Innovation in Global Industries U.S. Firms Competing in a New World (Collected Studies) (2008) / Chapter Skim
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8 Logistics
8 Logistics
Pages 273-312
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From page 273... ...
In the battlefield of modern industry, globalization, demanding consumers, and efficient capital, markets have combined to create an environment that punishes mediocrity and incompetence. Firms are looking to the logistics industry to provide competitive advantage as goods and services move seamlessly worldwide.
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From page 274... ...
We begin this chapter with a brief definition of the logistics industry and its role in the economy. We classify the firms involved in the industry into four categories and examine innovation practices in each of these categories in order to understand where innovation occurs and how the locus of innovation has changed over time among the various participants in the logistics network.
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From page 275... ...
Our conclusions on the current state of innovation are derived from our observations from the two sources mentioned earlier: patent data and semistructured interviews with top industry executives and experts. We conclude with policy implications and our expectations for the future of innovation in the logistics industry.
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From page 276... ...
. The logistics industry consists of firms offering a variety of services, including transportation and warehousing.
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From page 277... ...
Dell's personal computer supply chain creates positive cash flow for the firm because it receives payment from its customers before it has to pay its suppliers by managing its supply chain efficiently. Zara's supply chain allows the firm to closely observe the market's changing tastes and to respond quickly, keeping the firm in the forefront of fashion while minimizing inventory markdowns. In each case, these supply chains are well-coordinated, complex global networks, and in each case the firms have focused on innovation in their supply chain in order to achieve competitive advantage (Economist, 2006)
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From page 278... ...
. Table 1 shows the top 25 firms in the logistics industry as identified by the Hoovers Database. These companies, headquartered all over the world, are not only moving logistics services worldwide but are also creating innovation centers close to the new centers of trade.
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From page 279... ...
; 19,808.18 Report 2005, Factiva (building distribution) 5 Deutsche Bahn Berlin, 1994 35,314 233,657 Hoovers Online, Company website Aktiengesellschaft Germany 6 DHL Worldwide Diegem, 1969 33,524.4 171,980 One Source Global Business Browser, Network Belgium Hoovers Online, Annual Report 2005 7 FedEx Memphis, 1971 32,294.0 184,953 One Source Global Business Browser, Corporation US Factiva, Hoovers Online 8 A.P.
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From page 280... ...
Company website 16 CSX Corporation Jacksonville, 1980 8,618 35,000 Hoovers Online, One Source Global Business US Browser 17 Norfolk Southern Norfolk, US 1894 8,527 30,294 Annual Report 2005, Hoovers Online, One Corporation Source Global Business Browser, Company Web site 18 R.R. Donnelley & Chicago, US 1864 8,430.2 50,000 Company website, Factiva, One Source Sons Company Global Business Browser
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From page 281... ...
US com) , company website, One Source Global Business Browser, Hoovers Online 24 Canada Post Ottawa, 1867 5,520.3 72,874 Factiva, Company Website, One Source Corporation Canada Global Business Browser 25 Panalpina Basel, 1890 5,290.6 13,583 Company website, Factiva, One Source World Transport Switzerland Global Business Browser (Holding)
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From page 282... ...
PATTERNS OF INNOVATION IN THE LOGISTICS INDUSTRY One of the most challenging aspects of understanding innovation in logistics management lies in the accepted wisdom that every product has its own unique value chain. Thus, innovation is primarily a pull phenomenon10 for firms in the logistics industry, with new products and services being developed in response to specific customer needs.
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From page 283... ...
These semistructured interviews, though few in number, allow us a fine-grained look at innovation practices in the industry. Then we present an analysis of patent data from the WIPO to provide further insight into the innovation practices in the logistics industry and how they have changed over time.
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From page 284... ...
Some LSU firms manage important parts of the logistics function while outsourcing parts of the supply chain such as transportation planning, execution, and warehousing to logistics service providers and logistics integrators. In other firms, the purchasing and transportation departments have combined to form supply chain departments.
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From page 285... ...
Exel Plc and Penske Logistics are among leading 3PL firms headquartered in the United States with expanding international operations. In the past decade, competitive pressures have created more complex supply chains as LSUs deal with multiple customers, suppliers, transportation providers, and government organizations worldwide.
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From page 286... ...
Logistics service integrators (LSIs) such as Accenture, IBM, and Satyam are firms that are platform-neutral15 and non-asset-based in that they do not own means of cargo transportation such as trucks, ships, or planes.
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From page 287... ...
R&D, the business sector was also the largest source of R&D funding in the United States, providing 64 percent ($199 billion) of total R&D funding in 2004.17 U.S.-based PSP firms draw on this rich tradition of R&D to provide most of the innovation in the logistics industry.
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From page 288... ...
Semistructured Interviews with Executives in the Industry and Industry Experts To delve into the innovation process of the logistics industry, we conducted semistructured interviews with top executives in the industry and with industry experts. A copy of the questionnaire used for discussions with industry executives is available from the authors on request.
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From page 289... ...
Some of them reversed their decision to outsource some logistics services but LSU firms differed in terms of logistics activities conducted within the firm and activities outsourced. Around the same time, the 3PL and 4PL firms we interviewed began offering more value-added services by adding warehousing and inventory management to providing transportation.
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From page 290... ...
It is clear that the Internet, computing, and communications technologies created the right environment for firms to develop new products and services for the logistics industry just as the LSUs and LSPs were recognizing the need to effectively manage supply chains as the cornerstone to success in a global context of competition. All respondents to the survey identified globalization -- defined in the survey instrument as the increased mobility of goods, services, labor, technology, and capital throughout the world -- as the primary driver of innovation in the industry.
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From page 291... ...
Economies of specialization encourage PSPs to innovate, as can be expected from the "pull" system of innovation prevalent in the logistics industry where firms address immediate needs by expanding opportunities for local participants to use their creativity and innovate by drawing on a growing array of specialized and distributed resources. According to our LSU and LSP respondents, the active participation of PSPs in supply-chain innovation began about a decade ago as globalization combined with advances in communication and information
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From page 292... ...
In general, PSP respondents noted that they detected the need in recent years to work more closely with their customers while developing new products. 18 Six Sigma (6σ)
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From page 293... ...
In the logistics industry, based on the information provided by our respondents as to their reasons for creating R&D facilities in markets outside their home country, we find that firms tend to locate R&D centers in markets close to their lead customers. In addition, they exploit unique logistics-related capabilities available in developed and emerging economies to which their lead customers have expanded.
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From page 294... ...
The respondents acknowledged that close collaboration among the firms in the logistics network is necessary in order to create innovation that is effective system-wide. Comparing responses between firms headquartered inside and those headquartered outside the United States, we found that U.S.
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From page 295... ...
The patent search uses a Boolean search option and hence enabled us to restrict patents to only those related to innovation in the logistics industry. The search was restricted to following four phrases in the description of the patent: supply chain, logistics, inventory, and freight.
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From page 296... ...
Additionally, patenting may not be the best measure of innovation in an industry that is primarily focused on service to its customers. The logistics industry is quite unlike industries such as pharmaceuticals and biotechnology, where patenting is ubiquitous.
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From page 297... ...
Japan and Australia filed 63 and 62 patents, respectively, in the same period, rounding out the top five countries when considering patents filed by country of first innovator. Considering the locus of innovation over time, inventors from nearly 40 countries have been involved in innovation in the logistics industry since 1990, although Figure 6 shows only the top five countries.
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From page 298... ...
It appears that China, India, Israel, and Korea are just beginning to become involved in logistics innovation. A total of 149 patents had at least one inventor from a country different from the first inventor.22 We examine those patents to understand patterns of crosscountry collaboration.
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From page 299... ...
is in fact somewhat smaller than the share of patents with German first inventors and foreign co-inventors (23 out of 250, or 9.2 percent) , or logistics patents with British first inventors (16 out of 250, or 10.7 percent)
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From page 300... ...
inventors in the logistics industry are increasingly collaborating with inventors worldwide. However, given the growth in patents over the period studied, the proportion TABLE 3 Patents with First Inventors from Different Countries and with Second Inventor from the United States Grand 1990 1997 1999 2000 2001 2002 2003 2004 Total Belgium 1 1 Canada 5 4 1 10 Germany 2 4 2 1 9 Denmark 1 1 Spain 1 1 France 1 1 2 United 1 1 1 1 2 2 1 9 Kingdom Israel 1 1 Japan 1 1 1 3 Grand Total 1 1 1 7 8 7 7 5 37
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From page 301... ...
The share of logistics patents assigned to PSP almost doubled from 30.8 percent in 1997 to 60.4 percent in 1998. After climbing to nearly 68 600 PSP 500 LSU LSP 400 LSI Expert 300 200 100 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 FIGURE 7 Comparison of patents filed by category of assignee between 1990 and 2004.
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From page 302... ...
The patents assigned to LSPs doubled between 1999 and 2000 and doubled again in 2001. Additionally, and consistent with our earlier discussion on the recent participation of LSIs in the logistics network, a few patents have been assigned to LSIs since 1997.
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From page 303... ...
A closer examination of the data reveals that PSPs in the United States were assigned the most patents between 1990 and 2004, with more patents than all the patents worldwide for experts, LSIs, and LSPs combined and almost as many patents as patents assigned to LSUs worldwide. In contrast to the prolific innovation of PSPs in the United States, LSUs were assigned the most patents in most of the European countries, with the exception of Germany and Sweden.
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From page 304... ...
For each of the past 5 years, inventors from more than 20 countries had filed logistics-related patents with nearly 60 percent of the patents coming from inventors based in the United States. More patents have been assigned to PSPs -- firms who provide software and hardware to enhance communications, tracking, and visibility along the supply chain -- than to users of logistics services and providers of logistics services until 2004, when users were assigned
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From page 305... ...
In addition we also examined the innovation activity of the top logistics firms, as listed in the Hoovers database, in order to understand innovation in logistics. For each of the top firms we looked at company websites, articles in industry periodicals, and databases such as Factiva and One Source Global Business.
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From page 306... ...
Savi Technologies, a PSP and recently acquired by Lockheed Martin, leverages its leading position in RFID solutions through alliances with leading firms in data collection, services, software, and solutions for the logistics industry.23 We see a growing trend of innovation in different parts of the world as the outcome of globalization. We have noted that a few LSUs and LSPs are beginning to locate logistics R&D centers in different parts of the world in order to be close to the customer in lead markets.
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From page 307... ...
A skilled workforce is an essential component for successful innovation in any context. However, as discussed earlier in this chapter, the logistics industry has become a high-tech complex network with information flow becoming the critical source of competitive advantage.
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From page 308... ...
CONCLUSION The Council of Supply Chain Management Professionals has been publishing an annual report on the state of the logistics industry for the past 17 years. According to the latest report, after declining for most of the last 7 years, logistics costs as a percentage of the nation's GDP are pushing upward.
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From page 309... ...
34 • Oil Pipelines 9 • Air (International 15, Domestic 25) 40 • Forwarders 22 Shipper 8 Related Costs Logistics 46 Administration Total 1,183 Logistics Costs FIGURE 11 Costs in the logistics logistics-11.eps market, 2005.
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From page 310... ...
Council of Supply Chain Management Professionals.
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From page 311... ...
. A review of leading opinions on the future of supply chains.
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