22.10.2015 : Richard Mahoney

Towards a sharing economy in supply chains

Sharing economies are revolutionising industries worldwide – most prominently ridesharing companies such as Uber and Lyft overturning the traditional taxi model. What could this mean for industrial and logistics firms?

Sharing economies are revolutionising industries worldwide – most prominently ridesharing companies such as Uber and Lyft overturning the traditional taxi model. What could this mean for industrial and logistics firms?

What is a sharing economy?

A sharing economy is all about sharing of information to enable the redistribution of excess capacity in a network. This allows high utilisation and drives down unit costs. Mature industries must do this In order to maintain market share.

Uber and Lyft are good examples of a sharing economy, where the exchange of information between customers and drivers means they can offer a price and service advantage over traditional taxi companies, all the while paying drivers less per fare. This is offset for the drivers by getting more fares per day, totalling more actual revenue.

More fares are possible because:

  • Users of the service can easily book drivers in real time through an online marketplace
  • Payment is easy – automatically deducted from your credit card when you arrive
  • Drivers and passengers are both confident of the transaction. Both sides rate one another, so that drivers only get the fares they are interested in taking and passengers know more about the driver and the service they provide. People that run off without paying won’t get picked up, and a driver that gets lost won’t get many fares.

Overall, this reduces overhead and idle time such as the need to wait at and maintain taxi ranks. It’s all about confidence in the service for all parties, made possible through sharing of information between customer, driver and the company.

Recently, we’ve also seen Uber enter the parcel delivery business. Uber leverages unused capacity in their taxi fleet to compete with incumbents such as DHL and FedEx, who have previously charged a premium for urgent parcel deliveries. The economies of scale possible by aggregating person journeys with parcel freight are key here.

The freight industry could adopt this model

Freight, especially for less than truckload freight, runs with a lot of spare capacity. Could a ‘freight-sharing’ marketplace redistribute that spare capacity? An interim step might be something similar to the way airlines do code-sharing. The key is real-time or near-real-time data, and a lot of it. It won’t be easy, but someone will figure it out.

I actually think it could be Uber that figures it out. I’ve read a few things lately that suggest Uber may plan to be the next Google, but for sharing economies instead of search. Taxis may just be the platform to prove the technology. I don’t know if distribution might be next, but I doubt they’ll stop at taxis.

Industrial and logistics companies are mainly operating in mature markets, where low margins and high capitalisation make it essential to drive down unit costs to remain competitive over time. You simply must get good utilisation out of capital assets to achieve this.

Uber figured out a way to do it, and its traditional taxi company competitors didn’t see it coming. While I empathise with the French taxi drivers burning cars in the streets, there is no putting the genie back in the bottle. Regulatory opposition and protectionism won’t trump consumers. The taxi companies world-wide have been spectacularly outmanoeuvred.

Uber did not reinvent driving people places in a car. The only thing that is significantly different in the model is the flow of information: what is available, when it’s available, and who it is available to.

How could the sharing economy apply to industrial or logistics companies of the future?

It’s well understood that reducing the total inventory in a supply chain benefits all parties, providing service levels are maintained. How then could a sharing approach drive lean inventory?

Imagine what could be done differently if a manufacturer had access to real time sales data at the point of consumption, for all of its product, and items to which its products are ingredients or precursors. This would permit a very different approach to demand forecasting and production scheduling, keeping manufacturing utilisation up, while reducing inventory.

What if a supply chain could collaboratively plan its inventory from end to end, and view it in real time. Some supply chains do have a level of visibility up and downstream, but how many would have real time end to end planning? Again, inventory will be more efficient, and service levels might even be better.

Imagine if manufacturers and distributors brought customers right into the value network? If you had access to customer data that predicted intent to buy, and this data was available right up the supply chain, how would that change behaviour? I would predict that you would start to see more hot-shipping and forward deployment, ahead of actual demand. It’s happening already for established products but new product sell-in would be fascinating from a manufacturing scheduling and logistics perspective.

Open data in the supply chain would have far reaching consequences.  It will not just affect how companies operate - it could fundamentally change the kind of factories and distribution centres we build. I think that’s pretty exciting.

Of course there are always technical and commercial barriers to these kinds of ideas. But the technical barriers are falling, and the commercial benefits are likely to swing as the market evolves.

As I watch the sharing economy revolutionise industries worldwide I am always interested in hearing from the people implementing these technologies, or thinking about it.

About the Author

Richard Mahoney

Manager - Hamilton Industrial & Power

Richard is a professional consultant, specialising in logistics strategy, operations, analysis and design. He’s a chartered professional engineer and provides technical and market leadership for our distribution services. He leads projects ranging from network optimisation studies to intralogistics and facility design. His particular interests lie in bridging between manufacturing and logistics operations, with a focus on design, technology and analytics.

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angelica · 26/10/2015 11:35:40 a.m.
This is a very interesting article about the sharing economy logistics, how can I learn about more this topic? Thank you