The Economics of AI: Delineating the economic limits to AI adoption

by Evan Shellshear, Brendan Markey-Towler and Leonard Coote

An abridged copy of this article was published on The Conversation. Follow the link to read the shorter article ‘A simple calculation can stop artificial intelligence sending you broke‘. We present the full article here.

Mike’s story: AI in the outback

Few places on earth can break people like the Australian outback. Toughness is not enough to survive out there, let alone thrive. You must be smart, resourceful, and innovative to stand a chance.

In this part of the world, 2019 saw the culmination of a devastating nine-year El Nino. Things die during a regular El Nino. During this one, it was common to see livestock strewn along the road where they had perished for want of food and water. Then in the second half of the year, one of the worst bushfire seasons Australia has ever seen began and it made a difficult situation impossible.

Mike is a crop farmer, one of those tough-as-nails, wily, and innovative Australians who make their living in this environment. Reeling from this latest catastrophe and to keep ahead of the next disaster, he began exploring smart farming techniques enabled by artificial intelligence (AI). The technology he was pitched overlaid AI onto Big Data, and would have been integrated into his irrigation, pest control, and soil management systems to allow “precision farming.”

In theory, by refining the focus of his practices from the paddock level to the level of the individual plant, the technology could reduce wastage by up to 80 percent. That is a lot of extra (desperately needed) cash when you are trying to compete in a global market with little assistance from your government, against foreign farmers with lots of assistance from theirs. Add to that an environment where little will grow.

The salesperson’s pitch to Mike was compelling and showed a familiarity with the existential challenges faced by Australian farmers – supported by a clever application of AI generating potentially significant returns. But there was a problem: the business case the salesperson outlined raised doubt in Mike’s mind. The initial investment would be $500,000 with additional costs of $80,000 per annum for data storage and processing alone before maintenance and repair.

To put this in context, in 2020-21, average Australian farm cash income in US dollars, out of which the farmers pay their families’ income, was about $137,500 [1]. Profit was $79,000, which translates to a 1.6 percent rate of return on the farm assets (and the financial year 2020-21 was a good year for Australian farmers). Within that, average expenditure on crop and pasture chemicals (herbicides, etc.) and fertiliser was $63,000. Including water rights takes that expenditure to $100,000. 

Assuming that the technology performed at its absolute maximum (80 percent cost reduction), and that it did not add to any other costs then, for the average Australian farm, this technology would, at the very best, be profit neutral going forward and would put it significantly into deficit for the first year. In short: if Mike’s farm were roughly average, adopting AI may have bankrupted his family.

The cart before the horse: technology before business

We live in a new era of obsession with AI. The technology is at once enchanting and increasingly pervasive, and everyone has something to say about it, from Elon Musk to your Uber driver. Our opinion is that almost nobody is looking at the main problem that it presents for businesses. Almost all are caught up in the engineering of what AI can do, while many more ought to be caught up the economics of what AI is worth.

To illuminate the problem, let us go back to the foundational question: what is AI? Fundamentally, artificial intelligence is the pursuit of the motivating dream that lays at the dawn of computer science in the 1950s. John von Neumann and Alan Turing, two of the “fathers” of the discipline, both explicitly imagined building machines that could mimic the operations of an intelligent mind [2]. Computers would become an AI insofar as the programs which “read”, operated on, and “wrote” data, represented in mechanical states and dynamics, could mimic the perception and processing of an intelligent mind. 

Thus, for the next half-century and beyond, AI developed as a subdiscipline of computer science mostly dedicated to the original motivating dream of the discipline. Over time, further additions have extended this core: the growing integration between AI and robotics, the potential for linking advanced analytical systems using the internet (e.g., the Internet of Things), the use of AI to operationalise Big Data, the application to artificial intelligence to save lives, etc. However, the underlying drive and advance of the technology has been in the same direction: the development of algorithms (programs) that can mimic the operations of an intelligent mind, or better still, a super intelligent mind. Hence, the hype surrounding AI. 

Humans may yet follow in the footsteps of gods and create a new form of intelligence to rival our own. At the least, we now have at our disposal technologies that offer the possibility of automating a broad range of human activities. We are not just talking about the automation of manual labour on the production line, for many of the major advances in AI particularly in the past decade have been in automating data processing and analysis [3]. One of the most thrilling (and terrifying) advances has been the advent of the GPT-3 algorithm from Open AI, the closest we have come yet to general AI, which can write entire, cogent essays from a single question on virtually any topic.

The world has lived through eras of obsession with AI before with two of them ending in so-called “AI winters” – per Michael Woolridge’s history of the field, The Road to Conscious Machines [4]. The first major winter began in the mid-1970s when the limitations of symbolic logic systems (basically, AI systems whose syntax was like the symbolic logic of mathematical proofs) were revealed, and funding for academic research quickly dried up. Essentially, it took far too much work to produce AI systems that could produce far too specific tasks, and the effort exploded exponentially the more you wanted to broaden them. The second major winter began in the late 1980s, when these troubles in academia caught up with industry, and corporations stopped investing in expensive AI decision aids based on expert systems, switching to cheap personal computers.

In the case of both winters, these advanced systems fell short of hype in what they could do, and what they could do was of limited economic value. It was not that AI was not useful, far from it. It was that the intuitive concept of AI, and the wild flights of imagination it encouraged, led to expectations front running the realised value propositions of the technology. The backlash over-corrected and set the scientific and economic advance of the technology significantly backward.

The current hype associated with AI is familiar to those with knowledge of the aforementioned history of the technology, and a warning sign that business, government, and public expectations about the technology may be running ahead of the reality. Scientific advances in neural networks and machine learning, vast improvements in computing power, and the advent of distributed computing have brought about a qualitative change in the capabilities of the technology. But modern AI is still not limitless, and it is still expensive, especially when machines must be trained to learn specific and novel task sets. If (when) disappointment with the attained value of modern AI is realised, we invite yet another AI winter.

The problem with AI is that the focus is presently on what it can do, not even with what it does do. At present the engineers are in the driver’s seat, and engineers’ strength is not always business outcomes because of their focus on possibility. Economics realises many things are possible, but also that resources are constrained and must be directed to the best possibilities. Paraphrasing the famous words of Lionel Robbins [5]: economics is the study of life as a relationship between ends and scarce resources which have alternative uses. Economics needs to be put in the driver’s seat when it comes to the question of AI adoption for any organisation, and engineering put under the hood. The question must not be the engineering of what an AI can do but the economics of what an AI is worth.

The solution: put economics back in the driver’s seat

The problem with AI is that the technology is presently steering the conversation, and that instead we need to lead first with economics and not engineering when it comes to AI adoption in organisations. Let us unpack why, so that we can better pose a solution to the challenge of restoring economics as the primary decision-making framework for AI adoption [6].

The first thing is to firmly establish what, exactly, and as simply as possible, the economic criterion for AI adoption is. This is straightforward enough: an AI system ought to be adopted by an organisation if and only if the profit the organisation can obtain after adoption is greater than the opportunity cost of that profit. Now, the single easiest error to make in economic reasoning is to forget opportunity cost, focus only on whether profit after adoption is positive, and commit to a suboptimal, possibly even bankrupting decision [7]. That is why it is so important to always remember opportunity cost: the value of the next best alternative. Typically, this is the profit achieved under the status quo, but it can also be the profit achieved by an alternative strategy (e.g., expanding payroll).

Consider the logic of Figure 1. Economists will recognise this formula is a particular case of a consumer (buyer) surplus maximising decision, where a rational consumer looks at their set of decisions and chooses the one which maximises their consumer surplus. The surplus concept is useful as it also helps explain why the situation faced by Mike arises. When pricing their AI products and services, producers analyse their potential customer’s gains and then choose a price point to maximise their producer surplus. 

Figure 1: The basic economic principle of AI adoption – of which the right-hand side is extremely easy to forget.

Where this thinking can go wrong, as with Mike, is that producers fail to factor in the total cost of ownership, which includes all the other costs which arise with such a system such as maintenance, repair, installation, failures, lower than expected results, etc. Mike needs to consider all these factors, as well as the chance that the system could fail altogether, if he is to make an optimal decision. The above formula is valuable as a “cue” for the economic mindset, a habitual thought to always call to mind when considering AI adoption. Alone, however, it is not enough guidance for decision makers; it is too abstract. We need to be more specific.

The basic economic principle of AI adoption can be restated in what economists famously call “marginal” terms. What will be the change in profit obtained by AI adoption? Adapting this, we can unpack the basic economic principle of AI adoption. It now becomes something more specific: an AI should be adopted if and only if, relative to the next best alternative, the marginal benefit of its adoption is greater than its marginal cost. The next best alternative (the opportunity cost) will, again, typically be the status quo, but it could also be hiring another employee or outsourcing some tasks.

To make this as useful as possible, let us be still more specific. AI adoption can generate gains by improving the quality of our judgement (see Footnote 6). This improvement of our judgment leads to better quality decisions (typically by better quality predictions and prescriptions [8]). From the firm’s perspective this means:

  1. We have better allocation/utilisation of the firm’s inputs
  2. We have better quality/delivery of the firm’s outputs

In the first case this leads to lower costs, in the second case this would lead to greater revenue. In other cases where we improve the quality/delivery of the firm’s outputs it can simply lead to a better delivery of services, for example, in a hospital scenario this leads to more lives saved, hence an increase in the value of statistical lives saved. In addition, these outcomes may be generated directly or indirectly. In the latter case, the integration of AI may generate greater returns on existing assets by creating synergies that boost their productivity. For example, in Mike’s case, the AI offered a cost saving. By integrating AI into his irrigation, pest control, and soil management systems, he would have reduced wastage and enhanced the productivity of his existing assets, potentially reducing his required capital expenditures in the future.

On the other hand, the marginal cost of AI adoption consists of at least three main components: 

  1. The up-front cost of installation and setup
  2. The ongoing operating cost of the AI system, and 
  3. The ongoing cost of maintenance and repair of the AI system.

When these components are converted into expected net present value, we have the basis for an economically informed decision as the following diagram illustrates (see Figure 2). To make the diagram more applicable, instead of the general inputs and outputs perspective mentioned above, we focus on specific value drivers to make the framework clearer.

Figure 2: The economic principle of AI adoption unpacked, what are the changes in benefits and costs relative to the alternative?

These are the economic principles of AI adoption, and they provide simple available cues for building and triggering a habitual economic mindset when thinking about AI adoption in organisations. To complete the system and expand these cues for a habitual mindset into the basis for a habit of behaviour, let us set down a simple decision tree for AI adoption (see Figure 3).

The decision tree consists of three simple questions, two are the responsibility of an AI salesperson to answer, one is a question that can be posed internally to the organisation. The first question is for the salesperson: what is the dollar or percentage gain that your AI generates? If the salesperson cannot answer in terms of revenue, cost reduction, or value of a statistical life, a conservative rule of thumb is to not adopt the AI. If the salesperson gives a sufficient answer, the second question may be posed to the salesperson: what are the dollar costs of installation/setup, operation, maintenance, and repair? Again, if the salesperson cannot answer, a conservative rule of thumb is to not adopt the AI. If the salesperson gives a sufficient answer, however, we proceed to the third question: given the next best alternative to this AI, are the marginal benefits of adoption (in expected net present value terms) greater than the marginal costs? If no, the alternative ought to be pursued, if yes, the AI ought to be adopted.

This might seem like common sense and relatively straightforward economic thinking, but as the saying goes the funny thing about common sense is that it isn’t that common. Notice how, when we put the economic process for making decisions about AI adoption in a decision tree, any given AI needs to meet a high bar to be adopted. Three out of the four endpoints conclude in rejection. Keeping these three elements of an economic attitude in mind, practicing them regularly and habituating them, are important for getting economics back into the driver’s seat when it comes to organisational AI adoption, and putting engineering under the hood. The problem is one of hype and expectations getting ahead of the reality of AI’s value proposition. The solution is to build good habits with simple heuristics that send us into the mindset of economics whenever assessing it.


Figure 3: A simple, three-step decision tree for any AI adoption problem. Note the high bar that AI must meet to be economically valuable.

Resolving Mike’s AI investment challenge, and others

Applying this simple heuristic to Mike’s situation, we can readily understand why he couldn’t make business sense of the salesperson’s pitch of AI-enabled precision farming.

As we discussed in the introduction, the salesperson suggested that Mike would achieve cost savings of 80 percent; the salesperson got past the first decision point. We saw that if Mike’s farm was roughly average, the relevant expenditures would have sat somewhere around $100,000. The dollar value of Mike’s savings would have been around $80,000 in the best-case scenario. The salesperson was also upfront about the dollar cost of the systems: $500,000 for installation $80,000 per annum in ongoing costs; thus, the salesperson got past the second decision point.

However, we can immediately see why the salesperson failed on the third decision point: the best-case marginal benefit of adopting the AI ($80,000) was less than the marginal cost ($80,000 plus the installation cost). Mike would have made less profit than his opportunity cost (e.g. doing nothing) if he adopted the AI and would have eroded the meagre 1.6 percent rate of return on his assets he was accruing. He may have even bankrupted his family by incurring a significant debt to purchase a profit-neutral technology. The technology (engineering) may have been amazing, but the economics was not.

Mike’s example is based on a real life situation experienced by the authors, and one but many of the real examples that we encounter every day in practice. Because it is based on economic reasoning, our heuristic applies equally to these other cases. Let us look at an example from medicine. 

In May 2019, the Food and Drug Administration made a decision that created headlines around the world by approving the world’s most expensive drug treatment to date, Zolgensma. This medicine treats spinal muscular atrophy in infants replacing annual lifelong treatments with a once off cure.  The minimum price is (only!) $2 million (USD) for a single treatment. To many this price point makes no sense, however, when we apply our economic heuristic, we can better understand why Novartis chose this fee.

Near cure' for rare disease costs $2.1 million but makers say it's better  than ongoing treatment - ABC News

Zolgensma is part of a new wave of drugs that promise to usher in a revolutionary era of personalised medicine [9]. This form of medicine uses AI to leverage Big Data and discover treatments bespoke to individual genetic profiles. Zolgensma works by replacing the defective SMN1 gene that expresses itself in infant spinal muscular atrophy with a normal copy. To discover this technology for bespoke genetic medicine, Novartis had to mine terabytes of genomic data to find the right compound which, when delivered, would introduce a highly specific change to a highly specific point in highly specific individual genomes.

Does this AI-enabled technology make economic sense? Let us apply our heuristic. In this case, the direct benefit of the technology is to save (quality-adjusted) statistical lives by improving the quality of life for infants debilitated by spinal muscular atrophy. The value of a statistical life used by governments and corporations across the world in daily policymaking is typically between $4 million and $10 million (USD). Novartis’ AI-enabled drug costs around $2 million (USD). Given we are talking about infants with an expected life of up to 80 years, there are a wide range of statistical lives that could be saved by the drug that would justify adoption. The marginal benefit (statistical lives saved) is greater than the marginal cost of adoption, the profit greater than the opportunity cost of doing nothing or even other drugs. This calculus may sound hard-hearted, until we remember that opportunity cost may also very well be the value of allocating funds to research infant oncology.

Putting economics back in the driver’s seat and engineering under the hood allows us to resolve investment decision as specific as whether a given farmer should adopt AI and as general as deciding among which biomedical priorities to allocate scarce research funds. Using an economic heuristic of worth, rather than an engineering heuristic of possibility, guides us to make better decisions that not only mitigate against the chance of a new AI winter, but also promote a more prosperous and healthier world.

Conclusion

There is no denying that AI is a powerful technology with the potential to not only automate but supercharge many things, from menial labour to biomedical data analytics. It at least therefore offers a vast expansion to human capability. There is, however, a risk involved in the understandable hype generated by AI. The risk is the expectations of researchers and industry can get way ahead of the reality of the technology. This invites the potential for yet another AI winter which delays the development and implementation of this extraordinary technology. Our argument has been that this problem can be traced back to an old problem in technology adoption whereby the engineering mindset of possibility dominates the economic mindset of value. In AI as with so many technologies, economics must be put in the driver’s seat and engineering under the hood to avoid expectations getting ahead of reality and the advent of disillusionment.

We proposed a simple heuristic to habituate the economic mindset when assessing AI-enabled technologies. Businesses, governments, individuals; all can profit from adopting the three simple questions we propose for arbitrating whether the value of an AI technology exceeds opportunity cost:

  1. What is the dollar value or percentage gains created by the technology?
  2. What is the dollar value of setup and ongoing costs?
  3. Relative to the next best alternative, are the marginal benefits of adoption greater than marginal costs?

In short: don’t ask what AI can do. Ask what it is worth.

References

[1] Ashton, D, Martin, P, Frilay, J, Litchfield, F, Weragoda, A & Coelli R, 2021, Farm performance: broadacre and dairy farms, 2018–19 to 2020–21, ABARES research report, Canberra, March, DOI: https://doi.org/10.25814/ycy6-3p65. CC BY 4.0.

[2] von Neumann, John (1958). The Computer and the Brain. New Haven: Yale University Press; Turing, Alan (1950). Computing Machinery and Intelligence. Mind. 59(236):433-460.

[3] Sullivan, Joshua and Zuvatern, Angela (2017). The Mathematical Corporation. New York: Public Affairs.

[4] Wooldridge, Michael (2020). The Road to Conscious Machines. London: Penguin.

[5] Robbins, Lionel (1932). Essay on the Nature and Significance of Economic Science. London: MacMillan.

[6] Here we build on the work of Joshua Gans who has pioneered the economic analysis of AI systems with a series of papers, and a summarising book: Agarwal, Ajay, Gans, Joshua and Goldfarb, Avi (2018). Prediction Machines. Cambridge, Massachusetts: Harvard Business Review.

[7] This confusion is often invited by economists using “profit” as shorthand for “economic profit”. Economic profit is “accounting” (i.e. standard) profit minus opportunity cost.

[8] https://www.gartner.com/en/documents/1964015/best-practices-in-analytics-integrating-analytical-capab

[9] https://www.novartis.com/news/media-releases/zolgensma-data-including-patients-more-severe-sma-baseline-further-demonstrate-therapeutic-benefit-including-prolonged-event-free-survival-increased-motor

tips to improving outbound logistics

4 Tips To Improving Outbound Logistics

With a fast moving marketplace and the rapid growth in software and technology, keeping up to date with industry trends can be all too much. But for those who are mindful, staying up to date can help keep your organisation competitive and ahead of the proverbial ‘curb’. Here are 4 tips for Operational and Logistics Managers looking to improve their outbound logistics supply chain. 

Investing in outbound logistics technology

We’ve all heard the saying before – ‘the more you put in the more you’ll get out’ but that doesn’t always mean pouring thousands of dollars in the latest tech. Sometimes investing more time can be just what you need. It is important in this ever changing climate for key stakeholders to take a step back and look at their supply chain operation from a holistic view to understand where technology can plug in to replace or improve specific functions. This can be as simple as automating the scheduling and planning process and creating an optimised set of delivery schedules. 

Transparency is Currency

Transparency is key! It sounds simple enough but the benefits of having greater visibility over your operations are endless. From being able to pinpoint deliveries and trucks, to having a deeper level of insight into service outputs; an increased level of visibility removes the speculation when making decisions and allows you to make decisions based on the facts and in real time! Manage your costs more effectively and see where in your supply chain there are inefficiencies. But how can you increase your visibility? See point 1 or speak to one of our team members today to find out how!

Ensure consistency with delivery schedules

The dreaded c word – no, not Covid, but consistency! Ensure a greater level of consistency across your delivery schedules through an automated system of planning. Managing consistency across delivery schedules can be difficult to maintain, especially when it isn’t automated or done by one person day in and day out. Creating a level of consistency doesn’t only benefit your truck drivers and your fleet but it also helps with building and strengthening relationships with customers by meeting SLA’s.

Future proof your operations

With what has unfolded in the last couple of years from circumstances outside of our control, we have seen the need for flexibility and a system capable of dealing with last minute changes and updates. Future proof your outbound logistics supply chain with a well organised system and take the digital transformation. A digital transformation will also help with managing transport logs and align communication channels across all departments.  

Want to know more about these 4 tips? Enquire today and speak to a team member about how you and your business can improve your outbound logistics operation with Scopta Run and Route. From saving you time and reducing operational costs to providing more insight, Scopta Run and Route is the new and efficient way to plan delivery schedules and improve your outbound logistics supply chain!

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manual planning

3 common challenges facing ‘Manual’ route delivery planning

Introduction

For Logistic Managers and Delivery Schedule Planners, organising and ensuring the delivery of goods from your warehouse to your customers, within agreed service levels, requires a well configured delivery schedule. This was the case with LPG gas distributor Genesis, planning a multi-vehicle delivery operation with constraints and variables became a mammoth task, through ‘manual’ methods and clunky paper-based systems. 

Read on to see the common challenges that Genesis faced with their last-mile delivery planning, and how they were able to transform their planning through Scopta’s Run and Route.

‘Manual’ Methods

By ‘manual’ methods, we mean planning delivery route schedules through traditional methods such as white boards, Excel spreadsheets, bundled sets of consignment notes and Google Maps. 

1. Manual route planning is prone to human error and requires time

‘Manual’ planning methods through spreadsheets and mapping tools require a lot of time and effort to do correctly, to ensure all your deliveries are accounted for. But when you have deadlines on when delivery schedules are ready for your fleet, how can you ensure the accuracy and efficiency of your plans? 

For the team at Genesis the complexity of a last mile delivery task increased significantly with only a few constraints such as cargo / vehicle compatibility or constrained delivery windows. Even their very experienced planner struggled to manually calculate a highly optimised schedule that satisfied all customer requirements.

Having to go back and forth between Google Maps and delivery lists, while creating a spreadsheet increases the chances of making mistakes that could prove costly. Manual planning or ‘planning by hand’ is complex and prone to human error. This can result in inefficient routes, increased delivery time and cost and worse – losing customers because of late or missed deliveries. 

Even with a great manual planner on your staff, there is significant key personnel risk when all of the required knowledge is invested in one to two people, rather than systematised in a scheduling application.

2. Manual route planning is inefficient and expensive

We’ve seen how ‘manual’ delivery route planning is a notoriously difficult task and puts at risk your ability to meet customer SLAs.  The second issue is the cost and inefficiency that manual planning can drive into your distribution function.  

As a direct result ‘manual’ planning can impact your bottom line through poor route planning and mismanagement of resources such as:

  • Increased capital investment due to operating a larger transport fleet than required;
  • Increased labour costs due to drivers travelling longer distances and working longer hours, and 
  • Increased fleet operating costs

Why settle for a competent delivery schedule, when you can have an optimised delivery schedule, that meets your requirements and can see your team save time and reduce operational costs?

3. Managing growth and have the ability to scale is difficult with ‘manual’ route planning

One major challenge with ‘manually’ route planning is dealing with change and scale as was the case with Genesis and their growing demand for LPG gas bottles. The ability to manage growth through adding more deliveries and locations ‘manually’ placed added pressure on their already lengthy and difficult process. The only real solution by way of their current ‘manual’ process, was simply putting in extra effort and time to correctly cater to new customers and businesses. 


Another challenge was being able to manually plan for last minute changes and added deliveries. This took the form of specific road closures and re-planning delivery routes, delivery windows and changing availability from customers, and additional deliveries to name a few. The ability to deal with adverse change is restricted and difficult through ‘manual’ planning.

By not having an agile system lead to poor delivery schedules with inefficient delivery routes. Not to mention the stress placed on Logistic Managers to add additional delivery locations and the additional pressure placed on Delivery Drivers to meet their deadlines.

Digitally Transforming Genesis – From ‘Manual’ planning to Scopta’s Run and Route

Scopta Run and Route is an automated solution that helped Genesis deal with the complexities of operating last-mile delivery. As described earlier, manually planning delivery route schedules raises many challenges around the significant amount of time and effort required to create a delivery schedule, the inefficiencies of manual planning and the difficulty of dealing with change and ability to grow and scale. 

“Moving to digital made sense as it would improve the processes, and drive cost savings. The bonus from the proof of concept was we were able to use our data to categorically prove that optimisation would realise operational savings, which in turn made the business case an easy sell.”

General Manager of Genesis , LPG operations, Cameron Jardine

AWS Partner Network

Scopta Run and Route leverages the AWS services toolkit. As part of the solution we use AWS EC2 to run the optimisation workloads, AWS S3 to store application information, AWS PostgreSQL RDS to manage the workload data tables, AWS EKS to ensure a highly available and scalable workload, and AWS Elasticache to queue and manage tasks.

Since partnering with AWS and joining the AWS Partner Network (APN), Biarri has been able to identify new opportunities to scale. Through leveraging AWS services, we have greater confidence in developing tools that align with our mathematical and analytical Biarri approach. AWS provides a platform that is not only quick but secure, giving our clients around the world assurance. Biarri will continue to acquire additional AWS data and analytics competencies, as we continue to increase our reach.

For more information around Scopta Run and Route or to start a free trial, get in touch with one of our team members today. 

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Route planning

Lead the way with the right route planning tool for you and your business


Introduction

Navigating through last-mile delivery offerings can be a daunting task, as you figure out which route planning software tool is the most applicable for your team, your business operation needs and budget. When considering Scopta’s Run and Route planning software, there can be a range of important factors to consider, such as:

  • Finding the best tool to reduce your operational costs and improve your bottom line;
  • Purchasing the necessary functionality to streamline current business planning and supply chain management,
  • Identifying gaps within your current operations that could benefit from an automated software solution, as you seek to make technological advancements,
  • Selecting the correct route planning tool that has the capacity to deal with your business intricacies and complexities, such as delivery windows, drop off specifications and vehicle compatibility.

As you work through the finer details of other route planning software providers, understand Scopta’s Run and Route and take a look through our customer profiles to see which one best aligns with you and your business.


Customer Type Summary

Customer ProfilePain Points and Challenges
General ManagerReducing operational costs Managing day to day to operations
Vice President of Logistics and PlanningMeeting customer demand and ensuring a safe and smooth operation Supply chain management and refining processes
Digital Transformation ManagerImproving business processes through AI solutions Simplifying and streamlining procedures
Delivery Schedule PlannerCreating a efficient delivery schedule that meets customer demand

Are you a General Manager?


Scopta’s Run and Route’s first customer profile describes General Managers of medium to large sized LPG Gas Distributors (1000+ employees). They hold a management position within the organisation – and are charged with overseeing the day to day service and deliveries of their distribution centre. With broad industry experience and academic qualifications, this GM drives strategy and performance across his business in revenue growth, cost reduction, operational efficiency and customer experience

As business and demand continues to grow so does the business’s costs; mindful of their bottom line and an eye into the future, they seek for alternative options that can aid the delivery scheduling team in being able to meet their customers’ needs by making deliveries on time and on demand, and reducing the man hours spent on creating schedules through old hand method ways like excel and google maps.


Does this sound familiar? If so, our Run and Route tool helps solve the above challenges by creating an optimal and efficient set of routes, reducing drivers’ travel distance and accelerating the delivery process.

Are you a Vice President of Logistics and Planning?

Aligned closely with the General Manager, Scopta’s Run and Route next profile holds an executive role within the company and leads the logistics and planning functions. Tasked with ensuring the quality, efficiency and scalability of the supply chain, the Vice President of Logistics and Planning is constantly looking for systems, processes and technical solutions to gain and maintain competitive advantage

Overseeing the supply chain processes of a large distribution centre of a goods company, they take a great deal of interest in business processes and delivery outcomes and performance, with a desire to stay at the forefront of the industry. Taking a measured approach to how best to improve the service and delivery of their goods, they are on the constant lookout for solutions that can streamline the planning of delivery schedules and achieve efficient and cost effective planning

Open to technology advancement, they see the implementation of a route planning software program as a great advantage for route planning for more efficient delivery schedules. 
Does this sound familiar? If so, our Run and Route tool helps solve the above challenges by being market leaders in route optimisation, and being a functional and agile tool that simplifies the way you plan and deal with last minute adjustments.

Are you a Digital Transformation Officer?

With an eye to the future and a strong understanding of current business operations, our next profile looks to advance the company through digitalisation and with the integration of  artificial intelligence. As a key decision maker with a background in information technology, they are motivated by efficiency and productivity, constantly looking to refine and improve streamlining supply chain processes. With a view to automating and digitising where possible, the Digital Transformation Officer sees potential to improve the last-mile delivery planning process, which currently involves a mixture of data sources, manual processes, online mapping tools and excel spreadsheets.  This results in labour intensive processes, a lack of optimisation, barriers to scalability and key personnel risk. 

The Digital Transformation Officer plays a vital role in the continual refinement of these practices, looking to streamline their processes through optimisation as they look for the best route planning software for their business requirements. 


Does this sound familiar? If so, our Run and Route tool helps solve the above challenges through automated route planning solutions. Streamline the way your team plan and organise their trucking fleet, with a single tool containing all the functionality your team needs to deal with your business requirements.

Are you a Delivery Scheduler Planner?

Last but not least, the Delivery Scheduler. They have the critical role of planning the routes and delivery schedules for their 20+ trucking fleet. Equipped with nothing more than a spreadsheet, an online map and vast experience (perhaps having been a delivery driver themselves), they spend the better part of their week organising delivery schedules. 

Motivated by meeting customers’ demand and ensuring deliveries are completed, there are many variables and barriers that they face. Dealing with the complexities of considering delivery windows, driver availability, infrastructure and truck requirements and specific load types, all while making sure delivery schedules are ready by the first delivery is a time-consuming and extremely difficult task when completed by hand. 

Perhaps a route planning software tool could help?

Does this sound familiar? If so, our Run and Route tool helps solve the above challenges through its powerful optimisation engine. Be enabled to do more with a centralised system that deals with complex scenarios and variables, ensuring that you produce not only an error free delivery schedule but an efficient and cost effective set of routes.

Speak to our team now based on your above persona

If any of the following profiles or challenges resonate with you and your business, please reach out to one of our team members to discuss how Scopta Run and Route can assist, using the below contact form. 


With a strong understanding of the constraints and challenges last mile delivery and route planning entail, the team behind Scopta Run and Route are dedicated to working along side you to improve your business processes and route planning through automation and optimisation.

Run and Route Contact Form

Changing the landscape of Route Optimisation

Introduction

Getting from point A to point B is a simple enough task to be completed on most devices, through various different apps and software. But what happens when you have to get from point A to point B and now point C with consideration of other factors like availability windows and route preference? Scopta have developed Run and Route a route optimisation software that deals with the complexities of vehicle and delivery routing.

Read on to discover Run and Route and how it is changing route optimisation and vehicle routing.

Scenario

Barry is the Operations Manager at a warehouse depot for a biscuit company and is in charge of the planning and organising of the distribution of goods sold across Sydney. Barry is tasked with delivering 400 orders to be delivered between 20 trucks, exactly 20 orders per truck. For the last 10 years Barry has used a combination of Excel and Google Maps to figure out their delivery routes. He plans his delivery schedule a week in advance, and spends a large portion of the week carefully mapping out delivery routes. Barry is restricted by both time and cost, trying to figure out the fastest and most efficient route.

Planning out a delivery schedule by hand is notoriously difficult and time consuming, not to mention subject to human error. Manually working between Excel and Google Maps to find the best delivery order is inefficient and also raises challenges such as the Travelling Salesman Problem or TSP, which is simply finding the best order in which to visit a set of locations. Through traditional methods of Excel and Google Maps it won’t tell you the best way to order those stops to give you the overall shortest or fastest route but instead show you the quickest route from point A to point B. Now say you throw in point C and point D? An extra level of complexity is added with additional locations. How is Barry to know which location to begin with and the order to complete the rest of his deliveries?

With Run and Route, Barry will have a centralised solution that will allow him to input information about his locations and trucks, and automatically configure the fastest and most cost effective delivery routing schedule. Traditionally, Barry might have begun his route at point A, followed by point B, C and D in that order. By inputting this data in Run and Route, Run and Route will determine the optimal delivery schedule that would show that this particular truck should begin his delivery route at point C, then point A, then point D and finishing at point B. 

Another challenge Barry and other Operations Managers face is creating a schedule that considers delivery time windows and customer availability. Factoring customer availability and time windows is a crucial and important aspect of determining the optimal routes for a fleet of delivery vehicles. For example one shop in Bondi has a strict 2 hour delivery window between 5:00am and 7:00 am, while another customer in Redfern is a bit more flexible and is open for deliveries from 6:00 am to 12:00 am. Manually working through these intricacies one truck at a time not only requires an incredible amount of thought and time, the level of complexity dramatically increases with scale

run and route

Solution

Run and Route is Scopta’s Vehicle Routing offering, designed to simplify the planning process for last-mile delivery. It is useful for businesses with multiple vehicles that each perform multiple deliveries per day. Run and Route can help your business cut variable costs and improve your customer service. Remain efficient and competitive with a quality Vehicle Routing Solver that simplifies the role of your Operations Manager and the way you plan and schedule your deliveries. Be confident and assured with the quality and accuracy of your schedules with Run and Routes powerful engine.

Want to know more? Speak to a team member today and find out how Scopta Run and Route can automate your vehicle routing.

Run and Route Contact Form

Creating team friendly rosters and the benefits for everyone

Introduction

Creating rosters can be a complex task.  This is especially the case for difficult large workforces with a range of  employee preferences, combinations of full time, part time and casual team members, the need to adhere with EBA rules, fatigue, skills and competence requirements , meeting or exceeding customer service levels while always operating efficiently and controlling costs.  Clearly, producing a ‘good’ roster is more than making sure there is the right number of staff for the right amount of work. 

So, on top of all of this what does a team friendly roster look like and what are the benefits to employers and employees? 

A Friendly Roster

An example of what makes a team friendly roster.

Sarah is the Workforce Planner for the local hospital Emergency Department. She is tasked with organising and preparing the Doctors rosters which she does a month in advance for a 2 week working period. The roster parameters require each Doctor to work a specific amount of ‘unsocial’ hours covering morning, afternoon and night shifts.  Sarah always  does her best to consider the Doctors preferences for specific days off some of which are always the case and some are new requests each period for example to get a mid week night away to see Hamilton in Sydney or an afternoon off for the school swimming carnival.  

Sarah completes the roster by hand creating a compliant roster with all shifts covered and accommodating as many preferences as possible in as fair a manner as she can. However, is it always a ‘good’ roster from everyone’s perspective?

While a ‘good’ roster will vary from business to business and even with respect to  each employee depending on their individual circumstance, one aspect of ‘good’ roster from an employee perspective can be defined as being fair and equitable – team friendly. For example, while Sarah may have created a functional roster that ensures the ED department meets the service level requirements, Dr Brown might have worked the past 4 Saturdays in some capacity impacting on his ability to watch his children’s sports while another team member may have worked an equal amount of hours but more night shifts than other team members.  Although on the surface the roster was compliant and functional, it is not considered a team friendly roster given the unfairness and lack of equality amongst employees. 

In addition, there may be team members who prefer to work weekends, others who prefer nights, some who only work 3 days a week and still others who might be spouses and who cannot work at the same times as their partners – so that someone is home with junior.  

Further, the roster needs to consider patterns of work – moving from morning to afternoon and onto night shifts with then a number of days break.

This gets complex quickly!

A team friendly roster will consider all of these different preferences and requirements and provide shifts which are equitable and fair in providing each team member with the same proportion of night or weekend shifts (unless of course they prefer these) and evenly meets as many of their time off requests as possible.

Benefits

Adopting a team friendly roster has many  benefits to both employees and employers. These include:

Better work-life balance 

Your workforce will be made up of a range of different people with different interests and commitments outside of work. Commitments such as family, study, and sport for example. A study conducted by Gallup Reports found that 53% of employees said that an improved work-life balance was important to them. With a fair and equitable roster these other commitments and interests will be accommodated to the fullest extent possible, making work rosters more manageable and providing employees enjoy an improved work-life balance. 

Staff retention 

Improve staff retention with a balanced roster that is considerate of staff preferences and importantly fair and equitable across the team. There are many factors that contribute to employees leaving, such as career advancement, pay and benefits but also the nature of the rosters they are repeatedly asked to work. Employees have shown to be happier when they are able to balance both work and life commitments and are treated fairly  resulting in employees desire to stay in that job. This is especially important when retaining skilled staff or staff with experience that is hard to come by. By ensuring rosters are fair and equitable across all employees you will reduce conflict and ensure no employees feel stuck with the ‘unsocial’ shifts. 

Biarri Workforce provides open and flexible rules and preference capture functionality so hard or soft constraints and preferences can be considered in the roster creation and the powerful roster optimisation engine in Biarri Workforce allows the Sarah the workforce planner to set the roster objectives and generate team friendly rosters automatically in a matter of minutes.

By using Biarri Workforce, you will be able to improve work-life balance for your team members and ensure your roster is fair and equitable

Speak with a consultant today and see how Biarri Workforce can improve the way your business coordinates your human workforce. Whether you are currently rostering manually or looking for a more accommodating solution, the team behind Biarri Workforce are dedicated to making Biarri Workforce work for you. 

Workforce Contact Form

Biarri Workforce New Feature: Updated Shift Swaps

At Biarri we understand the challenges that Workforce Planners and employees face when rosters are published. We understand that circumstances outside of work may change and affect the ability for an employee to complete a shift, conversely, Workforce Planners’ and Managers’ pain point of finding a replacement to cover a shift or reconfiguring the roster to suit. 

We have listened, and Biarri is excited to introduce the new enhanced Shift Swap feature on our Biarri Workforce Mobile App.

Created out of necessity, employees can now more simply either Swap Shifts or Offer Shifts to other available employees.

When swapping a shift, we’ve removed the stress of trying to identify which employees are available. Instructed by the rules engine, the Biarri Workforce App generates a list of compatible  employees to cover a shift. These compatible employees comply with rules defined in the Admin Tab, ensuring employees are compliant with skills & qualifications, fatigue and availability rules. 

See a step-by-step walkthrough of how simple swapping shifts has become.

 

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Sales forecasting tool

Sales Forecasting Tool to Plan Accurately With Some Simple AI

Throughout my career I’ve worked with salespeople, as a salesman, and in roles supporting sales activities. Sales is one of the most important functions of a business as without sales, you have no business, no matter how great your product or service is. 

Sales is the fuel for any business to survive and thrive and this makes planning and forecasting sales one of the most important activities a business does.

That’s why running a business without effective and accurate sales forecasting is a bit like flying a plane without a fuel gauge. Of course, an accurate fuel gauge is not necessary or sufficient for generating or maintaining lift – the Wright brothers got away without one. But there’s a reason why modern planes have them – it gives pilots access to data to make the flight decisions to get from A to B. 

So how are you flying your venture?

Probably the same as most other businesses. 

You gather your sales team and ask them, ”how many sales will we have this year?” 

In the best case scenario, they review last year’s sales and make a guess based on gut feeling and intuition (which is not always wrong). 

Commonly enough though, a misalignment of incentives and company sales culture can manifest as a mismatch between targets (optimised for remuneration incentives) and forecasts (optimised for accuracy).

We can do better. 

And to do this we need to use data. But why is data so important?

According to the Professor of Digital Practice at QUT, Mal Thatcher, the 21st century will be the century where,

“By the middle of the century the only tangible asset on an organisation’s balance sheet will be data”

and this is true for your sales too.

To give you and your business a competitive advantage, we at Biarri have developed a simple, easy-to-use Excel sales forecasting tool for you. So it is time to become data driven now and with Biarri’s new tool this is extremely easy. 

Biarri has taken some basic AI techniques and put them into a spreadsheet that requires no macros, no plugins and nothing to install. The AI techniques in this Excel tool will help guide your sales team to make more accurate predictions for the coming year. 

You don’t need to be an expert in AI to leverage the tool. It does all of the hard work for you and provides you with data driven monthly predictions for the coming year based on quarterly sales patterns. You don’t need to know cutting edge AI to use the tool, just how to copy and base a small amount of data.

You can download the tool below for free. There is no need to leave your email address or anything. Biarri’s mission is to make the world more efficient via better decisions powered with mathematics and we believe this tool has the potential to make a difference for your organisation.

Your New Sales Forecasting Tool

Before you download the tool, it is worthwhile telling you what it is, and how to use it.

It uses historic data to establish a pattern and then extrapolates this pattern to be able to predict the coming year’s sales. 

Not only does the tool provide monthly predictions, it also takes into account quarterly sales cycles. Forecasting quarter-by-quarter aligns it with typical quarterly reporting and also captures the variance in quarterly sales. This quarter-by-quarter approach is designed for industries like retail which have some quarters with greater sales (e.g. Xmas). 

There is also a “bad month flag”. This allows users to indicate if something bad has happened in the past during months (e.g. COVID) and if similar events are predicted to occur in the future (in the PREDICTIONS tab). 

This spreadsheet comes prefilled with data to show you what it should look like. To use it for yourself, remove the data from the Monthly Sales column in the Data tab and replace it with your own data. The calculations and updates will be carried out automatically. All other cells are locked for your safety. 

How do I use the sales forecasting tool?

The steps to using the sales forecasting tool are as follows:

1. Collect exactly 36 months of contiguous sales data leading up to the month you would like to predict from. E.g. if you want to predict the yearly sales from January 2022 until December 2022, then collect the 36 months of sales data from January 2019 until December 2021. The model is set up for exactly 36 months of data, not more or less.

2. Copy this sales data into the Monthly Sales column in the Data tab (in green). The top most entry should be the oldest (e.g. in the example in 1., January 2019) and the bottom most entry should be the newest (e.g. December 2021 in the example in 1.).

Sales forecasting tool monthly sales column

3. In the Data tab now enter the first month for the monthly sales data in the month tab by choosing from the drop down menu (this cell is green). Also choose the year in the year column from the drop down menu (this cell is also in green).

Sales forecasting tool month selection

4. For each month, choose whether a bad event occurred (or not) by selecting Yes or No in the Bad Event column. If normal trading and fluctuations were occuring, then put No. Otherwise, if something truly unusual (e.g. COVID) occurred that significantly impacted your sales volumes, select Yes on the months which were affected by this (this column is coloured green).

Sales forecasting tool bad event input column

5. Once this data has been entered, go to the Model Analysis tab to see the outputs of the model. In the Predictions tab, if you predict that there will be any bad months in the future, select Yes in the corresponding months in the Bad Event column (which is in green). For this to have effect, similar Bad Events need to have occurred in the past otherwise this will have no effect.

Bad event output column

6. Finally, your predictions are shown in a graph in the Dashboard tab, with a table showing the cumulative results for each quarter.

Monthly sales prediction graph

Download the sales forecasting tool by clicking on the button below.

What does Biarri do?

Most companies begin with Excel sheets like the one provided here to start making once off decisions on key parts of their business. It is like the first flight of a plane with an often inaccurate fuel gauge caused by data issues. At some point, organisations need to lift up from Excel to correct, secure, easy to use and more powerful tools and this is where Biarri helps.

Biarri’s main value proposition is to help clients realise operational excellence in the way they run their business via AI. The core of this is excellent, data driven decision making. Biarri catalyses AI driven business decisions by using its cloud based set of mathematical tools, the Workbench.

To discuss how you can leverage your data and turn it into value to reach new operational heights, reach out with the form below now.

Get in touch

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Agribusiness Optimisation Solutions

Maths and Machine Learning for Agribusinesses

Mathematics powered by computers is changing the world we live in. At Biarri we see this everywhere, across every industry, and I’m sure you do too. Recently we have delivered a number of Machine Learning and Mathematical Optimisation solutions for Agriculture businesses in Australia and were fortunate enough to be invited to speak at the recent Case IH agri-business conference in Mackay.

Ash Nelson, Biarri’s co-founder, presented on Maths and Predictive Analytics for better business decisions. He described how our everyday lives are being changed by corporations leveraging large data sets, advanced statistical analysis and powerful computing resources. Ash then outlined how these same set of technologies can be utilised to improve business decisions in agriculture. This includes optimising agricultural supply chains and port operations, reducing unplanned equipment failures by using intelligent predictive maintenance algorithms or to improve health and safety outcomes for farm workers by better identifying areas of best practice to inform injury prevention initiatives.

Are you interested in leveraging your data using advanced maths to make better business decisions? Don’t hesitate to get in touch with our friendly team.

Biarri and SaaS

SaaS deployments are now ‘mission critical’

Gartner recently published a survey citing that SaaS deployments are now ‘mission critical.’ Some of the key reasons behind this statement is that respondents looked for cost savings, an increase in innovation and accessibility to their systems as key drivers for the move away from local software solutions.

Joanne Correia, Gartner Research Vice President said,

“The most commonly cited reasons the survey found for deploying SaaS were for development and testing production/mission-critical workloads,” and went on to say “This is an affirmation that more businesses are comfortable with cloud deployments beyond the front office running salesforce automation (SFA) and email.”

This shows that companies are becoming more aware, and switched on to the benefits that cloud based software can bring to their company.

It was also demonstrated that on top of cost savings, accessibility, and innovation, SaaS based systems allowed for easier training and lower learning curves for employees.

“Non-IT professionals, often view the cloud strictly as a tool that they can use to reduce their operating costs,” and in turn effort.

Biarri empowering you through the cloud

Biarri was established in 2009 with the mission to provide accessible business optimisation to all clients regardless of size or budgets. We develop bespoke SaaS based solutions for you, with you allowing your solutions to meet your specific requirements.

We have been able to develop a bunch of applications for our clients to suit their specific; Advanced Planning and Scheduling, Workforce Management, Business Analytics and Supply Chain needs.

Get in touch and see how you can benefit from our solutions today!