Latest / The Modern Supply Chain / The truth about Alibaba and modern sourcing with Isaac Hetzroni
Transcript
- The main issue people have with sourcing, I'd say outside of China is getting scammed. The amount of stories I've heard of people getting scammed from factors outside of China compared to China's, I feel like 10X, legitimately. Where in China, the transits of you sending money and then the person disappearing is pretty rare other than unless the factory goes bankrupt. Izzy Rosenzweig (00:24): This is The Modern Supply Chain, the show where we break down modern supply chain strategies that help e-commerce brands shift from staying above water to predictably scaling. Today's guest is Isaac Hetzroni. He can be found on social media as a sourcing guy. He's the founder of Imprint Genius, a premier sourcing agency that helps scaling e-commerce brands navigate the complexities of sourcing products globally. Isaac spends half his time around the year in places like China, Bali, Vietnam, bridging the gap between high growth brands and hard to access top tier factories. In this episode, we're diving deep into the tactical side of supply chain management. We'll discuss diversifying into new regions, shifting from a generalist factory to a specialist factory, and how AI is impacting the industry. Isaac, thank you so much for being on the podcast. Isaac Hetzroni (01:11): Thanks for having me, Izzy. Izzy Rosenzweig (01:12): I mean, you got a massive following online. I've been following you before we even met. How do you get into this? You're quite young, right? You're young guy, but you've been into this for a long time. We know companies that use you and we're huge fans. What's your background? How do you get into this? Isaac Hetzroni (01:26): Yeah, so honestly, I was kind of born into manufacturing and sourcing. Growing up in Canada, we had a small apparel factory, maybe 10 employees run by my grandfather. So from a really young age, I'm doing swatches and just understanding the fundamentals of manufacturing. This is in downtown Toronto. Izzy Rosenzweig (01:45): I don't know if we spoke about this before. My grandfather also had a clothing factory with about 12 employees, and I used to go on Sunday and I would spread the material and we would do the cutting. No Isaac Hetzroni (01:55): Way. Izzy Rosenzweig (01:56): Yeah. I don't know if this is hilarious because we've spoken before, but that's really, really funny. Yeah. Isaac Hetzroni (02:02): Is he short for Isaac?What's going on? Izzy Rosenzweig (02:04): Yeah, I know, maybe. That is crazy. Okay, so your grandfather started a factory. I guess in this in the 70s, the 60s, how far back did your family start Isaac Hetzroni (02:13): That? Yeah, it was until ... I mean, I was working there until I was probably seven, eight. Wow. I think is when they shut it down. So I guess until the early 2000s. And they were doing dance wear for a lot of the dance studios and that kind of stuff. So grew up in that scenario and I'd make a loony or a tunio day, but I got a good foundation on basic manufacturing and then foundation of work to money, and then I just kind of loved it. All I wanted to do was just go work at the factory so I could go and get my own money. Later on, my dad got into e-commerce really early on. He was doing electronics and he was having a lot of essentially manufacturing issues, quality control issues. This was a long time ago. This was 25 years ago. (02:57): He ended up going to China a bunch and then deciding, you know what? I think the best best for me to just open up a small factory myself. So then my dad opens up a small electronics factory and starts running that completely by himself. No Chinese partner he didn't need at the time. Izzy Rosenzweig (03:12): Where in China is this? Isaac Hetzroni (03:13): In Sujo. Izzy Rosenzweig (03:14): Wow. This is wild. Isaac Hetzroni (03:16): Yeah. So he was manufacturing power and birds and dumb starters up until a year ago. So about 20 years, my entire childhood and adulthood, my dad is operating a factory in China, which was a crazy way to grow up. So all through high school, I'm working for the factory. And he brings me to China for the first time and my mind just is blown. Wow. I thought this was going to be people with oxes or whatever. And you go to Shanghai and your brain breaks. Izzy Rosenzweig (03:45): More modern than Manhattan. Isaac Hetzroni (03:46): Exactly. And I was like, okay, I know I want to do business in Asia, do business in China and all this stuff. But I didn't know what I wanted to do yet. And then I essentially fell into product sourcing. I started selling ... I was always selling gadgets as a kid, always selling random products. I could find on Ali Express or Alibaba. And I started selling these cell phone fans at parties at University of Florida on slowly college summer days. And then that turned into us doing custom cell phone fans. And then we just started a full scale merchandise agency, sourcing all kinds of products for whatever businesses needed. And then that's when I got to really start learn about sourcing and sourcing different types of products. And then during COVID, as you know, the world's supply chains broke, but also a lot of e-commerce brands, supply chains broke. (04:34): And then that's when we started deviating into working with e-commerce brands. Because as a young entrepreneur, the only other people that are doing cool stuff are the guys running these e-commerce brands. So we picked up a bunch of pretty large brands, built their whole supply chains. And obviously sourcing during COVID was not the easiest. But where was I during COVID? I had to go home. I had to leave college and go home. So now I'm with my dad who's a sourcing expert. And I'm dealing through these very complex sourcing programs and issues. So it was a crazy masterclass of sourcing. And so that was years ago. And then since then, I've traveled all around the world visiting factories everywhere. We've scaled up the agency even more. And about 10 years into the company now, and I'm going to be doing sourcing till Old and Gray. Izzy Rosenzweig (05:22): It's in the blood. I didn't know that background. That is such a cool background. And it's funny, for a little history, downtown Toronto, there was actually a lot of Jewish and Italian Schmata factories, and it was everywhere. Hundreds, if not thousands across US and Canada. And it really, I think, at least for our family business, it shifted when containers became commercialized and they started in the 80s, but into the 90s and then close to 2000 where all of a sudden brands were going to China, like what your father did. He saw the future. So some factories went very niche and it sounded like actually your grandfather stood around for a while because he went pretty niche, it sounds like. You said he went for the dancing apparel space. Isaac Hetzroni (06:01): Exactly. Dancing apparel. So he serviced all the dance studios. So when they needed all the unitards and that kind of stuff, they're manufacturing that. I think that's what you have to do. Izzy Rosenzweig (06:11): My grandfather, the same thing. He went to mother their bride for the talent community. That's how niche it was. It was so small, but it was niche. And because if you try to stay as general, because they used to do general apparel, but then they got knocked out pretty quick because then general apparel went to overseas, to factories that were doing it at scale. And it's funny, my first time when I was in China in 2017, I went to a factory, apparel factory that's cutting apparel. And in my grandfather's factory, we had one big cutting table. And I walk into this factory, there was like 300. I'm like, okay, there's different levels of scale around the world. That is awesome, awesome background. This is a classic question that people watching and the brands that we service very often ask. It's like there's Alibaba and they're sourcing people. (06:57): Alibaba in one hand has tons of data and is actually really good. Another hand, it's a bit of a wild west and it's hard to navigate. When people ask you that question of a brand and maybe the answer is different for different stages of the brand, how do you answer the question of when Alibaba and when's it time to graduate from Alibaba? Isaac Hetzroni (07:16): Alibaba is an amazing platform. I think Alibaba actually gets a bad rap and people think Alibaba is like this place that you go on to get scammed. I would say that Alibaba is actually a really great place for someone who's new to product sourcing to go on because I'd say it's the least likely place for you to get scammed. And there's a few reasons for that. One is there's trade assurance and there's also verification through the platform. So there's checks and balances to an extent. If a factory screws over a lot of people, they're going to get kicked off the platform. If there's Alibaba access intermediary, if you do trade assurance, and so you can open up a claim if there are issues. Now there's even automatic refunds. If the product's late by a certain amount of days, you have the verification process, which is pretty good. (07:59): It's not perfect, but essentially there's third parties that are going to come in, they're going to verify the factory sizes, the export countries, all the certifications, the documentation. And ultimately it's a great tool. You can search by image and use image-based search. They have AI-based searching now. So you can go and find a lot of really great factories through the platform. Where people mess up is that they don't know how to use the platform. So they end up working with trading companies or they end up not setting up the actual order effectively within the Alibaba platform. They're buying shoes, but then the vendor goes and puts the product as water bottles, and then they put the delivery date as in 90 days, and then they wonder why they're losing the claim against Alibaba when things go wrong. Well, it's because you don't essentially know how to use the platform. (08:43): You don't know how some of the Chinese factors or agents sometimes might cheat the platform a bit. But more they use the platform, fantastic. Now, what's the difference between then graduating from Alibaba and utilizing it as a platform? What I'd say is the best factors in the world, a lot of them aren't on Alibaba, and that's because they don't want the type of customer that typically comes from Ababa. So if you think about it, do you think the Nikes of the world are going on Alibaba to go find the next factory and reaching out? No. And so the best factories in the world don't necessarily want the 200 MOQ random orders that they're going to come through. Plus Alibaba, it's kind of expensive as well to actually be on the platform. So it's not like it's like a, "Oh, I'll just do it and it's whatever." Izzy Rosenzweig (09:25): With the factory, not for the buyer, for the factory. For the Isaac Hetzroni (09:27): Factory. Yeah. Yeah. And that's the other piece that people think that, "Oh, I need to move off Alibaba as well because it's going to save me money." The factory's going to discount it. Alibaba charges very little on the transaction. It's actually very worth it. Actually, keep your production if you can on Alibaba and your order on Alibaba because for the tiny couple percent that they might charge, you getting trade assurance is definitely worth it. Where Alibaba makes its money is they make money charging the factories. So they charge the factories for access to different types of RFQs to have the verified badges to show up higher up on the search results. These are different things that Alibaba sells and they might charge for factories tens of thousands of dollars to essentially utilize the platform effectively. But besides that point, the main kind of difference is the best factories in the world, their production schedules are pretty full. (10:19): They're working with huge brands and they acquire most of their customers through outbound sales. So they have a sales team and they're trying to go and reach out to the Nikes and the Lululemons of the world and acquire business that way. Or they're getting business through referrals or maybe they do one trade show a year where they get to see clients and then the right clients are kind of there. But that's also why sometimes you reach out to these factories that you might find through import records and you don't get an email back and you're like, "Why don't they want my business?" It's because they don't need all these small inquiries unless you can- Izzy Rosenzweig (10:52): It's a relationship business for these guys. Isaac Hetzroni (10:53): Yeah, exactly.That's Izzy Rosenzweig (10:55): Fascinating. So I think to your point is a massive misconception. Definitely for brands, I don't know what the right GMV is, but let's call it at least one to 10 million, maybe plus. Alibaba, great place to start. Treat it, I feel like eBay. eBay is one of the biggest business of the world for a reason. You just have to know how to shop on eBay. Look at reviews, look at the validations and just make sure you're doing your due diligence, but it does protect you because if you send a wire to some random factory outside Alibaba, good luck versus Alibaba does keep them honest. Would you say that is true for other major markets or is it mainly China? Can I use Alibaba Vietnam or is that not a thing or something India is a thing? Isaac Hetzroni (11:35): Look, they're working really hard to make it a thing. Obviously as a sourcing guy, I have a deep relationship with Alibaba. I was just interviewing the CEO a few weeks ago. Their goal is to make it a global platform because these other countries don't have really strong platforms. I'd say, for example, for Vietnam, global sources has more infrastructure in Vietnam than Alibaba might because they have their own trade show in Vietnam, which needs work, but besides the point. Where I would say is over time it's going to become better and better. And the main issue people have with sourcing, I'd say outside of China or the main thing people are concerned about or see as issues is getting scammed. The amount of stories I've heard of people getting scammed from factors outside of China compared to China, it's like I feel like 10X legitimately where in China, the trances of you sending money and then the person disappearing is pretty rare other than unless the factory goes bankrupt from my experience, unless you really find some shady guy, but it's a lot of times you might send money over nothing against Pakistan as a country, but a lot of times Pakistani factories and that's what I hear happening. (12:46): And we manufacture a lot in Pakistan and we manufacture a lot in India and Bangladesh as that region a lot, but we know what we're doing. My VP of apparel is from India and understands the culture. So okay, so to answer the question, coming back to it, Alibaba growing in those markets is going to unlock safety. Izzy Rosenzweig (13:04): Like China. Isaac Hetzroni (13:05): And once you have the safety like China, then it's going to be way easier and safer to manufacture in these markets. And especially with tariffs and especially with labor costs and especially with things like Pakistani or Indian cotton, you're seeing a huge cost differential or big cost arbitrage on the same product by moving to those markets that right now we take advantage of as an agent because it's very scary to do that by yourself. And so that's how we're helping a lot of clients that way. But eventually when Nalibaba's in those regions, everyone's going to be able to take advantage of those. Izzy Rosenzweig (13:36): I love that. I'm totally huge fan, totally agree. It's a no-brainer to be using it. Unless you're at a scale or you need something specific that you got to access top tier factories, which someone like you could add a ton of value or you're in India and Alibaba's not there yet, you probably want to know what you're doing. You mentioned something really interesting and it's another big question that very often comes up, trading partners. So you're on Alibaba, some are factories, some are trading partners. Is it a bad thing to work with a trading partner? Is it a good thing? Maybe there's pros, maybe there's cons. How do you look or how do you advise when people are on Alibaba avoid trading partners, not always is a bad thing? How do you think about it? Isaac Hetzroni (14:13): I don't think it's always a bad thing. I think that for a lot of people, it's probably a good thing. I would say if you're going to use a trading company or a training partner, I would try to go with one that's niched to your specific space. So as an example, I'm going and I'm opening up a bicycle repair store. I can go and try to go and source ... I have different options. I can go through a distributor and get all my production distributor and pay a large markup. Or I can go directly to 30 or 40 different factories to get all the different products that I might need to supply my bicycle supplies repair store. And those MOQs are going to vary a ton and it's going to be 30 different relationships and then it's going to be 30 different factories coordinating for one container to fill it up. (15:02): That sounds kind of like a nightmare. Or maybe I use a trading company that specializes in bikes and they're going to have the relationships with the factories already. They're going to be able to go and get me potentially lower MLQs. They're going to be able to go and potentially outfit my entire store and just be a one sole provider. That's worth paying the premium. Additionally, they're going to understand quality across different products. So you also don't want, for example, your bike seats that you order to be for the pros and then the lights that you get are like intro lights. They're going to be able to, for the most part, get you product that's relatively standardized from a quality perspective, which is helpful for any type of business or brand. You don't want to have too much variance or doesn't align. So that's where I think agents in general can help if they understand the category well, and especially if you are looking for a lot of products at lower volume. Izzy Rosenzweig (15:56): I love that. So if you're starting what's called one T-shirt, maybe keep it simple, go right to the factory. You're having a long end of collection, moving parts. Train part might not be the worst thing or an agent might not be the worst thing, or actually actually be very smart. Isaac Hetzroni (16:08): And the other piece is where I'd say is, again, like what you said, if you're talking about one product, it's better to work with the factory because you're probably not going to go ODM or something off a catalog. You probably want to make that one product that you're doing really great and specialized and differentiated. And if you're doing more customization on the product, you typically want to talk directly with the factory and work directly with them for innovation. But I'd say it's great to work directly with the factory on that one product so you can make it really great. Izzy Rosenzweig (16:36): This might be interconnected question, but let's just say you start with that one T-shirt, you're working with the factory, it's a great relationship, blew up, made two million bucks. Now you're like, now I want a line and I want 12, I want jackets, want pants. And the factory's like, "Hey, we'll do it for you. " Is that typical or you're like, "Hey, I'm going beyond your expertise. Maybe it's time for me to find different factories." Have you seen that before or is it back to the same answer kind of back to agent? Isaac Hetzroni (16:58): So this is the most common use case that we have at our sourcing agencies. You started with one product, you scaled it up, and now you need to diversify your product line, but you don't know how to diversify the product line. You don't know how to upgrade to a better factory, and you don't understand the new product categories that you're doing. So from a factory perspective, factories are going to specialize in one product category. If they do too many product categories and they're probably not specialized enough, and you're probably not going to get the most optimal product at the most optimal price, especially people don't really realize when you look at factories, it's not even that a factory makes one product, they're potentially going to do one process of that product, the final assembly. A lot of times the components of a product or materials or dying or whatever that is going to go off out of sight. (17:45): Specialization is incredibly important for efficiency. When people try to go and do their entire product line with that existing factory, they're probably either not really working with that one factory. They're just that factory is working as an agent and finding you other stuff, but ultimately it's lost control. And also the way we've at factories, if we're going to go and source pants and we go and we visit the factory or even virtually visit them and we see their whole production line is like jackets or backpacks or whatever, very, very different products, then we know that it's probably not the best factory for us. Specialization is super important. So what you want to do is then you want to work with, ideally, if you're going to go into different categories and you want to go into backpacks, you want to go into otherwear, you want to work with an amazing outerwear factory, amazing backpack factory, amazing sock factory, amazing t-shirt factory, right? (18:37): You're going to go and build your supply chain at capacity. So some brands can do that. Some brands have the capacity to do that. Fantastic. You should go and separate that. Some brands have a harder time because they don't really understand those other categories. So that's where agents can come in and help you expand your product line. And that's not necessarily a bad thing because your breadwinner might still be your core product and you might still have the really good relationship with your factory on your core product and all these additional products are tests to an extent and it's a way for you to go and ultimately increase your average cart value and grow your business. Izzy Rosenzweig (19:14): Basically, if I'm following correctly, start with the loan product, the specialist factory. You want to expand. If your factory says they could, basically most likely maybe do a tour or get a video. They're basically acting as an agent, but factories aren't agents, they're factories, but they're going to try to act as an agent to get your business. So either work with a real agent or do the work yourself and get many different best factory of Napstacks, back factory out of wear, but don't let your factory become that agent, basically. That's not their main business model. Isaac Hetzroni (19:46): Yes, exactly. Izzy Rosenzweig (19:47): That's a great insight. I actually think a lot of people don't get that. I love that. Question on quality control. It's another thing that actually I am fascinated that more people don't do. We have hundreds of brands we work with, and obviously it's a much bigger world out there. There seems to be at least a common thing that I'm saying is that brands aren't doing quality control. Either they do it once and done and then they trust. So I'm curious, what is your perspective and any crazy stories around if you don't do it? Isaac Hetzroni (20:16): Yeah, I mean, it is the highest ROI thing you can do within product sourcing by a mile. 90% of horror stories I hear about sourcing in the back of my mind, I'm like, if you would've used QC, this wouldn't have happened literally 90%. To give the audience understanding, quality control, what that means is hiring third party quality control agencies to come in and act as your representative to go and check the product. A lot of times this can be even more effective than using your own employees, especially if it's in categories that are new for you. So QC agencies are going to come in, they're going to go and they're going to do a full quality control inspection. They can go in different types. There's different kinds. The most common one is going to be a pre-shipment inspection. So before the good ship, the agent's going to go through and check all the product and make sure it matches up. (21:11): They're going to check a lot of different things. So they're going to have normally an understanding of your specific product category. So they're going to know the right tests to run for SOCs or for waterproof otherwear, whatever the category is. They're going to go and test. If it's electronics, you're going to know how to test it, test the voltages and all, right? They're then going to go as a third party and give you a report and go back to the factory and say, "Hey, you didn't pass inspection." And then that's where it's way less of an awkward conversation because it's not you saying, "Hey, I don't accept this order." It's a third party who's neutral saying, "Hey, you guys did not follow the specifications. You guys have to fix this. " And typically the factories are going to fix it. Now sometimes you're going to have issues and push back or whatever it is and they're going to have their opinions, but for the most part, they're going to fix it because a lot of times issues aren't even that big. (22:02): It's not expensive. It's like 200 to $300 for an inspection, which it's quoted by mandate. So it's like a full day of QC. And typically the QC agencies are global. They have employees all around the world. So people ask them, "Oh, you say, should I just do it for the pre-shipment? Should I do it only the one time, first time working with the factory?" For the most part, you should do it every single pre-shipment, at least the pre-shipment to just make sure because factories switch things up, they change things, they make mistakes, there's a different person imagine the line at that point. So many times I've seen perfect productions for 10 orders in a row and the 11th order there's a problem. And I'm so happy I spent the $300 on a $30,000 order to make sure that it's correct. Izzy Rosenzweig (22:48): One of the areas that we saw, a class example to bring into a bit of a real world example, one of our customers, before we met them, before they reach out to us, they had two containers on the water to arrive September before Q4. And they've been business for two years and come in, every single item is defective. And they've been working with this factory for years. They almost lost Chris. If you lose Christmas season, for many businesses, it's 50% of revenue. That 30, $60,000 PO could be $600,000 or a million dollars of revenue. So that 200 bucks could have saved them Christmas. On that end, they reached out to us. They did a new production. They got it to us in October and we still caught the Christmas demand. But it was an example of if they just would've done QC. You can't do QC two months later if you're using traditional model. (23:39): Our model, we're a little more unique in the fact of Portless. We have many times, unfortunately people do not do QC, catch it at Portless, send it back same day, get it back a couple days later, but just can't agree more, invest into ... And sometimes it's almost headspace, but you got to do what you got to do, get the QC done, the quality control done, and that could save this year, next year, potentially a lot of money. Isaac Hetzroni (24:02): I have another crazy Q story from one of our clients, something you wouldn't expect. So we have a glass cleaning solution company. They do multiple eight figures. They're huge. They've been in business for a long time. We started taking over their supply chain, and so they had their ... It's coming in tubes and bottles and those kinds of products, and they're like, "Oh yeah, everything's fine." I'm like, "Ah, I'm going to run a QC." What QC are you going to run? I'm like, I don't know, to be honest, I'm going to let the QC agent go and just pick around and see if it is any type of issues. Ah, we've been working that for so long, it's fine. We go in and we see in the QC that they were underfilling the bottles by 10 to 20%. Izzy Rosenzweig (24:45): That is wild. And you can't see. It wasn't a see-through bottle. It was like full- Isaac Hetzroni (24:48): No, it wasn't secret. Wow. So how do you know? You just don't know. You have to take the factories. Unless you go and pump it all out or crack it open and figure it out, you can't really know. So the factors- It wasn't a Izzy Rosenzweig (25:00): Defective problem. It was literally they were reducing their cog by 20% and no one had any idea the Isaac Hetzroni (25:06): Factory. No idea. Izzy Rosenzweig (25:07): Wow, that's a crazy story. Isaac Hetzroni (25:08): Caught the factory for 300 bucks. Izzy Rosenzweig (25:10): Crazy. Isaac Hetzroni (25:11): On a brand that's doing 40 million a year. Izzy Rosenzweig (25:13): That's such a crazy story. It's sometimes areas you don't even expect. And to your point, the agencies that go, and like you said, you didn't know what to look for, but they do. In electronics, you're going to get the sourcing company or the QC company will get you an agent, a person for electronics and ask questions you don't even know what to ask. You're in a lot of countries. Yeah. I mean, I think you're very big in China. You're in Vietnam, you're in India, you're in Pakistan. How do you think of diversification? And I guess from our perspective, we see most brands seem to store in China. Most brands kind of Alibaba, they get started, they go five, 10, 15, maybe 20 million. How do you guys think from a sourcing side or your brands from a country diversification? Is that a big thing? Are people trying to diversify, but it's hard? (25:59): How do people choose China versus non-China? What is usually that logic? Isaac Hetzroni (26:02): So there's different reasons to want to diversify. One is from a risk perspective, you want to mitigate risk when there's a war, there's another COVID, whatever the reason is. As a big company, you want to be safe. We have a really big brand that we're talking to right now. And again, they do multiple nine figures and they have a very diversified supply chain throughout Asia, but they're like, "We're still scared of it just being in Asia. We need to start diversifying the Latam as well because we don't know. It might as well." But also their products are simple. Their products are basic Jersey teas and apparel. So it's a category that's easy to bring into Latin. So there's the risk profile. There's a cost profile of China not being the cheapest place anymore to manufacture products. Not all products. China can still be very competitive because they're very efficient in their manufacturing and they have a lot of machinery and specialization. (27:01): But if we're talking about places that have potentially the raw materials, great examples of what I mentioned earlier, like utilizing non-Chinese cotton or non-American cot. Izzy Rosenzweig (27:11): I wanted to ask on that. Why did you say that? Is that a cost? Is that a quality? Maybe you could go a little deeper on that. Isaac Hetzroni (27:16): It's mostly a cost basis. I'd say there's variance and quality between, even within the specific regions, to be honest, you can get in the US and get standard cotton, you can get Pima cotton. Izzy Rosenzweig (27:29): So it's mainly a cost. Isaac Hetzroni (27:31): It's mainly a cost thing. So when you factor in, there's labor. So labor, if you look at labor from China, for some countries, it's like five to seven times more compared to other places in Southeast Asia, it can be three to four times more, which is a big number. Now, sometimes the pricing is actually still close to the same because of how much more efficient China's going to be within their manufacturing. Again, this is not my quote, but this is a factory owner that owns a factory in China and Vietnam. And she says, "My Chinese employees are twice as efficient as my Vietnam employees." Izzy Rosenzweig (28:04): I mean, we have customers that say they go to Vietnam, it costs more money and labor's cheaper there. It's probably around efficiency is my assumption. Isaac Hetzroni (28:11): It's around efficiency and it's also where are the materials coming from. If you have to bring all the materials over from China as well, you have to look into all these things. So if you're going to move your supply chains globally, typically you want to have pretty large scale where it's then cost efficient to build larger scale production lines. I've been to factories in Cambodia that have 50,000 piece MLQs and for bags, not even for socks, for 50,000 bags because they just built the efficiencies have super high volumes and that's how they've ... But then the cost basis on those products are so much better than China. So you're looking at it from a cost perspective and there's tariffs that we obviously have to factor in as well now that's a bigger piece too, and then risk. Yeah. Izzy Rosenzweig (28:56): There's a tax perspective. There is a raw cost of material, probably a raw material access question. I'm sure there's like, what do you want your lead times to be? If it's Vietnam and you don't have the high MOQ, you're getting fabric from China, your lead time is longer. But is there ... I guess a lot of brands, when they get started, they have an idea of a design. They do a tech pack, whole different conversation how you do tech packs. But let's say you do a tech pack and you do a good job, so factory doesn't ask you a million questions. Do brands get involved in the levels of different ... There's such a big world of fabric. How do brands understand the different quality of fabric? You mentioned a couple times of cotton, right? Is it like buying samples to get a sample of a fabric to test it and see if it's good? (29:40): How deep do you see brands go from, I guess, quality of fabric? It's not only price, but quality of as well. Isaac Hetzroni (29:47): So there's two different ways to manufacture, let's say it's specifically apparel. You're going to work with the factory and the factory is going to source the fabric themselves or in some In situations, they're going to have their own stock fabrics and they're going to manufacture products based off of their supply chain of fabrics. And then there's going to be the other supply chain of you going and sourcing the fabric yourself and then sending the fabric over to the factory for them to then cut and sew manufacture the product. So there's pros and cons to both. At our agency, we primarily source the fabric separately and we work with the mills. We source the fabric and then we deliver to the factory. What's the benefit of doing that? Benefit of doing that is you have more control from a quality perspective. And in my opinion, you know exactly the fabric that you're getting. (30:42): There's no if ands or buts about what the actual fabric is composed of and where it's coming from. Then you're going to go and work with the factory and then you're able to negotiate just off of the construction. So now you're breaking down your actual product costs at a deeper level. You have a deeper understanding of your product. And then because of that, typically you can get more competitive pricing. Additionally, the factory is not taking as much liability because they're not taking liability on all the fabric. Their job is to actually construct it. So from a cashflow perspective, from a liability perspective, the factory can be more competitive. From an innovation perspective, if you want to innovate based on fabric, you have to do a separation. So right now we're working a lot on a really popular thing right now is activewear utilizing non-polyester or synthetic fabrics. (31:32): We would never be able to manufacture and innovate in that space if we weren't working directly with the mills to innovate on unique fabric and then handle the construction. If you just go to a factory and you're like, "Hey, yeah, innovate on fabric for me, " they're going to be like- That's not their job. Yeah. Well, it's not their job. Exactly. And that's the whole thing of all this. Let people do their job and make sure everyone's just doing their exact job and what they're best at. Izzy Rosenzweig (31:57): Yeah. And if the value prop for that brand is all about fabric, then you better start at the fabric mills, nail that, then move to factored construction. And we're a huge always talk about devils in the details. And Isaac, you are in the details. And I think this is why you exist and why people use you and we're huge fans. All right. Last question, prediction question. Right now, I guess in five years from now, where do you see, I guess, manufacturing heading? Right now, to me, the big hubs are China, India, Vietnam, Cambodia, at least from what we see from our brands. Do you see an emerging country coming up? Is it Pakistan? Is it Latin America? What are your thoughts on manufacturing over the next couple years? Isaac Hetzroni (32:37): I think people are underestimating the effect of humanoid robots within manufacturing. They're going to be here way sooner than you think, and they're going to get trained very quickly and efficiently, especially with AI. And they're going to become the ultimate factory workers being able to work 20 plus hours a day. They're going to know exactly how to do a specific process. Right now, we use machinery in factories because machines don't make mistakes. Now, these human robots might not have the same type of small skills and logic, but they're going to be able to produce things very effectively. So it's going to take a while before very technical products are manufactured by human known robots, but it's going to be very soon when they're actually utilized in basic manufacturing. So then once you have that application of human robots into factories, and like you said, five years, I genuinely believe we're going to have them in factories within five years. (33:35): Now it removes the labor. We were talking about the reasons why people move manufacturing. Now you remove the labor component from the reason why you would move. When you remove the labor component, now you can manufacture within your country, especially if you're a major country like America. There's going to become so much incentive, government incentives, in my opinion, to then open up your own factories in the US and use humanoid robots to then manufacture products, and there's going to be additional tariffs and all this stuff. It's then going to become incredibly lucrative to manufacture locally. And then once you're manufacturing locally, just like the benefit of portless, that having manufacturing close to fulfillment is incredibly efficient and effective. Izzy Rosenzweig (34:21): But I totally believe that as well. I think there's two angles I always think about that. One is basically a question of who's going to win the robot war. So there's optimist, but I don't know if you saw China, CNY, those guys were doing ninja kung fu stuff. So like, okay, that means China's really good at factories. So could China produce equally as sophisticated robots at scale for cost cheaper than you could at the States? So I'm curious if the cost of making robots will come into play. And then even if you do that, then there's raw materials. How do you think about that? So is it all labor? Is it how long it takes to get raw materials from China to the US? Could the robots start their own fabric mills and all of a sudden you could get a lot of cotton locally? (35:05): It's a world, but I agree. Robots will be the next five years and what that will do to the economics of manufacturing. Isaac Hetzroni (35:11): Yeah, a hundred percent. That's why I think China's still going to be a major winner within manufacturing. It's not going to go anywhere because now why are people leaving China? Because of the labor. Once China then fixes their labor problem, they're going to just continue to be a major manufacturing superpower and actually. It's just Izzy Rosenzweig (35:28): Fascinating when you think of robotics and fashion. It's a whole other subject. Isaac, this has been awesome. Where could people follow you, find you if they want to work with you and learn more about your services? Isaac Hetzroni (35:39): Yeah, of course. I'm @thesourcingguy on Instagram, TikTok, YouTube. We have a lot of really fun content coming out on YouTube where we're going into specific countries and showing you what manufacturing in Portugal looks like or Vietnam or India. And our sourcing agency is we have two of the sourcing guy as well as Impergenius. So you can find us anywhere. Love to work with you guys. Izzy Rosenzweig (36:00): Awesome. Isaac, thank you so much for being on the podcast. This has been awesome. Awesome Isaac Hetzroni (36:03): Conversation. Thanks for having me, Izzy. You're the man. Izzy Rosenzweig (36:07): Thank you for listening to The Modern Supply Chain. If you have questions about anything we talked about, you can find me on LinkedIn. And if you're interested in learning more about Portless, check out our website, portless.com. As always, hit that follow button so you don't miss an episode. See you next time.