Future of Supply Chains: Part 2 – Disruption and Technology
With the arrival of the web came ‘Disintermediation’; a watchword for the removal of middle-men – dealers, wholesalers, advisors, representatives, agents etc. - facilitating producers being able to sell directly to consumers. The theory was that manufacturers could receive a larger share of revenues while prices to consumers dropped. It didn’t work out that way. A new breed of stronger intermediaries was born, and manufacturers were forced to reduce costs as these new distributors controlled access to the markets! That said, some fought back…
Manufacturers take charge – The producer approach
Dell Computers pioneered a highly successful model where they sold directly to customers online. Elon Musk’s electric car producer, Tesla offers vehicles directly via their own website. Indeed, high tech product manufacturers are often united by their use of a hybrid model – online and traditional channels.
Bypassing wholesalers – The Retailer approach
Retailers used to work with wholesalers as they handled the complex task of paying the thousands of suppliers that big retailers depended on. US Retail giant, Walmart, dispensed with wholesalers by clever use of Internet and computer technologies to handle their own wholesaling functions. This reduced prices for consumers and facilitated their growth to turn over $488 billion in 2015 – a 2% increase on 2014!
Amazon dispensed with the traditional retail model completely. Not only do they sell almost anything, but it’s done entirely online (for now).
Apple are a little different as they pay factories they don’t own to produce their products. It’s a model that works well for them, especially as they include direct retail sales in their channel mix.
All of these approaches reduce the power of the actual producers.
Expect to see far greater use of RFID (Radio Frequency Identification) tags by the already highly profitable companies active in the distribution space. Their tracking will be integral in the use of new tools like drones, driverless trucks and automated warehouses.
I certainly expect automation technology such as ‘Pick/Pack’ robots' to be combined for total automation.
Business owners won’t even require inventory lists because they’ll know exactly what’s in a warehouse at any moment. Right now, the issues aren’t with the storage of items, but the picking. While robots can already distinguish items of varying shapes and even pick up what’s required, they’re still significantly slower to do so than their human counterparts.
Once the picking issue is solved, fully automated warehouses will become the norm.
“I’ll be with you in a moment – just waiting for the drone delivery”
You may remember the publicity around Amazon’s drone delivery video a few years ago?
Many of us thought it was the beginning of a new era. However – the real challenge isn’t in the delivery (though getting drones to deliver to your door when you live in an apartment block could be tricky). It’s in creating a reliable system that makes financial sense and doesn’t contravene ever-increasing regulations. See the UK Civil Aviation Authority rules on unmanned aircraft if in any doubt.
Once we’ve sorted the legal issues, it’s time to get the economics right. Right now, trucks are a far lower cost for heavy loads or goods needing delivery over 100km. It’s the ‘final mile’ for shorter distances and lighter deliveries where drones could come into their own. In part, that’s because of battery life. Current drones are estimated to be good for around 10kg and 14km range before requiring recharging. If charge points are only at the point of origin, that range is halved, as they’ll need to return to base.
It’s anticipated that customers would use landing pads, which would require placing on a flat area in order to receive deliveries. Drones would pick up from local depots, drop the goods and move on to their next destination. These depots could be centralised warehouses or even local supermarkets. Stranger yet, another idea is that delivery vans could release swarms of drones for concurrent deliveries, then move to another district to repeat the process. It would certainly increase the number of deliveries a truck could make in a day – and minimise the human interventions required and number of errors.
Trucks that drive themselves
We’ve seen recently that Uber are now experimenting with self-driving cars in the US. Getting that right will be extremely complex, as driving conditions will vary wildly and include often-complex end points for customers. Driverless trucks have a massive advantage as they can easily move along motorways and other major roads to staging areas specifically designed for them. Combine these with drones and automated warehouses, and we’re headed towards a completely automatic supply chain (at least, up to that tricky ‘final mile’). Components and fully formed products will move 365 days a year from suppliers to factories to end customers. In the scenario of customer houses being on the trunk routes, delivery drones could even make the ‘final mile’ of the delivery route while the automated trucks are heading to local depots.
These autonomous trucks would know what’s onboard by checking RFID tags, while customers would have precise knowledge of where their products are at any time of day. For added efficiency, these automated trucks could easily run at quieter times and holidays and operate through the night without taking breaks.
With the traceability of individual products through RFID tags, the final mile possibilities of delivery drones and bulk transportation of automated trucks will certainly make the supply networks of the future operate more predictably, efficiently and quickly.