DHL Supply Chain is embarking on the next phase of its development strategy. John Gilbert, chief executive officer, explains to Malory Davies how the world’s largest logistics provider plans to maintain market leadership.
DHL Supply Chain is the undisputed market leader in the €170 billion global contract logistics market, with a market share of eight per cent. With a turnover of some €14.7 billion it is around four times the size of its nearest rival such as Kuehne + Nagel and Ceva.
It would be all too easy for it to rest on its laurels in the expectation that customers will beat a path to its many doors.
But that is the last thing on the mind of John Gilbert who became chief executive officer of the division when Bruce Edwards retired in March 2014.
Gilbert has been with the business since 1994 when he was recruited to Exel in the United States by Edwards. In October 2008 he took over responsibility for DHL’s supply chain business in the Americas as regional CEO.
Strategy 2020 takes over from that the previous plan “Strategy 2015”, which focused on improving profit margin in the supply chain division. Strategy 2020 involves a shift in the business portfolio to the emerging markets – notably Asia Pacific and Latin America. It also strengthens the focus on value-added services rather than those elements that are increasingly being commoditised.
But it also wants to drive further standardisation, greater efficiency and improved utilisation of economies of scale to increase operating margin to four to five per cent by 2020.
DHL Supply chain started work on Strategy 2020 in 2013 under Bruce Edwards’ leadership. Gilbert emphasises the fact that the development strategy has been a collective effort involving not just the management team at DHL Supply Chain but also lots of input from members of staff.
“The leadership team had collective ownership – not just me.”
DHL spent some six months on diagnostics and creating business cases to bring to life an actionable game plan.
Achieving this new plan is a big challenge and Gilbert has driven through significant changes to the way the business is managed.
That starts with changes to the divisional board. New people have been brought onto the board and those who have continued on the board have new responsibilities.
This was essential to achieve the strategy, says Gilbert. “It wouldn’t have worked with the old structure,” says Gilbert.
There are three pillars to Strategy 2020: Focus, Connect, and Grow.
The first stage in Strategy 2020 is getting the organisation ready to support the strategy and that started by involving top the 750 managers in the organisation. Motivating the workforce is a key issue for Gilbert. He points out that the business strategy might talk about earnings growth, but that does not necessarily excite the worker in a warehouse.
So he is putting a lot of emphasis on the fact that what DHL associates do is critical to day to day life.
“We are creating a connection for our people to strategy that affects people on a day-to-day basis.”
In particular, there is a certified programme that is training people to take the organisation forward.
Gilbert is also concerned to create the right culture right across the organisation – no small task in an organisation that’s so large, and with such diverse roots. “There is a long way to go to change the culture of a large organisation,” he says. “My experience is that people want to be treated with respect and know that they have a role to play.”
Gilbert is keen to encourage “discretionary effort” on the part of members of staff. He highlights the example of an associate who notices a damaged case of product. Doing something about it might not be his responsibility but raising the issue and getting it changed means that the customer gets a perfect delivery and there is no need for further remediation.
Doing that speaks volumes about the culture of the operation, he says.
But he is also keen to emphasise the focus on organisational capability. In any organisation, achieving success can come down to individual heroics. By strengthening the organisational capability, the level of energy and heroics needed for success could be reduced.
DHL Supply Chain is moving to manage a number of key vertical sectors on a more global scale. Gilbert says the degree to which it does this needs to keep pace with developments in the particular market.
Life Sciences is now a globally managed sector of the business with a global head covering all geographies. It is a fundamental shift in the way the business works, and should give the business a much greater degree of commonality and consistency in its operations all around the world. Gilbert points out that this enables the business to move at pace and avoid gridlock.
The automotive industry is also moving to a global structure and DHL Supply Chain is responding to this. But rather than being globally managed, its automotive business is globally facilitated.
Gilbert believes that it is important to allow a degree of decision making autonomy at a regional level, combined with strong global support. “We can have someone facilitating without directing,” he says.
This kind of development is likely to be seen in other markets. Technology for example is moving in this direction. Gilbert points out that increasingly products such as the iPhone are being rolled out globally.
At the other end of the scale, retail is still in general a regional or even local business and the way DHL structures itself has to reflect that, he says.
DHL’s strategy, not surprisingly, puts greater emphasis on Asia Pacific.
But Gilbert is clear that DHL won’t be neglecting core markets like the UK.
The UK is the most mature market that DHL Supply Chain works in. Gilbert points out that the intense level of competition in the UK has forced DHL to be a better operator. And these are skills that can be employed in markets all around the world.
The past year has seen growth rates slow in the Asia Pacific region after a period of very rapid growth, particularly in China. At the same time Europe has seen relatively little growth. Gilbert argues that this is the new normal.
Growth rates might have slipped back in China but there is still substantial growth – and business has to deal with that, he says. He also points to problems encountered in Brazil, where there was a lot of focus on exporting to the rapidly growing Chinese market.
Brazil might have suffered more dramatically than others, but even with slower growth rates Gilbert still sees it as an important growth market.
He points out that success means being more competitive. “I expect to win in flat or stagnant markets.”
Change management is the single biggest challenge, he says, pointing out that successful organisations face a real danger of becoming inward focused.
“We have to earn our stripes every day,” he says. “We know how important our clients are to us and that keeps us committed.”
Focus, Connect & Grow
Deutsche Post DHL’s “Strategy 2020” is built on three pillars:
Focus: The Group will continue to concentrate on its existing strengths, with the goal of further expanding margins. It puts logistics at the core of the group’s business activities due to growth and overall attractiveness.
Connect: The aim is to increase connectivity in the organisation. A central component is the roll-out of certified training programmes across the entire group. It plans to train more than 80 per cent of its worldwide workforce in comparable training programmes across all of its divisions by the year 2020.
The group is also committed to building a uniform leadership culture across the Group and tapping the full potential of the Group’s brands as well as a more customer-centric cooperation between the individual DHL divisions.
Grow: Deutsche Post DHL will continue to emphasise organic growth through expansion into new countries and regions, and through tailored solutions that respond to customer requirements in both existing and new market segments.
A significant further expansion into emerging markets is a key aspect of the growth strategy. Today, emerging market revenues contribute just over 20 per cent of the group’s revenues; by 2020, the group expects this figure to climb to 30 per cent. Achieving this will require a substantial increase in absolute revenue growth in the emerging market countries.
Deutsche Post DHL also wants to establish itself as the number one provider of cross-border e-commerce services on the most important international trade lanes, and one of the top three B2C domestic parcel delivery service providers in selected markets.
When he launched Strategy 2020, group CEO Frank Appel said: “Over the past several years we have demonstrated what we are capable of over the last several years.
“Now we will accelerate our organic growth and continue to pursue a clear vision: we want Deutsche Post DHL to be not only the most global company in our industry, but also the clear leader in quality and customer orientation.”
The advantage of scale for the logistics provider is the ability to support very large contracts. And they don’t come much bigger than DHL Supply Chain’s contract with the UK’s National Health Service which has just been extended for a further two years.
The contract was originally signed in August 2016 and reckoned to be worth £850m over ten years, that has grown to £1.6 billion.
DHL operates the contract under the title, NHS Supply Chain. At the time it took over the operation DHL reckoned it would handle some 500,000 products supporting 600 hospitals and other health providers.
The revised contract operates for three years until 30 September 2018. DHL is charged with delivering more value to NHS customers and cost savings to the tax payer. A cash releasing savings target of £150 million has been agreed for delivery by October 2018 in addition to the £150 million target already set for March 2016.