Supply Chain Automation: Key Drivers & Connectivities
As recently as in the past year, the key building blocks of our global supply chain — ports, warehouses, retail stores, and vehicles — continue to operate, surprisingly, through manual methodologies. As a result, a single logistics hiccup may throw entire schedules into disarray and may cause ripple effects downstream, leading to disruptions for end consumers and businesses. The most recent pressures of COVID-19 shined a light on the vulnerabilities in our supply chain, leading today’s logistics leaders to seek out emerging technologies. At 9Yards, we are excited to lean into the early innings of a major technological transformation in the supply chain.
We are now seeing automation eat the supply chain. Companies such as Locus Robotics are automating the laborious task of picking and packing in warehouse, while others like Boston Dynamics are revolutionizing the unloading of parcels from trucks. Autonomous systems are changing the way our vehicles operate, such as ISEE’s solution for trucking yards, and Gatik’s offering for middle-mile deliveries. With the help of automation, our supply chain operations are becoming more futuristic, more efficient, and more resilient to disruptive events.
Where hardware cannot replace human work, software is being introduced to drive human efficiency. These systems orchestrate the movement of humans, vehicles, robots, packages, and materials, bringing speed and visibility into a formerly offline supply chain. One such software solution, our portfolio company SVT Robotics, is becoming the de-facto control center for seamlessly testing and deploying new robotics solutions in-warehouse.
In this article we will walk through how the supply chain is connected, from end to end, and we will map out the emerging companies that are leading the charge at each step of the way. We will also highlight the primary trends that are driving the industry-wide adoption of new technologies, as well as areas of opportunity that we find most exciting at 9Yards from a venture investment perspective.
Supply Chain Snapshot
The supply chain is complex, but there are a few primary nodes through which goods flow: ports, warehouses, and retail locations. Each of these nodes is connected to one another through varying modes of transportation across ocean, land, and air. These modes include ships, trucks, trains, commercial vehicles, and airplanes.
Our below depiction of the flow of goods through the supply chain underscores the various forms of automation that are enhancing each step of the process.
Goods of overseas origin arrive at our ports in large shipping containers. Cranes then lift these containers from the ships onto the docks, where they are then cleared by customs. Containers eventually leave the ports either by trucks (drayage, first-mile) or by rail.
While we have seen a significant uplift in automation at the ports, adoption has been much slower compared to other nodes due to heavy capital requirements. In many cases, automation is funded by governments via infrastructure bills. Autonomous container cranes, such as those offered by KoneCranes, assist during the ship-to-dock offloading process. Once on land, autonomous terminal tractors, such as those being developed by Gaussin, enable the movement of containers to their next destination.
After being picked up from the port, a container’s inventory is typically brought to a warehouse, sortation center, or fulfillment center. Depending on the type of inventory, goods are typically processed, stocked on shelves, and then picked and packed for delivery from a warehouse or fulfillment center. A host of automation has emerged from these functions as robots take on the tasks of inventory receipt, management, picking, and packaging.
We have seen a plethora of innovation in the picking and packing category, as it is one of the most expensive and repetitive operations in-warehouse. As such, there has been an uptick in dollars deployed into emerging vendors, as well as a recent track record of high-profile acquisitions in the space. This includes Amazon’s $775M acquisition of Kiva Robotics, Shopify’s $450M purchase of 6 River, Zebra’s acquisition of Fetch, and Locus Robotics recent funding round placing its valuation near $2B.
As automation is adopted, warehouses can reduce the burdens of physical labor for the workforce, such as lifting heavy objects and walking through fulfillment centers in search of specific items. Robotics support workers to improve throughput, efficiency, and safety of the warehouse.
Transportation is the connective tissue between the various nodes of the supply chain. As goods leave ports and warehouses in the shape of parcels, pallets, and containers, they are loaded onto long-haul trucks, short-haul trucks, commercial vehicles, airplanes, and rail. Each of these types of vehicles have seen their own flavor of automation to varying degrees of success and velocity.
Long-Haul Trucking: With 72% of the nation’s freight transported via trucks, long-haul trucking represents the largest market in logistics at $800B in size. Here, we’ve seen a race from the upstart between incumbent original equipment manufacturers (OEMs) to commercialize self-driving vehicles. Daimler has partnered with Google’s Waymo, while Volvo and Paccar have partnered with Aurora. Capacity providers have also begun to pick their horse in the race for fully autonomous trucking; this includes JB Hunt’s partnership with Waymo, and Uber freights partnership with Aurora’s self-driving trucks.
Yard Transportation: Upon arriving at warehouses and retail stores, trailers are often unloaded in a designated yard area. This is an additional logistical node that is ripe for automation. Yards require repetitive tasks, but they can easily get congested with moving trucks and stationary trailers. Yards are also closed off from public interferences, making it easier to roll out automation. Outrider and ISEE are both pursuing autonomous technology in the yards — removing complicated and error-prone work from yard operators.
Middle Mile Trucking: From trucking yards, goods head closer to their final destinations in retail stores or are delivered directly to consumers. For retailers like Walmart and Sam’s Club, in-store goods are often replenished frequently from nearby storage facilities or dark stores. Short and middle-mile trucks make these reoccurring runs, of which autonomous middle-mile routes are now operated by providers like Gatik.
Last-Mile Delivery: For packages delivered directly to the consumer’s doorstep, a network of last-mile delivery drivers completes the final leg of logistics. While this has historically been dominated by UPS, USPS, and FedEx, we are beginning to see the proliferation of automation within last-mile delivery as well. Nuro’s unmanned delivery bots are being tested by FedEx for last-mile operations, while Coco and Starship continue to expand their respective presence in food & convenience delivery.
Market Map: Supply Chain Automation
From the moment goods arrive in our ports until they reach the hands of consumers, there exists a tremendous opportunity to continue leaning into automation to make logistics faster, easier, and more reliable. We believe the next decade of supply chain technology will be defined by the congruence of software with advanced hardware in order to move goods from point A to point B.
Our market map highlights both companies designing the new generation of robotic automation and those building dynamic software layers to orchestrate the movement and collaboration of those assets for a truly intelligent supply chain.
Secular Trends Driving Logistics Innovation:
In speaking with founders, operators, employees, industry experts and investors, the following six themes continue to arise as the key drivers of industry-wide innovation and the adoption of new technologies:
Rising consumer expectations & demand:
With the expansion of Amazon Prime-like delivery experiences, consumers now expect a wider breadth of goods that can be ordered online and delivered in less than two days (and sometimes in under 15 minutes). Consumers are additionally purchasing more goods online — eCommerce reached a peak of 16.4% of total retail sales in Q2’20, up from just 10% at the start of 2019. With this dramatic rise in both consumer expectation and demand, supply chain leaders have been seeking out alternative solutions like automation to increase output and improve seasonal flexibility with fewer employees.
Severe labor shortages & rising human capital costs:
The U.S. is facing a major shortage of blue-collar labor required to meet our growing demand. Driverless trucking technology is being built to help alleviate an estimated 80K shortage of long-haul truck drivers. Similarly, warehouse operators and 3PLs find it increasingly costly to source and retain employees. Automation is being deployed to increase the productivity of existing employees while fully taking over repetitive tasks, so that warehouse operators can do more with less.
Long-standing workplace safety concerns:
Logistics employees are often subjected to precarious work environments such as highways, factories, warehouses, and shipping yards. The rate of nonfatal work injuries remains extremely high across manufacturing, warehousing, and transportation roles — eclipsing 580k injuries in 2020. It has never felt more critical for these environments to adopt new solutions to improve the safety of their workers. Automation can often mean the difference between dangerous, laborious work environments and safer workplaces where technology either handles or oversees the most dangerous tasks.
Increasingly scalable and cost-effective automation solutions:
We are reaching an important inflection point in autonomous innovation — one in which robotics are becoming easier and cheaper to test and deploy in the warehouse. Unlike costly incumbent solutions, emerging vendors are offering more modular and scalable solutions by leveraging new business models such as robotics-as-a-service (RaaS). These solutions often reduce manual labor while maintaining a low barrier to entry for warehouse operators. These emerging vendors are making automation more affordable, accessible, and customizable to the specific needs of the warehouse.
Geopolitical volatility underscoring the need for resilient supply chain operations:
In recent years, we have experienced a barrage of geopolitical events that have sent shockwaves throughout the global supply chain. The pandemic exposed our supply chain’s inflexibility in meeting sudden spikes in demand. U.S.-China-Taiwan and Russia-Ukraine conflicts have led to a rise in reshoring, nearshoring, and friend-shoring. The U.S. also continues to experience domestic unrest within certain labor groups, such as the narrowly-averted railway strike, growing worker disruptions at the ports, and Amazon warehouse union strikes. These factors underscore the urgent need for a more resilient and dynamic supply chain. Automation is becoming a key component in ensuring that supply chain operations can endure rapid spikes and troughs in supply and demand as a result of international conflict, worker strikes, and national crises.
Soaring investor appetite:
In 2021, investment in supply chain technology reached a record high, with 1,540 deals completed for a combined deal value of $58B. This represented 23% YoY growth on a deal count basis, and 79% YoY growth on a deal value basis. The space has also attracted strategic interest as well, bringing in funding from tech companies such as Google and Uber, as well as from eCommerce giants such as Amazon, Walmart, and Shopify. While the recent tightening in the economy has led to fewer deals and falling valuations, the best-of-breed supply chain automation companies continue to raise funding and push new solutions into the market.
As supply chain investors at the growth stage, we are excited about three themes in particular:
Orchestration software and APIs will make it easier for companies to adopt multiple best-in-class technologies.
We believe that in the near future, companies will find significant value in working with tens of interconnected technology partners rather than just a few. APIs and orchestration software are enablers of this future. We are seeing many exciting businesses being built to help operators adopt a selection of best-in-class technologies, rather than settle for working with a suboptimal jack-of-all-trades solution.
We are particularly excited about businesses that are addressing the following pain points:
- Reconciling data from differing systems to create a single source of truth.
- Orchestration to enable a faster pace of testing & deployment of new technologies.
- Coordinating multiple hardware solutions to address larger pain points.
Mass adoption will first be seen in solutions that automate acute pain points of manual labor.
We see the greatest near-term opportunity in robotics that directly addresses issues and inefficiencies in manual workforces. These include use cases across automated picking & packing, storage & retrieval, forklift & other heavy machinery operations, and trailer loading & unloading. These use cases affect the largest universe of companies while solving for critical pain points in daily operations. As supply chain operators see tangible applications for robotics to enhance their workplaces, these would be some of the first functions they will look to automate.
Layering software on top of existing hardware infrastructure and systems will be the fastest and most cost-effective wedge.
While the future of automation will see the modernization of both hardware and software, these structural changes can take a long time. As such, we have seen a faster adoption of solutions that maintain lower overhead costs by leveraging existing logistics infrastructure, such as pre-existing cameras, scanners, or forklifts in-warehouse. Examples of this include Voxel leveraging existing warehouse cameras to automate worker safety notifications, as well as Phantom Auto’s teleoperations software enabling forklifts to be operated remotely. Vendors that look to replace core infrastructure are often met with pushback, especially since implementation times for new hardware can be long and workers require extensive training. New solutions that seamlessly integrate into existing infrastructure are poised for more likely growth in a cost-conscious supply chain environment.
The global supply chain is rapidly shifting through its adoption of emerging technologies. While still far from perfect, the days of strenuous human labor, manual and repetitive logistics tasks, and dangerous working conditions appear to be limited. If robots are not entirely replacing the work of humans, software is bolstering the performance of these workers, and in the process, our supply chain is becoming more efficient and resilient. We see it at the ports, in the warehouses, and alongside every mode of transportation.
Automation truly is eating the supply chain, and at 9Yards, we couldn’t be more excited to have a front row seat to one of the most exciting trends in the global economy today. When the next supply chain disruption inevitably occurs, our enhanced supply chain workflows will enable us to be better prepared to handle the fall-out.
9Yards Capital is a global investment firm targeting fast growing, Fintech and Supply Chain IT companies at the growth stage.