As Covid-19-related lockdowns eased in 2021, Maersk North America, a division of the Denmark-based global transport and logistics giant, found itself in the eye of a storm. Its ports, terminals, warehouses and distribution centers were becoming global choke points, and labor shortages were making the situation worse. Maersk responded by redeploying ships from less traveled routes to trans-Pacific trade lanes, expanding facility hours, improving tracking systems and opening new warehousing and distribution sites.
At the same time, Maersk was making record profits thanks to the sheer volume of pent-up demand, not to mention the bonuses companies were paying to speed up deliveries. It was the best and worst of all possible worlds – and an unprecedented opportunity to explore and fund solutions that not only addressed the immediate crisis but also the long-cycle trends, building the resilience of its operations. These included the need to further decarbonize and digitize its operations, deploy and leverage AI capabilities, and address endemic staffing and retention issues.
Companies facing major disruption typically take a limited approach to innovation — hiring a chief innovation officer, for example, or creating a dedicated fund to invest in startups. Maersk leaders, on the other hand, have taken a systems approach that any company with a sophisticated multinational supply chain can learn from, one that integrates strategy, process and talent in a coordinated way. Point solutions are necessary to help a business weather a sudden shock, but the only way to ensure agility and resilience in the future is to address systemic issues in an intentional, long-term-focused way and to bring together clear priorities, well-designed repeatable processes, strong governance and a skilled team.
Together with Innosight, Maersk established a dedicated Innovation Center in 2021 that used the following three system design principles:
1. Keep a clear focus on business priorities.
Innovation groups often succumb to the temptation to pursue innovation for innovation’s sake, seeking out the brightest technologies whether or not they align with a company’s overall goals. But the purpose of an innovation center is not simply to help a company “keep up with Jones.” They must be designed and organized to support and advance their overall strategies. In Maersk’s case, that meant accelerating its move toward end-to-end supply chain integration.
For example, Maersk executives have considered entering the micro-fulfilment space, extending last-mile services to individual consumers. But while the approach is promising and may become more relevant in the future, it has not focused on the large retailers most affected by the supply chain crisis who are Maersk’s biggest customers and therefore the most important drivers of its profitability and growth.
The Innovation Center therefore focused on port transshipment operations – moving the contents of international shipping containers from ocean carriers to 53-foot truck trailers – which was a major bottleneck in North America. In partnership with in-house operators Maersk, the Port of Vancouver and Canadian Pacific Railway, he created the Pacific Transload Express, a 117,000 square foot, 103-gate transload facility located a short train ride from Chaos of Vancouver’s three main container terminals. . This solution has reduced the volatility of door-to-door lead times for container shipments from 35-75 days to 35-40 days, making supply chains much more reliable and predictable. And by eliminating more than 100,000 local truck trips per year, it reduced CO2 emissions by more than 15%, advancing Maersk’s goal of being carbon neutral by 2040.
2. Create an effective governance system and clear interfaces with internal and external partners.
Another reason many innovation groups fall short of expectations is their isolation from the customers they are meant to serve. In the case of the Maersk Innovation Center, these “customers” are the internal business units that oversee the warehousing and distribution centers. Similarly, an innovation group may neglect to create effective interfaces with start-ups, universities and other critical vendors who are its third-party partners.
In the case of Maersk, the reporting lines of its Innovation Center extend all the way to the C-suite, ensuring it has the full mind and support of senior management, as well as key operational leaders, whose buy-in is essential as initiatives are tested and scaled. To ensure that business units have a say in setting priorities and retain operational control when initiatives affecting them are piloted, there is an Innovation Council, whose members include the Director Maersk’s North American regional general and the unit’s executive vice presidents of operations and corporate. operations. External stakeholders contributing to the board include several universities (e.g., MIT Center for Transportation & Logistics), government entities such as the New Jersey Economic Development Authority, commercial robotics company Boston Dynamics, and several startups. Having the perspective of all these key parties ensures that the innovation center stays focused on the most relevant issues and can pivot quickly when an initiative creates new ones.
Although Maersk has a strong corporate venture capital arm, Maersk Growth, the innovation group nurtures its own relationships in the venture capital and startup world to increase its access to disruptive new technologies and bring outside perspective to their initiatives. This is where it happened when the chronic problem of inventory “leaks” – unaccounted or misplaced pallets in warehouses, accounting for 6% of available goods – took on new importance during the crisis. (Most warehouse operations are ready to live with up to 5% to 10% leaks.)
After brainstorming with a number of different companies, the solution she chose used autonomous drones, which fly over warehouses collecting images, videos and 3D scans. These are then processed through video analysis and AI to locate missing palettes. Thanks to the clear lines of communication that the center maintained with its many partners, the drones and their software were fully developed, tested and deployed in the warehouses in less than four months. Leakage has been reduced to almost 0% and the system is now deployed on a large scale.
3. Ensure the center has all the necessary resources and uses clear and repeatable processes.
Too many corporate innovation groups are staffed with smart people who are disconnected from the strategy and goals of the business they are meant to serve. As a result, their initiatives often don’t have the impact they could have. Maersk recruited internal and external engineers, data scientists, and logistics and operations specialists and probed and tested candidates’ creative thinking throughout the interview process.
Maersk executives carefully considered the location of the innovation center and chose a dedicated office space in Jersey City, New Jersey, which is far from the Maersk North America headquarters in the suburb of Florham Park, New Jersey. The talent they were looking for was in the New York metro area, and the urban location was a short PATH train ride from Manhattan. Additionally, the site’s distance from the regional unit’s headquarters in Florham Park would provide the psychological and physical separation necessary to ensure that the innovation hub does not just default to the long-established methodologies of Maersk.
To keep its teams committed to Maersk’s strategy and remove the need to reinvent the center’s operating model each time it explored a new idea, clear and repeatable processes were designed and communicated. Instead of going from idea to proof of concept, its innovation process starts with identifying a problem, the actors most affected by it and its economic and operational impacts.
For example, when looking to improve labor efficiency, an innovation team determined that manual picking and packing was particularly time-consuming. Only then did they set out to formulate a hypothetical solution, using “goods-to-person” robotics, automated technologies that deliver the right item at the right time to the right worker. Initiatives go through a stage gate process as they move from ideation, to design, to pilots, and ultimately to full-scale solutions, with explicit benchmarks set and insights collected in real time. If a driver fails to deliver or is found to be non-scalable, it is shut down in a timely manner.
The results speak for themselves. As of November 2022, Maersk had piloted over 23 initiatives, of which seven are in full scale and two have been cancelled. The net result is a 46% reduction in lead time variability for shipments from Asia to North America, as well as significant cost savings. But at an industry conference the same month, Narin Phol, regional general manager for North America, warned against complacency. “Supply chain disruption is a constant,” he said. “Don’t take anything for granted.”
Maersk’s experience shows that a systems approach to innovation – which is aligned with business strategy, solves issues relevant to internal and external customers, develops clear interfaces with partners, and builds and maintains broad organizational capabilities – can bring clarity, resilience and scalability to efforts to build the supply chain of the future. His approach is one that any company with a complex supply chain can learn from.