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Sometimes it’s hard to keep faith when it comes to technology's promise in the logistics industry and to its customers.
Yes, the early goals of total visibility, proactive exception management and freight markets that follow the laws of perfect competition remain as elusive as those flying cars we were all supposed to have around now. But those who work on the front lines of logistics continue to regard technology as a credible source of supply chain improvement, and strive towards what we call digital logistics nonetheless.
Why? Because, although logistics remains a very traditional business of moving, storing and delivering things, it’s unquestionably one of the Number One areas of business with the most to gain from digital transformation.
Those still forced to handle blizzards of paperwork from China may roll their eyes at the endless parade of headlines about blockchain, the internet of things (IoT), automation and artificial intelligence (AI) but even incremental digitization of logistics operations delivers plenty of benefits. It’s truly worth staying engaged. Like Maximus, the hero of the movie Gladiator, we ride every day into battle against the barbarian hordes of port delays, lost containers, snarled roads and plain old mess-ups. And what we do in life may not echo in eternity, but it can end up reflected in a very useful digital mirror.
Same Problems, Different Day
“We remain with the age-old, intractable problems of knowing: Where is my stuff, when do I get it and what state is it in?,” says Markus Rosemann, vice president of digital logistics and order fulfillment at SAP SE. That involves bringing the flow of information into line with the physical processes, matching data flow with material flow.
But the business of doing so is becoming far more complex and challenging, because two important changes are visible. Firstly, logistics is becoming increasingly customer-centric. At the same time, the lines between different industries and service providers are becoming blurred.
The shift to a customer-centered approach to fulfillment is obvious to anyone who has ordered a washing machine online lately, or returned an item bought from an e-commerce site to a bricks-and-mortar store. If the customer was previously King, he or she is more like a Roman Emperor now.
Amazon leads the way, with increasingly shortened delivery times and an emphasis on customer satisfaction. But any company that even touches the B2C market is now a slave to the same considerations — expectations are higher, and online reviews have made the consumer more powerful than ever before. Even B2B companies are beginning to feel the shift. Customers now expect far more accurate and detailed information about when an order is going to be delivered, and can set delivery times and conditions that are unprecedented.
Are you a manufacturer, or a logistics provider? Trick question!
The blurring of business functions is perhaps less obvious, but it is happening, and important to recognize. If we take a very simplified supply chain, where you have a manufacturer, a wholesaler, a logistics service provider and an end consumer or consignee of goods — all of the roles in this value chain are impacted by digital transformation.
Consumer product companies are now shifting away from the wholesale model, where they’re focused on having full truckload shipments delivered to a wholesaler’s distribution center for onward delivery to retail stores, because e-commerce means they are often shipping direct to consumers. Furthermore, we’re seeing more and more CPG companies offering individualization, even in a mass-production environment. They are serving consumer needs directly, which means manufacturers are, in effect, dealing direct with the consumer.
That, in turn, leads to a host of changes that are enabled by digital logistics.
Here’s an example. There’s a company in Germany called Mymuesli which, at first, was purely web-based. Consumers could pick whatever mix of oats, nuts and fruits, etc., that they wanted, and Mymuesli would send it to them direct. But then they began opening stores and selling through traditional channels and, as they scaled up, they started selling more conventionally, pre-configured muesli. This is a great example of a company that has built and grown in a non-traditional way; a true omnichannel way. They’ve gained insights from their mass-customized, direct-to-consumer business that they can apply to other channels.
Another example is the way UPS has responded to the growth of 3-D printing. At first, you’d think 3-D printing was a threat, because it cuts out the transport between manufacturing and the end-consumer — you’re shipping cartridges to the point of production; a whole different supply chain. But, instead, they realized it was an opportunity to go into manufacturing in a really smart way. UPS identified that a huge portion of the parts they were shipping from warehouses to customers were plastic parts that could easily be 3-D printed. So they set up giant 3-D printing farms, with hundreds of printers in those same warehouses.
In many ways, it’s a classic example of manufacturing postponement, where you only produce product as it’s needed. But in other ways, it’s at the absolute forefront of how logistics is being disrupted by technology. A service provider became a manufacturer, virtually overnight. Plus, it’s crucial for them to keep track of how many parts have actually been produced in the 3-D printing farms, and they’re using blockchain to do that.
Even the more established retailers are presenting challenges to the logistics industry to flex into new practices. There are smaller shipment sizes which require different vehicles, for a start, plus a huge increase in returns. Anyone ordering shoes online, for example, will typically buy several different sizes to make sure they get a pair that fits, then return the others. Returns are now the rule rather than the exception. Retailers are living and dying on their shipping capabilities — their logistics smarts. Logistics companies are offering manufacturing and a host of other new services. The lines and boundaries are blurring. Add to all that an increase in the speed of fulfillment, and you better have cutting-edge technology working for you.
The Magic of True Connection
In essence what that means, and what we see increasingly, is a need to connect everything together digitally into something that as perfectly as possible mirrors the physical reality of the supply chain. We use that mirror to constantly make things better in actual reality, because that’s what counts in the end. Any solution has to be real-life oriented, and work in real time, too. Companies that connect digitally (through innovative technologies such as IoT, blockchain, or machine learning), will have the operational visibility and customer intelligence to manage their entire supply chain digitally, and to perfectly reflect reality.
This is where digital networks come into their own. Some call them platforms, and they’re super exciting. Logistics has always been a very collaborative business, involving multiple partners, such as manufacturers, carriers, sub-carriers and so on. The need for collaboration, as everything tightens, is greater than ever.
Questions about “where’s my stuff and how is it?” become much more difficult to answer in a complex supply chain, making the capabilities of a network much more important. Networks or online platforms offer the ability to coordinate or orchestrate the entire supply chain process — from the upstream suppliers to downstream logistics partners, and on, right to the last mile. Sure, you have networks today, for example, run by carriers for a certain region or route or industry, but with the blurring lines of industries, you absolutely have to have an end-to-end visibility that is only possible if you’re connected into the right network.
“From our perspective at SAP, we see a big opportunity for creating digital logistics practices that connect all our customers, in all their different industries — manufacturing, services, retailing — so that they able to communicate and collaborate in intelligent ways,” Rosemann says.
Platforms can tie together traditionally separate systems such as warehouse management, transportation management, order management, dock scheduling, picking operations — you name it. There’s deep integration that allows for orchestration. You can control and manage this all within one environment.
“We’re excited to create a digital mirror to see what has happened in reality, including milestones, timestamps, who was involved in an event, and where and when did something happen,” Rosemann says. “There’s accountability when something goes wrong. There’s visibility. This is true digital logistics.”
Then, with IoT technology, you can connect the material flow with data from sensors and feed that together into a business intelligence system. It’s been possible to use sensors to track location or temperature and a host of other factors, and link that information via telematics, for decades. But, with the increasing capabilities of digital logistics, you can now link that data to an individual order or customer delivery.
While it’s great to know where a truck is right now, it’s even better that you can see this delivery is for a high-priority customer, so you need to proactively give them an updated delivery time. When sensor data is correlated to business logic, real magic happens. You take information from one system and it’s useful in another. So you’re not just getting visibility into where a truck is, or unusual vibrations or harsh braking or an interruption in temperature in cold-chain shipments. You can figure out what happens if someone reduces fuel consumption by reducing the level of refrigeration, and whether it has an impact on product’s shelf-life or the efficacy of critical medicine. This is where business logic and the physical supply chain have an opportunity to come together to enable transformation.
Efficiency and Innovation
On the one hand, digital logistics boosts what every business still seeks at its core — efficiency. Companies will always want to know how they can increase asset utilization and save money; that requirement is never going away. But the great thing is, digital logistics also super-charges every company’s chance to meanwhile introduce innovative, collaborative scenarios that might allow them to change from a web-only, direct-to-consumer business to a bricks-and-mortar one, or the other way around, or back and forth, according to market demands.
Rosemann says he recently visited a dairy products company that had not only a chief supply chain officer, but also a digital transformation officer. That’s not a well-established role — for now.
“The DTO admitted the dairy company still operated according to a mostly traditional wholesale model, so I suggested it wasn’t transformed, yet. But when I reviewed what the company was doing in terms of boldly exploring digital logistics opportunities, I had to admit — they already were. Is it time to think about how you can too?”
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