Beyond Automation: Future-Proofing Your Workforce with Simon Rakosi

Transcript

Aaron Sheehan: Welcome back to the B2B Commerce UnCut podcast. I am your new host, Aaron Sheehan, filling in for, and maybe replacing, the fantastic Sawyer Frank or Frank Sawyer, if you’d like to reverse his name. Sometimes I do, just to mess with him a little bit. I am happy to be hosting the podcast, and I’m very happy to have Simon Rakosi with me from Butterfly.ai. He has some very interesting thoughts on workforce management for manufacturers, distributors, about supply chain automation. I think we’re going to get into some interesting conversations about the future of how AI and automation is impacting today, distribution centers, and factory floors around the globe. So without any further ado, Simon, why don’t you introduce yourself?

Simon Rakosi: Thank you very much. Nice to meet you. I’m Simon. I am the co-founder of Butterfly.ai. Myself and a couple of other guys, Marcus and David, created the company around seven, eight years ago now. That’s crazy how the time flies. And we really focused on the world of supply chain and frontend workforce only around the past five years, I want to say. When we really saw the gap in terms of collecting real-time insight from people on the floor. Lots of companies were doing surveys for the corporate employees, and to be honest, that’s how we started. Like, doing surveys, providing insight into the hands of the managers because that was based on our own experience. But very quickly, we forked out of the world of corporate, really focused about the world of front-end workforce. And that’s what we’ve been doing for the past six, seven years.

Aaron Sheehan: So for your customers and your clients, what problem is Butterfly solving? I understand the frontline team, understanding your workforce. When they come to you, what is it that they’re trying to solve for?

Simon Rakosi: Often, they have no way to actually really collect real-time insight from the teams. Some companies said, “Hey, we do a once-a-year survey, we know everything that is happening.” But the challenge is that this type of workforce has a very high turnover. So the average turnover is around 55%. So if you do a once-a-year survey, over half the people are gone by the next time you do it again. Number one.

Number two, 65% of employees do not speak the language of the manager. So there is a very big barrier of communication. So we have to make sure that whatever questions we ask, they’re always in their own language, I want to say, but in terms of the topic as well. Like, if you think about the world of corporates, we ask questions about leadership, we ask questions about directions of the company, this type of workforce doesn’t really care much for it. It’s all about the day-to-day, how can we make the day-to-day better? How can you recognize me as a person? How can you acknowledge my presence? How can you measure that you treat me as a person? So when we start engagement with customers, the biggest challenge they have is usually turnover, followed by absenteeism. And often, a byproduct is safety incidents, and often productivity. And that’s what tied in nicely around the word of employee engagements.

Aaron Sheehan: That makes complete sense to me. I think I’d love to hear a little, maybe a story or anecdote from you about how a customer… maybe someone who is listening to this podcast, or someone in distribution, someone in manufacturing, a supplier, has used your tool or used a tool to solve a problem. Because I know, I speak to a lot of people in this industry. It’s funny, when you’re a technology vendor like OroCommerce is, people usually want to come in and start talking about technology. They want to talk about EDI, they want to talk about ERPs, they want to talk about eCommerce platforms, and marketplace software. But if you scratch the surface of that conversation, it becomes this conversation about people very quickly because all of this automation and technology is ultimately still run by, and run on behalf of, buyers, customers and, of course, operated by the people, the frontline employees who are picking and packing and manufacturing the goods. So give us an illustration of how someone might use you, or how someone has used you in real life to solve a problem.

Simon Rakosi: So, I think, the topic of automation is interesting. I was at a conference recently, and, I think, a big turn that happened over the last year is, they said last year, people were still testing out automation. Now, it’s been a proven concept. Automation works. So, I would say, in terms of the buying cycle, it’s not that people are testing it out anymore, you’re going to have a lot of investment happening in automation. That’s going to happen. There is no way around it.

However, one thing that I want to put out there is when you automate a warehouse, the one thing that you’re going to lose is flexibility. And that’s what people bring. If you have a big influx in orders, if you’re already at capacity of 95%, you can only increase it by 5%. Whereas, the people are going to give you the flexibility to go beyond your current situation, if I may say. People are always going to be in warehouses, people are always going to be on the manufacturing floor because they bring this flexibility.

Another thing I would add, when you think about the word of automation, retention becomes even more important because now, as part of the process of onboarding new employees, it’s not only about learning about the policies, learning about safety training, but it’s about how to use machines. How to you use robots. How do you fix them? So the onboarding cost is going to be more expensive, and, therefore, the ramping-up period as well will be longer.

Today, it takes around 90 days for an employee to be fully onboarded and fully productive. When you add automation to the mix, this actually is going to add expense because you need to add more to the training. And when you do that, it means you invest more money upfront than you did before. And, therefore, the retention of employees is very important, and it’s going to become more and more expensive. So any people you can keep longer, going to yield the higher return on your investment. So that is kind of, I say, the parentheses I want to bring in.

Now in terms of real examples, oh God, there is a lot of them. Because when we think about the world of employee engagement, what I’ll actually say is, when you have an engaged workforce, they’re going to give you the discretionary efforts. It’s the same if you ask somebody to raise their hands, naturally, people would go like this first, but you get higher and higher. And actually, nobody starts like this from the get-go. Everybody goes like this. And that’s employee engagement, the more engaged they are, the more likely they’re going to raise their hand all the way to the top. And that’s what we’ve seen with a few clients. So one example that comes to mind, I mentioned, the word that I like, personally, about the front-end workforce is diversity of culture. And as well, if you think about the US, the world of logistics and supply chain is one of the biggest hiring verticals for every new immigrant because you don’t necessarily have to be fluent in English. You have just to do the job, and then, hopefully, you’re going to go up in your career.

But one thing I learned with one of my clients, that was quite interesting, when I started working with Spotify, the first time that they could actually reach out to employees in their native languages. The employees, actually, through the platform, I want to say, almost raised their hand on how they can optimize the space. Saying, “Well, it makes no sense that this type of employees work on these machines, where they should be working on this machine.” What they didn’t realize, that this person, back home, which doesn’t speak a word of English, was actually the equivalent of an industrial engineer and spent their whole life, before immigrating, actually working on floor plans to optimize the space. But, for the first time, by collecting real-time insight and feedback from that employee, and actually from all employees, they actually realized that there were a lot of gaps they could fill in quite easily.

So they decide to listen in, they include that person as part of a few more conversation optimization. And what actually that resulted in is a gain in productivity because that person, by just making a few changes and few recommendations, was actually the eyes on the floor on how this thing could be optimized, and they had experience doing that.

Another one that we’ve seen, it’s a manufacturing company, during COVID, they had a huge disconnect. Everything’s going great, but when there is COVID, nobody can travel and see how bad it was. So when they turned to Butterfly, one of the things they wanted to look at was, actually, they have no filter between the employees and senior leadership to know exactly how things were going. And what really transpired was that GM was withholding a lot of information of things that were not doing so well. They had the highest turnover across the whole group. They didn’t have any fulfilled position at 100% for the past three years because people were quitting, and they could not replace them fast enough. And for the first time, they got access to that information, got insights, realized about how terrible that manager was, decided to make some changes, but where they were very smart about it was, instead of recruiting from outside, they brought somebody from the inside, promoted her as a GM. And for the first time in four years, they had 100% seat occupation, in terms of fulfilled positions. Turnover went down by around 40% within nine months. And all of that starts by just giving a voice to employees.

Aaron Sheehan: This is really interesting to me, because again, going back to OroCommerce is a B2B eCommerce platform. Customers engage with us around technology, I’ve been technologists for a long time, and I can tell you that there’s so much conversation in my world, Simon, that is around knowing the buyer, knowing the customer journey, personalizing the buyer journey through a voting process or through a browse-to-buy or cash-to-quote process. And what’s fascinating about this is how underserved I feel, like, the workforce management piece of it is, but the efficiencies that you’re talking about here that are being realized by your clients, by anybody that’s talking to their employees, are frankly, in excess of what a lot of times the byside technology is going to deliver. Because turnover has a cost, right? And competent, happy employees make you… they push past your growth projections and are able to deliver more value. This is just really, this is really interesting.

Simon Rakosi: And that was very intimidating for us, and the reason we moved to this market is because we are data people at heart. And when you can translate the gain to the prospective clients, or prospects, I want to say, it’s a much easier conversation. Like, before we were serving the frontline workforce, good luck to Telecom, a marketing agency. They’re going to be 20% more productive. What does that mean? Less emails, more meetings, less time to create a project. We’re talking about tangible gains. On average, your customers see a return on the investment within the first five months. Within five months, they will get paid back for where they pay us.

Before this call, actually, I was with a prospect. They recruit an average of 400 to 500 people a month. It costs them a few hundred dollars a month, just to recruit these people. They spend every month around $80,000 to recruit someone, the whole pool. Add to that a 60-70% turnover, our platform would be costing them, maybe 15% of that, and by just reducing that turnover by 5%, not even like what we do for other clients, where it’s closer to 30-40%. They pay back the product in four months. And it’s all started by asking a question, “How are you doing?” and, like, we like to say during training, you can ask somebody to work in a warehouse, to operate a machine all day long. Or you can ask somebody, “Hey, we need to fulfill 1,000 orders within the hour. If you can do that well, you’re going to help us achieve that number by 80%.” So you start to bring accountability and empowerment to the employee.

Because often people ask what actually influence happiness, engagement in the workplace. There are two main things. The first one is relationships. How you feel with your manager, how you feel with the people next to you on the line, and how you feel with the people that you share your meal with. The most important one is your manager. A manager is accountable for 70% of an employee’s engagement. As simple as that. People don’t leave companies; they leave managers. So, if you have a crappy manager, you’re going to be gone. If you work for a crappy company, but you have an amazing manager, you’re going to stay. And that’s often the case. It’s not rare to hear people say that this manager is like my mentor. And that’s what you want to have, leaders.

The second part is what we like to call having an interesting job. And what does that encompass? It’s about being able to measure the impact that you have, being able to feel that you’re growing as a person, being able to be recognized and acknowledged for the work that you do. And when I say recognized, I’m really not talking about salaries. Like, salary being paid, often you’re going to hear in the world of supply chain, people quit because we don’t pay them enough. Well, pay is not even coming into the top five of reasons why people leave.

Aaron Sheehan: This is an interesting because I was on a call actually, earlier today, this morning that we’re recording, with somebody that’s been in the supply chain business for many years, and he gave a really good analogy for this. He said that… I may mess this up a little bit. But imagine that you have two doors and can walk through either a door to your left or the door to the right. You open the door to the left, and you look at it, and there’s a long wooden plank on the floor. And at the end of the wooden plank is somebody with money. And they say, “If you can walk across this plank in seven seconds, I will give you the money.” Open the other door, and the plank is actually balanced between two high-rise buildings, 10 stories in the air, and there’s somebody with a gun, and they say, “I’m going to shoot you if you don’t walk across this plank in seven seconds.” And you could fall to your death. From an industrial engineer, it’s the same task: walk across the plank in seven seconds. So the outcomes should be the same, but what you’re saying, and what he was saying, obviously, is that the context of where you do your job matters and your ability to want to continue doing that job. It doesn’t matter. The job is not the important part. It’s everything around it, the context in which you’re asking somebody to do it. And what you’re saying about Butterfly and frontline employee sentiment analysis is that this can tell you, are you the company that is the door to the left or the company that is the door to the right, because door to the right, a lot of people are falling off the plank, and it’s costing [Inaudible] to add, but it’s also costing a lot of money, so it’s fascinating.

Simon Rakosi: The one thing I would add there is environment is very important. The burnout in the supply chain industry is real. Most important if you think about now the employer, if you don’t like your manager, you are three times less likely to recommend your employer. The manager is really key and essential part of any type of organization, and the challenge in this industry is that often people get promoted because they’re great individual contributors. I heard some of my clients that said that people got promoted because they were good, always on time, but that doesn’t make them good managers.

And if you think about the role of a manager being so important, this industry is really tough for managers. Like, if you think about the corporate setting, the ratio manager to employees, one for eight at most, because you cannot manage more people than eight, to be honest, where this workforce is one for 25, if not one for 50. So the ratios are off balance.

Second, in an office, even remote, you can reach out to your manager at any given time. Either you walk to the desk, or you reach out to him or her through email, through Slack, and, in an instant, you can have a conversation. Warehouses that are above a million square feet, even hundreds of thousand, good luck to walk to your manager to talk to them. So, if you work in a corporate setting, you speak the same language as your manager. 65% of employees in the supply chain do not speak the language of the manager.

And last but not least, when people get promoted in the corporate setting… I was lucky enough in my previous employer to be a high potential. I got groomed, I got trained, I got ready to go to the next level. The amount of money they invested in me to be a good manager was crazy. In the world of supply chain, you don’t have the same luxury. In fact, you get promoted to be a manager and immediately, you have to hit the ground running. And it’s very unforgiving for you. So we need to make sure that anyone that is listening to this, so, in general, in the world of supply chain, you have to really empower your managers to be people first, but have the mindset of a leader. And the difference, I’d have to say is, a manager will do things right. A leader will do the right things. And that’s a very big change in mindsets.

Aaron Sheehan: Big, important distinction there, but I can personally connect too, having worked for both groups of people over my personal career. So, I want to follow up with something a little bit because, earlier on, you were talking about the role of automation, and maybe the perception of automation within the supply chain industry. And not even just supply chain, but the perception of automation inside of businesses. We hear a lot about it. I hear a lot about it. It’s something that OroCommerce is part of a sort of comprehensive solution to this for a lot of our customers because of the things that we automate.

But I’m very curious to maybe move beyond some of the easy ideas about automation. Because the easy idea about automation, I think, is I will fire a bunch of people and replace them with computers or robots or automated picking and packing and image recognition cameras that will go find the thing in the right bend and bring it back. And yet, my reading of human history and technology is that, usually, when we have made a big technological leap, it is not that we have made people redundant or gotten rid of them. It’s that we have blown past our ability to grow. If you go back and look at human technological history, the last couple of hundred years, especially, every time there’s been a big jump, right, it hasn’t made life worse. It’s made life better. And so, I am curious, because the conversations on the business side that happen about automation are all about cost reduction. So I’d be curious to know, is the conversation still primarily about reducing cost? Or is it about ROI? Or is it a mix?

Simon Rakosi: So I think last year was all about cost-cutting, uh, 2023 was god-awful. It was an overcorrection of the very luscious year we had during the peak of COVID. I think the mindset has changed to more optimization of cost. And when I say optimization, it goes, if you think about automation, is making sure that people have tested different type of robotic and automation, now they decided to go with one vendor. And they’re going to invest in some very lucrative deals with one vendor over the next few years. Same with platform. Like, we have that with some clients where we are sometimes the outlier with the keep on board as part of not a large suite of products that we see that they want to optimize cost and therefore reduction of platform use. And I think that’s not going to change.

When I think about automation, I think the warehouse with zero person in and just, like, maybe a guard and a dog. I think is utopic at the moment. I still go to clients where they have literally machine automation that are sitting idle on the side because, “Oh, well, the suction cup does not work on our new type of envelope.” Or, they use a lot of excuses. And often… I don’t think I’ve been to one warehouse with, across all my clients, where all the machines were running at the same time. There is always one that is not running. They’re waiting for the tech, or well, these ones cannot be this type of product that is currently on the line.

But I think what automation will bring, however, is increased productivity to a whole other level. As long as everything fits in a nicely square box, if that makes sense. I think I shared with you an example where I went to a warehouse with one of my clients that showed me the new line that they got. And the plan was to go from a 600-people warehouse to a 300-people warehouse. And they showed me this new line. It was great. Of course, the line was not trending yet because one thing they realized was that the line was a bit too high, and the boxes were a bit too low. And when they were dropping, it was breaking some of the packages, so they had to level it first. But then I went back a few months later, and it “shrank” from 600 people to 950 people. So instead of going down by 300 people, it went up by 350.

And the reason why is they became more productive. However, the rest of the warehouse was not fully automatized, so when you have the central piece that is going much faster, they need more people to load the machine, they needed more space, because everything was going through it so fast that they actually had more boxes ready to go. They needed more drivers because the box had to leave the field much faster. They had people literally at the start of the machine to flip the boxes so that they can read the QR codes, which was something they didn’t need before.

So, I think the idea of automation is going to replace people is unfounded. I think you’re going to have some jobs that are going to be impacted, but this is where the opportunity is: Anyone that is going to the path of automation, because they see it as a long-term investment, they have to make sure that they take on board employees. Because one thing you don’t want to have is dictating change. You want to take them on board in the journey, reassure them, make sure that, actually, now part of the training, we’re going to upskill you. And another thing about automation that is really positive, that the new generation likes gadgets, likes technology, so you want to make it attractive to them. Because soon, I’m a Millennial on the cusp, but my parents’ generation are going to slowly leave the workforce. And these were actually the biggest addition to the manual labor. So you need more people.

Another data point that could be interesting to you, for every employee leaving the supply chain right now, only 0.6 are coming in. So you have a widening gap. You cannot over-invest in a new line performance yet because you want to make sure you hit your quota and your targets for peak. That will make no sense financially. So in peak season, you’re always going to hire more people. So the question you have to ask yourself is how both of them live together? And the best way to do that is to keep a pulse on your employees. How do they feel about the changes? How do they feel recognized and acknowledged in this new system? And this is where it’s all a virtuous cycle. They’re all different parts that have to talk to one another because the people that is purchasing the machines are in the automation, and the robot is not the same person that is hiring all this workforce. So how do they all talk together? You cannot work as a silo, you have to make sure that everything works in harmony.

Aaron Sheehan: That’s absolutely true. And it’s something that a lot of companies struggle with, just because of the way that they grew organically over time. And I have seen a number of success stories over the years where companies that were experiencing growth figured out the problem of communicating cross-functionally across different lines so that the groups were talking to one another. And I can imagine in the story that you told about the warehouse that shrank from 600 to 900 people that some of those mistakes with the automation could have been avoided, possibly with more conversation from the people who were there at eye level, looking at the actual equipment being installed, who were actually doing the work. That is a pretty good point.

So we’ve talked a lot about automation, we’ve talked a lot about your product, about Butterfly, and how it facilitates sort of the information coming in to decision-makers, basically, to make decisions. So it builds a feedback loop. That virtuous cycle, I think, is what you called it. I love, by the way, this is basically a TED Talk. Like, this is great, this is perfect. I would love to hear if you have predictions about where you think automation, and we haven’t said AI outside of it’s in the name of your product, but I feel like what one must say AI on a podcast now in 2024. But what do you think we’re going to see by the end of this year, and maybe three years from now, in terms of automation and the role of AI, maybe, in that automation? For the people that we’re talking about, manufacturers, distributors, anybody operating a warehouse or an assembly line or factory floor? What do you think?

Simon Rakosi: It’s a tough question. To be honest, when we have AI in our data, or products of the company, often people are scared about it. AI is scary. Like, when you realize that now you can create these videos on demand. And they can just do in a snap of a finger, quick, almost a whole movie, it’s scary. But the role of AI in technology, in the world of supply chain, I think is going to bring more transparency, more accountability at the same time.

Because when you have transparency, you have to bring accountability. And I think you’re going to have a lot about warehouse optimization, and it goes as well with cost optimization. Understand your customers and your business. And I think AI is going to be very good at identifying opportunities on how to spend less time, because in the world of supply chain, time is money.

It could be in terms of how do you get items processed through the line, or faster to the customer. And I think this is where we’re going to see more optimization, and another thing that we should not downplay, the behavior of the buyer as well. The buyers become more and more conscious than they were before. I think environment is a very big component. Like, I moved to the US about 19 years ago, and I became very accustomed to the next-day delivery. And I personally see now that I don’t need anything the next day anymore. I can wait a couple more days. But if you think about it, this is going to impact costs for them, because shipping is going to get lower. So I think where AI and automation, and I would say robotics, is going to place above transparency. It’s about accountability, like I said earlier, but all in all, I don’t think AI is going to replace human. I think it’s going to almost give them superpowers.

Aaron Sheehan: I love the optimism. I think that’s been the theme of the conversation is actually relentless optimism in the face of automation and AI taking all of our jobs. You heard it here. This is the optimistic futurist podcast now or a B2B UnCut. So let me ask you, Simon, in the last serious question of the podcast, which is, if one of our customers, or one of our listeners, was to come to you, and ask for advice on how to improve their employee engagement, or retention, obviously, you would tell them, you should buy Butterfly, but you might give them something else. What else would you tell them besides, obviously, buy our product?

Simon Rakosi: I would say invest in your managers because your managers are the most important people. But why we are called Butterfly is because of the butterfly effect. Like, with a small flap of a wing, you can have a massive impact on the rest of the world. If you think about this flap of a wing, it starts with managers. Statistics show that the manager is accountable for 70% of the team’s engagement. So, give them the right tools, the right skills, because when you give them the right tools and the right skills, they’re going to be well-equipped for the role.

When they’re well-equipped for the role, they’re going to engage their workforce, engage the teams. If you think about it, wherever is, at some point, customer-facing, engaged employees gives you engaged customers that impact your growth, because if you enjoy what you are shopping, what you’re doing, you’re going to go back again, and eventually, your stock will go up. So I’ve said where to start from, start with providing the right information to your managers, empower them. But as well, when you think about the type of work they do, make sure that you allocate some time for them to spend with the team.

If a manager is spending all day long in front of a desk, just filling reports without having time to actually walk the floor is going to be not paying in the dividends that you want. That’s one thing. The other thing is try to promote from within. It’s very easy to hire managers and first-level managers outside. It’s actually cheaper, if you think of it. When I say cheaper is, you just have to pay for a headhunter, that thing you provide and you pay the headhunter. It’s much more tedious to find the right person in-house to promote from within. Because when you do that, you show everyone that is on the frontline that actually there is no glass ceiling, that any opening that there is, one of them can actually fill it one day. If you hire from outside, you actually put this glass ceiling. You’re never going to be higher than the lead. You’re never going to be higher than a supervisor, because we’re going to get our managers or GMs outside of the org.

So, I think it’s very important to be transparent on the hiring process. Try to promote from within so that you can show people there is a path forward that… we talked about growth, the natural evolution from growth is carry a path. People want to know the hidden future, that today, they may not, if they are conscious about the salary, that you want them to know that there is a potential for them to stay longer at the company, get promoted, and get a bigger paycheck.

Last but not least, is any type of relationship. Treat people like people, not numbers. One of the features we have on Butterfly, we call it Nurture, and it’s just to provide information. Collect insights from the employees based on their pay journey, but one of the parts that we have is we tell managers when it’s the birthday of the team members. “Oh, today’s Aaron’s birthday, why don’t you go there and say happy birthday to them.” This sounds very basic and very trivial, but we need to make sure that we put the human back in the middle of the people as well. Like, treat them like peace. “Hey, Aaron, how are you doing? Well, congratulations, you’ve been here for a year.” All of these make a huge difference when people are going to decide to walk the plank with a gun on their head, or just walk the plank in the middle of the lunch room.

Aaron Sheehan: Perfect. Way to bring it back. I love that. I would especially say that the promote from within resonates very strongly with me. I have seen so many examples of companies who did push the easy button by hiring a recruiter or simply a friend of a director or a friend of a vice president and completely bypassed the workforce that you have, and it’s so demoralizing to people when the premise is that if I work hard, and I do a good job, and I show up and I go above and beyond, I do get rewarded for that. And if you see that there’s a completely separate track, there’s a train that you can’t get on, it makes you less likely to want to keep going. So this has been a fantastic conversation. It did not go everywhere I thought it would go. It went in some unexpected directions, which is fantastic. I love it when that happens.

The final question to you then, is not related at all. What’s the best book, movie, TV show that you’ve consumed in the last few weeks, that stood out to you? Not the best, not the perfect, just something lately that you like.

Simon Rakosi: So it’s a book called Dark Matter. The author is Blake Crouch. It’s a book about parallel universes, not about time traveling, but about the different versions of yourself at the same moment across a multi-layer universe. I found it amazing because he goes back to the flap of a wing, to be honest, and I don’t try to bring it back to Butterfly, but it’s all about the decisions that you make and how they impact you today. 350 pages consumed in surprisingly, within three, four days. It’s been a while since I picked up a book and couldn’t put it down. So yeah, that’d be the book.

Aaron Sheehan: Dark Matter. We don’t have an affiliate link to put out or a coupon code to give you listeners to go buy Dark Matter from your book retailer of choice, but should you do and should you enjoy it, please let Simon and myself know, so we can pass that back. And maybe there’s a future as a content reviewer, Simon, and you can earn some affiliate revenue, a revenue stream.
Simon Rakosi: I’ll take it.

Aaron Sheehan: Every little bit helps. You have to optimize, right? That’s the theme. Thank you so much for your time. This has been great. We really look forward to seeing more from Butterfly and maybe spotting a butterfly around our client base sometime in the not-too-distant future. So, thank you.

Simon Rakosi: That’d be great. Thank you.