How Ocado has disrupted its own model

Ocado is well known for its focus on using up-and-coming technologies to make the grocery delivery process easier for customers and more efficient from a retail perspective.

Speaking at the Disruption Summit 2018 in London, head of technology 10X at Ocado, David Sharpe, explained how the firm has spent the past 12 to 13 years building its warehouses and then “tried to disrupt it all” in the past few years.

A lot of the firm’s efficiency is down to its warehouses, as well as the people and technology in them – put simply, automated machines move and store products based on when and where they will be needed by human bag packers.

The online grocer receives 260,000 orders a week and delivers these with 99% order accuracy.

Each packed item is scanned just like in a regular supermarket, and Sharpe said the firm has a better understanding of the lifecycle of each product because the whole process is “closely controlled”.

“The thing that’s different about Ocado is that we have 99% order accuracy, because when retailers pick from stores, you don’t know if Mrs Smith took the last avocado or if she squeezed the banana that you’re going to get,” he said.

“Our computers are so clever they can tell you what items to put in what bag, so we don’t end up squashing your bananas with your bleach.”

Boxes holding products in the warehouse can travel up to 25km in a day trying to collect the right products for an order, controlled by in-house software.

When developing new warehouses, an in-house team develops a “digital twin” of the warehouse so the firm can run a simulation of its operations, allowing any bugs to be ironed out before it has even been built.

This is what Ocado has spent the past 15 years getting right, and it is throwing more technology in the mix to make the whole process more accurate, fast and efficient.

Now the warehouses have a “bagging machine”, which is replacing some of the human workers who separate out the plastic shopping bags into crates that need to be packed with orders.

The firm also introduced robotic picking arms for some products, which will move groceries from one place to another without the need for human intervention.

“Gradually, more things that humans do will turn into something machines do,” Sharpe said. “But because Ocado is growing very rapidly, we still need the humans, so they get redeployed.”

Not only are the warehouses specifically designed for the brand, but its vans are too, with the vehicles fitted with telemetry systems so Ocado know where the vans are and if they are running on time.

“Over time, humans will get threatened,” said Sharpe. “We’ve even got a project that involves leading institutions where we’re trying to create an assistance maintenance robot.”

Ocado is also looking into human-robot interaction so it can improve its robotics in different ways throughout the business.

When the firm realised its model could work for other retailers, it developed the Ocado Smart Platform, with Morrisons being the first user.

Morrisons has tried several times to adopt an online shop to no avail. It partnered with Ocado, which gave the retailer half of its Birmingham warehouse and helped the supermarket to properly adopt online.

“Morrisons online grew from nothing to £200m turnover in one year,” said Sharpe. “This was very successful, and Morrisons love Ocado because Ocado takes care of all the difficult stuff and they can focus on the retail.”

Ocado then put this capability in the cloud so it could be redistributed, and it now has several customers worldwide using the tech.

“What [those customers are] hoping is to replicate is some of the success that Morrisons and Ocado have had in the UK,” said Sharpe. 

Meanwhile, Ocado has set about refining its warehouses by designing robots that can stack and select boxes in stacks of up to 21 boxes high.

“One of the challenges of sending a box on a 25km journey is that is can take a while,” Sharpe said. “This is a mass dense, mass parallel way of storing things.”

This is enabled by a Novel Radio Communications System, a wireless system that allows the 1,000 per base station to communicate via a 10MHz channel.

“That’s a complete revolution in telecoms tech and in robotics tech, all to deliver your groceries,” said Sharpe.

This new warehouse system is being implemented across the globe, including 20 instances in the US. But Sharpe pointed out groceries are not the only product that could be handled by this system.

“We’re trying to apply the sort of intelligence that DeepMind used to beat a human at a game of Go back into retailing,” said Sharpe. “[We want to] train an AI better than a human – if you can automate it but a human is doing it, then you need some AI.”

How can you disrupt your own business with technology adoption? Sharpe said it is easier to choose a big problem, such as delivery, and then try to find a transformational perspective change that would make that aspect of the business different.

“You have to work in the science fiction area to have the right thoughts,” he added.

Sharpe used the example of delivery vans driving the drivers rather than being driven, and said you then need to consider the technology needed to make that happen.

If this seems feasible, all that is left to do is trial the technology to see if it could work for the business – if it does, it’s time to adopt.