Logistics 4.0 and the Connected Customer – LogiSYM April 2019
Connections are a fact of life
Connections shape how we interact with the world around us, whether we communicate or trade goods with each other. Trade connects people within and across countries. From mundane commodities to sophisticated electronic goods, modern trade is conducted on a scale and speed unimagined in the past. All connected through modern supply chains conceived, built and operated within the last fifty years.
Turning back the clock
Yet this was not always the case. Fifty years ago, trade was connected and largely done through fixed phones, faxes and paper documents. Computing power was scarce and run with room-sized mainframe computers. Conducting trade was rewarding but also a complicated and expensive affair – partly due to different business customs and trading rules in different countries. This was before the EU, WTO or NAFTA existed. The high risk involved deterred many companies from going international. Those that did tried to manage their supply chains in-house. Size mattered and big companies dominated international trade.
From then till the present day – we witnessed globalisation, mass computerisation and the standardisation of trade. Global trade boomed and the logistics industry thrived. We saw China become the factory to the world, succinctly demonstrated by a more than five-fold increase in US imports from China from 1995 to 2006 alone. Free trade agreements are commonplace. We have seen container ships mega-size themselves from 2,000 TEUs to 18,000 TEUs. The smartphone is many times more powerful than the mainframes of the past. The end-consumer of today would be hard pressed to imagine a world without imported “exotic” products available all year round. Trade has certainly come a long way!
Steady state? Think again
Yet I would argue that the momentum of change is not over. Our world continues to speedily change and at a scale that could put the last fifty years to shame. Consider these points:
- People and nations are connected like never before – through devices, apps and the Internet.
- Across 65% of the world, every 2 out of 3 people owns a smartphone. In developed countries, this rises to 9 out of 10 people.
- Connected devices are expected to breach 50+ billion (see chart) though the Internet of things.
- Distributed ledger or blockchain technology is linking and validating part, present and future digital data. In spite of the hype of crypto-currencies, industry experts agree that this technology can power “smart” contracts that require little to no human intervention.
- Computing power is “limitless” through cloud computing providers like Amazon Web Services (AWS).
Under any circumstances, the scale of change – online interconnectivity, billions of “smart” devices and unlimited computing power is unprecedented. We have never experienced anything like this. It is a catalyst for further seismic change for trade. By extension, supply chains must also evolve to this new future we call Industry 4.0.
There are numerous studies that attempt to chart the evolution of the logistics industry for Industry 4.0. Numerous factors combined together paint an almost science-fiction like future. But I would advise caution. The future is not set in concrete. These predictions should be taken with a grain of salt. It is simplistic to believe that we will do away with established supply chains, especially asset-heavy networks or structures, for an uncertain future.
What seems clear is that this future state for the logistics industry converges the threads of online interconnectivity, IoT and massive computing power into an evolved state of “Logistics 4.0”. This sounds great but this also brings up a burning question – is how do we get there? There is no established roadmap of what we need to do to get to this future.
This train of thought reminds of conversations with logisticians and industry veterans on the industry’s preparedness for Logistics 4.0. I classify these conversations into two main groups:
- One group largely ignores the change. The business formula that has worked in the past is to customise solutions to customer specific demands. This works really well when customers are consolidating and standardising their supply chains for efficiency. By natural selection, their customers also tend to be large or global businesses, or both.
- Another group have concluded that they must change but are at a loss where, what and how much to change. Much of the new concepts – data analytics, apps, IoT – are alien disciplines to them. Learning and mastering these concepts creates a daunting investment in time, money and energy. Innovation labs or skunkworks are set-up to try to measure each potential idea and probable impact.
Do these descriptions and attitudes sound familiar to you or organizations that you know of? We can choose to ignore this situation at our own peril. It is a sobering thought to point out that we are dealing with an industry-wide global phenomenon, not a localized event.
Recent history has already seen a similar “evolve or exit” issue play out in the postal industry. Under threat from shrinking letter volumes and revenues, postal organizations all over the world experimented in broadening their revenue base by offering a wide array of payment or convenience services. This was a temporary relief. As services shifted to the digital, even this middle-man revenue stream came under pressure. Yet, some postal organizations are experiencing a resurgence, thanks to an e-commerce tsunami that complements their CEP (courier, express and parcel) and network strengths. It has been a painful and instructive lesson.
Change starts from the connected customer
We spoke about the future state of Logistics 4.0 as if it were a goal in and of itself. I put forward that this is only partially true. On a broader scale, new business is increasingly influenced by the combined purchasing power of connected customers. It has never been easier to search, compare and make instant buying decisions. Or conversely, switch brands or products.
Salesforce, a leading global CRM provider, describes the connected customer as placing prime importance on connected experiences and expectations. That means to say that the entire digital and offline customer experience influences whether connected customers buy and continue to buy your products. We call this by other names as well – omni-channel or Generation C.
This means that the supply chain works to the tempo of the connected customer. The logistics to achieve a flawless customer experience is an integral, and increasingly important, part of winning over and retaining customers. It is hard to imagine that any supply chain will be untouched by this change. Non-engagement is not an option. We can only determine the degree of our own engagement.
Reclaiming the initiative
As I mentioned earlier, the future is not set. The modern logistics industry is relatively young and has been resilient in the ups and downs of global trade. Established logistics service providers continue to improve on their deep and meaningful expertise and networks. There is also a wave of vibrant logistics start ups that are innovating new platforms and services.
But there is an urgent need to re-examine how the sources of value are changing around us. We should heed the lessons from the postal industry and take pre-emptive steps to assess what new capabilities will strengthen each of us for Industry 4.0. The connected customer is a key consideration to baseline existing and future capabilities.
It does not need to stop there. The convergence of online connectivity, smart devices and unlimited computing power exist as new tools to evolve the logistics industry. We should not be isolated islands trying to individually stem the tide of change. The diversity of the logistics industry is an advantageous ingredient to help form working relationships to make use of online platforms and technologies that can benefit thousands and millions, rather than one.
Finally, trade and connections continue to matter. The trends towards connectivity holds great potential as a value multiplier for the logistics industry. We should seize this moment to make the future greater than the past fifty years.