5 Disruptions Shaping the Digital Transformation in Distribution and Logistics
Manufacturing and retail transformations, technology disruptions and digitalization of data have redefined the roles of distributors and third party logistics (3PLs). The rate of change is accelerating, driving the transformational initiatives of distributors and 3PLs to stay relevant, create differentiation and execute long-term growth strategy. It’s not just about the change or the expansion of services any longer, but about how fast and flexible their services can be delivered as the manufacturing and retail industries are reinventing themselves, too. Additionally, technology, machine learning and the tightening workforce are now front and center in the CEO agenda. Below are 5 disruptions shaping the digital transformation in distribution and logistics.
1. Digital Transformations in the Manufacturing and Retail Industries
Digitalization is transforming every aspect of business across all industries, particularly impacting the distribution and logistics industries. Healthcare providers expect products, combined with services, to be delivered all the way to the point of care within the hospital, not just to the receiving department. Automotive manufacturers don’t want to carry the burden of carrying raw material components, so distributors and logistics providers need to manage and deliver the right components just-in-time for production. As retailers are advancing their unified commerce strategies and offering a myriad of promises to consumers, including same or next-day delivery, free returns and personalization, often distributors and logistics providers serve the supply chain services behind-the-scenes to represent the retailers’ brands in the market. As manufacturers and retailers continue to transform their strategies, the next challenge distributors and logistics providers face is that they need to accelerate their ability to deliver their services.
At the 2018 BG Strategic Advisors Supply Chain Conference, CEOs agreed that as manufacturers and retailers grow their online channels, logistics providers must become an extension of manufacturing and retail brands and provide personalization, kitting and other value-added services that they can’t profitably and quickly enough to fulfill on their own.
2. Consumerization of B2B Services
The consumer buyer experience is transforming the way the B2B buyer experience is evolving. Logistics providers need to start considering how B2B buyers think about their wants and needs. Buyers today want everything to be visible via mobile app and website, on-demand, next day delivery, personalized and customized, all at no extra cost. The future of logistics isn’t just about next day/same day delivery, it’s about personalization, options and on-demand. And top logistics companies will be able to provide these on-demand expectations. According to Gartner, “3PL buyers today want a competitively priced, comprehensive set of services that are consistently integrated and reliably available.” Everything in logistics is accelerating though, which is a challenge providers face.
For example, Grainger, the largest industrial distributor in the United States and number 3 in the world with revenue exceeding $10 billion, has seen online sales continuously become the larger contribution to the company’s total sales. In 2015, 41 percent of total sales came from online channels, the figure jumped to 60 percent in 2016, and CEO D.G. Macpherson predicted that the figure will easily be 80 percent by 2022. Its online channels in Germany, Japan and United Kingdom alone grew by 35 percent in 2016.
“We’re really focused on the customer experience, and digital is a big part of it,” Macpherson said. “I think sometimes people get the wrong impression of digital and e-commerce in that it makes everything really easy. It actually doesn’t.” (Source: Grainger Q1 2017 Earnings Call)
3. Data is Money
Everything today is run by data that’s hyper-connected to customers, trucks, warehouses and quality monitoring, just to name a few. Data is an opportunity for distributors and 3PLs to differentiate their value propositions. The ability to gain insight from the data provides real-time visibility, security and efficiency, as well as the opportunity to predict and proactively act on supply chain risks. And, the importance of leveraging big data is growing. Distributors and 3PLs can strengthen their footing by offering expertise and insights that can help manufacturers and retailers achieve their strategic goals. Data gives distributors and 3PLs the ability to manage the entire supply chain on behalf of the customer, manage their ordering and inventory levels and providing them with insights that’ll help improve service levels.
Additionally, data science allows distributors and 3PLs to offer strategic value benefits to their customers, such as producing predictive insights and real-time visibility into their supply chains. This results in a more dynamic supply chain that enables customers to make more active, dynamic decisions that reduce network latency, shorten cycle times and protect profit margins. The ability to offer strategic value benefits from data science helps distributors and 3PLs engage further with their customers and strengthen long-term partnerships.
Furthermore, blockchain technology is causing a big disruption for distributors and 3PLs. Blockchain has the potential to help make the supply chain more efficient, transparent and secure. Blockchain offers the ability to track and trace goods throughout each point of the supply chain, from manufacturing to sales. The technology reduces stock wastage, increases efficiencies and provides companies greater control over their supply chains.
4. Global Workforce Crisis
Due to the aging, global population coupled with historically low unemployment rates, workforce shortage is a big concern and one that does not look to improve for some time. In fact, according to the Rainer Strack TED Talk, “The Workforce Crisis of 2030 – and how to start solving it now,” most of the top GDP countries will face a critical workforce shortage by 2030, including countries such as the United States, United Kingdom, Germany and Japan. The TED Talk highlights the following big workforce shortages: The United States will have a 4 percent “surplus,” which is down from 10 percent in 2020. Additionally, the following countries all face large workforce deficits: Canada (-11 percent), United Kingdom (-1 percent), Germany (-23 percent), Russia (-24 percent), Brazil (-33 percent) and Mexico (-8 percent). There’s a fierce competition for available skills around the world, yet a big workforce shortage.
5. Infused Technology
Drones, autonomous vehicles, RFID and robotics are a few of the disruptive technologies that dominate the news these days. These technologies have the potential to dramatically reshape best practices within distribution and logistics companies, and can strategically redefine value propositions to their customers. Manufacturers and retailers continue to scrutinize their distribution and logistics partners and expect them to bring technology expertise and leadership to the table. This is no longer an option, it’s an expectation.
The 2017 Penn State Third Party Logistics Report measures the so called “IT Gap,” which is what customers expect versus what they perceive to get from their 3PL in terms of technology expertise, is still fairly wide at 58 percent. Although, this improved from 2016, where it was at 65 percent.
Logistics providers need to position technology front and center as part of their go-to market strategy to differentiate their value propositions. Technology impacts the value delivered and improves brand values. For example, Kenco, a midmarket 3PL, established a dedicated Innovation Lab where they explore a variety of technologies to solve customer problems. Because of their thought-leadership, Kenco is recognized by their customers as a true strategic partner.
How Distributors and 3PLs Can Positively Respond to the Disruptions
There’s a wide spectrum of possible investments into digitalizing the supply chain, making it easy to fall into a trap of innovation and investing in technology that doesn’t yield value, but sounds too good to miss out on. The most important part is to align with your customers and partners and understand their 5 – 10-year strategic plan. If they don’t have a plan, use it as an opportunity to engage and help them as a partner. It’s also essential to understand your strategic digital ecosystem partners in order to collaborate and accelerate the value of innovation. Download the white paper, “Distribution and Logistics Redefined: Responding to Digital Disruption,” to learn more.