Tackling the Future of the Logistics Industry
Written by David Mellor, Associate Director, WHitecap Consulting, this blog post was originally publsihed here ; https://www.whitecapconsulting.co.uk/articles/tackling-the-future-of-the-logistics-industry/
In this blog, Whitecap Associate Director and Logistics specialist David Mellor, considers the impact of Covid-19 on the industry, and how businesses can respond and grow successfully by embracing structural changes.
Within the first three months of the Covid-19 crisis, the disease and its effects have impacted the logistics industry considerably. Deliveries in some sectors have come to a complete halt, while others have snowballed with demand higher than ever before, and pressure on fleets so strong that firms such as Uber are pivoting to meet demand, deploying vehicles for the delivery of goods rather than people.
The closedown of international travel in particular has restricted traditional pathways of goods, putting the industry on ‘pause’, without knowing when the ‘play’ button will be pressed again. In the past, Logistics has typically taken between three to six months to bounce back after containment measures. However, in such unprecedented times, nothing can be taken for granted. Nothing like the current scenario has been experienced before.
In the near term, as time moves on and travel-for-business restrictions begin to lift, companies will begin to navigate an entirely new landscape- one of significantly reduced fuel costs, and, despite an initial surge in traffic as goods stuck along supply chains are delivered, a likely overall reduction in overseas demand, with smaller fleet sizes as a result.
Looking beyond the near term, then, to the medium and long term, a number of questions arise. What are the key trends that will drive the future of logistics? What will that future eventually look like? Which companies will thrive in the new environment, and what are the characteristics that will define them? This blog looks at how the new face of logistics will be shaped by new forces on the horizon, and how the industry can tackle some of what will be its biggest hurdles.
What Key Factors Will Shape the Medium and Long-Term Future of the Logistics Industry?
Localised and Streamlined
In the medium and long term, there won’t necessarily be less demand – remote ways of living and working have meant that in lots of cases delivery numbers have increased, placing more pressure on the supply chain and a higher demand on logistics services. Amazon and Instacart alone need almost 400,000 people to meet their growing delivery demands.
The difference is that demand for delivery services will be localised. Companies will increasingly look locally to source goods and supply chains will be focussed on geographic proximity to risk-proof their businesses. Uncertainty and unpredictability will shrink the size and spread of supply chains. Companies are already diversifying sources to reduce reliance on China, with some building alternative fulfilment capabilities. Consolidation will focus on building and maintaining geographic supply chain hubs.
Supply chains will be streamlined too, with companies looking to reduce risk by restructuring component parts. Businesses may move to, and stick with, alternative suppliers to de-risk supply chains. This could mean serious upheaval and see major shifts in the industry, with a possible permanent loss of traditional non-food NDCs and a more direct route of provision.
The localisation and streamlining of the supply chain won’t necessarily be an immediate, or quickly-implemented change; rather, changes are expected to happen slowly and gradually, as contracts and systems allow. Logistics firms who think ahead and begin to prepare for those broader industry shifts now – who can strategise to drive change and not simply react to it – will edge ahead of their competitors. Logistics companies now have the opportunity to lead the transformation of logistics for years to come.
Digitised and Optimised
Companies won’t just look to make their supply chains simpler, but faster and leaner. In most cases, this means digital. And digital means more flexible, with less fixed infrastructure. Alongside the digitisation of the industry, then, will be the proliferation of early start data and optimisation businesses.
Digitisation of the supply chain will include features such as a digital inventory for parts, including spares, production equipment, and products, while the use of 3D printers to supply parts and equipment where needed will also be a major (long term, transformational) trend. Both of these have the potential to mitigate supply chain risks, as additive manufacturing has delivered a number of times when the supply chain networks have stalled. In a recent blog, Roland Berger recognised the advantages of a centralised, digitised database:
“Having a centralised database with identified parts and data from past orders, CAD, PLM and ERP integration in a digital inventory makes it easier to access AM-ready parts and relevant information such as production requirements, technology and material selection. A single repository is key to ensuring part repeatability and is an enabler for version management and serial production via AM.”
Because of the increasing digitisation of the supply chain, the ability to track and monitor that supply chain and use it to increase efficiencies will be important. In a recent piece, ‘Supply-chain recovery in coronavirus times—plan for now and the future’, McKinsey highlighted the role of data optimisation companies in this change:
“Using correct data sets and forecasting tools will be crucial to companies as they navigate the current market environment and continue to make strategic decisions: digitising supply-chain management improves the speed, accuracy, and flexibility of supply-risk management. By building and reinforcing a single source of truth, a digitised supply chain strengthens capabilities in anticipating risk, achieving greater visibility and coordination across the supply chain, and managing issues that arise from growing product complexity.”
Digitisation is not without its own strategic challenges though. In the transparent, more democratised data flows of the near future, logistics companies will no longer be able to “control” supply chains through being the translators of imperfect sources of data. This could erode the perception of adding value through problem-sorting and specialist knowledge. As a result, the industry could move from specialised to commoditised, putting pressure on margins. This begs the question, will we really need 4PL and 5PL integrators, when digital supply chains are integrated from birth?
These are seismic shifts in an industry that has worked in much the same way for decades. Digitisation has been on the horizon for years, with disruptors creeping into pockets of specific supply chains and demonstrating how to do better. But mass change on a large scale has yet to arrive; perhaps Covid-19 will be the true catalyst for change in logistics across the board.
How can Logistics companies best look to respond to prepare for the future?
When it comes to responding to trends in the logistics industry – particularly the steep impending curve of digitisation – Whitecap believes preparation for the future involves asking the right questions now, before using the answers to shape business strategy going forward. In the current crisis, we feel there are some key questions that logistics companies should be asking:
How will changing customer demand affect where logistics firms can most effectively deploy resource?
How can logistics companies balance agility and flexibility with providing specialist higher-value capability?
Can logistics companies diversify their client base (i.e. sector) to reduce risk?
What will the introduction of digital to the supply chain look like and how will it be phased? How can companies respond? How do they continue to add value and preserve margin?
How can logistics companies work with their customers to introduce 3D printing to optimise business processes, but still maintain revenue and market share?
Can the business use digital to implement an internal capability, so it is constantly monitoring and responding to changing forecasts of demand – financially and from a client perspective?
So, where next?
The impact of Covid-19 on logistics, as with so many sectors, and aspects of modern life, is still to be fully played out, but already the likelihood of it accelerating change is beyond doubt. Logistics will not be left in the slow lane; on the contrary, as a sector potentially so exposed to disruption and innovation, yet so often cautious in its adoption, transformation may be more visible than in other areas of the economy. Never before has it been more important for logistics companies to look up, look ahead and prepare for that change, and treat strategic planning as a priority, and as an essential route to competitive advantage, in a rapidly evolving world.