Financing and Capital Markets

How Logistics Firms Can Leverage Emerging Technologies

How Logistics Firms Can Leverage Emerging Technologies

When it comes to realizing the potential of the Internet of Things (IoT) to reduce costs, ease regulatory compliance and generate new revenue streams, the logistics industry is “just at the beginning of the beginning,” according to Georgia Tech’s Alain Louchez, Managing Director of the Center for the Development and Application of Internet of Things Technologies (CDAIT). Although some companies are integrating IoT-related technologies into their operations, most are still working to understand the wide array of opportunities.

By improving visibility into the supply chain, IoT technologies enhance logistics companies’ efficiency. Firms can, for example, monitor and optimize transportation conditions to prevent spoilage of perishable goods. Such advances can also help logistics companies and their customers comply with regulations on food safety, pharmaceuticals and more, says Louchez. Sensors on individual items can even alert the logistics firm if a package has been opened, which can help deter theft. All these applications offer companies ways to provide new value to customers and generate more revenue.

“Integration is a good description of what the injection of these technologies in the space can bring about,” Louchez says. “IoT technologies, especially for the supply chain, allow you to connect things that perhaps before were siloed. And that’s very important for logistics. If you can efficiently integrate the different components of your chain, you’re halfway there.” 

Innovation Breeds Vulnerability 

While enhanced connectivity solutions come with a number of advantages, they also raise questions about standards and security, both of which continue to evolve with technology.

No single approach has emerged as the most likely winner when it comes to standards, but there are some front-runners. Louchez cites the U.S.-based Industrial Internet Consortium and Germany’s Plattform Industrie 4.0 as key initiatives for logistics firms to follow. Since 2015, the two groups have been working together to identify commonalities and plan for future interoperability.1

High-profile security breaches stemming from the IoT have already made headlines, including an October attack that hit some of the world’s most popular websites, such as Twitter and Etsy, through connected devices.2 “People are concerned; they are saying, ‘It’s fine and dandy that you are promising a new world with everything connected, but the flip side is that we are becoming more vulnerable,’” says Louchez. Around the world, researchers and officials are working on IoT security issues, he adds, and he expects cyber-security regulations specific to IoT devices to emerge in the future.

“But regardless of whether we have regulations that force us to do it, this is an important concern, and security will be very important for logistics. You want to make sure that nobody has access to the information related to what you are transporting in your supply chain,” Louchez says. 

Despite these potential challenges, Louchez remains confident that IoT technologies are extremely beneficial for logistics companies. “These technologies will transform your company,” he notes. “Be prepared for that. One of the challenges will be to find the right expertise. That’s a constant challenge we see across all market verticals. The transformation of these processes requires a different type of expertise and training, and we talk a lot about re-skilling. Companies need to be attentive to these issues now so that they can be competitive tomorrow.”

The future of logistics will incorporate more than IoT technologies, says Benoit Montreuil, Coca-Cola Chair of Material Handling and Distribution, Stewart School of Industrial & Systems Engineering at Georgia Tech. Indeed, the economic, social and environmental sustainability of the industry depends on making fundamental changes. Order-of-magnitude improvements are necessary to address everything from traceability to security, carbon emissions, resilience and employee quality of life. 

Welcome to the Physical Internet 

Montreuil developed the concept of the Physical Internet (PI) as a way to redesign how goods are produced, moved, stored and supplied throughout the world. As its conceptual model, the PI mirrors its process with the digital internet, which carries standardized data packets along open routes from one user to another.

The PI takes a similar approach to physical goods. For logistics, that means moving away from dedicated distribution networks and toward a distribution web of open and connected networks. In this environment, companies gain transparency into all their conveyance options and see possibility in partnering with other firms to more efficiently use available capacity. 

For example, there are currently more than 535,000 warehousing and distribution centers in the U.S. alone, according to Montreuil, and most of them each serve only a single company. At the same time, most companies use one distribution center, and almost no company operates more than 20 centers. Even centers operated by third-party logistics providers that serve more than one company frequently have unused capacity. In the PI, some or all of the 535,000 centers would offer services to any company, thereby dramatically reducing delivery times to consumers or retail locations and offering logistics companies additional revenue potential.

Delivery lockers, such as those Amazon has in some areas, are another example of the PI’s potential. Consumers can have their purchases delivered to these lockers rather than their homes, usually in return for faster service times or lower shipping charges. Consumers can also return purchases using these lockers. Although these lockers offer convenience, there is a potential downside as they proliferate.

“You may end up having one bank from Wal-Mart near your community, one from Amazon, another from FedEx, another from UPS, and so on,” says Montreuil. “You end up inundated with a bunch of smart locker banks with low usage rates, that aren’t that profitable and that take up a lot of space.”

A PI application of smart lockers would see one bank of white-label lockers that all follow the same usage protocols, helping to reduce logistics companies’ and retailers’ costs and avoid wasting space. 

Implementing PI principles in transportation could reduce costs system-wide by 30 percent or more, and reduce greenhouse gas emissions by 30 to 60 percent while preserving service levels, says Montreuil. 

The Importance of Collaboration   

The move from today’s logistics system to the PI will require collaboration, but not the usual kind. “Collaboration in industry is often associated with strategic alliances, consortiums, big contracts, things like that,” says Montreuil. “In the Physical Internet, we are going after open asset sharing, open collaboration, where you’re using platforms that make collaboration no big deal.”

When, for example, distribution centers open their doors to new customers, they are creating new potential revenue streams and offering a valuable service. They are not entering into an alliance.

Still, transitioning to the PI will require coordination among companies to build scalable prototypes that showcase the PI’s potential and lay the foundation for the necessary infrastructure. And, IoT technologies and digital interconnectivity will be key to PI implementation because they enable visibility, interactivity and real-time decision-making.

To prepare for the future, Montreuil recommends logistics executives consider how the IoT and PI will affect their companies. “Also, understand the capabilities that market is going to ask you to have,” he adds. “What are the physical things that are going to be requested of you, in terms of customization, agility, responsiveness, et cetera? Then ask yourself, ‘Will I make this happen if I keep going the old way?’” He also suggests defining what the company’s long-term vision would be in a completely PI-run world and designing short-term actions that can advance that vision.

At the heart of a successful transition will be capable, flexible employees, adds Louchez. “Having the right people with the right qualifications in the right spots should be the most important thing to focus on. The technologies will evolve, but you have to make sure you have people who are flexible and who can move and adjust to the changes. 

An Essential—but Often Missing—Ingredient for Efficient Operations   

As logistics firms invest in ways to enhance the flow of goods, they may overlook the importance and substantial benefits modernizing their financial flows. In his visits to ports and logistics firms, Corbin Hankins, first vice president and specialized sales consultant for SunTrust, finds many company leaders are unaware of the hidden costs of common payment and treasury practices.

For example, ports and logistics companies often rely on manual checks to pay employees and vendors, a costly and potentially risky process. Check preparation is time-consuming and prone to errors, leading to potentially long reconciliation times. It also leaves firms vulnerable to fraud. The ultimate impact, however, goes much deeper.  

Streamlining payment and treasury practices, such as using ACH and payment cards, can sharpen a company’s competitive edge by freeing up funds that could be invested in advances like the IoT and PI. Indeed, one trucking company Hankins worked with found that paying vendors by card rather than check would earn the company as much as $80,000 annually in card rebates. Sometimes, firm leadership doesn’t realize just how many transactions can go on a card, including fuel, travel, office supplies and utilities.

“If companies don’t make the investment in back-end efficiencies, they’re unfortunately doing themselves a disservice,” Hankins said. “They can actually make their backend just as efficient as the front end.”   

However, making that transition can present challenges, including questions about how well new systems will work for the business and how the role of employees may change. Outside firms can ease the transition, and Hankins recommends logistics firms follow a four-step process to ensure they find the right partner.

“First, ask yourself, ‘What do you want to achieve?’ You have to be able to define what goal you are trying to achieve. Second, ask yourself, ‘How will I measure what I am looking to achieve?’ What tools, technology and/or reporting is needed to help you gather this data. Third, once you have the data, ‘analyze what you find,’” he said.  “What is the data telling you.” This step clarifies the capabilities that will be necessary to reach the defined goals. Next, logistics companies should look for outside organizations that excel in those areas. “From there, have those organizations come in and talk to you so you can understand if they really have a specialization in your industry,” Hankins suggested.

Finally, implement. Leadership should ask for specific examples of the organization’s work with other, similar firms, including the challenges faced during the process and how they were overcome. Although potential problems and viable solutions will vary from firm to firm, deep industry expertise can make necessary adjustments easier and faster. “When it comes to implementation, make sure you have somebody that knows what they’re doing,” Hankins said. “That can cut your implementation time in half.”

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1 “Industrial Internet Consortium and Plattform Industrie 4.0: Collaboration For Interoperability,” 2016, The Industrial Internet Consortium 

2 “The Possible Vendetta Behind the East Coast Web Slowdown,” Oct. 22, 2016, Bloomberg Technology

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