to leave us a rating.
Have any questions, thoughts orfeedback?
We'd love to hear from ourlisteners.
Email us at gsci at utkedu.
Join us next time as wecontinue pulling back the
(33:39):
curtain on the world of supplychain, educating and
entertaining you along the way.
Until then, listeners.
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