In today’s widely covered supply chain technology landscape, real-time visibility is crucial for supply chain success. As a logistics professional, it’s vital to partner with a visibility provider that offers robust and reliable solutions. However, in addition to functionality, evaluating the financial structure, health, and stability of the vendor is equally important as it can significantly impact the capabilities of the solution and the vendor’s service over time.
To understand the significance of financial health, let’s explore the current investment environment and why caution is necessary when investing in long-term supply chain technology solutions.
Current Landscape of the Supply Chain Visibility Market
Many supply chain technology companies emerged in the mid- to late-2010s, benefiting from low interest rates and generous venture capital (VC) funding. With a thriving economy, this trend intensified following the initial impact of the pandemic. VC firms encouraged their portfolio technology companies to prioritize market share growth over profitability. While this growth-centric approach allows for innovation and risk-taking, sustained growth without profitability is not sustainable in the long run. Few companies can overcome unprofitable operating models solely through growth.
VC firms typically expect returns on their investments within five to ten years, often through selling the company or going public with an initial public offering (IPO). However, the current stock market volatility has limited the IPO option. In a higher-interest rate environment, access to low-cost capital is shrinking, prompting VC-backed technology companies to shift focus towards profitability. This change puts immense pressure on their growth-first models, their ability to fulfill customer commitments, and even the company’s future.
Given this landscape, supply chain professionals must consider three fundamental areas where the financial health of a technology vendor should influence the evaluation process.
Financial Stability Creates Improved Visibility
In a partnership with a supply chain technology vendor, financial performance and profitability are critical. Choosing a vendor with a track record of strong profitable growth ensures that their decision-making isn’t solely driven by short-term market fluctuations. This ensures that their technology will continue to evolve alongside your business needs. Aligning with financially stable and innovative technology companies provides peace of mind, knowing that your solutions will consistently evolve and receive robust support. This ultimately means improved compliance across your carrier network resulting lower transportation costs and an improved customer experience.
Continued Innovation Delivers Long-Term Success
Innovation is vital for any supply chain technology company, but sustaining it requires a solid financial foundation. While early-stage companies may offer exciting ideas, their ability to continue developing and enhancing solutions can be uncertain, especially when the VC firm’s investment horizon is ending. Will they scale back development to demonstrate profitability, affecting the product roadmap and customer service? This emphasizes the importance of favoring companies with a longer track record of financial success, as they bring extensive industry experience and the financial strength to invest in research and development.
Impact on Your Customer Experience
During financial restructuring or layoffs aimed at relieving financial burdens, customer support and implementation services may suffer. This risk is amplified when venture-backed companies are sold to secure profits for the VC firm. The integration process and the retention of key resources post-acquisition can significantly impact service and support. Technology companies that have weathered industry challenges and maintained control of their destiny offer more continuity in customer support and within their supply chain ecosystem.
There is an online resource available to track recent layoffs by industry at https://layoffs.fyi/ (we recommend filtering the industry to ‘Logistics’ for a more relevant view).
Key Takeaway
In conclusion, when evaluating visibility platforms for improved transportation management, financial health and long-term strategy must be considered alongside functionality. While high-growth technology companies may seem enticing, the risks associated with their uncertain financial situations can outweigh the benefits. Prioritize financial structure and performance overgrowth alone. Understand how the company will operate in the long term and the investor exit strategy. These considerations, alongside functional evaluations, will provide greater reliability, sustained innovation, and a customer-centric focus, unlocking the full power of your supply chain for the long haul.
Interested in learning more? Contact Descartes MacroPoint to get in touch with a member of our team.
