Last week the FAA (Federal Aviation Administration) published their rules and regulations for the oversight of drone usage within the United States. Many will and have argued that these rules are too restrictive for companies such as Amazon or Google to truly take advantage of the technology. The basic parameters of the guidelines set by the FAA:
- Drones must be less than 55 lbs in weight
- Can only fly during the day in good weather
- Must not fly close to airports
- Cannot fly faster than 100mph
- And must be within visible site of the operator
On the surface these restrictions severely limit the dreams of the likes of Jeff Bezos. One of the great opportunities for drones within the supply chain and particularly with the delivery side – is the ability to enhance the last mile portion. The last mile is always a challenge since you have to break down the orders to the individual level. Drones seem to offer a affordable and flexible solution – but not necessarily if the FAA rules are in place. This does not mean there are not some use cases that supply chains can take advantage of immediately:
- Asset monitoring – this is already taking place in agriculture, oil & gas, mining to name a few. Drones provide the flexibility for activities such as survey work, monitoring of assets, determining crop growth etc. In countries such as Australia, mining companies are already leaning heavily on the pilot-less aircrafts to assist with the activity on the ground. By some estimates the usage can save close to 90% of the $2000 an hour cost for a helicopter.
- Remote delivery: Logistics firms such as DHL have been able to expand their reach via drones. The ability to connect remote German islands in the North Sea has enhanced the remote locations with a more regular delivery service. Of course these drones are clearly flying outside of site lines of the operator.
These use cases are not necessarily replicable under the FAA rules. However I have to believe that as the technology continues to evolve the FAA will loosen their grip on the regulations. So what could we expect from more open drone rules? If and when the drone rules become more open here are some opportunities that supply chains might enjoy:
- Smaller window of delivery for certain items. Think of Kozmo.com with drones rather than people on bicycles. Companies from Amazon to CVS to Giant Eagle to Five Guys will be able to deliver a whole host of items to your door at the drop of a hat. Well maybe not that fast. But why couldn’t books or other items from Amazon be delivered within the hour? Or CVS deliver your prescriptions. Giant Eagle your groceries and Five Guys your cheeseburger. Once drones become a more viable delivery extension of the supply chain, look for businesses to take advantage of the new reach this provides into the home.
- Untethering the consumer from a physical address. Drones, coupled with the explosion of mobile, will allow delivery systems to ignore the limitations of roads and physical addresses. Today deliveries rely on infrastructure such as roads, as well as fixed addresses in order to manage delivery of goods. What happens when you have a drone that has far fewer restrictions? Couple this with a mobile device that is provides the digital location of the recipient. Your mobile can send the drone the exact coordinates, GPS, and the drone can then fly its way to your location. We will not longer have to worry about having a package delivered to our home or office…we can just tell it what time to deliver it to us as it hones in on your GPS coordinates.
I realize these changes are a ways off. But these are examples of how the supply chain will be expanded beyond the traditional links – loading dock, retail store to name a few. These types of digital disruptions will begin to turn our homes into an extension of our supply chains.
Now I wonder where I should build my drone landing pad…
Over the past few weeks I have been meeting with a number of supply chain services companies who are talking about and focusing on developing solutions that will allow users to be laser focused with demand sensing and shaping. This was particular evident during my meetings at NRF in New York. We also have the likes of eCommerce giant Amazon who have patented technology that claims to be able to put on the truck the product you have yet to order because they know that you will order it! All very interesting and exciting for supply chains – these supply chains strive to eliminate or at least control the lumpiness associated with their demand patterns.
However this begets a question – is this necessarily good? For example. The situation I hear often is what takes place at Starbucks. A regular client walks into their local Starbucks, the barista notices them standing in line and knows their preferred order. The customer reaches the cash register and their usual venti, skinny, vanilla latte is already waiting for them. All they have to do is pay and pick up their piping hot coffee. Sounds lovely.
They know what you want before you order it!
And for the most part maybe that customer appreciates the convenience, and feeling of being so well known that you are the “mayor” of that Starbucks. But what if that customer does not want that skinny vanilla latte? What if the customer wants a hot chocolate one day? Do they dare deviate from their usual order or do they accept the usual order for the convenience?
The same holds true for grocers such as Stop and Shop or Walmart, who let you order online and pick up in store – and will predict what your basket will look like. So all you need to do is drive to the grocery store and pick up your order. There is no need to think too much. Of course the positive is that there are tremendous time savings for the customer if they do not want to contemplate a new mix of groceries. But what if the consumer wants to try a new cheese or kitchen cleaner? If their order is already compiled for them will they get the opportunity to see what else is available? Or do we not want to give them the opportunity? How do we make sure they have the opportunity to browse?
My point is not that supply chain users and vendors should not stop striving to get too smart and more effective when it comes to demand shaping and sensing. However there must be some balance when it comes to how precise and “effective” the supply chains need and want to be with regards to the customer. Yes, we want to eliminate lumpiness and extract those savings from the supply chain. But retailers and other players in the supply chains need to still keep a balance with being very precise with how they manipulate and predict demand with the opportunity for their customers to deviate from their usual demand. Retailers and other customer focused industries need to determine how precise they want to be with their demand shaping and how much freedom they want to give their customers to roam and wander through options.
Last week I got out of Boston just ahead of the massive blizzard that covered much of the area with over 3 feet of snow (I was not so fortunate this week, as I watch another foot of snow fall). My destination? A much warmer and sunnier San Jose, where I spent a busy 2 days with Oracle at their annual Oracle Value Chain Summit. The main theme for the visit, similar to what was discussed at Oracle’s Open World conference at the end of the 2014 was the importance of cloud within the portfolio of Oracle solutions. Oracle also showcased the wide breadth of solutions and case studies they have in the supply chain space – a testament to the mega vendors solution portfolio.
Here are my take aways from the two days I spent on the west coast.
- Oracle is doubling down on the cloud. The main stage sessions on Tuesday, January 27,placed a heavy emphasis on the efforts and growth of the Oracle cloud offerings. Both Oracle CEO Mark Hurd and Steve Miranda, EVP of Applications Development, spent extensive time discussing the success Oracle has seen with their cloud solutions and continuing to make the case for a greater number of solutions being moved to the cloud. Highlighting the success they have had with the cloud for their HCM (more than 950 new applications cloud customers), CX (more than 1100 new customers) and ERP solutions (more than 250 new customers), it is clear that Oracle is doubling down on the cloud for 2015. This next year should be interesting with regards to which solutions in the Oracle Value Chain portfolio get heavily invested into the cloud. Mr. Hurd has a vision of a few mega vendors providing a full suite of solutions that allow supply chain solutions to be fully stitched together. As we know, for the supply chain space that entails a complex and wide array of solutions. Oracle has already put many of these in the cloud, 2015 will be an interesting year to watch as this cloud push continues to pick up steam.
- Oracle is happy to sell you the point supply chain solution you need. One strategy that has serviced Oracle well is their willingness and ability to sell some point solutions, which allow them to gain a foothold within accounts. Rather than always trying to push a larger suite solution sale, the point solution strategy gives Oracle great flexibility when it comes to account targeting. Organizations such as Mason Companies and Ricoh are leveraging the Oracle WMS offering to manage their distribution networks, but see this investment as a first step to address greater supply chain needs. Areas such as greater system optimization or after sale management could conceivably grow from this WMS foray. Oracle’s long running strategy of acquiring strong point solutions such as G-Log, Retek and Demantra to name a few, allows the flexibility to sell these solutions into accounts as opposed to have a “one mega size” fits all offering. Oracle will be well served to continue this tact.
- However there remains room for best of breed providers. While Mr. Hurd argues for a handful, or fewer, of large vendors providing a one-stop shop, there will always remain room for best of breed vendors. Why? Because these mega vendors cannot service every solution and need of the user at the highest-level possible. That is no knock on these mega vendors. A recent article in the Economist pointed out that even in the world of mega vendors – such as Google in search – that smaller vendors still hold an important role. They are in existence to address specific areas that the larger vendors cannot properly address. For example, speaking with a manufacturer who looked to leverage Oracle’s global trade management (GTM) offering was disappointed in the level of maturity of the solution. They had to lean heavily on their solution integrator to fill in the gaps of the Oracle GTM offering. A candid story to say the least, but not surprising. These large vendors have such an extensive portfolio; across so many different industries that one cannot expect that each solution has received the same level of development and attention as one another. Customers need to keep this in mind when making vendor selections – sometimes a vendor that focuses on one specific supply chain problem offers the best solution.
As Mr. Hurd said from main stage “supply chain is hard,” there is no doubt about that! Oracle spent over two days giving us a host of case studies and presentations of how they are tackling these hard problems. The sessions I was able to attend provided a wide swath of stories about how companies from global automotive suppliers to General Electric Power & Water are leveraging Oracle to better manage their supply chains.
It will be interesting to watch how Mr. Hurd’s theory in the rise of the mega vendors plays out. Something to watch in 2015 and beyond.
The 94 year old retailer, Radio Shack, is on the verge of no longer being in existence. Sad, but another example of digital disruption in the retail supply chain. Radio Shack was one of the leading retailers when it came to cutting edge electronics. I remember as a kid going there to get a new tape recorder (yup I played my first Van Halen cassette, 1984, on a tape recorder from Radio Shack) or when cordless phones came out, Radio Shack was the go to place to acquire such technological marvels. There is a picture circulating around social media about all the technologies you could have at Radio Shack in the 1990s…that are all now contained in that device we carry in our pockets – the smart phone (see below). Talk about digital disruption.
As the rise of Amazon took place in the 1990s, electronics being sold more widely and consumers becoming more digitally savvy, Radio Shack found itself in a difficult situation. The store’s footprint was too small to carry the wide array of SKUs that a Best Buy or Circuit City could (not that is necessarily a long term advantage as the latter is out of business and the former struggling) and it could not compete with the online force that Amazon had become nor the discounting that the likes of Target and WalMart offered. Not a great place to be for Radio Shack.
Everything on this page is now in your smart phone…talk about digital disruption
So now the stories are that Sprint may take on or co-brand some locations. Makes sense for the telecom giant as they look to increase their reach with their brick and mortar stores. Unlike Radio Shack, Sprint only needs to carry a very focused and smaller inventory – just mobile phones and tablets. Wireless providers like Sprint and AT&T benefit from having some brick and mortar for sales but also lean on them for service and customer support. The more intriguing option is the one where Amazon would swoop in and purchase some locations. Interesting.
This comes on the heels of Amazon opening their first brick and mortar store, something I wrote about a while back, click here for post. Does this make sense for Amazon? Some are pointing out that Amazon could use these stores to showcase products. Not sure I agree with that. Amazon already has that…it is called Barnes and Nobles, Target, Best Buy, REI, Toys R Us, Dicks Sporting Goods, Home Depot etc…why would they add a cost layer to get something they already have? They could use the locations for pick up and returns. Hmmm, that I might see as a more viable option. Radio Shack stores have an average of 2,426 square feet, a little bigger but similar footprint to UPS stores. UPS stores range from 800 to 1800 square feet. The Amazon/Radio Shack stores could provide similar services: receiving and holding orders or processing returns. With this level of service, Amazon would not have to worry about carrying SKUs at these locations nor having a large staff to manage need to manage the retail aspect. Could they also act as smaller distribution centers (DCs)? Why not. As Amazon is also looking to expand their own transportation fleet – in such deliveries as grocery – these smaller outlets could also be staging areas for some inventory. They may even have their own drone delivery assets at each physical location. Don’t laugh too loud, this might be closer then we think!
One topic we are covering in 2015 is the transformation of the consumers’ home into an extension of the retailer. Amazon moving into Radio Shack locations would allow the online giant to move in this direction. It could give users of such services as Zappos who are used to getting multiple sizes and colors delivered to their home to try on and then return, an alternative channel from which they can return their items. This move might allow Amazon to get a little bit closer to their consumers.