Max talking with Tom Gale, CEO Modern Distribution Management
MDM from Denver in Colorado, USA honored Ludwig Meister with the Digital Innovator 2019 Award in June 2019. Ludwig Meister received this award in recognition of “initiatives that show thinking and acting at the next level of digital development,” says MDM in its explanatory statement. ” Beginning with the installation of an automated storage system, this Munich-based distributor has taken a systematic approach to data-management and digitizing business with profit-accelerating consequences.”
Back in 2018 Max Meister was invited to a talk at an MDM Summit in Denver to present Ludwig Meister’s digitization strategy. Already at this time Tom and Max arranged a crossover podcast, i.e. an appointment where both interview each other.
During a visit of Tom Gale in April of this year in the rooms of Ludwig Meister in Dachau they found the time. Here, on the occasion of this week’s awards ceremony in the US, the part in which Tom Gale talks to Max about the numerous small steps that Ludwig Meister has taken since project start in 2009 towards digitization.
Part 2 and 3 of the interview, in which Tom questions Tom Gale about supply chain developments in the US and a special analytics offer from MDM, will be published shortly in this podcast.
For today, enjoy listening to Part 1.
And as always, we welcome your comments and / or suggestions.
MAX: Welcome to Max and the SupplyChainHeroes, your entrepreneurial podcast about challenges and changes in procurement and distribution in the context of digitalization. Thoughts, experiences and above all findings by experts in supply chain management. Completely free of any consultancy mission, easy understandable, just plain business perspective. I am Max Meister and I hope you enjoy this episode.
Welcome to a new crossover podcast by Max and the SupplyChainHeroes.
Today’s guest is Tom Gale, he is interviewing me and wanted to have some insights about Ludwig Meister and our distribution business in Germany. I think it is interesting, because you can get some inspiration out of the discussion.
If you have special questions, that are not answered in this podcast please just write me an E-Mail to firstname.lastname@example.org.
And now I wish you interesting 25 minutes. Have fun.
Tom Gale: Welcome to this edition of disrupting distribution, MDM’s podcast about all things distribution. My guest this week is Max Meister. He is a CEO of Ludwig Meister based in Munich, Germany. And Max was a guest of ours in 2018, he spoke at our analytics conference and had a great story about his journey for his third-generation family company from really in terms of bringing both digital and analytics into the company. And we are here today just to learn a little bit more about that story. Welcome, Max.
MAX: Yeah, thank you for having me, I am happy to make a podcast with you.
Tom Gale: And the delightful thing is, I am in Munich today with Max and had a tour of his company and been a very gracious host and it has been very fascinating to see in person all the things that take place in this company. So, just to start out, Max, tell us, give us a little bit of background about Ludwig Meister and yourself as well, please.
MAX: Yeah, so let us talk with the company, it is a family-owned company, third generation. I am driving the business together with my sister and Gerd Maier. I think, yeah, maybe product split is, biggest part is power transmission products and then we have fluid X and tools. Our biggest customer segment is OI-customers with maybe more than 60 percent of our turnover and the rest is MRO and smaller parties distribution to distribution. What we try to do is, as always, we try to make our homework and work on the backwards or the back part of the business, backbone. And to get it working, to make our customers happy. For me personally, I am a mechanical engineer, but frankly speaking, I am not using my skills in this way anymore. So, today I am responsible for our IT, logistics, purchasing, workshop and business development. And I think this is a part that is quite well established in our company. So, you will hear this later on maybe.
Tom Gale: And how many locations and employees in the company?
MAX: Totally, we have about 300 employees and eleven locations. Until today, we have also stock in all the locations and they shop. But the biggest part is our central warehouse here in Dachau, where we pick between 75 and 80 percent of our turnover.
Tom Gale: So, as I have learned more about today, your story is a really interesting one in terms of really integration both digital and analytics from purchasing to the customer in very discrete ways in the company. Can you tell us a little bit about that story.
MAX: Actually, we started in 2009, to really digitize our purchasing department that we founded in 2009. And today, with five full-time equivalents, we make almost 50 percent of our purchasing volume. And the share is growing and I think we can only do this because of all the tools we made. And I am very happy that we started in purchasing to really program our own software. Because we were able to really adapt it to the needs of a distributor. And we change it almost every week and it is just small steps. But if you do the steps every week and this is our goal, then you can reach a great distance over the years. And later on, we had a big project here in the logistics, the heart of our logistics is the auto-store system. And it is consisting of 26 robots picking bins and the bins are stacked on each other, 24 bins high. And the good things is that also here we design the software by ourselves. And to be honest, I had no clue in the beginning about automization and all the ideas we had for the software were implemented. And then we realized that we have to change many things and you only see it when you really are working with this kind of software. And yeah, this was the second part where we really start with our own software development.
Tom Gale: One of the things that you showed me today here was around your whole inventory management system and the robotic system and I think what you told me was that when you first put this into place, it was, you were like the fourth one to implement this in Germany. And now there is many more who have implemented it. Talk a little bit about what that system looks like.
MAX: Yeah, actually, the general technique is really, you have an aluminium grid, where the robots drive on top. Maybe five to six meters height. And we have 40.000 bins in stacks with each 24 bins on top of each other. And if the robot needs the lowest one, he has to pick away 23 boxes. But statistically, we only have to do this once a day. So, even though it takes maybe eight minutes, it is not a big problem, because the system automatically optimizes itself. So, we make about 80 percent of our turnover with the four highest layers.
Tom Gale: And you still have a traditional part of the warehouse but it is much smaller. It is really for those large parts that cannot fit into the cubic area for that-.
MAX: Yeah, on an average day, we have 79 percent of our turnover picked out of the other store system. And for us, the greatest achievement was, we realized when we started with this project, that we have more than 100 customer-specific processes in our logistics. And to be honest, I was not aware of that fact. So, we started with one process and we integrated all the other processes. So, today we have two different picking processes for 100 customized wishes. So, we do for example all the drop shipment with the same process, with the same people. And you cannot make a fault and forget the customized labeling or packaging.
Tom Gale: So, you started out in purchasing and then you automated and brought the digital to the logistics part of this. What was the next step for you?
MAX: The next step was also combination between logistics and purchasing because we started tracking the performance of our suppliers fully automatic in the receiving area. So, today I know by second, how long I need for checking and counting products from which supplier. And if the delivery performance is good or not good. And we save it in the same data base where we have all the other data. And the good thing is that we can now make a real supply evaluation and I think this was a good step to use analytics to really create value for Ludwig Meister in that case.
Tom Gale: And you are doing this by a specific product line, correct?
Tom Gale: You are not just doing it for overall supplier shipments, you are actually doing this line by line.
MAX: I know line by line in purchasing or in the receiving area how long it takes us. And I also know by a second how long it takes us to pick and pack the products. So, for example for one of the biggest bearing suppliers of ours, if you buy a bearing at Ludwig Meister, it is on average 60.5 seconds in humans hands. This is I think a great achievement.
Tom Gale: Talk a little bit then where you went from there.
MAX: From then on we said, we have done our homework in the background, now we want to start improving our e-business part. And we have done a great webshop development. And the development of the turnover also in the webshop I think is quite good. Could be faster but I think the development is okay. And we tried also to really improve all the capabilities we have for EDI-connections or OCI-connections. Because this is a big part of our business. And this is what we call e-business at Ludwig Meister. So, it is not only the webshop, it is a big part. And I think here, the infrastructure today is very good because for example a EDI-connection can established at Ludwig Meister within one week. And it is the same with OCI. So, what we are working on at the moment is a configurator for OCI-connections. So that our customer can do this by themselves. I said whenever this happens, the first time I will invite the whole team for dinner. But I do not know if it really happens. But the good things is, if it is that customizable, you can adapt to the customer and this is important for us because we cannot dictate a market standard.
Tom Gale: And there is the final piece on this and that is around the-, and you mentioned a little bit in terms of the customer and really created a closer relationship with the customer. Talk about the CRM-piece which you built into this.
MAX: Yeah, we have developed our own CRM-system because our goal was, we do not want to have lists of lists of lists of customer data and potential turnover. We want to have specific tasks for inside sales, outside sales and branch managers. And the idea is that we fully automatic track the buying behavior of our customers. And we combine it with data we create. So, for example we know for every item we have in Ludwig Meister and that are 2.5 million different items, we know the lead time. Because we calculate it fully automatic. And the good thing is when we see for example that the lead time for a certain product is increasing, and we have on the other hand a customer that is buying this very frequently, we create the task for the inside sales guy, to really call this customer, ask these five questions and try to get a contract. And what we see is that all the triggers, where we really create vale for the customer, not only for Ludwig Meister but for the customer, they are very successful. And the adoption rate is maybe at 70 percent at the moment. So, 70 percent of the triggers we calculate in what we analyze, we can add value for the customer. And that is the only question we want to answer.
Tom Gale: So, what is really interesting to me about this is that, and we talked before, you created a single database essentially, that really is driving your whole business. That is an integrated database around product, around customer. And then you built your own software essentially at each part of this to really tap in. So, would you recommend other distributors to try that approach? I mean, it goes against the grain of what most distributors do in terms of-. They go out, they buy a standard ERP system, business system and then they will start adding on other capabilities that they need.
MAX: I think, the biggest or the biggest difference is to our approach is the best of breed approach. So, you buy Salesforce or other SaaS-platforms and they are real specialists in stock planning or EDI-connections and stuff like this. But for us, I do not know if it works for other distributors. But for Ludwig Meister, the best advantage was, that we try to go step by step. And not think about big projects and they take two years and they will never be implemented. What we do is, we try to keep every project as small as possible because then, it is realistic that it will work. And I think this approach is working for almost every company. And for us, step by step, week by week, it worked very well. And the status we have today with one database where all the data is in, from logistics, from purchasing, from e-commerce, from accounting and from sales, this is a big advantage. Because it is easier to analyze the data if you have it structured in one database. But this was also a journey. It was not a decision where I painted a perfect picture how we would do it. We arrived at the current state by many small decisions and we always tried to adapt and to really be flexible. And I think this is the biggest point. So, I can recommend to other distributors, try to make projects as small as possible and do not compare with the big guys. Compare with yourself last week.
Tom Gale: Final piece, we talked about this a little bit before, what is the impact of Amazon business in Germany and for your company specifically?
MAX: Until today, I only know of one customer that is really using Amazon business. I am quite sure that they are successful and they find a lot of customers. If you look on detail on our customer base, we have some customers that are very vulnerable for Amazon business. I think standard MRO-products, where you just need best price and best availability. But if you look on the customer relations we have, and sometimes very deep integrations in the systems and the stock planning. I think there it will be difficult for Amazon. If you look at the market in the US, I think that you have now the situation we will have in three years. So, they will pick up speed, they will win contracts and they will increase the pressure on the distributors and on the margins.
Tom Gale: We had a conversation earlier today and you said to me: “I am less worried today about amazon business than I was three years ago.” Why?
MAX: Because we try to sell availability to our customer. Meaning, solving their problems our customers will have in one year. We are not the best in selling one piece as cheap as possible today. We want to have the availability our customers need in one year, one and a half years for a specific part with long lead times. And I think that the strength we gained over the last couple of years in analytics and also in e-business combined with those CRM. We can still win some shares at customers we do not even know today. So, I do not know if this works out but I am quite sure that at least we have done all the homework that is possible to be done.
Tom Gale: Two quick questions. What is the next thing in terms of development and in moving your company forward?
MAX: We have two points. First is, I want to become better in pricing. So, we tested a lot in pricing and we were not very successful. So, this will be one big rock we want to move this year. And the other one is because I learned this on the event, I have been today at the MDM analytics last year. We definitely want to improve the education for our employees. Because the world is so complex, the software tools getting more complex, the products are complex and sales techniques have to be trained regularly. And I think that it is not enough to do this once a year in the hope that everybody is remembering it for 365 days. But I think we have to do it regularly. And these two points are the big things we want to get better this year.
Tom Gale: Final question: What do you like to do when you are not working here?
MAX: Different stuff. So, as always, spending time with the family and having fun. And I have another passion and that is off-road driving. So, I am driving and co-driving a Land Rover Defender. So, at the moment I am the co-pilot of my wife and we drive competitions. And this is a great way of teamplay. And as you know, I am always complaining, that your dates of the conferences are outside of the NBA season. Because I would be happy to watch some games. But yeah, for me, really, it is, I like off-road driving, doing stuff with the family and watching NBA games.
Tom Gale: Yeah. How do you deal with being a backseat driver? I guess you are front seat, your are the navigator.
MAX: Actually, I really like it because what we do is, this is very hardcore off-road. So, that means we have three winches. And sometimes, you have to use three winches at the same time – going front, back and outside of the top. And you need a good skill in physics and geometry to get everything right. And yeah, for me, it is when I am successful in that case with my wife or with other teammates, I really like the feeling of being successful in a team.
Tom Gale: It is interesting, in Germany, you call it off-roading. In Colorado we call it mountain climbing. Max, thank you so much for taking the time with me today.
MAX: Yeah, thank you for having me. And yeah, was interesting talking to you, thanks.