What do Uber, Tesla and Global Logistics Have in Common?

We expect historic changes to be a bit dramatic. We think of “Evrika!” moments when inventors discover new technologies that make our lives better.

The reality, however, seems to sneak up on us. We now know how important the Internet is but few would have guessed it when it was used to exchange short bits of information between academics. Same for Google – it is now easy to see how important having the global stream of information at your fingertips actually is. But it was a lot harder when the concept was still in its infancy.

Not even Steve Jobs could have predicted the impact the iPhone would have on the world. And I believe Elon Musk will look back on these days and be surprised by the changes Tesla brought to the world.

When Elon Musk announced the Powerwall, the world shook a little bit. Its beautiful design and promise of energy independence seemed almost dreamlike. But the Powerwall shows a far larger vision than just making the home energy independent.

Powerwall 2 & Solar Roof Launch from Tesla, Inc on Vimeo.

It is a promise that we could harness the virtually unlimited energy of the Sun and store it. Storage, you see, is the real problem. The complex systems we use are powered by energy that is consumed almost instantly. Our cars, our electronics, our planes – they feed on streams of energy as it is formed. Even the best energy storage systems fail after a short while.

The batteries that can save the world

The promise that one day a company (could it be Tesla?) can find a way to harness and store the sun’s energy (or any type of green energy for that matter) has an impact we can hardly predict.

The implications range from pollution reduction to geopolitics to economics. Especially economics. To understand how much we could save by switching to green energy, have a look at this estimate for an average Tesla car compared to one running on fossil fuel:

Think that’s a lot? That car “only” logs 120 000 miles. Compare that to the 397.8 billion miles logged by all trucks used for business purposes (excluding government and farm)In the US alone.

Now mix the numbers and add the savings Tesla’s technology can bring.

Add something else: sun-powered electricity. Think of trucks and ships that can move goods around without any need for refueling.

Because that’s where the real change comes in. When products are manufactured and shipped at a tiny fraction of what they are today, everything changes.

When we take out the distribution costs, the energy costs and any other costs associated with energy from our current commerce paradigm, everything changes in the world.

The products we buy would have costs that would be driven to the ground. Without costs associated with energy consumption and storage, goods would be manufactured cheaper and faster (instant energy), shipped cheaper and faster and consumed by more. We could have cheaper products, consumed by more and believe it or not, more profitable to sell.

But how could the system change?

There is only one thing stopping this: the current transportation and energy system. Musk’s vision has already stirred things a bit with car dealers. What happens when the company will go against the global leaders in energy and transport companies, the ones still relying on fossil fuels? These companies would have to change or fight the change. The former is what one might expect.

That’s where the Uber concept comes in. Uber connects, as you know, smaller professionals that provide transportation services. Right now this is limited to personal transportation. Uber, today’s Uber, acts as a glorified cab dispatcher.

But tomorrow’s Uber may have bigger ambitions. Somewhere behind the scenes, investors know that there’s more to Uber than meets the eye. The reason the company landed a $41 billion valuation is that it has the potential to change the global transportation system. Not just personal transportation but all kinds of transportation.

That includes making sure goods are quickly moved from manufacturing to storage to the consumer. Don’t take my word for it. Uber has been experimenting time and again with logistics. And if Uber won’t, there are other companies that will.

So you have virtually unlimited power. You have storage. You have the a system that makes sure goods are sent to the right destination by the optimum freight. This means the kind of change we now can’t fully comprehend.

It means that good is now in motion.

Omnichannel retail will transform distribution

A very important part of retailing is pricing and the most important part of pricing is the cost. To get a complete view of how much a product would cost, retailers think in terms of net landed cost.

The net landed cost is the sum of costs associated with manufacturing and distribution. When thinking in terms of net landed cost you have a better chance of understanding your total cost.

A common fallacy is thinking of costs just in terms of manufacturing, either from a purchase only point of view (how much you pay your supplier for a given product) or a more inclusive manufacturing point of view. The manufacturing point of view assumes that even if you are not manufacturing the product yourself, you still have the liberty to choose another supplier or change merchandising altogether.

The most important advancements in retail, in terms of supply and cost effectiveness, have focused largely on manufacturing costs in the past decades. This has lead to increasingly efficient production lines, a more competitive manufacturing market, shifting manufacturing overseas and many others.

A key to Walmart’s success is selecting suppliers with an optimum manufacturing cost / quality

This manufacturing improvement trend has had beneficial results on the customers life through more accessible, more diversified merchandise. It also meant companies managed to sell more, to more people. Companies such as Walmart have grown to their existing magnitude thanks to a wide network of suppliers, providing them with products manufactured at the best possible cost.

Distribution lagged behind

As retailers improved on the manufacturing, there was one part that has been left mostly untouched. That was the distribution. Distribution costs have decreased but not dropped.

To get a better view of why, get a glimpse of what are the factors that weigh in the distribution costs basket. Here you have costs associated with getting a product from the manufacturer to the customer. This includes freight, stocking, customs, costs associated with store development and maintenance, marketing costs, customer support and others. This is a very large area and a lot of work to be done.

Distribution is changed by technology, data and omnichannel retailing

Today, distribution is changing, and it’s changing fast. As a result, the associated costs will follow.

At the forefront of this change we have several factors, one of which is omnichannel, another being technology and the third being data. This is how they weigh in and these are the areas that will be soon transformed:

Improved logistics

Logistics have not been fully transformed by technology. For example, freight has been virtually unchanged in the past decades. Think about it this way: cargo ships are still loaded after excel files are checked, faxes are sent and handshakes seal deals. For a large part, the industry is archaic and it’s but a question of time until it will be transformed. There is a lot of room for disruption and companies such as Freightos have challenged the status-quo and promise 10-17x ROI. In weeks.

And it’s not just freight. Fleets of small vans contractors have taken up the Uber model and are now roaming the streets of Hong Kong to deliver goods the likes of DHL and UPS can’t.

GoGoVan is a Smart Logistics company, connecting individual contractors to larger companies in need of their services

Omnichannel retail decreases distribution costs

Omnichannel makes possible and desirable a few things the previous retail models couldn’t. First of all it allows for a better inventory transparency and improved shipping effectiveness.

Customers that would otherwise expect orders placed online to be shipped at home with the respective costs and operational challenges, can now just pick up orders in store. Or better yet, they can have the closest store ship these items at home, instead of mixing the order in a large, central warehouse.

Omnichannel also makes possible having just a limited number of products in store and keep the most either in the warehouse to be shipped when convenient or with a supplier. By reducing store footprint companies can reduce fixed costs associated with marketing and distribution of products, thus decreasing costs.

And it’s not just these, the many aspects of omnichannel retail all converge to a decrease in distribution costs and more efficient ways to handle product demand.

Macy’s growth versus JC Penney and Sears.

Improving marketing and advertising with data

John Wanamaker was a retail innovator. He is credited with the fixed price and money back guarantee marketing concepts. Wanamaker was one of the pioneers of the department store and loved advertising. He is also credited with the famous saying :

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

Good thing that was more than a century ago.

“Show me your budget.”

Marketing is now changing rapidly and unfortunately for some advertising agencies, long gone are the days when the Mad Men of advertising charged millions for concepts that could or could not work.

With the rise of digital commerce and omnichannel retail and the smartphone to bridge the gaps, data is all around. Marketing is now data driven and the half of budget Wanamaker complained about can now be easily tracked. Companies such as Macy’s are investing heavily in omnichannel policies and marketing. The results are clear. While their competition is diving, Macy’s business is on the rise.

Advertising is data driven and marketing costs are constantly improving.

By improving distribution and decreasing distribution costs we have two very important things happening. The first is that companies engaged in improving this area will be more profitable and more inclined to continue on this path.

The second thing is that lower distribution costs mean better prices for the consumers, therefore an improved appetite for consumption. Improved profitability and decreased prices – these are two very strong forces that will shape tomorrow’s retail. And it’s happening today.

Driverless Trucks Will Change Logistics

Amazon is testing drones and Google is building self-driving cars. At the same time Mercedes and Volvo are each developing its own solution for moving goods by truck in a driver-less manner.

Daimler's Future Truck 2025
Daimler’s Future Truck 2025

Building driver-less trucks or at least improving the truck’s autonomy in a way to improve the driver’s performance could be huge for logistics.

How big? Well, in 2012, the US logistics industry totaled $1.33 trillion, 8.5% of national GDP. In that year, truckers moved 9.4 billion tones of freight, 68.5% of all freight transported in the US (source). To say that trucking is big is really an understatement. The trucking industry is backbone of global logistics. Without it, there would be no retail as we know it.

But moving billions of tones of freight is no easy task. To do so, truckers need to eat, rest and be alert during the whole trip. The trip itself has to be as fast and as cheap as possible. Otherwise, logistics would become useless or too dangerous to drivers.

Volvo, Mercedes and others are tackling a very difficult task: how could one improve the trucking industry in a way that can replace drivers in the future, but be met with joy by said drivers. Technology may replace truckers one day but today, they are the one in charge so truck makers need to make their job as easy as possible without making it useless.

The road train

Volvo has joined European backed project SARTRE that aims to make highway driving safer with the help of road trains. Simply put, car and truck drivers can join a group lead by a professional driver. While in this highway group they can relax and the cars will do most of the work by just mimicking the leader car.

This will mean fuel efficiency, safer roads and of course longer trips which logistics companies could really use. The video below shows a demonstration on how cars can connect through wireless technology and copy the leader car movements. The technology could hit the roads as soon as 2020, if legislation is in place.

[youtube https://www.youtube.com/watch?v=tQnVGOoVvVk?rel=0]

The self driving truck from Daimler

It never gets tired. It’s always 100 percent and sharp. It’s never angry; it’s never distracted” said Dr. Wolfgang Bernhard, the Daimler board member for trucks and buses.

This year Daimler launched a truck prototype dubbed “The Future Truck 2025”. The truck can accelerate, steer and stop by itself. It can also go up to 85 km/hour (52 miles/hour), it navigates with the help of a built in GPS system and looks a bit like a starship. The driver needs to get the truck on the highway, merge with incoming traffic and hit the “Highway Pilot” setting. From that point on, the truck driver can recline in his comfortable chair and take a break. At any point, the system can be overridden by the driver.

However, The Future Truck 2025 won’t be joining our highways for a few years from now. Legislation for self-driving cars or trucks is not yet in place but Daimler is patient enough to get us and legislators prepared for it.

[youtube https://www.youtube.com/watch?v=7bFc0rBoFY8?rel=0]

Once these trucks will hit the market, drivers will be ready to carry more freight, ship orders safer and farther. Logistics companies will improve costs and will be able to increase their reach. In the end – technology will do what it has always done: make everything faster, better and cheaper.

4 Companies That are Disrupting Logistics

There is no shortage of logistics needs in the world. As the world gets smaller, more products have to be moved. Recent changes in consumer behavior helped increase the volume of moved goods. Almost $19 trillion worth of goods were imported and exported in 2013, 5 times as much as in 1990.

This 19 trillion market is stuck for the moment with two very big problems leading to ineffectiveness. The first one is technology infrastructure. As goods move to and from very different countries and cultures, there is no unified backbone for making shipments happen. As such, logistics are somewhat slow, compared to other areas in the commerce landscape.

The second big problem is the last-mile delivery. The likes of FedEx and UPS are great at moving goods from New York to Shanghai and the other way around. They’re not really that great at building local delivery networks, able to ship goods fast and cheap. As you might notice, this is a bit of a problem for ambitious retail companies such as Amazon, Walmart or Alibaba, aiming for global dominance.

But worry not.

Investors have picked up on the opportunity to disrupt the $19 trillion market and have turned their investments to logistics companies. According to Crunchbase, investments in logistics startups went from 0.1% of total investments in 2012, to 1.37% in 2014. The total amount invested in 2014 in logistics startups ($1.8 billions) means an increase of 1370%. That is a sure sign that something big is really just around the corner.

As the market is ripe for disruption and investors are generously tapping into logistics, a lot of companies will be showing up on the logistics radar.

Among all these, here are 5 companies that might be the model these investors are looking for:

No.4: Amazon is trying to ship goods with drones

Amazon Fresh, one of the companies logistics challenges.
Amazon Fresh, one of the companies logistics challenges.

After Jeff Bezos announced Amazon is building a drone-delivery service, a lot of people (me included) were questioning whether this could be real or just a PR stunt. It seems that not only is Amazon serious about the drones, but it is also very focused on building the model for the next generation of logistics operations. It has invested more than $14 billions since 2010 in its warehouses.

It has invested in robotic fulfillment operations, purchasing and integrating Kiva Systems. Becoming one of the most automated fulfillment and shipping company, it leads the way in large scale ecommerce logistics. As a result, the company is improved its operations vastly. In 2012 it managed to ship 10 million products per day, leading to 1.05 billion products shipped in the last quarter of 2012.

No. 3: Freightos takes a shot at a trillion dollar market: the cargo industry

The Freightos network
The Freightos network

It may come a shock to those reading this but the cargo industry is really in need of some technology updating. A lot of work in the freight (cargo) industry is done with the help of emails, spreadsheets and … fax machines.

Freightos aims to change all that with a SaaS product that connects those in need and those offering freight services. Unlike the previous way of managing shipping costs, Freightos provides a cloud application that can allow for real-time responses.

No.2: GoGoVan connects vans, delivers the last mile

gogovan

Remember the thing about the last mile the likes of FedEx just can’t handle? It turns out they really don’t want to handle that last mile. Large logistics companies in Hong Kong outsource 70% of their local operations, estimates Gabriel Fong, CEO of Hong Kong GoGoVan.

The company employs Uber’s taxi-hailing model to connect van drivers and those in need of moving goods. They basically replace the old and ineffective call center with a mobile app.

GoGoVan estimated that 35 000 of Hong Kong’s vans are owned by freelancers. These freelancers usually subscribe to a call center which can forward requests and lease radio communication equipment. It’s usually ineffective for both the van-driver and the customer so GoGoVan decided there is a market there.

Right now GoGoVan has 18 000 vans registered with their service so things are going great.

No.1: Uber has transformed the cab industry, it can go further

uber

Uber started as a car-sharing service but soon turned into a multi-billion company, available in 45 countries and 200 cities. It has done that by allowing those with an acceptable vehicle play cab-driver for anyone willing to pay.

The company so far successfully dodged cab regulations and managed to change the way people move in the urban environment.

Lately they have figured out that if they can move people from point A to point B they can also do that with merchandise. After experimenting with a fast delivery service called UberRUSH, trying on a Corner Store service and shipping Christmas Trees, Uber got it: It can do logistics.

Specifically – urban logistics. After all – it really is not that hard to adapt the model to minivans (see GoGoVan above).

I can’t wait to get my online orders delivered in a black luxury sedan. Hear that, Uber?

 

 

 

Why Do Online Retailers Fail?

A couple of weeks ago someone asked me a great question. It came from an entrepreneur interested in opening an online store. She had a brick and mortar shop, some experience in offline retail, great merchandise. Previously she’d noticed her customers were asking why can’t they order online, so she decided to give it a try.

So there we are – discussing the necessary steps to open the online channel and integrate it with the offline store. As she previously noticed that success in online retail is seemingly random, she asked a question I was not accustomed to:

Why do online retailers fail?

See – most people want to know what makes Amazon, Staples and other large online retailers successful. They figure that if they study these companies carefully they will get to be successful also. It seems intuitive – see who the leaders are and than copy them.

Companies such as Shopify or BigCommerce thrive on the idea that anyone can start a shop online and be successful. If Jeff Bezos can – why can’t I?

amazonjeff-bezos
Jeff Bezos – Amazon

Browse the internet and you’ll find dozens of blogs (this one included) on this particular subject. “How to be successful when selling online”? You’ll get thousands of posts on what makes online retailers succeed. The harsh truth, however, is that most online retailers fail.

You should know that …

Amazon is an exception.

Staples is an exception.

AliBaba is an exception.

Ebay is an exception.

Multi-billion online retailers are exceptions. They are market anomalies. They are not the norm. The harsh truth is that beyond logistics, most of these companies have done totally different things on their way to becoming successful online. They will continue to do so. And they probably won’t share their plans and strategies online.

Even if these strategic plans and key performance indicators were available online – what good would it do? Say you had all the information on how Amazon works. What good will it do? There already is an Amazon on the market. You’ll be a challenger at best.

So there is really no way of making sure your store will succeed. But there is something you could do: minimize the chances of failure.

There are patterns in online retail failure

There is a saying that goes something like: Tell me where I’ll die so I will never go there.

While successful online retail business models are really different from retailer to retailer, failures, I’ve noticed, have common traits. Companies ignoring basic product management, employees not engaged in client service, poor merchandise – they are all things easy to spot when retailers close shops.

Before going online and browsing around for the latest marketing gimmick, have a look at six of the most common things that lead to failure:

1. Lousy and/or not enough products

Commerce hasn’t changed much in the past … umm … thousand of years. The basic concept is simple: you buy a product from the manufacturer, bring it to the customer, get something in return. Of course – the customer needs / wants to be provided with the best merchandise he or she can afford.

Failing to put the product first is the one biggest mistake retailers make. It’s easy to believe that it’s all marketing and you can sell anything. You can’t. At least you can’t do it for a prolonged period of time. Eventually people will start asking for their money back. They will post bad reviews. Your store will fail.

So focus on the product. Find manufacturers that will deliver upon high standards.

Having great products is not enough, though – they have to be plenty. Customers need choices. Of course – you might think Apple does not need variety but the industry Apple is in does. There are plenty of PC’s, laptops and smartphones out there. All at the right price.

2. The wrong price

Pricing is one of the areas most sensitive to error because it can swing both ways. You can either charge too much or not enough.

You can be charging too much and there is nothing wrong with selling expensive products but make sure they’re worth it. Remember – online, anyone can track prices. Customers can feel cheated if your markup is too large.

You can also be charging too little – remember, prices are not weapons, unless you’re the market leader. Even then – prices should be used as a last resort. A cheap product remains a cheap product. Do the math – see if your supply chain and procurement can handle low prices. If not – differentiate with services, a curated selection of products and great customer service.

3. Not paying attention to customer care

Actual Zappos Call-Center
Actual Zappos Call-Center

As an online store there aren’t too many points of contact between you and your customer. Probably the most important is the customer care team. Operators answering the phone are one of online retail’s biggest assets. Or liabilities.

For every Zappos-like company that thrives on great customer care, there are thousands of online retailers ignoring it.

Having a customer satisfaction – oriented team can work wonders for online retailers.

4. Ignoring logistics

Quick – do you know what makes Walmart the largest retailer in the world (both online and offline)? Prices? Sure, but that’s just part of it.

The answer is logistics. Walmart was not always the company we know today. Between 1980 and 1990 the company started a quick expansion program to enable it to match its competitors. In 1981 they tied their stores through a satellite communications system that would enable real-time reporting, as soon as products were purchased. By 1988 90%  of all stores were using barcode readers to handle inventory tracking. It doesn’t seem like much now but back then there was no internet to connect the stores and barcode reading was only just taking off.

Now, Walmart is an astonishing logistics company. This is the key to keeping the company well supplied and one of the most important factors in keeping the prices down.

Amazon, too, is much more than meets the eye. Between the print on demand options, huge warehouses, robotic warehouse management and integrated supply and demand – Amazon means logistics. Retailers failing to improve their logistics will have problems staying afloat.

5. Outdated or limited technology

You wouldn’t be expecting technology to be an issue when it comes to online retailers. After all – online stores are … well … technology based – right? Indeed, but there is much more than a front end when it comes to online retail technology.

Here are a few things retailers need to invest in, if they are to expect to stand a chance:

  • CRM software – you need to know as much as possible about customers and make sure they are satisfied with your service
  • Inventory management – this is a combination between hardware, software and know-how. Online retailers need to know in real time what’s in stock, what is expected to go out-of-stock and where are the slow movers. For starters.
  • Supply chain management – dealing with suppliers is not always easy. Technology can help streamline the relationship between suppliers, retailers and end-consumers. Automated order placement and processing, barcodes, RFID readers and tags to help track packages, inventory inflow and outflow management – these things sound boring and complicated. They are, however, necessary for any online retailer.

6. Bad management

No technology will save a company lead by bad management. And as you might expect this is a combination of factors. There is no single individual usually guilty of sabotaging the company.

One can notice in failing online retailers some patterns – a combination between managers focusing too much on marketing or PR, a rigid organizational structure and the lack of senior expertise.

There is little data on the impact of rigid and poorly prepared management when it comes to online retail. This is due to the fact that online retail is still in it infancy and performance indicators can be  misguiding. It is, nevertheless, one of the most important factors in failing online retail companies.

6 things that can lead to failure for online retailers

So there you have it – the 6 big things that you need to focus on. Notice there are no tips on marketing, website design, search engine positioning and such. These are not critical problems. Marketing, design, accessibility – they can all be easily spotted and fixed.

Unfortunately – it is harder to understand and improve the product range, prices, logistics, customer care and of course – management. But this is where you need to look for a chance at building a successful retail company.