From Providers to Partners: A Logistics Paradigm Shift?
Innovation. This word is everywhere now, but what exactly do we mean by innovation? Harvard Professor Clayton Christenson, in his 2014 Harvard Business Review article, The Capitalist’s Dilemma[i], identified three different types of innovation as follows:
- Sustaining innovations: These are incremental or performance improving innovations that are designed to replace old products with new and better models. These are often just improvements to an existing solution, the innovation designed to protect market share.
- Efficiency innovations: These are where the company develops new ways to make and sell mature, established products or services to the same customers at lower prices.
- Disruptive, market-creating innovations: These are radically new ideas that create a new class of consumers or a new market. Examples of disruptive innovations include the replacement of horses with automobiles, typewriters with word processors and film photography with digital.
Innovations are the driving force behind both technological hype cycles and business cycles. For example, you can clearly see the correlation between Christensen’s categories of innovation and the upswing and downswing of business cycles. During the downswing, incremental and sustaining innovations dominate as the mature market limits the rate of growth (and thus attracts limited financial capital), and business leader’s focus is on protecting market share rather than growing it. The opposite is true during the upswing, when disruptive innovations dominate, specifically in the fields of communication, transportation, production, and power. During this period, capital, attracted by the opportunity of rapid returns, floods towards these new innovations and the companies producing them, spurring on their development, and creating a winner-takes-all market and mindset. This is a time of disruptive innovations, disruptive markets, and disruptive thinking.
Fortune Favours the Brave
We are currently midway through an upswing period, and the signs of its disruptive forces are all around us. This is a time when the brave and the forward-thinking thrive. Unfortunately for most businesses, their leadership, measures of success and corporate culture were all developed during the last cycle’s downswing, when focus was on control and efficiency, not experimentation and reinvention. As a result, these organisations are struggling to adapt to this new environment, weighed down by their past investments and burdened with a corporate culture that is paradoxically afraid of being left behind and of taking risks.
Like Warren Buffet advice to investors to be ‘fearful when others are greedy, and greedy when others are fearful’, the successful organisations are those who are brave enough to take risks and understand how technologies can enhance their value proposition to their customers. Companies such as Amazon, who for years bemused analysts be continuing to invest in innovation when their competitors were focusing on stock buybacks and cost-reduction initiatives. For the entirety of the downswing period, right until the years following the financial crash, Amazon continued to plough all its profits back into growth initiatives and acquiring disruptive innovations such as its purchase of Kiva Robotics for $775 in 2012. At the same time, most of Amazon’s competition was focusing on sustaining innovations and cost-saving activities such as offshoring, and Amazon was criticised for its cavalier attitude and focus on innovation. In hindsight, this seems awfully foolish now. In 2021 their first-quarter revenue exceeded $108bn, their share price hit $3,500, and there are now over 200 million Prime subscribers, all paying $119 pa. That’s $23.8 billion in upfront cashflow every year, which Amazon can use to finance its innovation efforts, including its just walk out technologies used in its Amazon Go cashier-less store and its Alexa powered devices such as the Echo.
Amazon - 24 Year Stock Price History: Source: Macrotrends.[ii]
As Amazon’s sales and customer base grow and its customer lead time offering shrinks, its logistics costs explode. It is therefore unsurprising that many of its investment and innovation developments focus on increasing capability while also reducing costs. Amazon’s recent investments include opening nearly 200 automated fulfilment centres, purchasing a fleet of Boeing cargo planes[iii], developing an army of Scout delivery road robots and acquiring 100,000 Rivian electric delivery vans.[iv] Soon the vans will be autonomous, and the robots will travel inside them, mothership style, extending their range and saving Amazon a fortune in logistics costs. Savings that will no doubt be reinvested into further enhancing these developments.
DHL’s 20/20 Vision: Creating the Future
Amazon is not the only logistics focused company that has a keen focus on innovation. If the best way to predict the future is to invent it, then the logistic company DHL is covering both these bases by focusing significant time and effort in both prediction and invention. On the creation side, DHL has worked on solution development and to understand how these new technologies could be used to reimagine and redefine their value propositions. They have partnered with a range of companies across multiple industrial sectors, including IBM, Intel, SAP, Volvo, and Huawei, to create innovation centres that highlight new technologies, ranging from collaborative robots and the blockchain through to autonomous vehicles, delivery robots, smart lockers, and delivery drones. At each location, DHL can run live tours, deliver innovation workshops and exploration sessions, and run innovation events. There are currently three innovation centres located in Chicago, Cologne and Singapore, and a fourth is about to open in Dubai. DHL are also organising major Logistics and Supply Chain summits that bring together industry experts, trend watchers, innovators, and global leaders.[v]
DHL is also ensuring that it is at the forefront of researching and understanding the potential of the plethora of new and disruptive technologies that are emerging in this new business cycle. For example, back in 2015, they developed Augmented Reality (AR) warehouse ‘vision picking’ glasses in conjunction with Ricoh and leading wearable computing solutions expert Ubimax. They have also helped several new start-ups promote their ideas through the hosting of ‘shark tank’ style Innovation Days at their aforementioned Innovation Centres. At these events, the start-ups have the opportunity to pitch their fledgling ideas to a wide audience from DHL’s network and get feedback on both the product and the pitch – as well as gain potential future customers. DHL also allow successful start-ups to use their warehouses as testing grounds, enabling them to emerge from the lab and into the real world so that lessons can be learned, and adjustments made. Examples include the French robotic company Effidence, who were able to test their EffiBOT robotic cart that autonomously follows pickers through the warehouse.[vi]
EffiBOT robotic cart by Effidence
However, perhaps one of the best success stories to emerge from this is Cellumation[vii], who won the Innovation Award at the 2016 DHL Innovation Day after demonstrating their modular, flexible conveyor and positioning concept called the ‘Celluveyor’. This revolutionary system is comprised of several small hexagonal conveying cells, each with three individually driven omnidirectional wheels. A combination of software, AI and computer vision individually controls each of the wheels, allowing objects to be freely conveyed in all directions and orientations.
This enables companies to move and position any number of objects of any shape and size on freely configurable paths, changing a product’s direction without having to change the conveyor belt configuration. This means that complex material flow applications can be performed in minimal space, taking up only 20 per cent of the footprint of traditional conveyor belts, enabling warehouses to become much more flexible and space efficient. Celluveyor can even switch between depalletizing mode to palletizing, all at the press of a button.
Not only did DHL provide the platform for Cellumation, but it also used one of its warehouses in Braunschweig, Germany, to successfully pilot test the Celluveyor, as well as demonstrating this system at its innovation centre. Cellumation is also now a DHL Global Innovation Partner.
DHL’s 20/20 Vision: Predicting the Future
Combining their solution development, research and insights from the innovation centres, summits, and innovation days helps to support the predictive side of DHL’s capabilities, the most famous output of which is The Logistics Trends Radar.
DHL Logistics Trend Radar - 5th Edition.[viii]
Currently on its 5th Edition, the Logistics Trend Radar is a useful tool that not only identifies which emerging technologies are on the horizon, but also highlights the social and business trends, helping to provide good insight into many of the forthcoming challenges and opportunities. The Trend Radar also highlights the impact that these technologies are likely to have and the timeframe by which they are likely to cross the chasm and go mainstream. You are also able to compare the latest Trend Radar to the previous one, so you can see the progression (or decline) of certain technologies and trends. For example, since the 4th and 5th editions, Blockchain, Mass Personalisation and Servitisation all showed a significant shift in timescale and impact, moving from the 5-10 year bracket to the < 5 year one. During workshops at DHLs Innovation Centres, companies are encouraged to review the Trend Radar and examine the technologies on display to highlight the trends that are likely to have the most impact on their business or provide the biggest opportunity.
Facing the Future Together
Servitisation is perhaps the trend that DHL is priming itself to embrace most. The ugly truth facing most companies is that their downswing corporate mindset and aversion to risk-taking means that they are never likely to match the innovation investments of companies such as Amazon. However, the digital age now means that you can now access everything needed to run your supply chain as a service, ranging from advanced software to space in real estate and shared vehicles. Unsurprisingly, Amazon has realised that there are lucrative new business models to be created from providing access to its technology, and currently offers access to the Just Walk Technology that powers its cashier-less stores,[ix] its language recognition and translation capabilities that power its Alexa products (Amazon Lex and Polly),[x] its algorithmic forecasting tools that drive its website recommendations and stock replenishment (Amazon Forecast)[xi] and even Quantum Computing capabilities (called Amazon Bracket).[xii]
DHL has taken a leaf out of Amazon’s book, but as well as offering a selection of tools to rent, they can also provide a complete supply chain solution that utilises these tools. DHL’s LLP2GO (which stands for Lead Logistics Partner 2 GO) combines DHL’s logistics capabilities with strategic supply chain advice, an implementation and change management team, and vendor selection and partnership capabilities.
DHL Lead Logistics Partner offering overview. Source: LLP2GO overview video.[xiii]
DHL embed their people into the customer’s organisation to understand their current and future supply chain needs, allowing them to propose a re-design of the supply chain’s strategies, systems, processes, and networks to create a business case for change. If accepted, they will then install LLP control tower capabilities within the organisation using DHL’s technology platform, which integrates with the client’s existing ERP system, creating visibility into transitional activity (which of course can utilise DHL’s logistics network and fleet capabilities, including the new offerings such as road robots, drones, and warehouse automation) while also providing a team capable of capturing actionable insights from all this data. This LLP team can then work with the business to implement a continuous improvement plan with all the associated change management capabilities, effectively offering Supply Chain Operation and Transformation as a Service. This is more than simply providing access to tools and capabilities; it also includes strategic advice into network design, infrastructure, and technology investment, change management, planning and execution.
Time for a New Logistics Partnership Paradigm?
DHL’s LLP approach demonstrates that the future is bright for organisations that are able to think outside their existing business models and embrace new concepts such as Servitisation. Companies such as DHL may be one of the first to understand this potential, but they simply part of a much larger movement. This upswing period and its new array of digital tools and smart automation provide a golden business opportunity for forward-thinking logistics companies and landlords to transform both their mindsets and their offerings. We are already seeing logistic developers such as P3 willing to assist their clients in the design, upgrade, and upscaling of rented facilities, aware that helping their tenants remain competitive in this disruptive age makes good long-term business sense. Companies such as P3 that can look beyond the lure of immediate profits are shaping a new role for themselves as true collaborative network partners and solution providers, not just landlords and suppliers of space. This new customer-centric, solution-based approach will allow their clients to leverage the benefits of disruptive technologies without having to have an Amazon sized innovation wallet, scaling up and upgrading facilities with the help of their logistics real estate partner. At the same time, this also creates new business models and income streams for these landlords, requiring them to learn new skills and gain a better understanding of their customer’s business, the payoff for which is a deeper and longer-term relationship based on a mutual objective to ensure the customer succeeds in these challenging times.
As the upswing of the sixth wave is set to last until 2030, these new strategic partnerships and scalable, service-based supply chain solutions could enable companies to do more than just survive during this turbulent decade; it may help both them AND their logistics partners to thrive.