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A robust ecosystem for efficient growth
The Supply Chain Technology refers to any digital equipment used to simplify supply chain processes for shippers and carriers. The industry encompasses all the software and hardware solutions that help simplify and automate processes and facilitate information transfer within and across firm boundaries. Emerging SCT enables a truly integrated, visible and efficient supply chain that benefits from collaboration of business processes. The use of SCT by firms at every all the stages leads to enhanced financial performance, swift response to changes in process and other factors of the supply chain.
A supply chain is rarely a fixed system, the ecosystem keeps on evolving and especially now that supply chain technology is a major factor — supply chains these days are almost never static. For businesses to stay relevant and ensure profit maximization adopting SCT is a must. In today’s digital world supply chain is widely different from two decades ago. With the advent of technologies competitive advantages and productivity gains are being made.
A few key impacts of technology:
· Greater Efficiency: Well automated systems have always improved or augmented manual systems. But the new mobile technologies provide for an instant and complete data collection which is integral for analyzing and identifying operational anomalies.
· Improved Communication: Improved technology results in a tighter communication stream between the top level decision makers and the ground level workers. This makes the implementation of the process more efficient.
· Levels the playing field: A major advantage of the advancements is that it makes the field more accessible. After the overhaul of the value chain it is easier for smaller organizations to attain the point of efficiency without the burden of massive investments.
· Key Players: Uber, Instacart, Grab, Lalamove, Go-Jek, DoorDash
· Market Size: $23.2 Bn
· CAGR: 12.50%
· Average Valuation: $416 Mn
· Average Deal Size: $22 Mn
After Effects of Covid-19 Pandemic on Supply Chain Tech Market
The importance of supply chain management to the economy was already evident to the businesses, but when the pandemic broke and the economy came to a screeching halt it exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere. This contended businesses to do away from the widespread use of just-in-time (JIT) production models that minimize inventory in an attempt to reduce costs, and focus on improving their resilience and reducing their dependence on a single source for their supply of vital products and materials. However, the companies will have to face a few challenges to increase resilience without sacrificing their competitive advantage.
· Addressing risks: The level of sophistication in modern products requires specialized skills to make which is not possible for a single business to possess and they have to rely on external suppliers. This leaves them vulnerable when they depend on a single supplier.
· Diversifying base: To counter the effects of over reliance the best solution would be to diversify your sources so as the vulnerability to same risk decreases.
· Take advantage of new technology: Newer technology allows businesses to lower their costs and increase their flexibility to swiftly respond to unexpected circumstances.
VC Investment Manoeuvre
VC investment in SCT has shown strength through the last quarter of 2020 and first quarter of 2021. Startups managed to raise $12.60 Bn in VC investment across 555 deals in 2020 and $7.70 Bn in VC investment across 186 deals in Q1 2021, this was a 90.6% increase QoQ and 355.1% increase YoY.
The major sections that received investments were downstream logistics companies, warehousing, fulfillment and middle mile and last mile delivery technology. Significant deals of the quarter were GoPuff’s $1.20 Bn Series G, Plus’s $200 Mn late-stage VC deal and Locus Robotics’ $150 Mn Series E.
Supply Chain Tech VC Deals
There was also a significant rise of 125.1% in the valuation of the startups. What drove these valuations was the surge in demand for e-commerce and food delivery services, which has attracted more venture investment as a result.
Median Supply Chain Tech Pre — Money Valuation
Emerging Prospects for Growth of the Industry
With the onset of several lockdowns imposed due to the pandemic in several parts of the world, supply chain technology has witnessed a momentum as there has been greater need to optimize logistic requirements. Let us now look at how different opportunities are set to accelerate the industry.
● SCM software
Gartner estimated that by the end of the year 2024, almost 50% of the supply chain organizations will invest in applications that support artificial intelligence and advanced analytics capabilities. This will bring operational efficiencies as it provides a holistic analysis about market size and forecast, trends, growth drivers and challenges. Due to more suppliers realising the importance of software development in SCM, the market for SCM software is projected to grow at a CAGR of 11% during the period 2021–2025.
Trends suggest that majority of the VC investment goes into middle-mile and last-mile applications, while first-mile applications remain underinvested but have the potential to provide significant returns. First-mile platforms — Mercado Labs, see more
Other areas that have the potential to provide substantial returns include supply chain finance services, visibility software, and risk management platforms.
● Warehouse Automation
It is estimated that the global warehouse automation market will grow at a CAGR of about 14% during the forecast period 2020–2026. Post-pandemic, the demand for warehouse automation has transitioned from a ‘want’ to a ‘need’, thereby accelerating the segment’s growth. Incorporation of robotics and autonomous technologies in SCM assist in ensuring uninterrupted warehouse operations and supplies, which is particularly helpful in times of labour shortages. By far, VC investment in warehousing-tech startups for Q1 of 2021 have increased by about 3.4x QOQ 34% YOY. Some key companies working in this segment are AutoStore, Realtime Robotics, Kindred AI, Clutter, Flexe, among others.
● Last Mile Delivery
The market for last-mile delivery softwares is expected to reach $66 Bn by 2026, growing with a CAGR of 8.9% during the forecast period 2021–2026. Most of the consumers have now inclined towards online shopping, and with this transition there has been growing demand for timely delivery. Major companies such as Uber, Door Dash, Gopuff are expanding their services to provide super-fast delivery, in-home delivery, and on-demand B2B delivery. Together these companies have witnessed a cumulative 346% YOY growth in convenience store delivery in 2020.
Efficiency Gains using SupplyTech
The use of technology in supply chain management makes it a much more efficient process. India has very high indirect logistics costs. It is projected that these costs are about 15–25% of inventory costs, which amounts to $120 Bn to $180 Bn. Reasons for such high indirect costs are inventory mismanagement, inadequate demand forecasting, and obviously lack of technology. SCM technology such as automation, geo-tagging, big data, etc. will help in reducing these costs significantly by ensuring better collaboration, traceability and forecasting. It is estimated that the use of cutting-edge technology for SCM can reduce the operating costs by 30%. As manufacturing in India is expected to rise in the coming years, India is likely to witness a greater demand for supply chain technology.
Firms and Investors alike, are now understanding the importance of technology in SCM. Supply chain tech startups across the world have raised $7.7 Bn in just Q1 of 2021, scaling up the investments by 355% YOY. However, there are many segments in the supply chain technology world that remain less explored by the investors, but have the potential to grow, these include — supply chain finance services, risk management services, and warehousing tech. A careful analysis of the company’s area of operations before putting in your money will drive positive returns your way.
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