Will Logistics 4.0 Reduce Your Supply Chain Risk?
Brian Hoey - February 25, 2020
In much of the world, we’re stuck in the grey doldrums of late winter—but let’s think back to the recent holiday season for a minute. Specifically, let’s imagine that you’re trying to send a last-minute gift to a friend via FedEx, UPS, or another package delivery company. You’re hoping that the package will get there before the holidays, so you do some research into your best shipping options: you’re hoping to figure out which company offers the best ratio of on-time or ahead of schedule deliveries to competitive rates, which carriers have the best track record on lost or damaged packages, and who has the best tracking options.
Back in the day, this information would have been fairly difficult to ascertain on short notice. But with the rise of the internet, it should be pretty easy to look at online reviews and get instant quotes from the carriers themselves. From there, you can get digital tracking of your package so that you know where it is at all times, and you can visualize whether or not it’s going to reach your friend on time. If it is: great! If not: you can at least let him or her know ahead of time that it will be slightly delayed. Thus, your overall risk is greatly reduced.
As it is with holiday gifts, so too is it with modern supply chain logistics. As we enter the digital era and the era of Logistics 4.0, it's easier than ever to reduce risk through smarter supply chain management.
The Top Causes of Transport Logistics Risk
Of course, all logistics managers would love to decrease their risk levels, so if Logistics 4.0 is a way to make that happen it’s more than worthy of further exploration. But let’s start by examining where supply chain risk actually comes from. In our experience, there’s a few primary sources:
- Political instability
- Fluctuating costs
- Weather/environmental events
- Inaccurate forecasts
There are others, but these will cover most supply chain events that the modern logistics manager has to deal with.
So, if we imagine that you’re making a shipment of completed automobiles to a showroom across the continent, what are the practical ways that those risks can manifest themselves? Well, your shipment might be routed through a country that experiencing labor disputes, leaving your cargo stuck on the dock while strikes are carried out. When you try to adjust course, you could realize that all of your other options are incredibly expensive, due to the high demand for freight solutions that can get around the strike. If you suck it up and pay out the 3PL, the shipment might then be routed into another region that’s prone to tropical storms, one of which hits and causes even further delays. Once the shipment arrives, you could find that your demand forecasts for that particular showroom were off, and the cars will take months to sell. Sure, it’s unlikely that all of these things will go wrong in any given shipment, but any measures you can take to reduce the likelihood are well worth the time and money.
Logistics 4.0 and Smart Supply Chain Management
As it happens, almost all of the risk factors we described above can be mitigated in large part by increased visibility—which is exactly where Logistics 4.0 comes in. Instead of relying on a set of pre-determined shipping routes for every shipment, an integrated software environment that includes real-time data from other touchpoints on the value chain could help you to visualize changing risk levels for different legs of your cargo’s journey. In this way, you might pinpoint the likely slowdowns and proactively work to avoid them—say, by booking a different route to begin with. Not only that, but you can see the fluctuations in transport pricing over time, meaning that you can wait to lock in the most favorable rate.
This level of visibility is roughly equivalent to the internet research for shipping a gift that we described above—it requires sound IT infrastructure with reliable data sources, but it’s nothing earth-shattering. With the introduction of Logistics 4.0 technology like RFID chips and IoT (internet of things) devices into different touchpoints on the supply chain (from smart pallets to in-container sensors to entire smart ports), however, you can achieve the next level of visibility, i.e. a smart supply chain. Instead of simply choosing the best option at the outset and hoping for the best, you can actually monitor your progress as you go and make adjustments on the fly. For instance, as new weather patterns emerge, your planning software might alert you so that you can switch up a particular leg of your freight journey.
Likewise, as your demand forecasts change based on live market data, you can make value-saving adjustments as you go. You might, as an example, decide to backhaul some products that are seeing a drop-off in demand in a particular region so that they can be redistributed to the areas where they’re projected to sell more effectively. In this way, digitally-enhanced workflows proactively counteract the top causes of supply chain risk.
When Is Logistics 4.0 Coming?
At this point you might be thinking, “That all sounds great—but when will it be a realistic way to manage my supply chain?” It’s a reasonable question, but the modern supply chain is already full of examples of how smart, digital logistics processes can decrease risk.
In Abu Dhabi, for instance, logistics managers can utilize the Port Community System, a digital platform for accessing and sharing logistics information. If you happen to be doing business in this part of the world, this is a huge step in terms of increasing supply chain visibility—offering users real-time updates that would have been unthinkable even a few years ago. Even without sophisticated software to analyze that data on your end, this can be valuable—but imagine how much more valuable it can be if you’re able to integrate that data with your own logistics planning software. All of a sudden, new possibilities for increasing agility and flexibility while decreasing the risk of a late, damaged, or excessively-costly shipment emerge. At the point where you can do that, your business will officially enter the era of Logistics 4.0.