If you’re a supply chain leader looking to make tech investments, you may have read reports of a heavy technology selloff which might leave you feeling concerned. But as a SaaS supply chain tech CEO, let me reassure you that all’s well in the industry. Spend away!
The selloff across the tech landscape has been well covered by mainstream media but I particularly enjoyed this Economist article: “Tech bubbles are busting all over the place. Some more loudly than others“. So, what does it mean for supply chain leaders looking to make technology investments in the coming quarters?
The current picture
First, let’s take a look at funding that has gone into the supply chain industry over the past years. Here is a handy chart, again courtesy of the Economist, showing the funding levels which suggests close to a 50% year-on-year increase in funding into the sector.
According to the article, supply chain tech firms raised more than $62bn in 2021, more than twice the figure in pre-pandemic 2019. And there’s no doubt that investment levels correspond with opportunity.
It‘s well known that supply chains have been under various forms of stress. You only have to look at the mainstream press. From the container ship “Ever Given” jamming up the Suez Canal, to President Trump’s trade war with China, COVID and the war in Ukraine – the examples are endless.
These disruptions have only intensified the need and acceleration of initiatives by manufacturers, raw material suppliers, distributors and retailers to improve supply chain resilience. In many cases, this isn’t just about improving performance – it is existential!
Reasons for investment
Alongside this disruption, there’s several reasons for increased investment. First, globalisation drove manufacturers to optimise cost over performance and risk, resulting in long least-cost supply chains with associated slow, sequential planning and execution processes. But those long supply chains (and processes) have now proven to be too slow and too brittle to withstand today’s volatility and the requirement for agility.
To prepare for whatever disruption comes next, there is an urgency to create shorter supply chains with more redundancy and more nimble processes that are better equipped to help companies not miss a beat or bounce back quickly.
Second, there are a number of shortfalls with existing planning systems, including the following:
- Decades-old technology, which is still the norm in the supply chain tech space, can only handle limited amounts of rigidly structured data.
- Old planning systems utilise classic algorithms requiring hours of processing time with results displayed in hard-to-understand user screens.
- Current systems run in restrictive on-premise environments which makes changing, or even scaling those systems, a long process.
Such systems are inadequate in helping supply chains cope with today’s business environment, let alone the challenges of tomorrow. Supply chain leaders now need to analyse huge volumes and varieties of data, apply advanced AI/ML algorithms, and quickly model and see results in an easy to consume user experience. Running in the cloud in a SaaS model, these solutions accelerate time-to-value.
My take on the changes
Ultimately, increased investment is good news for manufacturers as it will drive continuous innovation. We see it in our interactions with supply chain leaders every day. SaaS solutions, like Replan, are delivering production optimisations that offset the impact of supply chain volatility.
For example, one of our customers is exploring scheduling specific weeks of production downtime to save on labour and energy costs, whilst squeezing more out of the remaining production periods that have any unused capacity.
Another interesting observation is that where investment is being made is changing. Companies previously invested heavily in demand planning and production scheduling which made sense in a stable environment as demand was relatively steady and there was good ground to be made through applying AI to the more traditional forecasting approaches. However, those investments have been undermined by recent events and will be further eroded as a recession bites. After all, improving forecasting accuracy by 2% doesn’t help if actual orders are fluctuating by 15-20% each period.
Impact on the market
Looking at this through a capital markets lens, it’s clear that the overall repricing hasn’t completely by-passed the digital supply chain sector, but neither has it been as hard hit as others.
(Source: Google Finance May 16th, 2022)
Compared with Bessemer’s Emerging Cloud Index, which is down 43.45% YTD, two vendors from the digital supply chain space, Kinaxis Inc. and Manhattan Associates are down 20.47% and 22.73% respectively.
By contrast SAP is down 31% YTD, which is likely reflective of its broader exposure and wider product offering, which includes the ecommerce sector. Finally, Oracle, another key supply chain technology player, is down a comparable 20.69% YTD.
So, what does this mean for supply chain leaders who are facing questions from their executive board on technology and transformation initiatives? Ultimately, it’s assurance that the outlook is still positive because:
- There is still a defensible rationale to continue investing in digital supply chain initiatives to increase supply chain resilience.
- The public market pricings suggest that the sector wasn’t as over-valued as others in the SaaS space and hasn’t seen the same fall in prices.
- The wave of recent investment means there is an abundance of innovative SaaS solutions in the market that can deliver
The case for digital supply chains
Supply chain disruption is not going to go away. Even the best demand forecasting models can’t account for changes in supplier availability.
Digital supply chain chains, at their core, are about improving visibility and communication. This enables manufacturers to respond quicker to changes, whether that is on the demand or supply side, allowing them to better manage costs and service.
The requirement for better supply chain information will continue through a recession, as manufacturers look for cost saving solutions that can be deployed quickly and return value even quicker. It will be those that embrace change and digital supply chain solutions that will come out on top.
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