Great article! A fascinating take on a highly relevant issue for UPS.
To address your question, I believe that although a reduction in volume of UPS packages might be substantive in its effect on emissions, it is an unrealistic goal that should not be pursued. Demand for deliveries, powered as you note by Amazon and other e-commerce sites, is unstoppable. It reflects a new method of ‘from-home’ consumption, and there is little chance of it slowing. Additionally, a slowdown in the market for packages will not be beneficial for UPS, so they can hardly be expected to pursue it. The only way that logistics companies can affect emissions is on the supply side, as Jennifer suggested above. UPS appears to have been strong in its sustainability practices so far, but perhaps it could do more. Electric vehicles, for example, have been noted in many TOM Challenge essays to be more carbon-efficient than their gas-powered equivalents. You note that they are seeking to move 25% of their New York fleet to electric, is this enough?
Fundamentally, UPS need to publicize their own targets more aggressively. This will have two effects. First, it will demonstrate their practices to consumers, which will boost their B2C business segments through brand-building. Second, and more importantly, it would hold themselves to a high standard for their results, and ensure that standards do not slip. They could, for example, publish in detail the mileage of each of their drivers, and link that to total emissions. As you note, UPS have the potential to be a significant polluter in the 21st century, and they need to take drastic action.
Loved this essay. A great case study on a highly relevant company that raised some fascinating questions.
I would like to focus on Reformation’s proposition of scaling their network of physical stores, and argue that it is a high-risk strategy. When digital-first companies do this, they come from one or more of a few perspectives. I will posit that none of these are a plausible enough reason to employ the strategy. If they want to build a long-term platform for their sustainable practices, they should limit their offline sales, for now.
1. To ‘revolutionize’ the shopping experience: they want to bring some of their online expertise to reinvent the shopping experience in a new and improved way.
This is misplaced. In Christensen’s terms, their brick-and-mortar improvements are ‘sustaining innovation’ (as opposed to ‘disruptive innovation’), and they will be unlikely to provide a better experience than their retail peers. An attempt to ‘beat retailers at their own game’ is unlikely to succeed. Traditional retailers will be more competent at retailing, and the demand-side synergies between online and offline presences look overstated. Amazon’s physical bookstores are an example of this. Their competency is building a logistics network and online product offering, and their brick-and-mortar experience, although ‘revolutionary’, has been poorly reviewed. Christensen’s research follows that, in Reformation’s case, the ‘magic wardrobe’ and ‘touchscreen mirror’, if effective, would likely already have been scaled by existing retailers.
2. For brand awareness and credibility: the ‘concrete billboard’ strategy.
If brick-and-mortar stores are simply a marketing channel to drive online sales, they should be wary of the high fixed costs and inflexibility of scaling their stores. There will likely be diminishing returns to number of stores, and their customer acquisition cost will far exceed their lifetime value. As purely a marketing plan, the economics are unlikely to work, and they could likely scale their practices (business and sustainability) by focusing on the online channel.
3. As an additional sales channel: they aim to steal more share from brick-and-mortar competitors simply by taking customers who prefer in-person shopping.
Reformation should consider that there is a lot of room to grow online at a higher margin. Although in-person retail is a much larger market, the market is far from fully penetrated, and they likely get better returns from allocating their capital to scaling the online channel through marketing, for now at least.
In all, although Reformation’s environmental practices may be market-leading, their very sustainability could be more sustainable without pursuing brick-and-mortar retail.
Great article with excellent recommendations for Cargill. A fascinating read.
One further recommendation I have for Cargill centers on changing product and regional mix. As IPCC North America reports have argued, “climate-related yield increases of 5 to 20% over the first decades of the century, with the overall positive effects of climate persisting through much or all of the 21st century” (IPCC 2007: p361 https://www.ipcc.ch/pdf/assessment-report/ar5/wg2/WGIIAR5-Chap26_FINAL.pdf), with the 2014 report being more measured (IPCC 2014 http://www.ipcc.ch/pdf/assessment-report/ar5/wg2/WGIIAR5-Chap26_FINAL.pdf) by arguing that only some areas will benefit, there may be benefits to some areas and products in the US. This is because parts of the country are below optimal growing temperature for agricultural products, and the benefits of the increases in temperature could outweigh the increases in variability and extreme events.
Thus, might Cargill be able to offset some of the negative effects of climate change by the benefits of moving their operations to new areas and benefitting from the potentially increased yields?
This is a brilliant article on a fascinating subject. Approaching this issue from the perspective of Netflix’s supply chain added an interesting twist to the regular discussion of Netflix’s competitive landscape.
My view is that Netflix should be certainly be concerned about suppliers — including, but not limited to Disney — going direct-to-consumer. Netflix currently finds itself in an unenviable and complex supply chain situation. They operate (and are valued in the public markets) as a ‘platform’ business, which does not own its own content and simply connects studios with consumers. Now, as you note, given competitive threats, they are having to spend billions of dollars on their own content, bringing them increasingly close to a traditional ‘pipeline’ business. The problem is that the more content they make (and the higher its quality), the more relatively eyeballs they will be effectively removing from their suppliers’ content in favor of their own. This means suppliers will be increasingly incentivized to go on their own to protect their own viewership, as Disney plans to, or partner with other platforms.
This will generate a vicious circle:
(1) More expensive high-quality Netflix-produced content required
(2) Relatively more viewers watching Netflix-produced content than suppliers’ content
(3) Suppliers unhappy that content being crowded out, leave Netflix
(1) More expensive high-quality Netflix-produced content required
The end-game of this process is simply a pipeline business that produces almost all of its own content, at great expense, with all its competitors stealing market share with their own platforms.
The future, in my view, does not look bright for Netflix.
This is a fantastic article! Clearly and knowledgeably written on a fascinating subject. I have a few questions/comments.
1. In answer to your final question on whether the tradeoff is worthwhile, I believe that investing in a $900,000 drone network (the cost, according to Matternet: https://www.huffingtonpost.com/2013/03/25/matternet-paola-santana-drones_n_2763088.html?) is not mutually exclusive with spending tens of millions of dollars on road infrastructure. Much like a banking sector is likely to develop after the growth of M-Pesa and mobile wallets in Sub-Saharan Africa, Zipline’s technology does not preclude future roads being built. In fact, the economic development facilitated by services like Zipline is likely to stimulate the installation of traditional infrastructure. “Leapfrogging” technology, in other words, is a misnomer.
2. Why limit this model to hospital services? Might Zipline open this service to other direct-to-consumer (or direct-to-community) products, such as pill vaccines, water purifiers or even light mail? Are there potential use-cases around natural disaster zones?
3. How reliant is this service on the “partnership” with government? Many of Zipline’s most attractive growth markets are operating outside of stable political systems. Rwanda is something of an exception within Sub-Saharan Africa, in that its government is progressive and technology-forward. Would the “government partnership” model work in a context of a less innovative government? Does the model even require official government support?
Thanks for an excellent and thought-provoking read.
This is a brilliant article on a crucial and highly relevant topic. I agree fully with the issues laid out and arguments drawn on the impact of foreign exchange shifts on Tesco’s business model. However, it is worth noting that foreign exchange is only one of several supply chain risks relating to Brexit for Tesco. Considered below are two of the other potential Brexit challenges for Tesco worthy of consideration: migration effects and tariffs.
Closely linked to the Brexit vote was the expression of a desire for unchecked EU migration to the UK to be curbed. This could have serious consequences for Tesco’s supply chain. Tesco employs over 300,000 people in the UK (https://www.tescoplc.com/media/392373/68336_tesco_ar_digital_interactive_250417.pdf) across head office, the retail stores and the distribution network. Many of these are working in the UK from the EU, and could have their citizenship status and right to work revoked in the event of a ‘hard’ Brexit. Even if right to work assurances are given for current EU nationals, lack of labor supply in the future could cause raised wages and increased costs. This is a significant issue for Tesco, and in this case they may have no recourse simply to pass the additional costs on to their suppliers.
In the event of a ‘hard’ Brexit, tariffs would likely be placed on imports from the EU. This would have disastrous consequences for UK retailers, including Tesco. In a ‘no deal’ scenario, the UK and EU would resort to WTO trading arrangements, with some estimating food tariffs would reach 22% (https://www.ft.com/content/7f0c732c-93b8-11e6-a80e-bcd69f323a8b). Tesco would be forced either to squeeze their European suppliers, take the profitability hit themselves, pass the costs on to consumers, move supply chains through the UK (which, given the projected migration issues, would be more expensive than ever), or some combination of the above. This is a very real threat to Tesco’s business.
As you note in your essay, solutions will not come easy. Lobbying the British public, and by extension Theresa May, seems the only way out.