My approach to logistics
Back in 2018 after completing couple of years in the field of logistics as a business development manager and product designer. I came to the realisation about the scope of opportunity that remain untapped in this space. This was also a key motivator as to why I was itching to start something on my own. But prior to that I wanted to see if logistics as an approach could really solve a problem that hasn’t yet been solved in other ways.
Produce (Fruits and Vegetables) logistics from their production region to consumption seemed an opportunity worth exploring. I have written about that journey already in the past few posts.
I developed a pitch deck of my realisation of the logistics landscape and why logistical lens is an under developed approach to building the next aggregator or platform marketplace. This was my grand thesis , basic version of reasoning my entry into this field as an entrepreneur.
Logistics is ____
Logistics is local in this global supply chain
Supply chains are global in nature. Globalisation led this revolution and changed the way things are manufactured and moved across the world. In a previous post describing the container’s epic story, we had written extensively about it.
Why Local ?
- First, bounded by boundaries of nations.
- Regulations for designated regions and specific commodities.
- Global flow of products are bound to tariffs which change infrequently yet suddenly
- Infrastructure intensive expansion for increasing the capability of logistics.
Tipping Point
With the advent of technology seeping into every stream of our life and world changing with the newer technology. It was only reasonable to look towards the tipping point before the way logistics takes place changes completely. I came across this framing by Ben Thompson of Stratechery back in the day.
The tipping point I witnessed is the lack of interoperability in logistics across supply chains. I didn’t have the words back then but what I was thinking is of the significant impact logistics will make in realising the advent of online commerce.
With most commerce moving the discovery and transaction parts to online, the way cargo moves and get’s delivered will be a key lever to gain an edge in the physical world. I will write more on this in a subseqeunt post.
Ethos of our approach
To reap the benefits of digital technological advancements in logistics, we need to accept the limitations in the field of logistics.
Logistics is physical mobility of goods or cargo and that involves constraints unlike digital technology.
Rather than just thinking about product design we should think in terms of service design. There is value creation in every touchpoint that the customer comes across in the logistics chain.
For example, the process of moving a cargo through a courier service for a customer is service design problem over a product design. You may have tracking website but the entire experience from pickup to drop off of the parcel matters more than just the tracking website.
Logistics cannot run with negative unit economics. Subsidising rates through VC money is not lucrative enough, in terms of volume , addressable market and competitors.
Logistics is Cost-Revenue business. For setting up logistics businesses, the costs are upfront and long term. So, the revenues have to be sufficient (-ve in the case mentioned) to recoup the costs and some more.
To illustrate this equation. Let us take an example of logistics in global supply chain. The revenue multiple in a digitised world cannot be astronomical as we are only optimising in logistics, not disrupting it. We are changing how the decision to move cargo takes place not how it moves. In order to move things, infrastructure, interoperability and integration with existing players is critical.
Smile Curve
This curve outlines the value creation of a supply chain against logistics. The actual companies and service providers executing the logistics are in a commoditised business. The value creation across the supply chain is minimal compared to manufacturing and sales.
Some points to note:
- There isn’t enough differentiation in the middle.
- Logistics is a trigger oriented industry, for it to occur commerce should be flourishing.
- Logistics can also be hindrance in completing trade.
Avenues for Digital Technology
- Reduce search costs between two different set of transactors. ( Ex: Buyers and sellers, logistics operators and service providers)
- Enhance the outreach and help target end customer for a seller/supplier.
- Make payments for services quicker and faster.
- Makes inter and intra communications much more easier and streamlined.
- Enhances infrastructure facilities to be transparent all along the process. Moves from a scarce economy into an abundant by leveraging digital.
Our probable approach
- Current trend of e-commerce is to increase their vertical integration.
- For logistics this needs to be flipped on its head.
The suite of product and service offerings we are planning to develop are low on tech, yet highly cross networked. The world of supply chains were built on an archaic protocol EDI (electronic digital Interchange) to transmit information between entities moving the cargo from location to other.
We provide all the logistics services through a single entity but the tech used to make this possible will be highly interoperable with existing systems and horizontal in structure.
For example, vertical company means Apple, integrates the software and services to sell its hardware. Horizontal company like Amazon develop multiple products and services across verticals to offer customers.
Strategy for Online Adoption of Logistics
The objective is to bring the world of logistics into the digital age. Like all strategy it is fundamentally the answer to “How”. I was using the examples of produce logistics to outline the strategy we will deploy to develop.
- Vertical Integration across delivery with a single medium touch point for the end buyer is how we start Mandi Project, as a B2B Online Seller
- Upgrading into a marketplace model where the sellers can transact and orders will be executed by us, like a managed marketplace.
- Evolving into an Aggregator platform with reduced (neglible) marginal costs with broad range of product offerings and multiple service providers to execute orders.
Solving complexity : Optimising
Take the case of solving complexity that can be addressed using digital technology. The functionality of optimising logistics is valuable when it comes to competing in digital world.
Few models to explore:
Linking few examples and extrapolation that we could build back in the day. The digital inception of technology was in infancy back them. From the given examples below, remix has been acquired. Flexport is now valued at multibiliion dollar. Ali express is reaching the mature stages and is now turning into a sort of feature that all commerce companies will possess.
Epilogue
I keep revisiting this pitch deck time to time. It really shows my naivity in looking to solve the problems of this space. Legacy industries are hard to change not just because they are averse to change or sinister in nature. It’s their incentives, predictable cashflows and lack of new people entering the space.
Things have changed for the better when it comes to people working in this space. We now have a bustling community of people coming into the domain from all walks of life. The common theme among all of them is that no one set out to be part of the logistics industry. Yet, they couldn’t leave once they experienced it. I also fall in the same bucket having spent now 7 years dabling across multiple functionalities to solve the complex problem of optimising logistics.
Covid-19 has helped the cause of making supply chains and logistics get its much needed recognition. Log-Tech became a segment worth considering for investment and opportunities. Yet, the challenge of moving cargo remains ever more constrained by the nature of business models and predictable cashflows.
The more I dabble in this space. The more I realise that the premise of businesses being built in the digital world will determine how the logistics takes shape. In my own experience of having to start Subjimandi.app was an illustration of changing the way logistics decision are done.
Signing off till next time,
Vivek, working on solving optimisation in logistics.