Oct 04, 2022
Originally posted here.
The current ugly state of supply chain infrastructure can be viewed as both as a headwind and tailwind for the software sector. In the coming year, organizations will be looking to adopt technology tools that offer near- and medium-term value, while punting on initiatives that might be harder to quantify or where long implementation periods exist.
Return on investment will be even more important in 2022, especially in the sense of avoiding costly breakdowns in supply chains. Pain alleviation will be the name of the game.
Simply put, the global supply chain is a mess, and will be until 2023. The infrastructure challenges hitting headlines today have been evident for years, and are finally reaching a convergence point due to increasing consumer demands, the global pandemic, inconsistent government policies, lack of investment, and political pressures across the world. The size and reach of supply chains have risen, but the infrastructure required to keep up hasn’t scaled at the same clip.
A calligram illustrates the squeeze — both literally and figuratively — being felt by supply chain professionals today:
A lack of investment in port infrastructure is causing major supply chain breakdowns.
Ships have gotten bigger and port terminals are no longer able to handle them.
There is not nearly enough warehouse space available in the U.S.
Warehouse workers and port workers are in short supply.
There is a shortage of truck drivers and chassis.
Lack of product sourcing diversification.
And the list goes on.
To make matters worse, relations between the U.S. and China continue to impact global trade. Expect to see near-, medium- and long-term systemic issues arising from these tensions.
As we begin 2022, production volumes are still too low to handle peak-season demand. Microchip shortages are causing businesses to lose billions of dollars in sales. The U.S. and other countries aren’t able to ramp up their manufacturing capabilities quickly enough.
Many of these trends have the potential to halt or stall supply chains. Meanwhile, a vibrant economy, on top of high inflation, will continue to test them to the limit. The result will be increased logistics costs for manufacturers, shippers and, ultimately, consumers. All will feel the pain.
What’s a software investor to do? Given the global headwinds being seen across supply chains everywhere, executives are going to be busy firefighting for some time. Yet certain categories of software will continue to thrive. Those that can help alleviate the pain points include:
Worker recruiting. Software to help secure more truck drivers and warehouse workers will be prized in a world where these resources are scarce. Staff augmentation will also be a winning play in 2022. Scaling resources up and down provides flexibility to help combat surges without destroying bottom lines.
Worker retention. It’s easier to retain talent than it is to replenish it on an ongoing basis, and retention becomes even more important at a time when Amazon.com is drawing off a significant portion of the warehouse and driver workforce.
Worker productivity. When you can’t source enough talent, your options are to scale back or become more efficient. Worker efficiency and incentive applications, therefore, will be front and center. Manufacturers and transportation companies can boost profits by making their teams more efficient through software.
Warehouse automation. If you can fine-tune and optimize the workflows within your warehouse, then you might need fewer people on site. Labor is a finite resource, and companies must make the most of what they have. Automation is going to be a big theme in the supply chain in 2022 and 2023.
Omni-products. The commerce landscape is changing rapidly. Retailers are struggling for warehouse space. Any application that can optimize costs by merging e-commerce and brick-and-mortar channels will win in the long term.
Inventory optimization. A scarcity of raw materials, unpredictable supply chains and more rapid orders via e-commerce have combined to boost the importance of proper inventory optimization. Merchants must understand not only supply and demand patterns, but also where inventory is sitting, and whether those placements are optimized in line with sales forecasts. There will be increased demand for software tools that optimize real-time inventory allocation, placement and movement.
Direct procurement and materials management. This has been an underserved category for some time, but with the shortage of raw materials and component parts, it has never been more important. The inability to procure direct materials was a major obstacle for supply chains in 2021. Manufacturers who aren’t deploying software and data to avoid overpaying for materials will lose in 2022.
Product information. Data-centric categories such as product information management will continue to be hyper-critical for e-commerce brands, who now must sell across a growing number of channels while offering more SKUs and product configurations. Consumers today expect personalized, customized products, creating a new level of complexity in manufacturing, sales and distribution.
Verticalized specialty supply chain. Applications focused on a single vertical — such as pharmaceuticals, food and beverage, or consumer packaged goods (CPG) — give companies a leg up when it comes to solving the core challenges that supply chain professionals are facing today. Modern, purpose-build supply chain platforms can help. Expect to see increased reliance on domain-specific networks, valuable datasets, and marketplace and payments infrastructure, all aimed at verticalized supply chains.
End-to-end-visibility. With supply chains growing more complex and unpredictable, visibility is the name of the game. In past years, CPG companies and retailers often attempted to optimize their verticals while inadvertently sub-optimizing the horizontal end-to-end supply chain. We need both. Organizations must be extremely well connected in their supply chains, capturing as much data as possible, and using that intelligence to avoid the costly errors that plagued supply chains in 2020 and 2021.
In the “doom-and-gloom” era of supply chain, what will make a solution successful? The value proposition has to be dead simple. Long sales cycles will die faster than a fish out of water. In this same vein, implementation should be fast and easy, and return-on-investment must be clear and tangible.
Jack Freeman is a partner at Peakspan Capital.