COVID and the Urgency of Logistics Innovation

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August 2020

Consumers want stuff fast. We like the convenience of online shopping and expect goods purchased online to get to us quickly. These longstanding trends — the growth of e-commerce and ever-faster delivery expectations, both of which have been accelerated by the global coronavirus pandemic — are now colliding with another: increasingly outdated and inefficient logistics infrastructure. 

The traditional distribution model used for the past half-century — giant distribution centers on the outskirts of cities, owned by investors and leased to third-party logistics companies, filled to the brim with a single company’s inventory that’s picked and shipped — is broken. 

A new model is needed, and two different approaches are emerging. On the one hand is the top-down, vertically integrated model: one company owns every piece of the supply chain, from sourcing to shipping, all centrally planned and controlled. It works nicely if you’re the big, integrated company, but the market dominance crowds out innovation and makes it difficult for smaller companies to compete.

We believe there’s a better way forward for consumers, large and small retailers, tech companies, truckers, and warehousers. At Sidewalk Infrastructure Partners (SIP), we’re advancing a marketplace approach that brings together companies operating at multiple steps of the supply chain to break down silos and forge partnerships that create efficiencies and help smaller players adapt and thrive. We know this approach works: in China, Alibaba’s Cainiao embraced the marketplace approach and soon eclipsed rival JD, which has stuck to top-down integration.

To unlock the potential of the marketplace approach, SIP seeks to bring radical change to the e-commerce delivery system, both its physical footprint and the technology that powers it. We believe that inventory needs to be stored in a variety of locations with differing levels of automation — including micro-fulfillment centers located closer to the end consumer — and that dynamic, predictive technology should be deployed to ensure the right goods are positioned in the right place at the right time. Retailers and other supply-chain players should be encouraged to share distribution and fulfilment resources. 

Rather than operate as disparate, disconnected nodes, we envision a cohesive and collaborative ecosystem of fulfillment nodes of different sizes. Some might still be suburban or exurban distribution centers, especially for large and lower-cost goods, where immediate delivery isn’t at a premium. In other cases, a chain’s underused or “dark” retail locations can be repurposed as e-commerce mini-warehouses, using already leased space to bring the goods closer to the customers who want them. We also envision standalone, flexible micro-fulfillment centers in urban centers to position high-value, in-demand goods where they need to be for quick delivery. These micro-fulfillment centers wouldn’t be exclusive to one retailer or another, but open to all who want to tap their potential for supply chain improvements. 

New predictive inventory management is needed to run this reimagined distributed network. An effective distributed inventory infrastructure — powered by machine learning — can better predict demand, evaluate available space, and position products in ways that are both cost-effective for the retailer and maximize delivery speed for the consumer. And when products are closer to the consumer, it’s not just good for the company and good for the consumer, it’s good for the environment, as the shipment’s carbon footprint shrinks.

Together with Innovation Endeavors, SIP is forming LINK, a new ecosystem designed to accelerate change and catalyze collaboration in supply chains (see launch announcement here). LINK will bring together global giants that need to update their logistics infrastructure with fast-paced startups that are creating tech-enabled solutions. It will help corporations better deal with demand fluctuations, reduce risk of system failure when one part of the supply chain breaks down, and give consumers the products they want at the speed they demand.

These changes are sorely needed. To survive in the post-COVID world, businesses will need to transform their approach to logistics, rethinking both physical and digital assets. But they shouldn’t have to go it alone. By creating a marketplace of solutions, businesses large and small can meet consumer demands and adjust to a new normal that puts a premium on resilient, nimble logistics systems.

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