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Why Is It High Time to Introduce Digital Technologies in Logistics?

Alexander Ivanov

Alexander Ivanov

Head of Logistics and Supply Chain Technologies

Logistics
Feb 8, 2022
8 minutes to read
views

The world has become digital. Businesses introduce innovations in order to meet market demands and withstand their more advanced competitors. The logistics industry is also aspiring to implement IT solutions for managing orders, vehicles, warehouses, or inventories. Let’s take a look at what technologies underpin digitalization and why it is worth investing in custom logistics software development.

Brief market overview

Over the past two years, digital transformation in logistics has been fueled by a pandemic. Logistics companies have been suffering due to flight cancellations, social distancing, and quarantine measures. It took time to adapt to the new working conditions, update the rules for employees, and open the borders.

Covid-19 has boosted digital sales. There has been an uptick in the demand for medical products and pharmaceuticals. These demands have helped the industry get back on track and even ramp up. In 2020, the global logistics market was estimated at $205.44 billion, and Grand View Research predicts its Compound Annual Growth Rate will be 11.8% by 2028.

Business executives report that Covid-19 has accelerated the digital transformation in logistics by an average of 5.3 years.

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Global spending on the digital transformation of the industry will grow from $45.6 billion in 2020 to $75.5 billion by 2026.

Accenture has stated that if cargo companies continue doing business using traditional ways, they will lose their competitiveness and value. By incorporating digital technologies into their operations, enterprises will improve their market position and increase profits by an average of 13% per year. This is one of the reasons why it is worth investing in custom logistics software development. However, there are more reasons for that too.

Reasons for logistics digitalization

With the help of digitalization, logistics firms are striving to solve the following global problems:

  1. Reduce fuel costs.

Fuel is a large expense item. Price increase incurs losses if the organization doesn’t manage to raise shipping costs in time. Due to the volatility of the oil market, logistics firms need to work out fallback scenarios in order to always generate profits and avoid potential breakdowns.

  1. Streamline business processes.

Companies are aspiring to optimize supply chain operations:

  • Manage the shipment of their goods promptly and accurately so that no truck leaves half empty.

  • Manage their fleets more efficiently in order to offer profitable routes and save gasoline.

  • Monitor their warehouse inventories in order to place products more compactly and send them for shipment faster.

Digital solutions for logistics - systems for managing orders, vehicles, inventory, and storage - are created for the above purposes. With such solutions, it is easier to reduce fuel and maintenance costs, satisfy client needs, increase profits, and make a business more efficient.

  1. Improve client service.

Speaking about eCommerce, consumer demands are on the rise there. Statistics say that 40% of buyers are okay with receiving their orders within two days, 18% want their products in a day, and the rest of the clients are willing to wait for three or four days.

An enterprise can quickly deliver products if their working mechanisms go like clockwork and there are no delays in the delivery of goods to the warehouse, in sending them to the client, and so on. This can be achieved through business digitalization, where every element of the supply chain is controlled.

  1. Solve the driver shortage issue.

A lack of professional drivers hinders the advancement of the sector. Usually, young candidates are unwilling to put up with the working conditions. The International Road Transport Union predicts that the deficit of specialists in the member countries will grow by 25%. Continuous travel and a lack of sleep are only some of the reasons why young people are reluctant to become truck drivers. The industry mainly hinges on men who are 45 years old or older.

The mentioned problems can be partially solved through custom logistics software development.

Digital development areas in logistics

Digital transformation in logistics means the introduction of programs, robots, and devices (drones, sensors, etc.) into the activities of a company. Enterprises develop internal operations in the following three areas:

  1. Hyper automation.

Firms combine multiple technologies to improve their processes and interactions between suppliers, customers, the purchasing department, drivers, and others. For example, Artificial Intelligence and Optical Character Recognition handle unstructured sales orders. To achieve greater efficiency, Robotic Process Automation is connected to this model so that an operation is carried out without human intervention.

  1. Elastic logistics.

Flexibility allows organizations to adapt to the market demands and either reduce or expand their supply chains. It solves the problems of slack loads, small storage areas, goods lying for too long, and other inefficiency issues. Elastic logistics is based on Big Data analysis and AI and ML algorithms.

  1. Green logistics.

The aim of eco-friendly logistics is to reduce the negative impact on the environment during transportation, warehousing goods, and other processes. This area seeks to organize the activities of cargo companies in such a way that they benefit the economy, nature, and people. Green supporters want to:

  • improve fleet management in order to plan the route and loading of goods more efficiently;

  • automate warehouse management to save energy and resources;

  • optimize inventory control through robotization.

How are these areas implemented in real life?

Digital technologies in logistics

In order to solve the industry problems through hyper automation, elastic, or green logistics, digital transformation requires the right technologies. Among the participants of a survey by Logistics Viewpoints, 80% noted that they need innovations as never before to enhance transparency and reliability.

Digitalization is determined by the following innovations:

1. Internet of Things (IoT)

Data exchange via IoT sensors provides 100% real-time visibility of the supply chain. With this technology, carriers are able to more efficiently control their fleets and technical condition of vehicles, as well as track shipments and cargo deliveries.

Also, the IoT allows cargo shippers have better control over the storage conditions of their cargo, its placement on the site, and transportation. Internal processes enhanced with the help of the IoT save both parties their time, fuel, money, and reputation.

2. Cloud computing

The Accenture Technology Vision 2021 research has found that cloud computing is now a priority for 42% of supply chain managers, and 93% of the survey respondents are confident that more than 50% of logistics businesses will go to the cloud within the next three years.

The cloud gives logistics the flexibility and scalability it lacks - companies are able to increase or decrease the scope of work based on demands. This technology helps in implementing the ideas of environmental sustainability. Applications with cloud architecture can reduce harmful gas emissions by 5-10%.

Along with that, the cloud makes it easier to collect and analyze Big Data. Such analytics are needed to adjust business strategies and do business more efficiently.

3. Artificial Intelligence and Machine Learning

ML and AI algorithms open up new possibilities for the logistics industry - from autonomous vehicles to Predictive Analytics. McKinsey has found that these technologies are mainly used for the following four business functions:

  • service delivery;

  • product and service creation;

  • marketing;

  • supply chain management.

In 2020, only 12% of logistics firms were using AI. In 6 years, this figure is expected to reach 60%. McKinsey has discovered that 20% of businesses have some form of ML embedded into their operations.

Investments in AI and ML propel cargo transportation profits by 5-10% per year.

4. Robotic Process Automation (RPA)

The logistics sector is gradually introducing the following types of automation:

  • Automated guided carts;

  • Autonomous mobile robots (AMR);

  • Drones;

  • Autonomous cars;

  • Driverless trucks;

  • Forklifts, etc.

AMRs move along predetermined routes, transporting goods for dispatch and storage. Drones accurately count inventory and enter the information into the inventory management system.

Driverless cars and trucks are a part of the long-term perspective, although Kodiak Robotics plans to launch a fourth-generation autonomous truck later this year. They are striving to organize long-distance cargo transportation without people by 2023. Smart transport will solve the problem of driver shortages and reduce the number of accidents.

Experts suppose that driverless vehicles will cut transportation costs, optimize fuel consumption, and shorten delivery times. McKinsey predicts savings of 45% ($85 billion to $125 billion) for the US market.

5. Digital twins

With this technology, specialists design a virtual copy of a real object or process. Logistics firms create 3D models of warehouses to experiment with their planning - determine how to place inventory on the site so that it can be quickly found and loaded into vehicles later.

For example, Ericsson and the port of Livorno in Italy are designing a digital twin that will help to ship goods faster. They are building a digital analog of the port area using the 5G network, IoT sensors, LiDAR, and cameras.

Digital twins can monitor product storage conditions, vehicle technical states, and driving behavior, as well as optimize other operations in the supply chain.

Benefits of digital transformation in logistics

Digitalization is fundamentally changing the way a logistics business is run and gives it a number of advantages:

  • High speed. Automation and real-time control help to avoid delays in warehouse operations and during cargo delivery.

  • Cost-efficiency. When a firm controls gasoline costs, uses mobile robots, or knows how many items to order per season, it saves money.

  • Loyal clients. The sooner consumers receive their orders, the better they think of the supplier. Tracking cargo trips is the new standard that customers love.

Conclusion

Digital transformation is drastically changing the logistics sector, saving businesses time and money through streamlining the supply chain, and helping to outperform competitors and raise an organization's image. Thus, digital technologies in logistics provide the industry with sustainable success.

Andersen can support the successful modernization of your business. We develop various digital solutions for logistics, such as systems for managing warehouses, orders, inventories, and transport. Our employees have completed 45 projects for businesses around the world: FedEx Ground, Nexxiot, Shypple, and others.

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Alexander Ivanov, Head of Logistics and Supply Chain Technologies
Alexander Ivanov

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