Terms like Red, Amber, Green; Red, Orange, Green; phased opening; restrictions; have all become a crucial part of our lives in the last few weeks. With the world slowly opening up amidst the Covid-19 outbreak, supply chain and logistics is going to play a really crucial role in setting up the ‘new normal’. Team Locus caught up with Chief Business Officer Krishna Khandelwal, to understand how zone-based routing and Artificial Intelligence (AI) in logistics can play a crucial role in the days to come.
1.What is zone-based routing?
The concept of zone-based routing has always been associated with logistics. It has historically been used – drivers have specific territories, vehicles have territories. We picked it up and unified all of it and came up with this concept called zone-based routing. Anyone can define the zones and associate different properties to these zones. This zone is an innate concept in logistics. All the stakeholders can be managed with this concept of zone-based decision making.
2. Different countries have different ways of opening up the economy. How will zone-based routing help in this situation?
We are aware of how different countries are using recommendations from the World Economic Forum (WEF) and other global agencies to open economies post lockdown. The lockdown cannot be implemented perennially till Covid-19 is fixed. So, a lot of countries and governments globally are trying to find a middle path where they are trying to contain the Covid-19-infected zones, ring fence them and open the other aspects of the economy. The moment they do it, from a transportation & logistics perspective, these territories can have properties like no entry-exit, specific type of product delivery, etc. As the Covid-19 pandemic wave goes up and down, zoning wll become a dynamic process by governments.
Some zones which are red today, will become green, green zones might go to orange or red. The zones could increase in size, decrease in size, which means a lot of confusion and chaos for companies who are involved in logistics and routing.
Zone-based routing allows them to consume this information which is available from a majority of governments globally in a digital format and use this info and do the planning without any manual intervention in the process. It is a dynamic scenario, zones going up and down, areas changing, etc, no human being can take in all the factors, that too in a dynamic way. You do not want to get your logistics costs up because of these zone-based restrictions. How do you take it into account and still run a very efficient business? That is where the concept of zone-based route optimization will come into the picture.
3. How does the tech actually work in the background?
There are two aspects to zone-based route planning – one is defining the zones, and second is using these to plan your operations.
- The first part of zone-based routing is digitally collecting info around red, orange, and green zones. Some governments, globally, are providing this information centrally, and businesses can consume this information in one go, whereas some governments aren’t (providing this information). They do it in a broken format- state, district, territory level. Companies need to translate that into a digital format. The first component is providing an interface to both governments and businesses to draw these zones and make this information available digitally for various stakeholders. We provide a tool where you can drag and draw zones and associate properties to zones. These can be linked to databases and government websites so it can automatically be updated.
- The second component is automation of decision making using algorithms. Once the zones and its properties like route restrictions, type of product restrictions, essentials vs non essentials are defined, your (logistics) planners need to take this into account everyday. Not only do you have to comply with regulations, you also need to keep the drivers safe too. Because of these restrictions, transportation planning becomes difficult. The complex job of a planner has become more complex because of Covid-19, it should rather be done by machines.
4. How crucial is logistics in the Covid-19 scenario?
The Covid-19 pandemic is a massive black swan event. The way people buy and consume things is already changing. As the new normal of different channels comes in, logistics is the single most critical component which will make it possible. You cannot set up a digital infrastructure where things will happen without a human touch. We are far from a scenario where autonomous vehicles will control a big chunk of logistics and transportation movement. Till then, the only thing that makes it a reality is supply chain logistics.
If I have to make a bold statement – I think the success of most economies to come back to the levels before the Covid-19 pandemic, be it GDP growth, per capita GDP income and other metric that economies are evaluated on, will depend on how nations will sort their logistics and supply chain processes. It is as simple as that. That is how critical supply chain logistics is.
5. Which industries will benefit from zone-based routing?
Irrespective of industry, the shippers, manufacturers have to go closer and closer to customers because of different channels of consumption, especially E-commerce. The component of intra-city logistics and last-mile planning, especially in urban areas, is going to play a crucial role, across industries. Next few quarters, E-commerce will be the primary channel of consumption, across industries. For the next few months, the need for zone-based routing will be industry agnostic.
6. Will zone-based routing be useful when things come back to normal?
We have not introduced zone-based routing yesterday. It has always existed. This was a key core component. We believe that this is a valuable piece of tech in logistics and supply chain. Covid-19 has made it more so. One thing that is going to change for large companies is the way they will look at their transportation and supply chain, both strategically and functionally.
For example, large enterprises will want tighter control on their logistics and transportation and warehousing. Companies will keep multiple options of transportation and logistics, warehousing available. They will have their captive fleet, instead of maybe two transporters, they will have multiple transports. When it becomes more complex, the concept of zone-based routing will become extremely critical.
You will need to define structure, different categories of vendors, captive fleet, 3PL. It plays a critical role in customer experience. Transportation and logistics is one of the margin eaters for E-grocers, E-commerce, and retailers. People will focus on profits now. We believe that brands will say no to customers who they cannot service, based on locality or region or type of orders. At that point of time, defining your service zones will play a critical role.
7. What can companies expect from zone-based routing?
It is not zone-based routing, it is routing. Zone-based routing is a feature that is critical in that. Not having this in these times could lead to inefficiency. Routing becomes a complex process, mathematically, due to the added restrictions. This zone-based routing is a critical feature in the routing infra, it can move the needle by 5-10 % in Business as usual (BAU) scenario and to the extent of 30-40% in the current scenario due to zone-based restrictions.
8. Can AI offer quick fixes for companies?
What we are trying to do with routing is essentially automate decision making and mimicking human behavior. This is what brings AI to routing. The myth is that AI gives instant ROI, like ERP systems. When it comes to AI and routing, proper set up is key. Data is scattered across different departments and feedback mechanisms. The instant ROI part should not be the target area, you should give it the gestation period. AI makes you future ready.
9. Does zone-based routing work better in developed countries or developing countries? Also, how important is geocoding?
Zone-based routing, irrespective of developed or developing countries, restrictions are restrictions. It could be the US, Europe, it needs no geography or territory. The concept of zone-based routing is geography agnostic.
As far as geocoding is concerned, the problems of addresses when it comes to the developing world, it is really bad. You can never say the latitude and longitude of an address with high confidence. Whereas in the developed world, if I get thousands or millions of addresses, even if 5% of addresses are not correct, I don’t know which 5%. So, the problem in the developed world is address verification. When E-commerce becomes more critical, we are looking at both of these amplifying on a large scale.
10. Is zone-based routing more useful for bigger companies as compared to the smaller ones?
For larger companies, given that the scale is large, even a 5% inefficiency could be a large absolute number. Might not be the case for smaller companies in terms of numbers. But, both large and small companies will get impacted.