Dancing Giants: How a huge postal goods manufacturer uses lean startup methodology to survive
It’s hard to imagine a corporation more vulnerable to the ravages of Schumpter’s creative destruction than a manufacturer of postal meters and scales, mail sorters, and automated letter opening machines for businesses and post offices around the world. But that’s precisely what Neopost, a French corporation with 6,000 employees and a $2.76 billion market cap, confronts.
A quasi-global duopoly competing with the twice-as-large Pitney Bowes, Neopost has been hit hard by declining mail volume, victimized by email and other faster, cheaper modes of communication. In the U.S., which comprises 40 percent of Neopost’s business, the Boston Consulting Group forecasts that postal volumes will decrease from 177 billion pieces in 2009 to around 150 billion pieces in 2020. The drop has been swifter in Europe, where Neopost remains the biggest seller in a shrinking market. Between 2007 and 2012 overall mail volume across the continent fell 15 percent. Less mail, of course, means soft demand for the equipment necessary to process it.
Yet Neopost has been weathering the storm, generating slim profits while the better-known Pitney Bowes lost money last year. Neopost’s CTO, Philippe Boulanger, a former entrepreneur, says the difference may be that his company has adopted aspects of startups to become more agile and quicker to market. Boulanger is a devotee of lean startup methodology, and sees his role as protecting Neopost’s core business while looking to new technologies for future growth.
That said, he sees some key differences between startups and mature companies. Startups are more agile, which help them navigate ever-mutable markets while large companies usually become sclerotic. Large companies have trouble innovating because, in part, they cut research and development budgets when revenues decline. But big companies can often skip the product-market fit stage, a core step in the lean startup methodology. “One of the principles of lean startups is to first detect whether you need to build something,” Boulanger says. “In a traditional business it’s an entirely different situation, since we know exactly what we need to do because we know the customers and their problems. It’s more iteration and fine tuning.”
One new piece of hardware borne of lean startup methodology that Neopost has just rolled out is the CPV-500, or “continuous variable parcel creator.” (Click here to see a video of it in action.) While there’s been double-digit growth in worldwide ecommerce, fulfilling all these orders has been, until now, a largely inefficient, labor-intensive activity, with each order packed by hand into the appropriate sized box with the appropriate packaging materials. This is an obvious pain point for businesses that rely on shipping products to potentially a large market.
Here’s how it works: You order a pair of shoes, some shampoo, a hair dryer and a package of beef jerky, which are collected and placed on a conveyor belt. As they roll along, the machine immediately calculates their combined dimensions. It folds and cuts corrugated cardboard to the exact size then builds a box around your shoes, shampoo and jerky. Because the box (anywhere from as small as 5” in width to as big as three to four feet) is custom-sized to fit there’s no need for packing material, which means more parcels can fit on each truck or plane, saving on energy and shipping costs. As the company boasts in a promotional video: “If we transport less air in a truck, the air outside benefits because less trucks are needed.” The CPV-500 can process 500 parcels of varying size every hour.
The idea for the parcel creator arose from a trip that Neopost chairman and CEO Denis Thiery took two years ago to one of the company’s R&D centers in the Netherlands, where it builds most of its mail folders and sorters. During a Q&A session, an employee asked about the future of the company.
Thiery told the workers if Neopost didn’t find a way to reuse the knowledge and technology it has amassed over the years the company would likely whither away and eventually be forced to close. He challenged them to put their heads together to come up with a new product that could help the company transition to a changing global market. Then he left to catch a plane.
Three months later he returned and was stopped by one of his product managers, who showed him scribbles in a notebook. He had divined a machine that could quickly and efficiently build a package around any set of products that could be immediately shipped. With global ecommerce sales forecast to hit $1.5 trillion this year, a machine that could speed up the process while making it more cost-effective to ship would relieve a major pain point for etailers everywhere.
The next time Thiery came back to the center, the project manager showed him a demo model — a minimal viable product -- that he manipulated by hand to show how each part worked. His boss asked Thiery for $250,000 to build a working prototype. Thiery told him to find the money in the center’s budget, which was almost $10 million a year.
Spring ahead three more months, and the team had created 3D CADs. Now it was time, Thiery said, to find a customer to help test it before Neopost would ante up any more money. It didn’t take long to find a willing partner: bol.com, a major etailer in the Netherlands.
Testing it in real-world situations influenced the design. Initially the machine was too slow to keep up with the packages rolling along the conveyor belt, and it wasn’t fully automated, nor was it integrated into the assembly production floor flow. That all changed. Thiery credits “understanding the customer’s problem.”
In the end it took less than a year from Thiery’s initial challenge to his R&D team to installing the first machine at one of Bol.com’s shipping centers and moving to production in mid-November. Between December and March, the CPV-500 has processed more than 200,000 packages.
If the machine ends up being as popular as Neoposts thinks it will, the company may have taken a big step toward parrying its creative destruction – that is until 3D at-home printing becomes commonplace.
But I bet Neopost could concoct a plan for that, too.
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