Logistics 4.0 – Facing digitalisation driven disruption
Experts from Arthur D. Little’s European office discuss the challenges of managing digitalisation driven disruption in tomorrow’s logistics world with Simon Duval Smith.Read Now
By Vincent Bamberger, Managing Partner in Arthur D. Little’s Paris office and a member of the Transport Practice, Florent Nansé, Manager in Arthur D. Little’s Paris office and a member of the Technology & Innovation Management Practice, Bernd Schreiber, Partner in Arthur D. Little’s Frankfurt office and leader of the Global Operations Management Practice, and Michael Zintel, Principal in Arthur D. Little’s Frankfurt office and a member of the Travel & Transportation Practice.
In the past, legacy logistics players (LLPs) such as DHL, Kuehne + Nagel, DB Schenker, UPS and Nippon Express operated in a stable world, where efficiency, standardisation and low cost were the keys to success. However, digitalisation has changed this focus, transforming the market. New, digital-native entrants are better able to adapt to emerging imperatives such as agility, customer centricity and the need to constantly innovate. Legacy players risk being held back by the weight of their past, with static organisations, old IT systems, and complex processes preventing them from competing.
LLPs know they have to adapt, but find it difficult to change directions efficiently and with agility. They have the opportunity to choose from a wide range of technological innovations (from data analytics and drones to crowd sourcing), but can struggle to identify which innovations to adopt and which parts of their business models they should focus on if they are to transform, stay in the game and achieve competitiveness.
With limited resources and time, how should LLPs set their future strategies and ensure they are focusing on the right areas to become digital champions?
This article sets out a potential framework they can use to manage competing priorities and ensure that investment delivers digital transformation.
Logistics 4.0: Tomorrow’s paradigm
Digital innovation enables logistics players to drive efficiency and lower costs, as well as pursue new business opportunities. This transformation is leading to a new paradigm called “Logistics 4.0,” which is based on four key trends:
Data automation and transparency
Data has always been at the heart of logistics, and new advances in data collection and analysis offer the opportunity for companies to better meet their goals:
• Strategically, such as by optimizing their route networks
• Tactically, such as by optimizing the number of trucks and drivers required each day
• Operationally, such as by tracking deliveries in real time.
LLPs have been working on optimising these areas for years, and now technology allows increasingly accurate forecasting of requirements (including necessary capacity, personnel time and other operating expenses).
Additionally, real-time, shareable and transparent data provides the ability to introduce new, game-changing technologies such as omniscient control towers (delivering end-to-end visibility over the supply chain), artificial intelligence and augmented reality.
2. New methods of physical transportation
Driverless vehicles, handling robots and drones are already in operation and showing financial benefits to the companies that have adopted them. Handling the introduction of these innovations successfully raises new questions around areas such as employment, control and liability.
3. Digital platforms
By enabling the sharing of capital expenses around areas such as warehouses and fleets, digital platforms represent the biggest disruption to the sector, because:
• It enables new, capex-free actors to enter the ecosystem
• It opens up new business-model opportunities
• The platform model leads to a race for size, often resulting in either a “winner-takes-all” model, or at least a very concentrated market
• Crowdsourcing-based business models are still emerging. However, first initiatives, such as DHL MyWays, which enables anyone to carry out last-mile deliveries, open up the sector to new, disruptive models.
4. New production methods
Techniques such 3D printing and additive manufacturing have the potential to change traditional logistics, enabling new, decentralised business models. For example, the need for transportation of specific products could be replaced by on-site 3D printing, in some cases. This creates the opportunity for contract logistics providers to integrate 3D printing services into their offerings, providing last mile customisation.
>In addition to lagging in digital transformation, LLPs face six challenges to embracing the Logistics 4.0 paradigm:
1. They struggle to combine new technologies with their own, outdated system/process frameworks.
2. They are reluctant to adopt new business models.
3. Cash/capex requirements prevent them for making heavy new investments.
4. They find it difficult to manage uncertainties and financial risk.
5. They are not open towards external ecosystems.
6. They do not have structured innovation processes in place.
Currently the logistics landscape is defined by antiquated customer interfaces, a lack of pricing transparency, and asset utilisation inefficiencies, with empty ships, trucks, and containers. This means the industry is vulnerable to the disruptive impact of digitalisation.
Selecting top priorities
At a strategic level, LLPs have to plan to ensure they are protected from potential threats. But as well as being defensive, this strategy should help them seize the opportunities that digitalisation provides.
Understanding the right approach to take begins with analyzing which trends could impact their businesses most. From this LLPs must create shortlists of topics they will have to address, based on the intersection of the building blocks and the impacted areas. These topics might represent threats to their businesses, or could be future opportunities.
1. Processes at each supply-chain milestone will be impacted by Logistics 4.0. For instance, logistics processes will see a significant efficiency increase through automated, connected operations with real-time control, while the standardization of data formats will disrupt forwarding logistics. LLPs will have to deal with difficult investment choices between new enablers (e.g., platforms, driverless trucks, and software), which often require significant capital expenditure and high levels of risk.
2. The supply-chain architecture will be transformed by digitalisation. For instance, Tier 1 automotive players such as Faurecia are looking at creating self-adaptive supply chains by integrating an end-to-end logistics view. LLPs need to ensure they are not missing the move to digitalisation – they need to understand when it is likely to occur and evaluate whether they should drive early change by proactively partnering with different players within the logistics supply chain.
3. The competitive landscape is already changing. Although legacy players have a part to play, major disruption is expected to come from new entrants, free of the need to run their existing, low-margin core businesses. New players such as Amazon can more easily develop data compatibility across stakeholders, and have money to invest and no legacy-system burdens. LLPs must therefore step back and rethink their positions in the supply chain. Should they move from being third-party logistics players to fourth-party suppliers? Should they focus on their assets? Should they invest in start-ups, or should they set up their own incubators?
4. Digitalisation will enable companies to enrich their offerings and improve customer experience. For example, they could offer flexibility in terms of delivery time slots and location, even for non-physical addresses. Every part of the process can have a strong impact on the customer experience. Drones will enhance delivery possibilities and data will offer real-time and transparent information. LLPs should understand which topics they have to address as priorities depending on their businesses, and identify how customer experience can be improved through digitalisation.
5. Market needs will change with digitalisation. Customer activities will evolve, their ability to connect with partners and organise logistics will increase, and even their products could potentially disrupt the logistics chain. For instance, automated cars will make car carriers useless, while different industries will be able to merge their shipments at local levels thanks to transparent data making logistics cheaper. LLPs will need to understand how they can follow these trends, anticipate them and be prepared for disruption.
Picking the right action mode
Once the right topics have been identified, picking the right action mode with which to tackle them is key to allowing LLPs to optimise their chances of transforming potential threats into opportunities. Depending on the individual topic and situation, certain action modes will be much more appropriate than others.
There are four broad action modes:
Disruption project powered by group function: To tackle major disruption to an LLP, when the company has the relevant skills inhouse, an ad-hoc project team should be created, with governance at the group level. This core project team should be dedicated to the task and leverage resources within the organisation to ensure that it has all the required skills to solve the issue. This action mode forces top management to consider and assess the strategic issues of the overall company, while keeping full control of the solution in order to turn it into a competitive advantage. The common pitfalls of implementing this mode revolve around organisation, such as how to focus senior resources on temporary projects full time, and how to leverage ad hoc resources within the organisation without impacting their day-to-day activities.
Entrepreneurial project in branches: in case of limited disruption, when the company has the relevant skills in-house, a specific project should be created at the branch level. There should be a dedicated project manager, while relevant resources within the branch (and the overall support function) provide their expertise to help tackle the issue. This mode ensures that the right action takes place without deflecting the organisation from its day-to-day business. As well as organisational issues, the most common pitfall to watch for when implementing this approach is whether the project results can be applied to other branches – the “not-invented/initiated- here” syndrome.
Open Lab: If disruption is expected to be major, but the company hasn’t the relevant skills in-house, it should set up an initiative such as an open laboratory. Leveraging external players to acquire either specific knowledge (through JVs or alliances) or non-identified knowledge (through innovation platforms, contests, or user communities) has to be initiated and led by one of the companies involved. This mode enables LLPs to take a wider approach to the topic and tends to generate an optimal solution for the partners involved. Nevertheless, issues around IP management (including what premium the company that initiated the lab receives) are frequent and have to be planned for.
Open project: If disruption is predicted to be small, and the company does not have the relevant skills in-house, an open-project initiative can be set up. Similar to open lab in its philosophy, it is much less resource intensive, but it is more difficult to manage, many players are involved and control of IP becomes a major topic to tackle.
Depending on the context and their cultures, companies could opt for different implementation methods to deliver results: from quick explorations (e.g., three-week sprints) to longer-term projects based on top-down, strategic decisions. For example, Arthur D. Little’s “The Breakthrough Factory” is very adaptable to open initiatives, enabling companies to complete them in a limited time (less than one year).
Although the logistics industry is late stepping into digital transformation, Logistics 4.0 is on its way. Radical innovations, new entrants and external factors are about to disrupt the industry in every segment of the logistics chain.
LLPs have to investigate those risks and opportunities, finding the right balance between a top-down, strategic vision and a bottom-up sprint. To do this successfully they need to follow a three-step process:
1. Analyse which trends could impact the business first.
2. Create a shortlist of topics to focus on, based on the building blocks of Logistics 4.0 and these trends.
3. Select the right action mode to tackle each topic.
In every case, LLPs have to pay close attention to the execution of their implementation choices. They will have to focus particularly on the following points:
– Make sure they have deep understanding of the business model set-up
– Be quick, because the competition will not wait
– Correctly assess the risks of arriving late
– Be agile in the choice of their partners.
The time has come for LLPs to navigate a tricky transformation, as there is no room for errors in such a capex- and labor-intensive industry. Winners will be those able to turn these coming transformations into opportunities, thanks to the ability to anticipate trends, unleash innovation capabilities and build quick, agile aptitude for transformation.
XPO Logistics opens eight new last mile hubs to meet demand
XPO Logistics, Inc., the global provider of transportation and logistics solutions, has announced that it has completed the opening of eight last mile logistics hubs ahead of Black Friday, the start of the holiday shopping season.Read Now
The hubs are part of the company's previously announced plans to expand its last mile footprint to 85 hubs by late 2018. XPO is the largest last mile logistics provider for heavy goods in North America, facilitating over 13 million deliveries a year.
Troy Cooper, chief operating officer of XPO Logistics, said, "We're anticipating strong demand this holiday season, as more people are purchasing heavy goods online. Our last mile expansion is directly related to the rapid growth of e-commerce and omnichannel retail. The scale of our network speeds fulfillment, while our technology gives retailers, e-tailers and consumers control over the shopping experience. These are critical components of ensuring consumer satisfaction with digital purchases."
XPO facilitates the movement of heavy goods from retailers and e-commerce companies to households and businesses. Experienced associates at XPO facilities perform value-added services such as the inspection, repair and pre-assembly of goods in preparation for delivery.
XPO's North American last mile network now includes 53 hubs. The newest facilities are located in: Birmingham, Ala.; Buffalo, N.Y.; Jacksonville, Fla.; Los Angeles, Calif.; Milwaukee, Wisc.; Savannah, Ga.; Tulsa, Okla.; and Washington, D.C.
Schaeffler invests $210 million in logistics centre in Saxony-Anhalt Germany with 3PL Neovia Logistics
The Board of Managing Directors of Schaeffler AG and its Supervisory Board have signed off on a $210 million investment to build a new state-of-the-art assembly and packaging centre, called 'Aftermarket Kitting Operation' (AKO), in the 'Star Park' industrial estate in the city of Halle (Saale), Germany.Read Now
Occupying an area of more than 40,000 square metres, the new facility will assemble and package kits from Schaeffler's inventory of automotive aftermarket spare parts and repair solutions. The plant will be commissioned in late 2019. The construction and operation of the facility will be managed by general contractor and third-party logistics provider Neovia Logistics. The project will create around 900 new jobs at the Halle (Saale) location.
The new assembly and packaging centre will further optimise Schaeffler's Automotive Aftermarket processes and generate sustained improvements in quality of delivery. It will be the main supply hub for all of the Automotive Aftermarket division's other regional warehouses in Europe while at the same time serving as the regional warehouse for Germany, Austria and Switzerland. Once the new centre is up and running, customers in those countries will benefit from even shorter delivery times.
Michael Söding, designated Member of the Schaeffler AG Board of Managing Directors and Head of the company's Automotive Aftermarket division, explains: "Our agreement with Neovia Logistics marks an important milestone on our way to building a state-of-the-art assembly and packaging centre in Halle's 'Star Park' industrial estate. The centre will further optimise our processes and throughput times and hence enable us to provide an even faster, more reliable and more flexible service to our customers."
Over 40,000 different parts and components for passenger cars, light and heavy utility vehicles and tractors will be picked, packaged and dispatched at the new assembly and packaging facility. The centre's inventory comprises parts for clutch, clutch release, engine, transmission and chassis systems.
Klaus Rosenfeld, Chief Executive Officer Schaeffler AG, said: "The investment underscores the strategic importance of our Automotive Aftermarket business, which will be managed as a stand-alone division by Mr. Söding as from January 1, 2018. It is also a clear sign of our commitment to Germany as a business location and to our strategy 'Mobility for tomorrow'. On that basis we will further raise our competitiveness and consolidate our position as a leading technology partner to our automotive customers in Europe and around the world."
New survey shows UK and EU businesses planning to move supply chains
The number of supply chain managers looking to localise their respective supply chains because of Brexit has grown, according to the latest survey from the Chartered Institute of Procurement & Supply (CIPS).Read Now
Some 63% of EU businesses expect to move their supply chains out of the UK, while 40% of UK businesses are looking to replace their EU suppliers, the survey has suggested.
A similar survey from the institute in May showed that 45% of businesses from the continent who responded were looking to replace their UK suppliers while 31% of UK supply chain managers taking part said they were looking to replace their EU suppliers with local ones.
Hopes of a smooth transition into a trade agreement in March 2019 suffered a setback recently when the European Parliament decided that talks over the terms of the divorce had not progressed sufficiently for the next stage of negotiations, covering the two trade partners' future relationship, to begin.
The CIPS survey of 1,118 supply chain managers was conducted between September 4 and October 5. A total of 106 EU-based businesses with British supply chains took part in the survey, including 702 UK businesses with EU suppliers and 106 EU businesses with UK supply chains.
CIPS said a fifth of British businesses were struggling to secure contracts that extend beyond March 2019, the date Britain is due to leave the EU; while nearly one in ten (8%) UK businesses said their organisations had already lost contracts as a result of Brexit – with 14% believing part or all of their organisation's operations will no longer be viable.
Meanwhile, 25% of UK businesses with more than 250 employees have already spent more than $131,000 preparing their supply chain for the split. Only 14% of UK businesses with EU suppliers feel like they are sufficiently prepared for Brexit.
(picture courtesy of Jeff Djevdet speedpropertybuyers.co.uk/)
Southampton UK welcomes the largest container ship to visit the port
Associated British Ports (ABP) Southampton has welcomed Milan Maersk, a new Triple-E class container ship, the largest container vessel to visit the port.Read Now
The Triple-E class is among the largest and most efficient fleet of container vessels in the world. In 2016 the largest container vessel calling in Southampton had a capacity for 16,000 containers.
This year the port has welcomed MOL Triumph and MOL Trust, with a capacity for 20,170 containers. Milan Maersk is one of the largest vessels of her type in the world with a capacity for 20,568 containers – that's nearly 400 containers more than MOL Triumph.
ABP Southampton Director, Alastair Welch said: "Milan Maersk is just the latest of these new megaships to visit the Port of Southampton. Not only are these vessels bigger – they are much cleaner too and we are seeing more of these new generation ships visiting across the port's key trades. The Port of Southampton is ideally suited to welcome these megaships."
The megaship belongs to the second generation of Maersk Line's Triple-E class (Economy of scale, Energy efficient and Environmentally improved) and is part of a series of eleven container ships, which will be delivered by the end of 2018. Milan Maersk's propulsion and software system creates energy savings which aims to reduce carbon emissions per container vessel by 35%.
About Milan Maersk
- Length overall: 399 metres
- Beam (breadth): 58.6 metres
- Height (above baseline): 75.7 metres
- Height (above waterline): 59.7 metres
- Draught: 16 metres
- Main engine: MAN B&W
- Nominal capacity: 20,568 TEU (twenty-foot-equivalent-unit).
ABP has opened a new Pacific Terminal at Southampton as part of major investment
A vehicle export terminal which is part of a £50 million ($65.6 million) investment by ABP in the Port of Southampton in the UK, has been officially opened by the Minister of State for International Trade, the Rt Hon Greg Hands MP.Read Now
The Port of Southampton is the UK hub for automotive with nine lines undertaking 110 calls to 52 ports in 40 countries every month – making it a huge asset for the UK.
At a ceremony attended by leaders in the automotive industry and civic dignitaries, the International Trade Minister welcomed the opportunity to mark the milestone opening of the terminal which will support a range of UK vehicle manufacturers, including Jaguar Land Rover.
International Trade Minister, Greg Hands said: "The Port of Southampton is key to the UK's exporting success, meeting global demand for UK goods with £40 billion of British-made products shipped out each year for destinations across the world.
"As the UK's busiest vehicle handling port, the launch of the new export terminal will move Britain into fifth gear when it comes to world car exports. This will give a boost to leading British car manufacturers like Jaguar Land Rover by ensuring their cars are able to reach global marketplaces faster."
James Cooper CEO of ABP said: "Southampton is the UK's number one port for exports, handling exports worth some £40 billion, and it is the UK's number one for vehicle exports.
"The port is a critical part of the supply chain for the British automotive industry, providing essential access to global markets.
"The opening of this terminal will build on this critical role and support our customers' drive to continue to grow their exports well into the future."
Alastair Welch, ABP Southampton Director said: "ABP has already invested more than £32 million over the past five years to support the growth in vehicle exports.
"We continue to work closely with our customers to ensure that this growth can be sustained.
"The investment is testimony to the performance of the Port of Southampton and will help increase the port's vital contribution to the regional and national economy."
Southampton is also the UK's Number one for exports to non EU countries, handling £36 billion worth of goods destined for customers outside the continental bloc.
Uniquely, nearly a third of these arrive for export on up to five daily trains.
The terminal, which will be known as the Pacific Terminal, has been completed ahead of schedule and delivers 3,400 additional spaces.
6,700 CEU PCTC The Grande New York delivered to Grimaldi Group
During a short ceremony held recently at the Chinese shipyards of Jinling in Nanjing, the Pure Car & Truck Carrier Grande New York was delivered to the Grimaldi Group.Read Now
Second of a series of three sister units, the Grande New York has a length of 199.90 metres, a width of 32.26 metres, a gross tonnage of 63,000 tonnes and a cruising speed of 19 knots.
The new Italian-flag unit can carry 6,700 CEU (Car Equivalent Units) or alternatively 4,000 linear metres of rolling freight and 2,500 CEU. The Grande New York is equipped with four hoistable decks which make her an extremely flexible vessel, able to transport any type of rolling cargo (cars, vans, trucks, tractors, buses, excavators, etc.) up to 5.2 metres height. In addition, the vessel has two access ramps, a side ramp and a quarter stern ramp, the latter allowing the loading of freight units with a weight up to 150 tons.
The Grande New York is a high performing ship from an environmental point of view. She is fitted with an electronically-controlled (Man Diesel & Turbo) main engine that allows to comply with the new regulations for reducing NOx emissions, while the installed scrubber reduces sulphur oxide (SOx) emissions. Moreover, she is equipped with a ballast water treatment unit, allowing her to meet future international regulations on the matter.
"The Grande New York is part of a programme aiming to enhance the maritime links between the Mediterranean and North America, launched by our Group in recent years with the deployment of ever-modern, highly flexible and environmentally friendly vessels," said Emanuele Grimaldi, Managing Director of the Grimaldi Group.
The Grande New York left the port of Nanjing on November 3 bound for Antwerp where she will be deployed on the weekly ro-ro service operated by the Group between the Mediterranean and North America. The ports served by the maritime link are: Gemlik (Turkey), Gioia Tauro (Italy), Civitavecchia (Italy), Savona (Italy), Halifax, New York, Baltimore, Veracruz (Mexico) and Antwerp (Belgium).
Meanwhile, last 31st of October, the Grande Baltimora, sister vessel of the Grande New York, made her inaugural trip to the US port of Baltimore where she was welcomed by a large delegation composed of civil and maritime authorities, among which John Wobensmith, Secretary of State for the State of Maryland, and James White, Executive Director of the Maryland Port Administration, customers, port operators, managers of the Grimaldi Group and of its daughter company Atlantic Container Line.
During the ceremony, John Wobensmith handed over to Costantino Baldissara, Commercial, Logistics & Operations Director of the Grimaldi Group, a Governor's Citation on behalf of the Governor of the State of Maryland, as a recognition of the 50-year fruitful relationship between the Port of Baltimore and the Grimaldi Group.
The Grande Baltimora is deployed on the Mediterranean-North America weekly service operated by the Group. The next vessel to be delivered to the Group is the Grande Halifax, scheduled for January 2018.
Port of Savannah achieves 32% growth in October
Container trade at the Port of Savannah grew by 32% in October, with Garden City Terminal moving 410,000 twenty-foot equivalent container units (TEUs), an increase of nearly 100,000 TEUs.Read Now
It was the first time in the port's history that it topped 400,000 TEUs in a single month. For the fiscal year to date (July 1-October 31), the Port of Savannah has moved 1.42 million TEUs, up by 155,050 or 12.3%.
"Since the opening of the expanded Panama Canal, Garden City Terminal has experienced meteoric growth," said GPA Executive Director Griff Lynch. "We're now handling more ships, bigger vessels and larger cargo exchanges. By working more weekly vessel calls than any other East Coast port, and serving more neopanamax ships than any other port in the U.S. Southeast, Savannah has strengthened its position as a vital gateway to the global marketplace."
Lynch said the Port of Savannah, with the nation's single largest container terminal in North America, is playing a significant and growing role in supporting the nation's economy, emphasising the need for the timely completion of the Savannah Harbor Expansion Project (SHEP).
"With deeper water, today's 14,000-TEU ships will be able to transit the Savannah River with greater scheduling flexibility, and take on heavier export loads," he said. "Because these larger vessels provide lower cost per container slot, they help make American farms and factories more competitive."
The Port of Savannah leads the East Coast in trade of wood pulp, poultry, kaolin clay and raw cotton. Georgia's ports are also major exporters of paper, paperboard, logs and lumber.
To date, the harbour deepening has been funded by $266 million in state funds and $127.8 million in federal construction dollars. The Administration's FY18 budget proposal devotes $50.06 million to SHEP.
"Unfortunately, the current proposal will not cover all the work that could be completed in a year," said GPA Board Chairman Jimmy Allgood. "We are working with our leaders in Washington in hopes that they will provide additional funds through the U.S. Army Corps of Engineers' work plan."
Allgood said better accommodating neopanamax vessels will yield a massive benefit for the nation's economy by way of cost savings on transportation.
A Corps of Engineers economic impact study found the Savannah project to have the greatest benefit for the nation of any deepening project in the Southeastern U.S. According to the study, the Savannah Harbor deepening will return $7.30 for every dollar spent on construction The Corps estimates the net benefit of transportation savings for shippers and consumers at $282 million per year. The expected total savings to the nation over the course of 50 years is $14.1 billion.
Outer harbour dredging for the Savannah Harbor expansion is 60% complete, while work on other aspects of the project put the total progress at 35% completion. The outer harbour constitutes about half of the shipping channel from deep ocean to Garden City Terminal. Separate contracts will cover deepening the inner harbour.