Credits: Photo by Xianjuan HU on Unsplash

Supply chains compete, Businesses don’t

Investing in the supply chain works like compound interest. Enterprises are catching up, and VC bankrolls are chasing supply chain startups.

Businesses don’t compete; supply chains compete …
I borrow this quote from an unknown source. No one has been bolder than Amazon to have built an economic moat based on supply chains. Their FBA (Fulfillment by Amazon) model supported by Amazon Flex and predictive shipping has given them a leap of half a decade at minimum vis-a-vis their closest competitors.

Supply chain is no longer a cost center. It has become a means to building sustainable competitive advantage.

Invest in the digital supply chain to build asymmetric advantages for future…

Supply chains are gaining prominence, and most of the large corporations are hiring Chief Supply chain officers to make their supply chains resilient and digital. This is a crucial moment in their journey as they scale and enhance business levers to improve efficiency across the product journey, from sourcing and inventory management to transportation and sustainability.

Supply chain is complex territory, and recent geopolitical developments compound the problem. For example, uncertainty over the tariff situation between the US and China is worrying retailers. This will affect inventory and production costs and consequently, prices globally. To address these problems, Supply chains need to be highly responsive.

A study by The Boston Consulting Group shows a big gap between leaders and laggards in digital supply chain management (on an average basis)

· 10 percent increases in product availability

· 25 percent responsive to market changes

· 30 percent better realization of working-capital reductions

· 40–110 percent higher operating margins and 17–64 percent fewer cash conversion days

To make it sound real.. Marks and Spencer just announced saving £100 M through supply chain transformation (read the story here) .. and there are many more such use-cases.

Observe the number of times executives use the word “supply chain” in an earnings call, and you will see a rising trend

Source: CB Insights

VC Bankrolls chasing SC startups

Supply chain is gaining prominence, and so are digital supply chain technologies like IoT, AI, 3D printing, etc. A market which was once dominated by large ERP players is now becoming fragmented with the advent of new age technology platforms and plug and play applications.

But here’s where the game gets interesting … Most of the promising startups aren’t folding early to get acquired, and the market makers are the usual suspects — Venture Capitalists with their huge bankroll

Before I go any further, here’s a quick primer on how Venture Capitalists (VC’s) operate…

VC’s look to invest in companies that have at least a $100M exit potential. The rule of the thumb suggests, only 10–15% of venture capital investments return above one times capital deployed. And therefore, VC’s survive by exponential returns from select few and modest returns/ failures from many.

Specifically, to supply chain context .. VC’s have a 5–10 years investment horizon when making investments. They are placing their bets on intelligent supply chains that will be quintessential to Industry 4.0; which will drive decision making through big data, integrate data from IoT devices, manage last mile delivery, automated warehouse, predictive shipping, etc.

The fundraising pattern, as shown in the two graphs below, clearly illustrates the new founded interests in SC technologies by VC. While the total fundraising has been ~ 9 B, volumes have picked up significantly in the last 4–5 years.

Cumulative fundraise by SCM Technology Startups (Source: CrunchBase)

And, what is interesting is that most of these companies got acquired at some point by the traditional ERP players like SAP, Oracle, JDA, etc. or by the third party logistics providers. Interestingly, few of the others could ring the bell amongst other High growth SaaS IPO’s

The model is simple (A)Bootstrap / Seed capital, (B)Scale, ©Raise capital, (D)scale to critical mass, (E) combinatorial for “C” and “D,” (F) get bought and flow through the distribution channel to enterprise customers.

Cumulative fundraise by SCM Technology Startups which got acquired (Source: CrunchBase)

Let’s drill this down a little further and understand which VC’s are investing in this space. While the list is representative, you will see a range of reputed VC funds, supply chain mandate funds, and interestingly corporate ventures like Qualcomm, UPS, and FedEx, etc. are also actively promoting the startups in this ecosystem. Refer to the following chart with the most active supply chain and logistics investors.

Source: CB Insights

These VC’s and CVC’s play a long term game with a track record of making companies successful through their ecosystems. What does that mean?

· The supply chain technology ecosystem has tasted new blood and is looking ahead with massive fragmentation of startups challenging the traditional ERP players

· Services players will only survive by building a corp-dev ecosystem of startups, forge meaningful bidirectional partnerships

· New Age Technologies will see improved half-life — Technologies such as IIoT, ML, RPA, 3D Printing, etc., will emerge and see much greater adoption with more time to fail and experiment

· Heated valuation multiples for supply chain technology companies

Question to be asked is … Does this necessarily mean more options to enterprise customers when choosing the best-fit supply chain solution, or they will be confused than ever before?

So why are the flood gates opening now …

Supply chains and their role in the long term competitive advantage has never been so distinct. Digitization of Supply Chain is a key priority for Chief Executives.

According to Statista, SCM Technology “SaaS” is a 5 B market growing at a CAGR of 20% + YoY for the next five years.

The decision making for supply chain technologies is shifting from IT organizations to business/ supply chain organization. This puts pressure on traditional ERP players to demonstrate RoI via improvement in specific operational metrics. Most of them are out shopping for startups and pushing them down the distribution channels (refer to Elad gill’s book high growth handbook).

Supply chain pioneers like Amazon are building the case for disruptive technologies. The emergence of new Concepts like predictive shipping. Amazon holds a patent for Predictive shipping — Products are shipped before order placement. The order is matched with shipments in the network and then rerouted. Imagine doing this manually.

Key Takeaways

· Enterprises are investing in the digital supply chain to build asymmetric advantages for future

· Supply chain and its digitization are gaining prominence as it leads to key operational improvements. The distinction between leaders and laggards is clear

· Decision making for supply chain technologies is shifting from IT organizations to business/ supply chain organization. Software companies are forced to demonstrate RoI via improvement in specific operational metrics.

· SC Technology market is becoming fragmented with the advent of new age technology platforms and plug and play applications. Most of the promising startups aren’t folding early to get acquired

· VC’s with their massive bankrolls are placing their bets on intelligent supply chains; Technologies that drive decision making through big data, integrate data from IoT devices, manage last mile delivery, automated warehouse, predictive shipping, etc.

Inviting feedback and difference of opinions alike.

Footnote :

  1. CB Insights report on Supply Chain Investors
  2. BCG study on Digital Supply Chains
  3. Elad Gill book — High Growth Handbook
  4. Medium blog post by Taimur — How Amazon will dominate the supply chain

Head — Strategy, Biz Ops, & Corp Dev@ Bristlecone. With Interest ranging from Business to poetry, I learn from multidisciplinary pursuits. Views are personal