I interviewed Ken Lyon who discussed Software Startups Seeking to Challenge Existing Logistics Software Vendors.
Looking forward today to hearing your views on an interesting topic about software startup companies and how they’re starting to challenge some of the existing logistics software vendors.
Yeah, Hi Dustin, it’s good to talk to you again as well. If we think for a bit about the way most companies have been deploying software across the industry for the past, I don’t know, fifteen, twenty years, something like that, some aspects of the industry have been very advanced in the way that they deploy technology and others less so.
But if I cast my mind back to say fifteen years or so ago, mainly it was the large corporations, the big multinationals, that were involved in the logistics industry, the big, global integrated UPS, DHL, Fed Ex, the major shipping lines and the airlines, and some of the big global freight forwarders that invested huge amounts of money in technology to enable their operations to work much better and bring efficiencies.
Then the more forward thinking companies at that time started to exploit the internet to enable their customers to engage with them much more easily from their own computer systems. This also served the purpose of cutting down the workload for the logistics companies, and you can’t really blame them for that. But essentially that required a lot of investment, and they gained the benefits in terms of internal efficiencies and to some extent, locking their customers in to working with them because they made it so easy.
Now as technology has developed and you look at how many, many companies in many industries have exploited the way the internet works and the ease with which the internet engenders communication generally, to some extent that helped those early adopters of this kind of technology. But in so doing, started to introduce certain aspects that they may not have been that happy with. So for example, if you’re a large company, a large logistics company, and you bought into the premise of the large enterprise vendors such as SAP, Oracle and so on, they did a fantastic job at colossal expense in automating a lot of the processes and procedures inside those companies.
But as business, and particularly supply chain operations, became more dynamic and more atomic, by that I mean processes that were lengthy and linear became broken down into smaller, more autonomous functions or processes, those very rigid but incredibly reliable enterprise apps were unable to adapt very well.
What you essentially had to do if you were in that position was invest even more money with your enterprise vendor to get them to help you try and change, or at least keep up with the changes in your business. And very few companies had the resources to do that, and to a large extent they struggled and you found a lot of departments just went into their own thing with some of the services that were becoming available on the internet.
So what I’m saying is that up until five, six years ago, the larger the company you were and the more resources you had, you had an advantage in terms of the information systems, infrastructure that you were able to put in place to enable you to be more effective and more efficient in the way that you engaged with your customers and your trading partners. But that has been changing, and so there I think is where the issue is starting to come about, I think anyway, from what I’ve observed.
Do you have any examples from other industries, how some smaller companies, software companies, are disrupting the industry?
Yeah, well it’s, if you look, for example, at some of these things I’m sure your listeners would have already come across, but if we just look at the local deliveries sector for a moment. A lot of people get excited about the last mile delivery and the ability to take advantage of that. Now it’s not that the guys that specialize in this, the postal services, the large express integrated carriers, DHL, Fed Ex, UPS and so on and so on and so on, they understand the challenges in trying to do this. It’s incredibly expensive, and the expense revolves around how you can make best use of your resources at the lowest cost to deliver to a random number of addresses, almost on a random basis. It’s very, very hard.
But some very smart people have developed technology algorithms and have exploited the availability of very powerful but very, very cheap information services available by the internet to look at a pool of, if you will, freelance subcontractors and coordinate and choreograph that random pool of subcontractors into being able to take those deliveries, almost on an ad hoc basis, and cover the last mile delivery. So if you look at companies like, for example, Shutl, which originated in the UK but was very quickly picked up by, I think it was eBay, who eventually acquired them, they received funding, amongst others, from UPS, for example, who understood the potential. What Shutl did was for the first time, exploited the free or spare capacity of local delivery companies that were sitting around waiting for jobs to come to them through conventional channels, and said look, you’ve got some free time.
If you’re interested, we can get you jobs. And then went to local retailers and said if you want to provide your customers with delivery within, say, a couple of hours of them buying on line, we can connect you to the pool of subcontractors we have and, although they’ll pay more money than they would for normal delivery, at least they’ll get it very, very quickly. So that was an example of a software startup that understood there was a gap in the market and applied technologies to try and do that.
If you look at other industries, the taxi industry, which has been disrupted by Uber, and everyone’s heard about Uber, irrespective of the merits of Uber challenging conventional taxi services in lots of cities around the world, the fact of the matter is that they are doing it, and because there is a demand from people that want cabs almost on demand, it provides a way to connect customers and a demand and everybody wins from that point of view. Now not everybody takes that charitable view of the situation, but all Uber is, essentially, is a computer, a suite of computer programs that matches supply and demand and a pool of freelance resources to do it.
To look at the manufacturing industry, where you’ve got the principle of 3D printing, which again is a technology that’s developing almost by the day, initially it started out with printing little oddities out of plastic material using heat in the printers, to now you find big industrial companies taking advantage of using metal, because they use a laser to heat metal powder, and from that formulate parts and manufacture products. It’s now possible for a small startup company to acquire a 3D printer or a suite of 3D printers at relatively low cost and set themselves up as a manufacturing facility that can manufacture pretty much anything, in comparison with, say, ten, twenty years ago where you had to tool for a specific industry and a specific product using specific materials, and there was a colossal capital cost involved.
That’s all been changed. Now before large, mass scale 3D printing takes hold, there needs to be several changes, particularly in terms of the law for intellectual property protection and so on and so on and so on. But the basic principle is a startup exploiting new technologies, a combination of software and technology to print or manufacture products, can disrupt the manufacturing industry in a whole range of ways. And so that’s an illustration this combination of general technology that’s available, smart entrepreneurs that can exploit software and low cost information systems infrastructure that can disrupt industries. And that, to me, is interesting, if not a little scary.
For these examples, how can they be applied to logistics and supply chain industry, and what results might come of this?
Well, that’s a really interesting question, because everybody kind of likes the rags to riches story or the notion of David going up against Goliath. But I think that it’s not so much missing the point, but looking for those kinds of stories may give the wrong impression. What do I mean by that? I was reading something the other day, it was a report done by an analyst from, I forget who it was, and they identified, I don’t know, forty or fifty software startups focused specifically on the logistics industry around the world that apparently were going to transform, or had the potential to transform the industry.
That may be true, but it was interesting going through the list that you saw most of those companies were focused on the challenge of last mile delivery. Now what that says to me is that did they collectively sit up one morning and say, oh my God, this is a big problem, we need to solve this problem? And they all rushed off to try and come up with a solution. Or were they already playing in the logistics arena, but as with most startups, they required capital, and the investors of that or the potential providers of that capital, i.e. investors, said OK guys, we think this is a big problem because we see lots of other companies getting funded trying to solve this problem. So you go after that and we’ll give you funding. It’s kind of for the herd mentality that you find a lot of investors, particularly venture investors, do.
But I think that there are more interesting challenges in the industry that technology can be used to resolve. So let’s think about some examples there. If you think about, there’s a lot of hype around this thing called the internet of things, IOT. In other words, because of the reduction in cost of technology, you’re finding lots of things have the capability to have very, very low cost sensors in chips embedded in them that can provide information about what the heck and where the heck is it. And in supply chain terms, that’s really important knowing where stuff is and what it is, to be able to track it and understand what inventory you’ve got on hand and so on and so on and so on.
So that’s great, but if you’re a conventional company, or even if you’re a young company and you’ve started out, you’re providing logistic services, and you’ve invested in some information systems to manage the orders, book transportation and so on and so on and so on, to all of a sudden have access to a torrent of data provided by all these devices right across the supply chain beeping and burping, providing new information almost by the second, if your information systems platform was never architected, much less constructed, to support that, that could present you with some challenges. So I think there’s opportunities for innovative startups to think about those kinds of practical problems, rather than stuff that may or may not be fashionable at any particular time based on what the industry press or the media is saying.
That’s not to say that the media gets it wrong, they don’t. But unfortunately, people that comment on this sector tend not to understand some of the nitty gritty challenges that real operators have to deal with. More to the point, the guys that are dealing with those challenges often don’t have time to talk to the press or to the media in general to enlighten them. But if you look at any supply chain operation, the challenges they face on a day to day basis, where the velocity of products moving through supply chains is increasing and continues to increase, the volatility of supply chains, in other words, demand fluctuations becoming much more variable, so you’re trying to deal with all those challenges at the same time as you give your customers information about what the hell is going on with their stuff and when are they likely to get it?
So having a bright group of developers in a small startup come and knock on your door as a logistic service provider, and they say hi, we’re going to help you, we’re going to change the world, and we’ve got this fantastic technology, they need to be very careful that they sit down and understand what the problems are that are confronted by these people, because you may come up with a really neat technical solution to a problem, but there may be lots and lots of other factors that prevent that problem, prevent that solution, even though it’s technically elegant, from being implemented. Legal issues, just pure operational stuff.
I was with a company the other day that their technology sits on the end of production line/shipping station, and as products roll down the production line they get to a point where they need to be prepared for the carriers to take them away for shipping, and they need to print the labels that the bar code scanners read, in other words, the bar code IDs, weigh the product, understand the destination and work out the appropriate codes and so on. Technically, the software to do that is not particularly difficult. But interfacing with a variety of printers that are around to do that, that’s not quite so easy, and takes an incredible amount of time.
The technology to do it is easy, but interfacing with just a huge different number of printers that there are just takes a lot of time. So the impression is with a lot of new technology that it just plugs in and works, which in some cases it does, but generally in production line environments or production environments, that’s not the case. It takes a long time just to work through, laboriously, to interface through a lot of these systems which are old or, if not that old, from some obscure company that’s not using standard technologies. And the companies using these printers are not going to throw them away. You, as a software supplier, have got to work out how you can interface to them. So that’s a very, very clumsy illustration of that great technology, unless it’s constructed in such a way that it’s easy to implement and there is a deep understanding of how the industry works and the challenges in the industry, there’s not going to be a happy ending.
So I think there’s a huge opportunity for innovation, and usually it’s young companies that can do this because they’ve got the energy to work 24 hours a day developing these systems, but they’ve got to do it in concert with the companies that they see as their customers. Unlike in the consumer realm, where you develop a new technology, young people or people that are interested in it say wow, that’s great, it’s a new app, I’ll just stick it on my phone, obviously everything’s wonderful. In production environments, manufacturing environments, logistics environments, we’re not quite at that stage yet. So the backdrop into which this innovation’s got to be introduced has got to be understood and there has to be some hand holding by both parties there to help it evolve as fast as it should. Sorry, that was a ramble.
Thanks, Ken, for sharing. Can you provide a brief background of yourself?
I’ve been involved in logistics and supply chain management for about thirty years now, primarily with information systems applied to operational challenges, initially as a freight forwarder, then as part of a large global integrator, and then as a partner in a software startup, or a couple of software startups. And now I’m, I sit on the advisory boards and boards of various companies that are involved in the industry in the UK and elsewhere in the world. So that’s pretty much who I am. And obviously I’m from London, because you can tell by my accent.
Thanks again for sharing.
That’s great, Dustin. Good to talk to you again.
About Ken Lyon
Managing Director - Virtual Partners Ltd