Self-Driving Vehicles and Drones – What it means for procurement
Driverless vehicles are no longer a concept confined to science fiction , they are a tangible and very real option for buyers in certain locations to consider. Forecasts indicate that autonomous cars would be available in dealerships as soon as 2020 and by 2040 that 75% of all vehicles will be autonomous. If this doesn’t convince you that automated vehicles are to be taken seriously maybe the potential industry wide savings of £34 Billion will. This could yield large price reductions in voluminous goods such as food and furniture but will cause havoc in the transport industry.
According to the AXA UK report The Future of Driverless Haulage (2015) this staggering figure could be arrived at within ten years. The savings would come from the reduction of expenses such as labour, fuel and insurance costs. While some may worry that this could cause a loss in jobs, many commentators argue that jobs will be displaced to other activities that will ultimately improve overall social welfare. History taught us that the industrial revolution caused mass displacement of workers from rural to urban centres in search of work but that ultimately improved overall living standards. But that lesson may be lost on individuals who suffered as a consequence. The fallout could be swift as carriers rush to compete on a new cost base that is stripped of labour. There may be a first mover advantage as carriers that don’t automate, will have higher operating costs and will be forced to invest in autonomous trucks to remain competitive.
While driverless road vehicles will play a vital role in reducing spend in sourcing efforts, road haulage is not the only transport cost associated with shipping products. Another imminent development for autonomous vehicles will come when they manned ships are replaced with fully automated ships.
Advances are being made at an accelerating pace. Rolls-Royce have been proponents for the automatization of sea faring vessels with Oskar Levander, VP of innovation, engineering and technology predicting that the first unmanned cargo vessel could be in operation by 2020.
While road and ocean vehicles are still in their infancy, drones are already becoming commonplace. The implications for last mile delivery costs could be very substantial. There are, however, significant regulatory obstacles that could make widespread deployment challenging and risky.
The importance of public opinion in the rollout of such initiatives should also not be underestimated. The novelty factor may be welcomed by some demographics but dismissed as dangerous and reckless by others. In 2016 Amazon performed their first drone delivery. This could be viewed as a strategy to side-step parcel delivery oligopolies so it has a different economic driver than road or sea transport but it has similar potential for disruption.
So procurement teams are likely to witness increased volatility in sectors where transport costs are significant. It will be important to be nimble and increase the frequency of tendering activities so that responsiveness is increased.