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HBR / Digital Article / How Maersk Designed a More Resilient Supply Chain
How Maersk Designed a More Resilient Supply Chain
In 2021, the shipping giant launched an innovation center to contend
with current and future chal enges. by Ned Calder, Alasdair Trotter,
Conor Carlucci, and Erez Agmoni
Published on HBR.org / November 17, 2022 / Reprint H07D4Q Colin Hawkins/Getty Images
As the Covid-19-related lockdowns eased in 2021, Maersk North
America, a division of the Denmark-based global shipping and logistics
giant, found itself in the eye of a storm. Its ports, terminals, warehouses,
and distribution centers were becoming global chokepoints, and labor
shortages made the situation worse. Maersk responded by redeploying
ships from less-traveled routes to transpacific trade lanes, expanding
the hours of operation in its facilities, upgrading its tracking systems,
and opening new warehousing and distribution locations.
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HBR / Digital Article / How Maersk Designed a More Resilient Supply Chain
At the same time, Maersk was earning record profits from the sheer
volume of pent-up demand, not to mention the premiums companies
were paying to expedite their deliveries. It was the best and worst of
possible worlds — and an unprecedented opportunity to explore and
fund solutions that not only addressed the immediate crisis but also
long-cycle trends, building further resilience into its operations. These
included the need to decarbonize and further digitize its operations,
deploy and leverage AI capabilities, and address endemic staffing and retention issues.
Companies faced with a 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’s leaders,
in contrast, adopted a systems approach that any company with a
sophisticated multinational supply chain can learn from — one that
integrates strategy, processes, and talent in a coordinated way. Spot
solutions are needed to help a company get through a sudden shock,
but the only way to ensure agility and resilience going forward is by
addressing systemic issues in a way that is intentional and focused
on the long term and brings together clear priorities, well-designed
repeatable processes, robust governance, and a skilled team.
In collaboration with Innosight, Maersk created a dedicated innovation
center in 2021 that has used the following three systems-design principles:
1. Keep a clear focus on enterprise priorities.
Innovation groups frequently succumb to the temptation to pursue
innovation for innovation’s sake, chasing the shiniest technologies
whether they are aligned with a company’s overall goals or not. But
the purpose of an innovation center isn’t simply to help a company
“keep up with the Jones.” They should be designed and organized
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HBR / Digital Article / How Maersk Designed a More Resilient Supply Chain
to support and advance their overarching strategies. In Maersk’s case,
this meant accelerating its movement towards end-to-end supply chain integration.
For example, Maersk’s leaders considered entering the micro-
fulfillment space, extending last-mile services to individual consumers.
But while the approach has promise and may become more relevant in
the future, it was not focused on the major retailers most affected by the
supply chain crisis who are Maersk’s biggest customers and hence the
most important drivers of its profitability and growth.
So the innovation center turned its focus to port-transload operations
— moving the contents of international containers from ocean
carriers into 53-foot truck trailers — which was a major bottleneck in
North America. Partnering with internal Maersk operators, the Port
of Vancouver, and Canadian Pacific Railway, it created the Pacific
Transload Express, a 117,000-square-foot, 103-door transload facility
located a short train trip away from the chaos of Vancouver’s three
major container terminals. This solution reduced the volatility of
door-to-door times for container shipments from 35 to 75 days to 35
to 40 days, making supply chains that much more dependable 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
Maersk’s innovation center, those “customers” are the internal business
units that oversee warehousing and distribution hubs. Similarly, an
innovation group may neglect to create effective interfaces with the
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HBR / Digital Article / How Maersk Designed a More Resilient Supply Chain
start-ups, universities, and other critical vendors that are their third- party partners.
In Maersk’s case, the lines of reporting for its innovation center extend
all the way up to the C-suite, ensuring that it has the full mindshare
and support of senior management, and also to key operational
leaders, whose buy-in is critical as initiatives are tested and scaled.
To make certain that business units have a say in setting priorities
and that they maintain operational control when initiatives a ffecting
them are piloted, there is an innovation council, whose members
include Maersk’s North American regional managing director and the
unit’s executive vice presidents of operations and corporate operations.
External stakeholders providing input to the council include multiple
universities (e.g., the MIT Center for Transportation & Logistics),
government entities such as the New Jersey Economic Development
Authority, the commercial robotics firm Boston Dynamics, and multiple
startup companies. Having the perspective of all these key parties
ensures that the innovation center remains focused on the most
relevant problems and that it can pivot quickly when an initiative creates new ones.
Though Maersk has a robust corporate venture capital arm, Maersk
Growth, the innovation group maintains its own relationships in
the VC and startup world to increase its access to new, disruptive
technologies and bring an outside-in perspective to their initiatives.
This is where it turned when the chronic problem of inventory “leakage”
— unaccounted for or misplaced pallets in warehouses, amounting to
6% of the goods on hand — gained new salience during the crisis. (Most
warehouse operations are willing to live with as much as 5% to 10% leakage.)
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HBR / Digital Article / How Maersk Designed a More Resilient Supply Chain
After ideating with a number of different firms, the solution it chose
utilized autonomous drones, which fly through warehouses collecting
images, videos, and 3D scans. These are then processed via video
analytics and AI to locate the missing pallets. 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 warehouses in less than four months. Leakage was reduced
to close to 0%, and the system is now being rolled out at scale.
3. Ensure that the center is fully resourced and employs clear and repeatable processes.
Too many corporate innovation groups are staffed with smart people
who are disconnected from the strategy and goals of the enterprise
they are meant to serve. As a result, their initiatives often fail to have
the impact they could. Maersk recruited engineers, data scientists, and
logistics and operations specialists internally and externally and probed
and tested candidates’ creative thinking throughout the interview process.
Maersk’s leaders thought carefully about the innovation’s center
location and chose a dedicated office space in Jersey City, New
Jersey, which is far from Maersk North America’s headquarters in
suburban Florham Park, New Jersey. The talent they sought was in
the metropolitan New York City area, and the urban location was a
short PATH train ride from Manhattan. In addition, 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 center didn’t simply default to Maersk’s long-established methodologies.
To keep its teams tied to Maersk’s strategy and remove the need to
reinvent the center’s operating model every time it investigated a new
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HBR / Digital Article / How Maersk Designed a More Resilient Supply Chain
idea, clear, repeatable processes were designed and communicated.
Instead of leaping from idea to proof of concept, its innovation process
begins with the identification of a problem, the stakeholders 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 especially time
consuming. Only then did they move to formulate a hypothetical
solution, utilizing “goods to person” robotics, automated technologies
that deliver the right item at the right time to the right worker.
Initiatives proceed through a stage gate process as they move from
ideation through designs, pilots, and ultimately solutions at scale, with
explicit benchmarks set and input collected in real time. Should a pilot
fail to deliver or prove unscalable, it is shut down in a timely way. The Outcome
The results speak for themselves. By November, 2022, Maersk had
piloted more than 23 initiatives, seven of which are being rolled out
at scale, and two of which were canceled. The net result is a 46%
reduction in the lead time variability of shipments from Asia to North
America, as well as significant savings. But at an industry conference
that same month, North America Regional Managing Director Narin
Phol cautioned 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 —
one that is aligned to the enterprise strategy, solves relevant problems
for internal and external customers, develops clear interfaces with
partners, and builds and maintains broad organizational capacities
— can bring clarity, resilience, and scalability to efforts to build the
supply chain of the future. Its approach is one that any company with a
complex supply chain can learn from.
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HBR / Digital Article / How Maersk Designed a More Resilient Supply Chain
This article was originally published online on November 17, 2022.
Ned Calder is a partner at Innosight, the strategy and innovation
practice of Huron Consulting Group.
Alasdair Trotter is a partner at Innosight, the strategy and
innovation practice of Huron Consulting Group.
Conor Carlucci is a senior associate at Innosight, the strategy and
innovation practice of Huron Consulting Group.
Erez Agmoni is senior vice president of innovation & strategic growth at Maersk.
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