February 28, 2022 Inflation & Supply Chain: Opposite or Complementary?

Software and digitization technology companies are stepping up to help along innovation in the supply chain management arena.

by Derek Wittenberg

Alarm bells have been triggered everywhere: “Inflation is back!” The fact is, U.S. consumer price index (CPI) increased 7.5% in February – a significant movement that hasn’t been seen since the early 1980s – coupled with the resulting jump in interest rates has spooked the stock market and potentially set a market “top” to this long, post-covid bull market.  

The constant increases in food, consumer goods, gas and automobile costs have understandably become trending topics in our social gatherings; according to recent data, the cost of a 20-pound box of Hass avocados increased during its strongest season to $6.29, implying we had the most expensive guacamole for the Super Bowl in more than 20 years.

Within the industrial arena, there is a similar atmosphere. Electronics companies can’t source components for PCs and phones, meanwhile car manufacturers face multiple barriers to obtaining semiconductors for new car production, leading to more uncomfortable price hikes.

Hiring challenges have led to widespread inflation across labor costs. Companies of all sectors have faced massive obstacles in retaining their workforce with employees more willing to say: “I quit.” Just in the final stretch of 2021 alone, more than 4 million workers resigned on a monthly basis, representing a record 3% of the total U.S. labor force. “The Great Resignation,” as we know it, is derived from inadequate pay, lack of job satisfaction, unsatisfying workplace conditions and more reasons causing workers to re-evaluate their jobs, employers and priorities.

Like many market observers, we do not foresee inflationary pressures subsiding much before the end of 2022 as the challenges related to the supply chain remain clear. Plus, the difficulties around sourcing inputs for manufacturing is a crisis that reaches far beyond the U.S. As for Asia, production lead times are expanding from labor shortages and continued factory closures across multiple countries, such as in China and Vietnam. These scenarios, combined with bottlenecks in ocean-going shipping and considerable increases in unloading times, have created a “perfect storm” within the supply chain.

The solution? Closer than we think.

Technology investors, who have historically ignored the supply chain space due to its complexities and reliance on physical assets (e.g., warehouses and delivery trucks), are now more in tune with how technology can innovate the supply chain and the payoff that will follow. In 2021 alone, supply chain management technology companies attracted over $11 billion in funding, according to Crunchbase data.

Here is where we are seeing software and digitization technology companies help pave the path to innovation:

Brands are using software to manage complex shipping networks to identify inefficiencies and manage around transportation bottlenecks by shifting from marine to air or rail to road, for example, to get high-value products to the customer.

Retailers are optimizing strategies based on their product mix and retail shelving tactics to minimize overbuying and discounting cycles.

“Last mile” delivery solutions are helping to manage and improve the productivity of deliveries – using AI to optimize delivery routes and manage personnel, among other aspects.

At Progress Partners, we believe that innovation within the supply chain management arena will continue at a rapid pace so businesses can battle inefficiencies while transitioning critical workflows from manual to digital. Investment in and consolidation of point-solution providers will create a new generation of supply chain technology vendors able to help manufacturers and retailers take advantage of the great innovation that the space is witnessing in this age of digital transformation. Only in this way we will be able to stop considering inflation as that annoying house guest that came to visit and stayed a while.

The challenge is not easy but the opportunities for innovation exist; it’s just a matter of joining the ride. Are you ready?

About the Author:
With deep expertise in enterprise software and technology, particularly supply chain, healthcare, fintech and edtech, Derek brings a new perspective to Progress Partners as a managing director, leveraging his broad network of corporates and equity investors along with mid-market M&A and capital-raising experience honed over 30 years in technology investment banking to expand the firm’s portfolio. 

progresspartners.com

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