Your brand can develop a beautiful product and invest heavily in manufacturing — and still experience serious supply chain issues. It’s unfortunately just the reality of the space. That’s why the Factored Quality team sat down with Shelley Lin for her expert insights. 

For over three decades, Shelley has led supply chain ops at industry leaders like Levi Strauss & Co., ShoeDazzle, and Warby Parker. Today, she advises and consults for startups in various stages of growth on supply chain matters.

In our conversation with Shelley, we dive into: 

1. How to avoid the most common QC mistakes and upstream costs
2. Sourcing strategy and total cost to deliver
3. Why founders must keep QC top of mind

Let’s dive into Shelley’s insights. 

“Supply chain risks are a reality, whether it’s Mother Nature, regulatory, macroeconomic, industrial work actions, or other factors out of one's control. QA processes are something that a brand can control. Why would anyone want to deal with this risk when it can be mitigated upstream?" - Shelley Lin, Supply Chain Consultant and Advisor

The most common QC mistake

Shelley sees founders making the same mistake with suppliers over and over again. It usually goes like this:

1. They'll talk to a new factory and see that the finished products are beautiful.
2. They decide to work with that supplier because they want to get production going as soon as possible.
3. Questions about processes for QA or supply chain redundancies hardly enter the conversation.
4. They also forget to tour behind the scenes.
5. They hope everything works out by itself.

This all means they sign onto a potentially high-risk partnership that isn’t necessarily in line with their true risk appetite.

"People in charge of developing a product can be seduced by how great a new factory's products look. That end product is so enticing that they don't spend enough time pulling back the curtains to see what's really going on at the factory.”

How to avoid risky supplier partnerships

Ultimately, the nitty-gritty details of a brand’s upstream supply chain are what produce a great product. Here’s how Shelley recommends they dig in:

1. Look for factories who share your values. That means working with factories that will partner with you on the things you find important, like risk, speed vs. quality, or compliance.
2. Quality happens in every part of executing a PO. A good trading partner won’t shy away from letting you do checks on raw materials, during production (“du-pro”), finished goods, packing, labeling, and data integrity.
3. Ask lots of questions. Ask the factory to walk you through their supply chain, including their philosophy on quality. How do they source their component vendors? Do they have scorecards? What metrics are they held to? What does recourse look like?
4. Don’t be shy about being assertive. Probe into their quality program, processes, audits, team, manuals, SOPs, metrics, and systems. Set the expectation that you’ll use your own quality team, and that extra audits are the factory’s responsibility.
5. Communicate and document your expectations. Relay your standards for PO execution, quality metrics, cost breakdowns, data integrity, and any other matters that are important to you. Then document these requirements in your PO and vendor compliance (VCOM) manual.

Think beyond product costs - don’t lose sight of the upstream supply chain and total cost to deliver

In Shelley's experience, the vast majority of supply chain variability occurs upstream, which is before the goods arrive at the distribution center or 3PL. That makes sense if you drill down into what's actually happening at those points: 

1. First, the company must source goods from overseas. 
2. Factors at play include navigating regulations, mother nature, labor strikes, geopolitical disputes, and macroeconomic headwinds — meaning upstream variability is just wild and these factors are out of your control. 
3. Longer lead times become an additional complication: the need to lift (air freight). 

Suddenly, that attractive, low product cost from the vendor across the pond is not looking so cost-effective.

Tactics for preventing hurdles upstream

Every unfortunate shift and delay is costly, so any eCom or CPG brand should first focus on optimizing its upstream. Why?

1. How much would a reduction in PO lifecycle so you can get your goods faster be worth to you?
2. How much would you be able to reduce your inventory if your lead times were shorter?
3. If you could improve your quality and inventory yield, what would that do to your out-of-stocks, your need to lift (airfreight), your sell-through, and, of course, the top line?

Upstream management has a huge impact on metrics and profitability. Shelley recommends two tactics for reducing upstream variability: 

1. Ask your factory about redundancy in its supply chain, especially for critical components, and help them build it. Your factory’s risk level is embedded into your supply chain risk.. 
2. When possible, find sources nearby. If you can't produce in the U.S., can you do so in Mexico and take advantage of USMCA or other trade preference programs, such as CAFTA-DR (US-Dominican Republic-Central America Free Trade Agreement)? 

Navigating exorbitant freight costs, a large part of the total cost to deliver

Three years since the start of the global pandemic, the cost of freight is still the highest or second highest cost component in a brand’s total cost to deliver. However, given that freight is an inevitable necessity, Shelley recommends the following options: 

1. Explore using your own carrier. If your 3PL allows for that option, talk to smaller parcel carriers across sizes and geographies to see if you can get more competitive rates.
2. Don’t be afraid to diversify and partner with more than one carrier. There isn’t any one carrier who is going to be strong everywhere, in every mode, service, and weight break.
3. Review your “click-to-delivered” commitment to customers. If your SLA is a target of up to seven business days, that opens up carrier and service options that will be more cost-effective than committing to a Prime-like service of two days.
4. Right-size your provider to your product weight. If you're in beauty and supplements, your products are likely under a pound.  Consider USPS, DHL, First Mile, or Pitney Bowes. If your product is heavier (5+ pounds), try UPS, FedEx, OnTrac, or GLS. 
5. Always be on the lookout for mode shift and service shift opportunities.

"Variability in the supply chain manifests itself in the forms of longer lead times, the need to lift (airfreight), inventory shortages or overages, or out-of-stocks, and we all know how these manifestations affect our financials." 

Keeping QC top of mind amidst the day to day

When brands experience an enviable growth trajectory, the daily focus feels like it should be chasing supply—getting goods in and pushing orders out, ASAP. That chase means founders are constantly putting out fires. As a result, minor details fall to the wayside, and there may not be the space to look at risks upstream.

If you have a product release coming up for instance, everything else takes a backseat. If you’re in chase mode, a low yield in sellable quantities will only compound your strained supply chain. Don’t let this happen because you don’t have an adequate QA process, because:

• Focusing on product quality helps you raise rounds and build the brand
• And failing to think proactively about QC can put the brand as a whole at risk

When it comes to product quality, caution pays off. By the time you discover defective product in your distribution center or 3PL, there’s not a lot you can do about it because it’s often too late. If you can, it probably won’t be cheap. If the defective product is discovered by a customer, that’s even more painful.

So rein in that risk by seriously examining how you invest in your supply chain. Better yet, consult experts like the Factored Quality team — you’ll learn how to nail QC without having to learn the hard way. 

"It’s good to have a healthy risk appetite in business.  It’s also important to make sure you’re taking a pulse at the critical junctures along your supply chain.  A quality product can make or break the customer experience and elevate or put the brand at risk.  If you can control the quality of the product, why wouldn’t you?"