There’s 9 shopping days until Christmas. That countdown used to be prominently placed on the front page of local newspapers, encouraging shoppers to scurry to their local retailers.
Today, people are also paying attention to a different number – the last holiday shipping date. With more and more purchases being done online, customers are very aware of the limited time remaining to mail, ship, or post their purchases. No one wants to find the perfect Christmas gift only to have it arrive at the recipient’s doorstep on the 26th.
Online retailing giant Amazon knows the importance of getting those Christmas gifts there on time. In December 2013, the perfect storm of a last minute consumer shopping rush collided with a snowstorm that had UPS playing Santa days after December 25th came and went. Negative customer backlash to both UPS and Amazon did not go unheard.
Since then, Amazon has aggressively pursued improvements to its delivery infrastructure. One of their recent initiatives is a great example of how Amazon uses Effectual thinking to develop transformative innovations.
The Problem: The Last Mile is the Costliest
The shipping industry has a massive global infrastructure that has seen tremendous innovations in management and technology. As Amazon’s online sales and merchants have developed a global footprint, Amazon has developed partnerships with the major customer shipping outlets, including FedEx, UPS, the US Postal Service, DHL, etc. Able to take advantage of global scale opportunities, they have built warehouses in strategic locations worldwide to drive down costs while shortening their merchandise delivery times.
Yet as they’ve wrung efficiencies out of the origination of their shipping points, the most expensive and inefficient leg of the shipping process is the last mile. Getting the package to the customer doorstep is the costliest step. Why? To get the packages to houses, drivers must often criss-cross towns and suburbs. Sometimes they have to park far away from the home or search for the right house number or appropriate parking. If the package requires a signature they have to wait for a customer to sign or put it back on the truck for redelivery.
Rather than solve this problem on their own, Amazon collaborated with others to develop an innovative approach to reducing these last mile costs.
The Solution: Mobile Mailboxes
One solution that Amazon has enacted is the use of centrally located drop-off boxes in urban areas. When a driver delivers a group of packages to one location, it minimizes time spent driving. And standard box locations allow for optimized routing.
Amazon saw there were a lot of benefits to this, but they felt that there was room for further innovation. They identified a company who shared this last mile pain with them. The company they selected was DHL in Germany. As conversations evolved, they identified a secure dropbox that many of their customers already owned but that was going unused – a car trunk.
The conversation expanded to include car manufacturer Audi. Now all three companies were engaged together in solving this problem. The solution they developed is currently being piloted in cities in Germany. It works as follows:
- Audi developed a lock for trunks that is distinct from the overall car lock.
- Owners of Audis can download an app that “enables” their smart cars to participate in this pilot and signals their consent to have their packages delivered to their car trunk.
- Amazon packages ready for shipment are picked up by DHL.
- DHL drivers use the app to identify where the package recipient has parked their car for the day.
- DHL drivers are given a one-time use code that enables them to unlock the trunk of the car. They place the package in the trunk and close it.
- The driver gets a notification on their phone that the package has been delivered and their car is locked.
Both Amazon and DHL are betting that the majority of the users are commuting into the city and parking their cars in lots and garages. Rather than traversing the suburbs for delivery, it concentrates the drivers in the urban ring.
The Method: Effectual Co-Creation
When Dr. Saras Sarasvathy of the University of Virginia’s Darden School of Business identified the principles of Effectuation, the process of innovation used by expert entrepreneurs, she highlighted five key principles. They are all evident in this example.
1. The Pilot in the Plane Principle – the future is created, not predicted.
While a partnership between Amazon and DHL is not unusual, the addition of Audi and the reimagination of how even parked cars can be used as part of the delivery process show that Amazon believes that they can create new markets and transform industries.
2. The Bird in Hand Principle – start with what you already have access to.
As these three companies joined forces, they each contributed their existing resources to the innovation process. Amazon added their logistical optimization capabilities. DHL added their trucks and manpower. And Audi recognized that they had a “slack” resource to contribute – the Audis their customers were driving and parking.
3. Affordable Loss – invest only what you can afford to lose.
Despite the fact that they are global in scope, these three companies decided on a limited pilot to test this concept. Beginning with Munich, the companies will gauge efficiencies and customer response before committing to rolling out the service further. Each organization was willing to invest in small changes, such as creating apps, training drivers, educating customers in a limited market, etc. They recognize that just because they are large successful organizations, doing truly innovative projects means successes and failures and limiting the scope initially can be a valuable learning experience.
4. Crazy Quilt – co-create with additional committed stakeholders.
This principle is at the core of this project. Rather than viewing each other as competitors, DHL and Amazon are working collaboratively to solve this last mile challenge. And in order for Audi to participate in this project with them, Audi had to commit to making changes to their vehicles that enabled the trunk locking mechanism to be distinct from the overall car lock and compatible with smart phone technology. Ensuring that each party has skin in the game increases the involvement and commitment to success of every stakeholder.
5. Lemonade Principle – turn obstacles into advantages.
Just by participating in this collaboration, these three companies are acknowledging that they have a major obstacle – the high cost and inefficiencies of last mile deliveries. By working together to solve this, they could possibly convert this drawback into a competitive advantage.
Mastering the Last Mile
Corporate collaborations aren’t easy. But they are essential for true game changing innovation. The partnership between Amazon, DHL, and Audi to pilot this car trunk delivery solution likely took a lot of discussion, negotiations, and some strong corporate advocates in each organization.
But if all works as they anticipate, Amazon will get packages to customers more quickly, DHL will reduce its delivery costs, and Audi will deepen its value and relationship with its customers. All of which would make for a Happy Holiday season for these companies and their customers combined.
--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC