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Home » Blogs » Think Tank » Supply-Chain Innovation: In the Front Office or Back?

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Supply-Chain Innovation: In the Front Office or Back?

Supply-Chain Innovation: In the Front Office or Back?
December 27, 2019
Andy Stinnes, SCB Contributor

In recent years, supply chain has become a hotbed of innovation and a darling of venture investors. A series of new technologies has matured and brought new life to this historically rather stodgy space. Robots and drones, autonomous vehicles, computer vision, augmented reality, artificial intelligence, machine learning, the internet of things, blockchain: none these technologies was originally developed for the supply chain, but all are finding promising applications there.

The supply-chain front line, or “front office,” has been receiving the most attention. Warehouses are awash with robots repositioning stock, and drones counting inventory. Fulfillment centers are being streamlined by picking devices equipped with augmented reality. Manufacturing sites are predicting machine maintenance needs and utilizing computer vision to detect quality non-conformance. And soon, autonomous trucks will be pulling trailers full of goods tagged by IoT devices, while continuously broadcasting their location and status.

These are all exciting uses of technology. The primary value proposition lies in reducing manual labor and improving overall efficiency in output, throughput, and cycle time. That’s a huge benefit, and deserves the level of attention and funding we’ve seen it garner. After all, those are big lifts: just think of that autonomous 18-wheeler barreling down the highway with lots at stake in risk, capital, and lead time to market maturity.

But there’s another and arguably more near-term opportunity zone for new technology: the supply-chain back office. This is where one finds a huge swath of white collar employees, none of them touching, making, or moving any goods, yet engaged in a myriad of administrative support functions without which no supply chain could ever function. They’re network planners, inventory managers, sourcing and procurement professionals, transportation analysts, trade compliance experts and packaging designers —the list goes on. By some estimates, 15% to 20% of all employees in the supply chain are in the back office. Adjusting for generally higher salaries, that’s likely 25% or more.

And that’s just labor cost. It’s important to recognize that the back office can have an outsized impact on the supply chain. If network planners poorly place a warehouse, trucks will run for years along inefficient routes, even if they’re autonomous. If supply-chain planners misjudge demand, goods will have to be heavily discounted, far exceeding the couple of percentage-point efficiency gains achieved in that new robotic manufacturing facility. In other words, the overall “committed cost” in the supply-chain back office is substantial, and probably rivals that of the front line.

So it should be all the more surprising to see how very manual and low tech — certainly compared with self-driving trucks and robotic warehouses — the back office still is. The world’s number-one supply-chain management application is Microsoft Excel. There’s no lack of supply-chain software out there, mostly focused on functions like procurement, manufacturing, warehousing, and transportation, and primarily used by very large enterprises. But between and around those, the “XLS” reigns supreme.

The irony is that companies work feverishly to automate the front line with modern technology, while an excessive number of highly paid office warriors juggle their Excel sheets in the back office, accounting for what’s likely to be a nearly equal amount in “committed cost.”

There are three primary reasons for this. First, there’s a high degree of variation across supply chains, and the resulting specific requirements create small target markets for software companies. Apps are become more complex and expensive to configure, and it’s mostly large enterprise customers that can afford them. (And even those organizations still use a lot of Excel!)

Second, supply chains require agility and a high rate of change. Think of globalization, e-commerce, and the ascent of usership over ownership. On-premise business software in every sector has a hard time keeping up, and more and more processes are being pulled out of the app and managed in Excel “until the apps catch up.”

Third, supply chains are networks of dozens or even hundreds of companies. But on-premise applications were built for one company, and break down at the edge of the enterprise. That’s where you’ll find Excel again, relying on e-mail and file sharing to “collaborate” between buyer and supplier, shipper and carrier, and brand and retailer.

But there’s good news for the supply-chain back office: the cloud is changing all that. Building cloud business apps is far more capital-efficient, and reaches a global audience from the get-go. This makes it possible to address highly specific needs and build a company around such solutions. Cloud allows much faster innovation and time-to-capability, making it easier for innovators to address the ever-evolving needs of supply chain pros. No more release gridlock or massive upgrade bills holding you hostage, or having to wait 18 months for the next release — those days are over. Modern cloud multi-tenant architecture is ideally suited to solve inter-enterprise problems, allowing brands to work dynamically and on one shared data set with channels, suppliers, manufacturers and logistics service providers. They’re able to make fast and globally optimized decisions that can be executed instantaneously without any loss in translation.

The high-tech of the front line is fair game for the back office as well. Adding maturing AI and ML technology to new-style cloud apps allows users to optimize and automate many "cognitive" back-office tasks. As a result, we’re finally seeing a great degree of innovation for the supply-chain back office as well.

So where’s the better opportunity for supply-chain innovation— the front or back office? In the end, the question isn’t really relevant. Both domains are massive and real, and are enabled by advances in computing technology. If you’re a supply-chain expert or entrepreneur and see an opportunity, there are investors out there to fund and help you along whichever path is yours. Either way, now is a great time to throw your hat in the ring.

Andy Stinnes is a venture partner at Cloud Apps Capital Partners.

Technology Logistics Data Management (Big Data/IoT/Blockchain) Cloud & On-Demand Systems Supply Chain Planning & Optimization Artificial Intelligence All Warehouse Services Robotics

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