Investing in the

Future of Work

Investing in

Artificial Intelligence

Investing in the

Real Economy

Investing in

Machine Intelligence

Investing in

Automation

Our Story

New York Times LogoForbes Logo
The Information logoThe Wall Street Journal Logo
The Information logoTech Crunch Logo

Basis Set Ventures invests in early-stage technology companies that fundamentally transform the way people work. We believe artificial intelligence delivers core value by improving productivity for all parts of the economy; from factories to offices.

Our fund is dedicated primarily to Seed and Series A startups.

Meet the team

Portfolio

Workstream

Workstream's hiring platform uses automation, AI, and mobile workflows to provide a simpler, faster way to hire, on-board and maintain hourly workers.

workstream.us

Rasa

Rasa empowers product teams to build conversational AI in-house, with industry-leading open source libraries and accessible enterprise tooling.

rasa.com

Path Robotics

Path Robotics is producing autonomous welding robots based on proprietary artificial intelligence and computer vision algorithms.

path-robotics.com

FarmWise

FarmWise produces autonomous weeding robots that provide growers with a cost-efficient, scalable alternative to herbicides.

farmwise.io

Ike

Ike is building cutting edge automation technology to help improve the trucking industry.

ike.com

DataGrail

DataGrail is a privacy management platform that helps companies become compliant with privacy regulations like GDPR and CCPA quickly.

datagrail.io
View complete portfolio

Latest

73% of companies surveyed in a new report, identify as having encountered major issues in their supply chains as a result of Covid-19. The disruption has been so significant, that major brands are reconsidering once sacred supply chain doctrine. Companies are considering moving operations out of China, holding more inventory in stock and collaborating with competitors to source.

In this conversation between David Shillingford, the chairman of DHL Resilience360 and CEO of its holding company Rising Tide Digital, and BSV investor John Mannes, we discuss a new report quantifying the impact of Covid-19 on global supply chains and discuss the implications for the tech ecosystem.

David Shillingford:

... Where companies were not as prepared as they expected to be, or would like to have been.

John Mannes:

I'm John Mannes, an investor at Basis Set Ventures, an early stage venture capital fund investing in founders, transforming the way people work across all parts of the economy, from factories to offices. This is episode six of Future Proof.

John Mannes:

Today, we're talking with David Shillingford, the CEO of Rising Tide Digital, a holding company that alongside DHL owns Resilience 360, a software platform that helps companies manage their supply chain risk.

John Mannes:

Six months into the pandemic, we finally have data to draw conclusions about the impact COVID-19 had on global supply chains. Resilience 360 and the Business Continuity Institute are publishing a report concluding that over half of companies had no plan in place to cover extreme supply chain shocks. As a result of disruptions, nearly 60% of companies surveyed are looking to diversify their supply chains post COVID with China facing the biggest loss in supplier demand. Nearly 70% of companies plan to source goods more locally post pandemic and over 12% of companies plan to increase their use of outsourced logistics services like 3PLs to move warehousing staff off full time payroll for greater cash flow flexibility.

John Mannes:

David, thank you so much for joining us today. Why don't we get started? Just tell us a little bit about Resilience 360 and your connection to DHL.

David Shillingford:

Sure. Thank you for having me on the program. Resilience 360 was created inside DHL's global innovation center and over the years has been built out across the DHL network and hundreds of large shippers across the world into a global end to end supply chain risk management platform that is looking both at supply and supplier risk, as well as logistics. We're able to have a global view of our client's networks through Resilience 360 and predictive models that are predicted during planning at the shipment level and to be able to look at supply and networks to multiple tiers.

John Mannes:

And tell us a little bit about the research that you and your team have been putting together.

David Shillingford:

We partnered with the Business Continuity Institute to publish a report that was based on a survey of over 300 companies in over 70 countries to try and get a broad view of how companies have been responding to COVID outbreak and things that they've done to change their operations and to get some insights as to whether those are temporary or more permanent.

John Mannes:

Would you be able to give listeners a little bit of background on the key takeaways from this report? Particularly what's most important to folks in the technology space.

David Shillingford:

Well, companies were not as prepared they expected to be or would like to have been. They had fairly good visibility to tier one and suppliers beyond tier one, that varied quite a lot from industry to industry, but certainly are investing more in that, the diversification of suppliers and desire to onshore is a trend that we saw in the report and a trend towards more outsourcing of logistic services, more use of 3PLs and more focused on demand forecasting and the technology that can make that a more agile process.

John Mannes:

Sure. Well, I'm really excited about the discussion today. It's a rare opportunity for us to actually have some data to start to think about the impact of COVID-19 on supply chains. I want to start off with one high level, almost philosophical discussion around this report. Specifically centered around the way in which organizations think about planning for events that are in some sense, very random. This report is primarily focused around efforts that companies can take in order to make their supply chains more robust, more resilient. We're talking about pretty drastic changes around even fundamental things about how inventory should be kept. When you talk with these corporations and you interact with them as they manage supply chain risk, what advice do you give them to make sure that they don't overreact?

David Shillingford:

There's a few things that are important to add to that as context. First is that the pandemic should not be seen in isolation for a couple of different reasons. In terms of the pandemic itself, it's unclear quite how long the disruption is going to go on for. So, there are actions that have to be taken in direct response to the pandemic. There is every chance that there will be future pandemics.

David Shillingford:

And even if it isn't a pandemic, there are other risks that are structural and that are macro. Climate change would be an example of that. Nearly all of the types of actions that companies need to be taking to most effectively respond to the outbreak, are actually very similar to the types of actions that they would be taking to respond to large geopolitical, natural hazards that we know are going to happen in the future. We don't know how big they are going to be. We don't know where they're going to be. But we know they're going to happen. And it is more often now that companies are saying, "Okay, so I can see why I need to do this. The question now is how do I do it? How do I get from here to there? And how do I justify the return on investment in doing so?"

John Mannes:

One piece of data that stood out to me was how many companies were thinking about holding more inventory on hand post-COVID. And it flies in the face of the wisdom that we at least think about in the venture community around trying to reduce the amount of inventory that companies have to hold and using machine learning and data analytics to try to reduce that. How do you square those two things together?

David Shillingford:

Good question. The answer to that comes down to breaking the data down. In some cases, it makes sense to add more inventory. In other cases, it makes sense to reduce inventory. And that's really on a knife edge at the moment because you've got a very, very strong push and pull between a company saying, "Well, I ran out of inventory as a result of the pandemic. I need more." Which may or may not be correct. And the other end of the spectrum, companies saying, "I have to preserve cash. So I have to reduce inventory overall."

David Shillingford:

It really comes down to choosing the right product to invest in and reducing inventory elsewhere, which of course is where data and AI come in, so that you have more advanced and more dynamic demand sensing, you have more advanced and more dynamic supply risk sensing, and in doing that, it allows you to have the right product in the right place at the right time, and that overall will reduce the amount of inventory that you need and increase profitability, reduce working capital.

John Mannes:

From that framing, it makes sense, right? You think about the overall push to make supply chains more resilient, more nimble, more informed by data, that just becomes about collecting more granular data and analyzing things at scale, which to your point is a trend that has been going on for quite some time. I'm curious, given your positioning, how confident you are that companies are actually going to start to increase adoption of some of these software tools for things like demand prediction or automated procurement that helped them to have more transparency and more visibility into their supply chains?

David Shillingford:

We are certainly seeing a rush of companies who are saying, "I never put budget against supply chain, risk management. I need to do that now, but I want to do it in a way that is integrated with my planning and execution systems. I want to be able to do it in a way that gives me benefit during delays as well as disruptions. I want to be able to see daily benefit from risk analytics." The growth we're seeing this year, I think, is a reflection of that.

John Mannes:

Have you run into anybody on the opposite side of that spectrum? Saying, "We would like to be investing in this area, but unfortunately given budget cuts or reductions in spend, this is actually less of a priority than it was before." Or is that just not something you're seeing?

David Shillingford:

It varies from company to company, there are some industries that have seen demand surges and others that have seen demand drop off very quickly during COVID. So, where a company sits right now in terms of the organizational health that they have across a number of different factors is going to be pretty important in answering that question right now.

David Shillingford:

Looking over the next six, 12, 24 months, there are very few companies that are moving away from that or saying that it's not something that they're willing to invest in. Exactly how they do, what they invest in, is going to depend very much on where they are in that journey, but the path towards Industry 4.0, the digitalization journey, is one that almost all companies are on in some shape or form, no doubt that that's going to be accelerated. And if there are companies that are, for whatever reason, unwilling or unable to do that, they're going to fall behind pretty quickly over the next year or two.

John Mannes:

Has that been reflected in your own sales? Would you say you've seen a spike in interest and demand for your software products?

David Shillingford:

Yes, very much.

John Mannes:

Three things that stood out to me from reading the report, just in terms of statistics that I didn't really expect to see and that I'm wondering if there is longterm technology opportunity, and one was the rapid increase in demand in the charter industry sector, given the downturn and detrimental impact on air transportation broadly. I just thought that was an interesting side caveat of all of this. There was also some discussion in the report around pharmaceutical companies and efforts towards joint sourcing of materials. Also a category where I am at least not aware of a ton of activity in the startup world or technology world to try to help facilitate that.

John Mannes:

And the third was around trade credit periods and efforts to rebuild supply chains while also having enough trust built into them that companies are able to get access to longer trade credit periods for examples. And then there were many other interesting things as well, even the warehouse space piece that I'm remembering around some of the research that CVRE had done. Did any of those strike you as being perhaps longer term or more interesting to you in terms of the ways in which technology will need to shift to help companies deal with some of that new demand?

David Shillingford:

So often a technology only becomes really valuable when an entire network or a sub-network is using that technology and it comes down to data sharing and, as you noted, trust. And that's the difficult part, to bring an ecosystem into a single technology and really leverage that technology to get some significant efficiencies, whether it's to do with shed sourcing or trade credit.

David Shillingford:

So, that to us is the big challenge and one of the reasons that we made the acquisition of Resilience 360 and they already had the network built, there was already sharing going on across the DHL network and hundreds of shippers. And you can then prove out the system. So getting that flywheel going is actually extremely difficult because you've got to get the data to prove the case, but often people say, "Well, prove it to me before I share my data with you." And people are increasingly and rightly so protective of their data.

John Mannes:

Well, let's dig into one piece of that definitely relevant to us from the machine learning and automation perspective. Supplier data has been something that's been notoriously difficult to collect at scale. In some cases, if you're working with Fortune 500 companies that already have undertaken robust due diligence into their supply chains, some of that data might be able to be capturable. But a lot of it isn't super real time, and even the data that is real time often isn't granular enough to do some of the prediction work that we were just discussing. How do you see that changing particularly post-COVID? Is that going to come a cultural shift among suppliers to start sharing data? Is that going to just take time as software proliferates deeper into those supply chains? What is the right way to think about that?

David Shillingford:

It will take time. But we believe that there are a number of ways in which the move in that direction will be accelerated around COVID, but also around technology. So, essentially for that to really move forward, that needs to be the will to share data and the ability to share data. So the will is shifting in the right direction and that's both on, on the part of the customer and the supplier and the recognition right now that the more data that is shared the better that they will be able to mutually support each other.

David Shillingford:

That's a shift in the right direction, but it's not a silver bullet. It's not binary. It will be gradual and it will ebb and flow depending upon the climate that we're in. But generally speaking, that's moving in the right direction. The ability is what is more transformational and that is the technology that now exists to collect the data.

David Shillingford:

And what we see in the market at the moment continues to be a relatively manual one-to-one data collection process, where the manufacturer is asking the supplier to fill out a survey and more and more there is a degree of commonality across that data collection, but it's still a relatively manual process.

David Shillingford:

What we think is an interesting opportunity is to augment that process with big data ,artificial intelligence, network graph technology, and to be able to essentially build that network from the outside in using data that our client might not necessarily have access to and taking their supplier data as a seed data set, to start building out the network graph from data that we can access from elsewhere, and to be able to infer and define and ultimately refine what that network looks like.

John Mannes:

Do you notice that much of that incentive down to the suppliers, does your data, comes from the larger corporations or the buyers putting pressure on their supply chains? Or do you think there's any way in the longer term that there might be ways to actually incentivize those suppliers directly to start to share more of that data?

David Shillingford:

I would agree that traditionally it has been larger companies that have a significant degree of leverage, essentially mandating that certain surveys get filled out. The incentive is largely to do with having the right business relationship, but it may be that other incentives can be built into those types of programs, but much easier to do that when there's an obvious ROI on both sides of the equation, from the sharing of that data. If one or both parties look at it and shrug their shoulders and consider it simply to be a matter of compliance, then it's difficult to build incentives around that.

David Shillingford:

So, as things move and ultimately out of COVID, there should be a greater awareness of the value of sharing that data and that should make it easier to build incentives around that process at the same time as reducing the inertia of sharing data through technology.

David Shillingford:

And you can look at, take the financial services industry. Insurance is a good example of where an insurer will request a certain amount of data from a policy holder and that has always been an onerous thing that brokers and agents facilitate. But increasingly an insurer is able to go to a policy holder and say, "This is what we think the answers are to our questions. Are we right or wrong?" We see the same thing in banking and know your customer. So we expect that that type of facilitation is going to help quite a lot going forward.

John Mannes:

The comment there around financial services and insurance is actually a particularly interesting and prescient one given this market, and especially given the cash flow discussion in the report for some of these downstream suppliers in any cases that are mid-market or below, in some case SMDs. Have you seen a shift or do you have any data that points to increase in consumption of financial services or insurance products on behalf of that long tail of suppliers that might be an interesting data offload?

David Shillingford:

A number of supply chain specific risk transfer products have been brought to market, and they tend to be either at the shipment level, a buy it when you need it trip transit type coverage, which for a lot of companies just isn't enough and it's hard to access, or they'd be more complete end to end supply chain risk transfer programs. And the challenge there, of course, is getting the data about the end to end supply chain and where the risk really sits.

David Shillingford:

There are significant risk transfer opportunities at both levels of granularity, but only when the data and the user experience exists to make that attractive enough and therefore to have enough policy holders to be able to pull the risk and build traditional insurance products around it. We think in the next five years that that will become much more mainstream, but it has to start with the data and collecting the data initially has to have operational benefit to the policy holder. Not start with risk transfer, but start with operational benefit and then build risk transfer products on top of that data once it's been collected.

John Mannes:

And why do you think that's the case? That it doesn't make a lot of sense to go to market directly as a risk transfer solution, that that operational value proposition has to exist as well?

David Shillingford:

On paper, it makes sense. But in reality, you have the capital assets and insurance company, and then you have a broker or an agent, and then you have a risk manager at the corporation, and then there's another two or three steps between that person and where the operational data exists. And the operational data is siloed across 20 different divisions in 100 ERPs. And getting that throughout that chain, ultimately to the underwriter, there's just too many steps and too much fragmentation of data to be able to do that without a very, very compelling ROI right now.

John Mannes:

You see opportunities down market then, in organizations that perhaps aren't as complex or were more cloud native from day one and have more centralized data system?

David Shillingford:

Yeah. It'll definitely be easier to build risk transfer for products for companies like that. And just to be clear, there's a ton of insurance in supply gen at the moment, but it tends to be more traditional property and business interruption insurance that has four walls around it because it's a factory or because it's a warehouse, but less from an end to end standpoint.

John Mannes:

I'm trying to think about this from the perspective of an early stage company. And obviously it benefits you all to have your own proprietary data that you're collecting from these folks that allows you to start to explore these different products and services that require this data. But I think the question that's probably on the minds of a lot of founders in this space is if you're not one of these larger companies that has access to all of this data and a preexisting customer base, how do you compete? And if you don't compete on data and you don't build products for prediction or analytics that require that data, then what do you build?

David Shillingford:

There are two different types of products that relate to data. One is where you need to have a level of data aggregation in order to deliver value to the market and your clients and the other is where you can deliver value on day one. If you look at the IoT space, if it is valuable to somebody to know exactly where a particular load of cargo is right now and therefore what time you might expect it to arrive, you can create value at the shipment level without having to aggregate.

John Mannes:

The report itself pointed at some interesting trends around companies reassuring and reducing dependency on China. I don't know whether you had data that was granular enough to look at that on a country by country basis, but do you at least anecdotally have a sense for whether that's universally true across global large companies or whether that is particularly emphasized here in the United States where things like the trade war and other macro shocks have been pushing us in that direction for the better part of a couple of years now?

David Shillingford:

The result would certainly indicate that there are people who are looking to move away from China and manufacturing in the Far East, not universal, not in very large numbers. It's going to be very specific to different industries and to different types of companies, different sizes of companies. Because of the interconnections.

David Shillingford:

If you've got three tiers of suppliers in the Far East, to move your middle supplier out of the Far East makes no sense at all because you're divorcing it from the other two suppliers upstream and downstream of that supplier. It'll be easier for some than others. The other thing that relates to this is the acceleration of automation. If bringing my final assembly back to the US didn't make sense five years ago because of the cost of labor, if I'm able to do that with a smaller labor force through automation, then the equation may have flipped on its head.

John Mannes:

Can you elaborate a little bit on the takeaway in the report around increased demand for 3PLs? I'm curious what you've seen with DHL as a case study here.

David Shillingford:

DHL during COVID has been a good example of where scale and variety matters a lot. To be able to have a global network that allows you to switch between modes and between carriers has been a great strength for DHL during COVID. And what we saw in the survey is more companies saying that they would be inclined to use 3PLs because of the level of flexibility that it gives them.

John Mannes:

The report also makes mention of an increase in demand for outsource logistics services as a result of COVID-19. Is that largely driven by these corporates looking for more flexibility from their balance sheets?

David Shillingford:

The more uncertain the world is, or people feel that it is, the more flexibility and agility they are looking for and outsourcing is certainly in line with that.

John Mannes:

Okay, let's wrap up then with just some general advice that you have for founders in this ecosystem. If you are going to start a new venture in supply chain, how would you think about vetting an idea and building something of value to many of these Fortune 2000 companies that are clearly at an inflection point rethinking their supply chains?

David Shillingford:

The advice I'd give to a startup and to entrepreneurs is to think very carefully about market adoption and scaling. There's a lot of problems to be solved in supply chain. There's a lot of great technology in the space, but there is often a big gap between that and market adoption because by and large, the clients are very large. They are fragmented, they are looking at a lot of different options and speed to market and speed of adoption is something that will either significantly aid a startup or become a significant impediment. So, thinking about the go to market plan, market adoption, how do you get in front of the right person at the right company is always important, but critically so when we look at the supply chain space.

John Mannes:

Well, thank you so much, David. I really appreciate you taking the time to give us all this background. The report was super helpful. I hope folks do check it out and read some of the additional statistics that were collected and wish you all the best.

David Shillingford:

My pleasure. Thank you for the opportunity.

John Mannes:

It's clear that COVID-19 is changing supply chains for the long run for some of the biggest companies in the world. We expect to see lots of supplier turnover in the coming months as smaller manufacturers are unable to stay afloat through the ongoing crisis. Entirely new supply chains will be built in new markets. Japan and Osteon member countries have already been highly proactive in offering financial incentives to move operations within their borders.

John Mannes:

New companies will be born from this volatility and turnover, both companies making it easier to identify vet and onboard suppliers, as well as companies making it easier to source and produce locally. Especially thoughtful approaches will help companies retain critical cash in these uncertain times. For more statistics on COVID supply chain impact, check out COVID-19: The Future of Supply Chain report, available from DHL Resilience 360's site. I hope you enjoyed today's episode of future-proof. We'll be posting episodes on Spotify, iTunes, and SoundCloud. So, watch for our next episode. Check out Basis Set's full research on logistics@basisset.ventures/research. And if you want to chat about any of the themes from this episode, drop me a note at John@basisset.ventures.

For more information on this topic, check out BSV's research: