Sustainable Production Requires Digital Traceability
Making a supply chain 100% traceable is no easy task—requiring multiple standards and certifications within the business in order to prepare for the future. Those businesses that jump at the chance to improve their traceability will have a large advantage over their competitors. Despite the advantage, many traditional organizational models are not set up for this transition.
Hernan Saenz, Global Head, Performance Improvement Practice at Bain & Company, joins the show to discuss best practices for improving supply chain traceability:
– Obsolete Supply Chain Traceability Strategies
– Steps to Making a Digitally Traceable Supply Chain
– Obstacles to Improving the Supply Chain Traceability
– Collaborating on Traceability Efforts
Check out the resource below for more information:
– Performance Improvement Services at Bain
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Check out the full episode below:
[00:00:00] Josh Santo: Welcome to Conquering Chaos, the Show for Manufacturing Leaders. In each episode, we’re connecting you to the manufacturing leaders of today who are driving the innovations needed to future proof the operations of tomorrow. If you feel like your time is spent fighting fires in trying to control the everyday chaos, this show is the show for you. My name is Josh Santo, I’ll be your host
Welcome to the show. Today, we’re talking about why your supply chain should be 100% traceable and how you can make that happen. As always, I am joined by an expert guest. With global experience spanning across Asia Pacific, Europe, north and Latin America, he spent his career working with leaders across industries including airlines, retail, consumer and industrial products and services, distribution, telecommunications and more. Doing what? Whatever needs to be done to unlock growth and drive efficiency like corporate transformations, operational turnarounds and various change programs at scale.
When not serving as senior partner and global head of the performance improvement practice at Bain & Company, you might find him giving a lecture at Cornell University as a visiting senior lecturer or maybe even advising the world economic forums platform on shaping the future of advanced manufacturing and production. Here today to talk with us about how accelerating digital traceability is critical for sustainable production, Please welcome to the show, Hernan Saenz. Hernan, thank you so much for joining me today.
[00:01:42] Hernan: Thank you, Josh. Delighted to be here.
[00:01:44] Josh: It’s great to have you especially someone with your experience and your tenor and just your background. You’ve got experience teaching and that’s what this show is about. It’s teaching and empowering others, so we’re really looking forward to getting into the conversation with you today. I want to start off like how we start off with all our guests, what’s a day in your life look like?
[00:02:04] Hernan: Well, if I have to say one word, it would be pretty full, but let me describe what pretty full it looks like. I do a significant amount of plant work at Bain & Company. I run our performance improvement and transformation practice. I serve on our board of directors and so my day would have all of that and certainly some of that. I would likely be meeting with a chief operating officer or a C-level executive, talking a little bit about sustainability or resilience or traceability and how to make their business better.
I would follow up with a team meeting at Bain with what we heard from our client and how we’re going to best serve them. I might be spending some time as the head of the PI practice, reviewing how we are digitizing our entire product line, the what and how we do, how we serve our clients. As a board member, I might be in a meeting talking about diversity equity and inclusion and how we’re going to be market leaders not only internally but serving our clients.
As you said, I probably would be preparing a lecture for my students at Cornell. Of course, my day starts trying to do some exercise to keep sane and it absolutely ends playing with my kids.
[00:03:19] Josh: That is quite a packed agenda, but I like how there’s clearly a structure and a repeatability even though I’m assuming like you know you’re going to be meeting with certain people and discussing certain things, but you’re also learning and teaching others with every single meeting. When you and I first met, when we were scoping out a topic, that idea that you brought up of making the entire supply chain traceable, I asked you point blank, is this something that you’re passionate about and that is something that came through.
That’s why it really resonated with me as a topic and you as a guest is because your expertise and that passion was coming through. Let’s talk a little bit about this topic and, just to level set, I’d like to start with the background in the current day. We all know that there’s a multitude of factors that many companies are facing currently whether it is shifting workforce dynamics or changes to consumer preferences with special attention to how companies are operating from a sustainability perspective.
Are they operating ethically? Are they doing right by the environment? There’s also technological improvements that are leading to digital transformation opportunities. Right now, when we’re talking about making the entire supply chain traceable, can you talk to us about what’s worked in the past and why that won’t work any longer?
[00:04:44] Hernan: Yes, I think it makes a lot of sounds to start with the past because, look, if we look back, businesses have built and really honed incredibly efficient linear supply chains. Raw materials float in one direction, they were transformed into a product. The product was ultimately used and discarded somewhere, technically in a waste heap somewhere. That approach highly efficient linear supply chains would put any firm’s competitiveness at risk in the future. Why?
We have an incredibly volatile world. There are supply and demand shocks that are going to continue hitting from many directions, which means we don’t just need efficient, we also need resilient. We need to make sure that even with the supply and demand shocks that we can actually serve our customers. As you said, investors, customers, governments, there is a demand out there now for products and processes that are sustainable.
Efficient is not enough. Winning in the coming decade will require transparency in the supply chain and circularity in the supply chain. That is going to mean reusing materials, remanufacturing, recycling. Yes, you’re still going to optimize for economics but you’re going to do that alongside resiliency and sustainability.
[00:06:19] Josh: You mentioned this word a few times which is resiliency. Can you talk to us a little bit about what resiliency means or at least how you define resiliency especially current day.
[00:06:31] Hernan: Yes, thanks for asking that, Josh. It is probably a much used word but not defined enough out there. Again, if you think about the past, one of the great capabilities that companies had was the ability to predict. In fact, if you could predict perfectly, you would not need any flexibility but, in today’s world, with the amount of turbulence we have and the lack of predictability of that turbulence, companies need to be flexible.
They need to be flexible in the long-term which means they need to be adaptable but they also need to be flexible in the short term. That’s where resiliency comes in. When I say resiliency I mean short-term flexibility to keep, in this case, your supply chain up, even in the face of a shock. How does the supply chain work? I have a plan for where I’m going to source my materials, how they’re going to move into my plant, how I’m going to convert them into a final product, and how that final product is going to make it to my customer.
Now, what happens if there’s a shock and that supply chain is broken. If I am resilient, I have an ability to source from different suppliers, use different transportation and logistics to get into or out of my plant and potentially have additional manufacturing capacity, if I can not use the one that I typically use, that is what we mean by resilience.
[00:07:55] Josh: It sounds like there was almost an approach of set it and forget it previously. This is the way it works. This is where we get our materials. This is the plant that it goes to. This is the product that we make and this is how we get this product to customers. What you’re highlighting, especially considering the past year’s event with COVID-19 and how that really impacted manufacturers’ production supply chain, it exposed all of these problems. I think it really highlighted what you’re describing, that need of resiliency, that need of being able to react and adapt across the board.
[00:08:34] Hernan: Yes. Look it is a profound paradigm shift. The good news is that technology is available. Technology is available to trace where raw materials come from, how they go into a product. There’s technology to follow a product into how it is used and where it is discarded and that technology which will give you both visibility and traceability, that enables companies to manage a broader set of business objectives which will include efficiency, resiliency, responsiveness, sustainability.
In some ways, traceability will redefine the boundary of operational excellence. In fact, we would say that companies with traceable supply chains will simply exist on a different performance curves with those that don’t have access to the data and visibility of what is happening in their supply chain.
[00:09:33] Josh: That’s an interesting point to bring up, that idea of how it is critical to have visibility and traceability and how together that’s really going to redefine operational excellence. Before we dig into the details of visibility and traceability, can you talk about that concept of redefining operational excellence? I think that that’s a very critical and new point that hasn’t come up before with the guests that we’ve had.
[00:10:00] Hernan: In the past, every time we get a new problem, I need to be more sustainable. I tried to solve that not as part of a system, but directly as a chunk. Why is that? Well, because we don’t have integrated systems data, entire end-to-end value chain data to make integrated decision.
What we’re observing with these industry leaders that have that data is that they are able to minimize the trade-offs. They are able to buy resiliency at a discount if you will. They are able to move in the curve of sustainability with minimal or positive impact to their economics, et cetera. What does traceability enable? It enables a system solution to a multiple objective problem.
[00:11:01] Josh: Now with that, on that idea of understanding that you need to be able to minimize the trade-offs because when you have to react, when you’re forced to react, you’re going to have to make those decisions, and you want to make the decision that’s going to be best overall in bringing value to the customer, which is what’s in line with the idea of operational excellence and then you also mentioned the system’s solution approach.
When I hear visibility and traceability, one of the things that comes to my mind is all of the different variables that need to be considered that right now, no one is really equipped to even gather. It would take a lot of man-hours to understand how things are operating within a specific production facility and why they’re operating that way, which is one of the factors that you have to take into mind when considering, “Do we move production from one plant to another,” especially based off of, “Are we able to find the right skills and talents within that area to even operate a particular plant?”
There’s all these different points that start to come into play. It would be interesting to hear from you, how do we make this digitally traceable supply chain a reality? Are there specific steps that you recommend or technologies that you’ve got your eye on?
[00:12:22] Hernan: Yes and in fact, as I always say, “Never start with technology. Start with what you’re trying to do, and then find the technology to let you do it.” At the very top, you need to start with your business strategy and say, “What am I trying to do? How am I going to get more customers, more customer loyalty, higher premium in my products and/or services, competitive economics in my cost. What can I do in my supply chain to actually deliver every one of those things?” By the way, sustainability in my supply chain is key to that, so is efficiencies, so is resiliency, et cetera.
On the basis of that, I can set very specific goals of what I’m going to do. It might be in product design and reducing the amount of inputs I am using. It might be, not in the product design, but the actual inputs that go into a product and how I might be able to reuse those inputs after the lifecycle of the original product. It might be in the conversion processes and whether I can actually re-manufacturer particular products.
It might be actually in the post lifecycle, and whether I can recycle products, and some of the value will come from more productive supply chains, better certification of sustainability goals, stronger resiliency, and being able to withstand shocks when your competitors can’t, not only meeting but shaping regulatory standards, and of course, creating new business opportunities associated with those changes in the supply chain.
Now, once you’ve set up what I would call the point of arrival, the north star, what you’re trying to do, specifically by application area or by use case, then you get into those enablers that will make this a reality. You mentioned one of them, “What technology can I use to connect an entire supply chain, an entire value chain, multiple players to hold data that has to be relatively private, yet integrated and it needs to be very secure.” That’s one enabler.
Another enabler is data itself. Sometimes it doesn’t exist, needs to be generated. Sometimes it exists, but it’s not compatible. We have to create standards and interoperability, but of course, data and technology is not enough because ultimately, not only do you need firms that are ready to do this, companies that are ready to do this, but you also need a set of an ecosystem of companies working together, and then finally, you need the right standards and the right certification.
There’s five enablers ultimately, companies with an operating model to do this, an ecosystem of companies ready to work together, data standards to be shared or created, technology to hold this securely and privately, and then the standards and certifications so that everyone trusts the data that is coming out.
[00:15:37] Josh: There is certainly a lot to that and it starts with– like you said, “It starts at the top.” There has to be a decision made that this is what the future looks like and this is what’s critical to ultimately sustain us into the future. I think that that’s a really important part because it sounds like, while there may be some best practices or some ideas or just here’s what the future could look like, there’s still that need for people to say, “Yes, we’re committing to accomplishing this type of goal, which is that traceable supply chain, because it’s going to enable us to continue to produce in the future, because you mentioned a couple of things.
One, which is, you risk not being able to produce. Two, your competitors who jump on this are going to get that competitive advantage, so you’re at a risk if you’re not looking long term at how to make this a possibility, but it starts with that idea of, “This is what we need to commit to,” because then it drives the goals and the conversations that need to be tackled.
You decide I want to accomplish this, or I want our organization to accomplish this, or I should say we because it’s an organizational-wide effort and then from there, that model of enablers that you’re talking about where technology is a piece, but what is that operating model, what does that ecosystem, that ecosystem of, “Who are you working with as a company? Where are you getting your raw materials? Where are they being sent? Who all is involved in this process? What is the data that is or isn’t being collected?” Then those standards and those certifications, there’s certainly a lot to that.
If you get caught up in that idea of this is such a big change, that’s where obstacles can start to pop up and I’m curious, what are some of the obstacles that you’ve had to coach people on or work through with some of the clients that you’ve worked with?
[00:17:35] Hernan: Well, they typically have to do with the five enablers. Let me start there. Obstacle number one is many companies are not set up to do traceability in the supply chain. Why? Traditional organizational models are siloed. They are hierarchies. They often get in the way of optimizing business processes that span the entire value chain. They get in the way of cross-functional initiatives.
And so, because companies don’t have folks who run supply chains end to end often from the product design all the way to the inputs to the manufacturing, to the service of customers to the circular supply chains, when many companies do say, “Well, maybe my sustainability department will handle this, or maybe my IT department,” because it’s technology after all.
Even if those departments were flushed with resources, which they’re not, there’s a logical reason why the business, not a department needs to oversee traceability strategy and that is it helps you deliver a lot of goals across the business, often winning in the market because customers want something specific from you or regulators demand it, et cetera.
That’s one big issue. We often help companies think about how to set up organizational models that allow management of an integrated end-to-end supply chain. That’s one obstacle, Josh. There’s a second one which is end-to-end value chains are not one company. They’re entire sectors. There’s multiple tiers of suppliers. There’s often multiple tiers downstream from any company distributors, dealers, retailers, service company.
The second one is it’s very difficult to actually set up collaboration with suppliers, distributors, and even some of your competitors. In fact, our research actually shows that most companies have tried to launch active collaborations across the value chain and less than 40% actually described them as effective, so people know they have to do this. It is really, really hard. That’s another big, big problem.
The third problem is data. Companies are flushed with data, but that data hardly ever turns into information. Digital traceability requires data and a well-designed data model. It sounds incredibly straightforward but most companies collect massive amounts of data only to realize that they didn’t collect the right data. One of the very important things is start from the use case so that you understand what data you’re going to need.
Then there’s a couple of other hurdles. How do you share that data across companies in a way that is trustworthy and secure? That’s really important. The other thing is sometimes the data doesn’t exist. If you want to certify where your canned tuna came from, it started in a boat and that boat may or may not have the capability today to provide digital information to you that shows where the problem is.
I’ve told you about our operating model, collaboration ecosystem, data. Another hurdle is technology because, although the availability of book technology solutions is not the problem, in fact, I would say we are encouraged by the number of solutions in the market, it can be overwhelming and confusing to understand what technology will be the best match for my traceability objectives. How to connect them with my existing systems, will I be able to find one off the shelf solution? Do I actually need to create something? Is it a mix of solutions?
By the way, particularly for technology, a platform won’t be used just by you, it will be used by everyone on your value chain, in a sense it becomes a public good. There’s a lot of complexity of who pays for that public good and how much. Then the fifth and last sort of big thing that stands in the way, is standards and certifications.
Obviously, companies are increasingly being held accountable for the actions of their business partners and their partners’ partners, and so you have to create standards in sectors to be able to talk to one another. Many companies love to reinvent the wheel. We would say, be careful, look at the existing standards, the existing certifications that already exists at your sectors as a way to accelerate your traceability efforts. Those are the five sort of more operational things that we seem to run into.
[00:23:05] Josh: Hey, we’re going to take a real quick break to hear from our sponsors. Stay tuned for more Conquering Chaos.
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There’s a lot of really interesting points that you brought up. That last one really resonates with me, that idea that companies love to reinvent the wheel. That goes back to the point that you were making a little bit about the need to be resilient and adaptable. This also comes into the conversation, that idea of urgency, which we touched about a little bit, but when you have the time, when you have the luxury to say, we’ll figure this out, that can play an impact in projects like this. Wouldn’t you say?
[00:25:20] Hernan: Yes. The question is what is the level of urgency? Let me give you some interesting data because I believe that companies face a growing chorus of demands to make their supply chains more transparent. Customers and consumers want to know what they are buying, how the products are made. Interest groups are advocating for sustainable requirements.
At this point in time, more than 70% of consumers, they want to know the origin of their food. 70% of consumers on their 40, they would pay an extra amount for anything that’s sustainably sourced in the electronics space. That’s just the customers. But what about governments? Governments around the world are raising the bar on supply chain transparency. For example, there’s new European union rules that will require firms in all industries to conduct human rights due diligence in their supply chains, or they will face massive financial penalties.
It’s not just consumers, customers and the governments. If you listen to some of the most important asset managers out there, they are going to start building portfolios and they’re going to separate into the ones that hold only green or sustainable companies and brown ones. Your access to capital is going to vary on this.
Do you have time? Yes. Yes, because everyone’s going to have– It’s not going to be overnight that people can develop strong traceability, but can you wait? I don’t think so. I don’t think so. The customers, the regulators, the investors, they’re demanding it now. I’ll actually share with you what the actual progress is. We’ve surveyed companies across sectors, 99% of them agree that they need more transparent, more traceable supply chain.
Yet, more than 50% are stuck in establishing their direction or starting to pilot. Maybe one quarter of firms are beginning to scale very discreet application areas, and less than 15% are capturing barely at scale from traceability across multiple application areas and potentially even setting the standard for the industry. On the one hand, the market’s not going to give you a lot of time what might give you time is that some companies are stuck in neutral.
[00:27:59] Josh: Do you think that idea of being stuck in neutral comes back to some of that idea of figuring it out for yourself, that idea of companies loving to reinvent the wheel? You’re working with people you’ve seen firsthand, what’s working and what’s not working. It’s almost like by partnering with the right people, the people who have experienced that you cut down the amount of time it takes to figure out what’s needed.
[00:28:26] Hernan: There’s two problems. The first one is that some companies are thinking my competitive advantage comes from having better data than others, so I will not collaborate in traceability effort. Unless, you’re the Titan of an industry and everyone else is going to provide you and only you data, that is likely not going to work. Realization number one is the power of traceability is not so much in having the data. It is in building the business systems and making the decisions that use that data to add value in the context of your industry.
The second one is, yes, the reinvention of the wheel, which is not looking at but every sector in today’s economy is trying to build the visibility traceability into their supply chain. Most firms have the aspiration to have a digital twin of their supply chain and a control tower as a way to optimize what they’re doing. You can actually have in adjacent industries in your own industry, across industries, great amounts of best practices that are already being deployed.
[00:29:42] Josh: On that note, we’re really talking about breaking down, maybe some assumptions, like you mentioned maybe the misconception that the competitive advantage is coming through keeping data silo to your own organization Whereas the power is really going to become, with all the people that you’re playing with, how do you leverage all of these different systems efficiently to move forward in and produce what needs to be produced?
This gets into that topic of how can or what do you recommend, I should say, to people who are just now getting exposed to this topic, or maybe haven’t considering something like this? How can people get started? What are your recommendations there?
[00:30:23] Hernan: First start with strategy. Link the priority application areas to the companies and vision, strategy, to the specific opportunities for value creation. In short, what I meant, start with an incredibly clear source of the objectives. Within strategic priorities, try to focus on application areas that will create immediate value, not necessarily the highest value, but immediate value, because that will help energize internal and external stakeholders by convincing them of the benefits of traceability or the benefits of a shared ecosystem and be aggressive in the communication of those.
They’re also focused on application areas that are repeatable. Focus on application areas that not only build the organizational muscles, but the muscles are going to be immediately applicable to complimentary applications. In other words, make life easy for yourself and then probably prioritize application areas, use cases where you can influence how other members of the ecosystem behave.
Actually, if you can get a willing set of parties to partake with you, whether it’s your suppliers and/or their suppliers or downstream, pick areas that where people are going to be ready to work with you.
[00:31:48] Josh: Got it. Start with the strategy, set clear objectives. Don’t focus on the highest value. Focus on that immediate value. I like what you said, that idea of building momentum. You want to build those quick wins because that’s what gets people excited that helps them see what the future could look like and how you’re working towards that and how they can be a part of it and those use cases that influence others. How do you take it beyond just your own operation, but really explore that ecosystem that you mentioned before?
[00:32:19] Hernan: For example, let’s assume I am a consumer goods company that makes manufacturers coffee capsules for homebrewing to make a little espresso in your house. You might say, look, the most important thing I can do is sourcing and show people where the coffee came from and whether it was ethically farmed and whether any pesticides were used, or you might instead focus on where and how it was processed and whether any chemicals were used and what amount of energy was used, or you might actually worry about the disposal.
Like, oh my God, there’s so many capsules. How are those capsules being disposed though? Are they being recycled? Reused by whom? You might worry about the packaging and is it certified BPA free, et cetera. There’s so many use cases that you just have to be super clear and then look at it like, where am I going to create value quickly and I’ll get people to work with me and I’ll build muscles that I can repeat. That’s how you get started.
[00:33:23] Josh: I love that. Now, that last idea, it’s really who needs to be involved. That’s what we ended on. Who can you get that momentum with? Who can you partner with? Are there any specific people or roles or groups that you found when you bring them together that sets you up for a higher chance of success in moving quickly?
[00:33:47] Hernan: Yes. Internally, you need your product management team, your supply chain team, your sustainability team and your IT team. If you’re able to set up a committed resourced allocated and fund that cross functional team, we’re very likely to make good progress. Now, the second thing you’re going to need is you’re going to need technology partners and third parties that help certify or bring other parties together.
For example, there are international trade organizations that can help you get access to small and medium-sized suppliers and help them be ready to participate in an initiative like that. The third is, bring your friends from the industry who have convening power, might be your competitors. It might be your distributors or downstream from you. It might be your suppliers, but whoever has convening power and can bring more folks into their crusade, the better because that creates network effects. As we know, those are exponential development.
[00:34:56] Josh: I love that. I appreciate that breakdown. Internally, getting your product management, supply chain sustainability, and IT teams together then focusing externally, who are your tech partners? Who are these third parties that can provide certified groups for you to work with, or even provide certifications into the standards that you had mentioned previously?
That last point I’m going to sum up as industry influencers. Who are those people that can help drive initiatives with you? What are those strategic partnerships? To your point, even if that is a competitor that reminds me of a recent advertisement I saw where Coca-Cola and PepsiCo came together to talk about the importance of sustainability, which I thought was a pretty powerful move.
It’s in line with that idea of, it’s not just about being competitors, but it is providing that sustainable practice that brings the value to the consumers. Now, before we wrap up, our audience listening, you’re not going to have all the information you need just from this conversation. I really encourage you to continue the conversation with Hernan. Hernan, what is the best way for our listeners to connect with you in order to continue that conversation, continue learning and get the guidance that you can provide?
[00:36:12] Hernan: Absolutely. Well, look, we are working with many, many of our clients precisely on this, on creating transparent, traceable, visualizable supply chain, digital trends of supply chains, et cetera. There’s an enormous amount of resources on the Bain & Company website, where you can find my name and email. We have also been partnering for over a year with the World Economic Forum in the advanced manufacturing and production platform.
We have a full community of industry leaders that are deploying traceability solutions for sustainable resilient and productive supply chains. We produce a significant amount of know-how that is available not only on the Bain website, but also on the World Economic Forum’s website.
[00:37:00] Josh: That’s great. Check out those resources. Go to the Bain website, look through those materials. Is there any particular part of the website people should focus in on?
[00:37:10] Hernan: Yes. You will find it all in the performance improvement, operations and supply chain websites. All of them will take you to the same set of resources.
[00:37:20] Josh: Great. We’ll make sure to include the link in the show notes for this particular episode. Well, with that, Hernan, I really appreciate our conversation today. Like always, I feel like I learned a lot in this conversation. If the listeners could see right now, I took a ton of notes just for my own benefit. I really appreciate the time and the lessons that you’ve taught today.
[00:37:42] Hernan: Thank you, Josh. It’s always a pleasure to talk to you. Always provocative and interesting questions. Thank you for this time and opportunity.
[00:37:53] Josh: That’s the show. Thank you so so much for joining us today. Conquering Chaos is brought to you by Parsable. If you’re a fan of these conversations, subscribe to the show and leave us a rating on Apple podcasts. Just tap the number of stars you think the show deserves. As always, feel free to share what’s top of mind for you and who you think we should talk to next. Until then, talk soon. Take care. Stay safe and bye-bye.
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