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Blog postsJuly 30, 2019

Q&A: The shared economy, on-demand logistics, and sustainability

3 supply chain leaders address transformative solutions in logistics and how to think about the modern supply chain.

Earlier this year at the D3 Retail Supply Chain Summit in Brooklyn, Karl Siebrecht, Co-Founder and CEO at FLEXE, was on a panel called, “Optimize costs and step up customer service through new partnerships.

In part one of this two-part blog, find out what the panelists think about the shared economy, disrupting the market with a new logistics solution, and the future of logistics.

Moderated by Juli Lassow, Founder and Principal at JHL Solutions, the group touched on topics such as how the sharing economy is impacting logistics and how new digital solutions are enabling businesses to be more agile in their supply chain.

  • Embrace the sharing economy: Understand the benefits of tapping into existing resources to drive cost savings, efficiencies, speed and sustainability across your supply chain
  • Combat the capacity crunch: Explore new non-competitive retail partnerships and technologies such as digital freight marketplaces
  • Leverage a shared network: Discover how the sharing economy is making premium real estate accessible for improved storage, distribution and fulfilment

Panelists

Questions:

  • How do you think about the shared economy within logistics?
  • How do you navigate introducing a new concept in an older industry? How do you get people excited about it?
  • How does sustainability show up in logistics?
  • Are there risks to building out an on-demand, end-to-end supply chain?
  • What does the future of logistics look like?

Introductions

Juli:

Thank you so much. And, yeah. Yes. We so appreciate you taking the time and prioritizing the last session of the day to talk about the sharing economy. It's obviously a very fertile ground for a lot of discussion. Today, we'll focus mostly on the business-to-business (B2B) side—on the technologies, the partnerships, and really how this space is evolving in a very dynamic way. We have a fantastic panel here to really open that conversation up for us, and I'll introduce them to you now.

Karl Siebrecht, who hopefully some of you were able to hear earlier today, is the Co-Founder and CEO of FLEXE. And in just a few short years as you've heard, or heard from his team, they've secured more than a thousand different warehouse partnerships and are really changing the face of the warehousing industry, creating more of an on-demand space. Karl describes himself as a 20-year serial entrepreneur in the software and technology space, and is here to talk about how FLEXE is impacting and changing the space he's defining now.

We also have Kevin Abbott, the Vice President for the North American truckload services from C.H. Robinson, where he supports C.H. Robinson's efforts to optimize supply chains by delivering products and goods that drive commerce.

With more than 20 years with C.H. Robinson, Kevin has really focused on how data and analytics can help optimize these solutions and drive even more impressive solutions for his customers. As experts in the sharing space and the sharing economy, they're are also looking at, how do you take the impact of a very mature transportation organization into the future, and the changing needs that he's anticipating in building his customer team to support.

Gina Shaffer is the VP of Operations at Great Jones goods where she's part of a small but mighty team who works to encourage, equip, and inspire us to cook more frequently, and not wait for a wedding registry to outfit our kitchens with beautiful and high-performing tools. Prior to joining the Great Jones' team last year, Gina worked at Casper, where she worked on strategy and operations. And Great Jones Goods, like Casper, is a customer of FLEXE. And so we'll be able to dig into that a little bit today about how that partnership came about, how those partnerships have grown, and with Gina's perspective from the startup space, what to look for and think about when you're building these new shared-economy partnerships.

So you've welcomed the panel to the stage. I'll let them just say a quick good afternoon to you and why they're excited to be part of this session today.

Karl:

Hello everybody, good evening. Welcome to the last session of the day. We'll try to be punchy, smart, and quick. So, I'm excited for a lot of reasons, not least of which is, this whole kind of “sharing-economy thing.”

I don't know when that term was invented, but it was probably in the last five years or so—maybe with the rise of Uber or Airbnb—but in principle, it's been done for a long time. We’ll have to get [Kevin’s] view, but C.H. Robinson is one of the companies that I don't know that you would consider as one, but actually they are your transportation partners sharing their assets. In B2B, “sharing” doesn’t seem like the greatest term, but it’s really just about utilizing assets more efficiently. So, I’m excited to be here so we can really start to decipher and understand whether or not this is “sharing” or just better utilization of assets in a B2B environment.

Kevin:

Yeah. I think maybe to answer your question, I don't consider it necessarily “sharing.” Maybe a more up term is the gig economy. You know, trucking's in a really decentralized space. There are 227,000 trucking companies in North America for hire. So we do business with a tremendous amount of those. And really trying to put together those solutions is what we do for customers—facilitating the communication with all those disparate companies. Part of that is the sharing of trucks, but it’s essentially a commodity that is traded. Juli and I talked about this on the phone ahead of the panel: Yeah, I guess the term “sharing” works, but “gig economy” feels a little bit better to me. And I'm excited to be here just to talk through that. And I'm sorry we're standing between you and some happy hour drinks...

Gina:

So, nice to see you all, and thanks for joining. I'm super excited to be here. This is my first time attending D3. And so it's been really nice just to hear from other experts in their fields, and also nice to sit on the panel with you guys, because this really touches home for me coming from the startup world. Startups are the main consumers for the sharing economy. And I was thinking about the term as well, and it's really just leveraging knowledge. So it's sharing, but at the same time, it's people that are new in these spaces being able to tap into the expertise that's already out there. So, it's a really important conversation, and I'm happy to be a part of it.

How do you think about the shared economy within logistics?

Juli:

Fantastic. First of all, I'll start by directing a question to Karl. So, I'd love if you'd take a little bit more...a moment to discuss a quote that I've heard, or I've read, that you have shared on more than one occasion that, "FLEXE looks like Airbnb on the supply side, and on the demand side it looks more like Amazon Web Services." How do you think about that?

Karl:

So the similarity with Airbnb is simply that, an asset owner—in the Airbnb world that's somebody who's got a condo or a house and in our world that is a third-party logistics company that has one or many facilities—signs their assets up to be listed in a marketplace model.

They become part of a network where they can get a feed of new customers for whom they can provide services. So Airbnb can provide a service called, "Hey, you know, stay in a nice place." One of our warehouse partners provides a service called, “next-day fulfillment,” or “retail distribution,” or all of the above.

FLEXE is a network model—a marketplace—that aggregates that capacity and makes it available to our customers, which in our case are retailers and CPG companies, and our technology platform enables that connection.

Think of Uber. Everyone's carrying around the software platform in their pocket, the Uber app. The same app is used by all the drivers and all the riders, which means you can take any Uber and have the same experience. And it's all made possible by that software platform that no one thinks of as a platform—it's just the app on your phone. Airbnb works the same way, and so does FLEXE, there’s just different functionality in the platform.

The AWS side of things is from the customer perspective. As a customer, you can tap into the software platform once and then have distribution and fulfillment anywhere. And, it's an on-demand model. You don't have to write a lease, you don't have to have fixed-capital investments. You plug in once to a warehouse, anywhere, pay as you go, and it's effectively infinite capacity. So that's what AWS did in the world of data centers, which was what existed before they came along... in 10,000 words or less.

Juli:

Kevin, onto you, you teed this up a little bit in your opening comments, but with the sharing economy being very trendy just now, C.H. Robinson really was an early adopter in that space. How would you say that C.H. Robinson has navigated the digitization of data with advanced analytics? And how has CHR stayed competitive and continued to offer value to your customers?

Kevin:

There's this interpretation or this groundswell of thought that digitalization of the supply chain from a trucking perspective, and in middle-mile transportation specifically, is kind of a new thing. And the reality is it's not, we've been doing this for a very long time.

In 1980, there was deregulation from a transportation perspective. Robinson happened to work in that deregulated space. We moved fruit and vegetables—we were a produce broker. And as a result of deregulated trucking, we were actually doing some backhauling prior to it being something that everybody did in North America.

So when deregulation happened in 1980, we had a network of offices. We had a tremendous amount of relationships with capacity providers, and we had a tremendous amount of relationships with warehousemen. So it just started naturally from there and that business grew far faster than the produce business, which we still have today. Produce is about 8% of our business now, transportation is the other 92%.

Along the way, through that time period, and when I joined the company in 1994, we were just moving from mainframes into PCs. From that point forward, we've been just accumulating data and finding different ways to use that data to optimize outcomes for customers and carriers. But, that's nothing new. Everybody is trying to do that now. The difference that we have, or the benefit that we have, is that we've got a tremendous amount of experience around it. We're not just IT people trying to make it happen, we actually have transportation experience.

And the other thing is we have a tremendous amount of scale. So, I oversee the truckload portion of our business, which is the largest in North America. We move about 6 million truckloads a year, that's about $9.4 billion in spend. Looking at the tremendous amount of data that comes in on a day-to-day basis, and looking at not only what we've moved and what capacity providers need, but also looking at what other customers have said, "Hey, on an annual basis, most customers in the retail space or CPG space run a bid."

And we take and aggregate all that information as well. So last year we had $54.7 billion run through my large bid funnel, which is anything over $10 million. This data lets us start to see where we have demand, and then understanding more about the capacity side of 74,000 contracts across capacity providers and our relationships with them. Really working to put those together is what we've been doing for the last 20 years. But really with the speed of computing and data science being more readily available in the marketplace, or more treasured in the marketplace, we've really been able to take greater strides in the last two to three years in creating those better outcomes.

Juli:

Fantastic. Gina, having experience with two different startups now, there are so many priorities for startups that are just launching off the ground. When you think of prioritizing where you build, buy, or borrow expertise, how do you suggest an organization go about doing that, especially in some of the space that's so dynamic and changing like shared logistics?

Gina:

Sure. So I think it is relative to every company, and it depends on who you have on your team. As a startup, you know, you only have so much money that you can budget out for certain things, and it depends on the skill sets of your team. So, if you have somebody that's incredible at product and design, for example, you might need to tap into other companies that can help you with the fulfillment-side of things.

I will say when it comes to the specific space that we're talking about and the FLEXE's of the world, as a startup, there's so many things that you do have to focus on and prioritize, and planning is so important. And what is great about the shared-network space is that you're able to do it a little faster. It's agile. You have more flexibility. You have a quicker speed to market. For instance, at Great Jones we're using one warehouse right now. We're really trying to understand what our demand is and what makes sense for a second warehouse location. We're optimizing our packaging. And so, if we change from a pick-and-pack strategy to something else, we might look at other partners that can better assist with that specific function.

I really do think that there's not one perfect answer. It depends on the team that you have. But I definitely think that, thanks to all of these other startups in this space, that it makes sense to understand what they can help you with so that you can put your efforts and focus into the business and scaling it.

How do you navigate introducing a new concept in an older industry?

Juli:

Picking up on a thread that came up earlier in the blockchain conversation, where blockchain is so new and in some cases not easily understood. It's a strategy lighthouse or something along those lines, wherein the technology isn't well understood, and therefore, it can be a little bit difficult to build trust around that sharing of IP and technology. How do you navigate introducing a new concept in a space that's so different? For organizations that aren’t familiar with it, how do you go about really opening up your books and sharing a lot of information that hasn’t been done before? How do you build trust in that space?

Karl:

It's hard and it takes time. In supply chain, professionals get paid to mitigate risk and to be very cost-conscious. At the risk of generalizing, most professionals have not been rewarded for taking risks. So a new startup comes along, and even if there's some pain in the mix and the startup might be able to help that pain and solve it, we still heard in the first few years, “Wow, interesting concept.” Which, you know, is code for, "That'll never work."

But it has. You have to earn the right to get a pilot oftentimes, and then you've got to deliver on the promise you made. Over time, you develop a reputation, you can reference clients, and it starts to build from there. But then you've got to keep the momentum going, too. You're only as good as your last thing.

And then, you build a durable brand like C.H. Robinson has. Again, you can't rest on your laurels, but I would venture to say that people don't look at C.H. Robinson and say, "That seems like a risky thing to do." Although, [Kevin], you should probably answer that because, what do I know?

Kevin:

Yes. It depends on the relationship and it depends on the customer. There are some customers that have not reached that point where they think they'll derive enough value from being transparent. Right?

And maybe that's a legacy response. Customers would say, "No, I'm not sharing my data. I'm not sharing cost. I'm not sharing this." Now, less than half the time, customers take that stance because of the value they see from either smaller engagements or the understanding of what data science and comparative analytics can deliver, from a value perspective. In recent years, customers are more willing to be transparent with their information on a very large scale than what we've seen over the last 10 years. It's certainly accelerated in the last two years for sure.

Juli:

Gina, how about on the inside, how does that feel to open up those books?

Gina:

Yeah. I mean, it's obviously very different for a smaller company, and I will say that we're very open to it. Obviously, there are certain numbers that you're not going to share that aren't necessary to share. But, from a demand allocation perspective and volumes, I think that it can only be helpful to share, to make sure that the service providers you’re working with have the information they need so they can direct you to be partnered with the right person and company. So, yeah. The comparative analytics are so beneficial that it's definitely worth doing.

What are some effective tactics to get people excited about a new solution?

Juli:

In my research, I came across this statistic that only 20% of today's supply chain leaders are really looking for an innovative and flexible solution when it comes to warehousing and logistics. I'm just curious if and how there are ways that you are seeking to influence that number to create and generate more openness. And, how, or what, do you think some more effective tactics would be in getting groups to be a little more excited about a different solution.

Karl:

It's a great question. Yes, we would like to see more people interested in flexible solutions. Look, I do not believe that our solution is the right solution for every company. I think I probably said a version of this earlier.

You know, a more capital-intensive, bespoke, and automated type of solution could very well be much better than ours. The key is to understand each problem or each use case, and what the right solutions are. In some cases you may want to buy land, pour concrete, and build your own warehouse, which is probably a very extreme edge case these days. But in other cases, you don't want to touch any fixed cost. If you have a lot of uncertainty, there's just no way you can get a positive payback on a fixed investment. So it's really about trying to find the right solution for each need.

Kevin:

I think that's the same in any B2B engagement. I mean, from a transportation perspective, you can be completely outsourced. You could be 100% dedicated where you're running trucks only on your freight or you could be just out in the transactional marketplace buying a couple of trucks here and there on a Friday. So there is no one-solution-fits-all.

Karl:

I would just add that today’s world is far more uncertain that it was 20 years ago. The payback on a flexible solution relative to a fixed solution is probably not greater 20 years ago and even, you know, 5-10 years ago. With a fixed solution, you may have been working really hard and coming really close to hitting that two-day delivery target to match Prime ... that all of us as consumers expect and deserve as our birthright … And then, a week ago we get the news that one-day is the new standard.

Kevin:

And don't have to pay for it.

Juli:

Yeah, exactly. It's free.

Karl:

So a week ago it changes to one day, and the change isn’t going to stop there.

How does sustainability show up in logistics?

Juli:

I mentioned that you sometimes hear about when you think about the shared economy in the personal space, or the consumer space, is around more sustainability. So certainly low cost, but you're trying to create more efficiency, create more of a closed environment. What ways does sustainability show up as a positive indicator within the industrial space?

Karl:

We do a survey every year and ask people who operate warehouses, "What percent capacity are you operating at?” And every year, the answer is somewhere between 70% and 80%, which means 20% to 30% of warehouse capacity goes underutilized. Very similar, I think, to the range of utilization in trucking.

eCommerce could continue to grow at double-digit rates. And, it turns out for every one square foot you need three square feet for eCommerce warehousing versus one square foot for bulk storage or sending to a brick and mortar store. So you continue growing double-digit using all this warehouse space and you wouldn't have to build anymore until you've sort of filled up that 30%. That's what we're in the business of doing, right? All of this underutilized capacity now can turn into active productive space through the FLEXE model.

Gina:

Adding to that, I think the sustainability aspect is also the flexibility. So if you were working directly with the specific 3PL, you don't have this entire network that you could tap into should you need to. So I think that having the entire network there to kind of support that adds to the sustainability aspect of it.

Kevin:

Yeah. The easy one from a transportation perspective is the more highly optimized or utilized a piece of equipment is, the lower the carbon footprint, the fewer pieces of equipment you have to have out on the roads. When we start to think about other problems from a retail perspective, for example, the driver shortage in North America for commercial trucks.

We've looked at some engagements we have with some larger contract carriers where we're running those trucks specifically on Robinson freight to keep the drivers more regionally centered and also to get them home more often. A big problem in truck driving is some of these guys get home only two and a half days a month. So I don't know if you can imagine raising kids or having a family, getting home two and a half days a month. It's pretty awful.

Using scale and leveraging what Robinson can bring to those carriers, we're able to reduce their driver turnover. So, one of the contract fleets went from 110% to 70% turnover. So now they can actually build their business. So you think about sustainability, it's not just carbon, it's not just congestion, but it's also the job market. We're near full-employment here, and being able to maintain drivers is another thing that we can do from a sharing perspective.

Are there risks to building an on-demand, end-to-end supply chain?

Juli:

Perfect. On the flip side of that, are there other risks when thinking about building and maintaining your own supply chain, end to end, that you haven't brought up yet for the questions up on the screen?

Gina:

Whether it's the technology piece or whether it's certain customizations that you want to do within your supply chain, there’s more to think about. I think Rent the Runway is a great example. They built their own fulfillment center because of the needs that they required for their business model. So I think that it depends on your company and the exact time and state that your company is in—whether or not you do need to start looking into doing things on your own. Another thing that a lot of people think about is competitors. When I was at Casper there were five other mattress brands that were out there. And I think that people sometimes find it alarming if you go into a warehouse and you see your competitor sitting on the floor next to you. From my lens, after going to factories and seeing them on the same production line where they could actually see the secret sauce of your product, the fulfillment aspect of it is a little less IP-oriented. So I do know some people are concerned with that.

Juli:

No, that's excellent. Karl, are there any additional opportunities for seasonal warehouses versus ongoing commitments that built on your business as well?

Karl:

We have a number of clients that use us for seasonal peaks. Obviously, there's a number of folks who have a peak in Q4. That's a pretty common one for us. Also you'd be amazed at what other peaks exist out there. Turns out bottled water manufacturers build up a lot of inventory over winter months and they have to put it somewhere because people drink a lot of bottled water over the summer. So there's a spring peak that happens in the water business, who'd have known?

We've done Halloween costume peaks. What else? Oh, like snack foods. Turns out we eat a lot of junk food about four times a year, four or five, you know, Super Bowl, Memorial Day, 4th of July. You'd be amazed. Ace Hardware is a customer of ours and they have different peaks of goods regionally. So, at a given time of year you need snow shovels, or gardening equipment, or what have you. So yeah, seasonal peaks are a good use case.

What does the future of logistics look like?

Juli:

Perfect. Well, wonderful. I think we've hit the questions that have been shared. I think just last thoughts from the group, where do you see the future of this space, if you haven't had a chance to hit on that so far?

Gina:

I think that it's going to be interesting to watch operations. Truly, anything that can happen and go wrong will happen in operations. So all these different companies that are providing a service as a solution for all of these supply chain tasks. The one thing that is also interesting is how they all fit together. So, again, we don't have an internal tech team, and a lot of companies don't that are building the systems architecture to facilitate the day-to-day operations. So as these different companies come about, how is one company that uses all of them and building out that systems architecture going to make sure that the data hygiene is in place?

Kevin:

Yeah, I would piggyback that sentiment. I think from a transportation perspective, the one thing I'm positive of is that integration is becoming more and more important. So, integration between service providers, between customers and their service providers, and everybody along the chain is going to have to have all of that information in your blockchain, as you brought up as being a way to exchange that information. Blockchain doesn't have to be 100% transparent. So the idea that there is a singular standard for transferring this information and that everybody can be integrated along the way and receive and provide information relative to the exchange and movement of goods, that's gonna continue to evolve and accelerate over time.

Karl:

I would predict, and I admit that this is completely self-interested, but if we go back to the AWS metaphor. You know, cloud IT infrastructure is about a quarter of the total data infrastructure market today, and it'll be a third in a couple of years. I see the same exact thing happening in this space (warehousing). I think right now if you measured what percent of the market is flexible on-demand solutions and warehousing, you'd need a couple of zeros after the decimal in the $143 billion market. But I think it will be 20% or 30% in the relatively near future. And it goes back to those use cases. It's just a better fit for a lot of use cases than a fixed investment.

Juli:

Fantastic. And with that, I'll make the executive decision that we can follow up on these other questions as part of the happy hour (at the D3 event). I'd like to ask you to join me in thanking our panel for taking the time today to talk about their thoughts about this space and where it's going.

You'll also like:

  1. Blog: The future of logistics is open
  2. Whitepaper: The State of On-Demand Warehousing
  3. Gartner Supply Chain Brief: How retailers & brands benefit from on-demand warehousing