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The true impact of digitization and automation on supply chains

The true impact of digitization and automation on supply chains (Photo: Jim Allen/FreightWaves)

Over the last decade, the proliferation of digital applications and platforms into the freight industry has seen steady growth, thanks in part to the conscious push by companies towards embracing technologies that drive efficiency and reduce costs. The rise of e-commerce has ended up putting last-mile logistics in the spotlight, prompting stakeholders to look at automating warehouses, alternative last-mile delivery models, and intelligent route optimization solutions for faster delivery.

“This is because digital is easy. It’s much simpler to go online on your smartphone and get something, as we see a big shift towards mobile purchasing. A lot of these services are designed for mobile devices and not for large computers. Today, the sales cycle and the entire time frame of an actual transaction takes minutes or seconds, compared to several minutes or hours before,” said Dan Khasis, the founder of Route4Me, a route planning software company. 

In some ways, expediting the transaction part of the supply chain equation gets people attuned to expecting faster services, including the last-mile delivery part – which has remained a fertile ground for ecommerce businesses to go one up over its competition by expediting delivery and even fixing short delivery time windows to suit the consumer. “A lot of stuff is happening overall, and it’s happening very fast. There are very high expectations of service levels, primarily led by Amazon and everyone else playing catch up,” said Khasis. 

Though the space looks to be inundated with several startups that are bringing up various digitization use cases for the industry, Khasis believes that the competition is evened out when sectoring companies based on their size, strength, and geographic presence. 

“There aren’t many competitors. Some are targeting specific verticals, and some of them are going after specific horizontals. And there’s inevitably going to be consolidation at some point. But there are too many new opportunities in some of the sectors within logistics, which are a decade ahead of where the market is. That is where consumers and businesses are,” said Khasis. 

Of the different business models and delivery systems that are being innovated within the last-mile delivery niche, Khasis was quite skeptical of the possibilities of using drones as delivery vehicles. 

“I think drones are nothing more than a marketing gimmick to pump up the stock price of some corporations. They’ve got potential in certain ways, like in war zones or highly disconnected areas,” Khasis said. “But if you look at it from a practical perspective, deploying a bunch of robots to fly over New York City or Manhattan, while knowing that people will be walking on sidewalks surrounded by non-stop traffic – I think it’ s entirely impractical.” 

Automating supply chain processes, though innovative and cutting-edge, must not be looked at myopically, but with the need for a perspective on the number of ground-level staff that automation would end up replacing in the future. A sizeable portion of the large logistics forwarders within the U.S. have their workers protected through labor unions, which Khasis explained would intervene when there is a risk of jobs being replaced by an automated robot. 

“The technology might be available, but its practical application is questionable. It depends on the generational age of the people running these businesses, the philosophical perspective that those individuals have, and the legal and compliance regulations that are in place. It is very difficult to effectuate such a transformative change at the speed at which money flows into the industry,” said Khasis. 

For optimization to work on supply chains at-large, the general rule of thumb is to have plenty of data that is accurate and is also near real-time. “Optimization cannot be done in a vacuum or a silo anymore. There are several individuals involved in a transaction, and every single stakeholder today is looking to do their own optimization. And since there’s no full-stack integration between them, there’s a huge efficiency loss here,” said Khasis. 

Khasis pointed out that the future of optimization was in multi-echelon optimization, where stakeholders optimize multiple levels across various interconnected business entities. “Right now, the optimization brings in one or two percent efficiency increase. But if they want to increase efficiency by 20 or 30 percent, they need to adopt a new way of thinking where processes are tightly integrated, with ultra-low latency, and full-stack integrations with all upstream and downstream providers,” he said. 

One Comment

  1. Jon

    Good article. We reduced deadhead miles and sitting trucks by 22% year over year using our new TMS (Ascend TMS) and by optimizing our loads AND our routes in real time as orders come into the warehouse (our cross dock). That cash goes right to the bottom line. We only wish we would have done it sooner (our old TMS was 17 years old and we needed a refresh lol).

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