The long tail business strategy was coined by Christopher Anderson, then Editor of Wired, in 2004, to describe a new business strategy that allowed companies to realize significant profits by selling low volumes of hard-to-find items. The long tail strategy is based on the argument that products in low-demand or with low sales volume can collectively make up a market share that rivals or exceeds the relatively few current best-sellers, assuming the distribution channel is large enough.
Typically, long tail goods have remained in the market over long periods of time and are sold through off-market channels; they have low production and distribution costs but are still readily available for sale. As such the long tail of distribution represents the period of time when sales for less common products can return a profit due to these reduced marketing and distribution costs.
The Old Marketplace
In the old marketplace, the only way to sell a product was through a brick and mortar retail establishment that was bound by either the physical limits of a retail store or the number of pages in a catalog. Therefore businesses only focused on best sellers. Companies were inherently restricted to only produce products or offer services that appealed to a large number of the general population, and niche product or service offerings were discouraged.
Most traditional retailers would say their business looked like a Pareto chart that shows 80% of the company’s revenue is generated by 20% of its products. There were a few high velocity products that made up the head of the distribution, followed by the torso that was a medium-size piece of the distribution. And then there was the portion of the business that were not mainstream best sellers and sold in smaller quantities; this thing that businesses just always hoped would go away – the long tail.
A look at what is happening in the marketplace, however, makes it clear the long tail is doing everything but going away. The fact is, the consumer wants more product choices. In order to meet these consumer demands, businesses are being forced to grow their product assortment, and SKU proliferation occurs. The result? Instead of the long tail getting smaller, it is actually getting much longer.
The New Marketplace
In the new, long tail marketplace, the economy has shifted from a few mass markets to millions of small niche markets. The long tail business strategy implores businesses pay attention to the 80% of products that only 20% of the competition are interested in – meaning the items that form the long tail of your inventory.
This shift has been caused by three primary triggers:
- Falling costs of technology give individuals access to tools that were formerly too expensive;
- Creation of channels on the internet that lower transaction costs, opening up products for niche markets; and
- Powerful search engines that allow potential buyers of niche products to search, while recommendation engines and user ratings make it easier for buyers to locate products.
The problem for businesses, however, isn’t so much that the long tail of your distribution gets longer. The problem is that the head of your distribution shrinks. Historically, the cost structure has been dependent on the ability to efficiently pick and fulfill high velocity products. A few products drove a lot of revenue, which covered those distribution costs. It makes sense, then, that investment dollars have typically been targeted on the head of your distribution. Those days, however, are over. The focus now has to be on where the majority of business lies – the long tail and the torso.
In fact there are 10,000X more products than two decades ago, and this long tail is the engine for revenue growth for companies that are thriving. Product growth associated with the long tail, however, requires 3X to 5X more labor to manage it. Of course, finding this available labor is not easy. The low unemployment rate is not the issue, rather it is a result of the fact that so many successful retailers now require this additional labor to meet the needs of the long tail. We call this the labor tail effect – companies are thriving due to the long tail, but they are being crushed as a result of the associated labor tail.
Automation for the Long Tail Strategy
To be competitive from a cost structure perspective and still meet the consumer preferences, it is essential to figure out a way to make the long tail portion of inventory and distribution more efficient. A challenge, for sure, since the long tail has eroded the effectiveness of legacy automation since fewer products can be shipped through these systems.
Among the costs inherent in adding inventory – at the core of the long tail model – is the decreased output that occurs as the job of picking orders becomes more complex and time consuming. This leads to an increase in labor costs—as well as the increased difficulty of finding enough available labor—and overall costs. A large number of SKUs makes it difficult to pick orders effectively and efficiently, and increases the likelihood of mistakes, resulting in a significant increase to related distribution costs.
AR/AS systems are too expensive for many companies to invest in, and cannot efficiently handle low-velocity products associated with the long tail. Likewise Automated Mobile Robots (AMRs), robots which require a person to walk alongside them to fulfill the piece picking function, only provides an incremental bump in efficiency and forces the workers to work harder, not smarter. While people want to leverage automation, they do not want to be automated by it.
As demand for more efficient distribution of long tail inventory grows, and as the labor market shortage persists, companies that want to compete effectively must factor robotics and automation into their game plans. The companies that explore and iterate with flexible automation will be best positioned to generate new levels of customer satisfaction—all while leveraging automation as a fundamental competitive requirement.
How AMMRs Can Deliver the Long Tail Strategy
Autonomous mobile manipulation robots (AMMRs) are a particularly good choice for e-commerce applications, particularly those in which a high percentage of orders include slow-moving SKUs. These inventory items typically makeup 80% or more of a retailer’s inventory stock and up 55-60% of labor costs. That means fulfillment requires a lot of walking and traveling around the facility, and that is an area where AMMRs have the opportunity to shine.
AMMRs are a type of autonomous mobile robot that combines navigation, sensing, and manipulation, and have the potential to transform the logistics industry. Robotic systems, like IAM Robotics’ Swift Product Suite, can improve efficiency by removing human error from mundane, repetitive tasks like piece picking. It is able to travel autonomously around warehouse aisles, find inventory locations, individually identify objects, and autonomously pick the objects. These robots automate both the movement and the picking/transfer of goods, and provide a complete automation solution for warehouses and distribution centers seeking to operationalize the long tail model.
Imagine being able to go from requiring 3X to 5X more labor, to no additional labor at all. AMMRs solve for the labor tail by efficiently automating the picking of long tail products. AMMRs are scalable, and allow companies to expand their fulfillment network with smaller fulfillment centers closer to the consumer, resulting in faster delivery. Companies can make their AR/AS systems, A-frames, and carousels more effective and economical by allowing those systems to handle high-velocity products. The AMMRs, then handle the slow-moving items, thereby allowing workers to work smarter and to be more productive while the business grows.
Robots help enhance operational flexibility, drive down operational costs, promote business growth, and improve customer service levels. As robotic technology becomes more widespread and deployment costs go down, the business case for these valuable automated components will only get louder. Both small and large warehouses can enjoy both productivity and efficiency gains when robots support the existing workforce, and allows workers to flex and scale operational capacity according to changing demands and shifting economy.