Uber Supply Chain
by Evren Ozkaya on 19 December 2014
uber - The ultimate, above all, the best, top, something that nothing is better than (Source: urbandictionary.com).
On Monday, I had my third Uber ride going from home to the airport in Atlanta.
My first Uber ride was last month in Rome, Italy - also going to the airport. And if it wasn't Uber, we were missing our flights to US, because there were NO available taxis in Rome after standing in one of the busiest intersections and waving to tens of taxis passing by with passengers in them for more than 30 minutes! I installed the Uber app while still waiting a taxi in that intersection, and my problem is solved in 7 minutes.
Since then, I am a fan.
I like to chat with the Taxi drivers. In the end, I use taxis quite frequently; when I find the driver is bored, I start a conversation, if the conversation hasn't already been started by the driver. I like to learn how they earn a living, how much they wait between customers, discuss latest national/international news... This is how I enjoy my taxi ride. Even the quality of my taxi ride conversations dramatically increased with Uber drivers (well, at least the ones I had in the US, as I speak no Italian :))
My last 3 Uber rides were:
In my Uber rides in the US, both conversations converged into how technology is disrupting everything. AirBnb is shaking the hotel industry, while Uber is doing the same for taxi industry. Many other examples are emerging in other industries. A data driven revolution is changing how we work and live.
It should come with no surprise that technology is now constantly influencing every day lives of people, and as people find ways to leverage technology to make the transaction between the parties of demand (i.e., passengers) and supply (i.e., drivers) much easier, the market moves in that direction. AirBnb, which we used to stay in Rome for 2+ months, already became the largest provider of accommodation in the world. I believe Uber is on route to be the #1 as well in taxi business.
So, what is the Uber Supply Chain? or in other words, why the supply chain that Uber designed is uber - the best - the ultimate?
Because, it really achieves what we supply chain professionals were putting in our vision statements for the last 30 years: right product, at the right quantity, at the right time, at the right quality and at the right price! Period.
That simple-to-write, hard-to-achieve vision statement for typical supply chain is actually achieved by this growing technology company!
How did this happen? And what we can learn from Uber Supply Chain?
Here are the Uber Supply Chain achievements and insights for today's supply chain executives:
1. Right product -
- How Uber achieved it: You order an SUV, you get an SUV. You want a regular sedan, you got it. Black car service? There you go. You know it is available, because you see it there around the corner. You know the type of car, before you order it. Uber supply chain is completely demand driven. It is make-to-order.
- Why supply chains are struggling: Many supply chains still operate on make-to-stock model. All supply decisions and planning are done weeks/months in advance with the hopes and estimates that the demand will be there when supply arrives. What if demand shifts? increases? decreases? Some customers don't get what they ask for.
- What we can learn from Uber: Find ways to achieve "make-to-order", demand driven supply chain. Change your entire mindset (and therefore operations) from supply-driven to demand-driven.
2. Right quantity -
- How Uber achieved it: This one is easy. We only need one car. Order size is one. Supply quantity is one. You gotta love the order size of one.
- Why supply chains are struggling: For cost savings, manufacturing objective is to produce in large batches. We produce in bulk, but then turn around and sell in pieces. To minimize the impact, we force our customers to order in bulk too (in cases, pallets), even though they may only need few pieces each time.
- What we can learn from Uber: Balance the supply order quantity with demand order quantity. Provide order quantities of what your customers are ideally asking for. Uber would never send 2 cars to you, when you only need one :)
3. Right time -
- How Uber achieved it: When we want something, we want it now. Uber is so fast that each time I ordered a ride, I had to text the driver that I will be ready in 10 minutes, because the predicted arrival times were 3-7 minutes. It is almost magical. This is as close to "instant" as it gets.
- Why supply chains are struggling: Long lead times. Some pharma products could only be delivered to market in more than 6 (six) months! In 6 months, it is a different world. Average CPG product manufacturing and delivery lead times are still in the weeks, if not months. Moreover, delays in product deliveries make it even more challenging for today's supply chain leaders to manage their customers timely delivery expectations.
- What we can learn from Uber: Make the supply closer to the demand. Days of outsourcing "everything" to China / India are over. Customers are valuing short lead time and instant availability more and more. Think about 3D printing! What if we could actually print/make the product immediately at the customer location when the customer places an order? Amazon Drone Project is targeting this instant delivery model. Because this is what customers want. This could revolutionize many supply chains. And I am afraid(!) it will.
4. Right quality -
- How Uber achieved it: This is where Uber is leveraging feedback mechanism and transparency, which comes with easy data collection and visibility. Customers provide feedback, and over time, you know how the drivers are performing. Poor service cannot survive in this ecosystem. A regular taxi driver can survive without changing and improving the service level pretty much forever, as you can not easily leave a feedback to a specific taxi driver. But with Uber, feedback is provided very easily right after the ride is over. Drivers know that they are evaluated, they try to continuously improve their service.
- Why supply chains are struggling: Quality mindset may be in company vision/mission statement, and annual objectives, but many supply chains do not receive regular customer feedback, and even if they do, the accountability of this feedback is not in place or not clear who is responsible for poor service.
- What we can learn from Uber: Make your entire supply chain accountable for customer service. Yes, including manufacturing and purchasing, demand planning and sales. Quality service is one of the key metrics that require transparency, and could help leaders identify areas of supply chain where quality suffers.
5. Right price -
- How Uber achieved it: With the right product, quantity, time and quality, it is unbelievable that Uber can offer its service also at the right price (actually almost like half the price). No wonder their growth rate is at break-neck levels. When a company offers everything that their customers (and suppliers) could wish for in their dreams, especially on the price, it could only be stopped by equally strong competitors. The reason why Uber could offer competitive prices is that they can leverage the untapped and abundant supply of drivers and under-utilized assets/cars. Uber does not have high fixed cost structure.
- Why supply chains are struggling: Tough competition in many industries are making the price cut a very difficult move. Price wars in the fast food industry hurts all the players to the level of creating losses for all competitors. The issue is not the price, it is the high cost structure of many established corporations. Take pharma industry for instance. With very large asset base and fixed cost structure, prices cannot be lowered enough to wow the customers.
- What we can learn from Uber: Don't think about the price, think about the cost-structure. Move to flexible and variable cost structure, where more strategic outsourcing to under-utilized, lower cost supply bases could enable lower prices for customers. This might be one of the most difficult things to do for some companies, but unless you make a step change in your cost structure, you may never get competitive in the long run.
Some of these learnings from Uber can definitely help us think about our supply chains, and find ways of improvement, regardless of how every supply chain is different with different challenges and opportunities. If a technology company can find a way to achieve holy grail of supply chain vision statement, why cannot we achieve the same in our own industries?
Where do you see the opportunities? Are you willing to change the way you operate? or wait for the technology companies to shake up your status quo?
Change is coming your way. You have two options:
What is your choice?
PS: This article is not intended for endorsing Uber, although it may sound like that :) Main objective is to discuss how supply chain leaders achieve their "ultimate" goal by learning from a successful technology company, and encourage the change that is inevitably coming.
Please write below your comments. Do you agree? Do you have other observations? What should supply chain executives do to survive in the information age?
About the author: Evren Ozkaya, Ph.D. is the Founder and CEO of Supply Chain Wizard, LLC, a management and technology consulting firm focusing on designing strategies to improve operational performance of companies with complex supply chains. Dr. Ozkaya writes about and speaks in conferences on various topics such as Entrepreneurship, Productivity, Consulting, Communication & Presentation Skills, Technology & Data Analytics, Supply Chain Security and Supply Chain Transformations.