Logistics strategy as an enabler of new business models

Today, successful companies are those who can make a great idea come true and create an organization to support its implementation. To do this, they must be able to adapt quickly, to rapidly get their offer on the market and to exploit changes in the market. The COVID-19 pandemic separated the wheat from the chaff, where companies who were able to immediately respond to the surprise massive upturn in online growth coming out clearly ahead. Within a couple of years, these companies experienced massive growth, with turnovers in the billions.

The success of a company has nothing to do with its form, whether as solely online retailer, a startup or a company evolving from brick and mortar retail. How long the company has been in business also turns out to be unimportant. Then, what is crucial for the success of these companies? They have changed the way they see logistics, and no longer view it as just a support process in their organization. They promoted logistics to the level of core process and enabler of new business models and now view a thought-through logistics strategy as an opportunity to stand out by offering a better service level to their customers, such as same-day delivery.

A logistics strategy provides the competitive edge

There are clear advantages to be gained from giving a logistics strategy top priority. Here are some good examples: The Australian retailer Woolworths dominated Australian online trade in the sector food and personal care with a volume of about two billion USD and a market share between 15 and 20 percent within just a few years of entering the online market. English retailer John Lewis, famous for its department stores, is now operating the largest online store in the UK fashion sector followed by Next, Sainsbury’s, ASOS and Marks & Spencer. Today, more than 60 percent of John Lewis’s turnover is generated online. The situation is very similar for Germany’s largest fashion online store Zalando. With a turnover of more than 2.7 billion USD and a growth of 20 percent per year over the past years, it easily outpaces its competitors. Last but not least, the largest retailer in the world is Walmart. In 2021, the company achieved a turnover of 43 billion USD in the US with its online business, which grew by over 70 percent.

Be it Walmart, Woolworths or Zalando – they all run very successful logistics networks. They rely on comprehensive and intelligent software tools and manage their growth by implementing a clearly defined automation strategy.

Top three success factors for your logistics strategy

What makes a logistics strategy a competitive advantage? These are the three most important factors that need to be considered for developing the perfect strategy.

1. Correct positioning of the logistics strategy. The logistics strategy is closely connected to the company strategy. Accordingly, it is anchored within the company and  often prominently positioned in the organigram. The responsibilities for sales and operations are, for example, merged for the different channels. Recently, Walmart US adapted its organization: President and CEO John Furner explains that the new COO role combines store operations and supply chain. The role focuses on the “transformation of our end-to-end ways of working” to “deliver a seamless customer experience”.

2. Design of the logistics network. The challenge is structuring or adapting a logistics network where a forecast is difficult, so that it can continue to change. Companies have an advantage when they define a clear value proposition that they can use to position themselves in the market, and from there to derive the right approach in designing their logistics network. What should the distribution network look like, which activities should be combined and what does the service level look like? Woolworths focuses on convenience for all customers regardless of whether they live in a metropolis such as Melbourne or in the outback. Amanda Bardwell, Managing Director of WooliesX as part of the Woolworths group says: “Even as we invest in new fulfilment centres, local stores remain the heart of our online operation. We can offer our customers faster same-day and on-demand delivery options, as well as convenient pick-up solutions.”

   

3. Automation as key for growth. Seldom does an online strategy lead to success if a company has not reached a minimum level of digitization and learned to think this way. Digitalized business processes and smooth integration are crucial for success in an omnichannel world. The same applies to integrating brick and mortar retail with the online store as well as to distribution and fulfilment centres. Seamless integration promotes fast and flexible growth. Here, it doesn’t really matter if it starts with automating a manual e-commerce warehouse, converting a store warehouse to an automated omnichannel warehouse, or with rolling out location concepts across a logistics network.

How to best integrate a logistics strategy in your company

Once the above factors have been taken care of, it’s down to the nuts and bolts: successfully integrating the logistics software into the software landscape. There are two basic approaches companies can take: either the popular top-down approach or the more modern bottom-up solution. What are the benefits and disadvantages of these approaches?

Top-down integration: Take with a pinch of salt 

One common approach is to systematically integrate digitalization and automation from the top down. The system design progresses into greater levels of detail. Depending on the business requirements, a connection is made from the highest system in the hierarchy to the subsystems. Trusted tools for planning and control of the supply chain and individual locations are used – for the point of sale, the warehouse and for transport. In the past few years, however, automation in warehouses has become even more relevant. To properly leverage the potential that automation brings, getting the supply chain and the WMS perfectly integrated with the WES/WCS functionalities and warehouse technology (MHE) is critical. Many times this kind of top-down approach does not meet the demands in a highly dynamic environment. Simply connecting the MHE as a black box leaves a lot of potential unused. In this environment, it becomes difficult to provide same-day or on-demand deliveries and, in a widespread network, to decide on the best location from which to make the delivery. The consequences are expensive for several possible reasons:

• Holding on to reserve capacities
• Delivery promises cannot be kept as desired
• The organization is bogged down in workarounds

A development has been observed in the past year where a few established software producers are working with the top-down approach, nudging the ERP and WMS in the direction of WES/WCS, however, they still have a huge disadvantage. They are connecting the MHE but without fully integrating them. These suppliers lack the know-how in technical integration as well as in the domain of automation.

Bottom-up integration: The dynamic alternative

An alternative approach for making the logistics strategy a success is to integrate the systems according to the bottom-up principle. This involves integrating intelligent machine control systems across the WCS and WMS and up to the supply chain, with interfaces to the ERP and online store. The technological change of the past ten years has created enormous potentials. One example is combining the IoT with cloud technologies. Using artificial intelligence, these technologies offer new possibilities for responding to situations and learning from them. To leverage the technological potentials in system integration, the information generated must always be available for inclusion in decision-making.

System architectures that support bottom-up integration offer improvements in the following aspects:

• Dynamics that allow complete operational responses specific for the situation at any time
• Transparency for making the right decisions, both tactical and strategic
• Networking of person and machine
• Use of machines such as robots, AMRs, shuttle systems etc.
• Speed and quality when implementing new business requirements

Oliver Kraftsik, Supply Chain Director for Europe at ASOS, just successfully completed the modernization of a warehouse using intelligent logistics software. He is absolutely convinced of the bottom-up approach: “If you’re serious about running your e-commerce business, you need data. With a smart foundation of data, we can handle the demands on Black Friday and any other challenges that e-commerce will bring in the future.”

If you want a bottom-up integration that actually works for the design of your entire network, examine your options closely before choosing a logistics provider. The partner must have domain knowledge in MHE but also work equally well without automation. Such a partner should also be independent enough to be able to integrate different manufacturers. A logistics strategy can only be successful – making the company successful – if it has the necessary open architecture.

Conclusion

Logistics strategies have become increasingly important in the past years. They often determine the success of companies, or lack thereof. The most important factors are the right positioning, the design of the logistics network and automation. A bottom-up integration into the software landscape can amplify these factors.

Bernd Stöger, Executive Product Manager at KNAPP, is responsible for Software and Value Chain Solutions. During his 17 years at KNAPP, Bernd has worked in different roles both at the headquarters in Austria and at the Brazilian subsidiary. Earlier in his career, he gained valuable experience in the automotive industry at BMW. He holds a university degree in industrial management from the University of Applied Sciences FH Joanneum in Austria and from the OAMK in Finland. He is a European Certified Logistician working in senior management.