Insight: Global Digital Transformation in Logistics
Global digital transformation spending in the logistics industry, which was about $3 billion in the year 2020, is projected to reach $84.6 billion by 2027. This is according to a recent report 'Global Digital Transformation Spending in Logistics Industry' published by Global Industry Analysts.
Today, digital investments have rapidly transformed from nice-to-haves to absolute must haves for successful logistics operations.
In this article we will examine why the logistics industry is seeing these massive investments in technology, the benefits of the same, and some key challenges that will need to be deftly handled to realise the full benefits of truly digital logistics.
Supply chains of the past had more linear configurations where operations were executed step by step from one link to the next until the product reaches from raw material suppliers to manufacturers to end users.
Later, innovative technologies redefined this linear model with many operations occurring in parallel using newer just-in-time models.
The disruption and uncertainty created by the Covid-19 pandemic brought in another dimension to the supply chain that has to now learn to be prepared for contingencies with new "just-in-case" models.
Why digitalise now?
The tumultuous pandemic years of 2020 and 2021 exposed the lack of visibility, resilience, and reliability in our supply chains.
To address these shortcomings many logistics industry players turned to digital technologies in order to find solutions that can overcome the above mentioned challenges.
Today, digitalisation is also driven by customers that are increasingly using e-commerce to meet their purchasing needs.
Whether it is individual customers buying phones or clothing, to large corporates buying raw materials for their factories, e-commerce transactions have penetrated all areas of today's supply chain.
This e-commerce revolution has in turn galvanised various logistics companies to up their game so they can provide increasingly better speed and cost-efficiency along with wider geographical reach - to execute the all-important last-mile deliveries.
Mohammed Sleeq, Chief Digital Officer of Aramex said: “To address the evolving needs of our customers and gain further market share in the growing e-commerce market, we needed to transform our traditional supply chain process.
"Aramex can create seamless and customizable solutions to optimize our customer journey and enhance the effectiveness of our end to end sales cycle. We also anticipate that it will increase our customer acquisition and demand generation capabilities.”
Benefits of Digitalisation
Some of the key benefits of digital transformation are improved productivity and speed, cost reduction, faster and more data-based decision making, better inter-departmental communications and improved customer service.
Cutting-edge technology verticals like data analytics, blockchain technologies, machine learning and artificial intelligence can play a key role in implementing a successful framework.
SHIPNEXT CEO Alexander Varvarenko shares this opinion: “Early automation, data-gathering and machine learning are all the steps you need to take to get to AI – which is predictive decision making, and not all that complex.
"So, teaching a system to take a decision or guide you on the right decision, based on economic or environmental factors, for instance, is not that difficult. It's not going to take a long time until we see AI helping us ship cargo.”
Speed: Digital technologies allow companies to better plan and predict their operations with reduced paperwork, better route planning and enhanced future demand prediction. Furthermore, automation can allow operations to run uninterrupted 24x7 shortening overall cargo transit times.
Reliability: An obvious outcome of better planning is greater reliability with goods reaching their destination on time. This, in turn allows customers to better meet their production and sales targets by planning their inventories more effectively and reliably.
Resilience: The power of technologies like AI and machine learning allow logistics companies to use big data sets to not only execute regular operations but also plan for 'what if?' situations and design procedures for the same so that costs and delays are minimised in these unexpected scenarios.
Judson Althoff, Executive Vice President and Chief Commercial Officer, Microsoft: ”Digital technologies are essential for the logistics industry to develop solutions and services that will help build and maintain resilient supply chains."
Reduced Costs: When physical assets and human resources are used more efficiently it also drives down cost per unit of cargo moved.
All-in-all the creation of a digital logistics platform provides an interconnected system that enables logistics service providers to conduct effective operations and give a better customer experience.
Implementing digital logistics
Implementing these new technologies in the supply chain however, can create its own problems. Digital transformation is complex and requires a robust framework that can seamlessly incorporate new-technology digital systems with legacy hardware and software.
Right Technology: DIgitally transforming logistics processes requires significant investments in the right technologies that will suit particular logistics operations.
For example, contract logistics will require the implementation of a different set of algorithms as opposed to simple freight-forwarding operations. Choosing the right system requires careful planning, considerable foresight and the right technical advice.
Data Visibility and Sharing: In the digital logistics environment data is a company's most precious asset. The volume, velocity, and variety of data generated by logistics operations will increase continuously and exponentially.
How this data is controlled will be a key factor in determining the success of digital operations.
Data Security: With data becoming paramount the number of bad players trying to steal it also rises dramatically. Although data systems can never be 100% secure steps can be taken to mitigate risk of cyber attacks by deploying cutting-edge technologies like blockchain that guarantee authenticity of data.
Staff Training and Motivation: The words automation and digitalisation immediately bring one phrase to mind for logistics company employees: "job losses".
In order to realise the best returns on investment in new technologies, logistics companies have to encourage and train existing staff to upgrade skills and allay fears that they will be "replaced by machines".
Future of Logistics
The digital transformation of transport and logistics has already begun and is accelerating by the day. Driven by a pioneering spirit, some companies are racing ahead and investing windfall profits made over the last few years in cutting-edge technologies in the hope of creating better efficiencies and even better bottom lines.
Others are in a wait-and-watch mode to see how the various technologies play out before putting their money on the table.
Nevertheless, whether its the bounding hares or the plodding tortoises of the logistics industry, they are all going to sooner or later arrive at a future that will indisputably be data-driven and entirely digital.