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4 Trends Redefining Distribution

The dominant design of distribution is changing, and the results will be dramatic.

Chris Caplice | MIT Center for Transportation & Logistics

Remember the early days of cellphones when a new model seemed to appear every week and each one looked dramatically different? This is typical of a new product market.

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The logistics market has followed an evolutionary path in terms of distributed manufactured products in the U.S.

Initially, wildly different variants are released and tested in the market, but eventually they converge on a common core of features. That is, a dominant design emerges from the pack that becomes the de facto standard.

Is a similar process redefining distribution in the U.S.?

In the early days of the bicycle, for example, there were many different designs from machines with no pedals to the famous Penny Farthing configuration.

The basic format that we are familiar with today eventually gained the upper hand. The dominant design is not necessarily the best for all situations, but rather it is the one that satisfies the majority of users.

It seems that the logistics market has followed a similar evolutionary path in terms of distributing manufactured products in the US.

The dominant design of distribution over the last several decades has been ocean-based transport from China to (usually) U.S. West Coast ports and then into a multi-echelon distribution network.

This means that most products are funneled into one of just 25 leading gateways and then are moved to deconsolidation points by truck and rail, and delivered by road to the final destination.

Both the public and private sectors are making huge infrastructure-improvement bets that will not be changed anytime soon by this form of distribution.

Recent rail and intermodal infrastructure initiatives such as BNSF’s TransCon Corridor, CSX’s National Gateway and Norfolk Southern’s Crescent Corridor are just three (very big) examples of these recent investments.

After a dominant design for products is reached, the industry shifts focus from creating product feature innovation to improving efficiency.

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The big question is whether this current dominant design for distribution will be disrupted.

The number of firms in the market tends to decrease as does the level of new innovations or features.

At some stage, complacency or the arrival of another innovation, usurps the dominant design and the cycle is repeated. Think of how traditional photography was disrupted by digital cameras – which are now being disrupted by smart phones.

The big question is whether this current dominant design for distribution will be disrupted.

This is the question that the MIT FreightLab is looking at as part of our continuing research on the future shape of supply chains and logistics services.

Our initial work has identified four macro trends that could fundamentally alter product flows and unseat this broadly accepted pattern of distribution.

[Also on Longitudes: Smoothing the Path from Grape to Glass]

info button 1Densification of product

This is the process of reducing product size while maintaining or increasing its value.

Examples of densification include laundry detergent (shifting from liquid to concentrate), portable computer storage (think magnetic tapes to floppy disks to USBs to microSD cards), pre-recorded music (from vinyl to 8-tracks to cassettes to CDs) and electronic goods (consider all the components within a smartphone to their 1980s equivalents).

Transporting product in smaller units enables companies to cut the number of containers, trucks and rail cars used in distribution networks, as well as potentially shift to other faster modes such as air.

info button 2 yellowDiversification of sales channels

Online retailers such as Amazon have grown rapidly over recent decades.

Now, omni-channel retailing is gaining ground, where traditional retailers bundle online, mobile and traditional channels to compete for sales. The retail store can become a distribution center and the distribution center a final delivery point.

This shift requires retailers to rethink the way they distribute product and could dramatically change the dominant, multi-tiered echelon system of today.

info button 3 yellowDecentralization of production

One of the primary reasons manufacturing is conducted across the globe is to achieve economies of scale; a single massive plant can reduce production costs.

But, what if new manufacturing technologies and production processes dramatically diminish these economies of scale?

Additive manufacturing and programmable robotics are just two examples. As the economies of scale are reduced, production can be decentralized into smaller, perhaps regionally based manufacturing clusters that are closer to population centers.

Why ship products halfway across the world and funnel them through ports when a more customized product can be built across town?

[Also on Longitudes: The Challenge of Transformation]

info button 4 yellowDigitization of products

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The shape of the dominant model is unknown, but it will look very different from the one we follow today.

This is the long-predicted shift away from physical to information-based products.

While this is old news for knowledge-based products such as books, music and movies, it is now starting to happen to more traditional items.

The intellectual property of the product (the design or recipe) is being bifurcated from the physical product (or the ingredients). This will not only lead to more decentralized production, it could spawn even more dramatic supply chain changes.

As these trends play out, there will likely be a period when many different logistics models emerge.

The shape of the dominant model is unknown, but it will look very different from the one we follow today.

Perhaps the real question is not whether this current dominant design will be disrupted, but when. goldbrown2

This article first appeared on MIT CTL and was republished with permission.

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Chris Caplice is Executive Director, MIT Center for Transportation & Logistics

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