According to CrunchBase, funding for supply chain management startups soared in 2021, reaching $11.3B. For years investors ignored companies trying to develop solutions for an archaic industry that, to date, still relies to a large extent on a pen, paper, and spreadsheets for daily operations. It has been more than two years since the onset of the pandemic, but supply chain disruptions still dominate headlines, encouraging more tech companies to strive to solve the problems. In this race to win the Holy Grail, the companies that survive will dominate the market and serve as the pillars of manufacturers’ next generation of management systems in the industry.
Many failures along the global supply chain have accumulated over the years because the management systems in place didn’t provide what manufacturers needed to manage day-to-day operations. In addition, globalization processes have led to changes in the way manufacturers conduct business with suppliers and subcontractors; at the same time, the volatility in customer demand has increased, and all of this was not reflected on manufacturers’ dashboard screens as one would expect tech giants to do. As a final chord to all the problems that were already out there, the public became addicted to smartphones and saw that, as consumers, they could track their food delivery or ride service from the starting point of their order to the ending point, all from their mobile screen, so everybody started wondering; how is it that these services do not yet exist in the business sector?
Technology and innovation showed that dreams could come true. Sometimes, it might take a few years to establish a sustainable solution; however, when many competitors sign up for this race, the chances of finding solutions sooner increase. In this journey to create the next generation of supply chain standards, less than 10% of startups are likely to succeed. Unfortunately, the success rates of startup companies have not increased over the years. However, if we want to solve this global chaos by developing new technological solutions, this world needs as many competitors as possible to survive in this race. Looking at this chaos from a macro perspective, we can identify two main sets of challenges. The first one is scattered data, and the second one is data from outdated equipment.
Scattered data refers to any data that exist in various management systems, spreadsheets, emails, or any other apps but are not connected and, therefore, cannot provide valuable business insights on time. In these cases, there are two main ways to solve the problem. The first way is the traditional one, which is writing code between any two systems or platforms. In this case, software developers need to connect the data, and it needs to flow at least in one direction, if not in both directions. These types of solutions are mainly referred to as professional services and are executed by dedicated service companies or tech companies that do not have a complete technology solution, so they need to add parts manually to their product. These solutions are customized to every company separately; they are expensive; take a lot of time, require specific knowledge in multiple systems and platforms, and are definitely not scalable. Manufacturers find it hard to budget for these types of projects, especially after purchasing expensive management systems such as ERP, WMS, TMS, or CRM and paying their annual license fees. The second way to solve the scattered data problem is to develop a repetitive solution that can work for multiple customers without coding it from scratch for every new customer. Currently, the main focus of many startup companies is developing a solution that could work for multiple customers in the supply chain, logistics, and transportation sectors. Investors want to see a repetitive solution that is scalable. Some startup companies may refer to their solution as “connectors to legacy management systems”, and others may define it as a dashboard that presents the complete picture of business operations, but no matter what definition they use, they all try to figure out how to collect data from multiple data sources, integrate them, clean them, and use them as fast and as efficiently as possible for multiple customers and show that the solution is scalable. If the product of a startup company requires too many manual additions to its basic technology solution, it will become a service company. Therefore, the race is on for a product that can do this as closely as possible to download an app from the app store and connect it to the relevant data sources to provide full visibility on a single dashboard to manufacturers.
Data from Outdated Equipment
The second challenge is a significant hurdle at the moment. Many technology companies do not deal with it directly and develop a solution for a reality where this hurdle does not exist or is someone else’s responsibility. Data from outdated equipment refers to any data that exists in outdated analog equipment such as production machines, vehicles, containers, or any other equipment that is not connected to management systems because it’s ancient. In that case, the production rate or location information can only be transmitted manually, meaning that data entry in spreadsheets or directly into management systems is done manually by people. New equipment purchased in recent years is better adapted to the digital world. It can connect and transmit data in a structured way or have an API infrastructure that software developers can use easily. The problem is the outdated equipment that is still not connected to anything and functions as an analog (stand-alone) machine. To solve the connectivity between the analog world and the digital world, there are companies whose main focus is to upgrade analog equipment into smart machines. Without that piece of the puzzle, technology solutions won’t work, no matter how brilliant they are. Currently, a significant part of the equipment in this world is outdated. The cost of production machinery or heavy equipment is very expensive; therefore, the replacement of this equipment is not carried out very often, and it requires financial planning. What ends up happening is that manufacturers who need to receive information from multiple internal and external analog sources find out that the infrastructure that is currently being used is still not adapted to the technology that is being developed for the digital world.
Tech companies that focus on developing a solution only to one side of the problem are putting themselves at risk. To provide a complete solution to manufacturers, logistics companies, or any type of transportation company, tech companies should cover both sides of the problem. Many startup companies are developing solutions for a future market that will exist someday. However, currently, we are not there; thus, startup companies need to bridge this gap if they want to survive.
The Solution Path is through Collaboration
It will probably take more than a decade for manufacturers, logistics, and transportation companies to upgrade most of their equipment to work smoothly with digital technology. However, during this time, if startups want to stay in the race, they should find a solution that can help them solve the data gap due to outdated equipment. The solution should include a way to upgrade the existing outdated equipment in a way it would be able to communicate with dashboards that provide real-time insights. Many of the top supply chain management unicorns currently leading this race collaborate with companies whose expertise is upgrading outdated equipment into smart equipment that can work with digital technology. For the early-stage startup reading this, keep your chin up! If you can provide a SaaS product that covers outdated equipment, you will make manufacturers’ lives easier. In this way, startups take responsibility for the current gaps in the market and provide a single SaaS solution. Knowing the people in the field is the key. Startup founders with experience working with production floor workers, procurement teams, or truck drivers, for example, have huge leverage in creating better solutions for this market.
The Bottom Line
The supply chain crisis is reflected in every aspect of our lives. Many tech companies see the same core problems but focus on different industries, so these may look like different solutions, but in practice, they are similar. It doesn’t really matter if startup companies focus on food production, consumer goods, fashion, or agriculture industries as long as they provide solutions to fleet management, inventory in motion, and the ability to capture market signals that impacts demand planning. It also means that some startup companies do not have a complete picture of their competitors, and they need to take into consideration that they might get crushed by better solutions from parallel industries. Startups should learn from the history of tech giants. It took SAP more than two decades, including two main phases of their product development, to gain expertise and establish a presence in the market. During that time, they focused on specific industries based on their first customers and partnered with Microsoft to design an electronic archiving solution in order to provide a complete package for customers. Only in the mid-2000s, as part of the improvement of tech capability and about 30 years after its establishment, has SAP expanded its offerings to encompass solutions to dozens of additional industries.
Regardless of which path startups choose, the macro solution is to build a bridge between the analog and the digital worlds. Only then will manufacturers be able to see complete visibility of their supply chain layers and, as a result, be able to make changes in how they forecast and plan for demand and supply.