The topic of your second Individual Assignment is the case study of Zipline, a young and fast growing company that delivers medical supplies by drones in remote areas.
Your task is described in the attached PDF Document "Assignment2-Supply-Chain-Winter2024".
AI (ChatGPT) must not be used to create your report, or parts of it!
Task mentioned in Assignment 2 doc and case study mentioned in PDF
CASE STUDY: Zipline Dr. C. Guckel
Assignment2-Supply-Chain-Winter2024.docx 2024-02-19 – 1 –
Opera&ons Management
OPMT 620 Winter Term 2024
Assignment Paper 2
Topic: Supply Chain Management
Zipline: Life-Saving Drone Service Redefining the Supply Chain Case Study IN1921 by Insead, distributed through Harvard Business School
IntroducKon Zipline is a delivery company for medical products operaBng unmanned aerial vehicles (UAVs). With its expansion to Ghana in 2019, zip line became world's largest medical drone delivery service, reaching around 25 million people. Founded in 2014 by Keller Rinaudo (CEO) and Keenan Wyrobek (CTO) at Half Moon Bay CA it is different from its Silicon Valley peers. Zipline has ambiBons to reach 700 million people in need of medical supplies by 2024 with its drone services. The case study sheds light on the company, its drone technology, its innovaBve approach to the delivery of medical supplies, as well as the difficulBes that lie ahead as it expands. Zipline is a young company operaBng first-of-a-kind unmanned aerial vehicles to deliver supplies. The case study discusses the technology, iniBal use cases and its evoluBon from a small start-up in Silicon Valley to a Unicorn. It covers a series of issues that commonly confront young organizaBons, implemenBng new technologies in the social impact sector, parBcularly those related to the novelty of the technology/soluBon, the regulatory environment, and financing. The Technology It is suggested that you watch following videos to familiarize yourself with the drone technology:
1) News report: hbps://www.bloomberg.com/news/videos/2018-08-16/this-man-delivers- blood-to-hospitals-by-drone-video
CASE STUDY: Zipline Dr. C. Guckel
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2) Success story how Zipline developed their soluBon: hbps://www.tedmed.com/talks/show?id=686750
3) Engineering challenges of flying autonomously: hbps://www.youtube.com/watch?v=xB29HG5JNlE
Your Task Based on the case study presented, compose a report covering following aspects and quesBons:
1) Give an overview of Zipline as a company. Explain the moBvaBon for founding this company, what is their unique posiBon in the industry, and what was the need they saw in the field (the gap the company wants to fill). What were challenges that Zipline had to overcome since their incepBon? What does the compeBBve environment look like?
2) If customers can receive any product they desire instantly aker ordering how does that influence the type of products they buy, the volume of products procured, and the extent to which they are kept in stock?
3) With the ability to reduce waiBng Bmes to under an hour, ziplines delivery service will affect the assortment of health products offered at the health faciliBes it serves in terms of greater diversity and reliability, availability without overstocking or stock outs. Using a graph, explain the phenomenon of stockouts and overstocking as they could occur in a business with tradiBonal inventory management, and show how this scenario can be avoided with Zipline. What effect can a secure supply chain have on the hospitals and their customers, the paBents?
4) For Zipline to operate successfully, following condiBons must be met: o Regular demand (50-100 flights/day cover the fixed costs of the distribuBon
centre) o Narrow Bme window (product required within hours of order) o The product is difficult or expensive to stock o Packages must be small o Centralized distribuBon centres o Poor infrastructure o One-way delivery, hub and spoke model
Compare Zipline with tradiBonal delivery methods, such as truck or motorcycle, and with alternaBve drone delivery systems. Refer to the points above, as well as speed and reliability of Zipline’s delivery method, to draw your conclusions. What other markets could be abracBve for Zipline?
5) Zipline will need to balance its social and commercial goals to be sustainable. What are the potenBal downsides of not finding a balance? Zipline is a medical supplies delivery company. It started out in developing countries where its service had a high social impact. Its mission to reach 700 million by 2024, and to transform the accessibility of medical supplies, made it immensely popular in the eyes of the public. It also allowed Zipline to hire top talent and raise funding from social investors. Recently, Zipline signed a deal with
CASE STUDY: Zipline Dr. C. Guckel
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Walmart and is exploring delivery services with lower social impact. Is it possible to balance the two? How should Zipline go about doing this?
6) What are the main new aspects that Zipline brought to tradiBonal supply chain management? Even though Zipline’s approach is tailored to a niche market, what impact can their model have on some areas of supply chain management?
Structure your report according to the content you want to present and opBmize the flow, so that the reader can easily follow your logic and arguments. You should be able to accomplish the task with about 3,000 words of text, there is no upper or lower limit though. It is expected that you apply the APA formanng. Reference Grades and Topics (refer to tasks described above):
Topic Incomplete SaBsfactory Very Good ExcepBonal Actual Mark
Introduce Zipline (1) 6 7.5 9 10 Customers’ reacBon to
Zipline’s model (2) 6 7.5 9 10
Inventory management tradiBonal & Zipline (3) 9 11 13.5 15
Comparison of delivery methods (4) 6 7.5 9 10
Commercial and social goal balance (5) 6 7.5 9 10
Impact on tradiBonal supply chain
management (6) 9 11 13.5 15
Logic & criBcal thinking 9 11 13.5 15 Format and overall
presentaBon 9 11 13.5 15
SUM 60 75 90 100
,
IN1921
Case Study
Zipline: Life-Saving Drone Service Redefining the Supply Chain
Source: Zipline
06/2023-6667
This case study was written by Luk Van Wassenhove, Emeritus Professor of Technology and Operations Management, Henry Ford Chaired Professor of Manufacturing and Academic Director of the Humanitarian Research Group, Loïc Sadoulet, Affiliate Professor of Economics, both at INSEAD and Anne Nai-tien Huang, INSEAD MBA’19D. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
The authors gratefully acknowledge the help of Boas Meijer, PhD Student in Technology and Operations Management at INSEAD, in developing the case.
To access INSEAD teaching materials, go to https://publishing.insead.edu/
Copyright © 2023 INSEAD COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, TRANSLATED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.
For the exclusive use of U. Brar, 2024.
This document is authorized for use only by Uday Brar in OPMT 620 Winter 2024: Supply Chain taught by Christian Guckel, University Canada West from Feb 2024 to Mar 2024.
Introduction
Zipline’s Mission: To Provide Every Human on Earth with Instant Access To Vital Medical Supplies
With its expansion to Ghana in 2019, Zipline became world’s largest drone-based medical delivery service, reaching over 25 million people. Founded in 2014 by Keller Rinaudo (CEO) and Keenan Wyrobek (CTO) at Half Moon Bay, California, Zipline was different from its Silicon Valley peers, as Rinaudo explained:
“There is a growing feeling around the world that technology is not benefiting the vast majority of people. Zipline wants to establish a new model of success in Silicon Valley by showing the world that the right technology company…can help improve the lives of every person on the planet.” 1
In June 2021, Zipline announced a funding round of USD250 million, seeking to finance the global roll-out of its healthcare logistics network and accelerate progress towards its mission, with a target of reaching 700 million people by 2024 with drone delivery.2 It had already achieved nation- wide coverage in Rwanda and Ghana in 2019 (Exhibit 1) and had expanded into Nigeria in 2021. The COVID-19 pandemic had accelerated official approval for it to operate in the US – delivering medical supplies in North Carolina. This was seen as a potential catalyst for expansion to other developed countries, where aviation rules were more stringent and air traffic much busier than in developing economies.
Zipline had identified an ongoing need to develop new technological features to achieve commercial success in advanced economies. But would this take away resources that had hitherto been devoted to reducing operational costs for developing countries? And if more profitable commercial opportunities came its way, would it be diverted from its medical mission?
Background
Development of Drone Technology
The exact origin of drones, or ‘unmanned aerial vehicles’, is unclear. Some claim they date back to 1849, with Austria’s aerial attack on Venice using unmanned balloons stuffed with explosives.3
Others claim that they were built during the First World War by the US Army.4 To this day, the military applications of drones continue to develop, but it is their non-military use that is particularly on the rise, be it to monitor human activity on the planet, search operations after natural disasters, for filming, delivering parcels, and potentially carrying passengers. A report by Roland Berger in 2019 estimated the non-military drone market to be worth USD 5.5 billion
1 Dawn Kawamoto, How saving lives served up $190 million in funding and unicorn status for this Bay Area startup, May 2019. https://www.bizjournals.com/sanfrancisco/news/2019/05/17/medical-drone-delivery-lands-190-million- funding.html
2 Ibid. 3 Murphy, Justin D. (2005). Military Aircraft, Origins to 1918: An Illustrated History of Their Impact. ABC-CLIO. pp. 9–10.
ISBN 978-1-85109-488-2. 4 Imperial War Museum, A brief history of drones, accessed July 2020. https://www.iwm.org.uk/history/a-brief-history-
of-drones
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worldwide, and forecast 11% annual growth in the ensuing 5-6 years to reach USD 10 billion by 2025 (Exhibit 2). 5
The Problem with Medical Supply Chains
“Our contract with Rwanda didn’t even mention drones. We’re couriers. Drones were just the best way to solve the logistical problem of delivering supplies in that environment.”6
Keenan Wyrobek, CTO
The ‘last mile’ problem hampers access to medical supplies, especially in developing countries where insufficient infrastructure prevents delivery to remote areas in emergency situations. Rural clinics often lack the facilities to stock health supplies and the budget to afford short-shelf-life products that can expire before use. Health systems constantly battle between wasting unused expensive medical supplies or being short of the right blood type unit in an emergency. Developed countries may tolerate the high cost of medical waste, developing countries cannot afford it.
The Zipline founders observed this problem in Rwanda. It was not that the country lacked adequate medical supplies, but that they were stuck in a central warehouse and could not get to local clinics on time, and that large quantities expired before use. With insufficient road infrastructure in rural areas and a rainy season lasting months, truck delivery was inefficient and unreliable in emergency situations. After working with the Rwanda government to hone their understanding of the healthcare supply chain, they were convinced drone technology could solve the problem.
The Ministry of Health suggested Zipline deliver blood units instead of the originally planned vaccines. Many potentially fatal conditions can be treated with a blood transfusion, such as haemophilia, thalassemia, immune deficiency, severe injuries and haemorrhaging in childbirth. While whole blood has a shelf-life of between 21 and 35 days7, blood platelets (that aid clotting) have five days.8 Patients cannot wait hours for blood in an emergency, and rural clinics cannot afford to store all blood types. According to a study by the World Health Organization, 33% of donated blood and 40% of blood plasma expires and is discarded, taking a heavy toll on any health system.9,10
The value proposition of Zipline’s on-demand drone delivery begins with their speed and range of delivery, and extends to the transformation of the structure of the medical supply chain and the way care is delivered. At scale, an on-demand delivery system using drones can enable a healthcare system to significantly increase access to medical supplies while simultaneously reducing product wastage and cost. At scale, it can obviate the need for decentralized storage of
5 Manfred Hader and Stephan Baur for Roland Berger, USD 5.5 billion market volume for non-military drones globally, February 2020. https://www.rolandberger.com/fr/Point-of-View/Cargo-drones-The-future-of-parcel-delivery.html
6 Miriam McNabb, How Zipline Became a $1.2 Billion Drone Company, May 2019. https://dronelife.com/2019/05/21/how-zipline-became-a-1-2-billion-drone-company/
7 depending on what type of anticoagulant is used during the collection 8 American Red Cross Blood Service, How can one donation help multiple people? Accessed August 2020.
https://www.redcrossblood.org/donate-blood/how-to-donate/types-of-blood-donations/blood-components.html 9 Yuyun Mmaryuningsih for Word Health Organization (WHO), Action Framework for Blood Products. 2020. 10 WHO, Global Status Report on Blood Safety and Availability of 2016. 2017.
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medical supplies and extensive cold-chain infrastructure, and allow the healthcare system to more fully utilize all end-points without suffering from a shortage of supplies needed for treatment.
How it Works
Video Link (Real Engineering Video on Zipline)
Both Rinaudo and Wyrobek had a solid background in robotics. Zipline drones went through several generations before the current model. Today, they can cruise at 110km/hr powered by batteries that last 160kms. 85km is the service radius of a Zipline distribution centre (DC), potentially covering millions of inhabitants, depending on population density, with the capacity to make several hundred deliveries per day. Each drone has a payload of 1.8 kg per flight, equalling three units of blood. By early 2021, Zipline was routinely flying more than 30,000km per day (accumulating over 2 million km since its first delivery) in Rwanda.
Zipline’s drones do not have wheels (Exhibit 3), can only take off with a launcher and land with a specific mechanism at the DC. The partnering hospitals and clinics order a drone delivery through SMS or WhatsApp to Zipline. Usually, the supplies are ready for delivery within five minutes. The drone is placed on a launcher that shoots it into the sky at 100 km/h, where it flies a pre-set route to the partnering client. A crew member monitors each flight on a central dashboard (Exhibit 4), informing the client 60 seconds before delivery via text/WhatsApp message that the package can be retrieved from the rooftop or garden. The package is dropped by parachute and the drone flies back to the DC. The landing mechanism is a hook at the back of the drone which meets a wire that snags the drone out of the sky with centimetre-level accuracy (Exhibit 5). Hanging by the wire, the drone is retrieved by crew members, and returned for a round of check-ups, battery swap and next delivery loading. If, for whatever reason, the drone drifts out of the pre-programmed course, it will automatically deploy its safety parachute to land. The current design of Zipline has an exceptional safety record – there were no instances of uncontrolled landing or fly away.
Success Factors
The Technology
The Global Head of Regulatory Affairs, thought Zipline’s drone design was key to its success for several reasons:
• First, efficient design. Traditionally, take-off and landing consume a lot of energy, while cruising does not. Zipline’s launcher and recovery system allows the drone to fly up to 160 km roundtrip.
• Second, fixed-wing drones. Vertical take-off and landing systems are vulnerable to wind and rain, so cannot be a mission-critical piece of the medical supply chain, which is responsible for everything from routine resupply to emergency deliveries.
• Third, a simple low-cost delivery system. One could argue that not being able to pick up goods on the return trip is a wasted opportunity, but Zipline would need personnel to handle landing and takeoff functions at every third-party delivery location. It would be impossible to build
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This document is authorized for use only by Uday Brar in OPMT 620 Winter 2024: Supply Chain taught by Christian Guckel, University Canada West from Feb 2024 to Mar 2024.
launchers and landing facilities with trained personnel in each of the thousands of hospitals Zipline serves. The current system keeps infrastructure, operations, and personnel costs low by using a simple parachute.
In recent years, interest in cargo delivery drones has increased considerably. Often financed by large tech or logistics firms, companies such as AerialMetric, Alphabet’s Wing, Amazon Prime Air, Ehang, Flirtley, Matternet, Volansi and Wingcopter have built reliable cargo drones. They differ widely in design, services, and funding (Exhibit 6). Zipline is one of the only companies to be operational on a large scale.
Cost, Funding and Unit Economics
“Becoming self-sustainable is the only path to achieve our mission at a global scale.”
Maggie Jim, Head of Finance
Zipline saw its costs drastically reduced as it scaled up its operations and engineered every element of the system for scale and dependability. The newest version was designed with reliability, simplicity and easy assembly in mind. Scale in demand also reduced operational costs by increasing utilization of the infrastructure. From its first DC in Rwanda to the current six operational DCs in Rwanda and Ghana (and four more under construction in Ghana), with hundreds of drones in service, it was able to cut cost per delivery by 86%.
Zipline has commercial contracts with government partners and health systems who pay for the service through a tiered subscription model. Even so, the establishment and operationalization of a distribution centre requires a significant up-front cash investment, which is not easy for a small start-up to take on. This poses difficulties for risk-averse, resource-constrained clients in developing countries, which is why Zipline sought other funding sources for its operations in Rwanda and Ghana – venture capital and philanthropic partners. The upfront set-up cost is subsidized by philanthropists dedicated to improving health care in the developing world (e.g., The Bill and Melinda Gates Foundation, Paul Allen Foundation and GAVI [the Vaccine Alliance]), while VCs fuel many of the technology innovations, R&D and growth (Exhibit 7).
Making its service more affordable is a top priority for Zipline to expand to new markets/countries. Jim was looking at the entire operation through the lens of unit economics11 per flight with a goal to lower the cost of each delivery to single-digit dollars. Currently, the cost per delivery is on a par with motorcycle delivery, but much faster and more reliable.12
The team continued to redesign the system for greater efficiency, incorporating lessons learned from customers and internal operations feedback. Zipline also worked on innovative ways to make infrastructure set-up cost more efficient, such as a mobile DC that fits into a truck and can easily be set up anywhere.
11 Unit Economics is defined as “direct revenues and costs associated with a particular business model and are specifically expressed on a per unit basis”.
12 Interview with Keller Rinaudo on CNBC, May 2019. https://www.youtube.com/watch?v=vXedO7DW5Qw
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This document is authorized for use only by Uday Brar in OPMT 620 Winter 2024: Supply Chain taught by Christian Guckel, University Canada West from Feb 2024 to Mar 2024.
Business Development and Regulatory Environment
Rwanda was the first country that took a chance on Zipline before it had a proven business model. It helped that President Paul Kagame was a technology enthusiast. With the support of the Ministry of Health, Zipline was fast-tracked to set up DCs and start operating.
But Zipline soon realized this was an exception rather than the norm. Every new country in which it sought to operate involved a long journey – to understand the regulatory environment and the pain points of the health system. Its Business Development team needed to approach the respective health authorities differently, and the conversation with financial partners also varied.
For every country, whatever the level of bureaucracy and regulation, confidence in safety was key. The Global Head of Regulatory Affairs observed that as long as Zipline provided a lot of information about its operations, explained what it did, how it worked, and how well people were trained, regulators were confident about making the decision.
Company Culture
The sense of mission among Zipline employees was a distinguishing characteristic. The philosophy was to hire people who cared deeply about the company’s mission, since they in turn would only hire others who cared as much as they did, as the Global Head of Regulatory Affairs testified:
“I worked