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Four Myths about Innovation in Logistics

By Daniel Gagnon, VP, Marketing, Global Logistics & Distribution, UPS [NYSE:UPS]

Daniel Gagnon, VP, Marketing, Global Logistics & Distribution, UPS [NYSE:UPS]

The serenity of a normal Sunday morning gives me time to catch-up on the business journals and blogs that have accumulated in my in-box throughout the week. As I comb through the articles, my serendipity turns into anxiety as I read article after article on the vast number of innovative ideas that are positioned by both our traditional and non-traditional competitors alike.

"An organizational mindset of constructive dissatisfaction can deliver incremental innovation year in and year out"

Regardless of whether it is real innovation or self-promotion one cannot help to feel that the world is moving quickly without them. This fast paced, new world of change in Logistics is happening because businesses and consumers are demanding better (faster) service at a lower-cost-to-serve. Today, more so than any other time in history, technology and innovation are now here to make it happen.

In the highly-fragmented field of Logistics, providers are all walking a tight-rope, balancing thin margins against the right capital expenditures for both technology and general innovation to keep up.

We all know that the primary catalyst forcing change in Logistics is e-commerce growth. E-commerce can be a blood-sport for those businesses trying to gain competitive advantage on the retail side (just ask any brick-n-mortar retailer). According to Transport Intelligence, the Retail sector is 51 percent of the 3PL market and is undergoing the most significant supply chain model shift. Transportation carrier costs are rising due to more single package deliveries to homes, warehouse complexity increases with item level picking and higher return rates, and Christmas peak volumes increasing space requirements three times in the course of two weeks. Make no mistake that these new challenges become new opportunities for those that leverage their innovation for the specific purpose of addressing these issues.

To keep pace with change, we at UPS, like many other organizations, are testing the ‘shiny new objects’ such as goods-to-person automation, robotics, drones, driverless vehicles that assist pick-and-pack operations and augmented reality glasses to support supply chain. We frequently remind ourselves however that success with the exploratory efforts themselves is not the final destination, delivering value to our customers is.

Our investments must create value, improve service, reduce costs, or provide for better sustainability. As we look to deliver value to our clients there are some common myths we’d like to clarify:

Myth #1: Innovation must be transformational. Big, visionary ideas such as those driven from Goolgle’s Moonshot Factory receive significant press attention, however not every industry and company can afford that approach. An organizational mindset of constructive dissatisfaction can deliver incremental innovation year in and year out. Continuous improvement starts with drawing a clear stretch goal and getting creative about getting there. A baseball team does not win games relying on just home runs. Well-timed singles can be equally effective.

Develop a culture of experimentation, understanding that some ideas will work and some may not. Today’s fast pace requires quick decision making so consider pilot-testing in a live environment instead of executing lengthy business testing, data gathering and market research. Small pilots to prove new concepts and technologies can achieve final solution faster. If failure is inevitable, fail fast and move on.

Myth #2: Innovation is a function of IT. Innovation once involved only the tech guys tinkering and experimenting in a controlled environment until, “Eureka! We got it!”

Now, innovation belongs in all areas of the company. It encourages collaboration across all business functions and with external partners to find ways to reduce costs, improve service, and create value. It also engages employees to drive improvements in the business.

The most commercially lucrative innovation solves a client problem, in most cases, one they did not even know they had. Successful companies immerse it into their culture. Companies that don’t, tend to run in silos and encounter trouble innovating.

At UPS, we develop cross functional teams to solve problems together, with each member bringing their expertise to the table. A project for a new “cloud-based” WMS solution united a team of engineers, IT, operations, and marketing. This cross functional approach produced a successful first deployment in 50 percent faster time.

No company has all the answers, so it is critical to not only reach across internal functions but more importantly, reach outside your organization. Engage with technology partners, clients, universities and industry organizations to pioneer solutions of the future. Collaborate with consortiums, government agencies, customers, vendors and suppliers and technology companies. Be comfortable partnering, because who owns the customer should not matter.

Myth #3: Logistics companies can’t afford to be innovative. The truth is that logistics companies cannot afford not to be innovative. Fail to innovate and customers will view your organization as providing no value. Standing still is not an option.

Technology is getting lighter. Cloud-based systems are eliminating a key barrier to entry into logistics. Non-traditional competitors have entered the market delivering better analytics and creating value with minimal investment.

Aligning your solutions to support your customer’s business strategies will incent your customers to invest in innovation. Solve your customer’s problems and you will solve many of your own. Supply chain solutions can have a direct impact on organizational growth, cost control, and capital outlay reduction. A long-term contract built around progressive innovation and optimization can often be funded from the savings across the agreement.

Achieving ROI can be challenging, and some researchers estimate that companies can expect to spend $7 on implementation and execution for every dollar invested in innovation. During the testing phase, try to determine ROI. Be prepared to walk away if it’s not achievable.

Myth #4: Every project needs to succeed. Innovation offers no guarantees, and about 95 percent of new products fail, estimates Harvard Business School. Timing is everything: A good idea can fail if the market is not ready for it.

Deploying new technologies on a large scale increases the cost of failure. Avoid the pressure of staying the course to achieve success. Instead, document the reasons for failure, leverage learnings during the beta/pilot test and return to market faster. Again, fail fast and move on.

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