McKinsey: the endgame for postal networks

The e-commerce megatrend is a big opportunity for postal players, but the market and competitive dynamics are squeezing incumbents. In a new report, The endgame for postal networks: How to win in the age of e-commerce McKinsey presents three winning tactics that can help these companies stay competitive.

In concurrence with positive growth dynamics across global parcel markets, new challenges are pushing incumbents to a tipping point. The entire logistics value chain for parcel handling (2017 revenue $270 bln) is up for grabs, as indicated most clearly by the recent forward integration moves from e-commerce supergiants, such as Alibaba, Amazon, and JD.com, according to McKinsey.

Earn the right to innovate

Successful postal incumbents have raised productivity by 1 to 2 percent annually over the last decade. This level of continuous improvement, however, is becoming ever harder to maintain, but at the same time, ever more mission-critical in view of current market dynamics. Before focusing on science-fiction-like fantasies of delivery drones and robots droids, postal incumbents need to step up their game by further optimizing their current operations, boosting operational excellence in sorting, transport, pickup and delivery, and business support functions.

McKinsey proposes seven key initiatives in e.g. transport, overhead and processes that can reduce total costs by up to 20 percent. The levers with the greatest impact for many players are advanced ways of production integration, analytics-supported flexible resource planning, and an automation opportunity of up to 50 percent for operational planning and support activities that are today often too manual and inefficient.

Build the right capacity

Building on a solid operational foundation, incumbents need a long-term plan to establish the additional capacity required to participate in continuous parcel growth. The long-term plan needs to answer three key questions: How much capacity is needed (and where) in line with evolving e-tailer fulfillment strategies and service expectations? What’s the right kind of automation technology in line with product mix and local factor costs? How can additional capacity be integrated in the best way to protect joint network economics?

With about 75 percent of delivery speed issues in today’s postal networks being “structural,” strategic investments into the network offer a unique opportunity to not just create capacity for growth and improve the operating cost base, but also for a real step change in service offering.

Create an innovation engine

Incumbents should follow a structured approach if they are to innovate in both products and production systems. With both quality enhancements and cost reductions in mind, they should first create a consumer-centric product strategy. Next is developing a digital and data strategy. This should set critical foundations in place and address innovation in the core via customer experience and value-chain design.

]It should also consider attaining new frontiers in the production system or product portfolio (for example, with robotics or artificial intelligence). Two “must have” priorities should top any postal executive’s agenda right now. The first is raising end-to-end transparency along the production chain via both advanced software and new, increasingly economical hardware like smart sensors. The second is enhancing dynamic tour planning capabilities as the door opener to the biggest potential step changes in cost and customer experience.

Source: McKinsey