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Big Ideas

Gaining Momentum

How technology is reinventing logistics

by Minda Zetlin

February 2016

“Instant gratification takes too long.” This Carrie Fisher quote from Postcards from the Edge could easily describe the attitude of most customers today. We’ve been pampered by Amazon and other online retailers who promise to bring us nearly anything we want at unprecedented speeds—sometimes in as little as one hour. The result is that both consumers and B2B customers now expect quicker and more-customized deliveries for everything they buy than ever before, along with detailed information about where any item is at any given moment.

It’s a trend that has left many large enterprises, especially those using legacy systems, scrambling to meet heightened expectations. Making rapid deliveries may look easy, but a lot of sophisticated technology goes into it. “That package arriving from across the globe in two days is a serene swan gliding across the water backed up by frantic paddling under the surface,” says Nathan Wrench, head of industrial product development at Cambridge Consultants, a global product development and technology consulting firm headquartered in Cambridge, England.

PF16-TL-Logistics-illo

Yet the struggle for more-efficient logistics is well worth taking on for nearly any company whose mission is to provide physical objects to its customers. Increasing demand for speed of delivery and visibility into the delivery process is only one reason why. Here are some others:

Decreasing inventory. For any manufacturer or provider of goods, increased profitability can result from reducing inventory. That’s because unsold goods represent spent cash that has yet to be earned back, and also because there are costs associated with storing them. This is why “just-in-time” inventory—receiving goods as close as possible to the moment when you need them—has become a popular practice throughout manufacturing.

Faster and more precisely tuned logistics are a necessary enabler for just-in-time inventory, and some manufacturers have taken this to the nth degree. “Auto manufacturers are trying to reduce inventory to essentially zero,” says Wrench. “Parts come in and go onto the assembly line within seconds sometimes, or certainly minutes.”

Getting paid faster. At the other end of the process, the faster suppliers can be paid for the products they deliver, the better the bottom line. Here too, logistics improvements can play a part. “In the old world, we would pretty much ship whatever was ordered,” says Wayne Kakuda, CIO of TPS Logistics, a consultancy in Troy, Michigan. “If we were asked for 20 air filters, we would wait till we had 20 of them and then ship them.”

No supplier wants to do that anymore, because to stockpile a product while waiting to ship it increases inventory and decreases cash. “Companies want to ship what they have because otherwise they’re postponing revenue,” Kakuda says. That means they want technology that will allow them to ship, say, 75 air filters and adjust the cost of shipping accordingly, in real time.

Transporting less air. One of the biggest unnecessary costs throughout the logistics space is less-than-full utilization, otherwise known as “transporting air.” “When you see a truck going down the road, it’s probably 65 percent utilized,” Kakuda notes. Utilization tends to be especially low on the “backhaul,” as return trips from deliveries are known. With better use of technology and cargo sharing, Kakuda adds, utilization could increase to 80 or 90 percent. “Whoever does it effectively will make a lot of money,” he predicts.

Getting ahead of market disruption. For many years, large, well-established enterprises have relied on their size and history to protect them from competition from startups and smaller companies. No longer. Industries from bookselling and hospitality to music recording and video rental have all learned what can result from ignoring a clever startup. Uber is now a verb, as in “getting Ubered”—suffering intense and debilitating competition from a new entrant that is using technology to approach the market in an innovative way.

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Percentage of capacity at which the typical semitruck operates


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The same cloud technology that vastly increases efficiency and flexibility for large companies also empowers small ones to compete without first building elaborate IT infrastructures. It has changed the risk equation for the leaders of many established enterprises, who now consider that adopting a new technology or offering a new delivery service may be less dangerous than not doing so.

Gaining competitive edge. In certain industries, better logistics can become part of your company’s unique value proposition. Amazon is one obvious example of a company that has made faster, cheaper, and more transparent delivery part of its winning formula. But there are plenty of others. In both the food and pharmaceutical industries, suppliers and end users worry about the “cold chain”—the need to keep some foods and medicines at a specific temperature or risk spoilage. Companies that can keep that cold chain unbroken, and supply the data to show they’ve done so, have a clear advantage over their competitors.

What Speeds Logistics?

Given the massive gains logistics has made in speed and efficiency in the past few years, it’s useful to remember that the actual process of conveying things from one place to another has changed very little over a very long period. Trucks, ships, trains, and airplanes all travel at about the same speeds they did 20 years ago, notes Alfonso Pedraza-Martinez, assistant professor of operations and decision technologies at Indiana University’s Kelley School of Business. Although there have been huge technological gains in logistics, he says, “most of the speed gained in taking things from point A to point B is not directly related to transportation means.”

In other words, logistics gains are all about information, which is why big data is one of the biggest differentiators. “The opportunity in any business is better understanding the large data pools available and turning that data into contextual, actionable information,” says Ricardo Bartra, senior vice president and CIO, Americas, at DHL Global Forwarding. “To achieve it there is a need for enterprise-level solutions where predictive analytic models and data visualization can be applied and therefore provide business insights that otherwise would not be available.”

Consider all the information available today—from transactional data supplied by legacy systems and applications to machine-to-machine communications, temperature and shock sensors, alarms, global positioning systems, and social media, where customers often go first to voice their perspectives, Bartra says. “The opportunity is looking at data in a multidimensional perspective.”

In the case of the United States Postal Service (USPS), every piece of mail and parcel that comes through its mail processing system is assigned a unique tracking identification number. “These scans help us to achieve operational efficiencies and better serve our customers,” explains Randy Miskanic, acting CIO at the USPS.

That need to increase efficiencies and capture data is driving projects at many companies to integrate logistics systems as much as possible with other systems in use, both in-house and at business partners. “What’s driving the marketplace is the need to increase collaboration across carriers, customers, and shippers,” says Yatish Desai, managing director and US lead on distribution and logistics at KPMG Advisory. Given the technology now in play, transportation management systems can integrate not just with warehouse management systems, but also with manufacturing systems, global positioning and weather technologies, mobile technologies, and even social media. “I’ve had clients say, ‘My customers are demanding to know when my product is getting shipped, when it will be delivered, and where it is in transit,’” Desai notes.

Making Decisions on the Fly

Answering the last of those questions often involves using another hot new technology, the Internet of Things. Among its many benefits, the Internet of Things allows for maintaining—and providing the maintenance of—the cold chain for items that need to be kept at low temperatures. It also allows suppliers, shippers, and customers to make decisions on the fly in response to the exact location of an item in transit.

That package arriving from across the globe in two days is a serene swan gliding across the water backed up by frantic paddling under the surface.”–Nathan Wrench, Head of Industrial Product Development, Cambridge Consultants

At the USPS, for example, letter carriers are equipped with Mobile Delivery Devices (MDDs). These MDDs function like ruggedized barcode scanners and cameras with processing power and an operating system comparable to what you’d find in a smartphone, Miskanic says, and they can also be used to communicate with letter carriers. “It was developed to promote operational efficiency, but there are also business opportunities to provide different services,” Miskanic says. In the coming year, the USPS plans to begin offering customers an expected delivery window based on its tracking of carriers, as well as customized delivery solutions. “If you know a parcel will be delivered, and you’re not home, you can alert the Postal Service to deliver it to your back porch, or to a neighbor’s house,” explains Miskanic.

Big data, and possibly the Internet of Things, is also contributing to a new trend in logistics that puts the industry one step closer to Uber territory: the sharing economy. “There are startup companies that are going to be pretty disruptive taking up free capacity in the logistics network and making that available to shippers on demand,” Desai says. “That’s a big change I foresee.”

If all these new market drivers and technologies sound challenging for a large, long-established enterprise to adopt, in some cases they are. “In the B2B world, there is always a crunch point where theory meets legacy systems, and it can be relatively painful,” Cambridge Consultants’ Wrench observes.

Understanding the context of those information pain points and knowing how to integrate the old with the new, the core with the complementary systems—or replace them when that makes sense for the business—is the most meaningful differentiator a CIO can offer, Bartra says. “In a global schema, you will always need to leverage the new and the old,” he says. “Acknowledging that and having a cohesive IT architecture approach to building a digital business is the most important thing. And then to understand that there are logistics innovations that create added value.”

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