Flexible Business Model vs. Standardized Operating Model

Can a business succeed that aims for flexibility, but is build on standardization and centralization?

DHL Freight Germany is a German based road forwarding company specialized in domestic and international Groupage, LTL (less-than-truck load) and FTL (full-truck load). For the purpose of this exercise, the analysis should focus only on the domestic groupage business and is based on the status quo as of Q1 2015.

The German groupage network of DHL Freight is operated via approximately 40 terminals. Those terminals function as consolidation points for the linehauls between the terminals and for the last-mile in- and outbound. While the vast majority of linehauls is managed centrally out of three national dispatching centers (in combination with DHL Freight’s domestic LTL and FTL transports), every terminal manages its last-mile distribution and pick-up itself.

According to DHL Global Forwarding, Freight’s former CEO Roger Crook (new CEO has not been appoint yet), DHL Freight’s business model is described as follows: “[…] DHL Freight […] operates asset light, manages transport capacity of Road- […] carriers on behalf of customers and is extremely flexible in adapting operational procedures to customer specific needs. This includes full end to end management of logistic solutions.”1

Despite highlighting the flexibility of the solutions and the promise of customer-tailored services, the operating model of DHL Freight Germany is focused on efficiency. In recent years, most business initiatives aimed for standardization and centralization.

Centralization: the overarching trend during the last couple of years has been to centralize many administrational and operational tasks. This shift had a significant impact on Freight’s organizational setup. Many functions that were located historically within the terminals were moved to corporate headquarters. Employees were either relocated to the headquarters or reporting lines were changed to headquarter based functions. In this case the employees remained physically within the terminal, but received their work instructions from a central function. One important example for a function that was centralized is the department that sets process standards and manages operations within the terminal. The consequence was that not the terminal manager, who manages most customers and a day-to-day basis, designed the processes, but a headquarter function.

Another example of centralization was the creation of national dispatching centers. Before, every terminal was planning its long-distance traffic itself, while now the national dispatching centers plan for all terminals centrally. Besides considering historical data, every terminal reports daily its demand in order for the national dispatching centers to do the planning. This centralization is aimed to achieve significant synergies on capacity and resource utilization. But the terminals partially lose their flexibility to react on unforeseen customer needs.

Standardization: the higher degree of centralization is closely connected to more standardization. One highly visible effort was the introduction of a fixed schedule for departures of linehauls and a strict penalty system, if terminals do not comply. Those fixed schedules have without doubt a positive impact on efficiencies (better predictability, less waiting-time, etc.), yet it limits the terminal’s flexibility to react on customer demands.

The implementation of the national dispatching centers is also a major lever for standardization. Due to the changes in the planning process, every terminal has pre-defined cut-off times at which they have to report the capacity demand to the dispatching centers. Every customer request that gets known only after those cut-off times cannot or only with huge additional effort be executed.


All-in-all those changes are focused on efficiency and creating a lower cost base through leveraging scale and standards. This itself might be – correctly executed – a promising operating strategy. Yet in this case the issue is that the business model and customer promise is not focused on a low-cost/ low-price strategy, but rather on differentiation by being highly flexible and providing customer-tailored solutions. An additional problem is that all those changes shifted the operational responsibility and authority away from the terminals to headquarters. However the ability to react flexible on customer demands sits mostly within the terminals. This operating model basically prevents that the business can execute the business model. Management does not give Operations the tools to deliver customer focused and highly flexible services.


1)      http://www.dhl.com/en/about_us/company_portrait/our_organization.html (12/5/2015, 12:34pm)


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Student comments on Flexible Business Model vs. Standardized Operating Model

  1. As someone with little to no background in logistics, it is still clear to me after reading your post that DHL’s business and operating models are definitely in conflict. If the customer promise is flexibility but the local terminals have no power to deliver this promise, as you note, things will begin to break down. It seems that DHL must chose either to revise its customer value proposition or allow more autonomy at the terminal level. In this case, it seems as though the most realistic solution would be to re-position the company as a low-cost, reliable carrier versus one that caters to their every need. Maybe it is possible to have both? It seems they should definitely standardize and centralize the operations for the longer, higher capacity line hauls, but might they also offer flexibility and customized routes and cutoffs for customers with significant volume of their own?

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