(BVL) Value of innovation management in logistics services not yet recognised

25/01/2023 — minutes reading time
Innovation Michal Jarmoluk

Due to the recent multi-crises, the importance of the logistics sector has become more apparent to the public. Innovations are needed to ensure the resilience of supply chains in all areas in the future. The German logistics trade organisation BVL published a study that sheds light on how Logistics Service Providers (LSPs) are positioned with regard to the development of innovations. It also describes what the expectations are from their customers from industry and trade. The study finds that LSPs could be more self-confident regarding innovation; and shippers expect innovative services, but at the same price.

The BVL study was realised ahead of the ‘transport logistic’ trade show that will take place in Munich from 9 to 12 May 2023 . The report offers a comprehensive picture of the current state of innovation development in (German) LSPs. It relies not only on the service providers’ perspective, but also incorporates the voices of companies from industry and trade regularly buying in logistics services. Within the scope of the survey, 213 experts from LSPs were surveyed as well as 117 logistics and supply chain managers from shippers.

The study comes to the following five key results.

1: Shippers expect innovative services at the same price

Logistic Service Providers still allocate a rather low amount of financial and human resources to the development of new service concepts. Moreover, the survey findings show that this development is not associated with a methodical and structured process. On the other hand, about one third of the shippers find it positive to have an innovative service provider but are not willing to pay more for it.

The study also shows that large logistics companies seem to be rather inward-looking, whereas SMEs are more attentive to the customer’s by specific requirements. Hence, there is evidence to suggest that smaller LSPs are more agile, open and responsive.

The potential for innovation in the logistics industry is huge. To exploit this potential, however, LSPs must become much more aware of the need for sustained investments and a more systematic approach to push innovation forward.

2: Innovation increases efficiency and saves cost

After all, 41 per cent of shippers assume that working with an innovative partner will increase their efficiency and save costs. The true value of innovation in tapping into new markets and actively differentiating from competition has not yet been widely recognized.

Incidentally, efficiency and cost savings are also the main motivation for LSPs to develop new services.

3: Innovative strength of logistics service providers is improvable

Asked about their opinion on the general innovative strength of logistics service providers, 42 per cent of the participants from industry and trade say that they consider them to be little or not at all innovative. About a quarter consider them innovative or very innovative. About a third see themselves on a par with their service providers.

LSPs themselves do not perceive the logistics industry as very innovative. At the same time, however, the survey results show that they should be more self-confident. The LSPs’ self-image of their innovativeness is often worse than their shippers’ assessment.

4: Logistics Service Providers could be more self-confident

When analysing by sector, it is noticeable that LSPs in the retail sector see themselves as significantly more innovative than they are in the eyes of their customers; the situation is similar in the automotive sector. The opposite is true in the electronics, mechanical engineering and chemical sectors. The logistics service providers could therefore be more self-confident there.

LSPs seem indeed to be strongly directed toward “playing safe” and minimizing the risks associated with new service development (NSD). On the one hand, this is fairly understandable given the comparatively limited amounts of financial and human resources made available for innovation.

Nonetheless, successful innovation requires the courage to try out ideas, even if success is not guaranteed. Particularly for more radical innovations, establishing a “failure culture” and the capability of learning from mistakes is key.

5: Potential through cooperation and partnership

Eventually, a mindset shift is also required on the side of the shippers. Companies from manufacturing and trade report that innovation is needed in almost every logistics market segment. At the same time, most shippers consider the development of innovations to be exclusively the task of the LSPs.

This could explain why only one tenth of the companies are involved in the innovation processes of their LSPs, which means that relevant practical know-how is not provided to them. The shippers are thus missing the opportunity to jointly develop innovations that would also enhance their own competitive position.

These value-adding innovations do not emerge within the isolated environment of the LSP. Instead, partnership, open communication, and readiness to remunerate innovation initiatives appropriately are essential, but are still far from being reality.

All details and the complete results of the BVL study are available here for (free) download