"Everyone wants to have it, but nobody quite knows how it works." This Gartner description of supply chain control towers depicts the solution as a holy grail for supply chain management. Something that solves problems that are common to the industry – fragmentation and a lack of transparency and digitization – yet seem intractable.

We previously discussed supply chain pain-points, which led to our investment in Shippeo, a real-time visibility platform. In our last newsletter we discussed the impact of COVID-19 on supply chains. In this article we further explore supply chain fragmentation and the control tower implications for shippers.

Fragmentation adds complexity, cost and opacity for those managing supply chain logistics. From a shipper’s perspective, fragmentation involves additional transportation providers, routes and warehouse partners when managing suppliers and manufacturers.

"Fragmentation adds complexity, cost and opacity for those managing supply chain logistics."

Shippers also need to collaborate across different enterprise functions, like procurement, logistics, product, sales, and finance, which use multiple software platforms and data formats. Fragmentation compounds complications as a company grows and expands business lines, the number of SKUs, outsourced functions, and the number of supplier tiers. Supply chain fragmentation is a core piece to solve in order to build reliable, flexible supply chains that can withstand systemic shocks like COVID-19.

Companies like Infor and E2Open have built extensive multi-enterprise networks that provide intercompany visibility, planning, and collaboration. However, these solutions have several shortfalls:

1. Inconsistent data: Data quality and coverage varies by function and geography;
2. Time and cost: Integration is expensive, slow, and requires buy-in from customers and other external parties;
3. Lock-in: All enterprise supply chain data is managed by a single software provider;
4. Scalability: Costs and integration barriers with external parties make them unsuitable for small- and mid-sized shippers; and
5. Standardization: Despite having standard interfaces, most shippers have bespoke integrations.

Transportation visibility providers have emerged to address challenges with data quality, coverage, and accessibility. Companies like Fourkites and Shippeo have built data platforms offering better implementation speed, coverage, and analytics. This creates an active supply chain software M&A market. To bolster orchestration capabilities, E2Open acquired Amber Road for $425M and Infor acquired GT Nexus for $675M.

Build vs Buy

Some global shippers have built internal control towers or software for end-to-end supply chain management and automation to prevent exposing all of their data to a single external partner. These shippers may use third-party software for real-time transportation visibility and management, but separately use an in-house platform to handle manufacturer and warehousing vendor relationships.

Fully integrating a supply chain is a monumental task in itself. Turning the data into action through an enterprise-grade application is another enormous undertaking, especially considering the data quantities, varying standards, and applicability to different enterprise functions.

"Fully integrating a supply chain is a monumental task in itself."

Controlling the platform allows the shipper to manage and decide on future features, but requires significant resources to maintain and develop the software. Choosing an external provider can prove more cost efficient.

We believe there is an opportunity for companies that consolidate supply chain data through an open platform approach, offering standardized data, improved collaboration, automated supply chain planning, and real-time execution. Backbone.ai, Slync, and Cloudleaf are all targeting this opportunity.

A similar strategy has been deployed by companies that work primarily with non-enterprise shippers. Shopify has launched a fulfillment network and acquired warehouse automation provider Six River Systems, allowing the company to pool together even more data and functionality (see picture below). Flexport is developing a range of software features to capture an even wider range of their customers’ supply chain data beyond freight forwarding.

We also believe the opportunity for function-specific applications remains. Categories like transportation visibility, procurement, sales & operational planning, risk management, and warehouse management solve existing supply chain issues. Examples of breakout companies representing these categories include Relex, o9, Scoutbee, and STORD. Shippers are early in their digitization journey and can benefit from function-specific software built on a modern architecture.

Supply chains are unique – a one-size-fits-all solution does not exist. We believe that solutions that can integrate data across functions or help reduce fragmentation issues will thrive in a post-COVID era where operational resilience and costs are top of mind. With the rise of API integrations and IoT solutions, the quantity – and availability – of data produced from applications will further increase the value and adoption of end-to-end control towers for supply chains.

This article was published on our Smart Mobility Newsletter. Hear the latest Smart Logistics and Smart Commute updates by subscribing to our newsletter.

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