Author: Andy Stinnes – Venture Partner at Cloud Apps Capital Partners.
The supply chain used to be the nerdy kid of the corporate world. Sure, companies were glad to get their products to market, but they doled out the real glory to departments like product design, branding, and marketing. Managing the uncool supply chain won you few accolades. But I’ve watched supply chain technology evolve over the past 25 years and I think we’re now at an inflection point. Over the past two years, in particular, I’ve started to see a dramatic change in the overall attitude toward supply chain technology.
Here’s another sign of progress: the Chief Supply Chain Officer (CSCO) is a title that didn’t exist 20 years ago but today more and more companies are adding this role to their C-suite. GM, Staples, Honeywell, Petco, and lululemon athleticaare just a few of the big name companies with a CSCO among their ranks. In the past, the people who ran the supply chain had offices in the back of the building. Now their offices are right next to the CEO.
Don’t believe me? Just look at Levi Strauss. The company recently promoted its head of supply chain, Liz O’Neill, to own all of sourcing, product development, and innovation. In other words, she is now the most important executive after the CEO.
There are several reasons why the supply chain is taking center stage. One is the rise of disruptive business trends like mass customization and the service economy. These days, there is a service for just about every taste and occasion. You can get a personal jet as a service, razors as a service, even bacon as a service.
In this service economy, the product is almost secondary. What matters to consumers is ease of consumption. They want a frictionless, hassle-free experience, and it can only be provided by a rock-solid supply chain.
Another factor in the supply chain’s growing prominence is its increasing sophistication. In today’s digital economy, the old linear supply chain must give way to an omni-channel supply chain that can accommodate the many new ways consumers interact with their favorite products and brands. So the best supply chains now embrace emerging technologies like artificial intelligence, blockchain, robotics, and the internet of things to work better.
Walmart, for instance, just rolled out a new blockchain system that enables its lettuce suppliers to instantly track their product back to the farms where it was grown. This kind of food traceability has life-saving implications, such as in cases where tainted romaine may be the cause of an E. coli outbreak.
Another new technology making an impact on the supply chain is drones. There are now use cases of drones flying around warehouses and taking inventory. Outfitted with RFID and barcode readers, these drones are able to check inventory with far greater accuracy because they can easily reach the highest shelves in the warehouse and other hard-to-access areas. Traditionally, taking that kind of inventory required forklifts and was very labor-intensive and time-consuming.
And then there’s IoT. One of the big challenges in the global supply chain is gaining visibility into where products and materials are located at any given time. Some companies are now driving innovation in this area by placing IoT sensors throughout the supply chain to create a high-definition, real-time image of what the supply chain looks like at any given moment. As a result, these companies always know how much inventory they have and where it’s located, so if they’re planning a promotion, say, they won’t be caught short.
What does this all mean? As a venture investor, for me it means there is abundant new opportunity for entrepreneurs to create disruptive startups targeting the supply chain market. Historically, supply chain technology was not a hotbed of venture activity, but that is quickly changing.
Over the last several years, the number of venture dollars and the number of deals in the supply chain space has picked up significantly, especially when it comes to logistics and transportation investments. In 2016, for instance, venture investors pumped a record-setting $4 billion into 245 startups in shipping and supply chain management, according to CB Insights.
What I find most attractive about the supply chain is that, while it may not be as sexy as social media or other sectors, it is mission critical. What’s more, most enterprises are still running their supply chains with old, outdated technologies like the IBM AS 400 system. There is a very real opportunity to replace that technology and help companies make a quantum leap forward.
Another key factor working in favor of today’s supply chain startups is the cloud. Thanks to cloud-based technologies, the amount of investment capital required for a supply chain startup to reach escape velocity is significantly lower. What’s more, with the cloud you can serve a global market from the moment of launch. Supply chain entrepreneurs can build global companies from the word go.
As an investor, however, I am skeptical of certain supply chain startups. The first thing I want to know is whether the founding team has domain knowledge in the supply chain. In other words, have they worked in the industry previously and do they really understand supply chain? Let’s not forget this is a highly complex, mission-critical area with lots of nuances. So we want to back people with deep experience in the industry who have wrestled with these problems before and really understand what they’re dealing with.
That’s not always the case with supply chain startups. They may have an interesting story and a young, highly motivated team. But often they don’t have direct experience in the supply chain and have not lived the problem personally. That’s a problem, of course, because the only real way to build relationships and win trust with customers is by building technology that appropriately addresses their needs.
So here’s my key piece of advice: If you’re an entrepreneur who truly understands the supply chain and can identify new opportunities for improvement, it’s time to make your move. VCs are paying attention to the space, and there has never been a better time to chart a course for supply chain success.