Re-shaping the Logistics Service Industry: ICT and Sustainability Innovation Challenges

Transcription

1 INTERNATIONAL MULTIDISCIPLINARY CONFERENCE ON SEA, TRANSPORT AND LOGISTICS 2017 Opatija, Croatia 20 th -22 nd November 2017 Re-shaping the Logistics Service Industry: ICT and Sustainability Innovation Challenges Pietro Evangelista PhD: IRISS-CNR, Naples (Italy)

2 AGENDA 1. Changes in the supply chain scenario and evolving role of third-party logistics service providers (3PLs) in logistics outsourcing 2. Logistics innovation: what, why and where 3. ICT innovation in 3PLs 4. Environmental sustainability innovation in 3PLs 5. Implications

3 Supply chain driving forces and the impact on customer needs Globalisation of manufacturing and sourcing Supply chain vertical disintegration Consumers behaviour Time compression Changes in customer requirements for logistics services Customer operating worldwide and 3PLs are forced to move from a regional to a global scale Reduction in the number of 3PLs used (one-stop shopping) Transport services must be frequent, punctual, reliable, secure and cover a wider geographical area Request for logistics services beyond transportation and warehousing Global transport flows require multimodal transport solutions

4 Evolving role of 3PLs in logistics outsourcing Customer core competencies CUSTOMER CUSTOMER Planning CUSTOMER 4PLs/LLPs S.C. design/integration 3PLs 3PLs Control V.A. Services V.A. Services Warehousing Warehousing Execution Carriers Transportation Carriers Transportation Carriers Transportation 1 st wave: 1970s-1980s 2 nd wave: 1980s-1990s 3 rd wave: 1990s- 2000s and beyond Source: Evangelista (2011)

5 What s next: the innovation challenges Like most other industries the logistics service industry is currently facing dramatic changes and this trend will reinforce in the future New market entrants, new customer expectations and new business models are only some of the future challenges for 3PLs What will the logistics service market look like in five years time? To answer to this question innovation is a key concept and it is important to answer to the following questions: What logistics innovation is? Why it is important for 3PLs to innovate? What are promising areas of innovation for 3PLs

6 Defining innovation What logistics innovation is? Rogers (1995, p.11) defined innovation as: an idea, practice, or object that is perceived as new by an individual or other unit of adoption Defining innovation in logistics any logistics related service from the basic to the complex that is seen as new and helpful to a particular focal audience. This audience could be internal where innovations improve operational efficiency or external where innovations better serve customers (Flint et al., 2005, p.114) innovation exists if the customer gains value added from the new product/service, which is the case when a new function (or a new combination of existing functions) is provided and/or existing functions are provided at significantly lower cost. This may involve innovations in products/services, in processes or in business models (ELA/Arthur D. Little, 2007, p.9)

7 Different views of innovation: the transportation system perspective In this perspective innovation is viewed as improvements may be achieved in speed, capacity, efficiency and geographical coverage of transport systems Beyond the introduction of commercial jet planes and the container in the late 1960s, there have been no significant disruptive innovations Source: Rodrigue et al., 2006

8 Different views of innovation: the service perspective The focus is on the service rather than on the performance of the transport system Innovation in 3PLs can be associated with changes in the offering of logistics services and technology INCREMENTAL INNOVATION concerns the stepwise improvement of an existing service offering and operations using the existing technology. This leads to expand or make an existing service provision more efficient and competitive (recombining existing technological components or services in a novel way) RADICAL (DISRUPTIVE) INNOVATION happen when the 3PL provides new solutions to customer based on deep process improvements by using new technology to obtain greater value from innovations beyond the provision of traditional services (using disruptive technologies to provide new solutions to customer)

9 Why it is important for 3PLs to innovate? The long-term success of any company depends on its capacity to generate innovation. In the 3PL industry a well-known example is Fedex overnight delivery service for documents and parcels that created an entirely new market segment that continues to provide significant profits to Fedex Innovation in the 3PL industry is generally rather low Wagner (2008) investigated different industries in Germany and found that 3PLs ranked last in innovativeness 60% of the companies in the manufacturing industry and 52% from the knowledge intensive services industry (which includes software firms and consultancies) were innovators. The share of innovators in the transportation and logistics industry was only 30% The study defined "innovative firms" or "innovators" as those companies that had successfully completed at least one innovation project and had brought new products and/or services to market or introduced new processes to the firm during the observation period

10 Why it is important for 3PLs to innovate? The 3PL industry is no longer an emerging market and manufacturing, retailers, and wholesales are outsourcing around 50% of their logistics activities (Third- Party Logistics Study, 2017) and there is still potential for growth in certain segments through strategies based on offering more value-added services to customers 3PLs may achieve growth and profitability through two different strategies: taking market share away from competitors strengthening existing relationships with customer Innovation can have a substantial effect on both strategies. Without innovation, 3PLs will see their service offerings become commodities and long-term profitability will reduce The lack of innovation should also be of concern to shippers. As 3PLs are generally not innovative this means that shipper's overall value chain will suffer For both 3PLs and customers, the lack of innovations originating from 3PLs limits the ability to leverage the supply chain for competitive advantage

11 Characteristics of the 3PLs innovation process 1. 3PL service innovation often arises not because of formal plans or processes but as an ad hoc response to a customer request 2. time is key element. Time pressures force the field team to make rapid decisions about the innovation's design in order to satisfy the customer's immediate need. As a result, the service may only satisfy the specific customer for which it was developed 3. innovations are usually composed of existing tools and processes combined in a novel manner. Because these tools and processes were originally developed for other applications, the solution generally is not usable for other customers with similar problems For 3PLs seeking to extend innovation to a broader customer base they must re-engineer innovation to ensure that it can be supported by the firm and can be applied to other customers

12 What are promising areas of innovation for 3PLs Source: BVL International, 2013

13 ICT innovation in logistics service industry Source: ITF, 2010 ICT in 3PL industry is seen as a critical enabler of innovation for achieving a competitive advantage in a turbulent economic environment

14 Benefits of ICT innovation in the 3PL industry ICT has a key role in supporting the management of even more complex customer logistics processes Benefits: - facilitate integration with other supply chain participants - allow a better supply chain coordination - improve the efficiency of logistics processes - supports services diversification and customisation - improve the quality of service supplied

15 Impact of ICT innovation on the 3PL industry New e-services Commodity service combined with ICT support (track &trace services) New players Disintermediation (transportation e- marketplace) New alliances Change business model (4PL) From asset based approach ICT To process and knowledge based approach

16 Most important technologies: future impact and uncertainties

17 Shipper views of needed IT-based 3PLs capabilities

18 Gap among customer expectation and 3PLs ICT capability

19 ICT diffusion in 3PL industry Large 3PLs are gaining substantial benefits from ICT usage..but the potential impact and role of ICT in small and medium sized transport and logistics service providers remains unclear! Research results on ICT diffusion in small Italian 3PLs The adoption of emerging ICT capability has the potential to enhance competitive position of small 3PLs The use of relatively sophisticated ICT is more prevalent in advanced providers ICT is not widely used in customising service offerings The most important inhibitors are primarily financial Human resource and ICT supply side have also an important role in inhibiting ICT investment Source: Evangelista, McKinnon, Sweeney, (2013)

20 Implications for small 3PLs managers 1. Use of ICT. The focus should be on the use of technology and its network capability rather than on the technology per se 2. Supply chain integration. The study indicates that the companies that have enlarged the breadth of service provided show a higher level of ICT integration with other supply chain partner. This means that there is a direct relationship among ICT investment and service differentiation 3. Service customisation. Limited use of ICT to customise the services provided 4. Human resource. Technology investments need to be supported by actions aimed at improving and updating personnel skills. Such actions should be focused not only on technology issues but on logistics and SCM functional areas also (e.g. stock management, customer service, production planning and control) 5. ICT tools selection. As ICT system and application proliferate over last few years, it is important to improve the management capabilities in selecting the most suitable applications associated with the characteristics of the company

21 Implications for ICT vendors managers Barriers. The lack of standards and difficulties in selecting ICT applications are the most important barriers preventing ICT investment by small 3PLs: About lack of standards: it should useful that ICT vendors introduce modular applications on the market that may be easily integrate with existing (legacy) applications About difficulties in selecting suitable ICT applications: ICT vendors should be provide a global support to their customer to facilitate the selection of appropriate tools and aplications

22 Environmental impact of transport and logistics services The environmental dimension is assuming an increasing importance for the logistics service companies as transport and related activities have a substantial negative impact on the environment (Lieb and Lieb, 2010; van Hoek and Johnson, 2010) Increasing supply chain fragmentation and transport flows Increasing energy consumption and use of fossil fuels Increasing GHG emissions (CO 2 ) and pollution of the environment Piecyk and McKinnon (2010) forecasted that almost 80% of the road haulage companies in the EU will be significantly affected by climate changes by 2020

23 GHG Emissions by sector (EU-28) - million tonnes CO 2 equivalent In the last decades, GHG emissions of the transport sector increased at a higher rate in comparison with other economic sectors

24 GHG emissions from transport (EU-28) by mode (million tonnes CO 2 equiv.) Rail and waterborne transport modes are in general less damaging to the environment than road haulage with emissions from the former two modes being substantially less than road transport Rail transport performs better from the environmental point of view in comparison with other transport modes even if its emissions of sulphur dioxide are significantly higher than road transport

25 Environmental impact of transport and logistics services According with IPCC (2007), transport (freight and people) generates 13.1% of total GHG emissions at world level The World Economic Forum (2009) calculated that: the freight transport and logistics sector only is responsabile of about 5.5% [2,500 mega-tonnes] of the global GHG emissions road freight is a major element of this footprint with the greatest part, at around 57% of the total and ocean freight some way behind at 17% minerals and food transportation are the largest contributors by product category Source: Estimation of the World Economic Forum, 2009

26 Sectoral comparison of carbon abatement potential and cost by % Abatement Potential (Gt CO2e) 2030 Share 37% 35% 2030 Annual Cost (Billion ) Share Environmental 30% impact of transport and logistics services 30% 25% 20% 24% 23% 18% 15% 10% 5% 0% Power 3% 2% 3% 1% Petroleum & Gas Cement 6% 5% 4% 5% 3% 3% Iron & Steel Source: McKinsey (2009) Pathways to a Low Carbon Economy Chemicals Other Industry 10% 11% 5% 5% 1% Transport Buildings Waste Forestry

27 Why 3PLs should embrace green logistics? Potential benefits For 3PLs environmental sustainability is an option that can be an effective leverage for: Differentiate services (provision of integrated packages of logistics services with lower environmental impact as in the cases of major 3PLs such as DHL, Ceva Logistics, Schenker and Baxter) Costs reduction (e.g. increasing energy efficiency, access to subsidies, tax reduction) and sales increasing (e.g. enhancement in market reputation, enlargement of customer base) Increase customer service level (e.g. supporting sustainability programs of their customers through initiatives aimed at reducing the environmental impact of the supply chain, increase visibility on CO 2 emissions. From this point of view, it is expected that environmental sustainability will become a criterion for 3PLs selection in 5 years time)

28 Research on environmental sustainability in 3PLs and customer Two research has been conducted on environmental sustainability in 3PLs and customer The research on 3PLs examined the type of green initiatives implemented along with factors (barriers and drivers) affecting the adoption of such initiatives The research on customer was aimed at exploring buyer practices in purchasing green transport and logistics services The two research were focused on the Italian logistics service market market

29 Supply Chain Initiatives Point Initiatives Vehicle use Area Transport modes and intermodality Energy efficiency Recycling materials and packaging Warehousing and green building Green initiatives adopted by 3PLs Initiative Changing vehicle specifications Reducing empty running Improving vehicle loading phase Using lower energy transport modes Greater use of intermodality Renewable energy (including alternative fuels) Increasing waste recycled Reducing packaging Eco-friendly building design Energy-efficient material handling equipment Use of alternative energy sources in warehousing Efficient land use Environmental training and information Supply Chain re-organization Supply Chain collaboration on shared green targets Collaborative planning and environmental control Employee training (including eco-driving and tyre pressure monitoring) Customer/supplier training Information on carbon footprint Transport planning (including route optimization) Changes in logistics system With customer With other 3PLs Environmental Management System (ISO 14001) Emission off-set programs Setting lower GHG targets Source: Evangelista et al., 2017

30 Evidences on 3PLs attitude toward green initiatives Different degree of involvement in green initiatives related to the breadth of service offered Adoption of point initiatives having effects predominantly within the boundaries of the company, rather than initiatives likely to have a wider impact on the supply chain and thus requiring collaborative efforts with multiple supply chain actors The financial barriers for 3PLs are huge in terms of significant investment costs and long/uncertain payback periods The lack of customer requirements is a barrier towards the adoption of green initiative Human resource management have a key importance in developing green programs and green culture within the company

31 Evidences on the importance customer attribute to environmental sustainability A relatively high awareness of green issues at corporate level but the importance of green issues decreases at the purchasing function level When green concerns in purchasing transport and logistics services are analysed the level of importance decreases dramatically A clear conflicting attitude emerges between the overall corporate level and the purchasing of transport and logistics services level The purchasing of green transport and logistics services has not yet become a common practice Environmental concerns at both company and purchasing function levels are not reflected in the sourcing of more green transport and logistics services

32 Implications for managing environmental sustainability relationships in the supply chain Customers assign low priority to sustainability when sourcing transport and logistics services with little commitment in green collaborative initiatives (e.g. few joint projects and investments) 3PLs see this behaviour as a barrier and it is reflected in the hesitant attitude of these companies to adopt initiatives for greening their services There is a block among customers and 3PLs on environmental sustainability and this makes both parties to be reluctant to invest in greening transport and logistics services

33 Implications for managing environmental sustainability relationships in the supply chain How to overcome this block? The way is through strengthing the collaboration between customers and 3PLs Customers have to innovate the approach in purchasing transport and logistics services by expanding the cooperation on collaborative packaging design, re-organization of the supply chain and environmental collaborative planning and control 3PLs need to invest in training programmes aimed at improving internal skills in two areas particularly: i) data exchanges to increase the visibility of collaborative initiatives and ii) build-up environmental performance indicators (e.g. focused on carbon emissions) to be shared with customers and other supply chain participants

34 What will be the future on ICT and sustainability in the 3PL industry. ICT in 3PL industry Environmental sustainability in 3PL industry How ICT may support green 3PL strategy

35 Thank You! Questions and Open Discussion For further information about this presentation please contact me at: