In the crosshairs: Real-time logistics visibility
Much attention (and financing) has been directed over the past years to the expansion of supply chain visibility, mainly “real-time visibility platforms” and to “sensor-based visibility solutions“. The promise of these remains not the visibility itself, but the enablement of improved decision making, flexibility and agility in supply chains, and the automation of workflows. Complete or total real-time “network level visibility“, despite the hype, remains a more distant reality. In the meantime, improvements in situational awareness across supply chain networks is being built on enhancements to traditional, “offline visibility solutions”, like data loggers, the economics of which are hard to beat, and by applying the right level of traditional system-based monitoring complemented by real-time accuracy to deliver network-level improvements in design, routing and resiliency. Business value created by visibility solutions is a function of time in use and coverage and does not come with the tracking of individual shipments. In this contribution we outline the current status and developments of the supply chain visibility market and the challenge of extracting “higher order” business value from visibility services.
Introduction – logistics visibility advanced to early mainstream
The past years have brought with them immense challenges for carriers, logistics operators and supply chain managers. From trade wars and covid-induced interruptions to the more recent pile-up of ships in the Suez Canal, disruption has proven to be the ugly underbelly of today’s globally integrated (just-in-time) supply chains.
Against this backdrop, attention has focused on the urgent need for visibility. Yet, the move towards more visibility is not new. The rapid rise in availability and exponential drop in pricing of communication technologies and internet of things (IoT) devices has led to a surge in data produced by devices, assets and systems of record, production and enquiry, bringing us closer to an age of pervasive “visibility”.
What is a novelty, however, is the level of attention given to supply chain visibility over the last 12 months, with the topic gaining center stage of the industrial and public debate. Nine in 10 respondents of the Kenco “2020 State of Supply Chain Innovation Survey” expressed that supply chain visibility technology is a priority, with 43% classifying it as a high priority. Gartner estimates that “logistics visibility” has already reached “early mainstream” maturity, with up to 20% penetration in industry.
The logistics innovation gap has attracted significant VC funding
Historically, the logistics industry has been a laggard in digitization. In late 2017, McKinsey estimated that the average supply chain had a digitization level of 43%, the lowest of 5 areas of enterprises evaluated. And this despite the same study concluding that digitization of supply chains could increase EBITDA by 3.2%, the highest of those same five business areas.
Over the past 50 years, the most significant innovation in the logistics industry was the standardization of containers and introduction of track-and-trace. Beyond that there had been limited disruptive innovation. This has changed in recent years, with the digitization and automation of logistics and supply chains becoming a top spending priority for businesses. Freight monitoring accounted for more than half of the USD 116bn spent on transportation digitization in 2019, and the segment remained one of the top-5 use cases in 2020, according to IDC.
The visibility market has attracted substantial venture capital funding to scale startups that can compete with or replace incumbent players. McKinsey estimated that from 2014 to 2019 the industry attracted over USD 25bn in venture capital (VC) financing, with funding to the sector growing substantially more than overall VC funding (17x growth in funding to logistics startups vs. 2x growth in overall VC funding).
Visibility innovation has become a crowded space.
A significant amount of VC financing goes into improving supply chain visibility. In particular, asset tracking, a subset of visibility solutions has attracted most of the funds, garnered c. 900mn in startup funding from 2010 to 2019.
As an active investor and partner in building out and scaling new digital logistics business models, including in visibility, we regularly and actively monitor the market and currently track over 90 companies of meaningful size in this space.
Our analysis suggests a highly competitive, very well-funded and rapidly maturing market, broken down into three clusters:
1. Incumbents, seeking to develop and deliver visibility capabilities (e.g. SAVI). These account for less than one-third of our sample.
2. (Real time) visibility platforms: Challengers that start primarily as pure-play platforms (e.g. FourKites or Shippeo), offering delivering visibility that is “good enough” or “superior” compared to the status quo and business intelligence (BI) / predictive analytics. In Gartner’s view, these solutions have gone past the peak of the hype cycle and will be more rapidly adopted. However, their impact is typically moderate, given limitations on the type of visibility they offer, compared to the actors in the third cluster.
3. Asset tracking players: Challengers that start as asset tracking solutions and evolve into more advanced platforms with BI and/or automation capabilities. These can evolve into IoT-enabled applications, which are transformational for supply chains through their ability to provide highly granular data and insights. They are early in their adoption (1-5% market penetration), yet to reach the peak of the hype cycle, according to Gartner.
In our analysis, these three clusters collectively attracted over USD 2.7bn in funding, with approximately half of it coming from their most recent round. And newer players continue to emerge, with approximately 20% of companies founded since 2017.
We consider the visibility sector as ripe for consolidation. The leaders in the visibility market are mostly challengers that, as they grow in size and funding, have continued to broaden their capabilities. This capability expansion takes place along three vectors, viz. a) covering more modes of transport and use cases, b) increasing the geographical footprint, and c) enhancing analytics capabilities.
With the many companies, like large manufacturers and brands operating extensive and complex global supply chains, the need for stakeholders along the supply chain to deliver visibility has constantly grown. The same customer imperative also drives challengers to broaden their capability set, particularly as supply chains differ from industry to industry and even from one company to another.
Thus, challengers either focus exclusively on a particular sector and set of use cases (e.g. Controllant/Skycell), or constantly evolve their solution set. The latter requires substantially more and frequent capital injection to invest in product development. This strategy has been followed by many of the pure-play visibility platforms (Project44, USD 190mn in funding raised) and by early movers such as Samsara (USD 930mn in funding raised). This capability expansion leaves little room for newer players, with most entrants focusing on specific niches. Examples include Packwise (focused on digitizing
Intermediate Bulk Containers) or Tec4med (Thermabox for pharma applications). The same dynamic, however, offers opportunities for consolidation driven by the more advanced players. This was illustrated by the recent acquisition of Ocean Insights by Project44. We can expect more such transactions to follow.
The ongoing capability expansion is blurring the lines between pure-play platforms and asset tracking solutions, with each offering more of the capabilities of the other. Thus, the most advanced asset tracking firms that focus on delivering the most robust and accurate level of visibility (e.g. Roambee, OnAsset) now offer their platform-as-a-service to customers; simultaneously, pure-play platforms seek to partner with asset tracking providers (e.g. FourKites and Tive) to be able to deliver greater accuracy for high-value use cases and industries, like temperature controlled chains and pharmaceuticals that demand to stay within a certain temperature range.
From visibility to value
No discussion on supply chain and logistics visibility is complete without touching upon an inherent contradiction in delivering it. While everyone seems to want it, very few have been willing to pay for it. This is most evident from the fact that while shipment monitoring and asset tracking have been available for decades, their adoption has been very slow in all but a handful of industries.
The reason for this contradiction is that visibility, in and of itself, has little value. What companies really value in visibility is how it can help them to further business objectives. For any business, those objectives are for example a) increasing revenue, b) reducing costs (improving productivity and efficiency), c) meeting business / regulatory requirements or d) improving customer experience.
Historically, the business cases that delivered immediate value were to ensure compliance, implement product security in transit (e.g. to secure high-value packages in transit), or provide information to customers (e.g. package tracking). Unfortunately, such use cases have limited potential to scale, as they remain a “cost item” on any profit and loss (P&L) statement, rather than creating larger long-term value.
More recently visibility adoption has been accelerating. This, without a deep discussion on the return on investment (ROI) of such adoption. Instead, the expectation is that visibility will eventually deliver a “higher order” business value that relates to correcting divergences from plans and eventually improving decision making and aligning action execution across supply chain stakeholders. What that ROI is remains nebulous to many market participants.
This is the next challenge faced by the visibility sector, challengers and incumbents alike. Large amounts of money have been and will continue to be spent to deliver solutions that are considered a “must have”.
But as adoption grows, companies will increasingly realize that they gain limited value from tracking individual packages, pallets, containers or other assets. Rather, they will need to see true business value. This is expected to be generated from implementing full coverage visibility at a single site (e.g. a warehouse, yard and store) or along lanes. As that happens, the need for more accurate, (near) real-time data and analytics will increase. This shift in perspective and thinking is what will shape the supply chain visibility business in the coming years.