4 Myths About Innovation in Logistics

Don't let these four assumptions get in the way of supply chain success.

The serenity of a normal Sunday morning gives me time to catch up on the business journals and blogs that have accumulated in my inbox 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 put forward by both our traditional and nontraditional competitors alike.

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Providers are all walking a tightrope, balancing thin margins against capital expenditures.

Regardless of whether it is real innovation or self-promotion, one cannot help but feel like 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.

More than any other time in history, technology and innovation are here to make it happen.

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

E-commerce driving change

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-and-mortar retailer).

According to Transport Intelligence, the retail sector is 51 percent of the third-party-logistics market and is undergoing the most significant supply chain shift.

Transportation carrier costs are rising with more single-package deliveries to homes, warehouse complexity is increasing with higher return rates and Christmas peak volumes are increasing space requirements three times in the course of just two weeks.

Make no mistake that these new challenges become new opportunities for those leveraging their innovation for the specific purpose of addressing such issues.

To keep pace with change, UPS is testing goods-to-person automation, robotics, drones, driverless vehicles that assist pick-and-pack operations and augmented reality glasses to support the supply chain. We frequently remind ourselves, however, that success with the exploratory efforts is not the final destination. The final destination is delivering value to our customers.

Our investments must not only create value, but also improve service, reduce costs and provide sustainable solutions. As we look to deliver value to our clients, here are four common myths we’d like to dispel:

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A mindset of constructive dissatisfaction can deliver incremental innovation year in and year out.

Myth #1: Innovation must be transformational. Big, visionary ideas such as those driven from Google’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 lengthy business testing, data gathering and market research.

Small pilots to prove new concepts and technologies can achieve the final solution faster. If failure is inevitable, fail fast and move on.

Myth #2: Innovation is solely 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’s problem, in most cases, one they didn’t even know they had. Successful companies immerse this approach into their culture. Companies that don’t tend to run in silos and encounter trouble innovating.

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Innovation belongs in all areas of the company

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 warehouse management system solution united a team of engineers, IT, operations and marketing. This cross-functional approach produced a successful first deployment in half the time.

No company has all the answers, so it’s critical to reach out across internal functions and 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 with partnership. Ownership of 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.

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Fail to innovate, and customers will view your organization as providing no value.

Technology is getting lighter. Cloud-based systems are eliminating a key barrier to entry into logistics. Nontraditional 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 incentivize your customers to invest in innovation. Solve your customers’ 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 return on investment can be challenging, and some researchers estimate that companies can expect to spend $7 on implementation and execution for every $1 invested in innovation. During the testing phase, try to determine return on investment. 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, the Harvard Business School estimates. 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 what you learned and return to market faster. Again, fail fast and move on.

This article first appeared on Logistics Tech Outlook and was republished with permission.

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Daniel Gagnon is Vice President of Healthcare and Life Sciences Strategy at UPS.

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