Given the number of available and emerging digital solutions capable of transforming and improving logistics and supply chain operations, why are many firms still spinning their wheels instead of driving forward?
By Mary C. Holcomb, Ph.D., professor, University of Tennessee; Christopher A. Boone, Ph.D., assistant professor, Mississippi State University; Karl B. Manrodt, Ph.D., professor, Georgia College and State University · September 4, 2019
For some, it’s relatively easy to make a decision. They spring forward without fear or trepidation. For others, they pour over every option, every scenario and every consequence before acting. Others wait for the dust to settle, and then say they’ll act. And, there’s the small group that don’t do anything.
Today, logistics professionals face a dizzying array of digital decisions. While some are minor, most will make an impact on their firms for many years to come. And for the second year in a row our Annual Study of Logistics and Transportation Trends examined this issue, revealing a number of insights into the progress—or lack thereof—of digital transformation across logistics and supply chain operations.
Again this year, our study explored a number of the factors driving digital transformation including performance, strategy and visibility.
Performance. We explored company performance relative to competitors in five key areas: firm profitability; return on assets; competitive position/market share; customer satisfaction; and revenue growth—revealing most remained relatively flat year-over-year (YOY).
However, there were differences based on size of firm. As frequent readers of this study will remember, we define the Masters of Logistics as those with sales greater than $3 billion. The Masters and medium size companies (firms greater than $500 million to $3 billion) reported significantly better improvement in profitability and return on assets than smaller companies (annual revenue less than $500 million).
Strategy. There were a number of notable strategic shifts suggested by respondents this year. Those firms using a customer service focused strategy increased by 20%, while the “mix” strategy—which considers tradeoffs between cost and service—was down 6%, it was still the most frequently used strategy by all respondents at 57.5%. According to data from the 28th annual study, increasing collaboration with key suppliers is the most important goal, followed in rank by reducing supply lead time, providing shipment visibility and increasing collaboration with key customers.
Visibility. Interestingly, results show that despite focusing efforts on increasing supply chain visibility—particularly of finished goods—companies have not leveraged this capability. The largest proportion of study participants (25%) reported that no significant or measurable improvements have been realized. This result is counterbalanced by 19.7% of respondents that noted they have reduced the amount of excess or obsolete inventory through increased visibility. Interestingly, there were no significant differences based on company size. That is, large-, medium- and small-sized companies experienced similar results.
Digitalization of the supply chain involves a host of technologies that offer the promise of a connected network that has access to real-time, end-to-end visibility. Yet, when characterizing their firm’s digital transformation efforts, respondents suggested that there has been a general shift toward more passive approaches, with firms opting to follow versus lead digital transformation efforts.
This is highlighted by the 27% reduction in those who considered themselves “mainstream.” There was also a nearly 60% increase in those identifying as “laggards” and a 79% increase in those identifying as “fast followers.”
This desire to be a “fast follower” leads to a critical question: Whom do you follow? Many may suggest that the Masters of Logistics would set the benchmark. Yet, in the digital domain, our analysis shows they’re on par with everyone else.
The continued adoption of technology through the Cloud has evened the digital domain, allowing most firms to be relatively similar in this area. Available access to technology enabled companies of every size to achieve improved levels of efficiency and increased service quality for customers. Shifting the focus to strategic matters, over 30% of respondents report that the primary driver for digitalization is to build a sustainable, competitive advantage.
What role does digitalization play? According to respondents, it’s getting more important, with those having a clear and defined digital business strategy increasing by 26%. The Masters of Logistics have a significantly clearer and more defined digital business strategy than medium- or small-size firms. “We continue to see vigorous demand for real-time, end-to-end advanced visibility, but not all providers are created equal,” says Tommy Barnes, president at project44, a technology company that sponsors our annual research project. “The leaders in the space continue to push themselves and the entire transportation ecosystem toward a digital future.”
However, the Masters did not report an advanced state over medium-sized and small-sized firms in terms of three digital aspects including: having a digital strategy that is cross functional and boundary spanning; a clearly defined supply chain strategy; and a focus on increasing supply chain visibility.
When given the dizzying number of available and emerging digital solutions capable of transforming and improving supply chain operations, why are many firms still spinning in circles instead of driving forward?
For the second year in a row we examined this issue and found that the digital direction taken by this year’s respondents differs significantly from 2018. This can be seen in what they view as the most important technologies to their firm in the next two years.
We see a rise in rank for robotics (No. 5 in 2018 to No. 2 in 2019). Findings from this year’s study imply that several product and market factors taken together are driving the need for automation including: inaccurate sales forecasts, complex operations, the need for increased speed to market, and pressure to reduce overall cycle time.
Combined with data that show the top three challenges currently facing supply chain managers, it’s clear that new approaches are needed for product distribution to respond to changing customer requirements. Managers are also grounded in reality as noted by the importance of integrating supply chain processes and technologies.
From a different perspective, one could see these changes as a refocusing of what technologies can be implemented within the organization. Dare we say, more of a focus on logistics and less on supply chain management? It’s as if the digital direction is internal, and not as boundary spanning as one would hope. Blockchain and the Internet of Things (IoT) have potential; however, perhaps their drop signifies a refocusing on now, and not tomorrow.
To make matters more interesting, managers face significant barriers in their digital transformation. The ranking of barriers to supply chain digitalization from 2018 to 2019 indicates a continued uncertainty as to how to move forward.
In 2019, companies reported that their No. 1 barrier was a “lack of understanding of digital technologies and their impact”—a factor that ranked No. 2 in 2018. Other than this similarity, the ranking of obstacles year-over-year are significantly different. For example, in 2018 the lack of collaboration in the organizational structure was the top obstacle, but by 2019 this factor was ranked No. 5. Perhaps the most disheartening result is the lack of improvement of the factor “difficulty aligning supply chain technology to the overall business.”
Just as challenging are 2019 top-ranked obstacles including “focus on incremental change rather than transformation” and “selecting operations for supply chain digital transformation that are too complex.” As noted in the list of the biggest barriers, “too many technology options/too little standardization” also impedes digitization progress. Further, many of the digital technologies are still in early stages of testing (e.g. Blockchain) or large-scale adoption (e.g. additive manufacturing, artificial intelligence/cognitive technology).
Digitalization in transportation
It has been said that technology is dramatically changing the way companies procure and manage transportation services. In this year’s study, we asked participants to describe how spending on truckload freight may change over the next year. The initial review of the findings indicated that most managers expected no change in how they currently procure and manage truckload services.
However, analyzing the data from a different perspective reveals some digital gaps to consider. When considering respondents that are increasing their spending, decreasing spending or keeping spending the same, brokers with limited technology are going to be losing business faster than gaining. In this arena, it’s now clear that technology is no longer just an add-on—it’s table stakes.
This could lead some to infer that load boards, broadcast tendering, and app-based truck brokerage would be the ideal solution. However, growth rates here are hindered by customers reducing overall spend—while none of these three technology options are growing as fast as traditional truck brokers.
This is a missed opportunity, and perhaps one that’s not unexpected. We asked respondents about utilization of current transportation technologies. While 29% of respondents stated that they’re “mostly utilizing” their current transportation technologies, a much larger percentage (45.2%) reported that they’re “somewhat” to “not fully utilizing” available technology’s capability.
On a positive tone, 22.6% of participants noted they’re “fully utilizing” their transportation technology. “The results are not surprising. Implementing modern technology in the transportation space is hard, and some companies still prefer to throw bodies at issues that digitalization can solve. While it may be easier in the short-term, the long-term implications on efficiency and customer happiness will be damaging,” says T.J. Schaefer, Ph.D, vice president at project44.
Setting a digital direction at a time of uncertainty and change is indeed difficult. While none of us can forecast the future, there are some key principles to keep in mind when it comes to moving in the right direction.
Build your foundation. Doing nothing is not an option. The market changes are too fast and complex that not being in the game will be costly and hard to make up. The first step is determining what you want to do, and this needs to be done based on current and future
Build out on the current foundation. Are you using what you have now? Most logistics operations aren’t leveraging the technology they already own or adding solutions to more fully leverage the technology that’s already in place. Fully utilizing the tools on hand is less costly than replacements.
Build up on the foundation. That is, find solutions that will maximize the current technologies you have in place. For instance, what solutions will fit into your current transportation management system, warehouse management system, and enterprise resource planning system to make them more effective?
There’s not doubt that there’s a overwhelming array of digital solutions that have the ability to transform logistics, transportation and our supply chains. No longer do the Masters have singular digital capabilities that can’t be matched by competitors, and only time will tell what leaders will spring forward in this uncertain world.
Original Source: https://www.logisticsmgmt.com/article/masters_of_logistics_28th_find_your_digital_direction