The 21st Century business world is full of people talking about ‘digital disruption’ and ‘innovation’, and the usual suspects are routinely invoked: Uber, Airbnb, Amazon, et al – usually by people whose old, established businesses bear no relation to those companies. It’s almost as if chanting the names of a pantheon of digital deities is enough to sanctify many a 19th Century idea – innovation by proximity, or by association.
But a new breed of companies is genuinely importing the sharing economy model from the consumer world into some unexpected industrial sectors. One example is UK startup Stowga. Alongside rival Flexe in the US – and others playing catchup in Germany, Australia, and Hong Kong – Stowga’s lightbulb moment was deceptively simple: why not apply the Airbnb concept to industrial warehousing, distribution, and logistics?
CEO Charlie Pool explains:
I’d been working for a VC company and a real estate fund. We realised that every warehouse in the portfolio had spare capacity and we knew that, as a fund, there was demand for that capacity, because the value of the fund was going up. Warehouses were in such demand.
I spoke to brokers and asked about why the supply wasn’t being matched to this demand, and everyone came back with the answer that it was just as hard to do a short-term deal as a long-term one. So we thought if we can get the technology to do all the hard work, then we can create a completely new market.
In the traditional business world, warehouses are vast properties in single locations that companies take on long-term leases. This saddles them with fixed costs and decade(s)-long commitments, regardless of the economic climate or the state of their balance sheets.
Most warehouses are left partially empty, because buying space that exactly fits your needs has been almost impossible – and leaves little room for expansion or contraction. Fleets of trucks then have to ship goods from one end of the country to the other – or from one country to another – with the fuel, driver, time, and carbon costs that are associated with monolithic distribution chains.
What Stowga, Flexe, and their competitors provide is a technology platform that allows buyers to rent spare warehouse capacity on demand over any time period, and sellers to turn their half-empty static, money-guzzling liabilities into assets. And if Airbnb is any guide, then the industrial property sector itself could be re-energised on brownfield sites or in disused industrial areas.
On the buy side, the sharing economy could be truly liberating and transformative when applied to industries such as manufacturing, distribution, and logistics by allowing organisations to step away from old, monolithic models such as offshore manufacturing and slow, environmentally damaging global supply chains and move towards businesses that are more personalised, modular, and local – in the long term, powered by increased automation.Pool explains:
The big advantage is that, within the supply chain, the warehouse has always been the weakest link, a long-term lease commitment and a static asset, whereas everything else has been short term and variable.In the past, once you’ve chosen the location for your warehouse, you’re committed to that for probably five, ten, or 15 years. But if you take the warehouse out and put it into a flexible, on-demand model, you’ve turned that fixed cost into a variable one, and suddenly your whole supply chain is transformed.
From our customers’ perspective, in good times it allows them to be agile, move quickly, open a new market – or close a new market, which is equally important. They can test it, and if it doesn’t work out they can try it somewhere else. But it also means they can store their products in locations that are distributed throughout the country, rather than fixed in a single location.
Small and nimble
Vast organisations such as Amazon may be automating en masse and dominating retail and distribution (along with Web services), but if smaller, nimbler businesses can have localised distribution available to them on demand – rather than large, centralised warehouses that are only available on long leases – then they too can compete in the world of same- or next-day deliveries, says Pool:
This distributed model has a number of implications for customers. We have customers who, in order to compete with the likes of Amazon, find that the solution is locate the product closer to the customer in the first place, which means shorter delivery times, reduced driver times, reduced fuel costs and fewer emissions, so you get a side order of cost reductions with your better customer experience.
The flipside is when things aren’t working so well for your company, says Pool:
About two-thirds of warehouses are occupied by retailers, and retailers are being hit by currency devaluation – with Brexit, for example. When your currency devalues, your import costs go up. In that situation, you’ve long been able to adjust the supply chain, the shipping, but you haven’t been able to change your warehousing, because you’ve committed to a long-term lease. But if you have that on a flexible model, you can just dial down your warehousing in line with your business needs and reduce your liability.
The good thing for us is our model didn’t exist before Brexit, so there are a lot of retailers now who are long on space who are looking to monetise that spare capacity now, because they were too bullish at the time they took the warehouse. They’re able to turn a liability into an asset. They’re renting out their spare capacity, short term and on demand.
In global terms, the emergence of this new model could have other positive long-term effects, which play into the PAL supply chain concept – personalised, automated, localised services – espoused by consultant Sean Culey. Pool concurs:
An interesting angle to that is the anti-globalisation movement. With that combined with what Sean has been saying, you could see some interesting changes.
With rising labour costs in China – where the rising middle-class expects to be paid more – and China passing the buck by outsourcing some labour to Africa, then people may start to say, well, goods in China aren’t so cheap anymore, and oil prices are going up along with the cost of shipping and carrying goods around the world.
So, actually, if we look at the all-in costs of our logistics, it might be cheaper and better for everyone if goods were made closer to home. We just need to optimise around near-localised logistics capabilities.
So what of the future? Is Stowga itself a local service, or does it have global ambitions? Pool says:
We absolutely intend to expand into Europe and beyond as soon as possible, because our customers are asking for it. Probably 50% of our customers today are international companies taking UK warehouses. Logistics are global by nature, and if we want to make this a serious business that’s valuable to our customers, we have to be global as well.
Might Brexit hamper these ambitions, or make it harder for other startups to grow locally and find new investment? Pool is pragmatic:
In the fairly short term, it is going to be harder, because a lot of businesses are started and funded – especially tech businesses – by venture capital, and a huge amount of VC funding comes in from Europe, so if that is pulled, there won’t be so much money.
However, the best companies are born at inflection points and out of necessity. When you have volatile times, that’s not good for established businesses, but it’s great for startups. So I’m bullish on that. Unless the government gets even more stupid, it will realise that the way the country got out of the 2008-09 recession was via government initiatives, such as tax incentives for startups. It’s better for people to start companies and create jobs for themselves than to force companies to create jobs that aren’t there.
The real point of Airbnb, Uber, and the rest, isn’t to give an endless parade of conference speakers a chance to blather on about innovation and digital transformation. It’s a lesson about bravery: seizing the chance to completely reinvent old businesses.
For example, why manufacture goods in vast, automated factories in China or Taiwan, then spend days driving them to port, spend six weeks shipping them from one side of the globe to the other, store them in warehouses, drive them to the other end of the country, and then store them in another warehouse, and then – eventually – deliver them to the customer?
Instead, why not break apart that old, monolithic, slow, environmentally damaging business into smaller, smarter, localised, automated units, make goods on demand, store them locally where customers need them, and ship them the next day from within each territory?
That’s got to be a question worth asking.
Image credit - Stowga