Supply Chains Are on the Cusp of Digital Transformation
By Dave Evans, co-founder and CEO, Fictiv
The supply chain limitations behind the products we have grown to depend upon have been laid bare in the past two years. As a result, more than ever, people are paying close attention to the state of supply chains, and a significant disruption to this industry is inevitable.
Industrial technology companies are finding ways to build better supply chains leveraging software, robotics and predictive technology powered by machine learning and artificial intelligence. While infrastructure hasn’t traditionally attracted investment, the opportunities are expansive if you can spot them. Right now, manufacturing and supply chain systems are in the midst of a massive transformation, and capital is already flowing to the companies doing the work.
Industrial tech investment represents huge value
SaaS firms have attracted massive investment for years but have also been overpriced with high revenue multiples generating large valuations. In contrast, industrial tech companies’ multiples are lower, and given the current environment, are priced more reasonably and represent substantial potential gains to investors.
These companies are driving a wave of digital transformation that will reimagine our manufacturing infrastructure and transform the speed at which we can build needed transformative innovations, such as electric vehicles, commercial rockets, and groundbreaking, life-saving medical devices.
While the complexity of the products being built has increased significantly, how we build those products hasn’t changed much, if at all, in the past four decades.
Innovation in manufacturing operations and supply chain management is long overdue, and it’s more evident than ever that we need to automate and digitize much of the manufacturing and supply chain management systems in order to meet the speed of innovation the world requires.
Supply chain and manufacturing transformation is inevitable
The need for a faster, more resilient supply chain has never been greater, especially as disruptions have been occurring more frequently — from global trade wars in 2018 and 2019, an ongoing, multi-year global health pandemic, to a devastating war in Europe. These macro issues aren’t going anywhere, and those paying attention are preparing for more disruptions moving forward.
We've reached an inflection point in product innovation and supply chain operations where change isn’t just inevitable, it’s demanded. We’ve seen this same trend play out before in IT 20 years ago.
Before the days of cloud computing through services like AWS and Azure, companies relied on their on-premises server racks and created massive IT organizations dedicated to installing and maintaining these CAPEX investments. Yet still servers went down regularly and couldn’t keep up with load balancing volatility. The received wisdom at the time was that more significant investment in these fixed costs would lead to more uptime, which required large IT management organizations.
Manufacturing and supply chains run the same way today, as massive operations teams manage internal CAPEX and fragmented supplier outsourcing. Just as IT has been upended in the last two decades, supply chain and manufacturing operations are on the edge of a substantial shift from slow, costly and people-driven systems to agile, resilient and cloud-based ones. Processes are changing as organizations seek to eliminate costs while scaling agile production.
The time to invest is now
In response, there is a rising tide of manufacturing and supply chain innovation in both private and public sectors. Public companies like Salesforce and Google have created manufacturing clouds to improve operational efficiency, and there are plenty of private firms streamlining logistics and automating supply chain sourcing workflows.
Manufacturing and supply chains systems are complex and so it will require an ecosystem of innovative industrial technology companies to drive end-to-end transformation. The market demand is there and is fueling the next wave of Industry 4.0 investments.
Valuation multiples are still reasonable, and now is the time to invest in companies that are pushing this transformation forward.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.