31 March 2020 – Deborah Weinswig, CEO & Founder of Coresight Research, hosted a webinar featuring Inspectorio’s Co-Founder and President, David Klein. The conversation centered on the future of the supply chain and quality control in the wake of the COVID-19 pandemic.

David answers questions from the audience, providing actionable insights on common mistakes, risk mitigation tools, and successful strategies for businesses in a time when wrong moves can be costly.

Find the highlights below.

Deborah:

Help us set the stage for the audience here.

David:

It’s in difficult moments that companies build their reputation. In the last 10 years, we’ve heard a lot of focus on sustainability, on partnerships, on empowerment. There’s also been a common warning: that supply chains armed only with conventional tools can be destroyed in a matter of weeks.

Unfortunately, coronavirus is validating that warning, and brands and retailers now face several pressing questions: What’s next? How do I adapt?

To answer these questions, we can look at how development occurs after natural disasters like earthquakes. Development has several stages, the first of which is the “emergency” stage: getting people to safety, minimizing the impact, and saving lives. Then comes “early recovery,” in which the new reality is taken into consideration as people begin preparing to resume normal life.

That framework is very relevant today. Stores are closing and people are spending less — companies are in an emergency stage. But after emergency comes early recovery, and the way in which companies act in the emergency stage is very important to how they recover. They must identify the new realities in which they’ll be working after the crisis. The earlier they have those conversations and lay foundations, the better they’ll be at minimizing impacts and succeeding in the new reality.

Deborah:

We’ve talked a lot about digitalization. What do you see in this environment — what’s most important from a supply chain perspective? Where does this digitalization roadmap fit into this?

David:

It’s actually helpful to also discuss digitalization in terms of these stages.

In the emergency stage, which many companies are in now, it’s very important to communicate effectively. The nature of our industry is one of a pipeline. When a disruption occurs at one point in the pipeline, everything after comes to a halt as well. Before a decision is made, it’s vital to involve external players like factories and suppliers in that decision-making. Likewise, the same communication has to happen internally. Teams need to understand how they’ll be operating in this new reality.

Start talking now about what your company will do once stores open again (the early recovery stage).

Also recognize that there’s going to be a new normal. In 12 to 18 months, digitalization is going to be more relevant than ever. Though we’ve seen plenty of initiatives for digitalization in the past, the reality today is that it needs to be accelerated. Plenty of companies are doing this, knowing that people won’t be buying the same way — sales will be done virtually and based on convenience and price.

For supply chains, two digitalization initiatives are particularly relevant: virtual sampling and remote audits. These two aspects of digitalization are going to be ever more important in this new reality.

Deborah:

With you physically being based in Vietnam right now, what are you seeing in terms of being the hub of real sourcing, and some of the changes we’ve seen in sourcing over the past 12 to 18 months? For anyone who diversified their supply chains out of China, are they rethinking those decisions?

David:

The tariff conversation in the past definitely triggered brands and retailers to start thinking of diversification. With the current crisis, companies are considering diversification and even outsourcing. But there’s also been so much invested in building these supply chain relationships.

There are short-term actions and long-term actions, and one needs to be extremely careful that short-term actions taken to maximize cost-benefit don’t harm long-term outcomes. So let’s say a company chooses to outsource workers. This might play well in 2021 and 2022 financials. But in the long-term — and again, it’s in moments of crisis that companies build their reputations — the move could be a poor choice. Companies have to continue thinking long-term even as they navigate this crisis.

Diversification is happening and will continue to happen. However, with diversification also comes risks associated with quality and sustainability. Companies face the conundrum of having to increase the level of oversight to minimize these risks while also decreasing cost. That’s where technology comes in. In this new reality, technology is important. We need to digitize — there’s no other way.

Deborah:

What are you seeing your “savvy” clients do differently to get through this challenging time?

David:

What we’re seeing is that those companies that previously initiated a digitalization process are better prepared to minimize the impacts right now, in the emergency phase. They’re also going to be better prepared for recovery and in the long-term. The reason is that companies need to make decisions quickly, and they can only make quick decisions effectively if they have data. And this data is only available when they’ve digitized multiple aspects of their supply chain in a way that involves the suppliers and factories. Unfortunately, many initiatives have only digitized existing processes without getting rid of silos.

For companies that haven’t digitized yet, those that start their internal conversations today are the ones that will be able to make progress over the next 12 to 18 months. It’s a matter of making a decision, committing to digitalization, and adapting to the new reality. These strategies are having the best success records.

We’re also seeing some powerful examples of how digitalization has transformed the relationship between brands and suppliers. For example, H&M has agreed to purchase all produced items from their Bangladeshi partners, and has stated they will figure out how to sell them later. This displays high levels of respect and trust between brand and supplier, a relationship enabled by digitalization.

Deborah:

The whole design process is changing. As we’re seeing more 3D design, how does that impact the relationship with the factories?

David:

Our industry is extremely interconnected. Factories are shared, meaning there’s a massive overlap among leading brands and retailers. As you begin going through this process of visualizing what the digitalization journey will be like, if you don’t account for this interconnectedness, you’re not going to be able to evolve with your factories and vendors. Without accounting for interconnectedness, you’re still going to be operating in silos and expectations will go unmet.

The answer is pre-competitive collaboration, in which the whole industry has access to the same information through a central source of truth. Everyone can make decisions together in a way that helps everyone equally. In such a scenario, an event like COVID-19 only reinforces the fact that the industry shares a common problem and can work together toward solutions.

It’s worth appreciating the fact that, in the past, important transformations might have taken 5 years — today, they can happen in 5 weeks. Be sure to ask yourself the right questions: what are you digitizing for? Are you doing it just for the sake of digitization or to have greater actionable data? Will you be able to automate, to leverage machine learning, to be more preventative, and to solve industry-wide problems together with other players in the industry? The technologies are there. It’s merely a matter of asking the right questions and taking action.

There’s a great quote that holds true here: “When fishermen can’t go to sea, they mend their nets.” Right now, companies need to be mending their nets in every part of their supply chains.

Deborah:

Things are changing very rapidly, and one question that we often get is on blockchain. How does that drive the digitization of the supply chain?

David:

We’re still very early in blockchain. There’s a theory that technology can only gain traction if it happens at the right time. Blockchain is very powerful and will be a part of the new normal, but in our industry, people are still trying to understand what machine learning and AI are. From there, we’ll be able to discuss leveraging other digital initiatives that increase traceability. But we haven’t been approached regularly about blockchain.

Deborah:

What aspects of sustainability are people still very focused on right now?

David:

For companies that haven’t invested in sustainability, if they do it now, they’re probably not doing it for sustainability’s sake. They’re doing it for the sake of their bottom and top lines. But those that have invested heavily and built the foundations of sustainability will continue to do so during this period.

There are a couple of aspects to this. If we think of technology and digitalization in terms of sustainability, many companies are recognizing that their production needs this ability. In order to implement social and environmental standards, companies need to capture the data in a way that’s quick and actionable. This is happening fairly commonly across the board. However, there are so many different standards that it’s a challenge to reconcile them with each company’s own code of conduct. Manually mapping particular issues to questions becomes difficult as the number of questions increases. Technology is playing an important role in fixing this problem.

We’ve helped accelerate progress by creating a central tool that gathers multiple sustainability assessments and makes them relevant to each particular company’s code of conduct, which drives continuous improvement.

Pre-competitive collaboration comes in here as well. When factories have to comply with multiple sets of standards from different brands, this slows them down. When the industry comes together and realizes they can stop the overlap of assessments and instead use proven assessments that are efficient and effective, everyone benefits — factories and vendors included.

Deborah:

For any of us who have worked in supply chains, we know that a lot of data is still on paper.

David:

Seventy percent

Deborah:

Yeah, that’s actually higher than I would have even thought. So yes, data’s great. But from an ML or AI perspective, how do we approach that when we’re still doing it on scraps of paper?

David:

Exactly. So again, it’s a journey. There are leading brands and retailers today that have digitized all of their activities. Companies that started on that digitization journey 3 years ago are at a place today where they start understanding patterns. They identify manual activities that are less relevant and instead focus on value-added activities. Digitization, which is replacing pen and paper with digital capabilities, is the first stage. That’s the easy piece — there are thousands of ways you can do that.

But data that’s captured must be relevant to the company’s needs. The Apple Watch is a great example. It not only counts your steps, but it sets goals for you based on your height and age and weight. It makes that raw data relevant to you.

Next, how do you start reducing costs? For that, you need automation. This allows you to remove manual activities and instead focus on value-added activities. That’s when machine learning comes in. When you have automation in place as a core process, you can start understanding where high-risk and low-risk areas are. If it’s high-risk, you know you need to go in and assess. If it’s low-risk, then you’re either not going to go, or you’ll do a self-inspection. If you do go, the data and machine learning identify exactly what you should be checking for. This helps you become preventative and allocate resources where they’re most needed.

The future is going to be one of remote work. You need the capability, you need data quickly, you need to reduce costs, and you need to be preventative. A digitalization goal that includes all of that is what’s going to make companies survive and be more effective.

Deborah:

There’s a lot of talent available right now. But also, everyone’s trying to bring down their fixed costs and move to more variable costs. Do you think we’re starting to go toward this age of outsourcing?

David:

When there’s a crisis, people are always cost-sensitive. People will do what brings them the highest cost-benefit. Companies have invested decades in creating commitments and partnerships that today are going to be put to the test. If you have a short-term view, sure, you’re going to outsource. But in the larger scale of things, this is a punch. It’s a punch that will last 12 to 18 months, so the companies that maintain their core fundamentals intact will be victorious. Focusing on the short-term will help your 2021 and 2022 financial goals, but long-term, it may not help your strategic relationships and sustainable supply chains.

Deborah:

I feel that this “punch” is changing how we think about the future of the supply chain. We’ve also figured out that we’re much more reliant on certain geographies in terms of inputs. We’re seeing so much change so quickly. What do you think the future of the supply chain looks like now?

David:

First, in the same way we’re looking at our daily lives and how we operate with remote teams, education, etc., there is going to be an even greater focus on digitizing different aspects of the supply chain. Particularly with virtual sampling.

Second, we’ll need to empower factories to perform self-inspections and self-verifications better, and in a way that mitigates potential risks of the quality of the data gathered. The data collected also needs to be trustworthy.

In our case, we’ve had an exponential upsurge of usage. This is because companies are putting a lot more focus on empowering their vendors.

It’s also worth considering that, in this new reality, people will be able to move less. Inspectors and auditors performing inspections cannot go into factories due to fear of contagion and travel restrictions. So a culture of self-assessment is going to be more powerful and more relevant. Digital and virtual sampling, as well as ensuring a common understanding among companies and suppliers, ensures that everyone can make decisions together — instead of in silos — if this situation occurs again.

Audience Question:

So you stated that there are three development stages; could you please revisit the third?

David:

Sure. The first is the emergency stage, second is the early recovery, and the third is long-term reality. That means adapting to the new normal. How effective you are in that new normal depends on how effective you were in your early recovery. That’s because the early recovery stage is what sets the foundation. How effectively you recover early includes how quickly you can take a stand, make the decision, ask the right questions, and align your team on adapting to a new digital model.

Deborah:

What is a realistic timeline to employ a blockchain solution to the digitization of the supply chain?

David:

We’ve seen digitization efforts in companies where it took a year, and then some companies that took 2 to 3 years. And this is for the first stage, which is passing from manual to digital. It really depends on the vision of the leadership. It is also important that leadership sets clear, realistic expectations by explaining to the company that digitization is a journey. If employees think that digitalization can occur overnight and those expectations aren’t met, then that’s going to delegitimize the initiative.

So my recommendation to leaders is: Recognize that digitalization is a new reality, understand it as a journey, align expectations internally, and then drive the buy-in to move as quickly as possible.

Audience Question:

What are some of the high-risk factual scenarios which can be headed off by aggregating data of several factories/clients at the same time?

David:

Let’s take performance risk as an example. You have multiple clients working with one facility. There are multiple touch points that are happening across the production process, meaning you’re doing a verification pre-production, during production, and after production. You’re capturing so much data that, with machine learning models, you can understand which information points correlate most strongly with a factory being low-risk (passing inspection) or high-risk (failing inspection).

Once you understand those data points and the correlation with risk, you can then let the machine learning model guide your decision-making on whether an audit is really worth it. If the risk is low, does your team really need to verify?

Many risk decisions have been made by people who’ve worked in the industry for 20 or 30 years, and who have very subjective understandings of the highest correlations of risk. Data doesn’t lie. When you’re looking at 3 to 5 years of data, with millions of data points from all sorts of different activities, you recognize very quickly which attributes contribute to risk. When the machine learning model is built in, you base your decisions on trustworthy, accurate information — not on subjectivity.

Today, if you’re going to place orders, you want to know what the quality or sustainability risks are with those orders. You’ll feel a lot better investing in an accurate representation of risk rather than a subjective one.

Audience Question:

What about small and medium enterprises that have suppliers but do not necessarily have the financials to absorb the “punch?” What recommendations can you provide to this segment?

David:

There are several ways. As a company, are you in a position to be able to sit down with those vendors and factories and negotiate based on your and their financial situations? You could re-negotiate or extend payment terms, as well as the conditions in which you’re doing business. How you treat your suppliers today affects your relationship moving forward and your reputation as a company.

So first is to sit down with them and clearly and transparently try to work on a solution together. Second, depending on your country, you may be able to receive a stimulus package from the government. But not every country is the same on this, so first and foremost, stand beside your commitments and values. Build strategic relationships.

Audience Question:

It seems that the COVID-19 pandemic will not affect the corporate supply chain strategy fundamentally. Example: focus on digitization, and differing stances on sustainability, etc. Do you agree?

David:

No. What will change is that it will have to be done a lot faster.

Audience Question:

We all look at [speed] from a different perspective. Yes, we all need to speed up, but what does that really mean, and how do companies do that?

David:

That’s the thing. You need to do it quickly, but at the same time, you need to do it right. Now is the time to ask yourself the right questions, including, what are we undergoing digitalization for? Take a look at leading brands and retailers that have been less impacted and try and understand what they have done in terms of their digitalization journey.

Audience Question:

How does a company that provides mobile handsets for in-store omnichannel as well as for RFID tracking shipments play in this new normal? Could they see a net negative or a net positive?

David:

All aspects of visibility in the supply chain are more relevant than ever before. If you’re a company that provides visibility into what’s happening through RFID, it is relevant and will only become more so.

Deborah:

When is the new digitalization platform going to be ready?

David:

Our platform is ready now. We’ve been promoting, facilitating, and accelerating remote verifications for years. That’s what we’ve been building since our foundation, taking into consideration the interconnectedness of modern supply chains, making the data relevant, bringing in automation to reduce your costs. So we are in a position right now where that’s our strongest focus.

We are going to be releasing step-by-step guidelines on how to start remote verifications. If you want to adopt the platform, come talk to us.

Deborah:

Thank you so much, David. We appreciate you taking time to join us, and thank you for all you’re doing for the industry. We really respect all that Inspectorio has done.

David:

Thank you, Deborah. You’re bringing important information to everybody who has to make important decisions. Thank you for organizing this, and always being at the center of leading the industry forward.

If there’s anything we can do to help, or any more questions from our audience, we have resources such as a COVID-19 page on our website, or just shoot as an e-mail. We’ll be happy to help.

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