Logistics in a Changing World

“From siloed behavior to data-sharing and collaboration across disciplines — that’s the journey that companies are making today, as they pass through the five stages of logistics maturity.” At least, that’s what Greg Aimi (@gregaimi), director of supply chain research with Gartner, told the SupplyChainBrain staff a few years ago.[1] As we contemplate the future of logistics in a rapidly changing world, I thought it might be useful to review the five stages of logistics maturity to see what, if anything, has changed over the past few years. According to Aimi, the five stages of logistics are:

Stage 1. “The first stage of logistics maturity is achieved by large global companies that are typically divided by businesses, divisions, regions and profit-and-loss statements. Logistics functions reside within each, with little synergy among the parts. Often the result is ‘individual autonomous groups being driven by priorities of other parts of the company,’ says Aimi.”

Stage 2. “Stage two requires that companies leverage their scale to achieve some level of organizational consistency, even as they continue to be internally focused and serve constituent businesses. Such units tend to focus on cost containment, proficiency and productivity.”

Stage 3. “Stage three brings together various functions under the classic model of ‘plan, make, source, deliver.’ The organization might make tradeoffs between transportation and inventory holding costs, and there’s some degree of knowledge among the various groups of the larger ramifications of their decisions. The business is still internally focused, however.”

Stage 4. “Stage four turns around that orientation to begin the planning and execution process with demand, and work backwards from there. At this point, says Aimi, ‘the value network comes into play.'”

Stage 5. “The fifth and final stage of logistics maturity is achieved by companies which embrace the notion of the value network, ‘and try to understand the things I can do to help my suppliers and customers create value.'”

Those five stages track consistently with the metamorphosis industrial age organizations must make to become digital enterprises. Most analysts agree organizations must make a digital transformation if they are going to compete in the decades ahead. In the logistics area, Aimi insists, “Most companies today are moving from stage one to two, with a road map for reaching stage three.” Mahab Rahman, Assistant Operations Manager at MTS Logistics, asserts this slow road to transformation shouldn’t be surprising. “The inconvenient truth,” he writes, “is that the logistics industry is not an innovator and logistics technology generally lags behind the rest of the commerce world. Unlike almost all other industries, we have not created any processes that can redefine the industry like what Uber has done to the for-hire car service industry or what Airbnb has done to short term rental accommodation.”[2] Transformation, which is defined as a thorough or dramatic change in form, requires changes in people, processes, and technologies. I believe the supply chain sector need not be a laggard when it comes to digital transformation. In fact, I believe it can lead the charge. Rahman seems to agree. He insists, “Technological innovations in logistics can change how the world does business.”

The Changing World of Logistics

Dr. Chris Caplice, Executive Director of the MIT Center for Transportation & Logistics, believes there are four megatrends driving changes in the area of distribution.[3] The first trend is densification of product. He explains, “This is the process of reducing product size while maintaining or increasing its value.” Think of how much music your smartphone carries. In the era of vinyl records you would have needed a truck to carry that much music around with you. The second trend is diversification of sales channels (i.e., omnichannel operations). “Online retailers such as Amazon have grown rapidly over recent decades,” Caplice notes. “Now, omni-channel retailing is gaining ground, where traditional retailers bundle online, mobile and traditional channels to compete for sales.” The third trend is the re-centralization of production. For years, Caplice notes, “One of the primary reasons manufacturing [has been] conducted across the globe is to achieve economies of scale; a single massive plant can reduce production costs.” He then asks, “What if new manufacturing technologies and production processes dramatically diminish these economies of scale?” He is thinking specifically about technologies like additive manufacturing and the increase in automation. The final trend is the digitization of products. Caplice explains, “This is the long-predicted shift away from physical to information-based products. While this is old news for knowledge-based products such as books, music and movies, it is now starting to happen to more traditional items.”

Another trend worth mentioning is sustainability. Despite the skepticism currently gripping Washington, DC, most the world’s governments are moving to curb emissions exacerbating climate change. The staff at Supply Chain 24/7 writes, “A greener transport system is crucial for fighting climate change, driving inclusive growth and ensuring our long-term prosperity.”[4] In that same article, Frank Appel, CEO of Deutsche Post DHL Group stated: “There is an urgent need for collective action to face the challenges of climate change.” Even if Washington politicians back off goals established by the Paris protocol, other countries are pressing forward with those goals. It would be naive to believe the logistics sector is not going to be significantly impacted by these issues in the future. Michael Chang reports analysts at UNITY Business Consulting have created an interesting road map for the future of logistics (click image to enlarge). Chang writes, “Focus on the far right column, ‘Logistics 4.0’, which is distinguished by such characteristics as no warehouse in the supply chain, and autonomous transportation and equipment.”[5]

Among the technologies Rahman believes will have the greatest impact on the logistics field are: transportation management systems; autonomous vehicles and drones; and robotics. I would add the Internet of Things (IoT) and cognitive computing platforms to the mix. The IoT will provide the connectivity that makes digitization a reality and cognitive computing will supply the brains to deal with all of the data generated via the IoT. The latest Council of Supply Chain Management Professionals (CSCMP) Third-Party Logistics Study concluded, “Big data is going to play a bigger role moving forward among shippers and their logistics providers.”[6] The study found, “98 percent of 3PLs and 93 percent of shippers believe data-driven decision-making is essential to supply chain activities; 86 percent of 3PLs and 81 percent of shippers expect analytics to become a core competency of supply chain organizations; 71 percent of 3PLs believe that big data improves process quality and performance.”

Summary

Caplice concludes, “As [the trends discussed above] play out, there will likely be a period when many different logistics models emerge. The shape of the dominant model is unknown, but it will look very different from the one we follow today.” I agree with that assessment, but I also believe the maturity model discussed by Aimi remains valid. Industrial age organizations, and their supporting activities, need to transform into digital enterprises if they are to remain competitive in the decades ahead.

Footnotes
[1] Staff, “The Five Stages of Logistics Maturity,” SupplyChainBrain, 7 July 2014.
[2] Mahab Rahman, “The Future of Logistics Technologies,” More Than Shipping, 29 August 2016.
[3] Chris Caplice, “4 Trends Redefining Distribution,” Longitudes, 2 June 2016.
[4] Staff, “UN Report Sets out Roadmap to a Sustainable Future for Logistics Industry,” Supply Chain 24/7, 31 October 2016.
[5] Michael Chang, “Are You Ready for Logistics 4.0?The Network Effect, 16 October 2015.
[6] 360, “Big Data = Big Changes in Logistics, Transportation,” Global Trade, 2 November 2016.

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