COVID-19: The Black Swan of Supply Chain

In his famous book The Black Swan, Nassim Nicholas Taleb described the three main characteristics of a black swan event:

• First, it is an outlier. Because nothing preceding it indicates it will happen, it lies outside the realm of regular expectations.
• Second, it carries an extreme ‘impact’; and
• Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact to make it explainable and predictable.

COVID-19 is a black swan event, particularly within the supply chain industry.  Most people alive today have not witnessed anything of this magnitude globally, with supply chains coming to a halt as the COVID-19 pandemic spread across China, then across Asia, Australia, Europe, the Americas, and the Middle East.

The recent McKinsey Global Fashion Index Review estimated a significant revenue shrinkage of ‘27 to 30 percent in 2020 year-on-year’ in apparel and footwear sectors. Brands and retailers are seeing global impacts as well as drastic changes in consumers’ buying behaviors, with many retailers closing due to coronavirus. Suppliers and factories face unprecedented challenges, with millions of workers returning to work as COVID-19 cases are peaking, thereby risking their lives to maintain their income.

Strategies that used to work before COVID-19 no longer apply. This calls for a complete revamp and reprioritization of business operations in order to survive and thrive when the dust settles.

At Inspectorio, we’ve identified three increasingly crucial areas of focus within the supply chain in the post COVID-19 world:

1. A focus on workers’ health and safety;
2. The importance of remote methods for verification and inspection; and
3. Visibility over supply chain mapping.

These three themes are key to helping businesses stay nimble and adapt their strategies to meet the ever-changing business conditions, both in the current climate and in the future.

Workers’ Health and Safety

Even though most businesses are still in crisis mode, it is important to start thinking medium-term and long-term. As illustrated in the graph below, in the next 12-18 months, we will need to operate in a vaccine-free world with strict quarantine and lockdown measures, and a possibly high mortality rate. In densely populated sourcing hubs, such as India or Bangladesh, it will take significantly longer time to immunize the population. With countries gradually loosening strict COVID-19 lockdown measures, locations such as factories, hotels, offices, and schools will need to reopen despite the high risk of more waves of outbreak

In a country like Bangladesh, ready-made garment workers account for 85% of the country’s total employed population. Resuming factory production in light of the novel coronavirus pandemic means putting millions of workers’ lives at risk. Sourcing Journal reports that reopening of factories comes just as Bangladesh is dealing with its highest number of new cases. Factory workers are getting fearful about the lack of safety measures, especially social distancing methods, adopted by factories at which they work, and are calling for stricter health and safety guidelines.

The question remains:

How does one run a business in the world of COVID-19?

A variety of reputable sources, such as the  World Health Organization and the International Labor Organization have come out with their own coronavirus guidelines and protocols for workplaces to ensure compliance with health and safety standards. However, compliance at scale is impossible to achieve in some countries without the assistance of technology due to the size and  intricacies of supply chain networks. Furthermore, there has traditionally been little collaboration among key players in the industry, leading to repetitive inspections and high levels of audit fatigue for facilities.

It is highly important that brands, retailers, vendors, and factories lead with compassion during and after this sensitive time by focusing on the health and safety of workers on the production floor, where it is vital to help workers reduce contact and exposure. This is where Inspectorio can help. The Inspectorio RISE platform allows for efficient implementation and execution of health and safety audits via a pre-configured library of guidelines and standards, which have been collaboratively created by governments, international organizations, and others. The Inspectorio solution can be implemented at scale with real-time monitoring, automatic reporting, analytics, recommended corrective action plans and interactive trainings for continuous improvement. With the goal of supporting the manufacturing partners for preparedness, Inspectorio has also published a COVID-19 Resource Center with a centralized collection of resources to help manufacturers prepare to tackle the COVID-19 crisis, including a library of hosted Covid-19 guidelines and standards, communication and awareness tools, and business impact plans.

In addition, Inspectorio Academy provides a scalable way to onboard factory partners through proactive training on best practices. This also facilitates continuous improvement and allows users to take courses on the go and at their own pace. Our courses reinforce adoption and awareness of this initiative through checklists, best practice recommendations, and definitions of key corrective actions and preventative actions. For organizations that work with a large manufacturing network, Inspectorio Academy provides the means to verify and track training compliance in real-time.

Brands and retailers can incorporate these recommended best practices into their internal communication. According to the latest McKinsey’s research article “Managing a manufacturing plant through the coronavirus crisis”, shaping up internal communications is crucial for brands during the coronavirus. This includes consistently sharing new information the company has learned about outbreaks, as well as how that knowledge is being leveraged to further ensure the health and safety of workers on the floor. Earlier outbreaks have demonstrated these best practices to be more effective than negative messaging methods in tackling misinformation. By facilitating these messages through a two-way communication approach, organizations can establish themselves as the source of truth and ensure clarity in the messaging they send to the frontlines.

Remote Ways of Working

One idea this pandemic has validated is the importance of the digital revolution. Nearly all businesses, across multiple industries, have learned that digital infrastructure is necessary for survival. As many components of the supply chain as possible need to undergo digital transformation, since a fully digital supply chain can drive significant positive impacts on operations. According to Fortune, digital supply chain technologies helped companies react 25% faster to market changes and crisis compared to their counterparts that had not invested in these resources.

Cloud-based solutions such as Inspectorio are better positioned to tackle this transition at scale. Indeed, the coronavirus outbreak acts as an accelerator towards remote methods of working, including remote verifications and inspections. The Inspectorio solution is designed around flexibility and business continuity, and allows businesses to keep people working and production going in the current climate.

With the Inspectorio RISE COVID-19 initiative, manufacturing partners can select a pre-configured guideline on the platform to conduct a self-assessment. Self-assessment reports can be automatically shared directly with any of the brands/retailers in their network, allowing for complete remote visibility over compliance with health and safety guidelines and protocals. These self-assessment reports identify key areas of needed improvement with automatic corrective action and preventative action recommendations, all with real-time remote tracking ability.

Similarly, Inspectorio SIGHT fills in the gap in cases where inspectors cannot visit factories to perform quality assurance inspections due to travel restrictions. Self-inspection capabilities empower vendors and factories to manage their own inspection schedules, standards, and processes autonomously to maintain their manufacturing performance – all while providing complete visibility to the Brand or Retailer.

In our article titled “Coronavirus: The Supply Chain Wake-up call to Activate Self Inspection”, we’ve highlighted that, in order for remote verifications and inspections to work, the data generated through these processes must be trustworthy. There needs to be a procedure of validating and analyzing these data lakes, which can be done at scale through our AI and machine learning algorithms.

It is not only important to enable remote capabilities, but also to use the data collected to promptly identify risks and irregularities, ensuring quick and informed decision-making in this rapidly changing climate. Inspectorio SIGHT ensures a step-by-step adoption of the proposed processes and workflows through its monitoring capabilities, while also providing a comprehensive analytics suite including analysis of factory performance, overall inspection results and defect trends. These actionable data points let factory management teams expand upon the conventional set of initial KPIs and identify further opportunities for improvement — all in real-time and manageable in a remote scenario.

Visibility into the supply chain network

A key lesson learned from the COVID-19 pandemic is there is a lack of global visibility that might allow businesses to respond to the disruption in a proactive, coordinated way. The sheer number of players in the industry make this particularly intricate for supply chain. There is simply not enough readily available information on which vendors, factories, or products are at risk — as many as 70% of businesses are still in data collection and verification mode after the COVID-19 outbreak, according to the Harvard Business Review.

It’s essential to know all your suppliers through the process of mapping. Companies that fail to establish the required mapping in advance struggle to respond or even to estimate the likely impact when an outbreak hits. HBR states that after the 2011 Sendai earthquake in Japan, a variety of companies needed weeks to estimate the disaster’s impact on their business because they did not have visibility over upstream suppliers. It is important to establish connections over these key resources now — it’s too late after the disruption has happened.

It is not enough to simply maintain visibility; brands and retailers must also nurture a strong foundation of supplier partnerships. Three quarters of Sourcing Journal subscribers report expecting deeper levels of partnership with suppliers including end-to-end process improvement, trials of different investment models, and visible progress toward social and environmental sustainability.

As part of Inspectorio’s COVID-19 capabilities, we have rolled out a brand new COVID-19 dashboard to provide real-time visibility of coronavirus risk to our user base – as well as their health and safety compliance. Users are provided a heat map containing real-time data on the local COVID-19 situation in any areas of production, including confirmed cases, recovered cases, and deaths. Staying up to date on the COVID-19 status allows you to make smart, risk-based sourcing decisions across your upstream and downstream suppliers, further ensuring stability in this shifting landscape.

What’s Next

“What’s next?” is the question everyone has been pondering. We’ve seen an unprecedented level of uncertainty in the world over the last few months, with the supply chain being particularly vulnerable due to heightened risks and disruptions. To ensure business continuity, it is important that brands, retailers, and manufacturers develop short-, medium-, and long-term planning to protect their workplace operations throughout the crisis and beyond.

Protecting workers in the workplace will continue to be the core focus of short-term planning strategies. This can be achieved through the adoption of health and safety guidelines, including boosted health examination, limitations on the use of shared tools and areas, staggered shifts, regular equipment cleaning with deep cleans of the manufacturing floors, and consistent isolation policies when someone gets sick. Organizations can even provide incentives for workers to meet health and safety guidelines, further improving overall resilience of the workforce. This also underscores the need to continuously monitor the adoption of health and safety guidelines, which can be done at scale through Inspectorio RISE.

On a more medium- to long-term vision, it is critical to accelerate the digitization of manufacturing facilities in order to ensure a wider response and recovery approach. This can be done by enabling remote capabilities such as self-inspections and remote verifications. According to McKinsey’s, real-time data sharing and advanced analytics represent a systematic means of providing more detailed, accurate, and up-to-date manufacturing performance insights.

(credit: McKinsey’s research article Managing a manufacturing plant through the coronavirus crisis)

Our latest article, “What’s Next for Quality Control After the Coronavirus,” also echoes this sentiment. Organizations that proactively undertake the digitization journey and leverage remote factory self-inspection, open network of data collection, and machine learning leap ahead of their competition. At Inspectorio, we consider this journey ‘survival of the fittest’ — where integrated digitization allows organizations to weather the storm and showcase resilience throughout crises.

Conclusion

As with the aftermath of every black swan event, there will be companies who thrive, and companies who will be left behind. There will also be also companies that choose not to take actions in the hope that a black swan event like this will not happen again. This is a very risky move.

However, there will be companies that incorporate their lessons learned to make fundamental changes to their operations and processes. In this way, they do not have to operate blindly when the next black swan event strikes. These companies will continue to showcase value through resilience and will succeed in the long run.

Which side do you want to be on?