On the Road to Disruption
Change comes to all industries eventually. Is logistics next?
Alan Amling | UPS
It is not the strongest of the species that survive, nor the most intelligent, but the one that is most responsive to change.” –Charles Darwin
In their heyday, few would have bet against the ongoing market dominance of category behemoths Kodak and Blockbuster. We now use those companies as examples of the myopia that sends businesses to an early grave.
Kodak saw digital coming but waited too long to get in the game. Blockbuster didn’t see Netflix or Redbox before it was too late to alter its real estate laden business model.
The list goes on. In fact, of Fortune’s top 100 US-based industrial companies in 1983, only 21 still made the list 30 years later.
The rest had been acquired, dropped out of the rankings because of shrinking revenues or closed their doors.
When new technologies disrupt an industry on a massive scale, some are caught off guard and lose relevance in consumers’ determined rush to newer and better. Others see change coming, adapt and continue as leaders.
Some wonder where the $750 billion logistics industry fits on the road to disruption. Already transformed in many respects, major forces, including four discussed below, are driving additional change.
Globalization and 3D printing
While we communicate in near real time around the world, physical goods still need a network of planes, trains, boats and trucks to get from point A to point B.
In the process these goods often have to be stored and navigate complex customs and regulatory restrictions that vary from country to country. But sending digital instructions over the Internet to print a physical product on demand closer to the point of consumption creates a world of new opportunities and portends massive logistical changes.
eCommerce and crowd-sourced delivery
Modern logistics networks are built around density. The number of packages that can be delivered to a specific location and the distance between deliveries drive the cost equation. But the rules are changing as on-demand consumers want their goods fast and without paying for shipping.
Enter the crowd-sourcing model, which allows a package to be picked up and delivered the same day by someone who was already going in the buyer’s direction.
Does the economic need for density get trumped by consumers’ need for speed and the capacity of the crowd?
Urbanization and autonomous vehicles
As major cities become more crowded, making an increasing number of deliveries in these dense areas will continue to be a challenge.
Potential solutions include autonomous vehicles to make deliveries to individual drop boxes at night. Or unmanned aerial vehicles that can drop bundles of deliveries on urban rooftops for delivery the next morning.
When you consider that most online orders are placed after 5 p.m., this model begins to look more attractive.
The innovations noted above have sustainability at their core. 3D printing is reducing the need to move and store goods. Crowd-sourcing models are using existing assets and spare capacity from the crowd to deliver packages.
Autonomous vehicles delivering packages in crowded cities at night may cut down on carbon spent at stop lights, in traffic jams or trying to find a place to park.
Whether they do it preemptively or out of a sense of survival, logistics companies will remake their business models to deal with disruption.
In the words of management scholar Henry Chesbrough, “A better business model often will beat a better idea or technology.”
UPS has had numerous inflection points in its history as it responded to changing marketplace conditions, including the ubiquity of the telephone and then the automobile in the early days of our company. Each time we have emerged a more nimble, customer-focused business.
For the logistics industry, committing to new business models is especially daunting, not only from an economic standpoint, but also when you consider that consolidating deliveries from many shippers to many receivers has provided better service at a lower cost for more than a century.
Some would argue, if it’s not broke, why fix it? Consumers, on the other hand, have a different argument.
The Information Superhighway that gave consumers access to limitless amounts of knowledge about products and services has now merged with the My Way Highway, which consumers expect to deliver what they want, when they want it and at a price they can afford.
Since revolutions never march in reverse, it’s safe to say that consumer expectations are not going to subside.
Change comes to every industry at some point. All signs point to logistics being next.