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Investing in the digital supply chain

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Efforts to digitize the supply chain are well underway by many companies in response to pandemic-triggered supply chain disruptions. Both shippers and their 3PL counterparts are turning to a number of technologies to automate manual processes, improve efficiencies, gain visibility of information and make smarter decisions.  

At the start of the pandemic in 2020, many companies took to adjusting their supply chains in real-time in response to disruptions – and they continue to do so today. Now, many companies are proactively revamping their processes around how they manage their supply chains. 

These organizations are taking lessons learned from these disruptions and putting in place stronger planning and risk management practices before they consider new technologies. Think enabling greater collaboration across the supply chain, finding alternate suppliers, carriers, and vendors, and the sharing of data. Digitizing processes and tools is the next step. 

In simple terms, “digitizing supply chain management improves the speed, accuracy, and flexibility of supply risk management,” according to a McKinsey & Company report on taking action to mitigate risk and build resilience against future shocks. Digitizing ensures a single source of truth, reduces risk, and achieves greater visibility and coordination across the supply chain.¹ 

Supply chain tech investments

Here is an overview of some of the technology investments that organizations are making to digitize their supply chains: 

According to the 3PLs and shippers surveyed in mid-2021 for the 2022 26th Annual Third-Party Logistics (3PL) Study, a few of the overarching technologies of the digital supply chain that companies are investing in include 5G technology, the Internet of Things (IoT), and cloud-based systems. Among other benefits, these technologies are improving supply chain efficiencies, enabling machine learning and automation, and increasing data-driven decision-making, all of which can result in cost savings.² 

Use of automation and AI within the warehouse and supply chains has accelerated since the start of the pandemic, and is expected to continue. AI and machine learning are growing faster than ever before. Through 2024, Gartner estimates that 50% of supply chain organizations will invest in applications that support AI and advanced analytics capabilities.³ 

AI capabilities are proven to significantly reduce error rates, lower operational costs and optimize supply chain flow.⁴ AI-enabled supply-chain management has enabled early adopters to improve logistics costs by 15%, inventory levels by 35%, and service levels by 65%, compared with their non-AI competitor, according to McKinsey & Company.⁵

Investments in IoT aren’t new but are gaining popularity. IoT solutions are commonly used to improve areas such as workforce productivity and customer satisfaction, asset tracking, while enabling real-time decision-making.⁶

Another large growth area is the use of robotics with IoT. Robotics are increasingly found in production centers and warehouses, among other commercial and industrial applications, netting efficiencies such as reduced errors and labor costs. 

In the warehouse, robots use IoT technology for both inventory management and spatial awareness.⁷ Through 2023, Gartner estimates that demand for robotic goods-to-person systems will quadruple to help enforce social distancing in warehouses and boost storage density.⁸

Going to 5G networks

5G, the next generation or new standard of wireless cellular technology, is designed to provide comprehensive connectivity among people and things, including machines, objects and devices, enabling users to move more significant amounts of data.⁹ 

Combined with IoT technology, 5G can improve efficiency, enable machine learning and automation, and increase data-driven decision-making, all of which can result in more efficient supply chains and cost savings. According to the 26th Annual 3PL study: “5G should enhance supply chain operations, performance and real-time communications, ultimately driving the digital supply chain.” 

As 5G capabilities roll out by wireless providers, 3PLs are more likely to invest in 5G technology, putting larger percentages of their annual IT budgets to the initiative than their customers, the 26th Annual 3PL study found. About 56% of 3PLs surveyed said it was moderately or critically important to provide 5G-enabled services to their customers, and significant percentages from both groups are investing in 5G integrations over the next five years. 

Shorter-term investments in distribution & logistics

More down to earth and in the near term, companies are putting their investments in a number of practical applications which incorporate broader technologies such as AI, machine learning, IoT, and 5G. In the 26th Annual 3PL Study, shippers and 3PLs said they were investing in technologies such as advanced material handling equipment and analytics to improve their operations. 

Specifically, 3PLs plan to make significant investments over the next three years in these material-handling and warehouse automation technologies: robotics, including high-density storage, picker and palletizer robotic systems, autonomous forklifts, and wearables. Over the next three years, the top technologies that shippers are focused on investing in are intelligent data analytics, robotics, and autonomous forklifts.

Lastly, use of technology is also important in 3PL and customer relationships. The 26th Annual 3PL Study identified a number of high-profile areas of innovation and progress that are relevant to the customer’s relationship with their 3PL. Analytics and digital transformation as well as transparency and visibility of information aided by 5G networks and IoT. The study also identified sustainability efforts and talent as important in the 3PL-customer relationship.

All of these investments and initiatives show that supply chains are complex and technology plays a critical role in how well they perform.

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