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Making the physical digital (Part II)

Blog post   •   Jan 29, 2016 15:45 GMT

In the first part of our blog post about digital transformation we showed how a typical day could look in 2020 for an employee of a third-party logistics provider. Now, in part two, we highlight five major trends that are shaping the freight forwarding and logistics industry already today – all of them linked to digital transformation.

1) Improving operational efficiency and productivity with modern IT systems

Transportation from A to B – be it on the road, in the air or at sea – is a commodity with an increasing price transparency and razor-thin margins. There are two fundamental ways to address this: Gain cost leadership or differentiate through value-added services. Or do both.

In order to gain cost leadership, modern IT systems are crucial.

For global transportation and logistics providers that have been in business since long before the Computer Age, systems processes have often evolved haphazardly, leading to piecemeal computerization, with a proliferation of systems, each specialized in a different role. Automation has been equally piecemeal – each shipment handled by transportation and logistics providers still requires human intervention. Having recognized the importance of operations productivity, 3PLs are making massive investments into modernizing their systems landscape to digitalize operations.

This goes hand in hand with reducing paper in everyday work and processes. The supply chain is still weighed down by inefficient, wasteful paper. The endless storage and processing, the inability to truly get to grips with the bigger picture – paper is burdensome but becoming increasingly obsolescent. Reducing paper promotes greater efficiency, cuts costs, lowers environmental impact and increases data quality by reducing multiple data entries.

2) Managing exceptions and steering goods and inventories with real-time visibility

Reliable data quality is a prerequisite for visibility, which is critical for customers and 3PLs alike. Customers want to know where, and in what state, their goods are in the supply chain. Modern technologies, such as wireless communications in local and global communications networks, can deliver this information in real time.

If anything is about to go wrong, automated alerts are sent out and action can be taken. Companies, then, need only focus on the exceptions, while everything else runs smoothly in the background. This means greater agility and more efficiency in the supply chain – and greater peace of mind for the customer.

Visibility – access to information at all times from everywhere – is also used to steer inventories. Logistics is about the constant flow of products, not storage. Things need to be moving – and fast. Asset velocity is the key. The overall goal is to have the right inventory at the right place at the right time and, most importantly, at the right levels. Too much inventory ties up working capital and raises the risk of obsolescence, particularly in fast-moving electronic products or high fashion items. Too little inventory leads to stock-outs, missed sales and disappointed end consumers.

3) Optimizing inventories, transport networks and facilities with data analytics

3PLs are in an ideal position to help steer their customers’ inventories because they have many touch points with their products over long periods of time. This provides 3PLs with a wealth of data that can be systematically mined and put to use with sophisticated algorithms.

By finding patterns and relationships within the data even predictions can be made about future behavior and customer preferences. This gives 3PLs a detailed bird’s eye view of what’s happening in the supply chain and a better idea of how to optimize performance in the future.

The layout and processes of a logistics facility can be improved, an entire supply chain network can be optimized, and inventories can be mapped across a product’s life cycle. Mapping the product life cycle helps 3PLs understand at what stage the inventory changes in order to better estimate minimum and maximum inventory holding – which, in turn, can help predict the space needed, where to position facilities and what services to offer. Customers benefit by having a partner who can keep their products moving and minimize working capital requirements in their supply chains.

The rise of in-memory computing, where data is processed in the random access memory (RAM) instead of relational databases on relatively slow disk drives, will be an enabler of data analytics, helping 3PLs extract and analyze Big Data more quickly, efficiently and cost-effectively.

Big Data and in-memory computing will allow us to move from descriptive analytics (what happened) to diagnostic (why did it happen) to predictive (what is likely to happen) to prognostic analytics (what should I do about it).

4) Moving production closer to the end consumer and getting products to market more quickly

Product life cycles are getting ever shorter, especially in the fashion and technology sectors. With ubiquitous social media channels promoting the hottest products, consumer demand can sometimes take on a life of its own, leaving brands – typically in fashion and consumer electronics – scrambling to produce enough stock and get it where it needs to be before the hype dies down. E-commerce enables customers to place an order one day and receive their items the next – or even the same – day, further accelerating the life cycles of these items. Throw in a customer base that’s increasingly demanding of customized and personalized products, and there’s a clear case for moving production closer to the customer.

With their global footprint of warehousing and distribution facilities in major markets, 3PLs are ideally suited to assist with the tail end of the manufacturing process, before the products are shipped out to customers. When 3PLs invest in production expertise, they can assemble goods, run software updates and tests for technology customers, or add the finishing touches to apparel. This drastically reduces overall lead time for customer orders, reduces inventory levels and improves on-time delivery service levels.

5) 3D printing: Shaking up the manufacturing and logistics industries

This brings us seamlessly to 3D printing, one of the most exciting frontiers of digital transformation. 3D printing literally stands for the convergence of the real with the virtual world – and it has the potential to shake up the manufacturing and logistics industries like nothing else we’ve seen this century.

While 3D printing has been around for some time, its recent surge in popularity makes perfect sense in the context of the previously mentioned trends: not only is it ideal for bringing production closer to the end user, it can also aid in mass personalization and decreasing inventories.

Products not only make it to the market faster; they can also be personalized or customized at the latest possible stage. The added value for the customer is generated at the end of the supply chain, and the brand owner can keep inventories, as well as the cost of transportation and obsolescence, to a minimum. In an increasingly circular economy, the benefits of 3D printing are also obvious in the field of spare parts and repairs.

A must-win battle

The day may come when the flow of information is more important than the flow of goods. That’s a provocative statement, to be sure, but we are inching closer every day, as virtual networks – humming away in the background, exchanging information – steer global supply chains.

As the real world and the digital world converge, 3PLs – despite their largely physical work – have the opportunity to come into the Digital Age with new technologies to make their businesses far more efficient and effective – and to ensure that customers receive their orders on time, with total transparency along the way. Digital transformation isn’t just about the flow of information; it has a massive impact on the flow of physical goods, too.

Therefore, digitization isn’t an option for the logistics industry – it’s a must-win battle if 3PLs want to increase productivity in a more and more commoditized industry, offer new services, respond to customer needs, and be the employer of choice for digital natives – including Sandra.