Saurabh Gupta — HFS Research[00:21]
Good afternoon. So, this is the man — I’ve got this card, but I’m going to not use it. This is the man who’s flown the most. This guy has flown what, 8,000 miles almost to be here. I don’t think anybody can beat that. So if nothing, thank you. So, you know, I did not know of Neo Tangent till two months back. And then I got to know you guys a little bit, and then I got to know that you come from Li & Fung. And for those who don’t know, Li & Fung is a Hong Kong-based, or Hong Kong-headquartered, global supply chain giant, and all the toys that your kids play with and all the clothes that we wear, there’s got to be some role of Li & Fung in that. What they are doing is a fairly interesting strategy, at least in my head: they are starting to create profit centers out of their cost centers. So they’ve got a data company now, they’ve got a digital company now, and Yash is the CEO of their business operations company. So Li & Fung are coming to the US, coming to Europe, sharing their supply chain wisdom or expertise, and I’m looking forward to this conversation, Yash. So thanks for joining us. Let me start by — tell us what’s the thinking behind this whole strategy that you guys have had on creating a data company, a digital company, and a business operations company?
Yash Chauhan — CEO, Neo Tangent[01:58]
Sure. Before I start, let me fill in some gaps about Li & Fung. Li & Fung is already very strong in the North America region as well as in Europe. We have a very huge presence there. So most of our customers are actually from all the retailers, and they are from North America or from Europe. The sourcing, obviously, gets done from that part of the world. So we have the operational headquarters in Hong Kong, and, of course, we are registered in the US. Now, Neo Tangent — just wanted to add a little bit more before I come to the strategy part. It’s already a 20-year-old organization, and it used to be the shared services center, or the GBS, the Global Business Services organization, for Li & Fung as well as its partner companies, specializing in end-to-end supply chain services and processes. When I joined about 14 months ago, I was intrigued to see the depth as well as the breadth of the supply chain services, processes, and work that they do. This company has been serving the retail industry through Li & Fung, and what we have decided is to become a full-fledged business process management organization and serve other industries. We have listed them out — we’ll not go to too many industries. We’ll add CPG and life sciences and pharma to begin with, and then we’ll see how it works out. And we’ll keep on specializing in supply chain services. Now, coming to the question, the strategy of creating a digital organization — we call it LFX — a digital organization, data, and business services. See, supply chain is also changing a lot. We all know that every conflict, or every trouble in the water, the impact is on supply chain, and so is the cost of goods sold. So just to prepare for the future, the strategy was to create a specific organization, a special organization, for digital. Digital means the digital assets or platforms specifically for supply chain services. So, for example, we have a platform called T4S, which is Transparency for Supply Chain Services, which can cater to traceability, sustainability, those aspects of it, and then various other assets, even designing all the products. The data part, obviously, needless to say anything, but that’s another arm which we have created because we have been generating a lot of data. So what to do with that? Business services I talked about already — Neo Tangent, going ahead with supply chain services. Perhaps that’s the need of the hour. So that’s the broad thinking about it.
Saurabh Gupta — HFS Research[04:50]
Yeah, no, I think supply chain was an operational conversation till three years back, and now it’s a boardroom conversation, clearly. So what are some of the — from your perspective, coming from that part of the world, which is an interesting insight, at least for me and I guess for a lot of people in the room — what are some of the innovations that you are doing in supply chain? What are some of the innovative thinking, technologies, processes, and data changes that you’re making, and what is your approach in that whole supply chain innovation context?
Yash Chauhan — CEO, Neo Tangent[05:55]
That’s connected to what I just described, with the segregation and the creation of the organization into digital, data, as well as business services. So we are part of the whole ecosystem. Let me say it this way: we are not a GBS turning into a BPM 2.0 version. We are very much part of the whole ecosystem of Li & Fung, because that is the strength which we have. I mean, Li & Fung is a 116-year-old organization. So innovations are happening. Let me take some examples here. We have a group dedicated to generative AI. We have use cases in product development — the products that we have been developing. And by the way, it is not just the apparel; it’s home and accessories and many other product ranges. So in product designing, it has helped us a lot. In terms of production planning as well, we have many use cases. Besides the whole area of the content part — in our daily operations, in our daily work, how we use ChatGPT or generative AI, that is separate — but in the mainstream of our work, we have use cases there. So that’s where our whole innovation comes into play. With the segregation of the organizations, there is a bit more focus on the domain side of it, on the business services. One thing I wanted to say is, definitely there are a number of platforms, there is a lot of technological advancement in the supply chain area, but we still had the problem — during COVID we still had the issue. It means there is something we need to work upon, which needs to be integrated with the digital or the technology part. So that’s where we are focusing.
Saurabh Gupta — HFS Research[07:43]
Got it. So let me take a wider arc now. What’s been the impact of — there have been so many disruptive events recently, from the pandemic, the COVID-19, and the trade tensions between the US and that part of the world, which isn’t a trade secret anymore. What’s been the impact of that on your operation and the broader Chinese supply chain?
Yash Chauhan — CEO, Neo Tangent[08:32]
Yeah, sure. So we thought that after COVID we would have a peaceful world, but we have a different world. I was listening to some gentleman, and he used the word — we expected we would have a recession, but actually what we have is a geopolitical recession. The economy is not doing that bad, but if you look at the ripple effect in the growth of the global economy, global trade is growing by 3% only, which is an all-time low. Although global GDP is 3%, global trade is 3%. So every restriction or compliance, it is going to grow anyway, and it is not just on China. Let me illustrate with a quick example. So there is the UFLPA, the Uyghur Forced Labor Prevention Act. It’s an act which was enacted around two years ago. Last Christmas, November, there were more than 6,000 shipments blocked at US Customs because of a potential violation of the Uyghur Forced Labor Prevention Act. There were some traceability issues. The value was more than $2 billion. After a few weeks — and Christmas was very near — 40% of the shipments were cleared, but 60% was still returned back. And these things will keep on going. Recently, the European Union also enacted a law for forced labor. There have to be traceability aspects which need to be presented as part of the supply chain activity. Now, what it means to Neo Tangent is, traceability is an area which we picked up around two years ago. So we are quite advanced in that, not only from the technology side, but it also changes every day. So from the knowledge perspective as well, it is not just about finding the documents or the whole trail of traceability, but it is the question of making the vendors aware of it — the suppliers should be aware of it, they should be trained — so that we don’t need to get into the traditional BPO mode wherein you have the FTEs and keep on doing all that. So it’s not just the question of China that China will get impacted. If you see those shipments, the example that I took, the shipments from China were only 40%. There were shipments from Malaysia, from Vietnam, and Thailand as well. So this compliance aspect will keep on growing, will only increase. It will not slow down. That’s how the world is.
Saurabh Gupta — HFS Research[11:45]
So it’s going to get even more complex. So I think — we talked to a lot of enterprise clients, and at least the last five to seven conversations that I recall with large enterprise supply chain leaders, they’re all talking about a China-plus-one sort of strategy. Most of my growing up has been, you know, we’ll expand to the far and furthest, widest corners of the world for our supply chains. But over the last couple of years, that thinking is changing somewhat; people are thinking of a China-plus-one strategy. How do you see that affecting the overall global complexion of the market?
Yash Chauhan — CEO, Neo Tangent[12:44]
Well, let me say it this way: there will never be a China 2.0. That is purely our thought, that there will never be a China 2.0. And instead of China-plus-one, I think it’s going to be China-plus-X. So how is it going to impact the complexion? The supplier countries will only increase. The customers will have more choices. So they will definitely go for multiple options in terms of the sourcing part. Now, will there be an impact on China? Yes, there would be some impact in the beginning, but I don’t think it’s going to be that severe an impact. I mean, if you look at the numbers, it won’t.
Saurabh Gupta — HFS Research[13:31]
But from a Neo Tangent perspective, from managing the supply chain processes, what is the impact on supply chain activities?
Yash Chauhan — CEO, Neo Tangent[13:41]
It will only become complicated. Now, imagine a scenario where there used to be shipments going from China to the destination country, or a few more, but now there’ll be more and more countries, right? So if you see the number of shipments or different routes, it is going to be complicated for the fulfillment part. So while there are more options in the hands of the customers, the downstream part of it, the fulfillment part, we need to take care of that as well, because that will become complicated — added with the compliance, added with the geopolitical impact. Sometimes if you have a Red Sea, Suez Canal, and all — so if you see it that way. I’m not putting up a scary picture, but this is the thinking behind Neo Tangent: can we actually bring in and put focus onto that?
Saurabh Gupta — HFS Research[14:33]
Got it. So if you — I think you’ve been in this BPO business services industry for 30 years now. What frustrates you the most about the BPO model today, and how are you going to change it?
Yash Chauhan — CEO, Neo Tangent[14:59]
Well, let me take it this way. I was talking to Phil, and he asked me, what is your biggest fear or challenge? My answer was that I should not get into the typical FTE trap. The world is changing, and it’s too attractive to get into the FTE model and the process model, which is a thing of the past. And that is something I’m scared of, that we should not be. So with so many things coming into play, we should avoid that. That’s the biggest issue.
Saurabh Gupta — HFS Research[15:28]
So let me ask the audience here — I don’t have a poll, but how many of you have some sort of, it doesn’t need to be supply chain, some sort of a BPO relationship? OK, leave those hands up. Now tell me, out of all of you, how many of you don’t have an FTE relationship? Can you keep the hands down? One, only two people. So this fear is quite real, yes. Everybody, I understand your point, but everybody in BPO buys FTE. How do you change it?
Yash Chauhan — CEO, Neo Tangent[16:15]
The great disruption — that is the need of the hour. We need to think about it. It doesn’t mean that it is going to come today, right? We may be a small organization, but we were the cost center; if we combine it with Li & Fung, then we are perhaps very big that way. So can we create that disruption? The answer is yes, we will try, and that’s our punchline: evangelizing business process. We don’t want to transform, actually.
Saurabh Gupta — HFS Research[16:45]
Good. So we have about three to four minutes. I’d love to see if you have any questions for Yash. Anybody? I can ask questions all day long — that’s my job.
Saurabh Gupta — HFS Research (Session Moderator)[17:00]
[Audience question] I’m curious whether you’ve looked at digitizing customer interactions, specifically around qualitative exception management in supply chain, and the automation of that through case management or business process management.
Yash Chauhan — CEO, Neo Tangent[17:27]
Yes, of course. That is one of the most prominent issues in the whole supply chain. Yes, we have digital assets on the case management part, where it takes care of these exceptions and the quality management issues. So that gets combined with the source — why it is happening — and the root cause analysis. But yes, we do have that at Neo Tangent. What we are working on — the commercial model — is the value partnering model. We call it value partnering. It’s a little different from value share or gain share. Value partnering is that the customer and us, and maybe a third party as well, come together and focus on the value, rather than who is going to get what. That is the thinking behind it. And then, underneath, how it is going to work — the FTE model is not something that we are totally against, because in some cases it may actually work, but that’s one part, and the second is that there could be alternate models. They could be outcome-based, they could be transaction-based, whatever it is, but the objective is to keep the focus on the value part, value generation together, skin in the game. That’s what we are thinking about, rather than pure labor arbitrage. I think it’s a totally different twist.
Saurabh Gupta — HFS Research[19:07]
When it comes to BPO, whether it’s an FTE model or a value-based one, as we are seeing this biggest disruption of Gen AI, how do you see the future for BPO going forward? Because it’s going to be a straight impact — I know this is process outsourcing, and if that process, regardless of the model, FTE versus value, I’m able to put it into a Gen AI model — is that the biggest disruptor in a negative way for a BPO, or do you see some positives there?
Yash Chauhan — CEO, Neo Tangent[19:44]
Yeah, so it is basically an outcome, whether we like it or not. Definitely it’s the biggest disruptor. But if we look at BPO itself, the most common areas of BPO are finance and accounting, transaction, procurement, customer service, and maybe HR as well. But there are very few engagements — and that’s what the HFS study also says — there are very, very few engagements which are on end-to-end supply chains. So the usual suspects are these kinds of processes or business areas in today’s BPOs. So they are definitely susceptible to this disruption. As far as supply chain is concerned, it is actually not there in the BPO model fully. So we are still in the old era, wherein the merchandisers are still busy worrying about their shipment rather than the product. I mean, that’s the reality. So we have to decouple those, and the good thing is at least we are living in the generative AI era. So instead of going the older way of the labor arbitrage model, can we have a new model? That’s the thinking.
Saurabh Gupta — HFS Research[21:04]
All right. Hey, Yash, thank you so much for flying all the way here. This was a fascinating conversation. I learned a lot, so thanks a lot. Thank you.
