Changing supply chains

Digitization is bringing fundamental changes to global supply chains. Connecting all parties and processes with one another is altering both routes and forms of transport.

Digitization is bringing fundamental changes to global supply chains. Connecting all parties and processes with one another is altering both routes and forms of transport.

From supply to data chain

Logistics on a global scale used to work like this: a merchant stacks up goods in his warehouse. When the warehouse is full, he starts looking for the captain of a ship who will transport the goods. Once the ship has put out to sea, the nail-biting begins. Will the cargo survive the passage undamaged? Will the crew mutiny and take control of the ship? Will the ship reach its destination, or sink in a storm? Whatever occurred – the basic logistical problem was always the same: huge uncertainty over what was happening at any particular moment and what would happen in the future. The problem was out of sight, but always on the mind – that was just the way things were. Logistics used to function like that, and over several millennia nothing about the fundamental problem has changed. Until a few decades ago, forwarders would dispatch their trucks and ships and then wait to hear that they had arrived safely. And today? Everything is different, everything has changed. Connected data depositories are offering more and more options for clarifying unanswered questions, from the ideal way to pack a container to the condition of the goods, to the time of delivery. Suppliers and forwarders know more now than ever before.

Global challenge

And yet, the age of digitization is only just beginning in logistics. The mobility of tomorrow has the potential to make supply chains cleaner and more efficient. However, there are problems to be resolved on the way. To put it in a nutshell: the core problem in any supply chain, of having the right parts in the right place at the right time, becomes greater, the longer the chain is. A look at a vehicle maker such as BMW clearly reveals the dimensions required in its planning and organization. Every day, over 1,800 suppliers at 4,500 locations move a worldwide volume of 84 million cubic meters. Just for comparison with the sea captain mentioned earlier – BMW dispatches 7,000 sea freight containers every day.

Such a differentiated supply chain must still possess enough flexibility to deal with unforeseen changes. For the automotive manufacturers that means, for example, that in an emergency any necessary part should be able to reach anywhere in the world within 24 hours. It also means the greatest possible flexibility when it comes to ordering. And in addition, it means that the different international documentation obligations must be satisfied at all times. Many companies therefore increasingly find that they have to establish several data points that all reflect the current project status.

Global trade is booming. The worldwide export volume in 2018 was 19.5 trillion US dollars. Photo source: Unsplash

Analysis and correct interpretation of data

How are suppliers and forwarders connected with one another and to the company? What risks does the supply chain harbor – and how can they be managed? For example, the tsunami in Japan in 2011 resulted in one maker of color pigments causing a worldwide shortage. The reason was that the firm suffered severe damage in the natural disaster, and was located only 40 kilometers from the damaged nuclear power plant in Fukushima. The consequence was that around the world, vehicle manufacturers were urgently searching for a replacement source of pigments for their paints. Now the automotive sector is moving toward the use of linked data sources to continually analyze the individual parts of the supply chain. However, data gathering on its own does not guarantee successful business. The real challenge is to draw the right conclusions from the data. And this also means that the volume of transported goods could certainly fall in the future. This might happen, for instance, if maintenance, servicing and repairs in a particular company are made available around the world by means of augmented reality and virtual reality technology. In the long term, the logistics industry could operate with automation and artificial intelligence playing a far larger role than they do today.

A sector in constant change

However, the mobility of the future will also demand major changes on the part of forwarders and transport companies. Autonomous ships, for example, are definitely a realistic scenario from 2030 onward. And that, one should note, will be a time when the other links in the logistic chain – from cranes and robots in factories to self-driving cars and drones for the production line – have long been automated. The transportation of freight will also be put out to tender. The ride-hailing service Uber, which is disrupting taxi services, is already working on platforms for goods to be transported by the trucks with the best availability at the required time. The logistics platform Freightos, where transport services are offered on the internet at transparent rates and prices, is pursuing a similar path. In the age of digitization, the mechanism behind these services is always the same: everyone knows at all times where their goods are, and can react flexibly to sudden peaks in orders. Not knowing about the condition and arrival time of the goods is a thing of the past. In logistics there is a general uncertainty because supply chains are not always transparent and fragile links cannot always be identified. Improved data analyses will reinforce the weak links and thus strengthen the entire supply chain.