Big Idea

Automating Logistics

Machine learning start-up, Locus, is aiming for offline businesses after automating logistics for e-commerce players 

"Any sufficiently advanced technology is indistinguishable from magic.” Nishith Rastogi, CEO, Locus, seems to have internalised Arthur C. Clarke’s insightful observation. His current goal is to eliminate all human decisions from the process of transporting a shipment from point A to point B. His long-term vision however, is much more audacious. He envisions a world where one day, humans themselves can be eradicated from logistics management, with the aid of machine learning algorithms, self-driving vehicles and mechanical arms. And if everything goes according to plan, Bengaluru-based Locus, a machine learning start-up that helps enterprises automate intra-city scheduled and on-demand delivery, will be a big part of that inevitable transformation. 

“Logistics today, is just data, data and data,” he says emphatically. “Every single rider of every single client of ours is a human sensor network. While we are talking right now, I’ve collected over a million data points,” he says. The amount of technology and automation required in logistics today is huge. “Now that we’re in, we have figured that this is a gold mine. Logistics is a problem suited for computers to solve. Nobody had solved it yet so people tried to simplify it using hub and spoke. But, it basically is high order equations that need to be optimised with hundred-plus variables. A human can’t do it, but a computer can.” To that end, Locus is an R&D driven, engineering-first start-up, with a small team of 25, 25% of whom are PhDs. “We will never be a sales-driven organisation, our valuation will depend more on our patents,” he says. They are currently in the process of filing three patents, a process which takes three to four years.

Early days
Their deep tech-focus is not surprising given that both Rastogi and his co-founder Geet Garg, both ‘hardcore tech guys’, met while working on machine learning at Amazon. However, the genesis of Locus lay in RideSafe, an app that Rastogi and Garg designed in the aftermath of the Uber rape incident in December 2014. RideSafe was a route deviation engine that sent out alarms if the driver was deviating from the set route. While it was an app aimed at securing women safety, the duo then discovered that a bunch of enterprises were using RideSafe to track delivery boys. 

Soon Rastogi and Garg decided to conduct their own research. “We discovered there is a lot of arbitrage. We sat outside apartment complexes, spoke with delivery boys, saw how full their bags were, and we soon realised there is a lot of spare capacity floating around,” shares Rastogi. They also spoke to station managers and found how theoretical solutions don’t work on the ground, since ‘in theory, theory and practice are the same; in practice, they are not.’ 

“That is our USP. The creed is very clear to the data science team, it’s not a science project; it has to work on the ground,” says Rastogi. Soon after, angel investors like Amit Ranjan, Manish Singhal, Bhupen Shah started showing interest in their app, and the start-up raised seed money in July 2015. In December 2015, it raised $2.75 million in Series-A funding led by Exfinity Venture Partners along with Blume Ventures, BEENEXT, Fung Capital and others. V Balakrishnan, ex-CFO, Infosys, too, agreed to join its board. 

Shailesh Ghorpade, managing partner, Exfinity Venture Partners, says, “Locus’ technologies will take logistics to the next level, notwithstanding structural issues. They have started with the first and last mile to begin with. As they get more data and algorithms mature, it will impact the entire logistics chain — first mile, last mile as well as long haul.” To achieve this, Locus will require further rounds of funding and Exfinity will be participating in these, says Ghorpade.

End-to-end automation
Today, the start-up has around 20 clients including Delhivery, FreshMenu, Urban Ladder and others, including five international clients. It follows a pay per delivery model and charges a percentage of the cost savings from its clients. So, if the client saves Rs.100, Locus charges 10-25% of this amount depending on the complexity of the services rendered. The start-up is ‘grossly profitable on a per unit basis’, according to Rastogi. With minimal expenditure on sales and marketing, the bulk of its cash burn is for hiring talent and applying for patents. 

While many hyperlocal start-ups have partially solved the logistics problem, Locus, which Rastogi terms ‘an inch wide and a mile deep’, has delved deep into the waters. Locus’ value proposition to clients, as Rastogi puts it, revolves around one question: “Manoj kahaan hai?” They promise to ensure consistency, efficiency and complete transparency to all stakeholders, including customers, in managing its logistics. “If your end customer knows 30 minutes before the shipment is arriving, your return rates drop by 20%, which is a huge cost saving,” says Rastogi. According to Rastogi, Locus is especially becoming popular with companies that have an average shipment mass of above 5kg, since not only is the cost of shipment higher but also the potential cost reduction.

The field agents are equipped with an app called ‘Locus on the Road’ (LOTR), which is an all-in-one solution, according to Rastogi. It breaks down the orders into sub-tasks, offers extensive navigation support, is capable of authenticating proof of delivery and signatures, thereby ensuring effective communication even in areas with terrible networks. In addition, it has a ‘tech layer to get enterprise grade performance from consumer grade hardware’. 

For delivery managers, Locus has a dashboard on which he has a real-time view of the entire fleet, updated every 10 seconds, which the customer support team also uses to resolve queries. The view includes ongoing orders, finished orders, cancelled orders, the location of the field agents along with other features. “It has an Excel-sized interface, so it is easy to use,” says Rastogi. The start-up’s solution also incorporates ‘fuzzy decision making’ into its algorithm, an aspect essential to real automation. “Imagine that a delivery vehicle will reach 30 minutes late to the warehouse for a pick up. Instead of assigning a new vehicle, the algorithm will decide to inform the customer about the delay and carry on with the same vehicle, since the cost of opting for a new vehicle is much higher,” says Rastogi. It also deals with inaccurate addresses through geo-coding. This is a big challenge, and Rastogi says that for every line of code he writes, he has to write nine additional lines for it to work on the ground in India. “If you can do it here, you can do it anywhere,” he says. 

The solutions they offer can be customised. Clients have the option of directly using its app or integrating its software development kits (SDKs) on their delivery app. The start-up has over hundred APIs that can be plugged in or out, depending on the client’s use case. “Our biggest customer doesn’t use our app, they’ve built their own app and integrated our APIs. They use our logic and the dashboard,” says Rastogi. 

They are also working on a bin packing problem, which nicely ‘ties in with their core thesis of logistics automation’. Bin packing essentially is concerned with maximising packing efficiency, and is used to fill containers as efficiently as possible. This is helpful for large FMCG companies, for whom greater packing efficiency means a potentially big cost saving. “If they increase their efficiency by 1%, it amounts to a yearly saving of Rs.1 crore,” says Rastogi.

Sky is the limit
Going ahead, Locus is looking to expand its client base to non-VC funded businesses, because as Rastogi says, ‘start-ups aaj hain kal nahin’. “Offline businesses like manufacturing have overcapacity, bigger volume and margins are extremely low. Logistics, supply chain are key areas of impact. Locus’ solutions will help improve cost structure and impact bottom-line significantly,” says Ghorpade. 

Rastogi is particularly interested in cement companies, a sector which he calls the biggest on-demand sector in India in terms of revenue and transactions. “If there is a shortage of 20 sacks on a construction site, they won’t stop work and will order for some more cement immediately,” says Rastogi. Cement is an undifferentiated commodity and logistics is a huge issue for manufacturers since transportation costs account for 40% of total costs. This is one big opportunity for Locus, since tech penetration in the cement industry remains very low.

An industry executive, a prospective customer of Locus, who did not wish to be named says, “The main advantage of Locus is in enabling real-time decision making. What we follow today is the hub and spoke model, which is not very efficient.” Of course, this will involve some investment from the company in equipping transporters with smartphones and training them. “More than cost saving, something like Locus can help me capture opportunities I miss out on and increase revenue. Sometimes we don’t have vehicles ready. With this, I can take my inventory close to the customer, and fulfill requests as they keep popping up,” he says.

Logistics is a $300 billion industry riddled with inefficiencies. The cost of logistics in India as a percentage of GDP is 12%, compared to 5% for advanced economies. Aided by GST, which is set to eliminate some of its structural inefficiencies, it is an industry ripe for tech disruption. As Locus acquires more clients and data, it is also planning to get into strategic logistics consulting, advising companies on where they should establish their warehouses and optimise costs. It is still early days, but if Locus is able to convince offline businesses to adopt its technology, it will be a real game- changer both for the start-up and the industry. This factor, coupled with its sophisticated technology offering, makes Locus a start-up to watch out for.