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Supply Chain on the Brink

December 21, 2021

We’ve been holding our breath this year, hoping that holiday gifts make it to our doorsteps on time. Since the onset of the COVID-19 pandemic, we’ve heard countless stories of supply chain disruptions, shortages and delays. And coming into the busiest shopping time of the year, we are seeing empty shelves and longer shipping times for e-commerce orders. Why? With all the technology out there in the marketplace, how were suppliers and sellers not prepared to meet the demand they presumably saw coming? 

The answer is a series of events that caused an extreme imbalance of global supply and demand. At the beginning of 2020, factories overseas were forced to decrease manufacturing capacity due to COVID constraints, just as U.S. consumer buying shot through the roof. Manufacturers slowly ramped up production but retailers, attuned to supplier wait times, ordered more as a buffer. That meant more shipments from China to the U.S. and an overabundance of containers clogging ports and truck yards. A long-running truck driver shortage, coupled with a semiconductor shortage made matters worse. And here we are today, worried that the toys we ordered weeks ago will still make it by December 25th. 

We at Menlo are fascinated by the complexities of the global supply chain. The entire system is optimized to minimize the time that goods spend in the chain, and when working smoothly, can give rise to innovative new forms of supply chain management such as just-in-time (JIT) manufacturing, notably pioneered by Toyota. However, at each point in the chain (or node in the network) there are multiple points of failure that, if not executed perfectly, can cause delays and disruptions, creating a domino effect all the way down the line to your door. JIT is particularly susceptible to failure against Black Swan events like earthquakes, fires, power outages, or a novel virus. This was notably demonstrated back in 2011 when Thailand’s worst flood in 50 years disrupted suppliers and many hardware manufacturers like Sony and Seagate had to cut back on production as a result.

We see massive opportunities for supply chain disruption. My colleague Steve Sloane recently explored why this industry is ripe for “Amazon-like efficiency and clarity” from both the software and hardware sides. Investment is pouring in to the space as ingredient technologies such as AI/ML, robotics and cloud computing allow for rapid innovation in processes and workflows. It’s a unique time for a global industry to see complete transformation, and why we are so excited to double down on the future of supply chain and logistics.

We’ve identified three fundamental themes that will reshape the global supply chain in the years to come. 

1. Supply Chain Resilience

“Time-to-survive” is a metric that measures the supply chain resilience at the face of disruption. It simply measures for how long the supply chain flow will persist before coming to a complete halt when a disruption occurs. The easiest way to increase time to survive is by building a buffer in the system, i.e., ordering more and storing more to combat any volatility in supply and demand. However, creating buffers is detrimental to the efficiency of a business as it ties cash to inventory. Instead of a single, reactive and bloated supply chain, the future needs to be agile to disruption, meaning it can sense, alert and decision across stakeholders using data and software. Core areas that we believe attract investment from organizations in the next 5-6 years to come in resilience are:

  • Digital sourcing. Whether in logistics or in procurement, digital sourcing and decisioning platforms can help organizations explore, identify, and source relationships digitally. Smaller manufacturers will have a voice on B2B marketplaces and help companies go from single-player to multi-player mode. A company like Candex helps organizations centralize tail-end procurement by opening up RFQs to source new vendors and having Candex to manage the relationship and transaction. We also see vertical-specific B2B marketplaces like Reibus do the same for metals procurement. 
  • Digital Bookings and Transactions. Like in any other industry, advancements in payments infrastructure will be at the forefront. In logistics, we are already seeing companies like Parade that enable traditional brokers to keep track of their carrier relationships and book new relationships digitally. There are also B2B payment infrastructure companies built including Affirm-like buy-now-pay-later experiences enabled by companies like Hokodo and Resolve.  
  • Real-time collaboration. We believe connected network solutions that enable bidirectional information sharing via APIs and integrating real-time, in-context alerting and messaging across stakeholders can help decrease time to respond to any disruptions and changes. Turvo’s collaboration capability is a good example of a solution in this area connecting TMS, WMS and invoicing systems to centralize information and streamline collaboration across stakeholders.  
  • Continuous visibility and risk posture analysis. Global real-time visibility across the supply chain will continue to remain of utmost importance.  Adoption for solutions like end-to-end visibility (Project44, Fourkites) and supply chain risk management (Interos, RiskManagement) will continue to be important.
  • Dynamic and automated decisioning. Taking visibility one step further, we expect to see a new wave of smart dispatching and planning systems fed with real-time data to make organizations smarter and respond to changes much faster. Our investment in Alloy in planning and companies like Optimal Dynamics in logistics dispatching can help organizations dynamically adapt to incoming data signals around demand and supply. 
  • Automation and augmentation of physical tasks. Our investments in warehouse automation like Fox Robotics and 6 River Systems (acquired by Shopify) have proven prescient as supply chain and logistics providers increasingly rely on automation as a way to keep up with the labor demand and quickly scale up and down.

2. Addressing the Talent Gap

The workforce shortage in the supply chain is another challenging problem to solve. Looking at trucking, the average turnover was 90% in the third quarter of 2021. The jobs of truck drivers and warehouse workers are generally quite challenging and in some cases, low-paying jobs. However, we are observing a supply shift from low-paying jobs at larger fleets to smaller or self-run businesses. While the government has taken steps to help attract more talent where it’s needed, we believe that technology will play a significant part by creating more elasticity in jobs. 

  • Lower barriers to entry. For new entrants that lack tribal knowledge and how to optimize earnings, technology will play a big role in lowering barriers to entry in roles like truck driving by handling back-office operations. We recently announced our investment in CloudTrucks, a company that significantly lowers the bar to establish a trucking business by connecting drivers to power units, providing insurance and powering smart infrastructure to find and book the best paying loads, as well as automating back-office operations.
  • Flexibility. As part of our work with CloudTrucks, we conducted a survey of truck drivers to find out more about how they work and their biggest pain points. We were surprised by what we heard—the number-one need for drivers is schedule flexibility in the wake of COVID. Truck driving is a tough job—drivers are on the road day in and out and in a large fleet, most drivers don’t have a say on their schedules. New players like CloudTrucks enable schedule flexibility based on driver needs, whether it’s optimizing for the highest paying loads or being home by the weekend to catch their kid’s birthday.
  • Financial Wellness. We need to ensure the financial wellness and stability of supply chain workers by enabling them to optimize their earnings and give them quick access to cash to minimize their cost of operating businesses. Fuel is the largest cost of a trucking business owner and solutions like CloudTrucks, AtoB and Coast Pay are aiming to decrease the fees associated with the fuel cards while providing better visibility to fleets or drivers to track their spending and improve business management. 

3. ESG

Climate change and an increasing number of natural disasters will continue to wreak havoc on supply chains in the near future. Consumer and enterprise awareness is at an all-time high—companies like Microsoft and Apple pledged to be carbon neutral by 2030 and many others are following suit. We expect this new and long-overdue movement will provide an unprecedented tailwind in ESG supply chain solutions that are enabling green sourcing, supply chain traceability to carbon sequestration. Circulor and Circularse aim to bring full visibility into carbon footprint across supply chain with carbon traceability solutions powered by blockchain. Meanwhile, Rheaply helps organizations better track inventory and utilization of their assets (printers, microscopes, etc.) and gives them the ability to recycle these items by selling them to other companies. More to come on how we’re thinking about ESG across all verticals in a future post. 

It’s exciting to see so much innovation in supply chain and logistics, an industry that has relied on analog systems and manual processes for so long. If you’re an entrepreneur in this space and interested in the future of supply chain, please reach out to us!