Industry 4.0 and digitalization have become an inherent part of logistics. Due to the strong competition typical of the sector, rapid technological development will likely continue at least at the same pace. The main question is what the possible and fruitful directions are that can ameliorate the existing logistic systems.

Artificial Intelligence Is Here to Stay

Logistics sector was among the early adopters of AI technology. This early extensive adoption is partly the consequence of the already mentioned strong competition, which had also urged the sector to take the path of digitalization early on, for example in the form of e-commerce.

This process was accelerated by the growing demand of clients brought to life by the competition itself. Services that necessitate quick and effective analyses of immense amount of data are a general requirement now. For instance, think of all the data and planning needed to ensure same-day delivery and the constant availability of products.

In addition to the market, AI adoption was also facilitated by the fact that logistics sector is especially rich in data. Ample data is created at every step of the logistics chain, and this number has just boomed with the appearance of IoT, the spread of increasingly sensitive sensors, and real-time data collection. The prerequisite of AI, Big Data, started to build up throughout the entire distribution chain.

Drone used in a warehouse illustration
Where Are We Now?

Considering the favorable conditions, it doesn’t come as a great surprise that AI-based systems have revolutionized everything from material planning and procurement through warehouse management and distribution to repairs and returns.

Just to mention a few examples, Artificial Intelligence has opened new doors for process and root optimization. In addition to the widespread application of predictive maintenance, prescriptive maintenance is becoming more and more dominant. It times necessary repair works to off-peak hours, orders spare parts for maintenance if needed, and optimizes workload to avoid unplanned downtime.

What’s Next?

The constant evolution of AI and robotics and autonomous vehicles pave the way to increasingly smooth automation. The COVID-19 pandemic highlighted the importance of these technologies even more. According to IDC’s 2020 Supply Chain Survey, nearly 28% of the respondents find improving supply chain resiliency and responsiveness a high priority. Many decision makers intend to accelerate investments in technologies improving these factors in spite of the temporary revenue decline resulting from the pandemic.

The best chance to take another big leap is connecting isolated AI-systems including any system throughout and outside the distribution chain. A more connected and global logistics system provides more elaborate insight, which leads to more optimized processes, and seamless, almost immediate communication between interdependent yet distant steps. Collective analyses of trends outside the logistics chain such as the relevant social media activity and data created through logistics processes arm companies with even more accurate demand predictions.

Connecting isolated systems and workflows is less challenging for larger organizations that control a bigger portion of the logistics processes. However, smaller businesses specialized on individual links in the distribution chain (such as transportation, retail, etc.) should also go beyond isolated AI-systems if they want to preserve their position on the market. A possible path is to urge their partners and contractors to invest in cutting-edge solutions and integrating inter-company and intracompany systems as much as the seamless data flow and insight require.

How Does Artificial Intelligence Influence the Logistics Sector?

The already more and more popular online shopping has been further boosted by the consequences of the COVID-19 pandemic. Social distancing urged many people who hadn’t tried or had rarely used web shops before to alter their purchasing habits. Large online retailers experienced an increase in customers from small cities and rural areas during the crises. The primary growth in e-retail is observable in the grocery sector while other sectors, such as luxury goods and high-end fashion faced a setback. However, the major takeaway is that a large customer base started to familiarize itself with online shopping.

AI-based solutions can help the e-commerce sector to convert this new, temporary customer base into regular online shoppers beyond ordering groceries. A highly personalized online shopping experience (with due adherence to privacy and data protection practices as discussed in the next section) can resonate well with customers who are more used to traditional ways of consumption where they can bank on the advice of shop assistants. Besides, such investments can increase the loyalty of the existing clientele.

As a great example, Zalando is implementing a personal assistant to help online customers pick the right shoe size based on previous purchase-and-resend tendencies. The company also aims to create an entirely customized shopping experience where each customer is presented with a limited number of products selected to fit to their size and taste.

Personalized shopping experience, decreasing delivery time, precise demand predictions and many other factors lead to more satisfied customers. In case of web shops, it also means a reduction in returned products, which quickly translates to profit.

In addition to accurate demand forecasts, retailers owning a warehouse try to react to changing demands and minimize risks by ordering smaller quantities more frequently than before. This strategy also allows them to expand their business without increasing the warehouse infrastructure. This advantage on the retail side becomes a challenge on the supplier side necessitating more accurate planning, where, yet again, AI can help.

Data Protection

Dramatically increased amount of data does not only provide new opportunities for development, but also imposes serious obligations to logistics companies. Data necessary to provide valuable business insight (with the help of AI technology, for instance) counts as an asset. What’s more, companies often store and process copious quantity of personal data. That’s why safety and data protection is a higher priorities than ever, and no doubt its significance will only increase.

Privacy and data protection during online shopping illustration

In response to digital challenges new data protection regulations are introduced worldwide aiming to protect privacy and personal information. Just to mention a few, companies with EU customers are affected by the General Data Protection Regulation (GDPR); those with an Australian or Japanese market have to comply with the Australia Privacy Act or Japan’s Personal Information Protection Act (PIPA). Non-compliance can result in serious penalties. However, losing the clients’ trust due to neglectful data management can be equally damaging for any company.

Compliance is far from an easy job, though, as the applied technologies as well as the regulations are in constant rapid change to keep up with new digital challenges. Consequently, logistics companies should take a proactive approach in safety and privacy matters. Besides, data protection and safety require complex organization-wide well-coordinated actions.

Businesses always need to follow the latest developments in cybersecurity; and assess which technology fits their organization the most. When implementing new systems, safety and data protection by design are inevitable. Another significant aspect of keeping all data safe is high awareness of privacy principles regarding Big Data.

It’s important to note that data protection is not merely the responsibility of the IT department. Logistics managers must be knowledgeable about how data protection and security principles affect daily operations. Technical and organizational controls in systems and business processes must be in place. Spreading awareness about secure data management among employees and partners is also essential since many privacy incidents happen due to human error.

Covering Gray Areas – YMS

When discussing AI, we’ve mentioned that automation, robotics, autonomous vehicles are present at every step of the distribution chain. Nonetheless, the coverage is far from even. There are areas that gain less attention during modernization and development; and consequently, slow down the entire operation and negatively influence the rest of the chain. (This is a prime example.)

The Most Overlooked Ground: The Yard

A typical area suffering from lower coverage and lack of innovative attention is the yard. Considering the widespread application of Warehouse Management Systems (WMS) and Transportation Management Systems (TMS), it comes as a great surprise that Yard Management Systems (YMS) are used only by mere 8% of the companies according to a US study.

As a result, carriers have to wait five to six hours in general in larger yards due to unorganized loading processes.

Smaller business may consider expanding either their Warehouse Management System or Transportation Management System with yard management functionalities. However, more complex yards experiencing heavy traffic will benefit more from a full-fledged YMS connected to the rest of the logistics systems.

What Will Change with a YMS?

Yard Management Systems are based on real time tracking of assets (such as carriers and containers) and inventory. Consequently, information about the position and availability of key equipment and vehicles becomes readily available. Dock-door activities, movement and loading process taking place on the yard gain transparency. Thanks to precise data, workflow and scheduling can be optimized and automated.

Less wait time on the yard shortens delivery time, which is essential for client satisfaction. Additionally, the capacity of equipment can be better exploited, while employees’ schedules can be optimally adjusted to the expected traffic and peak hours.

Besides, YMS has become the key to safe operation during the last few months for several organizations. To mitigate the risk caused by COVID-19 personal contact had to be minimized. This would have been an almost impossible mission on a yard without transparent and well-organized processes, automated check-in, electronic paperwork, all provided by the YMS.

What Else Can Be Expected in the Yard?

Similarly to warehouses, yards are likely to make use of drone technology in asset- and inventory tracking. Loading processes and other yard activity will likely be more extensively automated with the help of robotics. Yard is also an ideal location for testing and implementing semi- and fully-autonomous vehicles, as it provides the technology with a closed and more controlled environment than open roads.

Unique Challenges

Global trends, such as diverse application of Artificial Intelligence affect every organization in the logistics sector worldwide. However, there is a huge difference in how depending on geographical and economic region, the size of the business, industry specific aspects, and several other details.

Digitalization in a warehouse illustration
Creating or Following Trends

Many smaller businesses tend to follow innovational trends by adopting technology developed for larger organizations. The same applies to logistics companies situated in certain regions. For instance, companies operating in some of the CEE countries, such as Hungary, often implement logistics software solutions designed in regions with significantly different (legal, economic, geographical, etc.) conditions.

Following trends inherently means a slight delay, hence a disadvantage compared to creating trends. Yet, this aspect is not the most negative consequence of this take on innovation.

What’s more important, solutions adopted without alteration simply can’t serve local, regional, industrial, or any other company specific needs. Such systems can’t solve most of the real pain points or help to take advantage of the unique potentials of a business. This is the pitfall of the technology focused innovation instead of a problem focused approach. Companies often seek out existing solutions because they know that technological investment can preserve their place on the market. However, business software solutions need to focus on eliminating a problem or strengthening a competitive edge to serve that purpose.

A strategic change in business mentality can aid growth. Having a clear set of goals for the investment helps to judge if off-the-shelf logistics solutions can really fulfill the purpose or a bespoke solution would serve the interests of the organization more. Usually, the answer lies somewhere in between, with bespoke middleware playing a role in bridging custom workflows with off-the-shelf solutions.

Strategic Investments

When investing in a complex custom business software, a step-by-step approach is often the most beneficial. Among many other advantages, it can decrease the upfront investment. When choosing step-by-step development, each unit of the system should be able to serve its function individually. This ensures a quicker return on investment, as each unit can create profit even when the whole system hasn’t been completed yet.

The first step is laying the foundation for safe digital business operations including document tracking and management and a well-protected digital storage. Only when this is in place it’s time to move on to the inventory and asset tracking systems. Data provided by the wisely chosen and installed sensors make the workflow more transparent and give ground for planning, optimization and the implementation of a full-fledged WMS.

Either simultaneously or consecutively transportation tracking can be installed including monitoring the condition of the freight, if it’s relevant for the business. This provides the basis of the Transportation Management System, which can be connected to the Warehouse Management System and the Enterprise Recourse Planning system.

Tracking systems installed in accordance with the profile, parameters, special conditions of the business supply the software systems with useful and valuable data. This is pretty much the precondition for the implementation of AI based solutions answering company specific challenges. Even the most cutting-edge system will provide false results if fed with erroneous, imprecise, lacking or irrelevant data.

The finishing phase of the software investment is a perfected workflow management covering all company processes including inventory planning, preventive maintenance, and demand forecasts.

All in all, it’s worth harnessing the current industry trends by customizing them to your business while always keeping safety and data protection, unique potentials, competitive edges and pain points in mind.

If you want to ensure the competitive edge of your business with a custom logistics software solution, check out our services and contact us.
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Glossary

AI (Artificial Intelligence): A branch of information technology focusing on the automation of intelligent behavior. The field includes software solutions that are able to process tasks and make decisions independently in order to solve a problem if given the right input.

ERP (Enterprise Resource Planning): Integrated management of core business processes.

GDPR (General Data Protection Regulation): Data protection regulation issued by the European Union aiming the protection of data and privacy of EU citizens.

PIPA (Personal Information Protection Act): Japanese personal data protection act.

TMS (Transportation Management System): A software application that is part of supply chain management focusing on transportation operations and freight processes.

WMS (Warehouse Management System): A software application supporting and optimizing warehouse and distribution center operations.

YMS (Yard Management System): A software application managing trailer movement on larger yards, supporting and optimizing yard operations.

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