July 5, 2021

Next Level Supply Chain Management – Digitalisation of logistics

A guide to digitalisation in logistics. Learn about the most important methods, how to implement them and what they achieve.

← BACK TO THE OVERVIEW
← BACK TO THE OVERVIEW

Here is the fourth part of our series "Digitalisation 2021". Following our first three articles on sales, IT security and marketing, this article takes a closer look at the digitalisation of logistics.


Autonomous trucks, warehouse picking robots, light cargo delivery drones, blockchain in logistics (in simple terms, blockchain stands for secure and direct transactions on the internet) or ring scanners (wireless mini barcode scanners that can be worn on the finger) - the future of logistics and supply chains is in full swing. In part four of our "Digitalisation 2021" series, we look at digitalisation in logistics, often referred to as Logistics 4.0 or Supply Chain 4.0. Find out about the challenges this transformation involves and learn how you can successfully tackle them.

What is Logistics 4.0?

First of all, what is Logistics 4.0? Logistics 4.0 is a new logistics paradigm that integrates digital technologies into all aspects of logistics operations. It has been developed to improve speed, efficiency and customer experience while reducing the cost of supply chains worldwide. In addition, also to address increasing demands and the complexity of logistics systems. "People often talk about a mandatory, complementary addition for manufacturing industries 4.0" - There is no Industry 4.0 (the result of the fourth industrial revolution through digitalisation) without digitalisation of the supply chain. Logistics 4.0 is at the very core of Industry 4.0 and regulates the perfect flow of goods and materials from one place to another through digital support.

E-commerce is another strong driver for Logistics 4.0. Today's consumers expect ever faster deliveries and more and more retailers are selling their goods online. The Corona pandemic additionally ensures that products are purchased much more often online. Also the food industry is benefiting greatly from the advances in the digitalisation of logistics. As supermarkets and restaurants offer perishable goods, time pressure is greater than in any other industry. The accelerated flow of information and the consequent saving of time for transporting goods and commodities through Logistics 4.0 is one of the great benefits of this transformation. Its fundamental advantages are greater planning reliability and better transparency (where are the goods?).

Overall, all these benefits naturally translate into significant growth opportunities and competitive advantages for companies that embrace new technologies and innovations. They achieve this advantage because they can reduce their costs and proneness to errors and at the same time speed up delivery and thus increase customer satisfaction.  It is roughly said productivity increases of around 30 per cent are possible through the digitisation of logistics, depending on the length and complexity of the supply chain.

But despite all the advantages, Logistics 4.0 also has its challenges that entrepreneurs have to face.


Supply chain disruptions and risk management

The coronavirus highlights the current weaknesses in supply chains. An example is isopropanol (isopropyl alcohol), which is currently used for disinfection. Due to the pandemic and the high demand, isopropanol has become a scarce commodity. This agent is also used in the production of high-quality castings and determines the casting quality. The Federal Association of the German Foundry Industry (BDG) highlighted by a survey that German foundries will be considerably restricted in their operations as a result and a recession is to be expected. The German mechanical and plant engineering industry is also experiencing similar impairments. One reason is that they are also a large customer of castings, but mainly because mechanical engineering is a strongly globally networked and export-oriented industry.

Distribution of the Corona vaccine is also testing supply chains to the maximum. Extreme safety and quality requirements, extreme temperatures and extreme time pressure. Siemens Digital Logistics calls it a "logistical task of the century". In the wake of this, the pandemic will further reinforce the need for real-time communication, end-to-end transparency and control in supply chains (through blockchain technology). 

How to secure the supply?

Organisations are advised to build up a supplier network that is as fail-safe and resilient as possible, with emergency suppliers and ordering components from different manufacturers (supplier diversification). Whoever can, keeps necessary components in stock. This is another area where artificial intelligence can discover new paths that were previously hidden from "human" supply chain management. A countertrend to globalisation and the increasingly complex supplier networks is so-called "nearshoring". An expression familiar to some readers from the world of IT. This involves relocating important suppliers to a country close to the manufacturer. For example, a German manufacturer who sources important parts from China would move this production from China to Hungary or Romania in order to also increase "supply chain resilience". 


Ransomware, hackers and cybercrime

Cyberattacks are the next challenge and there is great fear in Germany. As we already described in the second part of this series, the "digitalisation of IT security", two out of three companies in Germany are currently under attack. On a global scale, even the biggest players are vulnerable to attacks, as the "world's most valuable brand" Apple found out in April 2021 - the notorious Sodinokibi ransomware group, which had attacked the manufacturer Acer only a month earlier, targeted the Taiwanese supplier Quanta Computer and stole blueprints of unreleased Apple products.

As logistics becomes digitalised, vulnerability is increasing. The Internet of Things (IOT) and the Industrial Internet of Things (IoT) open the floodgates for misuse if they are set up improperly. Companies are advised to involve security experts in the digital transformation and to train their employees accordingly.

(Source: PwC “European Private Business Survey 2019”)


Turnover loss due to scarcity of skilled workers

Digitising the supply chain with its digital strategies is a sophisticated task that requires qualified professionals. Yet in Germany, only one in two logistics companies has these specialists in-house. According to PwC, this means that "almost every tenth logistics company in Germany has to accept losses in turnover of up to ten percent due to the lack of qualified employees." In total, Germany is currently lacking 50,000 skilled workers for the logistics sector.

(Obstacles to digitisation, source: BME "Digitisation in supply chains")



How to implement the digitalisation of the supply chain?

Digitalisation begins with a strategic assessment of logistics requirements and the digital maturity of the company. This allows to define the appropriate digital roadmap, which includes processes, IT and organisational aspects.


(The Digital Transformation Journey by CAMELOT)


Businesses need to continuously monitor and evaluate digital solutions in order to maintain or even increase their competitiveness in the future. When the right technologies for digitalisation are identified, additional company values are generated or even new business areas can be developed. At best, you can become a digital pioneer in your field.

Companies in every industry and of all sizes benefit from using digital technologies. Ultimately, it is an investment calculation. Experience shows that large companies have an easier time making the necessary investments, while small and medium-sized enterprises (SMEs) have to proceed very carefully. Still, there are opportunities for them as well - potential disadvantages in terms of size can be compensated by industry cooperations or collaboration with universities and colleges.

Key technology: Artificial intelligence

The main driver of digitalisation in logistics is artificial intelligence (AI). This is because of the vast amounts of structured and unstructured data (big data) that are generated in this sector. These can only be processed and, above all, evaluated with the help of machines. This allows logistical processes to be optimised considerably, as artificial intelligence frequently reveals unknown ways to improve the supply chain in terms of speed, flexibility and costs.


(Gartner Hype Cycle for Supply Chain Execution Technologies 2020)


Conclusion

The application of new technologies is transforming risk management in supply chains, fundamentally making them more reliable and resilient. Artificial intelligence clearly is the strongest driver in this regard. AI systems can enhance planning processes and optimise delivery times and warehousing by predicting purchasing behaviour. Blockchain enables manufacturers, suppliers and companies to share important information, which in turn ensures transparency and security.

But the "war for talents" is also raging in logistics and the supply chain sector. Qualified workers are the main reason why digitisation is progressing so slowly. Companies often lack knowledge of digital technologies for supply chains and thus also lack ideas for their application.

Artificial intelligence has the greatest potential as a key technology in logistics, and big data analytics, the Internet of Things and blockchain are becoming significantly more important for supply chains.  Having the right team of specialists in Data Science, Machine Learning, Artificial Intelligence, Deep Learning, and Cloud Computing can take the supply chain to the next level or unlock new business areas. We have already seen the future, so don't wait for it to change - help shape it.