March 31, 2023
3
min. read
Digitizing Supply Chains in the real world: what works and what doesn’t
Let’s make some bold 2023 predictions. “Logistics will take a huge step change through better connectivity, advanced analytics, additive manufacturing, and advanced automation” and future supply chains “will be faster, more flexible, more granular, more accurate and more efficient.” The keywords underpinning it all: “automate anything, analyze everything”.
Except these aren’t my 2023 predictions. In fact, these were made almost 8 years ago by McKinsey’s Knut Alicke, Jürgen Rachor, and Andreas Seyfert in 2016.1
In the meantime, other industry experts and research have portrayed a similar outlook. For example, in its 2017 Supply Chain Top 25 Ranking, Gartner mentioned advanced analytics as one of “the most disruptive and impactful technologies.”2
Right along with these narratives, investment in logistics technology and digital supply chain management solutions soared. Almost 10 billion USD of capital funding was injected into supply chain technology in 2016 alone, followed by 14.5B in 2018, 11.2B in 2019, 10.3B in 2020, and an all-time high of 19.1B USD in 2021.
As a result, there were about 32 Supply Chain Management Unicorns at the end of 20223 and revenue from supply chain management software is expected to reach a market volume of USD 23.21 billion by 2027.4
Between the soaring investment and the expert analyses that supported it, one could be forgiven for thinking that the industrial revolution 4.05 in supply chain is well on its way, with digital solutions and technological innovation already reaching even the farthest and darkest corners of the landscape.
And yet, 5-8 years later:
- Several unicorns that were widely touted as industry disruptors are now pivoting or using marketing spend to hide existential doubts.
- Excel is the most-used Transport Management System (TMS) in many companies. There are global companies managing annual transport budgets of over 100M USD still relying on Excel and E-Mails.
- Data and process standards either don’t exist or are highly fragmented, with relatively few cases of partner integration and workflow automation. The result is not only inefficiency, but a lack of both low macro and micro visibility that blocks meaningful analysis.
This is what ineffective digitization looks like
So why, after years of heavy log-tech investments, are companies still looking for the same things as they have been since 2016? From our perspective there are three major bottlenecks, and the lack of great technology on the market is not one of them.
1. Hype creates misunderstanding and misalignment of expectations
- The Digital Freight Forwarder Model
Companies like Flexport, Forto, Zencargo and others are as much about narrative building as they are about making products. Whether intentionally or not, they helped create a narrative that the freight forwarding world is analogue and outdated. Hence, the expectation was that investments in digital freight forwarding would be impactful at scale, both directly for intermediaries and throughout the industry.
However, the value proposition and go-to-market strategy have been conflicting since day one. Digital freight forwarders aspired toward industry changing process automation, yet built products and growth engines focused on small shippers and FBA merchants. From a sales cycle perspective this made sense. After all, this segment is inclined to appreciate the simple user interface and make decisions quickly. Yet from a strategic perspective, it meant addressing a customer base with high price-sensitivity and churn that did not help establish credibility or critical-mass in the wider market. Meanwhile, the perfect target customers, industry leaders looking for higher process efficiency, contract as BCOs (Beneficial Cargo Owners) with carriers directly and either use a neutral 4PL or a dedicated TMS. The 4PL solutions and TMS providers for the most part is neither outdated nor analogue. Consequently, a huge amount of money was spent on customer acquisition and meeting price sensitivity with subsidized freight rates, and the status quo barely moved.
- The Blockchain-dilemma: Technology as an end, rather than a means
For years there has been hype surrounding blockchain, AI, and more for challenges which do not necessarily require high-tech, but commitment of domain knowledge. TradeLens and other initiatives had a legitimate reason to exist and might have created value for their customers in the long term. However, the focus was always placed on the technology itself, rather than the value that they were creating, network alignment and standardization, something which would have been feasible without a distributed ledger. Choosing an overly complex tech-stack meant increased engineering, marketing, and customer adoption challenges, at the expense of impact, and ultimately, viability.
In both cases, the hype machine pushes focus in the wrong direction: toward the product itself, rather than toward the users and the knock-on effects of the product. Therefore, both the initiatives to digitize supply chain management and the expectations surrounding them are pushed into an inefficient path.
2. Different “languages” among stakeholders leading to a fragmented landscape
Once a company commits to digitizing their logistics and supply chain ecosystem and the processes around it, there is still the need to integrate this with the outside world. Whether it is operational logistics procurement (e.g., freight rates for FTL, LTL, FCL, LCL, Airfreight, TC), order management, carrier allocation & transport booking, transport monitoring or freight billing & audit, there are no true standards in communication to date. And if there are standards, they are not always followed.
Take the case of UN LoCodes. They’ve existed since 1981 and yet anyone who’s ever seen freight rates will know that they are living proof of just how creative supply chain professionals can be!
3. Lack of resources
Both above examples are solvable, but they require commitment and resources over time. This would mean dodging the hype and instead of waiting for blockchain to solve it, figuring out what digital solutions are really needed. It also means “translating” (= mapping) the partner landscape to one’s own language, and potentially integrating partners into workflows electronically. Often the idea of setting up system integrations with partners and deploying the required tech resources that go along with it dampens the motivation to start an initiative in the first place. If blockchain is a miracle drug, then tackling process digitization and partner integration with existing solutions is diet and exercise. News flash, supply chain leaders are people too, and we know which route many humans would choose.
How companies can overcome ambiguity, fragmented landscapes, and scarcity of resources?
Companies must separate the hype from the underlying applicability and value creation of new tools and solutions. Does it really fit the use case? Will it meaningfully enable and improve existing processes and supplier relationships? Can it handle the exceptions and interruptions of real life, or does it only work in the mythical “happy flow?” Over what time frame will its impact be felt? Answering these questions early in the buying process reduces misaligned expectations and brings the focus back to what digitization should be achieving.
In 2023 supply chain digitization looks like this:
1. Effortless integration of stakeholders
Supply chains are ecosystems that work when their elements are well-connected to each other. When talking about integrations, the dreaded EDI (Electronic Data Interchange) is top-of-mind. Not only is it both time and resource consuming, but it is also inefficient and outdated. There are, luckily, other integration options. Two extremely efficient and simple examples are:
- REST API:
A technology that enables real-time communication between different systems (e.g. ERP and CRM). It is faster, more flexible, easier to implement than an EDI interface, and requires less specialized knowledge. Supply chain professionals can map messages according to their own data structure and exchange it with a connectivity platform which then integrates with their external stakeholder landscape. In this way it is possible to nominate partners in a plug & play style without changing processes.
For example, with API, shippers can integrate their ERP (Enterprise Resource Planning) with a Supply Chain Control Tower (like Logward) or a Supply Chain orchestration layer.
- The “get-going-today” solution:
Rest API sounds great, but the sad reality is that if your company had available IT resources, you would not be reading this article about how to digitize supply chains. For the last three years, logistics has received a lot of C-Level attention, but it is already clear that interest is decreasing as transport costs normalize again. So, what to do? Instead of waiting for IT budgets and resources to be granted, supply chain professionals can simply utilize their existing Excel files for data exchage. For example, there are solutions out there – e.g. Logward – that parse, auto-upload and auto-export Excel file in a pre-defined structure. Exchanging an .xlsx- or .csv-file on a regular basis has proven to be a great workaround on the pathway towards a “real” and proper interface.
2. Let tech follow business via agile No-Code tailoring
Each supply chain looks different. Instead of forcing your organization to adapt to a framework that does not fit, which will result in large change management projects - and those often fail – why not tailor your software suite so that it really covers your requirements? Sure, you could adapt your SAP or Oracle to meet your needs. Have fun dealing with:
- Immense cost for internal IT resources
- Immense cost for external resources (licenses, consulting)
- Very long timelines and high opportunity cost
What if your domain experts could tailor software themselves, though – without coding knowledge?! Imagine your Head of Supply Chain designing the perfect tech solution for your company. Enter no or low code, which does exactly that.
As just one example, Logward follows a strict No-Code approach that lets our software users quickly and easily adjust the configuration to their needs.
3. Get tangible – More POC and less hype
Easy story: Spend time testing real results in iterations, be AGILE!
Perfect project plans and system rollouts that work out exactly as predicted only exist on slide decks. Working side-by-side with your solution provider on real data enables you to cross the bridge between business needs and solution design and ensures long-term knowledge and partnership building.
Conclusion
Don’t let the "trending topics" drive your agenda. While the hype is often supported by well-meaning and talented experts who may well be right in the long run, it doesn’t mean it’s applicable for your company right now. You need to understand and carefully inspect what exactly it is that your business lacks and whether a solution/product truly adds value to your reality and your long-term vision.
References
3 - https://www.crunchbase.com/hub/supply-chain-management-unicorn-startups
5 - Marmolejo-Saucedo, J. and Hartmann, S. (2020)
Logward is a Hamburg & Bangalore based logistics technology company.
We build software, move containers, and change mindsets.
If you have any questions or just want to say hi, reach out to mail@logward.com. Or you can book time with one of our logistics experts here.