Digitization threatens traditional logistics industry leaders
DHL is an express delivery and logistics company that has been operating since 1969. Today, it makes cargo deliveries to 120,000 cities and stands as the second largest logistics company by market share worldwide with 28.4%, behind UPS with 32.9% [1,2]. Despite historical industry growth, recent years have proven challenging as new entrants like Amazon use digital innovation to upend established logistics leaders. Companies like Amazon pose a major threat to DHL and its peers because of their ability to capitalize on capabilities like big data and drone technology to meet evolving customer demands and minimize costs .
Digitization of delivery services has created an arms race for the most effective and efficient supply chains to fight market pressure to reduce costs and serve more customers. In this increasingly competitive environment, DHL must innovate or get left behind.
Recognizing a $13.4bn market opportunity in cold chain logistics
As DHL grapples with the rise of digitally-enabled competitors, one area where it has recognized growth opportunity is in life sciences and healthcare logistics, particularly the cold chain. The cold chain can be defined as the “maintenance and storage of goods at the appropriate temperature, as they move from supplier to ultimate delivery destination” . In 2016, more than half of the top 50 best-selling drugs required temperature-sensitive storage through the cold chain .
An effective cold chain is critical for transporting $260bn of temperature-sensitive biopharmaceutical products sold annually. Medicines that require constant storage at 2 to 8 degrees Celsius often experience more than 30 handovers between factory production and patient delivery . It is unsurprising that with so many handovers, one-third of medicine globally is “corrupted by the time it is used”, resulting in significant medical waste and serious consequences to patient health .
Despite recent advances in medical technology, transportation of medical products has remained largely unchanged for 30 years. In fact, a 2015 survey shows that 40% of DHL’s life sciences customers feel that maintaining an effective temperature-controlled chain for their products is a serious issue .
The cold chain therefore presents a significant opportunity for DHL to invest in digital capabilities to better meet customer needs. Digitization could maximize DHL’s share of the healthcare cold chain logistics market, which is expected to grow from $8.5b to nearly $13.4bn by 2020 . By providing best-in-class service to biopharmaceutical customers, DHL can remain competitive and improve access to safe medication for patients globally.
DHL management takes steps to address the threat of digitization by investing in cold chain solutions
When Scott Allison took on leadership of DHL’s Life Sciences and Healthcare vertical in late 2016, he was tasked with supporting the maturation of health supply chains in the 220 countries where DHL operates . One of the first things he assessed was what other supply chain-mature industries, such as technology and automotive, were doing well. He then directed his team to invest in partnering with healthcare customers to pilot new ideas based on cross-industry best practices. A few examples of steps DHL is taking to digitize its cold chain are highlighted below:
- DHL Thermonet Smart Sensors: DHL is testing Smart Sensor RFID technology to monitorand respond to temperature fluctuations that may impact medicines along the transportation journey. In the short term, these sensors allow DHL to assess compliance with regulation and assure quality to customers across the supply chain. In the long term, DHL can use data collected by sensors to offer a risk intelligence engine that identifies optimal shipment lanes, packaging, and carriers. 
- Collaborative Robots (“CoBots”): In 2016, DHL purchased 4 cobots, which are robots that work safely alongside people. These interactive and adaptive robots are currently being tested for their ability to execute tasks like assembly and packaging. While in the short term, trials are showing efficacy in packing pet food, aerosols and canned drinks. Ultimately DHL hopes the cobots will serve as a safe, cost-effective solution to optimize logistics in cold and/or sterilized environments where biopharmaceuticals are often handled. [10,11]
What more can DHL do to turn the threat of digitization into an opportunity?
While DHL has made strides adapting its supply chain to become more lean and effective through digital, there is more work to be done. In the short term, DHL should continue to invest in cold chain logistics – it could explore blockchain and Internet of Things-related solutions that can more effectively manage routes, storage, and information flow for the growing biopharmaceutical market. In the long term, DHL should also ensure it shares best practices and realizes synergies across its industry verticals. DHL’s current industry-specific organization allows deep expertise, but may limit opportunities to expand digital solutions to other temperature-controlled industries like food or chemicals.
What additional steps can DHL take to strengthen its digital positioning in the cold chain? As demand for pharmaceutical products grows in emerging markets, how can DHL use its investments in a digitized cold chain to capture demand and ensure access to quality health at the last mile – with whom should it partner to do so?
 “DHL Company Profile.” Datanyze, www.datanyze.com/market-share/logistics/dhl-market-share.
 “Largest and Most Popular Courier Services in the World.” Acegoals, 20 Mar. 2017, www.acegoals.com/largest-popular-courier-services-world.
 Mooney, Turloch. Transport Providers Adjusting to Amazon Threat. The Journal of Commerce, 9 Feb. 2017, www.joc.com/international-logistics/logistics-providers/citigroup-fears-amazon-supply-chain-disruption-subside_20170209.html.
 “Emerging Trends in Supply Chain Management: Outsourcing Public Health Logistics in Developing Countries .” United States Agency for International Development (USAID) Deliver Project, July 2010, apps.who.int/medicinedocs/documents/s21806en/s21806en.pdf.
 Hay, Toby. “Internet of things will revolutionise how healthcare is delivered.” Supply Chain Digital, 2 Aug. 2017, www.supplychaindigital.com/distribution/comment-internet-things-will-revolutionise-how-healthcare-delivered.
 “AntTail Delivers More Effective Medicine with Vodafone IoT.” Vodafone Group 2016, Nov. 2016, www.vodafone.com/business/iot/case-study/anttail-delivers-more-effective-medicine-with-vodafone-iot.
 Harrington, Lisa. “The Smarter Cold Chain: Four Essentials Every Company Should Adopt.” DHL Life Sciences & Healthcare Industry Brief, 2015, www.dhl.com/content/dam/downloads/g0/logistics/white_papers/dhl_LSHC_smarter_cold_chain_whitepaper_2015.pdf.
 “Global Healthcare Cold Chain Logistics Market Report & Forecast (2017-2022).” IMARC Group, www.imarcgroup.com/healthcare-cold-chain-logistics-market.
 Wadlow, Tom. “Inside the Lifeblood of Healthcare: A Discussion with Scott Allison, DHL’s President of Life Sciences and Healthcare.” Supply Chain Digital, Aug. 2017, www.supplychaindigital.com/magazine/supplychaindigital-august-2017.
 “The Future of Life Sciences and Healthcare Logistics: A DHL Perspective on Key Trends and Technologies.” DHL Life Sciences & Healthcare, June 2017, www.dhl.com/content/dam/downloads/g0/about_us/logistics_insights/dhl_future_of_lsh_2017.pdf.
 Wadlow, Tom. “Are These Robots the Future of Factories and Warehouses?” Business Review Europe, 5 May 2017, www.businessrevieweurope.eu/technology/1294/Are-these-robots-the-future-of-factories-and-warehouses.
[Image A & B] “Cold Chain Logistics.” Parexel. https://www.parexel.com/solutions/clinical-research/clinical-trial-supplies-and-logistics/cold-chain-logistics.
[Image C] “The Future of Life Sciences and Healthcare Logistics.” DHL Life Sciences & Healthcare. www.dhl.com/content/dam/downloads/g0/about_us/logistics_insights/dhl_future_of_lsh_2017.pdf.