In Part 1, we put forward three key management agenda items in the logistics field and described the importance of building command centers that combine digital platforms and logistics offices, while also pursuing optimized controls across logistics as a whole.
In Part 2, we want to focus on themes in the field that have long been highlighted and go deeper on points that companies should pay attention to in order to further drive transformation.
Akifumi Shimamura
Takeshi Adachi
Companies have so far pursued the transformation of logistics in response to issues faced by the whole of society in the form of labor shortages, increased environmental burdens and interregional discrepancies in distribution of goods. Amid this context, there are high hopes for joint delivery as one potential solution for achieving sustainable logistics, making it an essential perspective in drawing up strategy in the transportation domain.
Joint delivery has mainly been undertaken with the aims of aggregating small lots, securing return journey loads and reducing the number of vehicles needed. It has delivered results to some degree in streamlining distribution and cutting costs. The penetration of joint delivery throughout the industry as a whole has been limited, however, and several challenges remain in the way of expanding the scope of joint deliveries. Specifically, these challenges include the standardization of loads, the setting of flexible delivery times, real-time sharing of delivery statuses, clarifying cost structures and dividing costs, and clarifying where responsibility lies when issues arise.
Because these issues go beyond purely technical matters to involve multifaceted elements such as corporate culture, industry customs and legal systems, cross-industry cooperation and system design will be key to addressing them. The following three perspectives will be important in further developing and evolving joint delivery.
The driver shortage in the logistics industry is not a temporary staffing challenge, but, rather, a challenge that is growing more severe as a structural and persistent supply limitation. The impact of work style reforms, symbolized by the “2024 problem,” has raised concerns. This comes on top of social factors such as the aging of Japanese society, increasing barriers to new participation in the industry resulting from reforms to the licensing system, and the move away from driving among younger generations. These concerns include the possibility that limitations on work hours, reduced incomes, and the lessened attractiveness of the business may induce people to leave the industry. We therefore predict that driver shortages will only grow more severe going forward.
Transportation capacity is defined through the simple construct of driver numbers x load rate. This means that, to make up for the shortfall in drivers, companies will need to maximize load rates. Given these conditions, promoting joint delivery should be positioned as a strategic means of maximizing the utilization of limited human and physical resources.
Joint delivery that spans multiple companies enables the genuine extension of transportation capacity through increases to vehicle loading rates, reductions in the rate of empty vehicles and optimization of transportation routes. This requires companies to not simply view joint delivery as a means of cutting costs, but, rather, to redefine it as being at the heart of operational design for addressing limitations in personnel supply.
Implementing digital technology and optimizing operations are essential elements in promoting joint delivery.
The use of technology dramatically improves the effectiveness, flexibility and extensibility of joint delivery in the form of real-time tracking of delivery status, AI-enabled dynamic route optimization and the building of platforms that support multi-stakeholder matching.
Going forward, companies will need to work with players inside and outside of the logistics industry and establish new transportation models that combine collaborative digital platforms with system design.
Joint delivery not only improves transportation efficiency, it also contributes to lessening environmental burden. Reducing the number of vehicles used and shortening transportation distances is essential in reducing CO2 emissions in particular, and this fits with the basic design philosophy of joint delivery.
Joint delivery is also effective at meeting the logistical challenges of underpopulated areas. Lessening delivery demand coinciding with population declines invites increases in cost per lot, making it difficult for individual companies to continue to do their own deliveries. Sharing delivery routes between multiple vendors in such areas allows companies to combine the maintenance of existing service levels with cost optimization, thus allowing them to fulfill their role as distribution infrastructure in regional society.
Joint delivery requires companies to go beyond the framework of simply streamlining operations and to seek to materialize the idea as a logistics model with strategic value. It has so far been developed with a focus on “sales distribution,” but, going forward, it is expected that there will be growing need for joint delivery in the domains of procurement and returns logistics as well.
In the domain of procurement logistics, companies can expect to be able to improve procurement efficiency, reduce delivery lead times and optimize procurement costs through the joint transportation of inputs and components by multiple parties. In particular, in the manufacturing sector and other industries where supply chains are growing more complex, aggregating supply bases and integrating transportation will be key to improving competitiveness. In the domain of returns logistics, companies will also be able to contribute to the circular economy through the streamlining of product recovery and recirculation processes. Integrating recovery routes through joint delivery also synergizes strongly with ESG management and GX strategy as a measure contributing to reduction in waste materials, improvement of resource cycling rates and reduction of environmental burden.
The promotion of joint delivery in the domain of transportation and delivery will play a central role in future logistics strategy by positioning said domain as strategic infrastructure that both improves industrial competitiveness and addresses social issues.
Next, we will touch on the reconstruction of logistics networks and the streamlining of distribution centers.
The business environment is changing at an unprecedented pace, and the roles that logistics is expected to fulfill are rapidly growing more sophisticated and complex. To respond to these changes, companies will need to fundamentally revise and rebuild their existing logistics networks (location deployment and transportation and delivery routes) into a more sustainable and optimized form, including by improving service levels, reducing costs, improving risk management and resilience and lessening environmental burdens.
Streamlining distribution centers will need to be approached from the two directions of “promoting automation” and “enhancing management of operations.”
In “promoting automation,” preliminary validation for knowledge and decision making will be essential. The introduction of facilities will often be difficult to do in many respects using only internal resources, so it is important for companies to leverage the insights of outside experts. Because preliminary validation is also essential for making clear what the key ROI will be for decision making, putting in place preliminary validation schemes (preparing validation tools, developing engineers, leveraging external talent, etc.) will be essential for companies.
In “enhancing management of operations,” moving beyond individualized management through the use of digital technology is a major theme. It is important for companies to put in place digital platforms that allow them to manage and control operations in an integrated manner, including by visualizing operating status and controlling work, and to transition towards management of operations that is based on data, while also maintaining a view of the bigger picture.
Going forward, companies will need to further accelerate initiatives targeting such themes related to joint delivery and the streamlining of distribution centers. In the transformation of logistics, it is important to realize individual optimizations, while pursuing overall optimization. To that end, companies will need to clearly devise a grand design that can act as a compass charting the direction of transformation.
Future efforts to the transformation of logistics will be positioned not as mere operational improvements, but as strategic agenda items that influence the competitiveness of entire companies. The first task companies should undertake as they seek to realize this agenda item is the formulation of a grand design for the transformation of logistics, which takes a bird’s eye view of the company’s logistics as a whole.
A grand design charts the bigger picture on the transformation of logistics and serves as a “compass” that points the way on what direction to move in and what initiatives to undertake. Rather than being ideas lacking in specificity or visions that do not go beyond the realm of planning, it is important for grand designs to be realized as executable strategies, making the perspectives shown in Figure 1 important.
To date, many grand designs have been charted in organizations undertaking transformation, but there are no small number of cases where these projects have run into setbacks before reaching their goals. Bit by bit, the complexity of conditions on the ground or the lack of capacity to respond to change lead to grand designs existing only on paper.
The reasons for this lie in the following points not being considered sufficiently in advancing transformation projects.
In any of these cases, there are issues present in terms of systems or methods of advancing. If companies do not begin by getting their systems in order, they will struggle to formulate properly executable grand designs.
For companies to genuinely pursue the transformation of logistics, it will be essential for them to establish task forces to drive these efforts reporting directly to the president of the company. Rather than being limited to logistics departments, these task forces should be made up of carefully selected, full-time members picked from across related departments and should have the authority to get related departments to take action.
Task forces bear the extremely important mission of being responsible for everything from formulating the grand design to fully executing the transformation. For this reason, they need to go beyond simply putting structures in place, and require the high level expertise and executive capacities and the diverse skills to execute on projects,
In this respect, we will note three important points in terms of execution.
In pursuing transformation, it is of the utmost importance to align the perspectives of leaders and practitioners. Without this, making progress on transformation will be largely impossible.
The perspectives of the two groups differ essentially from one another.
While assuming that these differences are going to be present, it is essential for both sides to understand the direction that transformation is taking as well as these perspectives as part of considering measures, to share in this with a sense of acceptance towards one another, and to undertake transformation along the same vector.
In practice, reaching this sort of “aligning perspectives” is not easy.
For this reason, the task force needs to stand between leadership and people on the ground and act as a bridge between the two, translating their perspectives to one another, while pushing both to foster greater mutual understanding and buy-in.
If companies push forward a vision using only internal team members, they are likely to fund that those ideas stop at being extensions of the status quo. By thinking based only on their own experiences, people tend to become unconsciously defensive and narrow the possibilities for transformation.
This is why it is essential for companies to proactively incorporate outside expertise. Securing routes for accessing information and perspectives that are hard to obtain on your own, such as the latest trends, leading initiatives at other companies and best practices from beyond the industry, greatly influences the quality and speed of transformation.
People working on the ground in transformation projects need to fulfill the following complex roles.
For a task force to really function, it is not enough to just have people in place. Rather, the task force needs to have the diverse array of high-level skills called for across different situations. This makes it important for companies to build flexible systems that can employ people with the necessary skills at the right times.
In this Insight, we have argued for the necessity of a “strategic redesign of logistics” that goes beyond short-term responses to changes in the external business environment, instead aiming to sustainably improve business competitiveness. Logistics is no longer a mere operational domain. Instead, we have entered into a phase in which it needs to be redefined as a management resource directly contributing to the transformation of business structure and the improvement of corporate value.
Each of the logistics management agenda items that we have put forward assumes alignment with a medium to long-term growth strategy. They thus need to be undertaken from the perspective of companywide optimization, rather than partial optimization. To ensure the effectiveness of these efforts, leadership needs to clearly position logistics as a strategic domain, get related departments to share in the direction of transformation and the standards for evaluating such work, and to drive reform that aligns people across the entire organization.
Viewing logistics as central to corporate strategy and building logistics that increases business sustainability is a key business challenge that directly ties into business growth and value creation.
We hope that our proposals can be of help to organizations considering their future logistics strategies.
At ABeam Consulting, we leverage our wide range of insights into operational transformation in the logistics domain to offer clients end-to-end support in pursuing logistics transformation that aims to build more sustainable logistics. We offer support that covers everything from devising transformation organizations and drawing up grand designs to executing on reform projects, working side-by-side with clients as a partner for business growth and value creation.
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