Facing the Crowd
Companies use crowdsourcing throughout the supply chain—from product design to final-mile delivery—to become the leader of the pack.
Crowdsourcing Defined
“The practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people and especially from the online community rather than from traditional employees or suppliers.”
—Merriam-Webster
Just Do It in Stores
Crowdsourcing Gets All the Credit
While much of the conversation around crowdsourcing in supply chain management today involves references to the internet and online platforms, high tech isn’t necessarily required to tap into the wisdom or resources of the crowd.
Nobody knows this better than Michael Hugos, author of Essentials of Supply Chain Management and co-founder of SCM Globe, a supply chain simulation tool.
While employed by a restaurant supply cooperative in 2004, Hugos used crowdsourced decision-making to solve a large customer’s problem—and keep the account. By brainstorming and discussing ideas via conference call with coop member leadership, the organization kept a key account by cutting the client’s excess inventory by more than 50 percent, saving it $400,000 during the holiday season.
“What’s the chance that 20 to 30 street-smart professionals would make the wrong decision?” says Hugos about the crowdsourced process he instituted.
From Design to Final Mile
This is just one example of how companies are using crowdsourcing throughout the supply chain, from product design to final-mile delivery.
At one end, online platforms such as Quirky.com give inventors a way to get crowdsourced feedback on product ideas, suggestions for how to produce them, and even help bringing them to market. On the other end, a number of startups are leveraging new technology to crowdsource drivers who deliver groceries and e-commerce purchases to homes and businesses.
In between, logistics technology developments in recent years have made it possible for companies to apply crowdsourcing to product and material transportation, too. Platforms such as Uber Freight and Quickload help reduce the truckload capacity shortage by using crowdsourcing to match shipments with drivers and trucks that aren’t running full.
“On one hand, shippers can’t find capacity, but on the other, most trucks moving down the highway aren’t 100-percent full,” says Ted Stank, professor of logistics and supply chain management at the University of Tennessee, Knoxville. “Digital crowdsourcing is a timely way to help shippers find available transportation at reasonable costs.”
Experts agree, however, that most crowdsourcing activity in the supply chain is focused on final-mile delivery. That’s where agile startups are using technology in ways the larger, long-established shipping companies aren’t—yet.
Amazon Flex set the pace, using crowdsourced drivers to deliver the last mile for some e-commerce orders in more than 50 markets.
There’s also Deliv, which uses crowdsourcing to provide same-day scheduled delivery to e-commerce customers in 35 major markets. The drivers, who learn about delivery opportunities through a range of “gig” job boards such as Task Rabbit and Wonolo, are guided by an app that optimizes their route. That path is determined by pickup and delivery locations, when orders will be ready, and when customers want them delivered.
Better-known InstaCart does the same with groceries, and DoorDash with restaurants.
Veho Takes Hold
Similar to Amazon Flex but on a much smaller scale is Veho Technologies, which has expanded to Denver after a successful pilot program in its home base of Boston. Like Flex, Veho’s model includes a distribution center. There, packages are sorted by ZIP code for delivery by crowdsourced drivers. Each driver works delivery routes grouped by neighborhood in the same way that a UPS or U.S. Postal Service driver does. Unlike those operations, though, Veho drivers on each route vary from day to day.
“If Amazon scales drivers and routes, it’s proof that it’s effective,” says Itamar Zur, the co-founder of Veho Technologies.
The Amazon Effect has been a little bit different for this innovator. “Since Amazon bought Whole Foods, our marketing situation has changed dramatically,” adds Zur. “Before the sale, prospective retailers would tell us to come back when we were in nine or 10 markets. Now we’re getting calls from big companies that want to learn and experiment with us.”
EpiFruit, a New York City final-mile delivery service using crowdsourced drivers, started as a solution to the founder’s problem finding an affordable way to deliver beverage alcohol from his Manhattan liquor store.
“When I learned that the minimum wage was increasing to $15 an hour, my head started spinning,” says Rohan Duggal, tech founder of EpiFruit.
The startup, which began delivering in Manhattan in early 2018, now serves primarily wine and spirits shops and catering businesses. It plans to expand market share by focusing on attracting and training top delivery talent so its customers don’t have to. “Finding a viable professional delivery person is a massive problem for a retailer or restaurant,” Duggal says.
Is crowdsourcing drivers for final-mile delivery a sustainable model?
“Not only is it here to stay, it will grow bigger,” says Zur. “People want flexibility and freedom, and crowdsourcing will continue to tap into that.”
Just Do It in Stores
Athletic footwear and apparel innovator Nike, Inc. is using crowdsourcing for inventory decisions at Nike by Melrose, its first Nike Live concept store.
Store stock will be “uniquely curated” by NikePlus members in a five ZIP code radius of the boutique in trendy West Hollywood, California. Nike also selected the store location based on insights from member activity on the company’s website and various apps.
About one-quarter of the store’s footwear inventory rotates every two weeks—approximately one month sooner than at other stores. Changes are based on in-store customer engagement with the product selection.
Customer engagement is measured by data generated when shoppers use the Nike App at Retail to scan barcodes for product details plus size and color availability. When data shows that visitors have lost interest in one style, it will be replaced by another style the consumer might select according to data from Nike.com or elsewhere.
The experiment is part of Nike’s efforts to unite digital and physical shopping experiences. “As well as being the first Nike Live destination, we will also test services that can then roll out to other Nike stores, combining digital features with a unique physical environment to create the future of Nike retail,” says Heidi O’Neill, president of NikeDirect.
Crowdsourcing Gets All the Credit
CreditRiskMonitor, a web-based publisher of financial information, uses crowdsourcing technology to provide supply chain, financial, and credit professionals with data and insights into thousands of large public corporations.
“By reviewing our subscribers’ click patterns on our website, and analyzing that behavior using sophisticated and proprietary algorithms, we’ve applied those findings to aggregate data across thousands of companies,” says Jerry Flum, CEO of CreditRiskMonitor.
CreditRiskMonitor subscribers—mostly corporate credit professionals at the world’s largest companies—are highly trained and thus influential in assessing credit and debt risk. CreditRiskMonitor’s research shows that subscribers can follow distinct, trackable click patterns when assessing companies with potentially elevated financial risk.
Getting FRISKy
When enough users start examining a particular company in similar ways over a specific time period, the system anonymizes and aggregates that data and then incorporates those crowdsource signals into the company’s FRISK score. The FRISK score is a financial indicator proven to be 96-percent accurate in predicting U.S. public company bankruptcy risk over a 12-month period.
“Credit managers are making decisions on corporate risk that affect billions of dollars of purchase and sale transactions each day, and undoubtedly they have an impact on troubled companies,” says Flum.
“SEC Fair Disclosure regulations restrict the flow of financial information from public companies to outsiders, but these restrictions do not apply to credit managers, making them an invaluable resource when it comes to mitigating risk potential,” he adds.
Credit Metrics
CreditRiskMonitor’s crowdsourcing data makes up one of the four key metrics used in the FRISK score, which also includes a “Merton” type model using stock market capitalization and volatility; financial ratios, including those used in the Altman Z-Score model; and bond agency ratings from Moody’s, Fitch, and DBRS.
Used as a first line of defense by its subscribers, every public company within the CreditRiskMonitor database has a daily updated FRISK score ranging from 1 (worst-performing) to 10 (best-performing). Companies in the lower half of the scale fall in the red zone and have higher risk for bankruptcy.