A VC in Vacationland

The 'New Normal' is now the 'No Normal' in Supply Chains

Supply chain disruptions are nothing new. We've had many in the past and will have many more in the future. But this time may be different. Why?

Historic supply chain disruptions were often caused by single, localized events.  Take the federal deregulation of the U.S. transportation industry in the 1970s and 1980s. Carriers were freed from charging freight rates based on regulated tariffs controlled and monitored by government bureaucrats. The result of deregulation was that shipping rates fell dramatically, enabling carriers (and shippers) to move goods over greater distances at lower rates. Producers, distributors, and retailers sought to expand markets in new regions, set up distribution operations, and serve new customers. Hub & spoke logistics networks emerged, with plant-based warehouses serving a distributed network of regional facilities close to customers. Absent major new shocks to the system, this became the defacto supply chain strategy for many companies until the 2000s. A New Normal for U.S. supply chains was created and lasted for many decades. 

Of course, we are oversimplifying what actually happened. There were many innovative changes that happened inside this basic strategy and continue to happen. But e-commerce, coupled with globalization and political uncertainties has created a new set of disruptions that will continue to impact supply chains for many decades. And it is likely we will never return to a New Normal in supply chains as a result. Why is today different? 

The simple answer is that supply chain participants have less control over their shipping environment than ever before. When supply chains were primarily U.S.-focused, shippers and carriers could interact in a regulatory world that was well-known and understood. Adding in trade among hundreds of countries, which began in earnest in the late 1990s and early 2000s, has opened supply chains to many more unknowns-different regulatory schemes, political conflict, impacts of a changing climate, and wars, among other factors.

Coupled with the rapid growth of e-commerce and you have another disruptor altering carefully plotted supply chain strategies. Consumer gratification, thanks in part to the Amazons' and Alibabas' of the world, has morphed to become 'get it when and how I want it'. Instead of the old paradigm--the manufacturer makes a product, and sells it to a distributor or retailer, who puts it in a store for the consumer to pick it out and up--designing supply chains has become the wild, wild west in terms of satisfying consumer needs.

In addition to showing up and shopping at a local store, consumers now can get their purchases from many participants in supply chains via drop ship options--the product could be sent directly from a supplier in China, from a U.S. plant, or via a distributor, a regional warehouse, or even from the local or distant store via a courier.

All this has led to an increased focus on supply chain resilience--meaning that one may need more rather than fewer options to satisfy consumer demand. And it goes well beyond sourcing strategies. Political conflicts, wars, climate change, and concerns about human exploitation are all creating disruptions in established parts of supply chains--product sources, ports, and carriers are not always able to (or should not) handle pre-determined shipment routings. 

We likely will never see another New Normal in supply chains. Perhaps as the title says, the New Normal is now the No Normal. With hundreds of thousands of independent but interdependent supply chain players making the global logistics systems work, all will have to change the way they do business. And if that is a present and future reality, then we will need a whole new way of looking at supply chain strategies--ones that can have the flexibility to change quickly as global events affect pre-planned operations.

But that is a subject for a future Blog--stay tuned.

SRR---Sustainability, Resilience, Risk Management: The Latest Supply Chain Buzzwords & Investment Opportunities

Whatever you want to call it, supply chain professionals are now more worried than ever about where their stuff is coming from. And the worries are from a variety of perspectives: Can I assure my stakeholders/shareholders that the stuff I'm making is not being produced by child labor, or by cutting down rain forests? Can I ensure that my supply chains have the resilience to respond to a number of possible crises--both known and unknown? and finally, if a crisis does strike, do I have the capability to respond and manage risk, such as having alternative supply sources for key materials?

Sustainability, resilience, and risk management  (SRR) issues are not new in supply chains. They have, however, been amplified by the globalization of supply chains over the past few decades. Even so, companies have been slow to adopt the tools and technology to better manage SRR in supply chains. There are a few reasons:

• Episodic Events--most supply chain disruptions in the past (pre-COVID) happened only once in a while--an earthquake in Japan, a flood in Bangladesh--might shut down a supplier for a few weeks or longer. Bad news if that was a single-source supplier, but after a few months all was back to normal and likely forgotten
• Cost versus Benefit--it's hard to convince senior executives to spend a lot of money to mitigate events that happen only once in a while, or never
• Woke Consumers--it's only been in the last few years that consumers have started to ask companies where their stuff comes from--no blood diamonds, no child/prison production labor, no tearing down of rain forests, etc. No pressure on senior managers means no mandates to improve supply chain visibility & sustainability.

The pandemic is resulting in fundamental changes in supply chain thinking around SRR. Even before COVID, major manufacturers and retailers were requiring suppliers to document where their products were coming from and that they were produced in a 'sustainable' fashion. COVID has only accelerated that trend and piggybacked sustainability with risk management in the process. If you are going to make sure that your suppliers are playing by the sustainability rules, you can also get a better idea if they might pose a risk to your sourcing strategies going forward.

Like flowers in a desert after a rainfall, SRR now appears on many software provider websites, whether or not they have the capabilities to provide deep insights into the issues and a process to mitigate them. We are pretty sure that these providers are only selling a lot of vaporware. SRR requires complex technology built to specifically focus on identifying and documenting suppliers at all tiers (1,2,3,4 and beyond) in a product supply chain. That's where we have made our initial investments in the space.

Our first investment was back in 2002 when we funded risk & resilience management company Resilinc. Resilinc's heritage was helping companies find alternative sources before their competitors when a natural or man-made disaster struck a supply chain. Their vision is for the world to have a place where suppliers and customers can collaborate securely with transparency and trust as the foundation. For a stronger, resilient, sustainable, and fairer supply chain that delivers on the promise of its positive impact on our lives. Today Resilinc’s flagship supply chain visibility, mapping, and AI-powered monitoring, and predictive analytics platform are widely considered the gold standard for resilience.

In 2017, we made our second investment in the SRR space, supplyshift. supplyshift provides supply chain transparency and responsibility software that helps companies discover the insights they need to mitigate risk and improve supplier performance — protecting your business, people, and the planet. supplyshift's primary focus is on sustainable supply chains, allowing companies to assure consumers that the products they are selling are coming from ethically-based supply chains--ones without labor exploitation, planet damaging sourcing, and illegal/counterfeit products, among other factors. They provide a suite of tools purpose-built to accelerate a company's supply chain responsibility efforts--from smart assessments upfront to sophisticated data, dashboard and analytics. 

What do we look for in SRR investment opportunities? Our two investments collectively do a fine job of covering the basics in the space. Here are a few factors we consider when evaluating other investments:

• Native, purpose-built technology-- many legacy providers are now claiming to have similar SRR capabilities, but their platforms were not built from the ground up to address SRR issues. We look for unique technology specifically focused on the end solutions-mitigating risk, enhancing resilience, and documenting sustainability.
• Clear business cases--as we said earlier, it's tough to create cost/benefit analyses showing how your SRR product can create real value for a company. We look for well-documented cases where real value has been created.
• Consistent, not episodic use--one of the early issues in the SRR space was that the solutions were not used on a daily basis and risks were low for supply chains disruptions. Since COVID, all that has changed and it may be years before a new normal (stable supply chains) emerge. The software should be designed to provide valuable data on a daily basis to supply chain decision-makers. 
• Unique market solutions--supply chains are as unique as the products they serve. Opportunities exist for new SRR solutions to serve various unique verticals that do not fit into existing SRR solutions. 

 

 

 

3PLs--Investing in the Next Generation of Outsourced Supply Chain Solutions

3PLs (Third-Party Logistics Companies) have been around supply chains, well, forever. Using outside logistics capacity to supplement (or replace) in-house distribution capabilities is a lower cost (think operating, not capital costs) way to add extra trucks or warehousing space during peak shipping cycles or in new regions where product demand is still emerging. With the growth of eCommerce, 3PLs have taken on entirely new roles for many organizations, providing next-day/same-day shipping when such capabilities do not exist in-house. A number of our e-commerce investments--Shipmonk, Alaiko, and Mercado Labs are also some form of 3PL--either asset owning, or asset-light--and focused on the e-commerce space. Other of our 3PL investments are more generalists or focused on a specific industry segment, like cold chain logistics or cross-border freight.

Our investments in 3PLs started about five years ago when we invested in Lineage Logistics. Founded in 2008, Lineage has grown to the largest global cold-chain logistics company. Lineage is the Journey of Food. Reimagined. They are transforming the supply chain by preserving, protecting, and optimizing the distribution of food around the world - in a way that hasn't been done before. In 2021, Lineage acquired another of our portfolio companies Perishable Shipping Solutions to enhance its Producer-to-Consumer (P2C) cold chain direct offerings.

Transplace, was our second 3PL investment in 2017, partnering with the TPG Industrial Fund, investing, and joining the Board of Directors (Dan). Transplace powers one of the largest managed transportation and logistics networks in the world with ~$15 billion of Freight Under Management (FUM) and 62,000 unique users on their platform. They are committed to achieving supply chain excellence for customers by providing greater visibility and control of logistics networks to drive continuous performance improvement. Companies of all sizes rely on Transplace to deliver trusted outcomes through best-in-class logistics management, strategic capacity, and cross-border services. They deliver on the customer promise with our tech-enabled solutions platform that is backed by the unrivaled combination of innovative technology and a dedicated team of domain experts, engineers, and data scientists. Transplace was sold to Uber Freight in November 2021.

In 2021, we invested in Capstone Logistics along with H.I.G Capital and Dan joined the Board. From inbound logistics through last-mile delivery and returns, Capstone's integrated logistics services optimize supply chain performance for their partners by reducing costs, adding unique value, and mitigating risk. They offer a full suite of warehousing and fulfillment solutions that enable their manufacturing and distribution partners to outsource supply chain activities and create efficiencies. Through their freight management and last-mile divisions, we provide a wide range of reliable, high-touch transportation capacity services.

What do we look for in new 3PL investments? Here are a few criteria:

• Unique Markets--we look for providers who serve higher margin and stable companies, ones that understand the logistics in the space
• Fewer Competitors--There are thousands of companies that call themselves 3PLs. Many are very generic providers with no service specialties. We prefer 3PLs with a narrower focus that can meet emerging market needs profitably.
• Advanced Technologies--3PLs with world-class planning and execution technologies, coupled with sufficient (but not excessive) automation, will be the winners over the next decade.

 

Supply Chains--Capitalism's Greatest Success Story and Biggest Problem Going Forward

Call me a curmudgeon, but I'm tired of the 'misery du jour' surrounding current supply chain problems.

Supply chains have become the whipping boy of the global press. It's hard to not find a daily derogatory story about how Christmas will be ruined, carmakers can't get enough semiconductors to finish/sell vehicles, or the number of ships waiting to unload at LA/LB will cause chaos in the US. Wait a minute. Supply chains are working so well that store shelves remain mostly full, Amazon Prime packages still arrive (perhaps a day late) and one can still get their Big Mac every day at thousands of McDonald's across the globe. Enough chaos nonsense already...

Why are supply chains one of Capitalism's greatest success stories?

We had a non-supply chain-oriented friend ask who controls the global supply chains? Is it the United Nations? Some other regulatory body? Of course not. 

Supply chains are one of capitalism's best success stories. Getting a product from a manufacturer to a consumer involves thousands of totally independent players doing their own thing. Think of bringing a product from China to the US:

• Local Chinese suppliers ship to a local manufacturer
• The manufacturer makes the product 
• A container is loaded, perhaps for more than one manufacturer
• Local drayage companies moved the container to a local port
• Freight forwarder arranges ocean shipping with carriers
• Customs broker arranges custom clearance in receiving country
• Port operator loads container on the ship
• Container shipping company moves container to US port
• Port unloads and drays container to a railhead/local logistic hub
• Over the road/rail flows from the hub to distributors or retailers
• Retailer moves the product to the consumer via e-commerce or pickup

As any supply chain professional can tell you even the above movement complexity is a gross simplification of what actually happens. And this is only a single shipment. Millions of such moves are initiated and are taking place on a daily basis across the globe.

All these logistics providers are generally separately owned and operated. Supply chain management is a fragmented business, with numerous small and large companies all performing specific tasks to make a move happen. Of course, some global players like Maersk are looking to manage all aspects of movements for shippers, but when you look under the hood, they are still dealing with many local, forwarders, brokers, drayage companies, etc., to make a move happen.

So everyone please relax for a bit. We definitely will be missing holiday presents, but we still have plenty to eat (well, most of us), thanks to our well-run supply chains. Perhaps it's the year to give experiences and/or services to our kids and friends as opposed to a product. With all the products stuck in the US to China supply chain, there will be plenty of bargains available in January and February to satisfy our need for physical possessions.

Why are supply chains one of capitalism's biggest problems going forward?

We discussed the emerging evolution of supply chains in a previous Blog--Ship Anything From Anywhere. The basic premise is that our current supply chain technologies allow us to create even more instant gratification options--basically getting a product or service when we want it, from where we want it, and how we want it, regardless of the environmental and social costs.

The poster child for this is Amazon, currently building out over 450 processing/delivery sites to handle both the holiday shipping crunch as well as position the company for the new world of 'get my stuff (nearly) instantly'. All this supply chain development is occurring in the midst of one of the greatest crises civilization is facing--global warming. We know some of you consider this a fallacy, but the reality is that as we add more single shipments to supply chains we are increasing carbon emissions with little consideration for the consequences. Technologies are emerging, such as electric delivery vehicles, which will reduce some of the impacts, but we also need to consider how we will make the electricity to charge all these vehicles.

We are not going to get all preachy about the emerging issues around how supply chains will exacerbate global traffic congestion, create new environmental externalities and spawn unseen impacts on quality of life going forward. We would rather focus on solutions than on yapping about the problems. The trick will be to get millions of independent supply chain partners to act in ways to collectively mitigate these issues, something that they have never had to do in the past. It's going to be an interesting next few decades.

 

Deep Technology in Supply Chains--Defining the Future

Deep technology--generally defined as technology that could take a decade or more to reach commercialization--is not a favorite investment of most VCs. Long time horizons, costly development costs, and early-on marginal market acceptance all make the typical VC firm shy away from such investments. But we need to bet on the future as many of our current technologies in supply chains are not sufficient solutions in the emerging new world order.

We were first introduced to Deep Tech when MIT founded The Engine. MIT faculty were coming up with many potential innovations, such as driverless cars, and having trouble getting venture capital firms to listen to them. Starting with a $150 Million deep tech fund in 2015, The Engine has a portfolio of over thirty innovative companies housed in an incubator in Cambridge and soon Somerville, including two that Supply Chain Ventures has invested in:

• Mori--an all-natural protective layer that slows down the spoiling process of fruit, veggies, meats, and seafood to help you enjoy fresher food for longer. Mori is pioneering a natural, ultra-thin water-based coating that is applied to food to slow the exchange of gasses that cause decay. About the thickness of two red blood cells or just a fraction of the width of a human hair, their coating is tasteless and invisible, giving food drastically longer shelf life, without altering it in any way. The coating also enables less or alternative packaging, as it extends shelf life independent of plastic wraps, a fact that is not lost on food producers, retailers, and environmentally conscious consumers. Born out of Professor Fiorenzo Omenetto’s silk lab at Tufts University, the startup’s core technology was co-invented with Benedetto Marelli (now a professor at MIT with a lab dedicated to materials science and its intersection with agriculture). The pair were investigating the power of silk to stabilize drugs and vaccines when Marelli had the idea to stabilize something significantly larger: a strawberry. He coated the fruit with a silk solution and waited. Days later the strawberry still looked fresh—the coating worked. It was Omenetto and Marelli’s relationship with Mori co-founder Livio Valenti (also the founder of Vaxess Technologies, a silk-based technology company) that brought CEO Adam Behrens into the fold. For Behrens, harnessing a commodity material like silk to do something profoundly high tech, was nothing new. “The underlying theme of everything I worked on in my academic career was cost sensitivity. I fell in love with developing solutions out of seemingly unsophisticated materials,” he notes of his time as a doctoral candidate at the University of Maryland College Park. Behrens also spent time at MIT’s Langer Lab, where he worked on technical solutions to problems in the developing world, including single injection vaccination, point-of-care detection of infectious diseases, and food fortification. The mission-driven nature of this academic work, funded in part by the Bill and Melinda Gates Foundation, has compelling similarities to work at Mori. In both cases, Behrens is helping to solve problems that disproportionately affect those on the margins. Its founders consider Mori an “anti-waste company” and its mission is to make healthy food more accessible by keeping it fresher, longer.
• ISEE--ISEE is engineering next-generation, humanistic AI to automate the logistics industry from dock to door. ISEE was the first autonomous driving company to achieve exit-to-exit autonomous highway driving, the first to merge onto a highway in heavy snow, and can handle congested traffic better than one of the most well-funded autonomous driving startups in the world. ISEE’s core technology is purpose-built for complex environments with high uncertainty (like shipping yards and congested highways). It understands context and infers the intentions of other drivers to navigate all possibilities as they arise, unlike other AI solutions that require hard-coding. Co-founders Yibiao Zhao and Chris Baker based the technology on the theory of mind, or the ability of humans to comprehend the intents and beliefs of others. They realized that if they could design an AI that could infer, then that AI could successfully navigate dynamic and unpredictable roadways. It wouldn’t need to know all possible solutions to a problem, it would just need to know how to react at the moment. The logistics industry is not one-size-fits-all. And that’s precisely why ISEE chose to pursue it. With its multiple vehicle types, highly variable operational settings, and shortage of drivers, logistics is uniquely suited to the value ISEE can provide. Its AI can boost efficiency in a shipping yard just as easily as it can navigate a highway trip or the stop-and-go traffic in a city at rush hour. And for logistics companies, there’s no need to buy new vehicles—the entire ISEE platform can be retrofit onto existing infrastructure. 

Another MIT-founded company, Thiozen, is also an investment by Supply Chain Ventures. Thiozen is a newly formed company focused on commercializing a novel chemical process to generate low emission hydrogen from sour gases. Their new process has the potential to dramatically reduce emissions from sour gas processing and hydrogen gas production. In 2021, Thiozen raised a seed round led by Eni Next with participation from Good Growth Capital, Supply Chain Ventures, and Mount Wilson Ventures. Thiozen will use these funds to scale its technology to a commercial demonstration. Success will accelerate the energy transition by allowing large energy customers to turn a sour gas waste stream into valuable low emission hydrogen. Current methods to produce hydrogen contributes to over 2% of all greenhouse gas emissions. Thiozen’s process dramatically reduces those emissions, with the power to avoid 300 million tons of carbon dioxide per year – double the amount of decarbonization achieved by installing solar panels on every US household.

Our investment in deep tech for supply chains is opportunistic. We do not see many such innovations directly. Often universities and other labs recommend such companies to us. If you know of any worthy of investment, please let us know.

 

Has the DFN Train has Left the Station?--Why we don't invest in 'Popular' Supply Chain Trends

We are often asked why we don't invest in 'hot' supply chain spaces--digital freight networks, local delivery companies, etc. It's just not true that we do not invest in these spaces.  We just do not invest in 'me too' companies that have no differentiation among the competitors. We have looked at over twenty-five DFNs in the last few years and have found a few that solve unique problems in freight matching that others have not tackled.

Loadsmart, for example, was one of the first DFNs to incorporate AI into evaluating past freight flows to determine patterns that aid in the creation of efficient backhaul. Torch Logistics, another DFN, is focused on the short-haul (daily turn) freight matching space--one often treated as a second cousin by the big brokers, but one rising in importance as more short-haul truck moves are needed in eCommerce operations. Transporeon is a cloud-based transportation sourcing and management platform in Europe. And Leaf Logistics focuses on booking moves many days in the future, whereas most freight is booked in one to two days before moving. Pelicargo is focused on helping smaller freight forwarders and shippers book air cargo space, something the big brokers don't like to handle. 

There are other ideas in the space that are also interesting if a founder came along with a fundable business plan:

• DFNs incorporating real-time data (including traffic, dwell times facilities, and weather)--we are seeing transportation management systems starting to use real-time data in an a posteriori sense as the load is tracked, but not a priori as the freight is being booked
• DFNs focusing on other unique movements (similar to short-haul freight)--cross border flows are one example, especially with  moves a few miles of the border
• DFNs--surprise us with something completely original.

 

Visibility in Supply Chains--What are the Emerging Solutions?

One of our long-term investing themes at Supply Chain Ventures has been shipment visibility in the supply chain.

Why have we not been big fans recently of the traditional supply chain visibility space?

Here are a few reasons:

1. It's a crowded space--we have probably looked at 25+ startups doing what other providers are already doing very well over the past few years 
2. Business case/value proposition--beyond hi-value products, there is not a great demand for real-time shipment tracking--close enough is OK for most shipments
3. Visibility is not a standalone solution--its value lies in being integrated with a suite of supply chain software and used to make supply chain decisions.
4. Innovation--there are new players emerging that will upend current visibility providers.

We do think visibility is a key part of supply chain management. The visibility space is fast evolving and new technologies are creating more valuable shipment-specific data than just answering the 'where's my stuff' question. We like to stay well ahead of current technology in our investing, preferring 'what's next' rather than 'what's hot today' investing themes.

Let's look at examples of the current state of technology in supply chain visibility:

Old School Visibility--We started investing in visibility startups over 20 years ago. LeanLogistics, the first native SAAS Transportation Management System (TMS) founded by my now partner, Dan Dershem, and currently part of BluJay, was the first investment in our Fund I. Early on, we found that customer service teams at clients were constantly pinging the TMS data for shipment status reports to answer customer questions on when orders would arrive. In most cases, shipment update data was provided by the carriers who were delivering a load. Many carriers rely on telematics data from numerous providers (Verizon, among others) who track vehicles using GPS technology and provide updates to carriers on vehicle location, among other information. We also discovered that many owner-operators had no way to update carriers who were using them to deliver a load (except a barrage of phone calls). That led us to invest in Macropoint, which provided owner-operators with an app on their phone tied to GPS that would provide a constant update via the Macropoint platform to both carriers and shippers. We sold Macropoint a few years ago to Descartes Systems.

Current Visibility Players--Project44 and Fourkites have done a superb job of bringing together many disparate visibility databases for all modes, not just trucks to create close to 'full move' visibility data. Black holes in visibility data still exist, such as inside many ocean ports and for drayage providers, although more info is becoming publically available. Other players include Clearmetal and Blume, each of which provides multi-modal shipment data, often including international shipments. The issue we have with the current players is that visibility is based on a melange of databases some compatible, some not. And these solutions lack other relevant information on a shipment, such as temperature, humidity, shock, etc.

Emerging Visibility Solutions--sensor-based shipment tracking is the source of visibility data, now and in the future. Although only a small percentage of current shipments are sensor tagged at the moment, this will grow rapidly over the next five years. Why? The sensor data provided is much richer than just TMS-based information, detailing temperature, shock, humidity, tamper alerts, etc. Although historically high values goods such as pharmaceuticals and electronics could afford to put expensive sensors on a shipment, the cost of a sensor has come down significantly in the past few years, making the technology cost-effective for almost all shipments. We have invested in a leading player in sensor-based supply chain visibility, Tive.

How will the future of visibility play out? It's already starting. Transporeon, one of our portfolio companies, has just announced partnerships with two sensor-based visibility solutions--Tive and Roambee. The partnerships will allow Transporeon to marry telematics data with sensor-visibility data, reflecting the growing need for shippers to manage condition-sensitive shipments amid a congested global environment. Sensors capture significantly more real-time data on shipment conditions than traditional GPS-dependent vehicle tracking data, ensuring for example that temperature-sensitive shipments can be monitored throughout the trip and corrective actions taken quickly, as opposed to upon delivery when it may be too late to save the products.

What do we look for in Emerging Visibility Companies? There are three key areas:

1. Software--does the company have the software to create meaningful information from the plethora of real-time data generated by the sensors? Current supply chain legacy tools, such as SAP APO, cannot easily integrate such information into decision tools
2. Use Cases--does the company have a number of interesting use cases across a variety of industry verticals as to how the real-time data can be used for other applications, beyond traditional shipment visibility. An example would be measuring if shock-sensitive chemical shipments were mishandled in transit, resulting in quality degradation.
3. Sensor agnostic--there will be a variety of special-purpose sensors developed going forward. No company should be dependent on a single sensor for all applications.

One final note--sensor-based applications will become increasingly important in the emerging Internet of Things (IoT) space, opening up a number of new market opportunities for emerging visibility companies. That's a topic for a future Blog post...

 

 

The Mule and the Farmer--a Modern Parable for Founders

A parable is told of a farmer who owned an old mule. The mule fell into the farmer's well. The farmer heard the mule 'braying' -or whatever mules do when they fall into wells. After carefully assessing the situation, the farmer sympathized with the mule but decided that neither the mule nor the well was worth the trouble of saving. Instead, he called his neighbors together and told them what had happened...and enlisted them to help haul dirt to bury the old mule in the well and put him out of his misery.

Initially, the old mule was hysterical! But as the farmer and his neighbors continued shoveling and the dirt hit his back ... a thought struck him. It suddenly dawned on him that every time a shovel load of dirt landed on his back, he should shake it off and step up! This he did, blow after blow. "Shake it off and step up...shake it off and step up...shake it off and step up!" He repeated to encourage himself. No matter how painful the blows, or how distressing the situation seemed the old mule fought "panic" and just kept right on shaking it off and stepping up!

It wasn't long before the old mule, battered and exhausted, stepped triumphantly over the wall of that well! What seemed like it would bury him, actually blessed him...all because of the manner in which he handled his adversity.

It's the life of a founder. The more you get challenged, the more you rebound, brush yourself off, and move closer to your envisioned destination--a successful startup. There are few shortcuts, as the mule found out--go with the flow, deal with the challenges, and hope to come out on top.

What are the Upsides & Downsides of the Coming 4th Q 2021 Supply Chain Armageddon?

We hope we don't get labeled as curmudgeons as a result of this post. We are trying to see the positives and negatives of the ongoing supply chain crises facing the world.  Supply chains have not been top of mind for anybody(but supply chain professionals) for years. Now it's top of mind for most everyone and will remain that way for a long time. And, truthfully, we hope we are wrong about the depth and length of the problems but we don't think so...

We know it's coming. Manufacturing problems in Asia, too few containers & ships, overcrowded ports, lack of landside freight capacity in the US, Asia & Europe among other factors point to a further supply chain meltdown over the next three months.

There's not much many of us can do about the continuing problems with supply chains. And it's not just one issue, it's many that are simultaneously interacting to produce the current crisis. If you are a huge global shipper like Ikea, you can charter container ships to move your boxes, but good luck getting them unloaded and transported inland with any decent transit times. For everyone else, you better buy holiday gifts early, if you even find any now.

Let's focus on a few upsides first.

From an infrastructure perspective, the current problems in global supply chains will put a fine focus on an area that has historically suffered from underinvestment, both in infrastructure and in technology. Expect to see governments ( we are thinking about you, Egypt, who should have widened the Suez Canal decades ago), European countries who need to expand rail capacity for inland freight (the roads are already overloaded), Asia to build out landside transportation from plants to ports and North America (just about all freight infrastructure upgrades are past due, also by decades). Will governments and private companies step up to the challenge? We'll see. We are not holding our breath. We are already seeing missives from the freight PR lobby that the supply chain crisis is due to over-ordering/buying by companies and consumers, not because carriers, ports, et.al. don't have enough capacity. There's some truth in this argument, but the word 'some' is operative.

From a technology perspective, many carriers, shippers, ports, and affiliated players (forwarders, etc.) are on a supply chain technology buying binge. It remains to be seen how much of this technology will positively contribute to reducing backlogs in supply chain operations, but it's better than doing nothing. Why are we skeptical of these technologies as a solution? Often, these new technologies will focus on optimizing a single supply chain player's operations, not across the complex global supply chains that they participate in. There are definitely supply chain technology solutions that begin to optimize operations across multiple segments of the supply chain, but their adoption is the exception rather than the rule.

How about the downsides?

It's not going to get any better for global supply chains any time soon. Why? it's not just a few problems it's many and some, like COVID Delta (and newly emerging viruses), are outside the control of supply chain professionals. It will take years to restore any semblance of normalcy in supply chains as many of these current issues cannot be attacked simultaneously--we can build a lot more containers really fast, but it will take years to launch new container ships to move them.

Consumers will discover the wonderful world of substitute products. Whole Foods and other supermarkets have bare shelves in every aisle, different ones every week. Even Amazon can't figure out how to correct supply chain problems. When's the last time you actually got an Amazon Prime order in two days? One of ours came today (Reid Hoffman's new book, Masters of Scale--highly recommended), the first one in months...and the last for a while, looking at estimated delivery dates on other orders. No Ritz crackers or Oreos for months? Mondelez workers are on extended strike, another twist to supply chain problems. Late July has some good substitutes, but their shelves are now empty as well from substitute buying.

Companies will have to pare SKUs, increase prices and improve inventory positioning. We have lived through an era where SKU proliferation has created much more supply chain complexity, stuffing supply chains with 'new' products, ones that have minimal tweaks to the existing products but creating more stuff to move through the supply chain. We have also lived through a time when distribution center consolidation has led to fewer inventories sources nearer consumers. The growth of omnichannel shipping and next-day/same-day deliveries has companies scrambling to rent/build more warehouses closer to prime markets. It's going to be expensive for companies to make these transitions, require new facilities and technology, and keep the CFO up at night deciding how to pay for it all. And oh, by the way, product prices will be going up to pay for it all.

So what's the average consumer to do in this wonderful world of supply chain crises? Grin and bear it? That's the reality for most. It's hard to find other supply chains to replace the ones that feed, cloth, and provide us with all the other products in our lives. Being creative in shopping is another approach. Wise supply chain gurus have always told us that Walmart is the least shorted of all the major chains, so showing up at 7 AM at a Walmart store near you may yield some of the products missing from your other retailers. Finally, it may be time to actually look at ways to reduce our overconsumption and do more with less product. Not an answer a lot of consumers want to hear, but when the shelf is bare, the shelf is bare.

Looking forward to an interesting holiday season...

 

 

 

Middleware Assumes an Increased Importance in Supply Chain Management

Let's be clear--middleware (or iPaaS, if you prefer the more modern term for platform integration) has been a key part of supply chain management for decades. B2B communications surrounding orders, freight bills, shipment status, invoices, etc. across the supply chain between retailers, distributors, manufacturers, suppliers, and others have been conducted using Electronic Data Interchange (EDI) since the 1970s. Recently, some of the more progressive retailers, such as Walmart and Target have begun using proprietary communications protocols, or APIs (Application Programming Interfaces) as their basic communications standards, requiring other supply chain partners to use them for all communications. B2B communications technologies based on streaming data tools are also emerging, allowing supply chain partners real-time access to each other's information, creating more opportunities to enhance supply chain efficiencies. But the B2B communications revolution is a topic for a future Blog.

So where, you say, is middleware needed in other areas of supply chain management? Let's start with automation. Our plants, distribution centers, trucks, yards are becoming hives of new technologies, often from many different vendors. Take a warehouse for example--you can have automated forklifts, VR technologies, ASRS systems, picking robots all with their own control systems, all wanted to access the order management (OM) and warehouse management servers (WMS) at the same time. The reality is that allowing one system to immediately access the OM or WMS at the expense of others with a more critical (or more efficient) request is not good facility management. 

Enter multi-automation technology optimization solutions, such as Seyo (in full disclosure, an SCV portfolio company). Founded by entrepreneurs with PhDs in computer science, Seyo can manage a fleet in a warehouse, or out in a remote robotic farm just as effectively. On-the-fly optimizations, by combining data at the edge with the Seyo Management System, missions and paths can be recalculated every time a robot changes its current state eliminating congestion and protecting the system from deadlock.

And then there is the automation operator problem. All those different technologies require sophisticated and constant operator training as machine upgrades are commonly done via the Cloud, meaning an operator might show up in the morning and find a significant change has been made in the control system of their machine. And what if an operator is sick that day but the machine is a critical part of an assembly process? Are there other operators trained in the technology that can substitute? Note: this is a serious issue in aircraft manufacturing, where regulatory agencies require all parts to be produced by fully trained operators.

Enter Covalent Networks (yes, another SCV portfolio company). Covalent is a cloud-based middleware software as a service solution that works on any internet-connected device, allowing for training, evaluation, and remediation processes to occur in the flow of work. It's easy for trainees, trainers, and supervisors to complete their action items in real-time and for leaders to match critical worker-competency data with broader operational data sets. Historically, managing in-facility training on automation was often handled by Excel spreadsheets--not the best way to manage complex training data across multiple machines and people. Launching a new procedural change that requires re-training? Deploy that training instantly to the workers that need it. Need to forecast your workforce's capability to meet next month's customer orders? Run an automatic analysis and identify gaps.

All this can be done in a few minutes, as opposed to running around trying to find that Excel spreadsheet and decide who may or not be capable of running the latest version of the automated equipment.

And now onto emerging issues in supply chain management that involve the use of blockchain technologies to manage B2B communications across the supply chain. Some innovative Tier 1 suppliers, looking to create a fully verified chain of custody with their Tier 2,3 4 suppliers are creating private blockchain solutions, especially as manufacturers and retailers want proof that the suppliers are not using slave labor, etc. Since widely acceptable blockchain standards do not yet exist ( and may never), a manufacturer seeking to connect with numerous private supplier blockchains, often with different cryptocurrencies needs a translation middleware to make sure all supply chain partners can speak to each other in their own languages.

Enter Finboot (yes, another portfolio company). Finboot is the SaaS company behind MARCO, the enterprise-grade suite of blockchain applications and middleware solutions for value and supply chains. Finboot facilitates the adoption of  Distributed Ledger Technology (DLT) and Blockchain technologies into daily business operations, generating ecosystems based on trust, collaboration, and transparency-- focusing on solving real business problems that quickly generate a return on investment. In particular, their technology allows companies to manage private blockchains with varying currencies and standards across a wide variety of supply chain partners. 

And what about NFTs? Those NFTs (non-fungible token, read more here), currently popular with the art, media, and sports world, could prove useful in the tracking of individual items along the global supply chain from an authenticity and verification standpoint. Is it just hype? Hard to tell at present, but watch closely for any clear use cases that emerge with associated business value propositions.

All in all, middleware is becoming an even more crucial tool in managing our increasingly complex supply chains. Look for lots more innovation in this space going forward.