The Four Ds of Disruption in Logistics Industry

Based on Peter Diamandis, the growth cycle of disruptive technologies goes through six stages: digitization, deception, disruption, demonetization, dematerialization, and democratization. Although not all stages can be applied to the disruption of business models related to physical processes such as the movement of goods, their argument, especially that of digitization, disruption, demonetization and democratization, still holds true and can be used as a valuable framework to analyze the future of logistics industry.

Digitization: The first stage of the disruptive process, digitization, has a big impact on transport and logistics industry. The most obvious impact is the migration of letters to email, reducing the number of documents sent through postal and express parcel service providers. The more transformative impact is the digitization of documents that carry the “metadata” accompanying goods throughout their storage and movement, which provides far greater level of supply chain visibility. If logistics companies can capture the data effectively, they can use it not only as a way of making their existing operational processes more efficient, but as an opportunity to replace outdated business models.

Disruption: The transport industry is currently very inefficient, partly because the sector is split into silos of private fleets of vehicles, for which the allocation of resources is only as good as each individual company’s access to demand (i.e. loads). The problem is entrenched as each company sees its ability to access loads as a key competitive advantage, a situation further exacerbated by the reluctance of many shippers (owners of cargo) to collaborate and share contracted assets with companies, competitors or not. The inefficiency and poor use of data make the transport industry ready for disruption. The development of platforms that can match supply and demand with great efficacy could deliver huge value. Whether this will help incumbents to gain additional loads or result in a more far-reaching move such as disintermediating the industry (when shippers strike deals directly with owner-drivers), a major shift is bound to happen.

Demonetization: The third stage (also the most worrying one) of the disruptive process is demonetization. Although products still need to be moved to market and thus logistics industry can be spared from the additional stage of “dematerialization” (unlike the camera industry in which consumers stopped buying film products in favor of digital cameras), there are still considerable risks for medium and large transport companies such as UPS, FedEx and DHL. If, thanks to disruptive technology providers, shippers are allowed access to the vast pool of owner-drivers in every country all over the world, they would be able to benefit from enormously lower cost bases by bypassing transport companies. In fact, some of the largest shippers such as Amazon have already started disintermediating their logistics operations by dealing directly with “local heroes.”

Democratization: This final stage of disruptive process is of concern of logistics industry in that disruption could lower the barriers in the transport sector, increasing the size of the market supply from a few thousand transport entities in each national market to millions of individuals who can use either their own vehicles or public transport to do the job. Therefore, it’s foreseeable that real transformation will take place at least in parts of the industry, especially mail and parcels.

In conclusion, in order not to fall victim to a new market currently going through disruptive shifts, players in logistics industry must do all it takes to harness the new technologies and change the market to their own advantage.

Sources:

Manners-Bell, J. & Lyon, K. (Nov. 2022). Logistics and Supply Chain Innovation: A Practical Guide to Disruptive Technologies and New Business Models. Kogan Page.

Ramirez, V. B. (2016, Nov. 22). The 6 Ds of Tech Disruption: A Guide to the Digital Economy. https://singularityhub.com/2016/11/22/the-6-ds-of-tech-disruption-a-guide-to-the-digital-economy/

Related articles and books:

Agile Leadership Explained: We Can All Be Agile Leaders and Change the World Together! (Kobo)

Agile Leadership Explained: We Can All Be Agile Leaders and Change the World Together! (Amazon)

Collet, B. (2019). Agile leadership. (Online course). https://www.udemy.com/course/agile-leadership/