Kenichi Shimizu: IoT & Blockchain will Improve Deliveries
An insider shares how Japan’s door-to-door delivery services will soon use IoT and blockchain to improve efficiency and convenience.
Like the rest of the world, Japan has been experiencing a growing volume of door-to-door deliveries resulting from ecommerce sales. However, the delivery service providers have been struggling with labor shortages, thin margins, and the high percentage of orders which need to be redelivered due to recipients not being home.
A consortium in Japan has been working together to develop solutions using blockchain and IoT technologies to reduce the need for redeliveries, improve security, and enable cash-free payment upon delivery. The aim is not only improved convenience for customers and operational efficiency for delivery companies but also an overall reduction in energy consumption and emissions.
We spoke to Kenichi Shimizu, the resident expert on all things related to blockchain at Saison Information Systems’ headquarters in Tokyo, about their work thus far. The result was an insider’s view of the current state of Japan’s delivery services industry and some of the key innovations that will shape it in the coming years.
This transcript has been translated from Japanese and edited for clarity.
To give our readers some context, tell us about Saison Information Systems and your role within the company.
Sure. Let me start with the macro and drill down to my position.
Our parent, Credit Saison, is a financial services company affiliated with the Mizuho Financial Group. They’re a household name in Japan thanks to their consumer credit card business.
My employer, Saison Information Systems, is an IT company with over 1,150 staff and annual revenues of around 31 billion yen (275 million USD). Our services businesses provide systems development, integration, and operation for large companies, particularly those in the retail and financial sectors. We also have divisions that develop and sell enterprise software products. Our best-known product is the HULFT series of data management middleware.
The team I’m part of operates independently from our business units and is called the “Technovation Center.” Rather than focusing on quarterly KPIs, our job is to make sure the company stays on top of cutting edge technologies such as artificial intelligence (AI), blockchain, fintech, IoT (internet of things), and cloud computing.
I started working with blockchain around eighteen months ago.
For those who aren’t familiar with them, could you briefly define blockchain and bitcoin?
The first blockchain was conceptualized in 2008 and implemented the following year as a core component of the digital currency bitcoin, where it serves as the public ledger for all transactions. The system is peer-to-peer and works without a central repository or single administrator, making it the first decentralized digital currency.
To help people understand the significance of the work your team is doing, could you explain how door-to-door deliveries work in Japan?
Let me give you a rough timeline of how modern door-to-door delivery services have developed in Japan.
- In the mid-1970s, the forerunner of today’s door-to-door delivery services appeared in Tokyo. Demand rapidly grew, with numerous firms quickly joining the market.
- In the 1980s, the expansion of the national highway system allowed companies to shorten delivery times and broaden the scope of the now commonplace “next day delivery” service.
- During the 2000s, as the systems became increasingly computerized, customers became able to specify the day and time they would like their package to arrive, reducing the need to wait around.
- In 2007, the newly privatized Japan Post joined the market, backed by its extensive domestic and overseas network.
- In recent years, convenience stores have also joined in the business, serving as 24-hour pick-up and drop-off points.
- The volume of deliveries has soared as consumers have increasingly embraced online shopping. This trend has accelerated as mobile commerce has increased.
- Today, these delivery services are regarded as an indispensable part of daily life by many in Japan.
Can you give us some examples of how modern Japanese rely on these services today?
The delivery service companies are constantly innovating to meet changing demands. For example, in response to the graying of Japan’s population, certain companies offer senior services, such as delivering broken household items to a shop for repairs or picking up groceries from the supermarket.
They deliver a wide variety of packages including perishables, fragile and large-sized items, electronics, and luggage safely, quickly, and at a reasonable price. With a single phone call or trip to a neighborhood convenience store, customers can arrange for items to be delivered reliably anywhere in Japan and hundreds of locations overseas.
Travelers frequently turn to these services to simplify their trips, sending cumbersome baggage ahead to hotels or back home after their journey. For example, in winter, skiers and snowboarders heading to the slopes by train avoid the burden of lugging heavy and unwieldy equipment through stations and crowded carriages by just calling a delivery service.
How are shipping charges handled?
Delivery charges are determined by package size, making it easy to ascertain shipping costs quickly. Fees may be required upfront, but cash-on-delivery options are also available. Recently, the payment systems of many websites, which before required payment verification prior to shipping, have been simplified to allow customers to order something and pay for it COD (cash on delivery).
What happens if nobody is there to accept a delivery?
When nobody is there to receive a delivery, a Failure of Delivery Notice is left, which lets customers call and arrange a new delivery time. These notices often include the drivers’ mobile phone numbers, allowing the recipient to get in touch while they are still in the neighborhood to arrange redelivery. There are also automated phone services that people can call anytime to schedule redeliveries. Redelivery is free of charge.
Sounds like a well-thought out system. What are the problems you’re working to solve?
Yes, it is an excellent system, but it is currently buckling under the pressures of the rapidly growing volume of deliveries, a labor shortage, and relatively high turnover of delivery personnel.
Exacerbating this is the number of packages that must be redelivered. According to government figures, over 23 percent of packages are not delivered on the first attempt.
Some delivery services allow the recipient to specify the delivery to arrive down to within a two-hour window. While this was meant to reduce the need for redelivery, it can also be quickly forgotten. For example, the recipient steps out for some reason and misses the delivery. And, since there is no additional cost for redelivery, it’s only a minor inconvenience for the recipient. Some particularly busy recipients may miss a delivery multiple times.
This is a significant drain on the delivery companies. They not only increase the workload of individual delivery personnel, but also increase the consumption of fuel and transportation cost, and mean more carbon emissions for the overall service provider.
What measures are in place to minimize the need for redelivery?
In recent years, people are increasingly sending their deliveries to the nearest convenience store. The density of convenience stores in Japan is high, especially in urban areas, making it convenient to pick up packages while running errands or on the way home from work. The customer is emailed a barcode which they can show to the store clerk. It’s all tied into their point of sale (POS) system, which is linked to the delivery company, which in turn connects to the ecommerce merchant. It’s a very efficient system.
Another measure to avoid redelivery trips is delivery lockers, which are installed in many office and apartment buildings for deliveries that come while the recipient is away.
How do these delivery lockers work?
Well, they have a lot of problems, which is what we’ve been working on, but let me first outline their current status and how they are supposed to work.
The older delivery lockers are analog and require a combination of three or four digits to open. This number is registered with the delivery company in advance. If there is nobody to receive the delivery, they are supposed to put the parcel in a vacant locker, lock it with the recipient’s combination code, and then leave a notice in the regular post box so that the tenant knows a delivery is waiting in their locker.
Newer buildings have smart keys which allow tenants electronic access and authorization. If a delivery is left in a locker, a notification is sent to their apartment or suite. The tenant will also see a notification each time they go through the entrance and swipe their access key until they pick it up.
The delivery locker arrangement seems very practical. What features of it have been problematic?
Indeed, when everything works as intended, they provide a win-win scenario for all concerned. However, they have various issues.
- Deadlines: The lockers have a maximum period for storing parcels. In the case that the recipient is traveling or for some other reason doesn’t pick up their package, the delivery company will have to come and get it again. They will then hold onto it and dispose of it if it is not claimed by a particular date.
- Misdelivery or Theft: If the package doesn’t arrive due to missilery or theft, the recipient must follow-up with the delivery company. If the goods are replicable, whether or not they will be replaced will depend on the individual contracts with the delivery company and ecommerce merchant.
- Refusal to Use: Whether or not to install delivery lockers is the choice of the building owner. Even if they install them, there are cases where they need to sign a contract with the delivery companies before they will use them. If both parties can’t agree on the terms of the contract, the delivery lockers won’t/can’t be used. Also, if the specs of the delivery lockers don’t meet the standards of the delivery company, they won’t use them.
- Prohibited Cases: Some items are not eligible for delivery to lockers. These include perishables, registered mail, and COD. Also, some senders write “Delivery Lockers Prohibited,” and insist on the recipient being there to sign off.
- Capacity: Obviously, if all the delivery lockers are full, or the package is too large to fit, then they can’t be used.
- Standardization: The lack of standardization in specs and usage can cause confusion and inconvenience.
Are there any issues specific to analog versus digital delivery lockers?
Yes. As for the older analog lockers:
- Tracking: Often the delivery personnel are busy juggling multiple tasks and receiving calls. It is not uncommon for them to leave a notice in the regular post box. As a result, the tenant doesn’t realize there is a package waiting for them. Even if they guess there might be one, they don’t know which of the lockers it is in. Some buildings may have minimal management, and may not be tracking their delivery lockers.
- Security: The delivery personnel may also forget to lock the locker. Also, some tenants set weak combination codes such as 0000, 1234, or 9999, and thieves may use this to take their stuff.
- Policy: Due to such problems, some delivery companies refuse to use such analog delivery lockers.
Then, for the newer digital lockers:
- Cost: For the building owner or developer, this type has a higher cost, both in terms of installation and ongoing maintenance.
- Delivery Errors: If the delivery staff input the wrong room number, the wrong recipient will get notified and the correct one may not. Also, if for some reason the sensor doesn’t record the package being inserted, the system will display its status as “vacant,” and the recipient won’t be notified.
- Recipient Errors: If the recipient incorrectly inputs the access code multiple times, the locker may not allow further attempts, and so the recipient will have to wait until the building management staff is available to open it for them.
What steps are being taken to solve these issues?
As I’ve hopefully outlined, this is a complex and nuanced situation with many parties involved.
We at Saison Information Systems have been cooperating with several Tokyo-headquartered companies to take the first steps towards solving them. The first milestone we’re working on is creating a delivery locker that allows only the designated recipient access to a package. We have developed and trialed a prototype control system for opening and closing the locker which prevents misdelivery.
Joining forces with us in this “Blockchain Working Group” are:
- Uhuru: Uhuru is a service provider that offers enebular® IoT Orchestration Service. enebular is an innovative product that solves issues that accompany IoT implementation such as managing a massive number of devices, simplifying development of the cloud and edge devices, optimizing overall costs (TCO) for networks, storage and devices, and ensuring end-to-end security. We continue to bring innovation to the customers’ businesses in the manufacturing and marketing realms with enebular. Uhuru has organized an IoT consortium, the IoT Partner Community, which we are participating in.
- GMO Internet: The parent company of the GMO Internet Group. Its group companies cover a broad range of Internet services, including several that dominate their respective sectors within the Japanese market and have substantial overseas operations. GMO Internet provides the Z.com Cloud Blockchain, as described in the next section. GMO GlobalSign, one of the Group companies within the GMO Internet Group, is a world leader in certificate management and identity solutions and is also one of the members of Blockchain Working Group.
- A major operator department stores, primarily in Japan. We have trialed the solution in their facilities.
How are blockchain and IoT being used to solve these issues?
We have been testing a system using the GMO Internet’s Z.com Cloud Blockchain, which is a platform-as-a-service (PaaS) solution. The delivery locker’s internet connectivity is handled by our product, HULFT IoT. Either the recipient or the delivery personnel would use a smart device to provide the access codes electronically. The blockchain is used to manage security, keep records of when the locker was opened and by which party.
This technology takes care of many of the issues I mentioned. In fact, these new smart delivery lockers could be placed in many locations, not only apartment or office buildings, to give far greater convenience to all parties concerned.
Tell us more about the technical development.
Essentially, the locker has two actions, allowing by the delivery personnel to open it for putting the package in, and allowing the designated recipient to take the package out. Both parties have an app on their smartphone which uses the blockchain to manage permissions. It also keeps records of what actions were performed by each party. Essentially, it takes care of everything we would currently do in a face-to-face transaction. It can also allow the various parties to monitor progress of the transaction via their apps remotely.
I worked in a team of three to develop the system. Among us, we had all the necessary skills, including mobile app development, using the blockchain, and communication with the locker’s computer. For the locker computer prototype, we used a Raspberry Pi, which is a small, single-board computer.
It was my first time to work on such a project and to be honest, I was a bit tough. Our team followed the waterfall model, which is a sequential approach to software development. It wasn’t ideal, and so has led me to study Scrum, which is an iterative and incremental agile framework for managing product development.
What about payments?
Technically, we can also enable the handling of COD payments. However, we expect adoption to be unlikely in the near future since the general public is not yet familiar with such methods.
Tell us about your collaboration with the department store chain operator.
We have been working with one of the leading retailers in Japan. They have long been known for their popular brick-and-mortar department stores. In 2014, they launched an ecommerce business. We worked with them to trial our delivery locker system in early June this year.
What has been the response since you released it?
We got quite a bit of media coverage in Japan. Blockchain is a hot topic in the tech sphere these days. Also, it was a surprise for many to see Saison Information Systems, which is known for being a traditional company working with legacy enterprise systems, working on something cutting edge.
What are your next steps?
Our consortium plan to do further trials and continue evolving the technology to be able to handle more scenarios that delivery service providers must deal with including payments, dealing with perishable items, and more detailed activity tracking.
