Defining and Organizing the Supply Chain

Supply chains are difficult to explain. Terms without consistent definitions like 'end-to-end' and 'flexible' are often used to describe them. And within the startup ecosystem, hundreds of companies adopt the supply chain technology label even though one may focus on digitizing bills of lading while another may be optimizing last mile delivery – seemingly an ocean apart. Where do supply chains begin and end?

The Oxford Dictionary defines a supply chain as "the sequence of processes involved in the production and distribution of a commodity". This involves everything from sourcing the raw materials to the final distribution. Tracking links and related parties in this chain quickly becomes frustrating or worse yet, intractable.

Instead, organizing parts of the supply chain into larger groupings helps us analyze the different sectors and try to predict what new technologies will have the greatest impact. It is a useful way to identify where the intersections of new technologies and vertical markets will create opportunities for new company formation.

Upstream, Midstream, and Downstream

We like to divide the supply chain into three parts: upstream, midstream, and downstream. This terminology is borrowed from the oil and gas sector to separate the core pieces of the supply chain. This is an apt comparison given that in a supply chain goods flow through an ordered series of processes as materials do in the energy sector.

Upstream is the set of processes at the beginning of the supply chain and includes the planning function at the enterprise (AKA the brand or shipper) initiating supply chain decisions, along with necessary procurement of suppliers and source materials. It also includes any related first mile logistics. Example of sectors and technologies in the Upstream are procurement and sourcing software, supply chain mapping, inventory planning and optimization, and import management systems.

Midstream is the middle portion of the supply chain that includes the activities that happen under the factory and warehouse roof. This covers a range of processes and organizations, from manufacturing to fulfillment and distribution. Both technological and business model innovation is happening across the Midstream in robotics and automation, manufacturing and warehouse systems, connectivity, and contract logistics.

Finally, Downstream captures the ultimate process of moving the goods to the consumer or retail point of sale. This includes not only the physical logistics, but also the tools and software used to orchestrate and monitor these movements. Last mile delivery, digital freight brokerage, and visibility platforms are a few of the technologies that have emerged and in this part of the chain.

The Supply Chain is in the early days of digitization

To date, over $100 billion of venture capital has been raised by supply chain technology companies. But, dramatically large opportunities remain untapped across the supply chain. Finding them requires knowledge of the market landscape and the technology infrastructure that powers supply chain visibility, reliability and security.

While perhaps obvious, this categorization of the supply chain helps extract broader trends. For example, the Downstream portion attracted significant capital from 2016-2018. Digital freight brokerages raised billions in venture capital, led by Flexport ($2B) Convoy ($930M), Transfix ($100M+), and Uber Freight, amongst others. A similar boom occurred in last mile delivery around the same time. Doordash, Postmates, UberEats, and Deliveroo turned market enthusiasm into large rounds before a period of consolidation (interestingly, we are seeing a return of interest in this sector with the advent of Quick-Commerce companies like Gorillas and Getir).

Visibility Tech moves upstream

Examining these broader trends often provide clues about where the market is headed and the potential derivative businesses and innovation that may emerge.

The evolution of supply chain visibility serves as an example of how technology can ripple through the different categories. Project44, Fourkites, and Shippeo emerged to provide visibility into the Downstream supply chain, specifically around the location of trucks. This expanded to other modes of transport, and then into the Midstream as solutions for real-time inventory and fulfillment emerged. Today, visibility has reached the Upstream with supply chain mapping companies that look to provide visibility into tier 1, 2, and 3 suppliers.

Edge data and connectivity are key technologies that enable these visibility solutions. While the actual connected device may change from delivery trucks to warehouse automation and material handling robots, the edge infrastructure that powered Downstream visibility also serves to provide visibility throughout the other parts of the supply chain.

At NewBuild.VC we are trying to identify new horizontal technologies that may solve large existing problems within vertical industries. For the supply chain, this framework often leads us to the intersections of new technology and new use cases, which we think are good opportunities for entrepreneurs.

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