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Logistics Trends and Transformation

  • Elizabeth Rennie
March/April 2017

Supply chain management professionals cope with constantly escalating challenges that create both risks to be managed and opportunities to be maximized. Heightened customer expectations, evolving business models, and intense productivity requirements are key issues facing the industry. Meanwhile, promising new technologies aid in collaboration and efficiency yet often lead to even greater levels of complexity. A wait-and-see approach is unwise in such a taxing marketplace; businesses must prepare now and respond tactically.

“For consumers facing a constant barrage of news about what’s conceivable in both last-mile delivery and late customization or personalization, expectations are high,” says Dana Magliola, director of the supply chain resource cooperative at the North Carolina (NC) State University Poole College of Management. “The professionals who are most prepared to adapt to ever-increasing customer expectations will prosper, so innovation has to be a part of the equation.”

This and related trends are calling into question prevailing business models and reshaping the field in ways that are only just starting to become clear. According to the 2016 PwC report “Shifting Patterns: The future of the logistics industry,” supply chain management professionals are in an era of unprecedented change as digitization takes hold and customer expectations evolve. Authors Andrew Tipping and Peter Kauschke advise, “The race is on to define the industry’s future.”

E-commerce and rising shipping numbers

More than 31 billion items were dispatched and transported in 2015, according to a recent Pitney Bowes Parcel Shipping Index. Furthermore, the guide states that shipping volume will grow at an estimated annual rate of 5–7 percent, for a total increase of 20 percent by 2018. E-commerce is unquestionably a significant driver of this escalation, with Index estimates for growth in the 15–20 percent range each year.

“This highlights the [need for] increased focus on innovation in the e-commerce space, whether in technology or in process,” says Lila Snyder, Pitney Bowes president of global e-commerce. “Carriers and companies around the world are looking to reinvent how parcels get delivered to consumers—and how they do so while adhering to consumers’ increasingly demanding expectations.”

Snyder adds that these issues have spurred new solutions relating to same-day and store delivery, hourly windows, robotics, and shared-transport services, which, up until a few months ago, were somewhat rare. The current trajectory of e-commerce also means that designing and sustaining a nimble operation is a critical challenge for logistics, transportation, and distribution professionals.

“Firms will look to technology solutions to bridge the divide between what’s possible, what’s practical, and what’s profitable,” Magliola says, adding that even small firms have excellent resources at their disposal and should make the most of these offerings. For example, there are numerous open-source technologies available that can augment visibility, tracking, data analytics, relationship management, customer service, and more.

One promising solution for managing growing volume is an application programming interface (API), which enables users to integrate shipping functionality directly into their website or enterprise system. APIs can improve cost management; enhance address verification, mobile applications, and cross-border classification information; deliver a more unified customer experience; capture important data from the transactions flowing through systems; and help users innovate faster in order to create more custom solutions.

“We have seen retailers use duty calculator APIs to aid in product classification,” Snyder says, recounting the case study of an online fashion footwear retailer. This business wanted to ship its products across borders using the most current data possible. By harnessing the power of a global trade API, the company was able to move products to where they needed to go much more quickly and with better accuracy.

“In a world that is both border free and location aware, the lines between physical and digital commerce are becoming increasingly blurred,” Snyder says. “[APIs] make it possible to create new and exciting applications, such as these cross-border opportunities.”

The people behind efficiency

Jonathan Valencia is the regional transportation, distribution, and logistics supervisor at PepsiCo. In this role, he manages the full-truckload shipments of two fleets to PepsiCo facilities and warehouses. “As someone who is in charge of over-the-road shipments, I can tell you that efficiency is hands down one of the greatest challenges in the world of logistics,” he says. “The primary concern for carriers and brokers is, of course, ensuring that their products are picked up on schedule and delivered in a timely fashion. To do this, communication is key, and it involves every facet of the organization. Ideally, the process should be as seamless as possible. However, this is more easily said than done.”

Valencia spends a lot of time following advances in efficiency improvements, particularly fuel-reduction solutions; automation of over-the-road or ground transportation; methods for eliminating human error; and better understanding of how changes in the weather can affect carrier availability, timeliness, and productivity. However, he believes the most important element of an efficient supply chain is a meaningful investment in the development of its people. “The opportunity to excel in this industry begins with strong leadership and a skilled workforce,” he says.

PwC’s “Shifting Patterns” also highlights the people side of the equation, noting that change in the logistics, transportation, and distribution fields puts company cultures to the test. The authors maintain that the most successful organizations will be those with agile and flexible cultures that make it easier for people to work together across internal and external boundaries. As the report says, “You need to put your culture to work.”

Skills Valencia sees as integral to success include keen attention to detail, the ability to remember multiple variables, effective troubleshooting, and being quick and decisive when determining the best solution to everyday challenges. Critical thinking and problem- solving are two more competencies worth noting. “It’s easy to see the problem, harder to obtain the best answer, and even harder to put that answer or solution in place,” Valencia notes.

Snyder adds that a consumer-focused approach is highly beneficial. In addition, professionals in this field must be flexible, as one solution will not fit all populations. “Every country and region is a bit different,” she explains. “What we see with our retailers and consumers, especially in the cross- border space, is the need for options.”

Finally, when aiming for maximum efficacy, creativity is “an immeasurably important characteristic,” Magliola says. In his role at NC State, he works to ensure that students graduate ready to experiment with new ideas; brainstorm how the trends they see can be applicable to logistics, transportation, and distribution; and identify the next significant innovation. “The great thing is that supply chain professionals are also consumers,” he says. “If we experience something that creates significant value for ourselves as consumers, there could be elements of that experience that can be relevant to innovation in our industry.”

Real-world complexity

Another core element of the curriculum at NC State involves a project-based practicum research program in which students, faculty, and executive advisors engage with companies to solve real-world business problems. “Ahead of each semester, we solicit and receive numerous project proposals that will find their way into the classroom,” Magliola explains. “If the prevalence of companies striving to manage the dynamism of their supply chain is a bellwether of what’s important to them, then supply chain complexity is a very high priority.”

Indeed, Valencia faces complex systems and processes at PepsiCo. And, just as with most companies, a fair portion of the financial loss he works to mitigate lies in poorly managed supply lines and transportation. Fixing these issues requires a multifaceted approach. “Most leading companies have specific tools in place to help alleviate distribution complexity,” he says. “I genuinely believe the people who manage those tools and technologies are the greatest asset.”

As the competitive landscape becomes more intricate, developing collaborative relationships with carriers also is extremely important. “Communication is bolstered by sharing or democratizing data where possible and competitively applicable,” Magliola says.

The practices around collecting, analyzing, defining, sharing, and securing data should be a high priority for any organization that is determined to manage the complexities of the global economy. Further, a key movement to watch is how successful companies manage such efforts internally and externally—from simple, productive collaborations to global, federated supply chain networks.

Corporate social responsibility is another critical trend to monitor, as the global marketplace, social media and other new communication methods, and environmental consciousness are influencing supply chain complexity. “A company that manages to balance the demands of our immediate-gratification society while maintaining a green footprint is a company to watch out for and learn from,” Valencia says.

A part of the network

Beyond new technologies, real logistics results are being realized via smart collaboration. There are numerous examples of industry players operating in this manner. As the PwC report notes, companies including FedEx and DHL have been partnering with national postal organizations and small local businesses for many years now. According to PwC, fragmentation and a lack of accountability and consistency make collaboration challenging. “For example, each company has its own labelling system,” the report states, “and some companies are wary of farming out the crucial last mile of the journey to an operator that may not reflect its own brand and service levels.”

The authors believe the physical internet could help address these issues by drastically increasing cooperation among businesses and across transport modes through greater standardization. “For the physical internet to work in practice, though, companies would need to be willing to collaborate far more extensively than they do today,” they write. “Most of the 535,000 distribution centers in the [United States] are standalone operations owned by different companies; imagine the savings if they were all connected and physical work-flows were standardized for maximum efficiency.”

A growing number of supply chain management professionals do see logistics, transportation, and distribution as an opportunity to collaborate instead of compete. Working together can make the best use of warehousing space, prevent less-than-truckload shipments, meaningfully cut expenses related to underused capacity or unnecessary duplication, and reduce related supply chain expenses.

Collaborative distribution methods that are quickly becoming more mainstream include freight and ware-house consolidation, fleet sharing, and joint ventures and alliances. “Think about the supply chain as a dynamic ecosystem,” Magliola urges. “The more we can do that, the better we can understand the ways in which challenges, adaptations, and innovations will affect our businesses, our economy, our world, and our daily lives.”

The Omnichannel Effect

In addition to the trends discussed in this article, providing a complete customer experience requires supply chain management professionals to navigate the steep costs of omnichannel delivery. As consumers expect increasingly personal, seamless service, Pitney Bowes’s President of Global E-Commerce Lila Snyder says the cost of disparate systems and limited visibility leave companies at a crossroads. She breaks down the specific challenges faced into three key areas of focus: inventory management; team alignment, including store associates; and meeting consumer expectations.

Inventory management: Snyder believes that adding the retail store to the mix of service to online customers is great for optimizing inventory. However, because the retail space is not a static environment (people are constantly walking in and buying things), the ability to know store inventory at any given time is a challenge.

“It’s fine if you have a dozen of that [stock keeping unit] in your inventory management system, but can you take the risk in moving them out of store stock or committing to an online shopper?” she asks. “What if you don’t know what is happening in the store from the time when an item is purchased online? That kind of knowledge and inventory view is critical.”

She adds that establishing business rules related to when a company will allow an item to be sold online and when it will not is incredibly important to designing a fully unified commerce view.

Team alignment: The second task is rethinking the role of the store associate. In order to move into an omnichannel world, these people must be adept at securing sales and fulfilling orders across all of your channels, not just in the store. “The traditional model is that an associate works in the store, sells in the store, and often makes commission on what he or she sells,” Snyder says. “If you want to take the associates away from those tasks in order to package up something for an online order, that takes them away from their traditional selling role and, ultimately, earning their commission.”

She recommends thinking carefully about in-store incentives and the in-store behaviors of those associates, and then, at a minimum, make the ship-from-store process incredibly simple for store associates to implement.

Consumer expectations. Shoppers’ expectations are high year round, but supply chain management professionals often find that they increase significantly during the holidays. No matter the time of year, consumers assume purchases will arrive in a timely manner, even with incredible volume increases.

“Another challenge is that e-commerce sites are sometimes not as clear about shipping policies or outline it in the fine print,” Snyder adds. “It is important to provide reasonable expectations without being overly conservative to suppress opportunity.”

Elizabeth Rennie is managing editor of APICS magazine. She may be contacted at editorial@apics.org.

To comment on this article, send a message to feedback@apics.org.

Comments

  1. Amar Shelar March 30, 2017, 01:39 AM
    Very thought provoking !!!
  2. Beth Rennie April 06, 2017, 11:01 AM
    Thank you, Amar -- I'm glad you enjoyed the article!
  3. Tambrey April 21, 2017, 12:07 PM
    Slam dunkin like Shaquille O'Neal, if he wrote informative articles.

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