06.17.16


Wide Web of the Supply Chain

The Wide Web of the Supply Chain

The supply chain is one of the most vital networks to the modern economy. Yet, the average consumer often has only a vague sense of how it works, its relevance to daily life, or its vast, unimaginable scale. Listening to the news, it can seem like social media companies drive the market today. If Facebook were to close shop tomorrow, however, the world wouldn’t come crumbling apart. The supply side is undeniably that important.

So, what is it, exactly? At the most fundamental level, the supply chain is the path that goods — the device you’re reading this whitepaper on, or the components used to make it, for instance — follow as they make the journey from resource in the ground to finished product in the hands of an end user. More specifically, it’s the immense network of people, companies, modes of transport, finances, and technologies that enable those products to travel from a faraway point A to the immediate point B in front of you. The practice of integrating the organization, packaging, shipping, and delivery of each parcel in the supply-side product flow is called logistics, or logistics management.

Within that, there are a multitude of stakeholders involved: manufacturers, transportation companies (trucking companies, shippers, freight brokers, and logistics providers), distributors, warehouse operators, retailers, the trading networks they all take part in, and the specialists needed for the transport of spoilable items like food and beverages.

It begins to add up quickly up. In 2014, for example, U.S. spending on logistics totalled $1.45 trillion, or a whopping 8.3% of our national GDP. Of course, suppliers need to fund their operations and pay their workers, which means that capital actually flows backwards through the chain, just as products push on forward; it works in two ways.

That the supply chain touches each and every product, technology, or food that you didn’t physically grow or fashion from raw materials yourself demonstrates its importance enough. But it’s also important to understand our utter reliance on its smooth functioning. Consider that the average metropolitan area in the U.S. grows less than 2% of the food that it consumes, and that nearly 20% of the U.S.’s food is imported. In fact, produce and meat travel, on average, about 1,500 miles from a farm before they reach their final destination. All of that food must be packaged, shipped, and delivered. The supply chain doesn’t just delivers us products; we are products of the supply chain.

While this can seem abstract, the companies and individuals that drive the supply chain are very concrete. And the truckers, warehouse managers, logistics professionals, and freight brokers working behind the scenes each have specific tools, technologies, modes of communication, and systems that make the whole endeavor operable. However, the supply chain hasn’t been running as smoothly as it might, in recent years. Unfortunately, these workers’ tools have begun to lose their edge.


The Supply Chain is Slowing Down

The Supply Chain is Slowing Down

Over the past fifteen years, the supply chain at large has encountered some challenging obstacles. If you thought the supply network was impressively connected, the reality is that the demand side — the consumers and companies who drive the chain — has become even more interconnected in the meantime. At this point, consumers have the upper hand, and supply is doing all it can to catch up.

The proliferation of internet-connected technologies has dramatically disrupted the industry, and the pace of change continues to accelerate. Many supply-side companies have struggled to integrate using decades-old legacy systems. Those that have adapted have been able to realize sizeable efficiencies, but for those who have not, profit margins are shrinking. In the same way that Uber and Lyft have forced large cab companies to reevaluate their business models, digital disruption has forced logistics firms to evolve or exit the market.

At the same time, supply has become even more invisible from corporate and consumer perspectives, and 60% of businesses see logistics as “non-strategic.” Even so, shippers are still expected to compete with the efficiencies that technology has provided. For instance, logistics firms that have adopted digital methods are estimated to see 40-110% higher operating margins, with 25% faster response times. Slowpoke adopters simply can’t compete. At a time when global trade growth has slowed, logistics companies must focus on operational optimization to remain buoyant.

The story is larger than this, however. For supply-side companies, and especially those in localized markets, this transformation has been driven by four primary factors:

1. Technological Integration

As a Capgemini market forecast highlights, the supply chain has become increasingly complex and demand volatile. This has effectively required that companies integrate technology to improve information flow, create efficiencies, and collaborate with other logistics companies. Unfortunately, technological gaps remain all too clear. Many trucking companies, for instance, still struggle to put full truckloads on the road or accurately track estimated times of arrival (ETAs); warehouses and distribution centers face constant out-of-stock and cross-docking problems, which slow response times and waste valuable inventory.

Where tech solutions have emerged that can be easily integrated, they’re often adopted in leapfrogging or disjointed fashion. For example, two tools that immediately solve many location, inventory, and accuracy issues are cost-effective GPS tracking units and radio-frequency identification (RFID). However, just only 37% of leading U.S. manufacturing or retail logistics firms have integrated them into standard operations.

Of course, many efforts to digitize have been hampered by companies’ legacy systems. Many trucking companies still use once-effective paper and whiteboard systems for dispatching and load organizing, which are now comparatively inefficient, inaccurate, ineffective. However, many tech solutions only solve these problems individually, and fail to optimize a company’s entire operations flow.

For example, many software products are not device-agnostic (meaning only certain tech products work with them). This means that when firms adopt transportation or warehouse management systems (TMS) or (WMS), they don’t cleanly mesh with outdated systems, leaving further gaps. What should have been an efficiency can often turn into a burden. Although, many companies have unveiled fully integrated software systems, which present significant opportunities for logistics firms to bridge current operational rifts.

2. Shifting Consumer Preferences

Consumers are now taking an active role in shaping supply markets through on-demand services and an always-on mentality. Increasingly, they require omnichannel shipping abilities — the ability to order from online, a device, or in-store, to homes or retail outlets. This means that logistics companies must accurately track unprecedented volumes of items across a wide array of distribution channels. A good analogy is trying to play pinball with hundreds of balls in play simultaneously. This obviously complicates workflow dramatically, but it also forces warehouses and distribution centers to involve more clients and partners in decision-making and operations processes. Increasingly, many trading partners share the same trucks and warehouse floors; their systems need to be interlocking and airtight.

At the same time, the growing speed of operations has made manual processes too slow and inefficient. Checking warehouse inventory for order-to-cash sales is a key example of such slowdown. Companies are finding that they must automate and digitize these processes via tools like advanced enterprise resource planning (ERP), which can perform 95% of formerly manual work. These are tough obstacle to overcome, however. The WTO reports that the two largest global supply chain challenges are meeting the volatility of consumer demand and heightened expectations for services quality. Two issues that have been constant in supply chain hurdles.

3. Demand for Visibility

Both logistics firms and consumers require unprecedented insight into the supply chain process. According to BCI, 78.6% of organizations have poor visibility of their supply chains. As a result, it’s become a business imperative for logistics companies to have real-time, end-to-end insight into their operations.

Many companies have begun to integrate purpose-built applications in response, which leverage data collection and leverage analytic insight to optimize service. Using such purpose-oriented programs, managers can quickly determine the source of routine bottlenecks, eliminate friction points, and track down mishaps at the source. However, this technology has been slow to take off. While 97% of global logistics executives understand the impact of big data analytics, only 17% have integrated them into routine functions.

Consumers, for their part, are increasingly increasingly supply-side conscious, demanding visibility into the provenance of food and products. The unprecedented transparency of social media and the internet has largely given it to them. As HBR observes, consumers favor products that are made sustainably, ethically, and out of quality materials, and are vocal critics of goods that don’t meet these criteria. The farm-to-table and organic food movements are prime examples. If consumers require transparency from retailers, it is suppliers who must make their processes visible.

4. Shortage of Talent

One of the most pressing issues facing the supply chain is the shortage of both quality and volume of labor. The supply chain will need to address a shortage of roughly 1.4 million jobs through 2018. In fact, according to Deloitte, just 38% of global supply chain leaders are extremely confident that their organizations employ people with the competencies required by today’s market, and only 44% believe that they will continue to have such employees in five years.

The talent gap, however, is expansive and multifaceted. Not only is there a shortage in high-expertise areas like data and analytics, but the trucking industry also faces an industry turnover rate hovering at 90%. There, the shortage is estimated to be as high as 100,000 drivers in the U.S. alone. Supply chain companies must not only improve the job experience to retain employees, but enhance the industry’s image for job-seekers at large.

The upside, however, is that the industry is far from headed towards doom and gloom. Innovative technologies are rapidly making their way into the supply chain mainstream, transforming companies on-the-whole into nimble, cost-efficient competitors. In fact, Accenture estimates that in just six years, the money made or saved from optimizing the supply chain will reach $3 trillion. The supply chain is moving in the right direction; companies only need to find the right partner to get them there faster.

Getting the Network Up to Speed

Of course, the supply chain is comprised of countless individual companies, each with their own technologies, tools, and methods. To hurdle the obstacles facing the supply chain, solutions will need to be just as diverse — there’s no one-size-fits-all solution. The very best fixes are those that achieve big picture outcomes, but are driven by the seamless-integration of many small, moving parts.

HighJump, a global leader in logistics solutions, is providing supply chain providers with the integrated tools that they need to keep pace. From one end to the other, we’re accelerating the supply chain with a comprehensive suite of integrated software solutions. In the digital era, companies need to adopt flexible, adaptive platforms and leverage agility as a competitive advantage. We know how to get them there, to which over 15,000 HighJump clients worldwide can attest.

Our solutions span the entire length and breadth of logistics operations. A sample include:


Conclusion

What the supply chain is hasn’t changed. Digital disruption, however, has fundamentally changed how it operates. On top of the complex physical network that delivers the world its products, there has emerged a secondary web of vast digital connections. Powered by software, sensors, and digital devices, the supply chain will become as sophisticated as the markets it serves. As the economy continues to advance at a breakneck pace, we expect the supply chain to not only grow, but also become that much faster.



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