With customers buying more products online than ever before and e-commerce sales set to grow 10.9 per cent to £106 billion this year, revenue is on the rise for many logistics providers. Yet despite logistics operators processing a higher volume of goods, profit margins aren’t increasing at the same rate.
Competition is fierce and complex. New entrants are disrupting a historically resilient industry. And retail customers and suppliers are entering the logistics markets in new, unexpected ways. Earlier this year, in the US, Amazon announced plans to further invest in its own air fleet to save costs, gain more control of its shipping service and continue reducing its reliance on FedEx, UPS and the U.S. Postal Service. Meanwhile, in the UK, Tesco announced plans to expand its e-commerce and distribution capacity by collaborating with TakeOff, a start-up which uses automation and robotics to reduce last-mile costs.
Customers’ rapidly changing behaviours continue to put pressure on logistics operators. They want choice, flexibility and low-cost deliveries. Next-day delivery is the new normal and customers are starting to expect same day delivery. This means last-mile delivery services must keep up with customer expectations.
As governments around the world plan to cut greenhouse emissions to almost zero by 2050, there’s increased pressure for logistics providers to reduce emissions and become more sustainable. A number of large logistics providers are introducing climate change initiatives ahead of 2050 by investing heavily in electric vehicles and, while not yet a reality, the adoption of autonomous vehicles has the potential to reduce emissions and optimise deliveries.
Digital also remains a challenge for the sector. Many logistics providers still operate with legacy systems and processes, which means they struggle to respond to changing customer demands and embrace new technologies.
This, in addition to the shortage of drivers and an ageing workforce, means agile logistics providers are most likely to benefit from challenging market conditions. By following the five steps outlined below, they’ll be able to reduce costs, add value to the end user by providing more personalised services, and invest in new technologies and sustainability measures.
1) Focus on your customer
Centring on customers is about paying attention to what customers are saying; listening and applying their feedback; and ultimately bringing them into the innovation process.
Today’s customers are more empowered than at any time in the past. The internet and smartphones have transformed how people shop and purchase goods. Customers determine what their delivery options will be based on price, speed, tracking and communications from the provider. Some customers are willing to pay a premium to achieve a first-time successful delivery. Yet others will expect a successful first delivery even without considering whether they'll be at home when the delivery is scheduled.
Parcel carrier DPD is leading the way in embracing customer centricity; a focus which has led to them being voted #1 UK logistics provider of the year by the Chartered Institute of Logistics and Transport . A lot can be learnt from the innovations that took DPD here. In 2018, it created an initiative called “Design Space” that enables the sharing of new ideas and insights, and allows customers to shape the kind of delivery experience they desire. This has allowed DPD to create a unique one-hour delivery slot service with live tracking, called ‘predict’, and a ‘Your DPD’ app, so customers have better control over the timing of their delivery.
A poor delivery experience will negatively impact the reputation of the logistics provider as well as the retailer. To provide a good experience, you’ll need to both react to and anticipate where you can make the biggest impact to your customer. For example, US-based firm Lumi has removed the number of customer touchpoints for complaints, to drive a more seamless response and deliver a single, holistic solution for customers, rather than passing them from department to department.
San Francisco-based ‘robot delivery’ firm Starship Technologies is providing an alternative, environmentally clean and customer-centric vision of last-mile delivery using robots, and is now seeing rapid growth having launched in 2014. Between April and August this year it doubled the number of deliveries it carries out globally as it hit the 100,000 deliveries mark. Key to this growth has been the development of the app, where customers can choose the time and address of where they want their goods delivered. When the robot arrives, it sends a notification to the customer via the app so the customer can take the item. To date there have been no unsuccessful deliveries or items getting lost in transit.
2) Speed up time to value
Speeding up time to value means making decisions and mobilising quickly in response to competition. This approach calls for a major shift in mindset and the way in which logistics providers traditionally operate. Incumbents must think big, start small and scale fast to match the speed offered by new entrants, who quickly launch minimum viable products and then use performance and customer feedback to drive the next iteration of their offering.
Investing in the appropriate resources and leadership is a key priority in going from initial idea to launching a new product or service in a short time frame. Look at how UPS introduced an electric delivery fleet in London in 2018. It was able to solve a vehicle-charging problem by creating a smart grid to spread electricity between vehicles more effectively, and partnering with organisations outside traditional sector boundaries – UK Power Networks and Cross River Partnership – to make the charging process smarter and cleaner. This development will be significant in enabling electric vehicles to be deployed at scale and to compete against rival logistics providers.
Did you know the top 10% of financial performers are 30% more agile than the rest?
3) Design for simplicity
Designing for simplicity requires building teams around products and services rather than skills, empowering people to make decisions and creating a flat organisational structure. Simplicity will allow for greater flexibility and scalability, which is essential when responding to changes that influence the business during peak periods, adverse weather or political unrest.
These principles can present challenges for large, established logistics providers as they try to overcome legacy issues that have left them complex and autocratic. To overcome this, the key is integrating people into cross-functional teams that deliver better and faster value to the customer and the organisation.
During last year’s peak Christmas period, Hermes UK recorded their busiest-ever day, processing 1.9 million parcels. To help them cope with this additional demand, they on-boarded an additional 2,000 people across its hub and depot networks and 6,000 additional couriers. Training this volume of new colleagues would not be possible without simple processes and operating model. Hermes were able to offset uncertainty during seasonal peaks and recruitment challenges.
4) Build to evolve
Being able to evolve continuously is about seeking out and accepting change. Technology is giving us access to more real-time information and firms should use this to improve the services they offer.
Most logistics providers have mass data from their clients which is often underutilised. This data should be leveraged to build customer insights. This will enable businesses to respond to changing market conditions and build more engaging relationships with end consumers.
Clipper Logistics are using fulfilment and returns data to develop predictive analytics, enabling them to build more sustainable returns solutions. In doing so, this is turning the ‘unknowns’ into ‘data-led knowns’ – an insight which enables them to perform effectively and react rapidly.
When building new technology, it’s critical to integrate properly rather than ‘bolt on’ to existing legacy systems. However, it’s not just about having the right systems and processes in place. It’s also about your workforce. Our recent research with the Chartered Institute of Personnel and Development suggests advanced technologies will complement and augment, rather than replace, humans. We found that business leaders should use AI and automation to improve the workplace environment, upskill their people and drive better outcomes.
5) Liberate your people
More than 70 per cent of agile organisations say complex structures with too many layers of management are a ‘significant’ or ‘very significant’ threat to acting faster in the market.
Treating colleagues like customers is at the heart of what top-performing agile organisations do. Agile leaders create vision and inspiration for the organisation to connect with its core purpose. Liberating your workforce on the ‘shop floor’ has the potential to create unlimited value, as often the best ideas come from those who do the job day in day out.
Instead of giving people a narrowly defined job specification, agile leaders provide the autonomy to allow their teams to express themselves and deliver the expertise they were recruited into the role for. While AI, robotics and autonomous vehicles begin to disrupt the logistics sector, employers must provide career development opportunities to improve operations and advance workers to higher-level job functions.
While ‘agility’ remains a theoretical concept to many logistics organisations, our steps above provide perfectly achievable steps to reduce costs and add value to the end user. In doing so, you’ll be able to provide more personalised services, invest in new technologies and create new commercial opportunities. This is why, in challenging market conditions, it’s time to get agile.