Tetris for Logistics

A few years ago, Flex CEO Mike McNamara began hunting for new software that could help his manufacturing partners run their supply chains in an economy that was increasingly global and connected through the Internet.

Retailers have mastered the logistics behind mobile ordering and same-day delivery of everything from sneakers to steaks. But if a tsunami in Japan or a strike in China causes a delay at an electronics manufacturing facility, why couldn't a partner company adjust output with the simple swipe of a mobile interface, McNamara wondered.

"We didn't see anything out there," says the chief of the global company that is the world's second-largest contract manufacturer. Other established business software companies, in his judgment, had "old-line technology" and had not invested much in software.

So McNamara asked his team, which included Nader Mikhail, a young vice president who joined Flex after a four-year stint at McKinsey & Company, to start building its own software. It would be mobile-first, take advantage of new database and social media technology, and run in the cloud like most modern business programs. In July 2012, McNamara tapped Mikhail to run the effort. They soon realized that to reach its full potential, the project would need to be run independently. Later that year, Flex incorporated the company, called Elementum, and financed it with seed capital.

New software tools from providers such as Elementum are giving companies more visibility than ever on their sprawling supply chains. The tools have not yet automated decision making, but by collecting data on the status and location of products and by making the information more accessible, such software is helping manufacturers to spot potential problems more quickly and act on them.

Since being spun out of Flex at the end of 2013, Elementum has shed its skin as a corporate Skunk Works and is transforming into a player in Silicon Valley's startup scene. The company currently operates out of a sleek, hangarlike office in Mountain View, Calif., complete with 20-foot-tall exposed ceilings and such requisite trappings as a Ping-Pong table, pool table, and mini-basketball hoop.

To date, Elementum claims a number of top Fortune 1000 customers across several industries, including Flex, Johnson & Johnson, Microsoft, and Tesla Motors. The startup has raised $50 million in venture capital, assembled a high-powered board, and attracted nearly 100 employees.

In early 2014, Elementum released its first set of apps. The software helps stave off trouble by enabling companies to surface problems more easily and activate contingency plans, says the company's head of growth, Tyler Ziemann.

During a recent visit to the Elementum office, Ziemann whips out his iPhone and boots up one of the company's three apps. The Transport app monitors logistics, Manufacture follows what's happening on a factory floor, while Exposure tracks suppliers and shows where risks threaten a supply chain.

The Exposure app features a Facebook-like feed that imports external data—a news story about a fire that broke out at a Korean metal-processing plant that makes car parts, for instance—while connecting the info to data about a company's supply chain. Users can follow the topic, comment on it, or share the story.

"If they don't have that screw, they can't build the car," says Ziemann.

At a software demonstration conducted last May, James Rowan, chief operating officer of vacuum maker Dyson, said Elementum's software gave him information on a real-time basis that allowed him to manage his business making vacuum cleaners and fans more effectively.

With a supply chain comprised of 2 billion parts, 300 suppliers, four factories, and distribution in 60 markets where Dyson is sold, it's a daunting challenge. "The key thing is the mobility of the app," Rowan said. "I can get this everywhere."

Rowan pointed to a screen shot from the Exposure app which tracks supply-chain risk. The screen displayed a global map with one icon representing a fire. Touch the icon, and details about the fire and the risks it poses to the company's product are revealed. This fire threatened 10 parts in 15 products. The user could then dismiss or escalate the issue on a scale of one to five, add a comment, and share it with other people.

Another app, Transport, highlighted transport routes that were not performing up to snuff with lines lighting up on a map. Rowan could drill down, for instance, and see that a port would be two or three days late with a delivery.

"It will send me the signals if something is out of kilter, and I will forward it on," Rowan said. "I ask if guys are on top of it: 'Are you seeing the same thing?'"

Armed with that info, Rowan said his team could inspect inventory, tap an alternative supplier, or start rearranging the logistics of sourcing componentry.

"I want to be the first guy that gets my unfair share of anything that's going into a constrained market," he said. "That's a really important part of the puzzle for us."

Elementum CEO and founder Mikhail, 31, says having Flex as its first customer has helped it understand the nuances of a huge, complex supply chain.

"No one is as complicated as Flex," he says.

Plus, since Flex is best known for making hardware, a stand-alone software maker also helps lure talent by offering engineers larger slices of equity. "We have to attract the world's best software engineers, and that's not easy when you have a Flex badge," McNamara, the company's CEO, says.

Now the goal is to use the Flex relationship and the new technology to turn Elementum into a leading supply-chain software maker, much like Salesforce and Workday leveraged online technology to disrupt stodgy customer relationships and human resource software.

"We want to own that supply-chain space and every app required to run that global supply chain," Mikhail says. He reckons the company is on track in the next 18 to 24 months to have 100 large customers.

It won't be easy.

Elementum is butting heads with gigantic established players that boast huge sales forces and entrenched customer bases. Supply-chain software also has been notoriously difficult to operate and has failed spectacularly in the past.

During the late 1990s, some tech companies thought it could not keep pace with demand for their products. Managers tried to protect themselves by hoarding components, but when the market suddenly declined in 2001, they were stuck with an excess in inventory.

Elementum believes its software can do a better job of managing supply chains by incorporating up-to-the-minute information about supply-chain snafus and sharing it through company networks—an idea that has been supported by some academic research.

To raise its own game, Dyson started building a situation room last year with more than a dozen computer screens that drew on Elementum's software and displayed all of the moving parts of its supply chain.

"When you get six or seven or eight people sitting in the control tower looking at the same data set, then magical things start to happen," Dyson COO Rowan said at the software demo last year. "People start to question the data. They start to bounce off each other. It day by day strengthens the whole organization. That is sexy."