Transformation of the logistics space with the birth of new-age supply chain startups

We constantly keep hearing how the multitude of changes in the supply chain space has led to the coming in of more organized players as well as startups with new business models, resulting in large scale transformation on the service provider- and corporate-side.

Ashutosh Mayank, VP at Lumis Partners interviewed one of the SCL mentors, Neeraj Bansal, to get his perspective on the logistics space and how and why it has transformed the way it has in the past 5 years. Neeraj Bansal is a digital transformation leader with over 20 years of experience in helping leading organizations take the digital transformation path.

Here are the key takeaways from the interview.

On-ground changes that have happened in the last 5 years in the supply chain space

The biggest challenges in the supply chain industry in the past decades have been reliability, speed and efficiency of the service. With the accelerated growth of e-commerce, food delivery, cab services and other service providers who are giving same-day and next-day delivery, clear benchmarks have been set. This has ushered in a behavioural shift in how customers expect goods across industries to be delivered which, in turn, has put indirect pressure on all brands to fulfil the service at the same speed even if they are not an e-commerce or grocery delivery chain.

“The result, as I see it, is that there is no more a difference between logistics and customer experiences. In fact, logistics defines what the customer experience is going to be. With this awakening happening in more companies, we will see bigger and much faster transformations happening in them. The companies that are laggards in this regard will either be forgotten or will be relegated to the last or least preferred positions.”

The second fundamental change is the bringing in of technology into the supply chain space. According to Neeraj, supply chain is one of the most underinvested industries in terms of technology.

“The initial pull and benchmarks are set by the large organized players who were the first to adopt technology to deliver efficiently. The tough competition from these larger players to the regional and/or smaller players have, in turn, forced them to look for technological solutions to survive and stay relevant.”

In cases where they could not build solutions themselves owing to a lack of expertise or resources, they started looking towards third parties such as software solution providers.

There are also regulatory changes; the major ones being GST implementation and e-way billing. Earlier, there was scope to play around depending upon the tax structures in different states. For instance, the mobile phone industry set up warehouses in places where the taxes were lowest. With the differential tax structures gone, now these players are looking at rationalizing their warehouses, infrastructure, etc. Building a GST infrastructure has taken time, but it is definitely beneficial, and its full impact will be seen in the next 3-5 years.

Changes in corporate engagement with supply chain startups

“According to me, startups are agile, fast, nimble, driven to do more and technology driven. Today, larger organizations find it indispensable to absorb these attributes too and this has resulted in a growing understanding and appreciation of the great ideas and technological innovations startups bring and that it is good to engage with these startups and absorb their innovations to stay ahead of the game.”

Another issue is that large organizations which have been running traditional businesses do not have the capability to build anything on the tech front.

“With logistics now getting disrupted, the only way for such organizations to hold their ground and make their offerings competitive is to partner with these small startups and provide them with the necessary backup. So, it is a need-based association as well. It is a very positive change happening in the kind of corporate engagement with startups.”

Increasing willingness amongst large corporates to look at innovations on the ground rather than looking at their own requirements

The traditional industry that used to work with single ERPs where large consulting firms worked on multi-year projects and integration teams built on top of these platforms in a never-ending process is becoming obsolete now. The fundamental change is that everything is moving to the cloud now, where it is easy to manage, share, etc. and on which large infrastructure investments are not needed. With the shift to the cloud, it is easy for multiple partners and niche players to come in and collaborate to build/ operate your solution.

Even though large organizations are good when you are looking at enterprise-scale systems, there hasn’t been much innovation happening in these large organizations in the logistics space. On the other hand,

“a lot of these startups have taken the solution-oriented approach rather than a platform-driven approach. They leverage analytics, IoT, AI, ML, etc. which are not the forte of traditional companies. With most companies looking for solutions rather than wanting to integrate with legacy systems through platforms, startups have naturally become the go-to option for corporates rather than the large service providers and ERP companies.”

New happenings in the trucking space

The transportation industry is so big in India that whatever effort is being taken is still a drop in the ocean. Currently, there are large organized players entering the market trying to use technology to streamline their operations and the efficiency, speed, etc. of the services delivered necessitated by the needs of the business – the customers who want to deliver at the same speed to their end-customers.

The whole value chain is seeing innovations at the moment, but these are happening in buckets with some focusing on the first mile, some on the last-mile, some on warehousing and so on. There are only a few players trying to innovate the whole value chain.

From the brand perspective, they do not see the first mile, last mile, warehousing, etc. as different things. They want one integrated solution where the logistics between the pickup from the brand to the delivery to the end-customer should be “predictably boring”.

“It should be as simple as water coming out of the tap instantly when you turn it on. You do not consider the supply chain, the source or the internal plumbing while turning the tap; it is so predictable. Logistics too must come to that stage that you are able to integrate everything on the back end so that it becomes predictably boring and easy for the end customer. That is when we would have solved the logistics problem!”

AI-Enabled Supply Chain Transformation

Artificial Intelligence (AI) is no longer a fictional element or a science of the distant future wherein robots and humanoids rule our world; it is here and enabling revolutionary transformations across industries.

The supply chain industry, experts believe, will benefit massively from this AI-led transformation. The industry is already leveraging AI-enabled technology to drive higher revenues and achieve improved efficiency. In India, it is expected that this transformation will see the industry valuation double in the next 2 years.

The supply chain, involving a highly interconnected and interdependent set of tasks, is a trade where even minor errors have multiplier effects on costs, revenues and business outcomes. AI, powered with Machine Learning (ML), predictive analytics, automation and so on, has the ability to process the voluminous supply chain data from disparate sources and equip business leaders with actionable insights and forecasts in real-time. Such insights enable quick decision-making and real-time change adaptation to streamline/ reinvent functions and processes, minimize leakages and losses and develop a strong strategic edge.

The AI-powered solutions enable organizations to gain exceptional agility, precision, effectiveness, efficiency and end-to-end visibility in the supply chain if the right models and solutions are identified and applied.

AI-enabled supply chain transformation: Where are we?

Globally, there are diverse, cutting-edge innovations in the application of AI in the supply chain. Some of the path-breaking AI-enabled transformations include:

  • Contextual intelligence provided by technology such as Intelligent Robotic Sorting, AI-powered Visual Inspection, etc. which are transforming warehouse management, shipping, tracking, logistics, packaging and so on.

  • Supervised learning, unsupervised learning and reinforcement learning technologies are facilitating real-time decision-making, enhanced fraud detection, predictive insights, etc.

  • AI-led automation in the form of self-driving forklifts, automated sorting, self-managing intelligent inventory systems, autonomous/ driverless ground vehicles, etc. are revolutionizing warehousing, logistics, distribution, inventory management, etc.

  • Intelligent software solutions are enabling better supplier selection, product design, audits, evaluations, production planning, B2B sourcing, etc.

One of the leading innovators bringing sophistication and next-gen models in the supply chain space at the global level is Amazon. This e-commerce giant has revolutionized its business models, transformed customer experiences, forecasted demand with greater precision continuously reduced the delivery time and reigned supreme in e-commerce owing to its extensive use of technology including AI, ML, automation and IoT among others.

In India and across the globe, supply chain startups have been playing a key role in revolutionizing the space with their AI-led innovations, cutting-edge solutions and next-gen models. Some notable Indian supply chain startups that are consistently raising investments from Indian and global investors for their revolutionary solutions are:

  • Delhivery : Offers technology-driven logistics services such as last-mile delivery, third-party and transit warehousing, reverse logistics, shipping, etc.

  • Fareye : Offers an automation software and mobile platform to uncomplicate last-mile delivery issues.

  • Rivigo, Trukky.com, LogiNext, Blackbuck, 4tigo, etc.: Offer smart logistics solutions including trucking, tuck hiring, real-time tracking, delivery planning, etc. to B2B and B2C customers.

  • Shipsy and FourKites : offer predictive supply chain platforms to ensure real-time visibility to their B2B clients.

There is growing awareness amongst organizations about the criticality of intelligent and efficient supply chain management and optimization to their overall business outcomes and long-term sustainability. Despite this realization, studies show that only 30-40% of Indian businesses are leveraging AI-enabled tech solutions in their supply chain activities while others still use traditional, linear models. Two main causes are – their lack of talent and resources for in-house innovations and their lack of awareness of grassroots innovations by startups.

Successful Corporate-Startup Collaboration: How Locus enabled Blue Dart to minimize last-mile inefficiencies?

The logistics giant, Blue Dart, faced a big challenge – the manual sorting of packages was inefficient and time-consuming, especially during peak times and when time-bound deliveries were required. As a company that strives to optimize operational efficiencies, Blue Dart partnered with Locus (a supply chain startup) to deploy its proprietary, automated shipment sorting and rider allocation solution – IntelliSort. This smart solution immensely reduced the time spent on sorting and enabled the company to send shipments out faster. The savings on manual drudgery and the increased accuracy in route mapping translated into higher cost-savings and better outcomes for Blue Dart.

The way forward

The above case study highlights how immensely corporates benefit when they collaborate with startups that offer cutting-edge, next-gen, intelligent solutions. Such collaborations will be the way forward for improved efficiency and transformative business results. Certain sub-segments like e-commerce logistics, 3PL, trucking, etc. are popular and heavily funded while other, equally critical sub-segments such 4PL, warehousing, maritime logistics, etc. with revolutionary AI-enabled innovations are severely underfunded. It is important to bridge these gaps if the supply chain industry is to forge ahead.

Supply Chain in India: Then and Now

The supply chain industry has become the backbone of modern-day businesses. Traditional and linear value chain models and archaic practices in the industry are fast changing. They are making way for revolutionary and cutting-edge new solutions and models that are infusing great efficiency and cost-effectiveness and driving tremendous value for businesses. Several factors are contributing to these revolutionary changes in the supply chain industry.

We interviewed one of the SCL mentors, Mr. P. Sreevathsa – Founder and CEO of Servify with over 20 years of experience in CX, technology and management – to take a closer look at the impact of each of these factors on the supply chain scenario in India in the past 10 years. Here are the key takeaways from the interview.

Impact of regulatory changes in India on the supply chain scenario

One of the major regulatory changes affecting the supply chain space in India has been the introduction of GST which standardises the tax regime across the country. These variations in tax rate (especially VAT and octroi) across states which led to widespread corruption and inefficiencies in the system, were eliminated as a result of such standardisation.

“The tax reforms have given the supply chain industry a big boost and have significantly impacted the supply chain on an end-to-end basis. They have brought about greater transparency and therefore, simplicity in the supply chain process-to-end basis. They have brought about greater transparency and therefore, simplicity in the supply chain process.”

They have enabled businesses to come closer to customers and ensure seamless experiences. For instance, all warehousing distribution for Mumbai would happen in Bhiwandi, Maharashtra in the pre-GST era as it is outside the city limits and so, saved octroi. With the tax reforms, businesses can maintain warehouses even within their own offices and better track them.

Changes in the service provider’s offerings and their impact on the supply chain scenario

The level of corruption and under-the-table dealings in this space in the pre-GST era meant no transparency in the process and made the costs unpredictable. For instance, octroi collection in Maharashtra every quarter was about Rs. 24,000 crores. However, this was estimated to be only around 25% of the actual-ideal collection. The remaining Rs. 75,000 crores were grey transactions happening across the value chain. This sort of corruption led to many so-called service providers to come into the system as consultants who would bribe on behalf of the large corporates.

“Standardisation in the tax regime removed these multiple layers of corruption and eliminated these middlemen in the garb of tax consultants, octroi consultants, recovery consultants, etc.”

The result has been large scale optimisation and higher predictability for businesses. Core service providers such as warehousing parties, supply chain branding partners, distribution company, etc. have been able to flourish.

The changing corporate supply chain and its holistic impact on the current supply chain scenario

Corporate players understand that they need to focus on the core of their business. As a result, the need for supply chain services and solutions by large corporates have reduced significantly except in cases where physical products are involved. For example, a large software company like Infosys does not need supply chain services but a pharma company like Sun Pharma still has a greater need for supply chain services even though it is not their core business activity; their core business is R&D and development of drugs while supply chain is something they need to run their business.

The influx of large corporate players, 3PL & 4PL players and several startups in the supply chain space that operate across the spectrum right from planning and design to warehousing, distribution, etc. and the significant standardisations over the last 10 years have enabled such companies (like Sun Pharma) to focus on their core business rather than getting into the supply chain and leverage the efficiency of these services.

“The fast-evolving business models which have shifted from fixed pay for services to pay-as-you-go models which have enabled corporate players to leverage the economies of scale for cost-efficiency.”

Corporates do not have to maintain fixed warehousing spaces (irrespective of usage) or be forced to transport only full truckloads to move materials or pay unviable and unreasonable prices to transport smaller quantities.

Digital transformation and it effects on India’s supply chain scenario

The other major transformation that has impacted the supply chain space in the past 10 years has been technology and digital transformation. Earlier, there used to be super stockists who bought large volumes of inventory from the corporate players and stored it in bulk in their warehouses. They would do the supply chain planning and warehousing. They then sell to sub-distributors who sold to sub-distributors and who, in turn, would sell to the city-level distributors or retailers. The retailer, in turn, would typically have a warehouse and maintain inventory to sell immediately to their customers when there is a demand. So, there were 3-4 layers of supply chain and each level paying the costs of supply chain services which ultimately is drawn from their margins.

Today, with the digital transformation and technological advancements, the retailer can actually access the virtual inventory available with the stockist, place the order on demand and remove the middlemen (who may be large corporates themselves). The retailers also do not have to maintain their own warehouses (with exceptions such as FMCG) and cut down on large amounts of supply chain costs. For instance,

“Asian Paints which earlier had 6 stockists, 180-200 distributors and 3000 + sub-distributors in the country has now gone down to 10-12 distributors in the country by leveraging technology.”

The realisation that customers are willing to wait for a couple of days to get the paint order and that the order can be directly sourced from the distributor or super stockist led the company to take this step. This has ultimately led to infrastructural changes.

The emergence of tech-led startups like Uber and e-commerce giants like Amazon have made it indispensable for traditional companies to look inward and make changes so as to remain competitive. This is because Amazon relies on technology-led efficiencies and has reduced the multiple layers of distribution and therefore, able to give competitive prices and huge discounts.

The challenges that persist in India’s supply chain industry and the way forward

One of the major challenges in the supply chain space in India has been the narrow investor focus and siloed interests on logistics and trucking. There is not enough investment in cutting-edge and next-gen solutions in warehousing, supply chain planning, software solutions, etc. The way forward for the supply chain industry to flourish is for investors to explore the multiple opportunities available for investment and support grassroots innovations to thrive.

“It is important for businesses to remain focused on their core business. However, if there are weak links in the supply chain, they will affect the core. So, they must solve for the weakest links in the supply chain, either through in-house solutions or by outsourcing it for economies of scale.”

The bureaucratic bottlenecks in getting permits and documents still remain. Standardisation also needs to come about in the licensing and documentation requirements in the supply chain space, similar to the standardisation in taxation.

Having seen these changes take place in India, Lumis Partners feels that this is the right time to start evaluating the Supply Chain startup ecosystem.

Thus, we have launched our 2 month long Fellowship program catering to early and growth stage supply chain startups called supply chain labs ( https://supplychainlabs.in/ ). This is our small contribution to the ecosystem, surely a lot more will be required for major disruption.

5 Signs Your Startup Is Perfect for Our SCL Programme

Lumis Partners , a global leader in the logistics and supply chain investment domain, recently launched India’s first supply chain acceleration programme called Supply Chain Labs. The vision of Supply Chain Labs is to empower and accelerate India’s cutting-edge and high-potential early-stage supply chain startups and thereby, develop a strong and resilient supply chain ecosystem in the country and revolutionise the industry and drive it towards unparalleled efficiency and growth.

About the Supply Chain Labs (SCL) Programme

Supply Chain Labs is a unique and cohesive programme that has partnered with MIT as the academic partner, YES SCALE, Yes Bank’s corporate innovation program as the corporate innovation partner and AWS as the technology partner. The supply chains startups that are selected for the programme gain access to:

  • The best-in-class resources – industry leaders, domain experts, mentors, angels and investors

  • A 2-week knowledge and capacity building opportunity at MIT’s Zaragoza Logistics Centre (ZLC), Spain

  • A series of incisive business, domain and commercial workshops led by mentors, investors, and corporates

  • Tailored mentoring

  • Access to Lumis Partners’ global partner networks

  • Dedicated bandwidth of Lumis Partners’ senior leadership team guidance after graduating from the programme for guidance and support.

By providing tailored support and access to such resources, Supply Chain Labs aims to support early-stage startups and their visionary founders to further hone their solutions, develop a competitive edge in the market, create extraordinary impact at scale and add tremendous value to all the stakeholders.

5 signs your startup is perfect for the SCL programme

The SCL programme is looking to partner with those startups that have the potential to create tremendous value for all stakeholders, including investors and enable them to refine their solutions and harness its full growth potential, creating a competitive and strategic edge in the market. To apply for the programme, you must be an early-stage startup with an MVP that you have already integrated inside the clients’ business either as a POC or at full scale, have at least 2 paying clients or ecosystem partners in place and have direct revenue models in the supply chain domain.

Additionally, if you fulfil any of the following criteria you should be encouraged to apply for the program (Important: Not fulfilling them is by no means an indication that you should not apply)

#1 You solve a problem in the supply chain sector

This is an obvious one. Your startup’s solution/ product should be rooted in the supply chain sector.

SCL programme not only supports the sub-sectors such as logistics, 3PL, e-commerce, trucking, etc. that have traditionally received a major chunk of the investments and attention. From our extensive research, we gauge that there exist huge gaps in investments in several other sub-sectors despite the numerous grassroots innovations happening across the length and breadth of the country.

If your solution/ product belongs to any of the following sub-segments, you are perfect for the SCL programme.

  • Supply chain finance

  • Next-gen supply chain technology and software solutions for improved cost-effectiveness, efficiency and end-to-end visibility

  • B2B procurement and distribution

  • Warehousing solutions

  • 3PL, 4PL, Maritime logistics

  • Trucking

  • Cutting-edge e-commerce supply chain solutions

  • Electric Mobility

#2 You are an early-stage startup with a cutting-edge solution, vision and passion

We are not looking for startups with traditional and linear models. Our vision is to collaborate with and accelerate those startups who have cutting-edge, highly innovative and next-gen solutions and models to offer, enable them to harness their full growth potential and attract the attention of financial and strategic investors.

We are looking to work with visionary startup founders and passionate teams who have the drive to solve complex and large-scale problems of global relevance and create extraordinary impact at scale.

#3 You are a startup digitising the value chain

Digitising the value chain creates end-to-end visibility, improves transparency by breaking silos and prepares businesses for industry 4.0. It has a great impact on the efficiency, costs and overall profitability of the business and the industry. So, if you are a startup that is digitising the value chains, especially those supply chains that are still operating in a very archaic manner, then you are perfect for the SCL programme.

#4 Your target clients are not just large corporates but SMEs too

Addressing global markets and leveraging global opportunities makes the startup exciting. However, it is not a necessary criterion for applying to the programme as India represents a large market opportunity in itself across all segments – large corporates and SMEs. If SMEs too figure in your target client list, then you are solving a problem that most other startups have hitherto overlooked. Our vision is to revolutionise the supply chain space in India and that will happen only if the large numbers of SMEs are also catered to.

#5 Your startup’s work is generating social impact

Are you fixing the challenges in the Agri supply chain? Are you looking to increase fleet utilisation of trucks, thus improving monthly incomes of truck drivers? Are you creating packaging solutions that are sustainable? Are you contributing to the well-being of the community in any other shape or form? For Lumis Partners, generating social impact has always been core to our philosophy. If you believe that your startup is aligned to this vision, you should be encouraged to apply.

The Inception of Supply Chain Lab

India’s supply chain sector has seen revolutionary changes and tremendous growth in the past couple of years. The industry valued is valued at $220 billion and as per World Bank forecasts, expected to grow at 10-15% annually and remain one of the top contributors to the national economy. Four key factors, we strongly believe, have put the supply chain industry on this rapid growth path:

  • Macro-economic changes including the ease of doing business.

  • Policy and regulatory changes like the implementation of GST, e-way billing, etc.

  • The accelerated development of technology and the digital transformation of business processes.

  • The rapid growth of the e-commerce industry in India which are heavily dependent on the supply chain.

The first two are push factors that caused major churn in the supply chain market, especially among large corporate players. These factors also pushed the players whose business models were rooted in and dependent on the Supply Chain to quickly responding to these major macro-economic and policy shifts with internal mandates to improve their company’s supply chain efficiency and usher in cost-effectiveness with newer models.

The newly churned markets required cutting-edge business models and innovative solutions that infused a great level of efficiency, accuracy and cost-effectiveness in the supply chain. And technology has been a great enabler for doing so. Accordingly, several startups – new and existing – came up with cutting-edge innovations in the supply chain industry, especially for the B2B space. The last factor has been a major pull factor for logistics and supply chain startups to enter and thrive in the B2C space.

Despite these rapid changes and growth of the supply chain industry, two problems still persist:

  1. The larger corporate players are not aware of the several grassroots innovations happening in smaller startups and as a result, a large gap exists in the investments in the supply chain industry. Barring few sub-sectors like 3PL, E-commerce, trucking, etc. which receive maximum investments and attention, the rest of the sub-sectors like maritime logistics, electric mobility, etc. are severely underinvested in. Overall, the industry is underinvested in by financial and strategic investors and in many cases, the investments go to traditional and linear models.

  2. The contribution of the cost of logistics to GDP is at 13-14% in India in comparison to the 8% contribution in developed countries. This means that there is still scope for a great improvement in the supply chain industry.

Supply Chain Labs: Envisioning Unparalleled Efficiency and Growth in The Supply Chain Sector

In the above context, Lumis Partners, an operating investment firm and a leader in the logistics and global supply chain investment space, engaged in extensive research and experiments to get a deeper understanding of the situation and find effective solutions to bridge the gaps.

Accordingly, Lumis Partners launched India’s first supply chain Fellowship programme – Supply Chain Labs ( Supplychainlabs.in ) with the vision of powering India’s supply chain sector to unparalleled efficiency and growth through the acceleration of high-potential early-stage startups operating in this space.

Supply Chain Labs ( Supplychainlabs.in ) is a unique and cohesive programme to support high-potential, early-stage startups with unique solutions and cutting-edge models in the supply chain domain to fully harness their growth potential and add tremendous value to all their stakeholders. This first-of-its-kind programme in India has strategic partnerships with MIT as the academic partner, YES SCALE, Yes Bank’s corporate innovation program as the corporate innovation partner and AWS as the technology partner and is aiming to develop a strong and resilient supply chain ecosystem in the country.

Lumis Outlook

Lumis Partners is a global leader in the logistics and supply chain investment space that is committed to supporting and partnering with visionary founders who share its passion for solving complex problems with global relevance and creating extraordinary impact and tremendous value at scale. We are not a traditional VC firm and strongly believe that the relationship between startups and investors must be a two-way process, not a one-way street. We fully understand the need for tailored handholding support and a strong ecosystem for startups to thrive and flourish. Supply Chain Labs, therefore is a formalized way for us to support India’s cutting-edge supply chain startups.