Technology – embrace or perish

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Technology & Automation

Technology – embrace or perish

We are witnessing unprecedented events in the industry, which include disruptions in regulations – GST; affordable technology – hardware, network and software; emergence of new age logistics service providers; and ever evolving customer needs. In such fast-changing global economy, the one that quickly adapts to changes and embrace technology would be the clear winner. In this new normal, embracing technology and automation is no longer an option. It’s embrace or perish reality for existing service providers, cautions Manish Saigal, MD, Alvarez & Marsal (A&M).

Tools and processes for service industry are dependent on maturity and complexity of customer industry, margin pressures for customers and disruptions in the business models of the customers. Lately, logistics service providers have been challenged by disruptions and changes in the customer industry, which include emergence of B2C channel – ecommerce, omni-channel; changing mix of goods to be transported – more SKUs, style codes with more complex supply chain needs; scale of operations at a completely different level for contract logistics companies; and expectation of significant efficiency improvement from transportation & storage.

Logistics industry has reacted to this new normal with emergence of new business models by new entrants and embracement of new technology by forward looking incumbents. It’s clear that participants, which ignore this reality will struggle to sustain in future. Technology in logistics can broadly be classified into following categories:

  • Automation in storage and handling
  • Technology to procure and manage long distance movement
  • Technology to streamline inbound processes for manufacturing
  • Solutions to optimize last mile distribution

Automation in storage and handling

Business models for customer groups are increasingly becoming more predictable for customer companies – volumes, geographies, SKUs. Logistics service providers need to start planning automated storage and handling for customers if following factors are positive: Customer volumes and behavior is predictable; scale of operations is growing or seasonality is high; and contracts are expected to mature to per part/per unit pricing.

Manpower cost arbitrage is increasingly reducing. Consistency of service across locations and business lines is a new expectation. Targets for pilferage reductions and errors are almost reaching zero. Also, cost of real estate (warehousing) is increasing. Under these circumstances, it becomes imperative that companies have a strategy for automation and IoT in storage and handling. These include: storage and retrieval systems; sorting – put to light, unit sorting, etc.; and packing & bundling.

GST is expected to increase the kinds of services outsourced to warehouses and service providers. Lack of capability to deliver automation may not only result in margin pressures but also make service providers less favorable to win contracts.

Technology to procure and manage long distance transport

Transportation accounts for 70% of overall logistics costs. Long distance transportation is around 50% of this cost. In terms of existing inefficiencies, this part of the chain could be ranked as highest. Some of the existing inefficiencies in the chain are as follows:

  • Vehicles run 30-40% lower than their capability in spite of better road conditions
  • The dry haul proportion is high due to fragmented supplier base with significant information asymmetry
  • Intermediation cost is around 5-8% of the long haul spent.

Customers are expecting logistics companies to fix these issues. Availability of affordable technology has resulted in disruptions in this space. Logistics companies need to start fixing this piece in the puzzle if the following is true for them: customer contracts are integrated; contracts with customers are multi-locations and multi routes; and intermediation is high in transportation.

Available options for logistics service providers include partnering with market places/master broker networks; implementing and improving existing fleet management solutions; and developing and participating in evolving load boards. 

Technology to streamline inbound processes for manufacturing

Manufacturing has, in general, become leaner and smarter. JIT/JIS have found relevance beyond automotive industry. Vendor development has evolved significantly for component/part manufacturing. Contract manufacturing is gaining momentum in FMCG/FMCD. At such, inbound logistics now requires capabilities beyond simple transportation and warehousing. Some of the key capabilities expected from factory gate logistics service providers are: inventory management and integration with client systems; unbundling, sorting and kitting of components; cross-docking and real time visibility of goods; and scheduling and allocation programs for milk runs.

Technology is clearly a differentiator in this business for retaining and growing margins. As most of the contracts and businesses are single user for every location, it becomes imperative that participants in this business think about investment in technology to reduce lead times for customers, resulting in cost savings; technology to innovate in-factory activities and outsourcing of the same; investment in material handling and value adding equipment; and value engineering for kitting & sorting.

Solutions to optimize last mile

The definition of last mile is expected to change and evolve in near future. Some of the capabilities that logistics service providers will be expected to demonstrate are –

  • Packaging/bundling just before last mile especially after GST
  • Distribution and C&F activities including inventory forecast and visibility
  • Productivity improvement for B2B and B2C last mile delivery
  • Flexibility and agility to offer multitemperature, multi-frequency delivery.

Last mile distribution involves coordination with multiple stakeholders: end customers, stores, WH operators, transport vendors and local field staff. The challenge of achieving high utilization, first time right, desired time & volume service levels and tracking performance cannot be achieved without implementation of right technology solutions. The key capabilities to be developed on the technology side are –

  • Mobility solutions for last mile delivery
  • CRM and customer coordination platform
  • Fleet/bike/resource allocation, scheduling, performance tracking systems

The next requirement of the abovementioned technologies is that there is integration required across all categories. Also, there are no off the shelf solutions available for Indian context. IT application providers have come a long way to provide multiple options for logistics companies.

We are witnessing unprecedented events in the industry which include:

  • Disruptions in regulations – GST
  • Affordable technology – hardware, network, and software
  • Emergence of new age logistics service providers
  • Evolving customer needs

In this new normal, embracing technology and automation is no longer an option.

It’s embrace or perish reality for existing service providers.

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