The death of traditional cost-cutting and the rise of new efficiency gains
While cost-cutting has been the way to stay competitive for decades now, the truth is few companies are reaping enough from how they do it.
Tenders, e-procurement, squeezing the last cent out of a supplier is how to run the most effective transport operation, I’ve done it myself.
But across the supply chain this is changing, in maritime, ports, terminals, road transport and sectors associated with this, and with lightning speed and immense implications for companies in how to stay competitive, and win.
The traditional approach typically brings 1-2% p.a., but merely moves margin from one party to another, with no new value created, and thus merely pushes the problem around, in a continuous downward spiral.
The new enabler
Few will dispute that digitalization and technology provide new ways of working, not just in the future but already now. For example:
Manual → automation
Paper, excel, and people have run world trade, but won’t in the future.
Dumb hardware assets → connected
Previously a game of lowest price for steel or machinery, now they become data generating assets.
Optimization
Data and e.g. machine learning / AI enables doing the same processes much better with gains of 10-30%.
New business models
New value is created and shifts value between supply chain stakeholders, for gains to be shared.
And much more. We all know this, and it enables opportunity. As serial entrepreneur Aeron Levie once tweeted:
Many are hard on our industry and claims it’s not innovative, while in fact, it has always been and after some warming up, based on the partnerships we do with leading industry brands, it is off to a strong start. More and more are moving away from only realizing 1-2% p.a. to 10-30%.
A decade of declining ROI position companies in a tough spot
When I speak with industry executives, CEOs now face a firehose of opportunities (..and news and hype) spanning basically all areas of their business. Navigating this is hard, realizing any of it even harder because companies are organized to tackle a different set of problems based on past and present (scale economy, traditional cost-cutting etc). For example:
Capability
Realizing new opportunities requires new capabilities, in the broadest sense (e.g. tech, machine learning, data science, legal, customer development,.. ) that companies do not have, because they are geared to run another type of business, and of a breadth no one company will ever be able to span inside.
Bandwidth
Most industry corporations now face hundreds, if not more, opportunities to optimize and reduce cost through new technology, but organizationally are not manned to materialize the full potential. Because for good reason they are set up to run lean, optimized operations.
Ways of working
Companies are incentivized to excel in decision making on big business - large asset investment decisions, acquisitions, e.t.c., and to run a stable, reliable business for their customers, as they should.
So companies with all imaginable internal capability, unlimited time, resources and money need not to think about doing something new to win.
What we’ve seen work
It’s not easy, but doable - and as with everything else, excellence comes from doing. I see companies starting at different places, but all progressing. As inspiration, some of the digital partnerships I’ve seen over relatively short time:
Creating a safer working environment for crew members
Improving port call operations with more reliable and complete data
Reducing fuel and CO2 emissions through behavioral science
Safer and more energy-efficient voyages at sea
Safeguarding vessel operations against cyber-threats
Assisting critical infrastructure at any time and without the need for connectivity
AI-based detection of container damages
Optimizing cargo flow through key stakeholder collaboration
Cargo planning and capacity optimization
Optimization and efficiency of processes
Cargo handling automation
Monitoring and analytics of terminal processes
Terminal equipment maintenance
Terminal automation
Port processes automation
Smart containers
Land port and sea container-level tracking and real-time monitoring
Digitalization of supply chain contracts
Real-time vessel operations and management
Marine incident analytics
How?
Bold industry partners that invest to renew, not stagnate, while remaining problem-focused + the right tech startups (actually scaleups with proof, not ideas).
Corporations doing this today find that the right partner is not the one you randomly meet at a conference or those that knock on your door. Just like no-one acquires or partners with an established player this way, it’s no different when it comes to tech partnerships with startups and scaleups. They apply the same professionalism in this as in other parts of their business, not randomness, funny hats and yoga balls.
What may the future of efficiency gains look like?
I do not do crystal-ball predictions, but I see what works in other industries that started earlier, and now in this.
In summary, the traditional way of working on efficiency gains is a minimum operational excellence requirement also in future, but doing only this is the sure way to become uncompetitive. Edge lies with those that manage to tap into outside capability and bandwidth and realize not 2 or 5 partnerships, but implement at scale in the years to come. It’s too late to say “let the race begin”, because it has already started.
Those that win do not rely on one avenue (and also prioritize internal work on ideas, tech, training e.t.c.) but when it comes to external innovation adds capability to partner, implement and scale this, and when they run out of own bandwidth tap into the outside rapidly changing job market of e.g. EIRs (Entrepreneurs in Residence) that increase their bandwidth.
In my humble opinion. No flashing of corporate partners, but you know who you are. Comment if you agree or want to add from your point of view, and keen to hear other views out there!