Innovation in Logistics Service Providers (LSP)

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Permalink Reply by Alan Denton on May 20, 2009 at 4:17pm

Hi Will,

The barrier to innovations are two fold - Logistics Operations is a low margin business meaning that pay abck periods must be short and R&D pretty non-existent. In vehicle design for example, one can only really change when the old equipment reaches the end of its life, but the state of the art replacement gear will be more expensive, and will the price sensitive customer pay? Competitive pressure can actively discourage innovation in this case. Early adopters need to be very profitable to survive the process.

Secondly, we do logistics network optimisation studies for clients - something like 80% of the cost of a network is determined by its design. These studies are "never" initiated by the 3PL as they usually remove revenue and profit from the contract. Innovation tends to be driven by customers who bear the costs of inefficiency.

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Permalink Reply by Pik Pak Logistics on June 2, 2009 at 4:53pm

Gday Will,
we run an ondemand logistics service in Australia. Our service is completely online and much like a pre paid phone in that there are no long term contracts.The biggest barrier we have experienced when approaching organisations is (1) a limited understanding of the value their supply chain adds to their organisation and (2) how to leverage appropriate technology to enable them to deliver tangible benefits. From our experience these are commonly tied to (a) general understanding of "value" - cost & bottom line are king and (b) conservative approach to technology - resist change because let's face it, change is risky.

AlanD makes some very good points and I tend to agree with his comment about customers/consumers wearing the cost of inefficiency. This seems to be one of the biggest failings of the 3PL model. However, risk and margin seem to go hand in hand so I don't see it changing in the short term. On a constructive note, the instances where we have truly innovated, we have always achieved mutual gains and I believe this is one of the key prerequisites for innovation.

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Permalink Reply by Will Thompson on June 3, 2009 at 9:57pm

Pik Pak, Thanks for your interesting comments. Your comments mirror those that I received at a Victoria University forum on innovation image below [hope it comes out] of the % share of innovators by industry. Logistics s the lowest at 30%.

I an provid references for the forum if interested Cheers Will

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Permalink Reply by Tejas Patel on August 24, 2009 at 5:46pm

Hi Will,
Yes Logistics is the sector which has innovated less compared to other sectors but the focus is shifting towards this sector and few years to most companies will realize this is far more complicated than just pushing and pulling material and loading and unloading trucks.
Just have a look at Toyota which are the Grandfathers of manufacturing and logistics systems. They had foresight to understand how important this is and what they have implemented today is far beyond the imagination of most of the companies. But people are realizing this and things are bound to change when cost reduction, resource optimization, productivity increase etc are realized for staying ahead of cut-throat competition.
Here in India, nowadays the 3PL are not only expected to run the logistics operations but to provide diversified service to parent organization such as project & systems implementation, standard operation procedure making, cost reduction activities etc.
Regards,
Tejas

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