As the global economy continues to grapple with disruptions from technologies and innovations, profit pools are also beginning to shift. With digital technologies pervading more of everyday life, it is easy to assume that the economy’s digitisation is already far advanced. However, according to our various research studies, the digital force has yet to become fully mainstream. On average, most industries are less than 40 per cent digitised, despite the relatively deep penetration of these technologies in media, retail, and high tech.
However, the status quo remains a challenge. As digitisation penetrates more completely, it is expected to dampen revenue and profit growth for some, particularly the worst of the underperforming companies, while the more advanced companies are expected to capture disproportionate gains. Bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that do not, and the biggest payouts will go to those that initiate digital disruptions. Fast followers with operational excellence and superior organisational health will not be far behind.
Which begs the question in this article – are we leaving our digital supply strategies to someone else? With many of today’s operations outsource, it has unintentionally become a “race to the bottom” for many organisations pursuing cost savings. While we are often reminded that the cheapest is not necessarily the best, it is definitely getting harder to decide the difference between exceptional service level agreements or are desperate to win a deal, when there are parties out there who are willing to drop their costs upon contract negotiation, or are desperate to win a deal.
What’s happening to ID4.0?
The supply chain today is a series of largely discrete, siloed steps taken through marketing, product development, manufacturing, and distribution, and finally into the hands of the customer. Digitisation brings down those walls, and the chain becomes a completely integrated ecosystem that is fully transparent to all the players involved — from the suppliers of raw materials, components, and parts, to the transporters of those supplies and finished goods, and finally to the customers demanding fulfillment.
This network will depend on a number of key technologies: integrated planning and execution systems, logistics visibility, autonomous logistics, smart procurement and warehousing, spare parts management, and advanced analytics. The result will enable companies to react to disruptions in the supply chain, and even anticipate them, by fully modeling the network, creating “what-if” scenarios, and adjusting the supply chain in real time as conditions change.”
Industry 4.0 sees a confluence of three core technologies: autonomous, Internet of Things (IoT) and data intelligence:
- Autonomous & Robotics
Autonomous technologies tend to be viewed as the use of robotics although the concept extends beyond that. Most notable change in the use of autonomous technologies can be identified as the difference between AGVs (automated guided vehicles) and AMRs (autonomous mobile robots). The increasing number of unique applications in the use of AMRs are beginning to change the way warehouse operate, introducing the concept of “collaborative robots” perpetuated by various companies, such as Fetch Robotics, Locus Robotics and the newly set up The Intelligent Warehouse in Singapore.
The IoT is the network of physical devices, vehicles, home appliances and other items embedded with electronics, software, sensors, actuators, and network connectivity, which enable these objects to connect and exchange data. Each thing is uniquely identifiable through its embedded computing system but is able to inter-operate within the existing Internet infrastructure. Experts estimate that the IoT will consist of about 50 billion objects by 2020. It is also estimated that the global market value of IoT will reach US$7.1tr by 2020.
Essentially, IoT allows objects to be sensed and controlled remotely across existing network infrastructure, creating opportunities for more direct integration of the physical world into computer-based systems, and resulting in improved efficiency, accuracy and economic benefit in addition to reduced human intervention. When IoT is augmented with sensors and actuators, the technology becomes an instance of the more general class of cyber-physical systems, which also encompass technologies, such as smart grids, virtual power plants, smart homes, intelligent transportation and smart cities.
3. Data Science
Data-driven business decisions make or break companies. Such governance is undertaken in order to be more competitive. MIT Sloan School of Management professors Andrew McAfee and Erik Brynjolfsson explain in a Wall Street Journal article that they performed a study with the MIT Center for Digital Business. They found that among the companies surveyed, the ones that were mostly data-driven had four per cent higher productivity and six per cent higher profits than the average. Companies that approach decision-making collaboratively tend to treat information as a real asset more than in companies with other approaches. That way, they tend to identify business opportunities and predict future trends more easily, and generate more revenue with data.
Staying ahead of the game
When a company creates a logistics and supply chain strategy, it is defining themost cost-effective levels at which it logistics and supply chain are functioning the ultimate goal of any logistics strategy is to deliver what the customers want. As supply chains are constantly changing and evolving, a company may develop a number of strategies for specific product lines, specific countries, or specific customers. The ultimate goal of any logistics strategy is to deliver what the customers want, when they want it, and getting that done by spending as little money as possible.
The advent of new technologies brings about an increasing need to consider new investments. It is, therefore, a challenge for supply chain executives to balance the fine line between cost management and
A long-term partnership with a service provider may make sense in this instance.
The outsource contract logistics model is as old as many of the industry professionals can remember. During its hay-day, it was the platform that led to the mega mergers that essentially created what we have today in the likes of DHL, Fedex and UPS. While contract logistics were designed to solve an inherent challenge of “letting someone else who can do the job better do it”, it has since become a race of who can offer the cheapest services. If a digital economy whereby processes, systems and solutions are changing rapidly, this pathway will only lead to a potential downward trend for everyone involved.
Particularly when it comes to the adoption of new technologies and innovations with short-term, cost oriented contractual obligations, no profit making company would pursue any long-term technology investments without the assurance of payback.
We need to bring back collaborative partnerships between service and shippers and explore co investment in new technologies to speed up adoption. If there is a way to enhance productivity, operational effectiveness and efficiencies, it can be found by integrating new technologies into a company’s overall supply chain and logistics execution.
Challenges ahead for 3PLs
Even as we continue to marvel at the impact technologies can create, we cannot ignore the fact that there is an intense acceleration in the commoditisation of logistics services. The sharing and gig economy has already led to the conception of many start-ups playing within the 3PL space continue to be commoditised – from software and systems to sharing of warehouse space and last mile distribution.
As more and more services within the 3PL space continues to be commoditised, it will become harder and harder for these providers to focus on technological advancements and adoption as focus is then shifted to bottom line and viability. 3PLs with strategic asset ownerships may still find a space to engage but those who are purely facilitators, such as freight forwarders and 4PLs may find the competitive environment more challenging in the next few years.
Owners (shippers) of supply chains will need to realise that more effort is required of them to take control of their supply chain executions, even as service providers continue to discover the space of viability that can sustain their businesses while the digitisation of the industries continue to craft out a whole new world of logistics execution systems.
About the Author
Paul Lim, Founder/President, Supply Chain Asia
Paul has worked for more than 25 years in the retail, logistics and supply chain industry, gaining experience covering operations, business development, corporate and strategic management, as well as IT and supply chain solutions. He started his career in retailing in 1988 when he joined Isetan and has worked with various multinationals, including TNT Worldwide Express, EGL Global Logistics (now known as CEVA), Menlo Worldwide Logistics and YCH Group, a Singapore home-grown logistics solutions provider.