Digital Supply ChainsNews

Creating value in the supply chain through digital collaboration

( Photo: Shutterstock )

Predictive analytics, AI, blockchain, and intelligent workflows are four key technologies

Transportation and logistics is a difficult industry for generating consistent growth in free cash flow: it tends to be highly capital-intensive with weak returns on invested capital, and companies are exposed to boom-and-bust economic and capacity cycles. For these reasons, the sector is structurally discounted compared to the S&P 500, trading at enterprise multiples well below the stock market as a whole. A leading tech-enabled freight brokerage, for example, is currently trading at 10x EV/EBITDA, compared to 13x for the entire S&P 500.

Nevertheless, investor appetite for transportation companies that can meaningfully differentiate themselves with technology has grown rapidly in the past five years. According to a new FreightWaves study, since 2014, annual venture capital investment in ‘TransportTech’ companies grew 24x to $2.68B year-to-date. It has become clear that the market increasingly views digitization as one of the most important means of creating value and improving the financial fundamentals of companies operating in the supply chain.

Digitizing your business—and that means building products, services, and internal processes on technology rather than simply tacking on technology to a pre-existing model——can be risky. In our view, the risk of becoming a technology laggard is relatively well understood: from Eastman Kodak to Blockbuster and Sears, recent history is replete with stories of companies that failed because they did not innovate. Less well understood, though, is the risk of over-investing in technology and occupying the ‘bleeding edge’ of an industry where companies burn through cash developing technology that may never have a commercial outcome or solve a problem. Think of Segway, which is still unprofitable 17 years after its product was introduced, or Samsung’s baffling recent decision to make WiFi-enabled washing machines.

Fortunately, transportation and logistics companies don’t have to reinvent themselves overnight to create value through digitization. There is plenty of low-hanging fruit that can be captured by incrementally applying digital technologies where they can do the most good today. The immediate opportunities in the supply chain space fall into two broad categories: eliminating inefficiencies and improving decision-making. FreightWaves and Slync see predictive analytics, artificial intelligence (AI), intelligent workflows, and blockchain as four key technologies that will eliminate inefficiencies and improve decision-making in the supply chain by enabling more effective collaboration between partners.

Enterprises generate more data than ever before and are looking for ways to leverage it to see their business in new ways and make better decisions. Predictive analytics extracts information from data sets and uses it to predict trends and behavior patterns, allowing supply chain participants to mitigate risk in down cycles and seize opportunities in growth periods. Freight forwarders can use historical data to predict drayage capacity crunches on the East Coast due to cyclical and seasonal factors; consignees in the United States can proactively manage their order flows in response to models forecasting container rates on the volatile Transpacific lane. Shippers who can accurately predict freight transit times will be able to continue reducing inventory in a period of rising interest rates. In each of those cases, sharing insights between partners creates a data-driven collaborative process producing better decisions and more value.

“This is the digital feedback loop: use the insights, ideas, and innovation generated by the team or your customer as an accelerator for improving the capability and product and service that you already have,” said Ibrahim Gokcen, chief digital officer at A.P. Moller-Maersk, in a September interview with McKinsey.

“Predictive analytics are one of the most powerful things in expediting decision-making in logistics,” said Chris Kirchner, co-founder and CEO of Slync. “If decision makers can proactively solve problems or mitigate potential problems instead of having to fix things after they break, it will radically change how they conduct business on a daily basis.”

AI technologies including natural language processing, virtual assistants, and advanced machine learning algorithms that can execute tasks in addition to making recommendations, are poised to make an even larger impact on corporations’ enterprise values. A recent study predicted that AI frontrunners could double their cash flows by 2030, while non-adopters will see cash flows contract by 20%. In the supply chain, the ability of AI to ingest information in multiple formats—email, bills-of-lading, exception alerts, and weather data—and act on it will shrink administrative and clerical headcounts while reducing error. Repetitive tasks like data entry, routine emails, and track-and-trace communications will be automated, freeing up supply chain managers to concentrate on strategic, high-value decisions. Ultimately, AI-powered collaboration will allow supply chain partners to share higher volumes of more accurate information on demand.

“An enterprise AI platform… can be trained with legislative materials, regulatory documents, customs brokerage SME knowledge, and customer and industry handbooks to learn how to automate customs declarations,” a 2018 report by DHL and IBM found. “Using natural language processing and the self-learning capabilities of deep learning, a customs brokerage AI could ingest customs documents in myriad formats, extract relevant information using its collected body of knowledge, and present an automatic declaration.”

“A.I has tremendous opportunity to solve key problems in logistics and supply chain. Companies have a wealth of data, still untapped, that could drive major optimizations in their business,” said Raj Patel, Slync’s Chief Product Officer.

Blockchain, a technology that creates distributed, cryptographically secured ledgers, is being deployed in the supply chain to help eliminate wasteful dispute resolution and audit processes. Blockchains were first invented to record cryptocurrency transactions, but the technology is well suited to track the movement of other digital assets, including images of damaged or delivered shipments, documents, and temperature and location data. Automated smart contracts run on the blockchain can speed payments and simplify accessorial compensation. Blockchain’s most basic value proposition is a tamper-proof multi-party view into a series of records that creates trust between companies and makes doing business easier.

Over and over, in transportation and logistics we hear two refrains from companies trying to differentiate themselves from their competitors: “we have superior technology” and “we have superior customer service.” Too often, the automation of manual processes and the reduction in workforces means that customers are offered a generic product and little support. But a focus on technology does not have to come at the expense of collaborative partnerships with your customers.

“Visibility is one of the most common asks from a customer throughout the supply chain today,” said Kirchner. “However, I believe the best solutions are a step further–leveraging visibility with intelligent workflows to streamline the time-to-decision for a human. This is where the most impressive and impactful efficiencies are generated. We are seeing this time and time again from customers using our intelligent workflow engine on the Slync platform.”

Slync’s intelligent workflows accelerate customer relations management processes, getting information into the right hands sooner so that companies can get ahead of problems and work with their partners to resolve issues before they arise. It’s best to train machines to do tasks that humans find tedious and let employees apply their creativity and communications skills to tasks requiring a human touch. Slync’s intelligent workflows are designed for companies who want to leverage technology and offer white glove customer service. By growing EBIT per employee and capturing market share, companies adopting intelligent workflows will create additional value in the supply chain and widen their advantage over technology laggards.

Show More

John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley--Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.