9/25/10 Providing Service to Far-Away Customers

9/25/10 Providing service to far-away customers

I recently saw a customer arrive at our charging station in Chanika with her battery perched on her head. She had it just as she might a pot or a sack, balanced on the center of her skull with a finger or two gently touching one side to keep it from wobbling. “That’s so encouraging,” Micah said when I mentioned it to him, “to see our product become part of the fabric of life.” I agreed, but also wondered how far she had walked to swap her battery. The image was a reminder of the larger challenge we face as an energy distribution company in a country where infrastructure ranges from wanting to makeshift to non-existent: delivery. The issue for EGG, fortunately, is not demand. The demand for our service is there, both nearby and far away. The issue is expanding to meet the spreading demand. which is always something of a tightrope-walk for start-ups (or so I assume): —scale up too fast and risk seeing wrinkles that had yet to be ironed out during the pilot metastasize into complex structural problems; but scale up too slow and risk choking off your capital or customer base. I’m reminded of the scene in Apollo 13 where a NASA expert holds up a basketball and a piece of paper and explains on national television the narrow path the astronauts’ damaged ship must navigate in order to reenter Earth’s atmosphere—come in too steep and burn up over the Pacific, but come in too shallow and bounce off the ozone layer. Our challenge is providing adequate service to customers beyond the towns in which our charging stations are located. For those who live in Chanika or close by, swapping one’s depleted battery for a charged one is just another errand on the busy main street; often parents will send their children to make the exchange. But for customers who live farther away, in some cases over an hour by dala dala (small bus) from Chanika, swapping one’s battery becomes more of an ordeal. As Pareen outlines in an earlier post, to better serve our remote customers, we partner with business owners in villages scattered around the region and provide them with stocks of batteries to distribute in their respective areas. They charge a premium on each 500-shilling swap to turn a profit and cover the cost of transporting the batteries from the charging station to their distribution point. That is where things get more complicated. Given the risks and limits of transporting large numbers of batteries in a region with limited infrastructure and a reality that often compels the pursuit of short-term gains over long-term investments, it is advisable to keep a distributor’s stock of charged batteries just high enough to meet current demand. Thus, given the rate at which the average customer swaps, stocks must be replenished roughly twice per week. Currently, the distributors are responsible for transporting the batteries from the Chanika charging station and back. Most opt to pay a local motorcycle driver—which are ubiquitous—to cover the route. However, the farther their village from Chanika, the more expensive the transportation costs. And the more expensive the transportation costs, the more the distributor has to hike the swap premium to turn a worthwhile profit. But, because there is an upper limit to how much the majority of our customers can afford to pay per swap (and how much we permit the distributors to bill), the farther away the village, the more customers a distributor needs to achieve that worthwhile profit. For instance, the swap fee in Mvuti, which is seven kilometers down the road from Chanika, is 700 Tsh. Therefore, the distributor needs fifteen regular customers to break even. In Mbande—nineteen kilometers of unpaved road away— the swap fee maxes out at 900, which means twenty customers are needed to break even. The situation becomes more even complex as the number of customers in a distributor’s area increases beyond a certain threshold. The typical 125cc motorbike can carry a maximum of about thirty-two 8.5 lbs (3.8 kg) batteries, which already (if you’ve seen one loaded down with that number) is probably too many. Thus, once a distributor surpasses thirty or so customers, the rate of the battery transfer will have to increase. Assuming 25% of customers swap their battery each day, when a distributor reaches 128 customers, deliveries will have to run daily to keep up with demand. Beyond that number motorcycle transport is neither cost effective nor practical. The least expensive option would be to hook trailers to the back of the motorcycle. This is Jamie’s favorite option. Other options we have considered entail switching to ATVs or SUVs. Whichever we choose, because of the capacity required to move higher numbers of batteries, we will almost certainly have to transport the batteries to the distributors ourselves. This centralized delivery model has both drawbacks and advantages.

Drawbacks of a centralized delivery model  The exchange of batteries between EGG and the distributor would have to occur at the distribution point, rather than in the charging station, where our managers can better control the process.  All the logistics of delivery, such as hiring and managing couriers, scheduling transfers in accordance with current supply levels, maintaining the means of transport and covering fuel costs, would have to be coordinated in-house, rather than handled individually by each distributor. Advantages of a centralized delivery model  Enables EGG to exert considerably more control over the movement of its inventory.  Facilitates more frequent contact between EGG staff and our customers in the distributors’ areas.  Allows us to establish delivery routes that can serve multiple distributors. These would mutualize and thus reduce fuel consumption, transportation costs, and, as a result, the swap fees for our more remote customers.

In short, a centralized delivery model is feasible, albeit tricky. But for larger distributorships, it is necessary. As we move forward, we will experiment with cautious, staggered centralization. Since one size may not fit all, our capacity to remain flexible will be our most strategic asset—whatever shortens the trip and lowers the cost for our customers. I imagine those bricks are not the most comfortable things to carry on your head.