A relational business model of e-logistics facilities

“How come logistics operators’ return on investments is so low despite that warehouse operations are very cost efficient?”, is a strategic question that I and Helgi-Valur Fridriksson posed in a recent research paper (2020). Strategic warehousing questions are increasing in relevance with the ever-increasing e-commerce, and the focus on economically sustainable logistics operations. These issues are raised in the paper.

Logistics businesses thrive with increased e-commerce. Traditional logistics operators are challenged in last mile delivery services by many new types of service providers. Managing the growing number of small orders, large assortments, tight delivery schedules, un-precedent return flows and fluctuations in customer order volumes call for innovative solutions, and with care for environment. Warehouses and distribution centres have since long been a key resource for logistics providers’ sorting, consolidating, and different value-adding activities. Warehouse efficiency is optimized for cost and lead times. But the warehouse resource is seldom discussed as a root cause for other competitive advantages than low costs. The value offering to customers, from a business model perspective, relates to the ratio of return on investments, ROI, much more explicitly than cost efficiencies as such.

In that line of thought it is interesting to explore and analyse the warehouse as a part of a relational business model, i.e. how warehouse practices and capabilities enable the value proposition that offers the customer value co-creation. The warehouse is in focus of this business model.

Business models most often map how an organisation creates, distributes and captures value. Such descriptions are difficult given the complexity of logistics business networks in which the interdependence between network actors calls for knowledge of the service logic of how value is co-created.  Of specific interest in the business model approach is to map relations, interactions, value propositions and understand related resources, practices and routines in the service network. The cost structure of resources in use, and not the least, the revenue streams enabled by the value co-creation are to be appreciated related to resources in use and interactions necessary for the value proposition. The assumption in this reasoning is that value, from a service logic perspective, is created by customers when using goods or services (Skålén 2018). The value propositions are offerings based on in-depth knowledge of how the services are to be consumed (Skålén et al. 2015). To put it in another way, value propositions are the formalized output of how resources, knowledge and routines are developed, matched, and aligned with and for the customer (Skålén et al., 2015).

The business model, Figure 1, is one way to sort out value proposition developments (Ojasalo and Ojasalo 2015; Ojasalo and Ojasalo 2018). Our study of the warehouse in the e-commerce context mapped an intriguing value network with important actors that contributed to the value co-creation by being key partners in the value proposition. Their resources and knowledge are mobilized and aligned in the value proposition.

Our study approaches the e-commerce logistics set up by mapping relevant actors and especially we focus on two major actors. The first one is a large logistics real estate (LRE) company that develops logistics property and the second is the e-retailer’s logistics operator (LogOp) for warehouse TPL services. LRE has a long-term relationship with the e-retailer in order to provide sustainable logistics property solutions. LogOp’s relationship with the e-retailer provides the competences that are enabling efficient e-commerce deliveries.  The e-retailer is, thus the customer of both LogOp and LRE. The set-up is a complex value constellation of warehouse business that we theorized such as service logic business models, based on primary data as well as secondary data of business model components.