Assessment of technological innovations in patenting for 3rd party ...

The current issue and full text archive of this journal is available at www.emeraldinsight.com/1741-0398.htm

JEIM 19,5

Assessment of technological innovations in patenting for 3rd party logistics providers

504

Yen-Chun Jim Wu Department of Logistics, National Kaohsiung First University of Science and Technology, Kaohsiung, Taiwan, Republic of China Abstract Purpose – To analyse logistical innovations from 1984 to 2003. Design/methodology/approach – The approach concerned analysing the use of patents retrieved from major patent databases to create a picture of logistical innovations. Findings – Confirmation that the use of patent statistics can depict an overall picture of technological innovation in the logistics sector. Logistics firms can be innovative by making good use of patent data. Research limitations/implications – Logistics researchers and practitioners take advantage of recent improvements in the quality and availability of patent statistics rather seriously; in other fields many do not see the relevance. Practical implications – Customers will begin to rely on 3PL service providers beyond distribution services for more technological innovation as they successfully expand capabilities into these areas, as well as provide end-to-end integration and visibility. Originality/value – This is a novel and useful approach for examining innovations. Keywords Performance measurement (quality), Innovation, Distribution management Paper type Conceptual paper

Journal of Enterprise Information Management Vol. 19 No. 5, 2006 pp. 504-524 q Emerald Group Publishing Limited 1741-0398 DOI 10.1108/17410390610703648

Introduction As the global economy develops, and the pace of business transactions accelerates, the logistics industry faces greater challenges and demands. The objective is to increase flexibility of the capacity in logistics (Romaine, 2000). An annual US Fortune 500 manufacturer user survey conducted by Lieb and Schwarz (2001a,b), shows most use multiple third party logistics service providers (3PLs), and on average give 25 percent of their logistics operating budgets to them. Such number is projected to grow to 35 percent in 2004. Another related survey presents CEO viewpoints about the third party logistics industry in the USA (Lieb and Schwarz, 2001a,b). The CEOs also emphasize the importance of technological innovation of information integration. The latest 14th annual state of logistics report (Wilson and Delaney, 2003) shows that during 2002, US business logistics costs declined to $910 billion or the equivalent of 8.7 percent of nominal GDP. The markets for 3PL services continue to change. The annual edition of Armstrong’s Guide to Global Supply Chain Management reports that the third party logistics market grew by 6.9 percent during 2002 (Armstrong, 2003). Langley et al. (2002) conduct an extensive study of the use of third-party logistics The author would like to extend his gratitude to the National Science Council of Taiwan for providing financial support to this study (NSC 91-2416-H-327-008).

services in North America and Western Europe. This seventh annual research report examines critical trends and issues among key markets and key customers in the 3PL industry. About 90 percent of the respondents agree that logistics represents a strategic, competitive advantage for their companies. Aside from the fact that customers generally report high levels of success with their 3PLs, a gap exists between what the customers receive and what they expect to receive. According to the 2002 study, the activities most frequently outsourced to 3PLs are outbound transportation, warehousing, inbound transportation, freight bill auditing/payment, customer brokerage, freight forwarding, and customs clearance. In this study, North American respondents witness a shift to internally develop IT (from 11 percent in the 2001 study to 46 percent in 2002), and a decreased reliance on IT vendors (from 69 to 33 percent during the same time). Such trend poses an implication for 3PLs to equip themselves with a greater internal innovation capability. A worldwide survey of Delfmann and Gehring (2003) shows that the right use of the growing possibilities of information technology can help to achieve superior logistics performance. As La Londe (2001) indicates, a tighter regulatory environment has encouraged the third party firms to specialize by industry. In the automotive, pharmaceutical, retail, and other sectors, 3PLs have emerged to support the unique industry needs. Much research associates logistics variables with firm performance but none of them takes technological innovation into Equation (Chow et al., 1994; Wisner, 2003). Hence, the main research purpose of this study is to evaluate logistics provider’s technological innovation from the perspective of patenting achievement. Logistics performance measurements A plethora of articles place great emphasis on the importance of performance measurements and encourage businesses with limited resources to meet the outside expectations. Operational measurements often requested by top management are ranked in terms of significance as follows: cost variability, lost sales, inventory turns/finished goods, fill rate, inventory turns/raw materials, perfect order (on time delivery, order shipped complete, accurate invoice, and no loss or damage), and on time delivery(Montgomery et al., 2002). Today management needs additional performance indicators. Sink et al. (1996) provide an overview of functions 3PLs typically perform, based on a survey among buyers of logistics services. These functions are categorized into five major areas: transportation, warehousing, inventory management, order processing and information systems, and packaging. This has shifted the focus for logistics performance to an ability to add customer value. It has introduced the need for a new set of more strategic measures. Customers will begin to rely on 3PL service providers beyond distribution services for more technological innovation as they successfully expand capabilities into these areas, as well as provide end-to-end integration and visibility. Gilmour (1999) describes a group of 11 benchmark measures which can be applied to the supply chain process. These measures are grouped into three major categories: process capabilities, information technology capabilities, and advanced technology. Much of the literature focuses on the implementation of new and emerging technologies as a means of providing an agile capability (Power et al., 2001). Although the importance of effective utilization is implied in much of the literature, there is little empirical research into how important this may be in a supply chain context. They also

Assessment of technological innovations 505

JEIM 19,5

506

see the involvement of suppliers in this process, as being crucial to their ability to attain high levels of customer satisfaction. The more agile companies are also found to be using technology to promote productivity, new product development and customer satisfaction. This group also appears to be able to differentiate between new product development and innovation. Additionally, Stock’s (2001) analysis shows that the number of logistics-related dissertations appears to have stabilized during the last half of the 1990s. However, though it is generally recognized that logistics is a boundary-spanning activity, his thorough examination of the lengthy 317 dissertation abstracts shows that little research has been conducted on dealing with the logistics technological innovativeness, which become the main theme of this paper particularly when intellectual property is considered a competitive weapon in today’s knowledge-based economy (Rivette and Kline, 2000), the ability of being innovative is just as important as other critical success factors in logistics (Power et al., 2001). Using patents as innovation performance indicators The frequently used quantifiable measures of 3PL success include logistics cost reduction, fixed logistics asset reduction, average order cycle length reduction, overall inventory reduction, and service improvement (Morash et al., 1997; van Donselaar and Sharman, 1998). However, none of the above deals with “technological innovation.” High-technology firms need to produce a steady stream of innovation in order to survive in highly competitive technology markets (Schilling and Hill, 1998). Balkin et al. (2000) combine the resource-based view of the firm and agency theory to suggest that top executives should be rewarded for sustaining the firms’ capability to innovate. Langley et al. (2002) conclude that opportunities exist for logistics providers to improve their capabilities around advanced services. This, in turn, should have a direct correlation with overall customer satisfaction. More agile companies can be characterized as more customer-focused and applying a combination of “soft” and “hard” methodologies in order to meet changing customer requirements (Power et al., 2001). It is a good tradition in economics to base macroeconomic analysis on micro level observations (Grupp and Schmoch, 1999). While the mail survey will continue to be an important data collection method, a heavily utilized research approach by the logistics industry. Chow et al. (1994) urge that journal editors encourage studies in which alternative methods are used. In the past decade, both academic scholars and policymakers have focused increasing attention on the central role that technological innovation plays in economic growth (Furman et al., 2000). Patent statistics are often used as the indicators of technological innovation at all levels (country, industry, firm)(Ernst, 2003). The use of patent statistics has become increasingly popular in the strategic field (Levitas and Chi, 2001). As demonstrated by many scholars (Maskus and Yang, 2000; Rivette and Kline, 2000; Cohen et al., 2002; Ernst, 2003), patent data provide important information supportive to techno-economic analysis derivable from patent documents that encompass the geographic distribution of particular inventions, citation networks and patterns, as well as a detailed text of a series of patents in a particular field representing the raw material for a techno-economic history of particular areas (Watanabe et al., 2001) The information implicit in patent counts, in the number of patents issued at different times, in different

countries, and to different types of inventors also contains important information supportive to techno-economic analysis (Griliches, 1998). Advantages of effective utilization of patent applications listed by Mogee (1991) are as follows: rival analysis; technology tracking and forecasting; identifying important development; international strategic analysis; infringement monitoring. Ernst (1995) shows that patent-active firms have the best for the economic performance. His research also finds that the number of international patent applications, the rate of valid patents and highly cited patents are positively associated with economic performance. Research method This study offers a basis for assessing the degree to which logistics providers are innovative in developing logistical technologies. This research helps us to identify if innovation gaps exist among 3PLs and provide an overall picture of the innovation of the major logistics players as a whole. This paper analyzes the technology competitiveness of major logistics providers in six major categories by using the Delphion patent statistics as the technology indicators during the period of 1984-2003. The time frame chosen in the study is consistent with the period of the exclusive rights for an invention patent up to 20 years. The Delphion database is selected because its comprehensive geographic coverage includes the major patent databases around the world, including, but not limited to, the US Patent and Trademark Office (USPTO), European Patent Office (EPO), Patent Abstracts of Japan, World Intellectual Property Organization, a unit of United Nations (WIPO), and Patent Cooperation Treaty (PCT) publications. While the units of analysis for the study are logistical patents by the leading US third-party logistics providers, a distinct advantage of using Delphion over USPTO only is to enable the analyst to take advantage of its broad patent coverage and to see if the patenting activities of these major logistics providers concentrate on the domestic region or extend across boundaries. Data Aggregated as a profile group, the top major logistics providers included in the analysis are ranked as top 100 logistics providers by the Inbound Logistics (2003) magazine for the year of 2003. According to a recent logistics periodical evaluation study (Gibson and Hanna, 2003), Inbound Logistics is viewed by logistics professionals as an important reference. As shown in Appendix 1, to check the validity of the listing, the author compares the Inbound Logistics list with another list provided by Armstrong’s Guide to Global Supply Chain Management: Who’s Who in Logistics (Armstrong, 2003). Out of the major 100 logistics, 63 providers of Inbound Logistics are also collected and listed by Armstrong’s Guide. Of the 63 logistics providers, 40 logistics firms are categorized by Armstrong’s Guide as American-based logistics providers, 16 as regional logistics providers and seven as international logistics providers. The USPTO and the Delphion database are the major patent sources of the study to obtain objectiveness of comparison in the patent statistics of concerned logistics providers. Though the USPTO database has long been recognized by researchers and industry alike as the most qualified database for doing US-based patent searches, it has a limited geographic coverage. On the contrary, the Delphion database provides a comprehensive geographic coverage. The Delphion collections are mainly composed of USPTO, EPO, WIPO, JPO, INPADOC, and Derwent World Patents Index. This is an important factor


JEIM 19,5

508

especially in performing the international comparison or understanding a company’s international patenting activities. As a result, a combination of these two databases can result in a most up-to-date, yet comprehensive listing. The patent information is coded and analyzed using a customized patent analysis software, Patent Guider. Patent mapping The patent map analysis has been heavily used in practice by many industries such as the hi-tech industry, the bio-chemical industry, the pharmaceuticals industry, and the software industry, etc. The patent map analysis is a collection of patent statistics that include but are not limited to, patent count analysis, country analysis, competitor analysis, inventor analysis, citation analysis, and classification analysis, resulting in a number of statistical indicators that capture different aspects of patenting activities. Patent analysis is powerful yet difficult. The data must be treated with care. The OECD secretariat in 1994 in Paris published a manual, a guideline, one should observe in working with patent documents (OECD, 1994) as it provides the relevant definitions for a statistical patent analysis. The reader must keep in mind that the US patent system is virtually unique in the world in that it has a “first-to-invent”(FTI) system as apposed to the more universal “first-to-file”(FTF) system. The major difference between the systems in that in a FTF, whoever files an application first on an invention gains the patent while under the FTI system, the true inventor retains rights to the idea regardless of who gets to the patent office first with an application. In addition, the historical State Street Bank decision in 1998 resulted in a flood of business method patents issued by the USPTO (Hall, 2003). Logistics providers should be aware that business method patents have a significant impact on the business operations in every industry. Such patents are on methods used for a variety of purposes in business such: financial; financial instruments and techniques; optimization; marketing; information acquisition; HRM; accounting and inventory monitoring; e-commerce tools and infrastructure; voting systems. Some examples of business method patents include the famous one-click patent assigned to Amazon.com, the Dutch reverse auction patents of Priceline.com, and e-Bay’s patents. Recent patent disputes like Amazon vs Barnes Nobles in 2002 and e -Bay vs MercExchange in 2003, show the importance of conducting patent mapping analysis. Empirical results and discussion By looking at the patenting activity (patent counts vs assignees (patent holders)/inventors) by year, we can detect in which stage the current technology is positioned (for example, introduction, growth, maturity, or decline). Such information can be of value for the industry in predicting the future trend and making a decision on investing in that specific industry or technology. As can be seen from Figures 1 and 2, the logistics technology lifecycle remained active during the past two decades except for in 1997 and 2000. Figure 2 shows that an increasing number of smart logisticians have joined the logistics world and more than 100 inventors have filed their logistical innovations since 2000. Such indicators in general show a positive sign for the technological development of the logistics industry. The chronology of logistics patenting activity is particularly noteworthy with various cycles of activity evident. It is apparent that further work is needed to examine


Figure 1. Patent counts/assignees technology lifecycle chart

Figure 2. Patent counts/inventors technology lifecycle chart

this phenomenon. The groups of patents issued and filed are arranged in chronological order, as patent data organized simply on the basis of the publication year is not reliable in itself, because it is distorted by purely organizational factors such as the relative administrative efficiency of the patent office (Paci et al., 1997). In an attempt to

JEIM 19,5

510

Figure 3. Application date and issue date by year

evaluate the relative appropriateness of the two series, we have shown in Figure 3 the time series patterns of granted patents ordered with respect to either the application year or the granted year during 1984-2003. The evolution of the two phenomena for the top logistics providers shows rather clearly the series of patents ordered by application year are characterized by a more stable trend since the early 1990s. The issued patents reached their peak in 2003 with 97 innovations. This high number is in large part due to the high filing numbers during the period of 2001-2002. Nevertheless, the overall trend is growing. The 100 largest logistics providers as a whole were granted less than ten patents annually during the first decade (1984-1993) but significantly increased their share of logistics patenting since 1994. The increase in issued patents was most pronounced in the year of 2003. Patent analysis has to become more difficult in the age of globalization (Mogee, 2000). It is evident that multinational enterprises pursue different technological marketing and strategies aims. In effect, they cover world markets in a distinctly different manner with patent intellectual property. Grupp and Schmoch (1999) provide a detailed discussion on three classical methods of patent counting for country analysis. The first and still most common concept originates directly from the legal patent system and classifies by priority countries. For any given invention, the priority filing is the first application. A second theoretical notion is the national innovation systems or inventor countries. Within the boundaries of this concept, the principle for classification should be the country of residence of the inventors as the residence denotes most closely the historical and cultural background of the inventors, their education system, tax and other policy specificities. Another economic concept is that of shareholder value or country of control. The third approach assigns countries by the location of firms’ headquarters. In the case of the USA, the official statistics of the USPTO publish data based on the national innovation principle and assigns inventions

according to the residence of the first-named person (US Department of Commerce, 1992) while EUROSTAT (1995) advocates fractional counting in case of inventor teams with addresses in different regions or countries, and thus deviates from the USPTO practice to select first-named addresses. This paper assigns patent statistics by countries of invention. In addition, in case of cross-border inventor teams multiple, fractional counting is not preferred for simplicity. As expected, Table I shows that the USA is in the leading position. It is expected that a significant patent holding pattern that logistics patents of the USA are concentrated on 15 domestic logistics providers and the top American logistics providers have little motivation to register their patents overseas. An interesting finding from Table I is that all patents invented by US-headquartered logistics providers remain only in the domestic market with the exception that airborne logistics filed a single patent in Canada. Similarly, European logistics providers such as Exel and Tibbett & Britten, both UK listed, registered patents in Europe. The seven logistics patents filed in Japan are actually owned by Japan-affiliated NYK logistics not by its US NYK logistics parent company. Possible explanations include that US logistics providers focus mainly on protecting their intellectual property rights at home and most patents as shown later in the International Patent Classification (IPC) analysis belong to the business methods patents so logistics providers are reluctant to file patents abroad, especially in Europe. This patenting pattern is consistent with the findings of Grupp and Schmoch (1999) that firms prefer to file their patents in their home country or in neighbour regions. Firms that have signaled the possession of technological competence should command higher market value in volatile environments than their less accomplished counterparts (Levitas and Chi, 2001). The author creates an index variable, “R&D ability” in an attempt to capture both the quality and quantity of patenting performance of the major logistics providers. The “R&D ability” equation takes into account patent counts, citation counts, and self-citations. Each factor is assigned a different coefficient that is judgmental and can be changed by researchers to cater for different research emphasis. These coefficients used in Table II are default values provided by the software and usually used by the practitioners. After calculation, the firm with highest score is assigned 100 points and becomes the base for other firms. The relative R&D ability score is obtained by the ratio of the firm’s R&D ability score to the highest score. We find from Table II that the leading proponents of logistics technology are UPS, Access Business Group (ABG), Federal Express (FedEx), ranked by the degree of relative R&D ability. An important finding here is that major international express package delivery firms pay much more attention to patenting than the general logistics providers. Previous research has shown that small firms are more innovative than large firms on a per employee basis and have an innovative advantage in high technology Country The USA France Japan Great Britain Canada

Patents 508 7 7 1 1


Assignees 1 1 1 1

15 (Exel logistics) (NYK logistics) (Tibbet & Britten) (Airborne logistics)

Table I. Patents and assignees by country

JEIM 19,5

512

(Aes and Audretsch, 1990). The results, presented in Table II, in general are consistent with the findings of Montgomery et al. (2002) that large firms are noted for taking the lead in developing and growing innovative capabilities in logistics and supply chain management. In many cases, it is their financial wherewithal that enables them to amass the critical resources. One of the findings of this report is that the main logistics players of technological innovation have been a small number of big companies in the logistics field while it is not uncommon that patenting activities in other industries have been spread among a large number of individual firms exploiting miscellaneous technologies. Teichert and Ernst (1999) and Ernst and Vitt (2000) have developed a methodology to identify and investigate the role played by individual firms, and indeed key individuals, acting as primary sources or more particularly as gatekeepers of emerging technologies. It should be noted that many firms are very selective with the economic decision to protect their technology world-wide and therefore “inflate” international statistics more than others due to costing and other strategic considerations (Grupp and Schmoch, 1999). Table III provides key indicators of the top 10 firms’ R&D capability in detail, including patents counts, R&D experience (the number of years for the firm engaging in patenting activities), the number of inventors working for the firm, average patent age (time between filing date and December 2003), processing days (the number of days on average taken from filing the patent to the patent being granted and its standard deviation). Company

Table II. Company R&D ability (top 7 logistics providers)

UPS ABG FedEx Airborne logistics Exel Ryder NYK logistics

100 10 6 6 3 1 1

Note: R&D ability ¼ (patent counts £ 1.2 þ citation counts £ 1.4 þ self-citations £ 0.9)

Company

Table III. Detailed R&D capability indicators

Relative R&D ability indicator

UPS ABG FedEx Airborne Exel Ryder NYK logistics Standard corporation Ruan Transfreight

Patent counts

R&D (year)

Inventor counts

Average patent age (Years)

Processing days (mean)

Processing days (SD)

383 55 30 19 16 7 7 2 2 1

16 4 12 11 6 6 3 2 2 1

370 9 81 25 11 12 29 2 2 1

7 1 8 12 5 12 3 14 15 1

775 386 573 641 794 674 517 721 577 –

713 155 432 301 462 288 96 258 207 –

Generally speaking, a patent filed in the US usually takes 12-18 months to obtain the approval. Interestingly, patents filed by the most experienced patent guru, UPS, take longer to be issued than its counterparts except for Exel. In addition, the time between filing and granting fluctuates significantly with its standard deviation of 713 days. However, as can be seen in Table III, the logistics patents for the leading logistics firms on average take more time to be issued. This is especially true for patents belonging to the noted large logistics firms such as UPS, Exel, Airborne, FedEx, Ryder, and Standard. This is very interesting since it is reasonable to believe these large companies equipped with numerous experts, should be quite familiar with the patent systems and efficient, skilled in filing a patent. A possible explanation for this phenomenon is that these firms are well aware of the power of a patent so they are trying to have their patents to claim the coverage as broad as possible. The broader the claim coverage is; the longer it takes for approval. Nevertheless, if simply judged by the figures, a new entrant, ABG, certainly deserves future attention as the company has been successful in obtaining more than 50 patents and most important is that these issued patents took much less time than the rest of the competitors. However, with the help of IPC analysis presented later, a different picture of ABG shows otherwise. The results in Table III also show that for the past two decades UPS has paid tremendous attention to R&D activity and made distinguished achievements in innovations while its influence is going to be significant in the near future in light of its score on the average patent age. On average, the legal protection of the issued patents of UPS remains in effect about 13 years while the second place, ABG, can enjoy its 19 years of legal protection. It is worthwhile to divide the 20 years into two period: 1984-1993 and 1994-2003 as shown in Table IV. As shown in Table IV, prior to 1993, UPS is the top patent owner, followed by Airborne, FedEx, Ryder, and Ruan, in the order of patent counts. After 1993 UPS still occupied the first place but the second place was taken otherwise by newly established ABG, followed by FedEx, Exel and NYK. Firm-level patenting trends for a large number of firms become almost unintelligible when presented in a single figure, and the study therefore presents data in Figure 4 on trends in patenting activity for the top 5 logistics patent holders. Overall, speaking, UPS remains stable while ABG has been aggressive since 2002. An overwhelming share of patents originates from UPS, accounting for 73 percent of all logistics patents (524 patents). Figure 4 shows that UPS by all means is the innovative leader ever since 1992. However, an emerging leader is also identified in Figure 4. ABG received its first patent in 2001 but is ranked in the second place in terms of patent counts. ABG was granted 43 patents in 2003 with only two patents behind the long-time winner, UPS. ABG was created in 2000 as Alticor’s business for logistics,

Before 1993


After 1993

Rank

Company

Patents

1 2 3 4 5

UPS Airborne FedEx Ryder Ruan

36 13 7 5 2

Company UPS ABG FedEx Exel NYK logistics

Patents 347 55 23 16 7

Table IV. Patent ranking

JEIM 19,5

514

Figure 4. Top 5 competitors by year

providing warehousing and distribution services for the company and contract customers. Facilities that once belonged to Amway were transferred to Access. It is noteworthy because Access officially entered into the logistics industry for only three years yet aggressively protected its inventions. Its future movement certainly warrants a close watch in the future. ABG’s aggressive patenting provides the source of the surge of patenting in 2003. It is widely acknowledged by researchers and practitioners that patents vary in their quality (Lanjouw and Schankerman, 1999; Jaffe et al., 2000). To account for differences in the value of patents, researchers have counted the number of times a patent is cited by later patents. Several studies have found that the number of times a patent is cited by subsequent patents correlated with various independent measures of importance or value. Technology analysts have related citations to the technological value of a patent, arguing that the number of times a patent is cited by later patents reflected the extent to which subsequent invention has built upon the cited patent. Economists have found that a relationship exists between the number of citations a patent has received and its economic value (Putnam, 1997). In this study, citations are used as measure of technological value and it refers to the contribution of the patent to the subsequent development of the field of technology. Although there is a large amount of noise in citation data, Jaffe et al. (2000) find a significant correlation between the number of citations a patent received and its technological, economic importance. Lanjouw and Schankerman (1999) discuss key issues that arise in the use of patent citation data and suggest ways of addressing them. It is fortunate that the recent computerization of patent applications makes it possible to exploit information on the characteristics of patents to make an early assessment of innovation quality. Since, large companies have more patents than small companies, it is likely they cited their earlier patents more than small firms, removing the self-citations removes this possible source of bias (Mogee, 2000). In this study, the value of patents is measured

using the ratio of the number of other-citations each patent received from later patents to its total citations. The two variables, presented in Table V, are the average citation rate (measured as the mean number of citations per patent) and technology independence (measured as the number of self-citations divided by total citations). Even for the top logistics firms, some firms’ patents are somewhat more valuable than those of others, as measured by the mean number of citations they receive. Table V shows that very few patents invented by major logistics providers are cited by others. Though the top logistics patent holder, UPS, is granted a significant number of patents and cites its own patents heavily, none of them is cited by others. In contrast, the patents of Airborne are of great value with a citation rate of 0.97. The larger the technology independence coefficient, the more dependent its developed technologies are on other patents invented by other competitors as shown in Table V. These citations enable researchers to observe inter-firm technology building. As we can see from Table V, relatively speaking, Airborne’s patents are of high quality and recognized by others while none of the UPS’s patents are cited by later patents. The results, shown in Table V, are in general consistence with previous study. Large logistics firms have also large high value, as measured by the mean number of other-citations, than do small logistics providers except for UPS. Table VI presents the top 10 logistics innovators. Consistent with Ernst’s (1999) finding, the technological performance of inventors tends to be highly concentrated,

Company UPS Airborne FedEx Transfreight Standard corporation Ryder Ruan NYK logistics Exel ABG

Self-citations

Citations by others

Total citations

Citation rate

Technology independence

221 15 2 0 0 0 0 0 0 0

0 3 1 0 0 0 0 0 0 0

221 18 3 0 0 0 0 0 0 0

0.577 0.974 0.1 0 0 0 0 0 0 0

1 0.833 0.677 0 0 0 0 0 0 0

Inventor

Company

Bonnet, Henri Baarman, David W. Zheng, Joe Moed, Michael C. Bjorner, Johannes Sussmeier; John William Surka, Stefan McPhilliamy, Stephen J. Houghton, Christopher B. Klancnik, Michael

UPS ABG UPS UPS UPS UPS UPS ABG ABG UPS


Table V. Citation analyses

Patents 110 24 21 20 19 18 17 16 16 15

Table VI. Top 10 logistics inventors

JEIM 19,5

516

making particular inventors highly influential in technology development. However, when looking at Figure 5, the productivity of the top inventors varies during the period of 1984-2003. It should be noted that many companies with US inventors seem to make the best use of this new opportunity for patent protection, more so than companies in other countries of the world (Grupp and Schmoch, 1999). This inventor analysis is particularly helpful in recruiting a talent, detecting the subtle intention of the competitors the inventors now work for. As shown in Table VI, many productive logistical innovators make significant contributions to the success of UPS. Here, we define “key” to be any granted patent that attracts more subsequent citations. As presented in Table VII, it is not surprising that all top 10 key patents are held by UPS as the top patent holder tends to cite its own patents heavily. Beyond this group, other logistics providers are clearly underrepresented, accounting for only a few citations. It should be noted that there are problems with applying IPC classification systems to US patents when identifying data sets. One potential problem to reorganize here is

Figure 5. Patent counts vs inventor by year

Patent no.

Citations

US4896029 US4874936 US5433311 US5421446 US5388681 US5327171 US5276315

19 14 13 10 9 8

US5308960 US5284252 US5430282 Table VII. Top 10 key patents

US5570773

8 8 7 6 6

Patent title

Assignees

Polygonal information encoding article, process and system Hexagonal, information encoding article, process and system Dual level tilting tray package sorting apparatus Article diverter apparatus for use in conveyor systems Inflatable conveyor belt Camera system optics Method and apparatus for processing low resolution images of degraded bar code symbols Combined camera system Automatic rotary sorter System and method for optical scanning using one or more dedicated pixels to control lighting level Tilting tray package sorting apparatus

UPS UPS UPS UPS UPS UPS UPS UPS UPS UPS UPS

that the USPTO naturally uses its own classification system for patent searches and so applying IPC terms given by the USPTO invariably suffers from a lack of the detailed appreciation that results from the continuous feedback examiners receive from classifying and searching documents using their own system. This is compounded by the different philosophies underlying the US patent classification (UPC) and IPC systems. The IPC is a hierarchical classification system consisting of sections, classes, subclasses, and groups (main groups and subgroups). The IPC divides all technological fields into sections (designated by a capital letter), each section into classes (designated by a two-digit number), and each class into subclasses (designated by a capital letter). For example, “G06” represents section G, class 06, subclass F. The UPC is an extremely detailed classification with about 400 main classes and about 100,000 subclasses. The UPC is the primary technology classification system used in the USA unlike the IPC widely adopted by the rest of the world. The results, shown in Table VIII, show how to use the IPC code to identify the logistics hot areas. Using three-tier IPC criteria (see Appendix 2 for descriptions of each tier), G06K, B65, and G06F are the top 3 IPC classes in the order of patent counts. However, it should be noted that the work has highlighted the logistical hot areas. An important finding here is that of the top three key areas, only B65G (devices for handling sheets or webs of interest apart form their application in packaging machines), ranked as the second hottest logistics area, is directly associated with logistics-related “products” or “technologies”. As all business methods patents are grouped under the class of G06, the G06K (recognition of data; presentation of data; record carriers; handling record carriers) and G06F (electric digital data processing) are categorized as “business methods” patents accordingly. The two categories, G06K and G06F, alone account for more than one third of total granted logistics patents. The “business methods” patents as well as the “software” patents, although controversial especially in Europe, are gaining growing recognition recently. The “business methods” patents will exert a significant impact on how a firm is doing its business and have lots of implications for its corporate strategies. A logistics firm is likely to find itself in peril if it is not aware of this trend and takes the findings lightly. Figure 6 shows more “business methods” patents have been filed for the past ten years. A clear trend is shown with a move toward G06F. In 2003, patents in the G06F sector outnumbered those in the sectors of G06K and B65G. IPC code (three-tier) G06K

B65G

G06F

Description Recognition of data; presentation of data; record carriers; handling record carriers Devices for handling sheets or webs of interest apart form their application in packaging machines Electric digital data processing

Patent counts

Share of total patents (percent)

Processing days means

Processing days SD

136

26.0

974

882

112

21.4

794

593

63

12.1

560

628


Table VIII. Top 3 IPC areas

JEIM 19,5

518

Figure 6. IPC analysis (three-tier)

In order to compare the patterns of technological specialization for the top five logistics firms (measured as the patent counts), these top five innovators are analyzed by IPC classification systems as shown in Figure 7. It is obvious that each firm has a different technology focus. Figure 7 shows UPS again dominates all three areas. In comparison,

Figure 7. Top 5 competitors by IPC

FedEx is very interested in pursuing the business methods patents (G06) while Excel only files patents in the B65 category. The findings in Figure 4 suggest that we have managed to capture a picture of the firms involved in the development of the technology, but it is likely that the patents included within this classification are related to many other applications apart from logistics. This is especially true when some firms perform extremely well in patenting but without reasonable explanations. Therefore, it is important to apply the IPC analysis for the screening purpose. ABG, a very new entrant into the logistics industry, in this research seems to warrant further investigation. A further company background check on ABG shows that ABG, in addition to its logistics service, also provides manufacturing-related services to its customers. After performing an IPC analysis on ABG, followed by careful screening manually, the actual patenting competence of ABG has little to do with logistics. Therefore, ABG, though listed as one of the top 100 logistics providers, should be excluded from further comparison with its counterparts for its logistical patenting achievement. An important finding from this research suggests that researchers and practitioners should use as many meaningful indicators as possible and perform a thorough background investigation in order to capture a firm’s real picture since each statistical indicator only shows a different aspect of patenting activities for an individual firm. ABG in this research provides a vivid example. Therefore, it is important that unrelated innovations be manually securitized carefully. Conclusion A granted patent must meet three criteria: novelty, usefulness, and non-obviousness. By making patent intelligence available throughout an organization, the organization empowers individuals and teams with the knowledge to find solutions and deliver advanced innovations faster. This study has endeavored to unlock the hidden value of patents as illustrated by Rivette and Kline (2000). Patent data represents a valuable source of information that can be used to plot technological evolution over time. There is evidence from the study of Pilkington et al. (2002) that particular care is required when establishing the dataset for a patent analysis. Top logistics firms filing patents have been examined and a patent analysis is derived from the online patent database. It seems that patenting is comparatively unimportant as an appropriation device in the logistics sector. The results of this research have confirmed the importance of an analysis of patent data in building an overall picture of an industry’s state of technology. It was also pointed out that technology indicators need to be interpreted with caution if one wants to determine the strength and weakness of a firm’s existing technology. Making good use of patent statistics can depict a real picture of technological innovation in the logistics industry and then propose practical, useful suggestions for researchers and practitioners. The concept is easily comprehended yet extremely difficult for supply chains to achieve (Montgomery et al., 2002). Logistics firms can choose to begin in the drive to achieving innovation by making good use of patent data and developing their technological strength first.


JEIM 19,5

520

Gibson and Hanna (2003) presented an analysis of periodical usefulness. A striking result of the study is that the logistics professionals’ strong perceptions and extensive use of literature that are not traditional peer-reviewed journals unlike other disciplines where few if any non-academic journals achieve high ranking in these types of studies. Finally, the usefulness index scores highlight the respondents’ propensity to draw upon a diverse set of resources. In this case, there is a higher possibility of accepting the patent data as useful resource by logistics professionals than those in other fields. Logistics researchers and practitioners may take advantage of recent improvement in the quality and availability of patent statistics rather seriously; many do not even see the relevance of patents. Customers will begin to rely on 3PL service providers beyond distribution services for more technological innovation as they successfully expand capabilities into these areas, as well as provide end-to-end integration and visibility. For those commanding a great deal of attention to technological innovation, it is likely that they can gain a competitive edge and have a significant impact on current and future trends in logistics and supply chain management. It is not only a matter of “big” versus “small” but also a matter of “innovative” versus “non-innovative” particularly in the knowledge-based age. Some emerging technologies like RFID, and AUTO-ID, may play a critical role in future logistics operations. Future research effort in this topic area should include further studies of breaking down technological areas and the relationship of innovativeness and firms’ business performance and customer satisfaction. Finally, the part that a firm’s innovation capability plays in the customer’s selection criteria for their future fourth party logistics providers has yet to be fully investigated. These concerns about the nature of patenting are an area for further work. References Aes, Z. and Audretsch, D.B. (1990), Innovation and Small Firms, MIT Press, Cambridge,MA. Armstrong, R.D. (2003), Armstrong’s Guide to Global Supply Chain Management: Who’s Who in Logistics, 11th ed., Armstrong & Associates, Inc., Stoughton, WI. Balkin, D.B., Markman, G.D. and Comez-Mejia, L.R. (2000), “Is CEO pay in high-technology firms related to innovation?”, Academy of Management Journal, Vol. 43 No. 6, pp. 1118-29. Chow, G., Heaver, T.D. and Henriksson, L.E. (1994), “Logistics performance: definition and measurement”, International Journal of Physical Distribution & Logistics Management, Vol. 24 No. 1, pp. 17-28. Cohen, W.M., Goto, A., Nagata, A., Nelson, R.R. and Walsh, J. (2002), “R&D spillovers, patents and the incentives to innovate in Japan and the United States”, Research Policy, Vol. 31, pp. 1349-67. Delfmann, W. and Gehring, M. (2003), “Successful logistics through IT”, Supply Chain Forum: An International Journal, Vol. 4 No. 1, pp. 52-6. Ernst, H. (1995), “Patenting strategies in the German mechanical engineering industry and their relationship to company performance”, Technovation, Vol. 15 No. 4, pp. 225-40. Ernst, H. (1999), “Inventors: implications for human resources management”, in Kocaoglu, D. and Anderson, T. (Eds), R&D, in Technology and Innovation Management,Vol. 420-427, PICMET, Portland.

Ernst, H. (2003), “Patent information for strategic technology management”, World Patent Information, Vol. 25, pp. 233-42. Ernst, H. and Vitt, J. (2000), “The influence of corporate acquisitions on the behaviour of key inventors”, R&D Management, Vol. 30 No. 2, pp. 105-19. EUROSTAT (1995), The Regional Dimension of R&D and Innovation Statistics-Regional Manual, EUROSTAT, Luxemburgo, October, p. 1. Furman, J.L., Porter, M.E. and Stern, S. (2000), “Understanding the driver of national innovation capacity”, paper presented at Academy of Management Proceedings. Gibson, B. and Hanna, J.B. (2003), “Periodical usefulness: the US logistics educator perspective”, Journal of Business Logistics, Vol. 24 No. 1, pp. 221-40. Gilmour, P. (1999), “Benchmarking supply chain operations”, International Journal of Physical Distribution & Logistics Management, Vol. 29 No. 4, pp. 283-90. Griliches, Z. (1998), R&D and Productivity – The Econometric Evidence, The University of Chicago Press, Chicago, IL. Grupp, H. and Schmoch, U. (1999), “Patent statistics in the age of globalisation: new legal procedures, new analytical methods, new economic interpretation”, Research Policy, Vol. 28, pp. 377-96. Hall, B.H. (2003), “Business method patents, innovation, and policy”, Working Paper No. 9717, National Bureau of Economic Research, Cambridge, MA, May. Inbound Logistics (2003), “Top 100 logistics providers”, available at: www.inboundlogistics.com/ 3pl/top100.shtml Jaffe, A.B, Trajtenberg, M. and Fogarty, M.S. (2000), The Meaning of Patent Citations: Report on the NBER/Case Western Reverse Survey of Patentees, National Bureau of Economic Research, Cambridge, MA, April. La Londe, B. (2001), “Insights: new roles and risks for 3PLs”, Supply Chain Management Review, September/October, pp. 9-10. Langley, C.J., Allen, G.R. and Tyndall, G.R. (2002), Third Party Logistics Study: Results and Findings of the 2002 Seventh Annual Study, Cap Gemini Ernst & Young, and Ryder System, Atlanta. Lanjouw, J.O. and Schankerman, M. (1999), The Quality of Ideas: Measuring Innovation with Multiple Indicators, National Bureau of Economic Research, Cambridge, MA, September. Levitas, E. and Chi, T. (2001), “A real option perspective on the market valuation of a firm’s technological competence”, paper presented at Academy of Management Proceedings. Lieb, R. and Schwarz, B. (2001a), “The use of third party logistics services by large American manufacturers, the 2001 survey”, paper presented at The Council of Logistics Management, Kansas City, KS. Lieb, R. and Schwarz, B. (2001b), “The year 2001 survey: CEO perspectives on the current status and future prospects of third party logistics industry in the United States”, paper presented at the Council of Logistics Management, Kansas City, KS. Maskus, K. and Yang, G. (2000), “Intellectual property rights, foreign direct investment, and competition issues in developing countries”, International Journal of Technology Management, Vol. 19 Nos 1/2, pp. 22-34. Mogee, M.E. (2000), “Foreign patenting behaviour of small and large firms”, International Journal of Technology Management, Vol. 19 Nos 1/2, pp. 149-64.


JEIM 19,5

522

Mogee, M.E. (1991), “Using patent data for technology analysis and planning”, Research-Technology Management, Vol. 34, pp. 43-9. Montgomery, A., Holcomb, M.C. and Manrodt, K.B. (2002), Year 2002 Report on Trend and Issues in Logistics and Transportation, Cap Gemini Ernst & Young, Atlanta, GA. Morash, E.A., Droge, C. and Vickery, S. (1997), “Boundary-spanning interfaces between logistics, production, marketing, and new product development”, International Journal of Physical Distribution & Logistics Management, Vol. 26 No. 8, pp. 43-62. Paci, R., Sassu, A. and Usai, S. (1997), “International patenting and national technological specialization”, Technovation, Vol. 17 No. 1, pp. 25-38. Pilkington, A., Dyerson, R. and Tissier, O. (2002), “The electric vehicle: patent data as indicators of technological development”, World Patent Information, Vol. 24, pp. 5-12. Power, D.J., Sohal, A.S. and Rahman, S-U. (2001), “Critical success factors in agile supply chain management: a empirical study”, International Journal of Physical Distribution & Logistics Management, Vol. 31 No. 4, pp. 247-65. Putnam, J. (1997), “How many pennies for your quote: estimating the value of patent citations”, paper presented at National Bureau of Economic Research Productivity Seminar, Cambridge, MA. Rivette, K.G. and Kline, D. (2000), Rembrandts in the Attic: Unlocking the Hidden Value of Patents, Harvard Business School Press, Boston, MA. Romaine, E. (2000), “E-commerce realities in warehousing and distribution”, IIE Solutions, July, pp. 39-42. Schilling, M.A. and Hill, C.W.L. (1998), “Managing the new development process”, Academy of Management Executive, Vol. 12 No. 3, pp. 67-81. Sink, H.L., Langley, C.J. and Gibson, B.J. (1996), “Buyer observations of the US third-party logistics market”, International Journal of Physical Distribution & Logistics Management, Vol. 26 No. 3, pp. 36-46. Stock, J.R. (2001), “Doctoral research in logistics and logistics-related areas: 1992-1998”, Journal of Business Logistics, Vol. 22 No. 1, pp. 125-256. Teichert, T. and Ernst, H. (1999), “Assessment of R&D collaboration by patent data”, in Kocaoglu, D. and Anderson, T. (Eds), Technology and Innovation Management, PICMET, Portland, pp. 78-86. The, O.E.C.D. (1994), Measurement of Scientific and Technological Activities: Using Patent Data as Science and Technology Indicator, OECD/GD, Paris. US Department of Commerce (1992), Highlights in Patent Activity, United States Patent and Trademark Office, Washington, DC. van Donselaar, K. and Sharman, G. (1998), “An innovative survey in the transportation and distribution sector”, International Journal of Physical Distribution & Logistics Management, Vol. 28 No. 8, pp. 617-29. Watanabe, C., Tsuji, Y.S. and Griffy-Brown, C. (2001), “Patent statistics: deciphering a real versus a psudo proxy of innovation”, Technovation, Vol. 21, pp. 783-90. Wilson, R. and Delaney, R.V. (2003), 14th Annual State of Logistics Report: The Case for Reconfiguration, National Press Club, Washington, DC. Wisner, J.D. (2003), “A structural equation model of supply chain management strategies and firm performance”, Journal of Business Logistics, Vol. 24 No. 1, pp. 1-26.

Appendix 1. Top 100 logistics providers by Inbound Logistics

Name

Code

Name

ABX Logistics Access Business Group Acme Distribution Centers ADP Logistics Airborne Logistics Services AIT Worldwide Logistics AmeriCold Logistics APL Logistics Arnold Logistics Aspen Alliance Group Automated Distribution Systems Averitt Express SCS BAX Global BDP International Bekins Worldwide Solutions Bender Group BNSF Logistics Bulk Connection C.H. Robinson Cardinal Logistics Caterpillar Logistics Services Cendian ChemLogix Cogistics Concentrek Con-Way Logistics Corporate Traffic Crowley Logistics CRST Logistics DDD Company DHL Danzas DSC Logistics EGL Eagle Global Logistics England Logistics Evans Distribution Systems Exel Expeditors FedEx Supply Chain Services

I R

Koch Logistics Land-link traffic systems Landstar Logistics LOGISCO Logistics Insights Maersk Logistics MBX Logistics Megatrux Menlo Worldwide New Breed NFI North American Logistics NYK Logistics (Americas) ODW Logistics Olson Company OMNI Logistics Ozburn-Hessey Logistics Pacer Global Logistics Panalpina Patterson Logistics PBB Global Logistics Pegasus Logistics Group Penske Logistics Plant Site Logistics Regal Logistics RMX Global Logistics Ruan Ryder Saddle Creek Salem Logistics Schenker-CCW Schneider Logistics ServiceCraft Standard Corporation Suddath Logistics Group Tibbett & Britten Group Americas TMSi TNT Logistics North America

FMI International Fresh Warehousing GENCO Distribution System GeoLogistics Givens Logistics Hellmann Integrated Logistics Hub Group HyperLogistics Jacobson Companies Kane is Able Kelron Logistics Kenco Logistic Services

A A A A R A R R A A A

A A I R A A A A I A A I A

A R R A

Total Logistic Control Total Logistics Solutions Transfreight North America Transplace Tronicus UPS Supply Chain Solutions USCO/Kuehne & Nagel USF Logistics Verst Group Wagner Industries Wallenius Wilhelmsen Solutions Weber Distribution

Code

A


A I A A A A A R R R A I R A A R A A R R I A A A A

A A A A A R R

Note: Armstrong’s Guide categories major third party logistics providers into three groups: I (international logistics providers), A (North American-based logistics providers), R (regional logistics providers)

Table AI.

JEIM 19,5

524

Appendix 2 B – Performing operations; transporting B65 – conveying; packing; storing; handling thin or filamentary material B65G – devices for handling sheets or webs of interest apart from their application in packaging machines. G – Physics G01 – measuring; testing G06 – computing; calculating; counting G06F – electric digital data processing G06K – recognition of data; presentation of data; record carriers; handling record carriers

About the author Yen-Chun Jim Wu is an Assistant Professor in the Department of Logistics Management at National Kaohsiung First University of Science and Technology, Taiwan. He has published in the Sloan Management Review, IEEE Transactions on Engineering Management, International Journal of Operations & Production Management, International Journal of Logistics Management, and Journal of Enterprise Information Management. His research interests include supply chain management, technology management, and lean manufacturing. He received his PhD degree from the department of Industrial and Operations Engineering, The University of Michigan, USA. Yen-Chun Jim Wu can be contacted at: [email protected]

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints