The EconomistJuly 13th 2019 Special reportGlobal supply chains 92
1of emerging markets (because of the lack of formal addresses, say,
and standstill traffic) spur innovation. In such markets, his drivers
carry sophisticated handheld devices that allow the cancellation
of orders up to a minute before delivery.
The rich-world giants are right to look to the developing world
for inspiration. China is leapfrogging from ropey logistics to su-
percharged supply chains, just as it did with e-commerce and mo-
bile payments, in which it went from laggard to world-beater.Creatures of the night
The robots come out after dark in Hangzhou. Seven hundred of
them are moving purposefully around the upper floor of a large
distribution centre run by China Post, the state-run postal carrier.
These flat yellow workhorses made by Libiao, a local startup, work
through the night sorting packages for delivery across China.
Workers scan packages and place them on the devices. The robots
make their way to the chute for the destination city among scores
of openings and drop the packages in. On the floor below the pack-
ages are whisked from the chutes to waiting lorries.
Amazon leads in the use of ai-powered robots in logistics, but
China’s entrepreneurs have the edge in speed. Mainland innova-
tors are capable of cutting-edge inventions, for example in facial-
recognition software. However, they are also good at frugal engi-
neering, throwing together cheap solutions that can get to market
faster than the gold-plated ones favoured by Western innovators.
Xia Huiling, who co-founded Libiao with her husband, es-
chewed complex aiand navigation systems that would have made
each robot autonomous, in order to keep the system affordable.
Her dumb robots merely follow trajectories calculated centrally.
Through Tompkins, an American supply-chain firm it acquired,
Libiao is trying an inventive business model too. Retailers facing
seasonal demand spikes can lease a handful of robots for as long as
needed. “They are plug and play,” says Ms Xia.
Libiao is one of the promising startups in which glp, a privately
held Chinese logistics firm, has a stake. Victor Mok, glp’s China co-
president, is introducing logistics
parks with smart gates and loading
docks for expedited clearing of lorries
as well as automation inside ware-
houses. Through its investment in In-
ceptio, a local startup, it is developing
autonomous lorries, too.
Not far from the China Post ware-
house is the headquarters of Alibaba,
the world’s biggest e-commerce firm by
transaction volume. On its leafy cam-
pus is an outlet of Hema Xiansheng, a
chain in which it has a stake. It looks
like a conventional supermarket, albeit
with an unusually large selection of
Maine lobsters. On closer inspection,
many shoppers appear to be leaving
without proffering cash, card or mobile
payment. Bags of groceries whizz by on
an overhead conveyor system.
Hema has investedin the technol-
ogies needed to combine online and
offline shopping. In-store shoppers can
pay using facial-recognition (young
people favour this, whereas oldies tend
to pay by traditional means). The flying
groceries go to an army of waiting cou-
riers, who deliver online orders free
within a 3km radius within 30 minutes.
Cainiao, Alibaba’s logistics plat-form, is investing 100bn yuan ($14.5bn) upgrading logistics to en-
sure next-day delivery in China and three-day delivery worldwide.
“Our warehouse system is the most heavily used in the world,” says
Ben Wang of Cainiao. Last year, on November 11th, a shopping ex-
travaganza known as Singles Day, the firm sold $30bn-worth of
goods. Shoppers wearing virtual-reality goggles could buy stuff
with a flick of the head. Cainiao delivered the first 100m parcels (of
1bn orders) within 2.6 days, better than 2.8 days a year earlier.
Amazon is looking seriously at drones and autonomous robots
for the last mile, which it considers the choke point for fast deliv-
ery. In June it unveiled its Prime Air drone, a hybrid aircraft which
is to start making deliveries in “the coming months”. Ask Mr Ma-
dan to look five years ahead and he predicts that product selection
will grow and delivery will get even faster. How fast? “Thirty min-
utes,” he says confidently. Then, after reflection, he adds with a
mischievous smile, “Maybe 15.” How can the rest of the industry
keep pace with supercharged superstars like Amazon and Alibaba?
The only hope is for them to make their supply chains smarter. 7“D
igitisation willhave the impact on supply chains that
steam and electricity had on manufacturing,” declares Joe
Terino of Bain. His claim seems hyperbolic, but it may yet prove
prescient. Nearly 30 years after the internet first emerged as a tool
for business, the management of supply chains at most mncs,
which do not operate in the rarefied air of Amazon and Alibaba, re-
mains a surprisingly backward-looking, sluggish affair.
The good news is that companies in many industries are ex-
perimenting with a variety of new technologies and methods that
promise to improve how they plan, source, make and deliver.
These innovations are making supply chains smarter by increas-
ing their predictability, transparency and speed of delivery.
First, to predictability. Firms have long used historical sales
data to come up with demand forecasts, then manufactured and
distributed according to the plan. This antiquated approach can-
not keep pace with today’s on-demand economy. So firms are ex-
perimenting with ai to assess everything from social-media
trends and shifts in demand to inventory turnover and vendor be-
haviour. Their goal is to fine-tune supply chains in real time.
An annual survey by kpmg, a consultancy, and jda, a supply-
chain software firm, released in May, asked executives which tech-
nologies had the highest potential impact on supply chains and
were most likely to be adopted. Cognitive analytics and aicame
out on top, shooting up from their rankings the previous year.
Blockchain and drones were down year-on-year.
jdauses deep-learning algorithms developed by Blue Yonder, a
German startup it acquired that originally created the software for
particle-physics experiments at the cernlaboratory in Geneva.
Morrisons, a British grocery chain, reduced the incidence of out-
of-stock items on its shelves by 30% and cut its inventory needs by
several days by replacing manual stock planning with jda’s aisys-
tem for demand forecasting and replenishment.
orsay, a German fashion retailer, last year used jda’s self-learn-
ing algorithm to make 112,000 autonomous pricing decisions. This
enabled the firm to reduce the volume of stock that needed dis-Where’s my stuff?
New technologies are modernising an old-fashioned industryDigitisation