Andrew Stroup (00:05)
Welcome to Leveraged Supply Chains, the show where we unpack how operators protect margin and out execute with data-driven processes. I'm Andrew Strupe, your host, and today we're heading to Houston to sit down with Melanie Baker, Director of Supply Chain at PSS Industrial Group, a key player in energy and industrial infrastructure. and a proud affiliated distributors member.
Melanie's team used to face constant surprises like suppliers changing prices and lead times without notice, buyers and expeditors scrambling to catch issues, and AP left holding the bag on mismatched invoices. Since rolling out PO automation, PSS industrial group has drastically reduced AP exceptions, boosted buyer and expeditor efficiency by a third, and protected 8 to 9 % margin year over year.
We're about to dive into why Melanie is outspokenly anti-EDI, what correct before commit means in practice, and how suppliers themselves to the Leverage portal. Melanie, welcome to the show. Give us a 30 second overview of PSS Industrial Group and your role.
Melanie Baker (01:13)
Absolutely. Thanks for having me, Andrew I appreciate it. I'm with PSS Industrial Group, Supply Chain Director, and we are an oil and gas market driven distributor, mostly of MRO, power tools, equipment servicing, pipe valves and fittings, some manufacturing elements, including inspection equipment, spray systems, things of that nature. pretty much all things oil and gas, but we do venture out into other channels as well, including construction and other ⁓ wind energy, etc. So the primary industry is the O &G industry, but mostly here in the Houston market, ⁓ we're in the ⁓ Gulf Coast region, and so oil and gas is our primary.
Andrew Stroup (02:00)
Love that. obviously a one of the heart-beaten veins of America for quite some time. Well, diving in a little bit to learning more about you and, the procurement workflows. What did procurement look like before Leverage?
Melanie Baker (02:14)
I would call it chasing our tails. were always looking for the squeaky wheel gets the grease. We were always chasing ⁓ getting the right price on our POs to match our invoices coming in. We were always chasing to bring the product into our building through expediting. We were always chasing to maintain our replacement costs. So it was a lot of chasing.
Andrew Stroup (02:38)
definitely sounds like a lot of effort and a lot of fire drills to your point. on that note of the chasing piece of it, any sense of how often suppliers would change prices or lead times on a daily, weekly, monthly basis.
Melanie Baker (02:51)
Well, our purchase orders, Andrew, could be anywhere from one line item up to 200. And ⁓ it was happening on a daily basis. It didn't matter how many line items we have. ⁓ We have what I consider to be a robust price file update process. We work closely with our suppliers to ⁓ get price files that we can update. But that is not our market. Our market is ever changing daily, with tariffs that are happening specifically. We were ⁓ seeing changes on to our POs and to our invoices on a daily basis.
Andrew Stroup (03:24)
Wow. I'm sure that to your point drove a lot of fire drills on any given day basis. ⁓ Any specific instance that was top of mind or that you recall before Leverage that served as a tipping point of saying, hey, we definitely need to find a different way to change how we approach this problem.
Melanie Baker (03:43)
We were just overwhelmed with tickets coming in wanting to know what's the status of a purchase order. I can't pay this invoice because the price doesn't match. I didn't get my purchase order or the PO didn't make its way to the vendor. ⁓ So we would through our ticketing system be able to identify where our pain points were and that was happening on an ongoing basis and so at the point where I felt like I'd done just about everything I could do to address it, ⁓ I started looking for a different solution.
Andrew Stroup (04:12)
I know that as you described, the massive amounts of influx of tickets and trying to categorize those and identify the root cause that inherently has an impact on your team and the buyers and the expeditors part of it. I'm curious in that mode before Leverage, how many hours per week do you think they were chasing these confirmations or fixing mismatches or hunting down updates?
Melanie Baker (04:36)
Well, we were able to do a time study and see that there was probably 80 plus hours dedicated just to what I would call status inquiry, expediting or chasing to find out where our product is and why it isn't here yet. It's past its delivery or promise date. just from that standpoint alone, that doesn't even include the correction process and the time not just spent with my team, but with our accounts payables team of having to pause and not be able to pay an invoice and send that over to us to validate whether it was correct or not. And in most cases it was not and we were usually approving ⁓ different pricing which impacted other things like how we sold at the correct replacement cost. So it was like this rabbit hole that we would go down in not just our department within purchasing but also within our accounts payables group and then ultimately impacting our field.
Andrew Stroup (05:30)
Wow, yeah, it definitely seems as a reiterating anchor point that supply chain and these types of industries and companies are definitely a fundamental spoke, if you will, of the workflows that have impacts across the business. you kind of talked about the before Leverage, walk me through the moment you chose Leverage, head count and how software or classic EDI, but to fix PO visibility, supply performance. How did that decision come to be?
Melanie Baker (05:58)
So I started my journey looking really for just an expediting solution. was not thinking about replacement costs at that point in time. I was not trying to ⁓ match my PO to my invoices at that time. I really was just looking for a way to automate reaching out to our suppliers and saying, are past due on these particular lines on these POs. Can you please give us an update either of whether it's in transit, what's that tracking information, do you show it delivered, who signed for it, so you have people that their whole jobs is calling, emailing, reaching out, utilizing a report to say these are past due only to find out later that not due to ship for another two weeks. So it was all this waste in motion and time for something that wasn't even scheduled to be delivered for another two weeks.
So that was really the start of the journey. ⁓ The replacement cost updating and ⁓ being able to correct the PO so that it matched the Those were like ⁓ nice surprises after. That wasn't something I was specifically after. And when I found out that Leverage was gonna be able to solve those problems for me as well, all the light bulbs went off.
Andrew Stroup (07:09)
I love that. Well, you always have to have a foot in the door to start the conversation around key pain points that we obsessively always think about how do we deliver more value. did you ever consider trying to build it in house first or alternative Curious that decision logic of, A versus B mentality.
Melanie Baker (07:28)
before I even started looking for an external solution, we did try to build a protocol that would ⁓ look for, ⁓ through a SQL reporting or whatever the case may be, scrub our ERP system, looking for POs with lines that were passed to, and then turn that into an Excel spreadsheet that would attach to an automated email that would go out to the suppliers and say, hey supplier A, these lines appear to be past due, can you please give us an update. It worked for about a week. people would respond to it and they would send us the spreadsheet back with the new due dates that we needed to update our system with. But all that work for updating those was still my work to do. And they started to see it as noise because it looked like a bot. It looked like something that was the same spreadsheet that they just felt like they filled out last week and we didn't do a good job of updating it accordingly, etc. So very quickly they started to 86 those and see it as noise and not pay attention to them. So that was our first attempt to do it in-house. And then of course we tried EDI.
Andrew Stroup (08:38)
We'll get to the EDI in a second. I know that we have an open thread on that conversation. I guess moving forward in the process of picking Leverage as a solution that you want to validate, can solve this problem of driving the PO updates and saving buyers and expeditors time and ultimately all the downstream impacts.
What were the early signals that told you that Leverage was working?
Melanie Baker (09:02)
I believe the kind of first signal I got was just after some buyer training and seeing their first needs review is what they call it of items that were on the PO that didn't match the sales order confirmation or what the supplier intended to ship us. And that the fact that the buyers only had to look at what didn't match and not go through line by line by line by line to find the ones that didn't match, that feedback from those buyers that were like, you mean I only have to look at the ones that are these two out of this 50? That that was started, let me kind of get an inkling that, okay, maybe this is the path for what we need to be doing in what I consider, you know, lean methodologies, waste in motion. And if you're having to look through, anyone who's had to look through a sales order confirmation of 50 lines, compare it to a PO confirmation of 50 lines and find the three that don't match can appreciate how that is a aha moment or an eye opening moment to only have to look at what is truly not matching.
Andrew Stroup (10:07)
Absolutely. think what we've seen is that unless you're in the trenches and you know what it's like to have to pull up two documents side by side and go line by line to line and then validate those, enter them in back into the ERP or call the supplier. It definitely is a wildly painstaking time intensive activity. know, on that thread, I know that you ended up being able to reprioritize the time of the buyers and expeditors. I'm sure that was a huge impact Would love to hear about how you've thought about, that threshold of saying, yep, Leverage is working. And then you're able to say, great, now we can refocus that time and what those other activities ended up being.
Melanie Baker (10:47)
to go so far, ⁓ Andrew, is to say that we just didn't do it often. ⁓ It just got missed. ⁓ as much as it was about, reallocating their time to activities like negotiating pricing or, true vendor relationship management, doing a business review and looking for other ways to grow the business and ⁓ improve ⁓ replacement costs and margins and things like that. Those are true activities that you want your procurement specialist and your buyers working on. So that for sure was a goal for us, but just being able to actually make sure that we had accurate pricing on our PO when that invoice came in because we just weren't doing it before.
So it was more of now we're doing the next right thing. We're doing the thing that we should have always been doing, but we just didn't have the time, the bandwidth, the resources to be able to do that.
Andrew Stroup (11:41)
It's crazy but amazing that that was one of the value ads that were able to get produced on the rollout. You you actually brought up a very good piece there on the element of talking about the reduction of the invoice handling and reviews and management. I know that in my notes, I had something around like 50 % reduction and AP exceptions of for the suppliers already enabled in Leverage curious like how that came to be. I know that there's a lot of work around getting the information right to begin with. Would love to pull that thread and learn a bit more about that from how that played out for you and PSS IG.
Melanie Baker (12:21)
Absolutely. So we've adopted the mantra correct before commit. We have ⁓ seen the value ⁓ not only with replacement cost and that 100 % three way match with the APEI screens, which is an ERP screen that we use to manage our discrepancies and our variances between our three way matches. But being able to focus that time and that attention on correcting it ahead of time and making sure that it's accurate or correct has really on the back end reduced so much activity and time of just having to match it, having the AP specialist pause the invoice, send it to the buyer, find out if this is really the true quantity or caught through the conversion rate. So all those things take time to go do research. So if you can correct before commit and have it accurate on the front end, that person on the back end doesn't have to do anything. That just flows through and the supplier gets paid and everybody's happy. So, correct before commit has definitely become our mantra just in terms of the buyers spending their time on just what really needs their attention and not on wasted noise.
Andrew Stroup (13:36)
That's amazing. I love the phrase, correct before commit. I think the thing that we have discovered along the way as well is the surprise of how Leverage can influence both upstream and downstream workflows like AP exceptions. Another thing I had in my notes that you and I talked about is one of the anchor decision points that you worked with PSS Industrial Group's leadership is around the impact to the margin variance year on year and how you're able to actually show Leverage had a direct correlation to the 8 to 9 % increase or positive shift. I'm very curious to learn more about that and how that came to be and more about sharing and how that approach came to that structure.
Melanie Baker (14:19)
Absolutely, and we've kind of come to learn it as more of margin protection because we're not pricing our ⁓ customers ⁓ any more than we intend to or have agreed with them. But where we were missing the mark is behind the scenes, we had an incorrect replacement cost. So being able to in the Leverage tool not only update the PO and have the PO accurate and correct for our AP partners, but also be able to do a write back to the ERP system in the item maintenance field and have an accurate correct replacement cost that then in turn flows through through the order entry screens and sales orders to our customers protects that margin. So we're not overshooting or undershooting the runway. Our margins are exactly what we intended them to be we can accurately what we're trying to achieve
So having a correct and accurate replacement cost in your ERP system is really important in terms of just your order entry and your sales orders to your customers.
Andrew Stroup (15:27)
100%. I think something that we have learned along the way is that the upstream aspects of impacting the sales bottom line, that's saying whether it's your e-comm site that you've rolled out or whether it's your field reps, being able to give them accurate lead times and pricing directly from updates coming from suppliers only tunes up and helps both the transactional cells that happen, but also your forecasting for your P&L, which I think is wildly impactful. ⁓
Melanie Baker (15:52)
Exactly. And I didn't even talk to that. ⁓ You mentioned the due date accuracy. We're able to update and put in an accurate due date, which impacts lead time and gives visibility to our sales team to be able to accurately say when product can come
Andrew Stroup (16:10)
I think we've talked a little bit about PSSIG in the sense of, your decision to buy, the rollout, and how it changed the workflow or updated the workflows of your team. But that's only one side of the coin, right? The other side of it is the suppliers. And so I'm curious to hear how you saw the suppliers in your network respond to the Leverage Portal and things that went well or observations you made along the way as Leverage was rolled out.
Melanie Baker (16:37)
Well, if I'm to be honest, ⁓ I knew on the front end that our suppliers were not going to be receptive to yet another portal. That was something that I was expecting to hear. And that was a selling point for me with Leverage AI because you don't have to have access to the portal to be able to participate in this particular ⁓ model or tool or platform.
It's an interactive email and that's how we presented it to our suppliers is we are moving to an interactive email environment where you will have the ability through Outlook or whatever email you're utilizing to be able to see how we're presenting our PO. There will still be a PO PDF attached. So you still have the capability to grab that and upload that if that's how you manage your processing of your P. O. S. and your sales order system. But you will have in addition to that the ability within the email to change a quantity, change a cost, change the promise day at the line level and submit that to us as the suppliers customer to accept or reject that depending on what that price point is. And then again, like I mentioned before, the ability to write it back if we accept it into our ERP. So the next time that supplier gets that PO, it is accurate and correct. So they're not having to do it each time. So presenting it to them in that way and letting them know that while there is a portal and it's very user friendly, you don't have to use it. It's optional for you. The only ask we're asking of you is to read the purchase order just like you would if you were about to do order entry into your system anyways. And at the point in time where you see a discrepancy that doesn't match how you intend to ship and invoice me, make that change and send it back and give us the opportunity to correct before commit and update our PO and get you a fresh new PO that is going to match perfectly the way you intend to ship and invoice me.
Andrew Stroup (18:33)
Well, on that thread, what was some of that feedback from the suppliers? Were they like, this is great and I wished everyone was aligned like this in our customer base or any specific call outs that you thought were of interest or something that stood out to you?
Melanie Baker (18:48)
I actually tracked some of those for our executive team because they asked me the same question. we did some polling from the suppliers just to find out what their feelings were of it. And it was definitely a range from, yeah, this is great, no more extra effort on our part all the way to I wish all of our customers would utilize something like this because our payables with you all has improved so much. ⁓ So, and there were some that were a little, you know, apprehensive, but with a little nudging and help from even our Leverage team during the implementation we able to get them over that initial hurdle. And then once they understood it and they saw what it was and they weren't going to have to use a portal.
Andrew Stroup (19:12)
Mm-hmm.
Melanie Baker (19:29)
⁓ That attitude swiftly ⁓ changed over to, this is something that we feel like we can use on a daily basis without any issues or concerns.
Andrew Stroup (19:39)
It's great to hear. ⁓ And I'm proud of the team and being able to work with you and get those things in motion. And love to see the progress. Slightly different change of tune, because I know that we've talked about this last time we were on site why do you consider yourself anti-EDI when it comes to solutions like this. I know that, EDI was born in the seventies with this high expectation of solving all these problems, but it seems like that may not be the case. I'm very curious your perspective on.
Melanie Baker (20:09)
So I would say there is probably a place out in the juggernaut for EDI. I don't believe the industrial supply world is one of those places. For us specifically, we want to be agile. We want to be able to sell you non-stock items and items that aren't set up in the system already. if you're selling exercise equipment and we can buy that from you, we want to be able to put that on our PO without you having to go set it up on your side as an item that you're going to be selling to us. And my experience with was that ⁓ everything went into a black hole. I spent more time chasing trying to find out why something bombed out, had to hire high level individuals within the supply chain that understood data and ⁓ integration
Melanie Baker (20:57)
just troubleshoot to find out why things weren't going through as expected. And that was actually one of my, tickets I tracked was POs that didn't get received to our supplier or POs that got there but they weren't processed because there was something wrong with them.
⁓ And when I say something wrong, it could be a unit of measure conversion issue. It could be the part number wasn't exactly right. We had dash and they had slash. You know, it could be that we used a part number that was an older part number that was no longer available to them. So it just bombed out the line and they didn't even have it in their system anymore. So they didn't even have the opportunity to say, I'm sorry, this item is no longer available. Please use like I have with Leverage. So ultimately, EDI just failed epically on every level for us just because ⁓ we need to be more agile. We need to be able to add non-stock items at a whim without having to do maintenance on both sides of the fence. And ⁓ Leverage AI allows us to do that.
I tease my team and just say, you know, if you want to order bubble gum, order bubble gum. They'll figure it out on the other side that they don't sell bubble gum and they'll let you know through Leverage that that's not an option.
Andrew Stroup (22:10)
it's also funny because it feels EDI is the dial up of procurement. It's pretty wild to think about how it is good in certain very constrained environments, but probably not in the agility that you need, especially for the workflows that you support.
Melanie Baker (22:23)
Thank, just another nuance to it. Not everybody can do EDI, right? when I first got here, we had about 70 or 80 suppliers that were on EDI with us after about six months. And I pulled the plug on all of it. All of them said thank you to me because we were, difficult to deal with in terms of the mapping. It was work on their side, work on our side. And that was only 70 of our 2000 suppliers. Imagine if I tried to roll that out to all 2000 suppliers.
They don't all have the capabilities on their side just because we do to be able to do
Andrew Stroup (22:58)
100%. I love that. All right. Well, last question before we wrap. For other distributors watching, especially the AD members, what's your advice as they look to solve similar challenges?
Melanie Baker (23:12)
say don't limit it to just what my challenges were. What are your pain points? My pain points were expediting and chasing down POs and making sure my PO is accurate because it was causing my AP partners issues or problems and when you have payables issues you
You're not your supplier's favorite, right? When you're not paying them timely. So those were my pain points, but what are your pain points? And ⁓ I would, reach out to Andrew and the Leverage team and say, here are my pain points. How can you help me solve those? They may be different from mine. They're probably very similar, but don't get stuck in, ⁓ well, just because PSS had those particular issues, those aren't my challenges. Look at what your pain points are see how this might be a solution for you.
Andrew Stroup (24:00)
I love it, appreciate it. And excited and always love partnering with you and the rest of the team. Well, this wraps up this episode of Leveraged Supply Chains. Huge thanks to Melanie Baker for showing how PSS Industrial Group transformed purchase order chaos into a more controlled AI-driven process, protecting margin.
Streamlining buyers and even winning nods from suppliers along the way if you're part of affiliate distributors or any mid-market manufacturer distributor Looking at pure automation Melanie story is proof of the upside. I'm Andrew Strupp. See you next
