Going deep – a new approach to improving the performance of logistics networks

By Benjamin Rassler, Nico Falk and Sebastian Wind

Logistic providers face unprecedented levels of volatility and uncertainty. In such a fast-paced environment, boosting long-term profitability is a fundamental challenge. But the conventional approach to performance improvement tends to focus too much on the surface and neglect what lies beneath. Below the waterline, in the heart of the network operations, vast potential is often waiting to be discovered. Our new approach achieves transparency over the nitty-gritty of network operations, gets to the root causes of inefficiency, challenges the design principles on which the current network is built and provides powerful tools for generating sustained value.

Traditional performance improvement programs at logistics companies generally start with a standardized, modular assessment phase. The company then sets itself strategic and financial targets, breaking those targets down across all segments or functions of the business and coming up with actions designed to meet them.

But these performance improvement programs are usually initiated by the CEO, CFO or other C-level member of the firm, and that creates a problem. By definition, management looks from the top down, and it can fall into the trap of focusing on the surface rather than the root causes. Given that the biggest share of costs in logistics are actually found in the Production, Network and Trade Management functions, this traditional approach is clearly not going to reveal where the biggest efficiency gains lie.

Digging beneath the surface

Our new approach to improving the performance of network operations consists of four building blocks. First, the company needs to exploit the abundance of raw data at its disposal, breaking down any "data silos" – separate, unstructured data sources that have arisen historically as a result of a lack of standardized tools and approaches. With our help, the company creates a "single source of truth" that provides a view of the whole network and avoids any blind spots.

The second step is to take the data collected in the first step and apply our Big Data optimization model. This involves challenging common beliefs within the organization, checking to see whether these long-held convictions actually lead to optimal economic value creation. By varying the different parameters (that is, the different aspects of the operations), we can come up with a new, optimized network design – a complete set of point-to-point movements. Using this as a basis, the company can then derive new targets.

Now that it is clear which are the most important economic value drivers for the network, the third step is to develop a set of transformation actions, describing how the company must adjust its current operations in order to arrive at the optimal network design identified in the second building block. The goal is to bridge the gap between theoretical models and operational management, anchoring economic value generation in the company's daily operations at all levels. It can be helpful at this stage to establish a dedicated Network Transformation Office tasked with tracking implementation, measuring and reporting on operational and financial outcomes and providing a forum for addressing any challenges that arise during the transformation period.

The fourth and final step is to empower the top management by giving them the right tools to engrain value creation in the company's operations, making it truly part of its DNA. We offer a number of such tools, developed in cooperation with clients. One is our dynamic network dashboard, which takes data from the client's internal databases and uses it to draw a map with unit movements and corresponding financial results across the entire network for a given period of time. With the help of this dashboard, the company can select a specific logistics route and analyze its operational and financial performance, for instance. Another tool is our integrated KPI and action tracking dashboard, which shows the KPIs for optimal economic value generation linked to the main actions defined for the network transformation. Using this tool, the company can track operational and financial performance accurately and – crucially – create accountability at the level of top management.

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