Route-Optimise My Ride!
By Team Ankur
The need for optimising logistics in India has existed for a long time. Inefficiencies abound in all forms and factors — vehicles not being utilised to their full capacity, lack of reliable live traffic data, addresses as vague as “Behind Cantt Gurudwara” and roads being dug up without prior notice. The landscape for optimisation across the range of first and last mile is huge; and it is great to see founders pushing boundaries in an age-old space.
Companies operating in the long-haul space are aggregating supply and demand through tech enabled solutions and offering fleet optimisation solutions. On the macro level, it is saving India millions of dollars in fuel and other resources. Examples are Delhivery and Blackbuck. However, the challenge for an early stage fund with a thesis to invest in transformative tech such as ours, is that most innovators in the current first-mile and long-haul space are not asset-light tech disruptors, but companies that need considerably more capital that demonstrate their value proposition. While these companies are solving for key problem areas such as express parcel transportation, freight, reverse logistics and warehousing, which form the backbone of a sound business, the technology moats are initially low and correlated strongly with the company’s ability to raise the capital required in large quantities early on. Barriers to entry are limited and mostly a function of cash at hand in the short term, and the captive network interacting with the company in the long term. An example is telematics hardware.
That said, the recent acquisition of Primaseller by Delhivery allows them to offer a (diluted) network optimisation solution of sorts to (omnichannel) SME retailers, and shows an evolution in the space, and their mindset. In the West, network optimisation, which takes a bird’s eye view of the entire supply chain from factory to store, has been around for a while, and the space is ruled by the likes of SAP, Oracle, Llama Software. The case for a holistic solution of this nature is reinforced all the more today in India, when you study the transformation in supply chains. Omnichannel is on the rise, product development life cycles have shortened, and enterprises are setting up dark stores within the city to meet customer expectations better and faster. We are excited to see startups entering this space to test the markets, and believe that network optimisation has good potential in the near future.
Our search for other green pastures in the logistics space led us to IP-driven route optimisation. It has attracted a lot of positive attention from founders and investors alike. A catalyst for the proliferation of startups in route optimisation was ecommerce companies and the need to provide customers round-the-clock delivery. While the initial uptick by startups was merely to track delivery boys and their smoke breaks, the need for tracking evolved and took on complex nuances, such as dynamic route planning, as their GMVs grew. With competition on the rise, ecommerce companies have to differentiate themselves on speed of delivery to meet customer expectations. This was one of the bedrocks of Flipkart’s success.
For such new-age companies, a host of smart algos served by the likes of Locus, Loginext and Fareye have the answers. They crunch what you need to send, to whom, where, and in what order, as complex mathematical problems. Their use cases lend themselves to retail, ecommerce and home service providers (example — Tata Sky, Dr Lal Path Labs, Urban Clap).
The best-in-class organisations have started adopting solutions from these startups in India. Retail behemoth Unilever has been working with startup partners to tackle the Travelling Salesman problem. DHL likes to use them for geocoding. Walmart India notes a delta in their delivery fleet’s efficiency when applying these algos.
The caveat here (for us), is that the Indian market size for these savvy solution providers is limited, as SMEs are less willing to pay a high price for the service, which limits you to a select corporate enterprise user base. This has led to a push for these startups to move abroad. SE Asia’s problem statements in terms of improper addresses and information dissonance lend themselves (almost) perfectly to these use cases. More mature markets, say the US and Europe, where geocoding and both competition (in on-demand delivery) are easy, are not the best fit use cases for these algos. What seems to be selling there are home service provider applications and efficiencies at the warehousing level. Although this market is super huge, it is being tackled well by the current set of startups. And now it’s a matter of them proving scalability.
To sum up, pain points in logistics are covered well at the last-mile level and long-haul space (in terms of aggregation). That still leaves us with plenty of lacunae to solve for if one goes deep into a sector. For instance, from an agri point of view, there is again complexity in loads and routes at the first mile. We think that solutions that address those areas have a large scope. Also, bulk transportation of perishable products is a big opportunity. Warehouses across industries can use smart solutions to enable LIFO/FIFO systemically. With dark stores coming up within cities for large retailers, perhaps a predictive, demand-integrated, supply chain offering could be in the works. There are problems of logistics across verticals and sectors aching to be solved by smart entrepreneurs.
If you are a disruptor and want to work with us or have an opinion about the views expressed, please write into info@ankurcapital.com. We would love to have you optimise our (investment) ride!
