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Entrepreneurship

#UnderConstruction | Why Is A Global Grassroots Supply Chain Community Starting in NYC, and Bangalore?

November 6, 2018 by Brian Laung Aoaeh

Disclaimer: This blog post reflects my personal opinions only. It does not represent the opinions of REFASHIOND Ventures, or REFASHIOND CO:LAB. It does not represent the opinions of The New York Supply Chain Meetup, or The Worldwide Supply Chain Federation. It does not reflect the opinions of any other person who is associated with any of those entities. This blog post does not represent the opinion of any other individual or organization that is mentioned by the author.

Acknowledgement: I am grateful to Anisha Surana, of Locus, for helping me with research about Bangalore, and India. She’s also been the point-person as we’ve worked across time zones to get things going in Bangalore. She’s been phenomenally helpful, even when our team in NYC has been stretched for time and other resources, and therefore less responsive than we should be.

Introduction

After thinking about value chains and supply chains since August 2014, I decided in August 2017 that I should focus the remainder of my career as a venture capitalist on becoming a supply chain specialist. So on August 23, 2017 I decided to start The New York Supply Chain Meetup. You can read about how I got there here: #UnderConstruction | Why A Supply Chain Meetup in New York? In summary: New York City does an enormous amount of business with the rest of the world. Therefore, it is a wonderful laboratory for stress-testing technological innovations for supply chain. Moreover, it is also a great gateway for supply chain tech startups that seek to grow in the North American market.

We Started In NYC! We optimize for enthusiasm.

Friday, November 16, 2018 will mark one year since our first public event, which you can read about here: Progress Report | #TNYSCM Minimum Viable Launch – Building A Supply Chain Community. We are celebrating that milestone with an event on Thursday, November 15 which you can read about here: #TNYSCM09 / Keynote, Showcase & 1 Year Anniversary Celebration.

Over the course of our first year:

  • Our kickoff on November 16, 2017 attracted about 150 people.
  • We have grown to 1,370+ members in NYC.
  • We typically have 100+ people attend each meetup . . . and they do not show up for the food or alcohol, as one of our members who has travelled from Philadelphia to attend our meetups on more than three occasions told a friend who was visiting from Europe. Our gatherings are very engaging affairs, and people have always tended to stay well after the end of each event to talk to one another.
  • We have helped some of our members connect with potential customers, and some of our speakers have gone on to raise significant amounts of capital from VCs or are on the verge of raising capital from early stage investors.
  • With far less in terms of resources, we have become the biggest  and most active community on Meetup.com that focuses on supply chain, technology, and innovation. We’re more than 10x as big as the Supply Chain Meetup of NYC – It turns out copying our name  and our mantra was insufficient to foster growth, and they have not had an event since April 2018. We’re more than 3x as big as the Future of Supply Chain & Logistics which is in Sunnyvale, California and is organized by Plug and Play Supply Chain & Logistics – They have not organized an event since October 2017; This is pretty amazing given that Plug and Play’s many corporate partners are reported to each pay $300K per year for the privilege of being part of that community. To be fair to Plug and Play, perhaps they have invested in a proprietary platform and so meetup.com is no longer a fair reflection of their size and scale.
  • We published The Worldwide Supply Chain Federation – Our Manifesto as a rallying cry to gather people who share our obsessive enthusiasm for supply chain, technology, innovation, and startups.

We started The New York Supply Chain Meetup with a deceptively simple but ambitious mission:

To nurture and grow the world’s foremost open, global, multidisciplinary community of people devoted to building the supply chain networks of the future — starting in NYC.

Soon after that we built on that mission statement by developing this vision:

To create a global movement; the largest community on the planet of people obsessed with supply chain technology, who are trying to develop new products and build new companies – while learning from each other, and supporting one another.

Now, We Are Launching A Community In Bangalore!

During this year of bootstrapping our community, we have built on our early progress in NYC, and are now on the verge of launching chapters outside New York City. On November 24, 2018, The Bangalore Supply Chain Meetup will have its public launch, establishing itself as the first international chapter of The Worldwide Supply Chain Federation.

We are excited that Bangalore is the next chapter to launch after NYC. In all the time that I have been studying about the economic impact more efficient supply chains can have on the world, it has become clear to me that the developing world stands to benefit the most from technological innovation in supply chain. As a boy growing up in Northern Ghana and Northern Nigeria, I was always amazed by the durability of buses made by Tata Motors. I find it personally meaningful, that a supply chain community I am helping to start is building its first international presence in the home of Tata Motors. Here are some highlights about India, and Bangalore specifically:

  • According to the IMF’s Country Focus (August 2018): “India’s economy is picking up and growth prospects look bright—partly thanks to the implementation of recent policies, such as the nationwide goods and services tax. As one of the world’s fastest-growing economies—accounting for about 15 percent of global growth—India’s economy has helped to lift millions out of poverty.”
  • Information technology firms in Bangalore employ about 35% of India’s aggregate pool of about 2.5 million information technology professionals. Bangalore’s IT firms account for the highest IT-related exports from India. Bangalore’s growth as India’s IT capital has been helped by heavy investments by India’s Central Government as well as support from the Karnataka State Government. Bangalore accounts for 87% of Karnataka’s economy and 98% of the state’s software exports.
  • According to a 2016 report from the Associated Chambers of Commerce & Industry of India; The country could save $50 billion if logistics costs as a percentage of India’s GDP were to decrease from 13 percent to 9 percent. In other words, every percentage point gain in supply chain logistics efficiency could lead to $12.5 billion of savings for India’s economy. That is $12.5 billion that could be invested in more productive areas to spur more economic growth in India.

What is even more exciting than that? Our chapter in Bangalore is being launched through the dedicated effort of the team at Locus. I met Nishith Rastogi, Co-Founder & CEO of Locus, in June 2018, in NYC, while he was visiting the United States. We originally planned to chat for about 30 minutes. Instead we wound up spending nearly two hours chatting about the problems Locus is solving for its customers. This is a problem I have been interested in since 2016 – In fact, I discussed it at considerable length when I published: Industry Study: Freight Trucking (#Startups) and Updates – Industry Study: Freight Trucking (#Startups).

According to CrunchBase: Locus is an intelligent logistics automation platform with a built-in route planning and vehicle allocation engine which improves consistency and efficiency of operations, higher customer satisfaction with high adherence to service-level agreements (SLAs) & last-mile live tracking. The platform helps companies and enterprises in e-commerce, food delivery, fast moving consumer goods (FMCG) and other verticals to automate and optimize their logistics. The product suite comprises of a route deviation engine, order dispatch automation, a field user app, route optimizations, scheduling, tracking for end-customer, predictive analytics and other services and products. Locus offers the entire technology stack, in the form of a platform as a service.

According to CBInsights; Locus has raised $6.75 million from angel investors and institutional venture capitalists in India, Singapore, Japan, and California. Locus is also a graduate of Microsoft ScaleUp. When I met Nishith, he told me that the company was growing its business very rapidly in India, Indonesia, and other markets in Asia. Locus is now looking to grow it’s business in the United States, and has opted to begin that process by establishing a presence in New York City.

Finally, Nishith and I talked about the idea that propelled the formation of The New York Supply Chain Meetup. He grasped it immediately, and expressed a desire to build a community in Bangalore, one that would be connected with our community in New York City, and that would also subsequently be connected with every other chapter that launches in other parts of the world.

I explained that one of the goals of the community we were forming in NYC was for startups like Locus, and entrepreneurs like Nishith and his co-founders, to have a ready-made community of like-minded and helpful people they could connect with in NYC once they were ready to establish a presence here. That benefit should also work in reverse  . . . Obviously, that becomes more effective if the community in NYC collaborates actively with a similar community in Bangalore. That is how the idea for The Bangalore Supply Chain Meetup (#TBLRSCM) was born. It is a microcosm of how we hope The Worldwide Supply Chain Federation will function in helping early-stage startups building new technologies and new innovations to make global supply chains more efficient connect with New York City for customers, for talent and expertise, and for financial capital . . . . . No matter where they were founded, if they are expanding into the United States, we want them to call NYC home first, and we will become the community that welcomes them here.

Since our conversation in June, Nishith and his team at Locus have been hard at work putting things in place for the public launch. We would not have made it this far without the dedicated hard work of the team at Locus. They have taken on this initiative on top of their already very demanding responsibilities.

Our team in NYC could not be more excited about seeing The Bangalore Supply Chain Meetup get off the ground. You can help by telling anyone you know in Bangalore who may want to be part of the community that is forming there to look for the group on meetup.com. You may also signup for the launch of The Bangalore Supply Chain Meetup on the event page here.

What Problems Will Our Community Help To Solve?

Some of the complaints I’ve heard from startup founders who are building new technology for the supply chain market, or new technology-enabled products with supply chain functionality are:

  • How do we find enterprise partners for our first pilot? How do we find the individuals who will be our internal champions as we try to win our very first enterprise customers? 
  • How do we find supply chain professionals who can help us understand how our product would be used by professionals in the industry?
  • How do we identify talented people who understand technology but also understand supply chain so that we can recruit them to join our team?
  • How do we find professional service providers who understand the nuances of what we’re trying to do and can help us with tailored advice?
  • How do we find other investors like you?

From large companies we’ve heard comments like; We’ve been grappling with this problem for decades, and we can no longer afford to do things the way we have done them in the past. However, we do not know the people doing the kind of research that could lead to a better solution. Do you know anyone we may not have heard about who’s thinking about this?

So, as part of The New York Supply Chain Meetup, and ultimately as part of The Worldwide Supply Chain Federation, we will create a partnership network which will help us tackle those sorts of concerns very directly.

The Worldwide Supply Chain Federation is the collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry. The New York Supply Chain Meetup is its founding chapter.

We wouldn’t have made it this far without the generous support of the following people and organizations;

  • Jessica Lin and Allie Felix from Work-Bench: Who reached out to me even before I had clearly organized my thinking. Allie now runs programming and partnerships at the Embarc Collective. Work-Bench sponsored us by donating space for our events during our first year.
  • Michelle Shen from UPS: UPS supported us by contributing towards food and beverage for our launch last November. Michelle has also been a sounding board for us when we’ve had questions about how large organizations like UPS might think about working with nascent communities like ours.
  • Akshata Philar from SAP.iO. SAP.iO hosted us on alternate months at their office in NYC, providing space as well as food and drink for our members. Her colleague, Kange Kaneene of SAP Ariba has road-tested some of our ideas as we’ve worked on growing during the course of 2018.
  • Matt Turk of FirstMark, and founder of Data Driven NYC, and Jon Zanoff of Techstars, and Founder of Empire Startups, both graciously shared their individual experiences of getting startup communities off the ground in NYC.
  • My former teammates at KEC Ventures/Particle Ventures, indulged me when I told them I had started a supply chain meetup – this is after I had decided to become a supply chain specialist. KEC Ventures/Particle Ventures supported the meetup financially by covering the cost of food and drink for some of #TNYSCM’s events. My teammates gave me ideas about how to get things off the ground, and Susan Belding came to my rescue by helping me figure out some of the event-day logistics as we got going.

Last but not least: Lisa agreed to become my co-founder when I called her in a “panic” on August 24, 2017. We have been learning about supply chain, technology, and innovation together since we first met in June 2016. We are now in the early days of building a specialist supply chain early-stage technology venture capital firm. She shares my obsessive enthusiasm for all things supply chain + technology + innovation. I couldn’t have done this without her help.

We have been lucky to have a large team of volunteer co-organizers: Brian Lindquist, Paula Cadman-Mendoza, Christian McKenzie, Nathan Sjoholm, Tina Kang, Santosh Sankar, Joy Fan, Elizabeth Salcedo, Leslie Cohen, Natan Reddy, and Daniel James. I have a firm belief that nothing of significance can be accomplished without the concerted and significant effort of a team. As I look back on the past year, I am grateful for the contributions from every member of our team. It’s through their efforts that we have been able to accomplish so much with so little.

Looking Forward: Our Plans For 2019

We figured that 2018 would be our experimental year: We have small groups of people who expressed interest in forming communities in Vancouver, Singapore, and Athens over the course of 2018. However, we have deliberately moved slowly in order to allow the chapter that demonstrates the most enthusiasm to get organized first, while we learn the lessons we can from that experience. We expect 2019 to be a year in which The Worldwide Supply Chain Federation grows by launching at least one additional chapter per quarter . . . In other words, I expect that we will have at least 6 active chapters around the world a year from now. Ultimately, our goal is to bring our community together for an annual conference in NYC, starting sometime in 2020.

If you would like to help us make this happen: Consider joining one of the communities we’ve already started, or consider starting one where you live. We can always use more volunteers. We do not yet have a committed sponsor. If you’re a company that wants to discuss becoming a sponsor, let us know. Our contact information is available via our manifesto, and we’re easy to find online.

Forward!

My Supply Chain Credo

About Locus: Locus is a decision-making platform in the supply chain that automates human decisions required to transport a package or a person, between any two points on earth, delivering gains along efficiency, consistency, and transparency in operations. The company’s premier logistics optimisation solutions include route optimisation, real-time tracking of orders, insights and analytics, optimised permanent journey plans and automated shipment sorting.

Update #1: November 8, 2018 at 12:45 to update disclaimer, add link to event page at Locus’ website, and add “About Locus” section.

Update #2: November 9, 2018 at 22:53 to update event links for #TBLRSCM in order to avoid confusing people.

Filed Under: #TNYSCM, Communities, Entrepreneurship, Meetups, Shipping, Startups, Strategy, Supply Chain, Technology, Trucking, Venture Capital Tagged With: #TNYSCM, #TWSCF, Community Building, Early Stage Startups, Entrepreneurship, Innovation, Logistics & Supply Chain, Logistics and Supply Chain, Startups, Technology, Venture Capital

Where Will Technological Disruption in The Fashion Supply Chain Come From?

October 25, 2018 by Brian Laung Aoaeh

If you know how to learn, you know enough.

Originally published at www.refashiond.com on October 25, 2018.

By Brian Laung Aoaeh and Lisa Morales-Hellebo

Authors’ Note: This is the second in a series of six articles about problems and opportunities in global supply chains, with a focus on the fashion industry. In this article we focus on trying to learn how executives at fashion industry incumbents may learn how to predict technological disruption in order to develop appropriate responses to the evolving environment that surrounds their companies. We start by briefly surveying some of the theory about disruption. Then, we delve into a series of brief historical analyses of technological disruptions in a number of industries. We try to understand those episodes by using the theoretical foundations developed earlier. Finally we ask the question that forms the basis for this article, by posing questions about potential sources of disruption in the global fashion industry, the issues that every team of c-level executives in the industry worries about daily. If you have not read the first article in the series you may do so using this link: The Fashion Supply Chain Is Broken. However, reading the first article is not a prerequisite for following this discussion.

Acknowledgement: We are grateful to Tayo Akinyemi for reading and critiquing previous versions of this article.

The fashion supply chain is broken and must be refashioned. This is the conclusion we have come to after studying the issue, starting in 2014.

Background

We each independently became interested in supply chains in 2014. We have collaborated with one another in learning about supply chain since June 2016. In August 2017 we teamed up to start The New York Supply Chain Meetup, and building on that work are on the verge of launching The Worldwide Supply Chain Federation when The Bangalore Supply Chain Meetup hosts its kickoff event in November. In September 2018, we teamed up to start building REFASHIOND: a venture firm that will invest in early-stage startups creating innovations that make global supply chains more efficient. We will initially focus on startups at the intersection of fashion and retail. You can learn more about us by visiting REFASHIOND’s website. We also provide more detail about our background in the first article in this series.

In order to ensure that everyone is on the same page about disruption, we have chosen to conduct a brief survey of the key ideas that underpin the concept. We believe this is necessary to ensure that any dialogue that ensues is on the basis of a shared mental model. In writing this article we took inspiration from the work of Joshua Gans, author of “The Innovation Dilemma.” His work has greatly helped our understanding of innovation and disruption theory.

We do not claim to have a special talent for predicting disruption, however Lisa has a track record of leading disruptive innovations and has been featured in the book, “Disrupters: Success Strategies from Women Who Break the Mold.” This is not an article in which we are going to provide canned answers. Rather, our focus in writing this article is two-pronged: First, we will briefly examine the theory behind disruption, and attempt to connect the dots between various schools of thought on the subject. Second, using the lessons from that exercise, we will then look at some historical examples of disruption and see what insights we might glean from them.[1] We conclude the article by considering where disruption in the fashion industry may come from.

Our goal is to foster and participate actively in industry-wide dialogue about the future of the global fashion industry. We hope the result of such dialogue will be inter-industry collaboration aimed at making the future reality more prosperous and sustainable than the present or the past. We’re excited about participating in such conversations with startup founders and fashion industry executives.

Do not hesitate to email us if you would like to speak with us about our work, and possible collaborations in the future.

We can be reached at:

  • Lisa Morales-Hellebo — lisa@refashiond.com, and
  • Brian Laung Aoaeh — brian@refashiond.com.

What Is Disruption?[2]

Creative Destruction — A Result of Fundamental Market Shifts

Joseph Schumpeter (1883–1950) is the first person to have clearly described the concept on which subsequent work on developing a theory of disruption is based.[3] He describes “Creative Destruction” as:

“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation — if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”

He goes on to say that Creative Destruction is about more than price competition:

“But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance) — competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is as much more effective than the other as a bombardment is in comparison with forcing a door, and so much more important that it becomes a matter of comparative indifference whether competition in the ordinary sense functions more or less promptly; the powerful lever that in the long run expands output and brings down prices is in any case made of other stuff.”

Finally, he makes the observation that:

“The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”

Disruption — A Result Of Movement Up The Technology S Curve

Richard Foster examined the role that technology plays in disruption, and used technology S curves to advance our understanding of disruption in his 1986 book, “Innovation: The Attacker’s Advantage.” An S curve is a graph of a logistic growth process. In such a process, growth is initially slow, speeds up in the middle period, and then levels off after that, as it approaches some upper maximum limit at the end of the growth period. Foster’s key realization was that technological innovations can result in a change in the underlying process, leading to a fundamentally new S curve with a discontinuity between the original S curve and the new S curve. Using this formulation, disruption happens during the shift in customer demand from the products along the old S curve trajectory to those products along the new S curve trajectory. On a long enough time-horizon, it should be easy to understand that an industry may experience multiple waves of disruption depending on the rate of technological advancement and entrepreneurial innovation within the industry.[4]

Disruptive Innovation — S Curves & Discontinuities in Market Structure

Clayton Christensen pushed our understanding of disruption further with the publication of “The Innovator’s Dilemma: When New technologies Cause Great Firms to Fail.” Below, we highlight and summarize some of the main ideas.[5]

A Sustaining Innovation: leads to product improvements without fundamentally changing the underlying structures of the market to which it applies; it enables the same set of market competitors to serve the same customer base, while typically extracting more value from them. It is important to note that sustaining innovations may lead to a rearrangement of the competitive landscape, but rarely will they lead to the outright failure of a leading incumbent. Sustaining innovations can be radical, revolutionary, or discontinuous if they lead to dramatic and unexpected product improvement. In Foster’s formulation, a sustaining innovation merely advances a technology up the same S curve.

A Disruptive Innovation: starts out with worse product performance relative to the available alternative from market incumbents, and is often not very complex technologically. As a result the new product is attractive to a small niche of the customer base. However, if product performance improves quickly enough, at a certain point the new product provides superior product performance relative to the alternative that is available from market incumbents. This process leads to a significant, dramatic, and fundamental shift in market structure, that is to say, suddenly the new entrants go from serving a niche customer base to gaining a majority of the market while, at best, erstwhile incumbents become mere shells of their former selves or even go out of business entirely. To use Foster’s formulation, a disruptive innovation moves the product to a new S curve.

Clayton Christensen also differentiates a low-end disruption from a new-market disruption. In a low-end disruption, the attacker enters the market with a product that is inferior relative to the needs of mainstream customers. In a new-market disruption the attacker enters the market by serving a customer niche that was previously unserved by the existing incumbents.[6] A low-end disruption results from a low-end innovation while a new-market disruption is the result of a new-market innovation.

Architectural Innovation — A Fundamental Change in Systems

Rebecca Henderson and her co-author, Kim Clark, focus on another important component that adds to our understanding of disruption: Why is it so difficult for incumbent firms to respond even when they possess the technical expertise to do so? In “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms,”[7] they make the distinction between the components that are combined to form a product and the system that makes it possible to combine disparate components into a single product or a unified service offering.

Component Innovation: is innovation in the modular design of a product. Such innovations are easy for incumbents to respond to because they arise from using technical knowledge about each component of a product to make improvements to the overall product, within existing organization structures and business models. Component innovation arises from component knowledge.

Architectural Innovation: is innovation in the end-to-end system that enables the combination of various, disparate components to form a product. Incumbent firms find it difficult to adapt to such innovations because the innovations render the incumbent’s component knowledge useless, given that the innovation is in a new organizational structure or a new business model that reconfigures the end-to-end system leading to the creation of a product using the same core body of component knowledge. Architectural innovation arises from architectural knowledge.

A key observation in Henderson and Clark’s work is that a market disruption — the attacking new entrant quickly supplants the incumbent in terms of market share and market power, leading to financial distress for the incumbent, can occur in a market when a sustaining innovation is married with architectural innovation. This helps explain certain market disruptions that would not qualify as disruptions if we only used the Christensen formulation.

Technology, Innovation, and Disruption — Two Sides To The Story

Joshua Gans helps us connect the dots more fully between Clayton Christensen’s Disruptive Innovation and Rebecca Henderson and Kim Clark’s Architectural Innovation. In “The Disruption Dilemma” he introduces us to the concept of a Demand-Side Disruption and Supply-Side Disruption. Below, we explore those ideas in more depth.[8]

The Demand-Side Theory of Disruption is an outgrowth of the Christensen School, wherein as attackers enter a new market incumbent firms perform a demand-based risk assessment and decide that mainstream customers are highly unlikely to desire the product on offer from the attackers. In fact, in many cases, the appearance of such inferior products is welcome because unprofitable customers move to adopt the products now being offered by the upstart attackers, freeing incumbents to focus all their resources on their most profitable customers. This is all well and good, until, through the process of iterative improvement, the attacker’s product moves rapidly up the new technology S Curve and quickly achieves performance-parity with the incumbents’ product at a significantly more attractive price-point. It is at this stage that customers abandon the incumbent in favor of the attacking firm in cascading waves, causing seemingly sudden failures of once dominant incumbent firms. This is a vast simplification of the discussion by Gans, however the key to understanding demand-side disruption is that it is driven by changing consumer tastes and expectations.[b]

The key to understanding demand-side disruption is that it is driven by changing consumer tastes and expectations.

The Supply-Side Theory of Disruption is an outgrowth of the Henderson-Clark School, wherein as attackers enter the market it becomes extremely difficult for incumbents to respond because the basis on which they have achieved success attaches them to a certain foundation of architectural knowledge from which they cannot detach themselves even if they admit that that their core business is at risk. To respond, incumbents must develop an entirely new system of doing things. This is difficult for incumbents to do since, at the outset, there is no guarantee that the new system will succeed any better than the existing architecture which has been the basis of the incumbent’s historical success. In other words, uncertainty causes incumbents to drag their feet about making the difficult choices they must make in order to adapt, assuming they know what changes need to be made. Remember that the architectural knowledge which forms the basis on which attackers enter the market is invisible to incumbents, and the attendant uncertainty makes an already daunting task even more difficult.[c]

The architectural knowledge which forms the basis on which attackers enter the market is invisible to incumbents, and the attendant uncertainty makes an already daunting task even more difficult.

So What?

Now that we have surveyed some of the key ideas in disruption theory, we’ll explore how disruption has played out in a few industries. Before we do so, it is worthwhile to reconcile the ideas we have encountered in the preceding discussion.

First, if emerging technologies progress quickly enough up the technology S Curve and gain sufficient customer adoption, the probability that a disruptive event will occur in a given industry increases until it becomes practically inevitable. This evolution is accompanied by a high degree of uncertainty about future states of the world. The uncertainty complicates decision-making for the executives who must decide how incumbent firms should react when attackers enter the market with a low-end or new-market offering.

Second, architectural innovation will always lead to a degree of market disruption if it catches a wave of changing and favorable consumer expectations. A sustaining innovation that is combined with architectural innovation will lead to an outcome to which incumbents cannot respond even though they possess the technical knowledge to respond to the component-level innovations. Since architectural knowledge is invisible, there is no way for incumbent’s and other competitors to respond to architectural innovation without assuming risks of an existential nature given that they have no real understanding about how the innovation works, assuming they recognize and admit there’s an innovation before it is too late.

A disruptive innovation married with architectural innovation will lead to potentially more extreme market dislocations because incumbents can only respond to the component-level innovation on the basis of old architectural knowledge. This will cause their offerings to consistently underperform the products introduced by the attacking firms along the dimensions that now matter most to customers. Eventually waves of customers will abandon the incumbent product in favor of the new product offered by attacking new entrant firms. In other words, the new architecture supplants the old.

Third, the forms of innovation we have discussed above are not mutually exclusive. Rather, it is often the case that each form of innovation is present to a certain degree in any case of market disruption that one studies

Fourth, and this bears repeating, it is a mistake to ignore the role that uncertainty plays in complicating the decision-making process that individuals in positions of authority within incumbent firms face.Uncertainty is the factor that causes decision-paralysis, buying attackers time to gain strength and ultimately dislodge once powerful incumbents.

Uncertainty is the factor that causes decision-paralysis, buying attackers time to gain strength and ultimately dislodge once powerful incumbents.

Does this sound frightening? It is. Why? It means that, on average, chief executives, chief technology officers, chief strategists, heads of innovation, and other senior executives, are altogether incapable of protecting leading incumbent firms from failure. Not unless the entire firm adopts a culture whose strategic choices are informed by assessments of demand-side and supply-side innovations. Even then, as Schumpeter observed, it’s just a matter of time before every incumbent is overwhelmed by waves of creative destruction. To a certain extent, this may explain why over the course of the recent past, companies that continue to be led by members of the founding team demonstrate a greater capacity to cause and respond to potential market disruptions than incumbents managed by teams of professional executive managers who did not found the company.[9]

We now turn our attention to some historical examples of disruption. For brevity’s sake, we have intentionally left out many details.

Disruption In Action

Tech Ate Books

Between 1960 and 1970 mall-based chain bookstores started supplanting independent bookstores. This process continued till about 1980, when mall-based chain bookstores suffered a similar fate with the rise of big-box bookstore chains. By 2000 big-box chains like Barnes & Noble, and Borders dominated the market. However, with the advent of the internet and its adoption for online retail; Borders is already out of business, while Barnes & Noble is struggling to reorganize and sustain its business.

We believe this is an example in which architectural innovation is the dominant factor at play. However, one should not underestimate the contribution of changes in consumer behavior. As our teenage and pre-teen children remind us; “Amazon’s supply chain is so awesome! You do not have to go anywhere, they will just bring your stuff to you while you stay home and play video games.” As time has progressed and digital media technology that is delivered over the internet has improved, disruptive innovation has come increasingly to the fore as ebooks and audiobooks began gaining in popularity.[10]

Tech Ate Video

Film projection technology started to become available between 1900 and 1930. As the technology matured, the period between 1930 and 1950 came to represent the Golden Age of Hollywood. Between 1950 and 1960, broadcast TV, small screen, and videotape recording gained a foothold in the market. The three decades between 1960 and 1990 saw the proliferation of color TV, and home video recorders. Notably, Blockbuster was founded in 1985. From 1990 to 2000 flat screen TVs, laser discs, and video CDs appeared as technologies in this market. Netflix was founded in 1997. Between 2000 and 2010, DVDs and mobile viewing become more mainstream. Netflix expanded its DVD rental business by introducing an over-the-top (OTT) streaming option in 2007. Since 2010, Video-Over Internet Protocol (Video-Over IP) and OTT video have gained dominance in terms of consumer consumption of video content. Blockbuster filed for bankruptcy protection in 2010, eventually becoming part of DISH Network which acquired the assets of Blockbuster in a bankruptcy auction in 2011. In 2013, DISH announced that it would close all of Blockbuster’s store and DVD-by-mail operations in early 2014. Meanwhile, Netflix is now available in 190 countries with 130.1 million paid subscribers and 137.1 million subscribers overall. Netflix generated more than $11 billion in global revenues in 2017.[11]

Once again, from the perspective of an incumbent’s chief strategist, or a head of innovation worried about protecting the incumbent from disruption, a more complete explanation of the circumstances that surrounded this episode can only be found by combining the Christensen School’s Theory of Disruptive Innovation with the Henderson-Clark School’s Theory of Architectural Innovation.

At the outset, Netflix entered the market with an architectural innovation: Blockbuster was not designed around a system of mailing videotapes or DVDs to people’s homes. As internet technology matured and broadband connections to people’s homes became ubiquitous, the low-end innovation of streaming video provided the final punch required to send Blockbuster crashing to the proverbial canvas of bankruptcy court. As OTT and Video-Over IP technology travelled up the technology S-Curve, Netflix had the advantage of far less in overhead costs than Blockbuster, allowing it to invest more aggressively in streaming technology, and winning the market.

Tech Ate Music Stores

The Acoustic Era stretched from 1877 to 1925. During this period the phonograph and the theremin resulted from experiments in sound recording and the technology started being applied to recording music. This was followed by The Electrical Era, when electrically recorded LP records supplanted acoustic phonographs. It extended from 1925 to 1945. Between 1945 and 1975, The Magnetic Era, magnetic 8-Track Tapes and cassette tapes supplanted LP records and other electrically recorded media. The Magnetic Era was followed by The Digital Era, between 1975 and 1993. It is during this period that MP3s started supplanting magnetic tapes and LPs. The Streaming Era started around 1993 and extends till today, MP3s lead to an explosion in peer-to-peer (p2P) file-sharing platforms. These platforms have supplanted old ways of packaging and selling music, and physical music stores have now largely been replaced by online streaming services.[12]

Although, it is popular to assume that the music industry was disrupted by MP3 technology, it is not so clear to us that such a sweeping statement captures the nuance of the situation. It is certainly true that music stores as a channel of distribution for the music industry have succumbed to digital formats and channels. It is also true that sales of physical albums have plummeted as the Streaming Era has progressed. However, Warner Music Group, Universal Music Group, and Sony Corporation together control more than 70% of the market. As a result streaming platforms like Spotify, Pandora, and Soundcloud are subject to the pricing power of the big music companies. Apple’s iTunes, Amazon’s Music, and Google’s Play are somewhat protected from the supplier power wielded by the music companies because of the power that is in turn wielded by Apple, Amazon, and Google respectively.[13]

Tech Ate Phones

The history of telephony dates as far back as 1876, when Alexander Graham Bell placed the first phone call. Early advances in telephony were made by the U.S. Army Signal Corps Engineering Laboratories, Motorola, Bell System, and Ericson between 1915 and 1956. By 1956, Bell Labs had begun work on conference calling systems, and in 1964, the first video conference call was made between New York and California using a Bell Labs Picturephone. Phones began to get lighter, but they still weighed 20 pounds or more. The first mobile phone call was made in 1973 using a Motorola DynaTac prototype which weighed 2.5 pounds. The technology continued to mature after 1973, with notable developments in 1989 when Motorola introduced the MicroTac, the world’s first flip phone.

In 1992, Motorola introduced the 3200, a hand-sized digital mobile phone that used GSM technology. That was followed in 1993 by the IBM Simon, arguably the world’s first smartphone, with a pager, a fax machine, a PDA, a calendar, an address book, a calculator, a notepad, email, games, a touchscreen, and a QWERTY keyboard all included in the same mobile phone. In 1997, Nokia kickstarted the smartphone era with the Nokia 9000 Communicator. Nokia continued to improve on its phones with the 8810 in 1998, and the 3210 in 1999 — selling over 160 million units. The Nokia 7110 introduced web access to mobile phones, and GeoSentric brought GPS navigation to mobile phones. Sharp introduced the J-SH04 in 2000 — it was the first camera phone. In 2002, the Sanyo 5300 became the first camera phone to be sold in North America. Also in 2002, RIM introduced the BlackBerry 5810, it was the first device to combine a mobile phone with a data-only device that targeted white-collar professionals. Mobile phone technology kept improving incrementally, with Nokia, RIM, and Motorola featuring as dominant incumbents in the North American Market.

Apple introduced the iPhone in 2007. Google introduced its Android OS for smartphones in 2008.[14] Since then Apple’s iOS and Google’s Android OS have gone on to dominate market share in the mobile phone OS market. Apple, Samsung, Huawei, Xiaomi, and OPPO occupy the top 5 spots in terms of smartphone shipments and market share as of the fourth quarter of 2017, according to IDC Worldwide.[15] Nokia sold its mobile phone business to Microsoft in 2014 and has instead shifted into telecommunications infrastructure and network equipment manufacturing. Motorola was bought by Google in 2012 and then sold to Lenovo in 2014. RIM has ceased manufacturing mobile phones and is now focused on developing software.

Is the iPhone disruptive? Clayton Christensen did not think so in 2006, 2007, or even in 2012. Is Android OS disruptive? From the outside looking in, it appeared that the iPhone + iOS, and Android OS represented sustaining innovations based on the Christensen School, or component innovations only, based on the Henderson-Clark School.

But, what was really happening? First Apple and Google shifted the focus away from being entirely focused on hardware engineering as a source of competitive differentiation and moved the focus more towards software platforms as the source of competitive advantage. Second, this shift coincided with a growing desire from consumers for mobile devices that performed more functions than Nokia, RIM, Motorola, and the other incumbents in the market at the time offered on their mobile devices. It is generally difficult for firms that grew to prominence on the basis of skill in hardware engineering disciplines to adjust to a market where skill in software engineering forms the basis for survival.

Tech Ate Cameras

The history of cameras and photography goes farther back in history than one would ordinarily think. Although the historical details are useful,[16] we will skip the vast majority of them up to the point in 1884 and 1888 when George Eastman patented photographic film, and the Kodak roll-film camera respectively. Edwin Land launched the Polaroid camera in 1948. Eventually Kodak, Agfa-Gevaert, and Fujifilm dominated the market for analog photography and camera equipment.[17] The market for analog cameras and photography was characterized by very complex and advanced manufacturing processes, and high barriers to entry, enabling Kodak and its peers to build highly profitable consumer franchises on the basis of that technology.

Ideas and concepts related to digital photography first appeared in the early 1960s and 1970s. In 1975, an engineer at Kodak invented and built the first digital camera. Digital Single-Lens Reflex (DSLR) cameras appeared on the market in the 1980s and 1990s, and had supplanted analog film cameras by the mid-2000s. In 2000, Sharp introduced the first mobile phone that incorporated a digital camera. Now every smartphone has an integrated digital camera.

Polaroid, Agfa and Kodak filed for bankruptcy in 2001, 2005 and 2012, respectively. Meanwhile, Fujifilm continues to record some of the most profitable years in the company’s history. What gives?

Most analyses about Kodak’s fate focus on explanations based on the Christensen School of Innovation. Others assume that executives at Kodak sought to protect its photographic film and analog camera business, the company’s cash cow. However, in “The Real Lessons From Kodak’s Decline”, Willy Shih points out that such arguments mischaracterize what was really happening within the company.[18] He arrived at Kodak in 1997, and ran a division of the company charged with exploring how Kodak might exploit the opportunity presented by digital photography.[19]

The shift from analog to digital photography posed challenges on many levels. First, there were dramatic shifts in the technology of photography. Second, the nature of the technological shifts lowered barriers to entry and significantly increased the scope of the competitive landscape. Third, as a result of these shifts in the market, Kodak’s legacy business, once the source of its unrivaled dominance, now became an albatross around its neck, imposing a severe handicap from which it could not very easily escape to contend with the horde of attackers. Fourth, these changes introduced a shift in the balance of power between the players in the market, weakening Kodak’s hand while strengthening that of its ecosystem partners and counterparts.

How did Fujifilm navigate this crisis? This is the focus of Shigetaka Komori’s book: “Innovating out of Crisis: How Fujifilm Survived (and Thrived) as Its Core Business Was Vanishing.”[20] Mr. Komori is CEO of Fujifilm. In reading the book, it becomes clear that Fujifilm is alive today because it accomplished the rare feat of adjusting its business to account for both the demand-side (disruptive) and supply-side (architectural) innovations that were taking place in the global camera and photography market. Fujifilm developed three strategies to help it contend with the coming digital era: First, Fujifilm invented original digital technology of its own — it affirmatively chose to adjust and adapt to the unfolding architectural innovation. Second, the company extended the life of its analog photography business by developing innovations to increase the gap between its existing analog products and the attacking wave of early digital alternatives — responding to disruptive innovations by building sustaining innovations to buy itself some time for its efforts in adapting to the new architectural innovations to bear fruit. Third, recognizing that the digital photography business would impose low margins on the market overall, it developed new businesses that were peripheral to its analog and digital photography businesses, but that could command high margins — though, some of these businesses were sold as revenues and profits from the analog business deceptively continued to rise and show strength. Quoting Mr. Komori;

No matter how good business is, you have to foresee and prepare for a coming crisis. Looking directly at reality, you have to recognize what is happening at the moment, as well as what is going to happen in the future. You have to read the situation, understand it, think about it, and decide what needs to be done. This is what management is all about.

Tech Is Eating Tech

In “The Scale of Tech Winners”, Benedict Evans discusses how Google, Apple, Facebook, and Amazon have supplanted the companies that defined the the preceding technology era which was characterized by the partnership between Microsoft and Intel, and IBM to some extent. Here are some quotations from that blog post:[21]

1. “So, the four leading tech companies of the current cycle (outside China), Google, Apple, Facebook and Amazon, or ‘GAFA’, have together over three times the revenue of Microsoft and Intel combined (‘Wintel’, the dominant partnership of the previous cycle), and close to six times that of IBM. They have far more employees, and they invest far more.”

2. “Scale means these companies can do a lot more. They can make smart speakers and watches and VR and glasses, they can commission their own microchips, and they can think about upending the $1.2tr car industry. They can pay more than many established players for content — in the past, tech companies always talked about buying premium TV shows but didn’t actually have the cash, but now it’s part of the marketing budget. Some of these things are a lot cheaper to do than in the past (smart speakers[22], for example, are just commodity smartphone components), but not all of them are, and the ability to do so many large experimental projects, as side-projects, without betting the company, is a consequence of this scale, and headcount.”

3. “Google, Facebook, and Amazon are still controlled by their founders, and they are aggressive street fighters.”

In Essence, Ben is saying that no industry that offers attractive enough margins is immune from the attentions of large tech companies with ambitions of global domination. Or, as Jeff Bezos of Amazon puts it;

Your margin is my opportunity.

What Factors Lead To Market Disruption?

When an attacker emerges with a new design concept, it is rational for incumbents to ignore it, since it is uncertain whether the new design concept will gain overall market acceptance. Moreover, evidence may suggest that mainstream customers do not value the new product that the attacker is introducing to the market. This is true, up until the point at which the new design introduced by the attacker wins the allegiance of customers and other parties in the market — in effect making the new design the dominant design. In the process the design standards on which incumbents built their businesses become obsolete, and incumbents now need to adjust to a fundamentally new and unfamiliar basis of competition. It is at this inflection point that attackers start to pull away from, or catch up with, incumbents with such speed that it is rare for any of the incumbents to recover, or protect, a position of dominance.[23]

As incumbents struggle to adjust to the new paradigm, their efforts fall short of customer expectations because they may have component knowledge, but insufficient architectural knowledge to enable them to build products that meet the entirely new performance thresholds established by the attacking firms. In the examples we have discussed above;

  • Ecommerce has become the dominant distribution channel for book retail.
  • OTT and video-over IP has become the dominant distribution channel for video content.
  • Streaming platforms have become the dominant distribution channel for people who wish to buy and consume music.
  • Mobile phones now function as small computers, with software design being as important, if not more important, than hardware engineering. Moreover, despite the ridicule that mobile phone industry executives first showered on the iPhone after its initial launch, the design it introduced in 2007 now dominates the market.
  • A smartphone that incorporates a digital camera has become the dominant design for the consumer photography market with further differentiation arising from computational photography, building on the strengths both Apple and Google possess in software engineering.
  • Finally, technology companies that embraced the internet as a platform for their business models are supplanting those technology companies that were slow to recognize the internet’s promise.

Conclusion: Will Tech Eat Fashion?

Yes. It is just a matter of time. We believe that the global fashion industry is approaching a tipping point that is similar to one of those we described in the preceding examples. Consumer perceptions and expectations in the major fashion markets of Western Europe and North America are slowly beginning to favor speed, customization or personalization, and environmental sustainability, over lowest price. These are issues we have already touched on in the article preceding this one, and that we will discuss again in a subsequent article, so we will not belabor the point here.

It would seem that the most obvious threat comes from digital native marketplaces like Alibaba, Amazon, Asos, Farfetch, JD.com, and Yoox Net-A-Porter Group. The next most obvious potential source of danger are the vertically integrated digital native brands like Bonobos, Boohoo, Eloqui, eShakti, Everlane, Fame Partners, Forever 21, Lesara, ModCloth, Outdoor Voices, and Reformation. Another obvious potential source of threat is sharing economy and recommerce digital native companies and startups like Ebay, Gwynnie Bee, LePrix, Material World, Rent The Runway, and ThredUp.[24]

Uncertainty stems from sources one least expects. So, we decided to analyse the financial statements of the tech companies, to see what we would find. We have been surprised by how much cash they carry on their books. Leading us to conclude that tech incumbents have the cash, knowhow, appetite for risk, and other resources to initiate experiments in any industry they determine provides attractive opportunities. Along those lines we have been asking ourselves many questions, here are a couple — note we do not know if these are the right questions, but we have to start somewhere:

  • Could the global fashion and accessories market attract the interest of companies whose core competence is building and deploying general-purpose software technology platforms[25]? If it did, how might that play out over time?
  • Are the technologies on which global fashion industry supply chains run at risk of becoming modularized into interchangeable and rapidly evolving components? What impact will that have on the specialized knowledge that current fashion industry incumbents have accumulated? Will it make that knowledge more valuable or less valuable? How will that affect profit margins?
  • How will legacy assets enable or hinder fashion industry incumbents’ ability to respond to demand-side or supply-side disruption?
  • How will the competitive landscape shift if fashion industry incumbents come under increased and sustained attack from digital native competitors? This is already happening and the large incumbents — digital immigrants, are responding by acquiring digital native brands. It remains to be seen if this will enable or hinder the acquired companies’ once they become attached to incumbents. How will these digital native brands be integrated into an existing incumbents’ culture, systems, and marketing strategies?
  • In what ways will concerns and awareness about climate change, and environmentally sustainable supply chains impact how the fashion industry evolves over the next decade or two? Can the industry approach this proactively?
  • Is there anything fashion incumbents can do beyond iterative improvements to their existing supply chains? Circularity, customization, and localization require an entirely new supply chain architecture. How will incumbents adapt? How should they adapt? The MacArthur Foundation is doing a lot of work on this topic through its Make Fashion Circular initiative. We refer to that shortly.

The Role of Leadership

After we published the first article in this series, we received some comments from people who read the article. The following comment comes from Steve Hochman. Steve was chief operating officer at Bolt Threads from April 2017 till September 2018 after serving as an executive at Nike for over nine years. Bolt Threads harnesses proteins found in nature to create fibers and fabrics with both practical and revolutionary uses, starting with spider silk. Here’s Steve’s comment:

“Nice post today. A few thoughts: It seems there’s growing consensus that speed and flexibility is key to brands’ and suppliers’ survival and much more inter-enterprise collaboration is needed to achieve it. Thanks to Zara and others, that’s an increasingly visible insight. The harder question to me is about the leadership required to make it happen. Who will emerge to make it safe to behave this way, ie to drive and choreograph the necessary confidence and trust between historically adversarial members of the same ecosystem, and what are the first moves that will bridge us from old to new? Would love to see us explore that question, because all the technology and process investment in the world is for naught without that other answer first, I think! Thanks again for pushing the dialogue.”[26]

Steve’s comment reflects our beliefs. As Fujifilm demonstrates, proactive leadership makes it more likely that entrenched incumbents can predict and react quickly to impending market disruptions. Indeed, that is the topic of Clayton Christensen’s most recent book, “Competing Against Luck.” To paraphrase his words: Fashion industry incumbents must proactively decide that surviving market disruptions is not something they can afford to approach with a hit-or-miss attitude. Rather, they must proactively choose to predict what demand-side or supply-side innovations have a potential to disrupt their business, and then act to ensure they are among the beneficiaries of these developments. As Andy Grove, former CEO of Intel put it: “Only the paranoid survive.”

Taking control of uncertainty is the fundamental leadership challenge of our time.

– Ram Charan, The Attacker’s Advantage

We are in full agreement with the following statement from The Ellen MacArthur Foundation’s report: “A New Textiles Economy: Redesigning Fashion’s Future.”

“Transforming the industry to usher in a new textiles economy requires system-level change with an unprecedented degree of commitment, collaboration, and innovation. Existing activities focused on sustainability or partial aspects of the circular economy should be complemented by a concerted, global approach that matches the scale of the opportunity. Such an approach would rally key industry players and other stakeholders behind the objective of a new textiles economy, set ambitious joint commitments, kick-start cross-value chain demonstrator projects, and orchestrate and reinforce complementary initiatives. Maximising the potential for success would require establishing a coordinating vehicle that guarantees alignment and the pace of delivery necessary.”[27]

Transforming the industry to usher in a new textiles economy requires system-level change with an unprecedented degree of commitment, collaboration, and innovation.

We believe it is the responsibility of leaders within the global fashion industry to strive to understand the causal mechanisms of disruption, and to ask the questions that lead them towards answers that enable their respective companies to successfully navigate the waves of creative destruction that characterize capitalist economies. This is a dialogue in which we are eager to participate as early stage venture capitalists investing in supply chain startups, and as thought partners working with executives in the global fashion industry.

Next in the series: What Are The Established and Emerging Business Models in The Global Fashion Industry Today?

About REFASHIOND Ventures: REFASHIOND Ventures is an early-stage venture capital investment firm that is being formed to invest in early-stage startups creating innovations that make global supply chains more efficient, starting with startups at the intersection of fashion and retail.

About REFASHIOND CO:LAB: REFASHIOND CO:LAB is the systems design, research, and strategy consulting arm of REFASHIOND Ventures. REFASHIOND CO:LAB helps organizations create competitive advantage through supply chain innovation.

About The Worldwide Supply Chain Federation: The Worldwide Supply Chain Federation is the collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry. The New York Supply Chain Meetup is its founding chapter.

________________

[1] We realize there’s a great risk of hindsight bias. However, analyses of this sort is one of the best tools in chief executive officers’, chief strategists’, or chief innovation officers’ toolkits and we feel it would be foolish not to use it if it helps us develop a good theoretical framework for correctly predicting, reacting to, and exploiting new innovations that threaten to reorder an industry.

[2] This discussion builds on Aoaeh, Brian Laung. “Notes on Strategy; Where Does Disruption Come From?” Innovation Footprints, 19 July 2015. innovationfootprints.com/notes-on-strategy-where-does-disruption-come-from/.

[3] Schumpeter, Joseph Alois. Capitalism, Socialism and Democracy. Routledge, 1994. Chapter VII

[4] Foster, Richard N. Innovation the Attacker’s Advantage. Summit Books, 1986.

[5] Christensen, Clayton M. Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Management of Innovation and Change Series). Harvard Business Review, 1997.

[6] The Innovator’s Solution: Creating and Sustaining Successful Growth, by Clayton M. Christensen and Michael E. Raynor, Harvard Business Review Press, 2013, p. 45.

[7] Henderson, Rebecca M., and Kim B. Clark. “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms.” Administrative Science Quarterly, vol. 35, no. 1, 1990, p. 9., doi:10.2307/2393549.

[8] “Chapter 3.” The Disruption Dilemma, by Joshua Gans, MIT Press, 2016.

[9] For an accessible discussion of the issues see: Kidder, David, and John Geraci. “CEOs Should Think Like Founders, Not Just Managers.” Harvard Business Review, 13 Nov. 2017, hbr.org/2017/11/ceos-should-think-like-founders-not-just-managers. Accessed 25 Oct. 2018.

[10] The Case for E-Commerce Acceleration (Aka, Bye Bye BBY?), by Jeff Jordan, a16z.com/2012/06/29/the-case-for-e-commerce-acceleration-aka-bye-bye-bby/. Adapted. Accessed October 21, 2018.

[11] Boricha, Mehul. “A Brief History of Video Technology [Infographic].” Tech Arrival, 12 May 2018, www.techrrival.com/video-technology-history-infographic/. Accessed 21 October 2018.

[12] Wedding, Nicole. “How Tech Disrupted The Music Industry: A Timeline.” Hybrid World Adelaide, 20 Sept. 2018, hybridworldadelaide.org/2018/03/27/tech-disrupted-music-industry-timeline/. Accessed 21 October 2018.

[13] In this case, generally, the music companies extract profits from the streaming platforms because there are fewer music companies than music streaming platforms. See Porter, Michael E. “The Five Competitive Forces That Shape Strategy.” Harvard Business Review, January 2008.

[14] Meyers, Justin. “From Backpack Transceiver to Smartphone: A Visual History of the Mobile Phone.” Gadget Hacks, Gadget Hacks, 5 May 2011, smartphones.gadgethacks.com/news/from-backpack-transceiver-smartphone-visual-history-mobile-phone-0127134/#ixzz1La40vQTO.

[15] Samsung, Huawei, Xiaomi, and OPPO all ship smartphones using Google’s Android OS.

[16] “Timeline of Photography Technology.” Wikipedia, Wikimedia Foundation, 4 Sept. 2018, en.wikipedia.org/wiki/Timeline_of_photography_technology. Accessed 22 October 2018.

[17] Analog photography relies on a chemical or electronic recording medium, with photographs ultimately printed on paper through chemical processing. In digital photography, arrays of electronic photodetectors capture and store images which are then processed as digital files only. Computational photography refers to the application of algorithmic processing to digital photography.

[18] Shih, Willy. “The Real Lessons From Kodak’s Decline.” MIT Sloan Management Review, 20 May 2016, sloanreview.mit.edu/article/the-real-lessons-from-kodaks-decline/?use_credit=a6ae29dde4b8fea84677452a90228c83. Accessed 22 October 2018.

[19] Kodak is trying to resurrect itself by focusing on new consumer demands and connecting with millennials — see Kodak + Forever21, InstantPrint Cameras, KodakOne and KodakCoin.

[20] Komori, Shigetaka. Innovating out of Crisis: How Fujifilm Survived (and Thrived) as Its Core Business Was Vanishing. Stone Bridge Press, 2015.

[21] Evans, Benedict. “The Scale of Tech Winners.” Benedict Evans, 13 Oct. 2017, www.ben-evans.com/benedictevans/2017/10/12/scale-wetxp.

[22] Amazon Alexa, Google Dot, Apple HomePod, for example.

[23] Gans, Joshua. “The Disruption Dilemma”, MIT Press, 2016. Page 40.

[24] This list is by no means exhaustive.

[25] Such a platform would make it relatively easy for a team of engineers to establish competing fashion companies using modular technology-enabled components which replicate everything large fashion incumbents do well, while simultaneously doing something that is valued by customers but which current incumbents cannot replicate without significant effort.

[26] Comment sent by Steve Hochman, via LinkedIn Messaging to Lisa Morales-Hellebo, on 15 October 2018.

[27] Ellen MacArthur Foundation, A new textiles economy: Redesigning fashion’s future, (2017, http://www.ellenmacarthurfoundation.org/publications). Accessed 23 October 2018.

Filed Under: Entrepreneurship, How and Why, Innovation, Investment Themes, Investment Thesis, Startups, Strategy, Supply Chain, Technology, Venture Capital Tagged With: Early Stage Startups, Entrepreneurship, Fashion, Innovation, REFASHIOND, Supply Chain, Technology, Venture Capital

The Fashion Supply Chain Is Broken

October 15, 2018 by Brian Laung Aoaeh

By Brian Laung Aoaeh and Lisa Morales-Hellebo

Originally published at www.refashiond.com on October 14, 2018.

Authors’ Note: This is the first in a series of six articles about problems and opportunities in global supply chains, with a focus on the fashion industry. This article frames the problem. The next article will delve into a historical analyses of technological disruption, from the perspective of risks and uncertainties for the fashion industry.

Executive Summary: Recent trends present incumbent companies in the global fashion industry with challenges and opportunities related to innovation in supply chain. In this article, we discuss how a historical top-down approach to business is giving way to an emerging bottom-up approach that is driven by consumer preferences. This is placing stresses on fashion supply chains which the industry can only address by adopting a collective, collaborative, ecosystem-driven approach to innovation.

The fashion supply chain is broken and must be refashioned. This is the conclusion we have come to after studying the issue, starting in 2014.

About The Authors

After 19 years in tech, Lisa Morales-Hellebo founded and launched the New York Fashion Tech Lab in 2014 with Springboard Enterprises and the Partnership Fund for NYC while serving as Executive Director for the first year. She then spent a year traveling to Puerto Rico to visit apparel factories, maker labs, cut-and-sew shops, ateliers, and universities in order to learn about the existing apparel supply chain and the challenges it faces.

Brian Laung Aoaeh, CFA spent 10 years in investment research and management, with 2 of those 10 years as the first and only member of the corporate development team at KEC Holdings, a single family office, and 8 of those 10 years as the first member of the small team that built KEC Ventures, an early-stage venture capital investment firm based in New York City. KEC Ventures grew to $98M of AUM across two funds, with 51 investments. Brian was a partner at the fund from its inception till his departure in September 2018.

Our interest in supply chain originated independent of one another. We first met in June 2016, and spent hours talking about supply chain at our first encounter.

After having started thinking about value chains[1] in 2014, by August 2017 Brian had decided to become a specialist early stage investor in supply chain technology after having been a generalist early stage venture capitalist up till that point. So we teamed up and started The New York Supply Chain Meetup: to nurture and grow the world’s foremost open, global, multidisciplinary community of people devoted to building the supply chain networks of the future. Driven by our shared enthusiasm for all things supply chain and our belief in what the future of supply chain will resemble, we are now on the verge of launching sister chapters of The Worldwide Supply Chain Federation: a collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry.

In September 2018 we decided to team up to build REFASHIOND; an early-stage venture fund that will invest in the startups creating innovations to make global supply chain networks more efficient, starting with those reinventing the fashion supply chain.

Our Goal: To Catalyse Industry-wide Dialogue & Action

In engaging in the work that has gone into this article, and those that will follow, we hope to start an industry-wide conversation about tangible steps that participants in the fashion industry can take to arrive at a common framing of the problems confronting the industry, and then to find ways to work together to address those problems that can only be solved effectively through collective action. We encourage you to reach out to us if you’d like to discuss any aspects of this work, or if you’d like to collaborate with us in some way. Given our conversations with the industry executives in our network with whom we have the closest relationships we know supply chain, technology, and innovation are topics that every executive management team in the fashion industry is discussing and thinking about to some extent. It is time to start taking collective action to tackle the big issues. Please reach out to us by email;

  • Lisa Morales-Hellebo — lisa@refashiond.com, and
  • Brian Aoaeh — brian@refashiond.com.

A Bit of Historical Perspective

It is easy for outsiders to assume that the history of the fashion industry is completely divorced from that of technological innovation. That is wrong. In fact, the history of fashion, apparel, and textiles can be linked directly to some of the most important inventions of the industrial revolution.[2] A few key examples are the Fly Shuttle Wheel to allow one weaver to do the work of two; the Spinning Jenny, which increased wool mills productivity, the Cotton Gin, Power Loom, yarn Spinning Mule, the first factory, and even materials and textile innovations, like those used in the Mackintosh Raincoat.

Having acknowledged the role technological innovation has played in the history of the fashion industry, it is fair to ask: Has the industry’s more recent history lived up to the technological promise of the current era? That depends. We argue that the fashion industry’s incumbents’ collective investments in the industry’s supply chain have failed to keep pace with changing consumer expectations, expectations that change ever more quickly as advances in digital media and telecommunications unfold and shape consumers’ expectations of when and how to shop.

This is creating challenges for the industry as a trend towards shorter, less complex supply chains appears to be in the early stages of supplanting the long, global, and highly complex supply chains that accompanied globalization and large companies’ insatiable quest to outsource their manufacturing to foreign markets with the lowest combination of fixed and variable costs.

A Definition, And A Reiteration Of The Problem

Throughout this discussion, we will rely on the following definition of supply chain. A supply chain is:

A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users.[3]

To reiterate the problem;

  • First: The fashion and apparel supply chain is broken and must be refashioned.
  • Second: Innovation is happening so fast and is so complicated that there isn’t a single company in the fashion and apparel industry that can reinvent itself quickly enough to take full advantage of new technologies and innovations. Instead, the industry needs to consider taking an industry-wide ecosystem approach to adopting technology and innovation.
  • Third: Because fashion and apparel is the world’s second largest polluting industry, the future of our planet depends on the industry adopting technologies that will accelerate the move towards more economically and environmentally sustainable supply chains.

According to FashionUnited, the global fashion industry is valued at $3 trillion in annual sales, with the United States accounting for approximately $400 billion of the global total. According to the New York City Economic Development Corporation’s Fashion.NYC.2020 report, New York City’s fashion and apparel retailers generate about $15 billion in sales, annually. It is inevitable that an industry of this scale will face supply chain challenges. Yet, as a whole, the industry has been slow to adopt digital technologies to aid in solving the supply chain issues it encounters.

The Current Paradigm

Predicting & Dictating Trends: Style and fashion has historically been dictated by a top-down system of influential designers and tastemakers who set the standards for beauty, taste, trend, and style. The rise of social media has created an unprecedented shift from top-down to bottom-up style and trend mandates, where the designers and tastemakers are now looking to street style, emerging brands, and influencers for inspiration and ideas about what consumers want. A team of trend-trackers monitors global social phenomena, hoping to observe the behavior of youth tribes and other emergent youth-driven phenomena that may be transformed into global fashion trends. The trend-trackers job is to record such phenomena and supply the information to industry clients, while also advising on brand strategies, developing marketing tactics, organizing events, and even providing designers and stylists who may design an entire collection for a brand. This process can take anywhere from 6 to 18 months. By the time it is complete the trend may already be out of style, and the result may be unsold inventory.

Sourcing & Materials[4]: Apparel sourcing is becoming more challenging due to; rising labor costs in foreign markets, increasing compliance costs due to alleged and documented labor abuses in far flung apparel manufacturing hubs in developing countries, and increasing consumer preference for sustainable methods of production as the effects of climate change come into stark relief.

Design: Designers work very closely with trend-trackers to anticipate consumer tastes, and to design clothes that they expect consumers to buy. However, by the time new designs find their way into retail showrooms, consumer tastes may have evolved away from the trend that inspired the designs.

Manufacturing: Apparel manufacturing is largely labor-intensive, concentrated in low-wage countries that are far away from most major fashion and apparel consumer markets, and subject to abuses such as the use of child-labor and slave labor. The process is inefficient, slow, and prone to quality control issues.

Distribution: Consumer behavior is forcing a convergence towards omni-channel and multi-channel distribution with increasingly decentralized warehousing, technological complexity arising from multi-platform selling channels, last-mile logistics, and automation all playing parts in making todays apparel supply chain more complex to manage than in the past.

Sales & Marketing: Technology has provided numerous distractions and shortened attention spans, making it more difficult for fashion and apparel brands to cut through the noise long enough to generate sales. Technology is also making it much easier for consumers to engage in comparison-shopping before they make a purchase.

With the proliferation and popularity of on-demand business models, consumers’ shopping behavior is shifting away from norms the global fashion and apparel industry is accustomed to and can control, and towards norms that favor consumers’ preferences. This shift is resulting in the hyper-segmentation of consumers who used to be seen as too “niche” to address because expectations built around sales volume didn’t make sense, or the industry deemed certain consumer segments as not meeting the standards for beauty imposed from the top. Plus-sized clothing is only recently being accepted as the untapped opportunity that it has always been in the United States where the average woman is a size 16, according to Racked.com’s article, “Size by the Numbers.”

Factors Driving Industry Profitability

Below, we highlight a few measures of profitability. There are others, but for brevity we have chosen to focus on a handful. To do analyses of this sort it is most useful to analyze trends over time for a company, and then compare that data on a relative basis to data for the industry as a whole or to data for a designated subset of peers.

Gross Profit Margin: Gross profit is measured by deducting cost of goods sold from revenue, and gross profit margin is calculated by taking the ratio of gross profit to revenue. Gross profit and gross profit margin reflect a company’s pricing power, the power exerted by its suppliers as reflected in its cost of goods sold, as well as the impact of competition.

Operating Profit Margin: This is also often referred to as EBIT Margin. It is calculated as the ratio of operating profit to revenue, with operating profit obtained by subtracting operating expenses from gross profit. Operating profit margin is a measure of how variable costs affect a company’s profit margins, and can be used to assess how much control a company has over the costs associated with running its operations. One-time charges should be excluded from the calculation. In the fashion and apparel industry generally, we expect that IT infrastructure investments that are required to operate in a multi-platform and multi-channel environment, increasing freight and supply chain logistics costs, as well as labor inflation in foreign markets will each have a negative impact on operating profit margins. Moreover, as we have previously stated, the trend towards increasing marketing expenditure in order to hold consumers’ attention long enough to generate sales will also have a negative impact on operating profit margins.

Return on Equity (ROE): A firm’s return on equity is calculated as the ratio of net income to average shareholders’ equity. It is a measure of how effective a company is at converting its assets into earnings growth. For example, if ROE is 15%, a dollar invested generates 15 cents of assets for the business. ROE is affected by revenue, selling and general administration expenses, taxation, operating efficiency, and inventory management. Management may use share buybacks to offset declines in ROE.

Inventory Turnover: The inventory turnover ratio is an efficiency ratio that measures a company’s effectiveness at generating sales from the inventory it holds. It is calculated as the ratio of cost of goods sold to average inventory. Inventory turnover ratio is affected by the rate at which sales occurs, which, in-turn is dependent on consumer sentiment. Companies in the industry often overestimate how much to stock in inventory, leading to steep wholesale and retail discounts. In the worst cases, inventory that cannot be sold is destroyed.

Earnings Per Share (EPS) Growth: Earnings per share is calculated as a company’s net income minus its preferred dividend payments, divided by the weighted average number of shares outstanding. Generally, earnings per share is affected most negatively by factors that reduce net income. As the industry generates increasing proportions of sales from the BRIC nations and other emerging markets, foreign exchange risk imposes negative pressures on revenues and net income. It is important to note that companies can easily manipulate earnings per share growth by instituting share-buyback programs.

Inventory Forecasting & Management Issues

The issues at play here are illustrated best in H&M, a Fashion Giant, Has a Problem: $4.3 Billion in Unsold Clothes a story by Elizabeth Paton that appeared in The New York Times on March 27, 2018. The article highlights a drop in quarterly sales accompanied by an increase in unsold inventory. According to the article, H&M’s customers have either moved to doing more of their shopping online or have gone seeking lower-cost offerings elsewhere. This is ironic since H&M has been a fast fashion stalwart for two decades during which it has experienced massive growth. The article describes some of the supply chain challenges H&M is grappling with, and how the company intends to respond: “H&M has insisted it has a plan, saying it would slash prices to reduce the stockpile and slow its expansion in stores. It said it hoped its online business would expand 25 percent this year.”

Lack of Efficient & Agile Supply Chain

What happens when the information or forecasts at one node in a company’s supply chain is incorrect? Incorrect information at any node in a supply chain creates a phenomena wherein the flow of goods is unexpectedly distorted over time due to differences between actual demand by end-consumers and forecasted demand by suppliers.

The phenomenon is known as the bullwhip effect, and it arises because demand signals are incorrectly amplified as information is transmitted along the supply chain. The bullwhip effect arises due to; poor coordination along the various nodes in a supply chain, and rational decisions that are made by supply chain participants using the best information at their disposal. The distortions are made worse because of the uncertainty that accompanies activities at every point in a company’s supply chain. The general consequence of the bullwhip effect is poor customer service.

How might a fashion company counteract the bullwhip effect? First, some companies are reversing the effects of globalization by creating the cyber-physical infrastructure required to enable networks of small-batch, quick-turn, and localized manufacturing hubs in order to make it possible to manufacture goods for consumers in the key markets of Western Europe and North America in small batches, closer to the ultimate end-consumers. Second, some companies are developing and using more advanced software for predictive analytics. Advances in artificial intelligence make this a much more feasible proposition today than at any time in the past. Third, some companies are improving the real-time flow of predictive information and data between key nodes in the supply chain. This allows every participant in the supply chain to anticipate future demand more accurately, and to stock raw-materials inventory more efficiently. We will discuss the technology trends that are making solutions to this problem possible in the fifth article in this series.

Conclusion: A Race To The Bottom?

Prevailing economic, social, and technological trends point towards a challenging future for the global fashion industry. Incumbent players may choose to operate with a business-as-usual attitude. Alternatively, they may opt to address the industry’s supply chain challenges by adopting an ecosystem-based approach to solving the problems that are too big for a single company to solve on its own. This will require adopting a systems-thinking approach to how companies in the industry are run, and how they view their relationships with one another.

The companies that win will adapt to the changing landscape by building on their historical strengths, while simultaneously developing new supply chain capabilities through partnerships with former sworn rivals or relatively new technology startups.

The companies that lose will remain entrenched in the old ways of doing business, following one extreme round of price-cuts by even more extreme discounts. This race to the bottom will be exacerbated by additional measures like reducing the number of brick-and-mortar locations — measures that do nothing to solve the fundamental problem: The fashion and apparel supply chain is broken and must be refashioned.

Next in the series: Where Will Technological Disruption In Fashion Come From?

About REFASHIOND Ventures: REFASHIOND Ventures is an early-stage venture capital investment firm that is being formed in order to invest in early-stage startups creating innovations that make global supply chains more efficient, starting with startups at the intersection of fashion and retail.

About REFASHIOND CO:LAB: REFASHIOND CO:LAB is the systems design, research, and strategy consulting arm of REFASHIOND Ventures. REFASHIOND CO:LAB helps organizations create competitive advantage through supply chain innovation.

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[1] One may think of a value chain as a company’s internal supply chain. The term is used to distinguish internal operations from operations that rely on a network of external parties.

[2] McFadden, Christopher. “27 Industrial Revolution Inventions That Changed the World.” Interesting Engineering, 18 Feb. 2018, interestingengineering.com/27-inventions-of-the-industrial-revolution-that-changed-the-world. Accessed Oct. 12, 2018

[3] Christopher, Martin. Logistics & Supply Chain Management: Creating Value-Adding Networks. 4th ed., Financial Times Prentice Hall, 2011.

[4] Berg, Achim, and Saskia Hedrich. “What’s next in Apparel Sourcing?” McKinsey & Company, May 2014, www.mckinsey.com/industries/retail/our-insights/whats-next-in-apparel-sourcing. Accessed Oct. 8, 2018.


Originally published at www.refashiond.com on October 14, 2018.

Filed Under: Entrepreneurship, Industry Study, Innovation, Investment Themes, Investment Thesis, Long Read, Supply Chain, Technology, Venture Capital Tagged With: Apparel, Entrepreneurship, Fashion, Innovation, Logistics & Supply Chain, Logistics and Supply Chain, Long Read, Luxury Goods, REFASHIOND, Startups, Strategy, Technology, Venture Capital

#CountDown: 11 Days To #TNYSCM06: Convergence Across the New Apparel Supply Chain

May 13, 2018 by Brian Laung Aoaeh

A cross-section of the audience at #TNYSCM #02, January 2018.

We’re now just a little over a week away from The New York Supply Chain Meetup’s sixth gathering. The purpose of this post is to outline our plans for that event, and preview what we expect to do in June. We’re still in the early days of building this community, so much of this is subject to change, especially as we go through the process of recruiting sponsors.

#WorkInProgress: Before the preview, however, some news by way of an update; In the 8 months or so since I decided I wanted to hang out with “my people” at a meetup in NYC that focuses on supply chain, technology, and innovation, The New York Supply Chain Meetup (#TNYSCM) has grown to more than 1,000 members. #TNYSCM is the originating chapter of The Worldwide Supply Chain Federation – a global network of meetups focused on supply chain, technology, and innovation. We are currently in the process of establishing The Singapore Supply Chain Meetup (#TSGSCM) and The Vancouver Supply Chain Meetup (#TVRSCM). We are exploring chapters in Australia and Europe. It’s early days for The Worldwide Supply Chain Federation . . . so there isn’t much to report, except; We’re working on it.

Our Mission

To nurture and grow the world’s foremost open, global, multidisciplinary community of people devoted to building the supply chain networks of the future – starting in NYC.

Our Mantra

The past ran on supply chains. The present runs on supply chains. The future will run on supply chains. The world is a supply chain.™

We are actively recruiting corporate sponsors with ambitions that match ours. If you’d like to hear more, please reach us through our website or another social channel.

The New York Supply Chain Meetup is powered by Particle Ventures, a seed-stage fund in New York City that invests in Supply Chain & Industrial Intelligence. Particle is built by the same team that launched KEC Ventures.

#TNYSCM06 is sponsored by SAP.iO, a venture studio, a venture fund, and a startup foundry that helps innovators inside and outside of SAP build products, find customers, and change industries.

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Logistical Details: #TNYSCM06

  • Date: Thursday, May 24, 2018
  • Time: 17:30 – 21:00
  • Location: SAP America, 10 Hudson Yards, 48th Floor, New York, NY. Please register by following the link above.

#TNYSCM06 will feature a showcase and a panel discussion.

Agenda

5:30 PM – 5:55 PM: Pre-event Networking
5:55 PM – 6:00 PM: Welcome Remarks (#TNYSCM, SAP.iO)
6:00 PM – 7:15 PM: Showcase (85 minutes / 10 minutes + 4 minutes Q&A each)
7:15 PM – 7:20 PM: Bio Break
7:20 PM – 8:25 PM: Panel Discussion (50 minutes), Q&A (10 minutes) 8:25 PM – 8:30 PM Closing Remarks

MC: Christian McKenzie (@Xian_Mckenzie)

Startup Showcase

Our showcase presenters are;

  1. Trendalytics
  2. Case Equity Partners
  3. Sewbo
  4. Fuse Inventory
  5. Bolt Threads
  6. Loomia

Panel

The panel will be moderated by Lisa Morales-Hellebo. Lisa is #TNYSCM’s co-founder, she is also building REFASHIOND, a fund that will play a pioneering role in reinventing the global fashion and apparel retail industry.

Our panelists are;

  1. Joe Sartre, Partner, Bleu Capital
  2. Leslie Harwell, Managing Partner, Alante Capital
  3. Nathan Cray, VP, Integrations & Operations, ALDO Group
  4. John Silverstein, VP, Operations, CGS (Computer Generated Solutions)

Preview — #TNYSCM  in June

Here is what our team of organizers is working on for June.

  • June 21: A Sourcing 101 workshop for startups building physical products. More details coming soon via our meetup page. So sign up there in order to be among the first to know when we announce the details. We are working on an event title, but all the other details are complete.

Other Upcoming Supply Chain Events

  • Transparency18: This is the flagship event series started by the founders of the Blockchain in Transport Alliance. It follows BiTA’s Spring Symposium, a members only event that occurs on May 21, 2018. I will attend both days of Transparency 18 on May 22 and May 23.

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Filed Under: #TNYSCM, Communities, Innovation, Investment Analysis, Investment Themes, Investment Thesis, Meetups, Startups, Supply Chain, Technology, Venture Capital Tagged With: #TNYSCM, #TSGSCM, #TVRSCM, #TWSCF, Community Building, Early Stage Startups, Entrepreneurship, Innovation, Logistics & Supply Chain, Logistics and Supply Chain, Technology, Venture Capital

#CountDown: 9 Days To #TNYSCM05 – Bringing The Blockchain From The Lab And Into The Real World

April 16, 2018 by Brian Laung Aoaeh

A cross-section of the audience at #TNYSCM02, January 2018.

We’re now just a little over a week away from The New York Supply Chain Meetup’s fifth gathering. The purpose of this post is to outline our plans for that event, and preview what we expect to do in May and June 2018 . . . We’re still in the early days of building this community, so much of this is subject to change, especially as we go through the process of recruiting sponsors.

Our Mission

To nurture and grow the world’s foremost open, global, multidisciplinary community of people devoted to building the supply chain networks of the future – starting in NYC.

The New York Supply Chain Meetup is powered by Particle Ventures, a seed-stage fund in New York City that invests in Supply Chain & Industrial Intelligence. Particle is built by the same team that launched KEC Ventures.

#TNYSCM05 is sponsored by Work-Bench, an enterprise technology focused venture capital fund in New York City. Work-Bench supports early go-to-market enterprise startups and helps scale customer acquisition with community, workspace, and corporate engagement.

 

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Logistical Details: #TNYSCM05

  • Date: Thursday, April 26, 2018
  • Time: 17:30 – 20:30
  • Location: Work-Bench, 110 5th Avenue – 5th Floor, New York, NY 10011. Please register by following the link above.

#TNYSCM will feature two panel discussions and a keynote presentation. The keynote presentation happens between the panel discussions.

Agenda

5:30 PM – 5:55 PM: Pre-event Networking
5:55 PM – 6:00 PM: Welcome Remarks (#TNYSCM, Work-Bench)
6:00 PM – 6:50 PM: Panel Discussion I (40 minutes), Q&A (10 minutes)
6:50 PM – 7:30 PM: Keynote Presentation (30 Minutes), Q&A (10 Minutes) 7:30 PM – 7:35 PM: Break
7:35 PM – 8:25 PM: Panel Discussion II (40 minutes), Q&A (10 minutes) 8:25 PM – 8:30 PM: Closing Remarks

MC: Daniel James (@daniel_r_james)

The panel discussions will be moderated by Rob Bailey (@RMB). Rob is CEO & Co-founder of MState (@mstatelabs), a growth lab for enterprise blockchain startups. Rob’s experience is in scaling enterprise startups – Kustomer, DataSift, SimpleGeo, and eScene, which he scaled from pre-launch to fast-growing revenue between $1M and $25M. In addition he has raised, or helped raise, $200M in venture capital. My friends Ed Sim and Eliot Durbin of BOLDstart ventures are each a co-founder and advisor respectively of MState.

The important and difficult job is never to find the right answer; it is to find the right question.
– Peter Drucker

Panel Discussion I

Tanjila Islam is the CEO and Founder of TigerTrade, an international B2B marketplace and supply chain solution for companies buying and selling excess inventory worldwide. TigerTrade’s customers include the largest off-price chains and brand outlets in the US, Latin America, the Middle East, Europe, Asia, and Australia. As an end-to-end solution for the global trade of excess inventory, TigerTrade manages the entire supply chain, from vendor verification merchandise authentication to payments and shipping. Prior to founding TigerTrade, Tanjila was an international trade and economic development expert, designing and managing large-scale economic growth and trade promotion programs in developing countries, including Indonesia, Afghanistan, and Bangladesh for organizations such as the U.S. Agency for International Development and the World Bank. She is also an Adjunct Professor at the Fashion Institute of Technology, where she teaches courses on International Trade, International Business Transactions, and Global Sourcing. Tanjila is an avid traveler and adventurer and speaks Arabic, Bengali, English, and Spanish. She holds a B.A. from Columbia College, and M.A. in Near Eastern Studies from NYU, and an M.I.A. in International Economic Policy from the Columbia School of International and Public Affairs.

Todd Scott is VP Blockchain Global Trade at IBM. In this capacity Todd has the responsibility for the Go To Market strategy and execution for the JV between IBM and Maesrk. He also owns building the new sales, enablement and operations capability for IBM as the main reseller channel for the JV. Prior to his current role Todd was the IBM VP and Managing Director for PepsiCo, and Southwest Airlines. Todd’s present role caps a 30-year IBM career that began as a client executive in Greenville, South Carolina. He then moved to the Mid-Atlantic area where he managed a team of sales and technical staff who provided integrated solutions for mid-market customers in Virginia, Maryland, and Washington, D.C. In addition, during his tenure at IBM, Todd has managed regional sales teams covering various components of IBM’s business including Systems Technology Group, Channels Group, Media and Entertainment, Retail and Consumer Products. One thing he accomplishes in each of his roles is a clear understanding of the customer’s business. This enables him and his team to make credible and highly valued recommendations. Those recommendations included global SAP implementations to the design of new business operating models to implementing IT data center and business process outsourcing initiatives. Todd attended Davidson College and graduated in 1987 with a B.A. in Political Science.  At Davidson, Todd lettered every year as a basketball player and was a member of the 1986 team that participated in the Men’s Division One NCAA tournament. He lives in North Texas with his wife Norma. They have four children.

Nolan Bauerle is Director of Research at CoinDesk. Before joining Coindesk in early 2016 he conducted research for the Senate Banking Committee in Canada. He is a serial entrepreneur, a techno-optimist, and also writes science fiction. He holds an LLB from Université Laval.

Scott Carlson (@Scottophile) is Chief Information Security Officer at Sweetbridge. He is using his 20 years of experience gained from position at Cargill, Schwab, PayPal, and elsewhere to guide security policy as Sweetbridge transforms how the world thinks about asset backed loans, supply chain finance, and wealth building. Scott’s focus in the past has included Information Security, Data Centers, Cloud Virtualization, and Systems Architecture. He is a top-rated speaker and contributor to RSA, Gartner, Kuppinger Cole, OpenStack, and VMworld. He holds a B.S. in Computer Science from Moorhead State College.

 

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Keynote Presentation

Some researchers argue that building on existing blockchain and DLT frameworks is a mistake, because they are fundamentally unsuited for large-scale, real world applications. They argue that new DLT frameworks must be built to meet real-world demands. Our keynote speaker will offer one perspective on that topic.

Silvio Micali (@silviomicali) is the Ford Professor of Engineering at MIT’s Computer Science and Artificial Intelligence Laboratory. He has been a member of faculty of the Electrical Engineering and Computer Science Department at MIT since 1983. His research interests are cryptography, zero knowledge, pseudo-random generation, secure protocols, mechanism design, and distributed ledgers. Silvio is the recipient of the Turing Award in Computer Science, the Gödel Prize in Theoretical Computer Science, and the RSA prize in Cryptography. He is a member of the National Academy of Sciences, the National Academy of Engineering, the American Academy of Arts and Sciences, and the Academia dei Lincei. His presentation will focus on Algorand (@Algorand) a scalable, secure, and decentralized digital currency and transactions platform. Algorand recently announced that it has raised $4 Million in a seed round of venture capital funding.

 

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Panel Discussion II

Samantha Radocchia (@SamRadocchia) currently serves as Co-Founder and Chief Marketing Officer at Chronicled (@ChronicledInc) which leverages blockchain and IoT technologies to deliver smart supply chain solutions. Prior to serving as CMO, she led product development and architecture as Chief Product Officer for 3 years. She is also a Co-Founder at Better Kinds, which fosters everyday practices of conscious consumption and responsible production by empowering people to make better micro decisions that lead to better macro results. Recently named to the Forbes 30 Under 30 List, Sam is a thought leader in the blockchain sector and the founder of Machine Elf Consulting, an emerging technology and product development consulting firm based in Brooklyn, NY. Founded in 2012, the firm focuses on blockchain, IoT, and additive manufacturing advisement to enterprises and individuals. Sam has an entrepreneurial background that spans several technology companies. She became interested in blockchain as a mechanism to facilitate trusted interoperability, a challenge she sought to overcome leading her first two companies. Before joining Chronicled and Better Kinds, she previously served as the CTO of Huckabuy, a consumer product metadata aggregator and standards company and Founder and CEO of Stunable, a provider of inventory management and marketing software utilized by consumer products brands to integrate e-commerce sales with cross-channel interactions. Sam attended Colgate University, earning a BA in English and Anthropology – specializing in Critical Theory, Linguistics, and Symbolic Systems. She continued her academic pursuits at King’s College in London where she studied Management & Entrepreneurship and at the London School of Economics where she studied organizational culture. Samantha graduated from NYU Summa Cum Laude in the spring of 2013 with a MA in Media, Culture, and Communications, focusing on the socio-political analysis of emerging technologies. On the personal side, Samantha is an avid risk-taker and daredevil, attaining her pilot’s license at the age of 17 and accumulating over 700 jumps as a competitive skydiver.

Alex Mashinsky (@Mashinsky) is CEO and Founder of the Celsius Network. He is also one of the inventors of VOIP (Voice Over Internet Protocol) with a foundational patent dating back to 1994 and is now working on MOIP (Money Over Internet Protocol) technology. Over 35 patents have been issued to Alex, relating to exchanges, VOIP protocols, messaging and communication. Alex is a serial entrepreneur and founder of seven New York City-based startups, raising more than $1 billion and exiting over $3 billion. Alex founded two of New York City’s top 10 venture-backed exits since 2000: Arbinet, with a 2004 IPO that had a market capitalization of over $750 million; and Transit Wireless, valued at $1.2 billion. Alex has received numerous awards for innovation, including being nominated twice by E&Y as ‘Entrepreneur of the Year’, in 2002 & 2011; Crain’s 2010 Top Entrepreneur; the prestigious 2000 Albert Einstein Technology medal; and the Technology Foresight Award for Innovation (presented in Geneva at Telecom 99). As one of the pioneers of web-based exchanges, Alex authored patents that cover aspects of the Smart Grid, ad exchanges, Twitter, Skype, App Store, Net ix streaming concept and many other popular web companies. Additionally, Arbinet’s fundraising story was featured as a case study in 2001 by Harvard Business School. Alex holds a Bachelor of Engineering in Electrical Engineering from The Open University of Israel, and a Bachelor of Science in Economics from Tel Aviv University.

Juan-Jose Ruiz is a global Strategy and Business Development executive with experience in technology, financial services, and media/information industries. He is currently leading IBM’s Blockchain business development efforts across several verticals with particular focus on Global Commerce. Prior to IBM he filled a number of strategic and operational roles at Thomson Reuters based in Europe, Asia, and the Americas including leading Strategic Alliances efforts for the Scientific division worldwide. Juanjo started his professional career as a software engineer in Spain developing some of the early web-based vertical b2b marketplaces. He holds a Computer Science and Engineering degree from the Universidad Autonoma de Barcelona, an MBA from Mannheim Business School, and got his Chartered Financial Analyst accreditation from the CFA Institute. In his free time, Juanjo is an active start-up mentor in the NYC area and volunteers in local youth sport organizations.

Sharad Malhautra is a Senior Manager at EY Enterprise Blockchain, where he leads digital transformation initiatives for enterprise clients focused on digital and emerging technologies, specifically Blockchain and Distributed Ledger Technologies. He has gained more than 13 years of experience spanning engagements in the United States, Europe, and Asia. Among other accomplishments; He evangelized and led the sales and engagement for the first Blockchain Advisory Project for EY globally, he led a blockchain engagement on price verification and negotiation for a leading CPG company, and led an event-management track-and-trace Blockchain engagement  to enable visibility across the network for a leading logistics company. Over the years he has earned a reputation for; leading complex global business initiatives, being a trusted c-suite advisor on emergent technologies, a willingness to accept a high degree of uncertainty, and successfully scaling businesses. He often speaks at industry events on Enterprise Blockchain. Sharad holds a B.E. in Computer Engineering from the University of Pune, and an MBA from Rice University. Beyond his work at EY, he is a strategic advisor to BillionBricks, a non-profit organization that works with homeless and displaced communities in India and South East Asia.

 

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He who knows all the answers has not been asked all the questions.
– Confucius

Preview — #TNYSCM  in May & June

Here is what our team of organizers is working on, between now and June.

  • May 24: A showcase of startups in Fashion, Apparel, and Retail supply chain. THIS IS GOING TO BE BIG! I am excited about the plans our team is putting together. Don’t wait. You can sign up for #TNYSCM06: Convergence Across the New Fashion & Apparel Supply Chain.
  • June 21: A Sourcing 101 workshop for startups building physical products. More details coming soon. I have been told; “THIS IS GOING TO BE BIGGER!”

Other Upcoming Supply Chain Events

  • Transparency18: This is the flagship event series started by the founders of the Blockchain in Transport Alliance. It follows BiTA’s Spring Symposium, a members only event that occurs on May 21, 2018. I will attend both days of Transparency 18 on May 22 and May 23.

Filed Under: #TNYSCM, Case Studies, Communities, Computer Science, Entrepreneurship, Innovation, Mathematics, Supply Chain, Technology, Venture Capital Tagged With: #TNYSCM, Blockchain, Cryptocurrencies, Distributed Ledger Technologies, Early Stage Startups, Entrepreneurship, Innovation, Logistics & Supply Chain, Logistics and Supply Chain, Technology, Venture Capital

Update #02 | Request For Startups: MaritimeTech Edition

March 31, 2018 by Brian Laung Aoaeh

Dr. Christopher Clott delivers the opening remarks at the kickoff event for Maritime Global Technologies Innovation Center at SUNY Maritime College on Thursday, March 15, 2018. Photo Credit: Virna Wong, SUNY Maritime College.

Note/Disclaimer:

  1. This blog post represents my opinions only. It does not represent the opinions of my teammates at Particle Ventures (formerly known as KEC Ventures), either individually or collectively.
  2. This blog post does not represent the opinions of any one at Maritime Global Technologies Innovation Center (MGTIC), SUNY Maritime College, or any of their related affiliates.
  3. This blog post does not represent the opinion of The New York Supply Chain Meetup (#TNYSCM), nor does it represent the opinion of any of my co-organizers at #TNYSCM.
  4. This blog post does not represent the opinions of any of the individuals or companies that is specifically mentioned as a result of their participation at the event that this article covers.
  5. Where I felt it would be helpful, in some cases, I have added supplementary background that wasn’t part of the presentation.

This blog post is the third in a series that I have been writing about our effort to create a maritime technology innovation hub in New York City. You can read the preceding instalments here and here, respectively. You can also read my blog posts on trucking; here, and an update here, as well as shipping; here, with an update here.

We finally held the kickoff event for Maritime Global Technologies Innovation Center (MGTIC) at SUNY Maritime College on Thursday, March 15, 2018. It was a reverse pitch that brought together maritime industry professionals and entrepreneurs, developers, journalists, and investors. The reverse pitch format involved leaders from the industry pitching pain points for which their companies are looking for innovative solutions – naturally the unspoken assumption is that these are problems faced by the maritime shipping industry as a whole. Therefore responding to these reverse pitches would be the first step in an entrepreneur’s effort to prove the market.

This is my recap of the reverse pitch.

Background: What Does MGTIC Do?

MGTIC’s goal is to help turn challenges faced by the global maritime industry into profitable opportunities for incumbent companies AND new entrant software technology startups. Basically, MGTIC connects the maritime industry, technology startups, and investors in a neutral and collaborative environment in which they can pursue mutually beneficial relationships and partnerships. The center hopes to accomplish this goal by marshalling the extensive resources available through the State University of New York network, as well as the resources and professional expertise available because of its location in New York City.

Opening Remarks & Keynote

MGTIC is founded by two members of the faculty at SUNY Maritime College;

  1. Dr. Christopher Clott, ABS Chair of Marine Transportation and Logistics at SUNY Maritime College, and
  2. Dr. Richard Burke, ABS Professor of Naval Architecture and Marine Engineering.

They reminded the audience of MGTIC’s goals, and set the stage for the remainder of the event. Dr. Michael A. Alfultis, 11th President of SUNY Maritime College welcomed us to the campus, and emphasized that SUNY Maritime College must play a role in shaping the future of the global maritime industry give the role it plays in training men and women who go on to fill positions of leadership in the industry. MGTIC is the first step in the effort to harness the changes that the industry must inevitably grapple with as time progresses.

The keynote address was delivered by Roger Matus. He walked us through the basic highlights of Prof. Clayton Christensen’s process of Disruptive Innovation, ending with the following summarizing points;

  • Tech startups seek markets that they can disrupt. The purpose of a reverse pitch is to educate entrepreneurs, founders, and technologists about markets that may be ripe for a disruptive new product or business model.
  • The initial goal a startup should pursue is a proof-of-concept, or a minimum viable product that early-adopter customers are willing to pay for in order to prove that a market exists.
  • A successful proof-of-concept should lead to a iterative and circular process of hypothesis development, creation, and learning . . . Customer development, basically, to use the term of art.
  • Many startups will lose money, but some will get acquired if they successfully prove the existence of a new market.
  • The pay-off entrepreneurs and investors is in the form of equity. If things work out then that equity undergoes a substantial increase in value.

Pitch #01: Fuel Analysis Automation – Bunker Procurement & Oil Data

Josh Shapiro, Chief Operating Officer at Liberty Maritime Corporation, delivered the first reverse pitch. Liberty is a New York-based commercial shipping company which operates a fleet of 6 U.S. flag and various foreign flag vessels that transport ” . . . bulk, break bulk and bagged commodities as well as a variety of Roll On/Roll Off (Ro/Ro) cargos around the world for the U.S. Government, the United Nations, Private Voluntary Organizations (PVO’s) and private commercial entities.” ((Quoting from Liberty Maritime’s website. Accessed Saturday, Mar 31, 2018.))

Fuel costs can account for as much as 50 to 60 percent of operating costs for a shipping company. Generally, this means that shipping companies are constantly under pressure from rising costs of crude oil, and try as much as possible to pass these costs on to their customers. However, more pressing is the announcement by the International Maritime Organization that its regulations to limit sulphur oxide emissions will come into effect on January 1, 2020. The current limit is 3.50% m/m (mass by mass). Come January 2020, the new limit will be 0.5% m/m. You can read more about this here: IMO Sulphur 2020 – Cutting Sulphur Oxide Emissions.

As one might imagine, given that fuel costs account for such a significant chunk of a shipping company’s operating costs, carriers like Liberty Maritime Corporation gather a lot of market data about fuel. Among other things, they;

  • Gather general data about heavy fuel oil (HFO) and Marine Gas Oil (MGO),
  • Gather data on futures, forwards, and other financial derivatives related to the fuel markets,
  • Perform hedging, speculation, and correlation analyses, and
  • Use their data to customize advantageous fuel procurement or fuel hedging strategies.

Unfortunately the state of the art for this kind of work is not user-friendly. So the need here is for a system that;

  • Has an easy to use, easy to understand general user interface that does not require years and years of training, and that will minimize mistakes,
  • Can run and report on various future scenarios based on previously established criteria,
  • Can combine proprietary, open source, and other third-party data to perform the analyses required,
  • Is customizable given the needs of a specific customer, and
  • Is affordably priced, with add-ons and upgrades that can be purchased at extra cost.

Pitch #02: Blockchain in Logistics

Josh Shapiro presented the second reverse pitch as well, this time he focused on blockchain in logistics. This is a topic I have previously blogged about here: Update #01: White Paper | Towards A Supply Chain Operating System and as I highlighted, it was a major topic of discussion at #TPM2018: The Woodstock Of International Container Shipping & Logistics.

Josh highlighted the following problems and opportunities;

  • Recording the quantity and transfer of assets like pallets, trailers, containers, etc,
  • Tracking purchase orders, shipment notifications, or other trade-related documentation,
  • Assigning or verifying the provenance and integrity of products
  • Linking goods in the physical world with a virtual or digital twin in order to enable tracking using serial numbers, barcodes, RFID, etc,
  • Sharing information about processes like manufacturing, product assembly, delivery, and maintenance.

This touches on two themes that have been repeated in conversations I have had with people in the maritime industry about the role that distributed ledgers might play in how the industry operates in the future;  The first is Supply Chain Transparency: This is the extent to which information about every organizational entity in a supply chain is readily available to every other participant in the supply chain. The second is Supply Chain Visibility: This is the extent to which all participants in a supply chain can track the movement of parts, components, materials, and finished products as they travel in all directions within the supply chain as goods travel from suppliers to the end-use customer. Taken together, increased Supply Chain Transparency and Supply Chain Visibility reduces operational risk and increases customer satisfaction.

Pitch #03: Cybersecurity in the Maritime Industry

Anthony Patti, Vice President of Global Cybersecurity Services at Duff & Phelps delivered the third reverse pitch. Duff & Phelps is a global advisory firm which assists its “. . . clients in the areas of valuation, corporate finance, disputes and investigations, compliance and regulatory matters, and other governance-related issues.”

After a brief overview of the basics of a corporate cybersecurity program. Anthony discussed the state of cybersecurity in the maritime industry and why it’s vulnerable to attacks;

  • Increased use of computer services, technology, and automation,
  • Lack of encryption,
  • Across the board, there’s a lack of cybersecurity awareness and training,
  • Safeguarding against cyber attacks can be expensive, and finally
  • People in the industry feel that there’s a low risk and they do not understand the threat.

As the maritime industry continues to embrace automation and software technology the systems he thinks are most vulnerable to attack include, but are not limited to;

  • Bridge Systems – these are the interconnected systems that enable centralized monitoring of various navigational, propulsion, engine, and other operating information about a ship. This is usually accomplished by gathering and presenting the information from a ship’s systems to a group of screens from which personnel monitor the ship.
  • Global Positioning Systems
  • Cargo Handling & Management Systems
  • Propulsion and Machinery Management & Power Control Systems
  • Access Control Systems
  • Passenger Servicing & Management Systems
  • Passenger Facing Public Networks
  • Administrative & Crew Welfare Systems
  • Communication Systems
Cybersecurity and Maritime Industry in The News – Anthony Patti, Duff & Phelps.

As an example, he discussed one scenario that could arise from a cyber-attack; A collision could be initiated after a ships navigation system is hacked. This could lead to;

  • Physical loss of, or severe damage to ships and other equipment,
  • Physical injury to crew, and possible loss of life,
  • Loss of cargo through damage, or theft,
  • Pollution,
  • Business interruption,
  • Disruption to port and terminal activities leading to broader, economy-wide aftershocks and losses due to interruptions in the flow of trade and commerce.

To wrap things up Anthony suggests that the perfect cybersecurity solution for the maritime industry would;

  • Automatically track all information technology and operating technology systems,
  • Automatically monitor for all vulnerabilities,
  • Automatically track patch management,
  • Automatically monitor access controls and audit/log access,
  • Automatically monitor ship-to-shore interfaces, and all systems connected to the internet,
  • Automatically monitor all systems, especially those supplied by third parties, for unauthorized access and entry to shipboard equipments and network systems,
  • Train personnel to correctly use and monitor systems connected to the internet, and
  • Provide a command-center-style dashboard for shoreside and onboard personnel to understand if there are any issues that require special attention, assessment, or remediation.

As is the case with fuel regulations, cybersecurity is an issue that the International Maritime Organization is taking seriously – new regulations come into effect on January 1, 2021. You can read more here: Maritime Cyber Risk. Also, The Baltic and International Maritime Council’s Joint Industry Guidelines On Cyber Security.

An example of how easy it is to gain access to some communication systems on a ship; Anthony Patti – Duff & Phelps.

Pitch #04: Port Trucking & Terminals

Chris Gabarino, Vice President of Operations at Port Newark Container Terminal (PNCT) delivered the fourth reverse pitch. PNCT “. . . located in Port Newark, New Jersey occupies 267 acres, handling over 700,000 containers annually. PNCT secured a long-term extension of its lease agreement with the Port Authority of New York/New Jersey with options through 2050.

As one of the largest infrastructure projects in New Jersey, PNCT will invest $500 million into the expansion before the year 2030. The expansion is expected to double the number of containers moving through the terminal, creating significant economic growth within the region.

PNCT has already doubled its on-dock rail capacity, purchased three (3) super post-Panamax ship-to-shore cranes and has significantly expanded and improved its fleet of container handling equipment and support yard. PNCT is ready today for the ultra large container vessels which will be calling the Port of NY/NJ once the Bayonne Bridge is raised.

Further expansion plans include the development of 74 additional acres, a new gate facility, additional berth deepening and upgraded container handling equipment including additional super post-Panamax ship-to-shore cranes.” ((Quoting from PNCT’s website. Accessed on Saturday, Mar 31, 2018.))

The problem: Terminal operators lack visibility into what is happening at the ports. As a result there are significant, and many believe unnecessary delays in getting goods in and out of the port as quickly as possible.

This is a major problem, since nearly 80 percent – measured in tons, if not more, of trade between the United States and its international trading partners passes through the nations ports. Ports work in tandem with carriers, labor, logistics service providers, professional services providers – like finance, contract lawyers, etc., government agencies, local communities, importers and exporters, rail operators, and others.

The opportunity: A product that reduces trucker wait time and increases trucker turn time at a terminal by linking terminals with the greater shipping and trucking community by;

  • Providing visibility into a terminal’s real-time inventory for the port drayage, trucking, and shipping community,
  • Matching real-time shipper needs with top-box inventory at the terminal,
  • Enabling truckers to react in a timely manner to changes in freight status.

Pitch #05: Compliance

Kelly Raia, a trade compliance and supply chain specialist at Blue Tiger International, presented the fifth reverse pitch.

International supply chain trade compliance is the process that ensures that goods leaving or entering a country’s borders comply with all relevant rules, regulations, and laws. So the goal of international trade compliance is maximizing the adherence to relevant rules, regulations, and laws while simultaneously facilitating the free flow of goods across national and international borders. According to Crane Worldwide Logistics; Trade compliance includes export control and reporting, import clearance, anti-bribery, antitrust and competition analysis, third-party agent vetting and management, supply chain security, and overall assessment and management of trade and regulatory risk. Trade compliance is interactive and all-inclusive. ((Lightly paraphrased from http://www.craneww.com/what-is-trade-compliance/. Accessed Saturday, Mar 31, 2018.))

The product for this market would;

  • Enable companies to maintain good trade compliance policies for the aspects of their business that involve international trade,
  • Enable companies to implement, maintain, and monitor standard operating procedures for parts of their business that involve international trade.

For imports some of the activities that such a product would facilitate include; Classification, Valuation, Country of Origin Marking, Use of Trade Agreements, and Recordkeeping.

For exports some of the activities that such a product would facilitate include; Denied Part Screening, AES Filing, Export License Requirement Documentation, Use of Trade Agreements, and Recordkeeping.

Pitch #06: Maritime & Marine Risk Management

Scott Parry, Senior Marine Risk Consultant at Allianz Global Corporate & Specialty (AGCS), presented the sixth reverse pitch. “Allianz Global Corporate & Specialty (AGCS) is the Allianz center of expertise for large corporate, industrial and specialty insurance.” AGCS has a worldwide network in over 210 countries and territories, and it is one of the very few global insurers with an exclusive focus on the needs of global corporate and specialty clients.

At a high level;

  • The world of insurance is changing, and data is becoming more important to the underwriting process than in the past because so much more data is now available.
  • Insurance carriers need to adapt to emerging technology trends in order to increase their ability to more adequately tune their processes to match each clients unique business needs.
  • The increasing trend towards mega-ships represents an accumulation of risk and uncertainty. How should insurers prepare to face this development?
  • How can insurers do a better job of harnessing real-time supply chain data?
  • How should the trends in cybersecurity risk factor into an insurers underwriting processes?
  • What technology can be developed to reduce loss due to cargo theft?

Pitch #07: Electronic Logging in Trucking

Matt Guasco, Owner, INF Marketing and Logistics discussed issues facing the drayage and long-haul trucking markets. Matt’s company represents Logistic Services USA, a company that “specializes in providing true “End to End” logistics solutions. We utilize our companies assets (fleet of trucks, warehousing, technology) and our non-asset partnerships to provide a truly seamless and flexible logistics solution. We simplify the process and give our customers world class reporting capabilities and real time tracking throughout the entire life-cycle.” ((Quoting from http://logisticservicesusa.com/. Accessed on Saturday, Mar 31, 2018.)) They provide port drayage, long-haul and short-haul trucking services, trans-loading and warehousing services throughout the United States.

According to Matt; The introduction of Electronic Logging Devices (ELD) and the attendant shortening of allowable hours has created a host of problems for his clients. However, ELDs are here to stay since the argument that we should return to an environment of less safety is an untenable one to make – ELDs permanently and automatically record a driver’s hours of service and rest periods. For example, a long-haul driver is allowed 11 hours of drive time over a consecutive 14 hours during which that driver is on duty. The introduction of ELDs has has caused an uptick in operating costs truckers of about $40 per truck per month. As a result of the ELD mandate, and other accompanying factors, American Truck Business Services (ATBS) predicts an eventual capacity shortage of between 200,000 and 300,000 trucks. Even before things get as bad as ATBS predicts, rates are already being driven up as some truckers can now pick and choose what freight to transport and some carriers simply refuse to honor existing contracts. Also, poor availability of equipment in the drayage markets eats away at precious time and exacerbates the problem. He admits that the ELD mandate will decrease truck accidents and reduce insurance costs.

The Need: Software that will enable trucking companies to increase capacity and decrease transit times, while adhering to the ELD mandates.

My additional comment; It would also be great if such software could increase fuel efficiency in the process – fuel costs account for about 30 – 40 percent of operating costs in the trucking industry.

Pitch #08: Ocean Carrier Differentiation & Marketing Strategy

The eighth, and final reverse pitch came from Peter Mastandrea, Port Captain and Manager of U.S. East Coast Marine and Terminal Operations for Hyundai Merchant Marine (HMM). HMM is the 14th largest container carrier in the world and is headquartered in Seoul, South Korea. According to HMM’s website;

  • HMM is an integrated logistics company, operating around 130 state-of-the-art vessels. HMM worldwide global service networks, Diverse logistics facilities, leading IT shipping related systems, a professional highly trained staff, and continual effort to provide premier transportation services.
  • HMM has formed a global business network with four international head-quarters, 27 subsidiaries, 76 branches, five overseas offices and 10 liaison offices. It is highly regarded as one of the world’s top integrated-logistics companies with its targeted market prospects, efficient organization, top personnel, and advanced internet systems.
  • HMM transports nationally strategic materials such as crude oil, iron ore/coal and diverse special products as well as import/export goods. Earnings are eight trillion Korean won per year, clearly playing a major role in Korea as a vital economic artery.
  • HMM invests to continuously expand vessel fleet, acquires container terminals in the worldwide primary location and inland logistics facilities, and develops premiere customer oriented IT system. As a result of these endeavors, HMM will become a world top integrated logistics company giving “Hope to shareholders, satisfaction to customers and pride to employees”.

But, enough with the propaganda . . . You want to know what Peter had to say. 

The container shipping industry is largely built around alliances. For background on shipping alliances you can read this blog post from Xeneta.

In a world in which each of the 10 biggest container shipping companies belongs to one of 3 alliances, how does HMM survive as an independent player?

What strategic messaging should HMM develop to set itself apart from the hordes, in a good way? Is there are marketing strategy that HMM ought to be deploying if it is convinced that operating outside the alliance structure is the path it should pursue?

There are bigger ideological issues at play here. For example, conversations I have had with people since I wrote the two shipping blog posts that I referred to at the beginning of this article suggest that the Chinese government has decided that it is in China’s national interest to enable a Chinese shipping companies to become big enough to dominate global maritime trade. After all, the thinking goes, if China is the world’s factory, why should the goods it ships to the rest of the world travel on ships owned by Europeans. Early steps in this direction may be seen in the merger between COSCO – a Chinese state-owned shipping carrier, and the Hong Kong-based Orient Overseas International Line (OOIL) and its container shipping subsidiary, Orient Overseas Container Line (OOCL). According to this article by Bill Mongelluzo in the Journal of Commerce, the merger will make the combined entity the largest carrier of US imports.

Similar nationalistic tendencies may be the driver behind the decision by Japanese shipping lines Kawasaki Kisen Kaisha (K Line), Nippon Yusen Kabushiki Kaisha (NYK), and Mitsui O.S.K. Lines (MOL) to operate jointly as the Ocean Network Express (ONE), which began operations in April 2018.

So, what is Korea to do? Does she draw a line in the sand and put full force of the power and might of the government of Korea behind Korea’s shipping companies, enabling them to operate as HMM would like to operate, or does she let the markets dictate what will happen with the possibility that Maersk, or another of the top 10 shipping companies by market share comes in and acquires HMM and other Korean carriers? How would the current geopolitical situation between North and South Korea affect thinking around this topic.

To wrap up the discussion about the reverse pitches, I will borrow the advice Josh Shapiro gave entrepreneurs in the audience; Focus on products that

  • Increase profitability,
  • Reduce operating costs,
  • Increase operating efficiency and supply chain information integrity, or
  • Simplify regulatory compliance.

Next Steps

MGTIC is now collecting proposals for presentations for possible inclusion at an event to be held during the Marine Money Conference. This would be on Tuesday June 19, 2018 at The Pierre Hotel in New York City.

The team is most interested in proposals that respond specifically to the areas pitched at this March 15, 2018 Reverse Pitch. However, they will consider other proposals too. 

The proposals should be brief, clear and to the point, no more than 2-5 pages. They will create a proposal template that will be published on MGTIC’s website but in the meantime proposals should at a minimum provide the teams’ preliminary thinking about the following areas:

  • Overview
  • How it works
  • Business model
  • Customer segments
  • Revenue streams

 

Proposals should be sent to mgtic@sunymaritime.edu.

They’d like proposals as soon as possible but will consider all entries up to Thursday, April 12.  Include a point of contact. Given the tight turnaround time, feel free to ask about an extension of the timeline. I assume they’ll consider such requests on a case-by-case basis.

Good luck.

MGTIC is a joint-initiative by SUNY Maritime and EEX Maritime to create a maritime technology center in New York City. This center will benefit from the central position that SUNY Maritime occupies in the global shipping industry, the network and know-how that EEX Maritime is building as a connector between technology startups and the shipping industry, and the prominent role that New York City occupies in the global supply chain market.

About SUNY Maritime: SUNY Maritime College is one of six state maritime academies in the United States. Located 30 minutes from mid-town Manhattan, Maritime College educates dynamic leaders for the global maritime industry.

About EEX Maritime: EEX Maritime is a joint-venture between MarineCycles and EEX. EEX Maritime helps startups gain access to the global shipping market through its hubs of activity in Helsinki, New York, and Singapore.

Filed Under: Communities, Conferences, Entrepreneurship, Innovation, Shipping, Startups, Supply Chain, Technology, Venture Capital Tagged With: Community Building, Early Stage Startups, Entrepreneurship, Innovation, Logistics & Supply Chain, Ocean Freight Shipping, Startups, Technology, Venture Capital

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