The Uber Concept - Supply Chain Management in the 21st Century

Last weekend, I went to San Francisco for a small conference organized by my German scholarship organization. As many of us (including myself) had traveled across the whole continent for this purpose, we were given some time to explore the city and its surrounding areas. My group had decided to hike on Land's End trail, but in order to do so, we first had to get to "Lands End Lookout", the starting point of our tour.

The only possible way of transportation was by car - neither subway nor bus would have brought us there. As taking a cab was considered too expensive, some local students suggested to use Uber instead. This was the first time I did not only read about this new business model, but actually saw it operate in real life.

For those of you who are not familiar with Uber, I will briefly describe the idea behind this company.

Source

• Key concept: connect P2P (people to people) for a ride via a smartphone app, i.e. a driver and a passenger
• Unique features: 
• First P2P search engine in the world
• Drivers use their own cars
• Automatic payment via app (and no tip necessary)
• Procedure:
• A person wants to get from A to B and opens the Uber smartphone app
• Optional: rough calculation (range) of trip costs with "Fare Quote" (integrated in the app)
• She chooses the appropriate car service (a capital "U" indicates a relatively more expensive service)
• uberX = low cost Uber (e.g. Toyota Camry)
• UberBLACK = original (expensive) Uber (e.g. limo)
• uberXL = low cost Uber for groups (e.g. Toyota Highlander)
• UberSUV = premium Uber for groups (e.g. Cadillac Escalade)
• uberT = normal taxi (mainly in NYC) - grab a cab via the Uber app, but pay the taxi driver without the Uber app
• Then, she sets her pickup location (thanks to GPS and GoogleMaps, this is very easy).
• According to the type of service she has chosen, the closest (unoccupied) car will be matched and confirmed; the respective number plate and the driver's name pop up on her smartphone screen along with the estimated time of arrival and the most efficient (and therefore most likely) route.
• The car arrives. She gets in and tells the driver where to go.
• As soon as the car reaches the desired destination, the passenger's credit card will be automatically charged and the receipt sent to her via e-mail.

As the topic of this week's class is supply chain management in the 21st century, my intention was to write about something new and innovative, something that probably most of us do not even think of in this context. When I reflected on my Uber experience, I realized out of a sudden that the Uber concept actually could be interpreted as a new kind of supply chain. Let us go back to the definition of supply chain management we were provided with in class:

Supply chain management is the profitable 

organization of the flow and storage of 

materials, in-process inventory, finished goods, 

financial resources, and related information 

from point of origin to point of consumption and 

disposal to satisfy customer requirements. 

Obviously, we do not have a tangible product but a service, which is the car ride (and maybe a nice chat with the driver, a cool bottle of water and some sweet snacks). Inventory management is not even necessary anymore - as the service is available at any time and in any place (of course only in the cities where Uber operates) thanks to the real-time matching performed by the smartphone app. The same is true for forecasting (the emphasis here is on the "real-time" aspect). 

Information about the estimated price of the product can be accessed by the potential passenger using "Fare Quote", and the information on the actual price of the ride is delivered via e-mail after its completion. And, what is more, the implied financial transaction (payment) is fully automated. 

Here, we have a great example for a supply chain network - extremely complex in its entirety, but astonishingly simple due to its direct connections between two points - the driver and the passenger. 

This leads to another interesting feature - the company itself. So far, I have been talking about the drivers and passengers only. The question is - how does Uber come into play, apart from the fact that it provides the technology required for the operation of these numerous individual services? Well, there is a commission drivers have to pay to the company. Usually, it is 20% (for San Francisco it was just raised to 25%). This means that you might not even make money as a driver. The reason why still so many people drive for Uber is the following: When they offer their services during peak times, the price for a ride is a little higher and therefore, at least a small incentive exists. 

It is now time to summarize what we have discovered so far: the P2P business concept (and presumably not only in the realm of services) offers a new understanding and way of supply chains and SCM. By integrating individuals into the business strategy (if the company is big enough), a market is being created that basically regulates itself (and generates money). 

The concept reminds me of Adam Smith's theory of the invisible hand - only that in this case the hand is not invisible but visibly collects the profits (parts of the aforementioned generated money).

As always, there are several questions that still need to be answered.

• A company's most important goal is usually to grow. Uber, however, does not seem to follow this simple rule. While its competitor "Lyft" (only operating in the U.S.) incentivizes its drivers to work rather more than less by reducing commission the longer they offer their services, Uber sends the opposite signal to its drivers: as the commission is 20% no matter how long they work, it is inefficient for them to drive outside of peak times. Why does Uber NOT change the incentive system as the whole strategy relies on a sufficient amount of people who are willing to sign up as drivers? As soon as the Uber hype comes to an end, the company will face serious "inventory" and "delivery" problems. 
• Apart from the commission the drivers have to pay to Uber - how does the interaction work? My research tells me that the company uses mainly automatically generated to answer questions or to deal with concerns/problems of its "direct customers" (the drivers). Apparently, this is not a good idea, as many issues cannot be solved in an automated way. Here, the mainly technological approach results in the dissatisfaction of Uber drivers. In SCM terms the question would be: why does information not flow smoothly in this context between the "producer" and the customer? Are there limits to the use of technology in SCM? Does customer service - or should it - always imply human interaction?
• And finally - who actually is, in such a complex supply chain network, the customer? At first, I thought the passengers are. But after having written this blog entry, I am convinced that I better revise this initial evaluation of the system. The drivers are customers as well - customers of the company with the (in)visible hand... The less an institution or company is visible, the less accessible and approachable it is. This feels a bit like the set up for a psychological experiment where people you never see let you figure out how to deal with a new system in your habitat without intervention. Only that they claim money from you if you decide to become part of it...

To end on a more positive note, let me show you a picture I took during our Land's End tour. I am so glad we made it there - thank you, Uber! :-)

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Sources:

• http://consumerist.com/2014/09/18/how-do-uber-and-lyft-work-and-why-should-i-even-care/
• https://www.uber.com/en-US/features
• http://www.pbs.org/newshour/making-sense/what-its-really-like-to-be-an-uber-driver/

Big Data and 21st century Supply Chains

Data is everywhere and manufacturing companies today are collecting increasingly massive amounts of data with the help of digital technologies. New strategies, improved skills and more powerful tools are needed to make sense of that data and crunch the numbers, and find useful insights that are buried in the data. This situation is elevating the importance of Big Data analytics as a critical business capability.

To share few statistics about the amount of data:

• More than 90% of data in the world today has been created in the last two years, with 80% of it being unstructured, such as images, audio, video, social media, web pages and emails.
• 1.8 trillion gigabytes of new data were created in 2011.
• Data is expanding at a rate that doubles every two years.
• By 2020, the digital universe will be 40 trillion gigabytes.
• Most U.S. companies have at least 100 terabytes stored.

All companies understand the importance of big data and acknowledge that data analytics of the huge digitized data can help their supply chain process, but the challenge is how to implement it. However, the increased understanding of big data analytics is leading to action, and is becoming a reality.  The trend to implement analytics is on its way and companies have serious plans to incorporate role of analytics in their supply chains.

Optimized supply chain–i.e. delivering the right amount of product to meet market demand while minimizing production, inventory and transportation costs–is a smoothly functioning, comprehensive proposition sought after by all companies. Advances in data analytics, combined with proliferation of data acquisition mechanisms and huge volume of data points, is generating a plethora of possibilities for improving efficiencies in this integrated view of the supply chain. Earlier, most of the companies sought methods to centralize data to help run their businesses via ERP systems. Now, the concentration is shifting to analytics in to effective decisions with respect to predict customer demand, supplier availability, inventory management, delivery route, etc.

Big Data extends the ability to respond, to predict and, in some cases, even recommend subsequent action, based on insights retrieved from these sources. This takes companies a step ahead in increasing efficiencies in the supply chain. Consequently, the focus is evolving from “supply to replenish” through “supply to forecast” to “supply to prediction based on dynamic pattern analysis.”

Big Data analytic capabilities even have the capacity to reduce supply-side disruptions. For instance, process industries have plant control systems that capture thousands of data points a second. With Big Data techniques, it is possible to proactively adjust parameters in order to improve yield and reduce waste. By identifying potential bottlenecks ahead of time, planners now can account for alternative scenarios and maximize payoff. Moreover, this capability can be used to predict, prevent, or even adapt to equipment failures in transportation, logistics, and warehousing.

 References: 

http://www.ftpress.com/articles/article.aspx?p=1998950

http://www.mbtmag.com/articles/2014/08/supply-chains-big-data-and-advanced-analytics

Questions:

1. Will Big data analytics help in meeting demand with accurate supply?

2. Can the predictive analysis on historical data be worth to estimate supply chain key parameters such as customer demand and bottlenecks?

Goya - Going mobile and role of internet and mobile technologies in supply chain

 The role of internet in managing global supply chain management is emerging and growing exponentially.  It allows for collaboration and greater flexibility and focused service offering.

 These the functions of the internet in supply chain in three broad categories.

Procurement:

Internet not only tends to reduce cost by providing quick access to information, it allows for members to cooperate to ensure the availability of this information seamlessly. When all the information is available in secure folders that are accessible to people with correct login rights, it becomes easier to identify the best source to make a purchase. The actual costs associated remain the same, however cost to reach out for various tenders and industry standards reduces significantly.

Supply:

 It increases the size of the accessible market. Suppliers can use the internet to market goods and services. Internet increases the transparency in pricing and allows for the supplier to find the customers easily. Reduced transaction costs of the consumer, helps supplier tap the potential for volume sales etc.

Direct Transactions:

 The web and internet has removed the need for middle –man or intermediaries in transactions. Suppliers can contact the consumers directly and consumers can contact producers directly go get the prices and quotes from producers directly. This results in reduced cost and time, the final outcome is increased efficiency.

Mobile and Handheld technologies are vastly being used in supply chains to give real-time updates. The wireless technology enables sales personnel to track products in a timely fashion and be better prepared for anticipated delays. Some direct advantages[1] are

1. Improve the information flow in supply chain
2. Push notifications in real-time
3. Ability to work offline – Asynchronous Synchronization
4. Track the products
5. Higher user interactivity
6. Data capture and analytics

Goya Foods is a supply chain based in Secaucus New Jersey and used mobile tools to achieve greater efficiency through increased visibility and connectivity. The company is also leveraging mobile technologies within its facilities. One of their executives says that "We're employing mobile data collection devices to gain inventory visibility.” They use mobile handhelds on local network to assist with putaway, picking, and order verification."

Using Avalanche, a mobile device management system from South Jordan, Utah-based technology provider Wavelink, Goya manages 250 wireless devices at 14 warehouse locations. The solution allows Goya to deploy new applications on a regular schedule or on the fly, without requiring an IT worker to travel to the various sites.[2]

Pickers carry handheld devices and wear headsets, enabling both bar-code scanning and voice-directed picking. In order to be use same handhelds across morning and night shifts, they refrain from using voice based recognition.

Goya used Wavelink's Speakeasy mobile emulation-based voice application provides this capability.[3]

1. Picking up any device and select either English or Spanish, then using a calibration wizard feature to help the device understand them
2. Pulling items from inventory
3. Scanning the task ticket, then a voice directs them where to go and confirms each step and item quantity

Going mobile worked for Goya. All the manufacturing firms are shifting towards mobile , internet and cloud technologies. What is important is the organizations understand and identify the process that needs change and improvisation. This can result in highly efficient process and customer satisfaction. 

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[1] http://www.genco.com/Logistics-Articles/article.php?aid=800674665

[2] http://www.inboundlogistics.com/cms/article/mobile-communication-connecting-supply-chains-on-the-go/

[3] http://www.inboundlogistics.com/cms/article/mobile-communication-connecting-supply-chains-on-the-go/

Image Source : http://vertassets.blob.core.windows.net/image/cadc3d6b/cadc3d6b-e386-4acb-8955-4ef092c8514f/2013specialreportfigure8.jpg

Ever wondered why companies have increased spend on IT from 2.6% in 1970 to 80% in 1999?

There are several reasons why IT has been helping the supply chain for several companies:

·         Focused e-business solution improves customer satisfaction

·         Improved efficiency allows company personnel to focus more on essential business activities

·         e-Business solutions improve information quality

·         They support planning collaboration, and improved agility of the supply network ^[2]

IT with customers ^[3]

IT appears to be an important factor to customers. IT has enabled collaborative relationships. IT has affected companies in the following way:

• Enhances inventory management
• Increases processing capabilities of suppliers
• Decreases transaction costs
• Optimizes shipping and reduces order delays and inventory emergencies
• Decreases the delivery lead time and inventory

IT on Operation

IT introduces a human element in buyer-supplier interaction, building trust by

·         minimizing delays

·         improving the communication between vendors

·         optimizing transport

References

sloanreview.mit.edu/article/the-trouble-with-enterprise-software/

http://lrg.tkk.fi/logistics/publications/IT_in_SCM.pdf

http://www.idosi.org/wasj/wasj4(1)/13.pdf

How UPS adopts New Cloud-Based Technology Platform to Improve International Supply Chain Management

Introduction

UPS has adopted cloud-based technology platform to improve the quality of international supply chain management. The UPS Order Watch, a cloud-based technology platform has allows UPS customers to more efficiently collaborate with international suppliers and better manage their supply chain and inventory.

Functionality

The Order Watch platform includes various services that adding value to supplain:

1. Adding capabilities to enable greater accuracy and timeliness of overseas vendor bookings.
2. Improving processing and management of suppliers.
3. Automated exception management.
4. Near real-time shipment status and detailed line-level visibility of in-transit inventory
5. Improving internal operational process.
6. Facilitation of purchase order consolidation.
7. Optimizing shipping plans.

Benefits

The improved UPS order watch vendor booking system will dispatch system-generated exception alerts to ensure vendor meeting customer’s requirements and providing an online system for approvals. It also eases the PO-specific communication between vendor and customers. The improvements to the supplier management service will eliminate time-consuming email communications and enhance monitoring of vendor bookings against purchase order details. 

Once the order is placed, PO-level shipment planning capabilities enable visibility and control from order creation all the way through shipment delivery, providing customers with a virtual on-hand inventory view of incoming orders.

Conclusion

“This can provide opportunities to consolidate ocean freight shipments and improve container usage to realize cost savings, which is increasingly important as COOs are looking for ways to mitigate ocean transportation costs following the ocean carrier rate increases in 2014” said Tom Boike, The vice president of supplier management at UPS. Now UPS Order Watch has enables 50,000 companies to streamline management of vendors and manage all of their inbound shipments in a single ease-to-use platform.

Reference:

1. UPS supply management : http://www.ups.com/content/us/en/bussol/browse/supplier_mgmt.html

2. UPS order watch blog : http://blog.ups.com/tag/ups-order-watch/

Mix & Mingle Online - Social Media Use in Supply Chain Management

Have you ever thought about social media in the context of supply chain management (SCM)? To be honest - I had not. But when we talked about the impact of technology and the web on SCM in class, I started to wonder about the role of Twitter, Facebook, LinkedIn & Co. in modern supply chains. And indeed - social media has become an integral part of SCM across all industries.

A paper by Daniel E. O’Leary on the use of social media in the supply chain explains what the big advantage of social media is from an economist's perspective: the gathering of information in order to reduce asymmetric information (let us remember from economics that asymmetric information is a type of market failure that we love to avoid whenever this is possible!). 

And why is that? Well, in a supply chain, various pieces of information are bound to particular processes and cannot be accessed all at once by any individual. If information is now being drawn from a common basis, i.e. a common information platform, it can be spread more evenly across the different sections of a supply chain. This platform (I named it that way to make the idea more tangible) is then not only fed by experts (which is usually the case) but also by customers (who now become directly involved in the supply chain process).

O'Leary further elaborates on the effects of social media on SCM (I present only four out of five as one of his arguments does not seem to be very compelling):

1. The integration of information into supply chain transaction processing systems (e.g. RFID)
• Social media provides a new platform (he calls it "context") via which information about supply chain events can be communicated and shared
2. The change from unidirectional to multidirectional communication
• Experts and customers are directly involved in the supply chain process and turn communication between those in the supply chain (company) and themselves into a dialogue
3.  Insights into [potential] customer's thoughts that could otherwise not be gained
• [Reputation of company]
• we remember from statistics - the larger the sample size, the more reliable our findings, i.e. the risk of  asymmetries of information due to a biased source of evaluation can be reduced
4. The increase in velocity when it comes to the generation and processing of information
• In particular when knowledge comes in through social media that is directly linked to knowledge management systems (the system is being fed more quickly)

To illustrate some of the results of the aspects mentioned, it might be worth looking at this chart, as it clearly and in a very concise way shows the positive affects on the supply chain:

In addition to the advantages of social media in SCM already described, there are even more benefits. Ed Rusch, who is vice president of corporate marketing at Elemica, emphasizes in his article "Using Social Media In The Supply Chain" the potential for innovation and improvement of existing processes implied in the use of social media in SCM. 

But - can all these findings be quantified? The answer is yes! Apparently, the logistics and supply chain industries can generate profits from the use of social media.

In the area of market intelligence, customer engagement, business intelligence, and leads, companies reported a significant impact of social media use (based on a survey: click here):

Source: DC Velocity

Also very interesting is that these companies found LinkedIn and Twitter very beneficial (55 - 60%), while only 15% made the same statement about Facebook.

Although I tried to base this blog article this time less on personal experience but more on academic papers and professional articles, there are still some questions for which the answer does not seem to be obvious:

1. Apart from the increased velocity of generating and processing information due to its easy accessibility - is social media really the unique tool described in O'Leary's paper? When a company uses Facebook or Twitter, it still needs followers in order to be able to spread its message. So where is the big difference to, let us say, frequent updates on the company's website or e-newsletters? 
2. A company, as already mentioned in question 1, needs followers. And the followers should and will be in particular customers and potential customers. But - I need a very good reputation already BEFORE I can use social media tools efficiently due to the fact that only if the company and its products were popular, people would like to or at least consider to follow it.
3. Also, especially when the company IS popular, there might be some people who just try to use the company's profile for their own purposes. The more people (and this holds true for a virtual room, too!) are gathered in one place, the higher the risk of uncontrollable events.
4. And finally, although the impact-study mentioned in the last paragraph of my blog gives some basic information on the benefit of social media use in SCM, it does not provide us with "real" facts and figures. It would be very interesting to know what an impact of 80% means in financial terms.

Have a great day and please contact me if you know the answers to any of these questions! :-)

Best,

Kyra

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Sources:

• http://www.mbtmag.com/articles/2014/08/using-social-media-supply-chain
• http://csuitepen.files.wordpress.com/2013/03/social-2.png
• file:///C:/Users/reisefreak/Downloads/SSRN-id1963980.pdf
• http://blogs.dcvelocity.com/productivity/2014/10/the-logistics-and-supply-chain-industries-are-realizing-benefits-from-social-media.html

Kiva Systems - Adding Robotic Technology to Warehouse Operations

Kiva Systems - Adding Robotic Technology to Warehouse Operations

 Ian McIntyre, 11/24/2014

In the past warehouse operations have typically hinged on two roles, pickers and packers.  Pickers would travel throughout the warehouse, selecting goods that had been ordered by a customer.  Those goods would be given to a packer, who would then prepare the order for shipping.  These two components would work together, with the picker insuring the packer had a steady stream of the right goods to be packed for shipment.  Kiva Systems, based in Massachusetts, has developed a robotic-based system that entirely transfers the role of the pickers to robots leaving the packers as the sole human element.

The Kiva system is simultaneously incredibly simple and dauntingly complex. Hundreds of orange robots the size of suitcases are built to transport carefully designed modular shelving units.  These shelving units are organized into groups 2 wide and 5 deep, creating what is effectively a street system of "blocks" with open "streets" running in between them.  The robots can drive under a shelving unit, lift it up over them (so the footprint remains the same), then carry the shelving unit over to where the packers are packing.  A number of algorithms coordinate the movement of robots so there are no crashes, and designates what goods are on what shelving units so the robots can bring the right shelving units to the packers.  At that point the packer just grabs what they need off the shelf right in front of them, after which the robot brings the shelving unit back to the "human exclusion zone" where are the shelves are organized.

 

 

The robots cover an average of 12 miles a day and only need to spend 5 minutes out of every hour charging.  Amazon was so impressed by this technology and the possible impact it could have that they bought out Kiva Systems in March 2012 for over 700 million dollars.  Since then most of Kiva's work has been exclusively with Amazon, as they work to refine their systems in a proprietary manner. 

While Amazon has found a use for it in their fulfillment networks, the question is what is the next step for this sort of technology?  While this system may work in a massive warehouse with hundreds of thousands of SKUs, does it scale down to smaller operation?  A break-even point definitely exists where it becomes less costly to use employee pickers than robotic pickers, but the exact location of that point is difficult to locate.  Lacking sufficient background or data, I imagine its on the larger end of the spectrum, as the fixed up-front costs of retooling an entire warehouse and purchasing the robot units needed is definitely costly and not to be taken lightly. 

Another question to ask is if the picker-half of the picker-packer duo can be automated, is there a way to move in a direction where the entire warehouse is automated?  In some industries this is easier to do, especially when the product is uniform.  My father used work at a plant that made bricks, and while as a company they were technological dinosaurs, he took me to look at their process and it was easy to see how much of the work in their warehousing operations could be executed by robots since the dimensions of the objects being shipped were so similar.  For Amazon, where they need to pack everything from jackets to computers to chairs, it may simply be too difficult to develop robotic packers that can handle all those different sorts of objects.  One solution may be to develop specialized robots for different types of goods (one robot only packs clothes, another only packs small electronics, etc.) but programming them to handle every single possible SKU is likely beyond the realm of feasibility.  With specialized robots it also would be difficult to adapt to changing orders, as bottlenecks may form (new fashion line comes out so everyone orders clothes, but one clothing packing robot would be quickly overwhelmed) but in this case human packers who can adapt are able to handle every type of good that comes their way.

While the future of Kiva's robotic picking fleet remains to be seen, it will certainly be interesting.  A huge number of companies stand to possibly benefit by implementing the same or similar technology.  My question to you is what direction should Amazon take with Kiva technology?  Should they spin it out and make it available to the market as a business solution (similar to how their cloud services evolved?) or should they keep it proprietary to maximize their business advantage? Should they look to explore if humans in the packing process can be replaced like they in the picking process, or is that a futile effort and a waste of money?

Or should they look to form the worlds first robotic ballet company?  Who knows what direction Amazon will choose to go with Kiva.

Additional links, sources, and resources:
http://en.wikipedia.org/wiki/Kiva_Systems
http://www.wimp.com/kivarobots/
https://www.yahoo.com/tech/amazons-warehouse-robots-at-work-and-play-103129789109.html
http://guardianlv.com/2014/11/robots-serve-amazon/