Logistics innovations need a collaborative boost

News

By Carolina Ciprés, ZLC Director of Research, and Dr. Alicia Martinez de Yuso, Research Office Technician at ZLC.

Over the past two decades, the European Commission has sponsored a large number of Research and Innovation (R&I) projects in logistics, freight transport and related fields. These have ranged in scale from the local or municipal to regional or even global; they have explored innovative physical and information technologies as well as novel approaches to business processes and commercial organisations; and they have attracted commitment and investment (in cash and in kind) from many companies – manufacturers, retailers, logistics service providers and others – as well as from governmental and regulatory bodies, and academe: indeed, ZLC itself has been a partner on quite a few of these projects.

R&I has been directed not just at improving the economic performance of companies, sectors, and the European Union in general, but increasingly at enabling logistics and transport to contribute to the Union’s broader social and environmental goals, including of course around climate change. While not every project has been successful, in many cases the technical and organisational innovations proposed have had their practicality and potential benefits proven at the demonstrator level, with ‘real’ goods, assets, trade lanes and money – ‘living labs’, in the jargon.

However, worryingly few of these apparently promising innovations have successfully moved beyond these small scale demonstrators within a narrow group of partners to achieve a wider presence and take-up in the market. This matters because the benefits of logistics innovations are almost always dependent on network effects: if confined to a few partners in small or short supply chains, the gains are often outweighed by the costs, and that can apply both to economic and environmental gains.

To address this problem, the Commission has launched the BOOSTLOG project. This has a wide range, with the goals of developing ‘valorisation’ strategies and marketplaces to encourage the uptake of technical and organisational innovation; identifying the ‘gaps’ in R&I that need to be filled to make the most efficient use of the investments already made; and to find ways of strengthening the impact of innovation through enhanced communication and stakeholder engagement.

As the underpinning of this work, BOOSTLOG has been examining R&I projects in the field to produce comprehensive and, vitally, industry-actionable reports. The perspectives adopted range from data sharing to urban logistics, and from multimodality to modularisation. ZLC’s specific contribution to this has been to look at the role that synergies can play through co-ordination (vertically, up and down a supply chain or trade lane) and collaboration (across multiple supply chains and including with potential competitors) to maximise the use of assets and resources. We have been seeking to identify the barriers to wider co-ordination and collaboration and, more positively, to propose strategies that companies themselves can adopt to promote the adoption of favourable innovations across wider networks.

BOOSTLOG has mapped and assessed over 180 EU-funded projects (and there are others not directly supported), some of which are still ongoing. Of completed projects 19 have been identified in the field of logistics co-ordination and collaboration, and we selected four implementation cases stemming out of those projects. The four cases display a range of innovations from physical and information technologies to business organisation and relationships.

MIXMOVE promotes intelligent collaboration between shippers, carriers, hubs, distributors and end customers, with the aim of improving load factors to boost efficiency and cut costs whilst making smarter use of different transport modes to improve supply chain sustainability.

TRI-VIZOR is an impartial ‘orchestrator’ that can design and operate horizontal partnerships and collaborative communities across the shipper community.

CRC SERVICES helps companies mutualise their flows in the ‘last mile’ (or in practice, the last 100km), allowing suppliers to optimise orders and vehicle loads by collaborating on deliveries from distribution centres to final destinations.

Meanwhile, SMARTBOX is promoting a system of standardised, pooled transport containers (at a size level below that of shipping containers) intended to contribute to the development of an open supply network or ‘Physical Internet’ which is itself an EU objective.

Of these, the first three are now, a decade after initial project funding, considered to be mature and established in the marketplace, albeit at low scale. SMARTBOX is more recent, and potentially more disruptive, but has immense potential for scalability which could create a turning point for logistics co-ordination and collaboration.

The impacts that we would expect to see from improved co-ordination and collaboration arising from these and other projects include:

Decreased environmental impact
Improved transport and logistics efficiency
Reduced traffic congestion
Enhanced modal shift to rail and waterways
Reduced overall transport and logistics costs
Improved supply chain reliability
Decreased lead times.

It is noted however that not every innovation will deliver across this board and indeed in some cases improvements in some areas may be partially offset by detriments in others. Decarbonisation, for example, is not always associated with direct cost reduction, although as carbon emission charges are introduced this may change.

The ways in which co-ordination and collaboration are evinced in the current marketplace was examined by the ICONET project as part of its work towards the Physical Internet. Primarily collaboration is driven by the underutilisation of assets, and so among strategies adopted are subletting of warehouse space, collaborative round tripping, vehicle filling, logistics platform operation, or corridor management, typically involving an independent ‘trustee’. Some of these, warehouse sharing for example, are necessarily small in scale with perhaps only two or three partners. Others, such as shared parcel delivery networks, are potentially scalable to include very many members.

There is already some understanding of the barriers to collaboration in logistics, building in part on previous EU projects. Broadly, these include the scalability of governance, business and operational models; the complexity of transition management and the transactional, set-up and operational costs; legal issues especially in compliance with competition rules (although these may not be as constraining as is commonly thought); and the ‘soft’ or behavioural aspects of collaboration which can range from corporate cultures to fear of losing purchasing and other ‘power’.

These conclusions were borne out in our study. The most critical issue for successful horizontal collaboration is a mental shift which allows the creation of trust through gain sharing tools or trusted governance models. These both reduce transactional management cost and time, and provide the reassurance of a legal framework for the collaboration.

The detail of any implementation path will depend a lot on the potential scalability of the proposed solution. Nonetheless, some general factors for success can be demonstrated.

Finding the right partners is crucial – not just in terms of their expertise or maturity, but in their commitment to exploiting the project’s outcomes.
The proponents need to have ‘implementation cases’ to hand that showcase the potential in a way that speaks to each individual participant (although, granted, that is a ‘chicken and egg’ situation in the early stages).
There needs to be a clear vision, value proposition and market target for what is effectively a new business, even if it isn’t structured as such.
There also needs to be a clear growth path, and one which takes into account the fact that there may well be further advances beyond the current state-of-the-art.

The proponents of innovation-based collaboration also need to account for the negatives. There is, for example, almost an expectation currently that initiatives to reduce carbon emissions will be cost-neutral or even cost-saving, but this isn’t necessarily so, especially as road costs are currently low. Similarly, transition costs are not negligible, and as long as these are higher than the costs of current inefficiencies, collaboration will not become a reality.

The effort in coming years, therefore, must be to reduce those transition costs – likely to be achieved through greater digitisation and connectivity. This is occurring anyway, but innovations in, for example, data sharing, are largely being led by road transport and its users. For multimodal logistics (which typically requires collaboration in order to create cost effective full train loads), the rail sector must catch up, both in IT and in viewing itself as a provider of end-to-end supply chain services with service levels as KPIs, not just as the provider on one transport leg.

As noted earlier, though, the inclusion of carbon emissions (and potentially other externalities) into the corporate cost base, whether through taxation or otherwise, will shift the trade-offs in favour of collaborative solutions.

For more information contact Carolina Ciprés at ccipres@zlc.edu.es