How Digital Transformation Changes The Logistics and SCM Industry
While many industries swiftly embrace digitization, adjusting to fast-changing economic environments and growing customer demands, the logistics and SCM (supply chain management) companies have always been quite sluggish in utilizing logistics software development services and, therefore, transitioning to a new manufacturing and service provision paradigm – Industry 4.0. Although many companies start incorporating digital technologies in the logistics sector, the adoption rate across big and small companies still remains relatively small.
According to Accenture’s recent research, the digitization process in the industry looks rather patchy with ¾ of survey participants believing that the industry is slow in its digitization maturity. But at the same time, 76% of respondents have agreed that failing to enhance digital capabilities can “seriously endanger their business.
Implementation of digital technologies allows logistic and SCM businesses to significantly improve their efficiency, flexibility, and timing, as well as better address their customer demands. So, why are businesses so slow in adopting digital transformation? The same Accenture research states that 72% of respondents agree that the lack of implementation roadmaps and digitalization ignorance are among the main reasons for that.
In this article, we’ll have a closer look at the reasons for faster digital transformation in logistics and SCM industries, explore the technologies that drive the digitization process in this sphere, and address the main constraints of the industry digitization.
What Is Digital Transformation in Logistics and SCM?
Digital transformation in logistics and SCM is a practical approach of adopting digitalization at all levels of the company business processes from optimizing logistics in physical flows, streamlining data exchange, to customer services and more.
However, when an industry is undergoing any profound changes such as digital transformation, it experiences them at several levels:
- Process automation – this is the first level of digitization that starts with stand-alone businesses. It’s when companies attempt to improve their back-office processes, including analytics, transportation, accounting, and others with the help of digital technologies.
- Transformation of business models happens when the accumulated experience of digital technologies implementation becomes sufficient to transform traditional business models. At this level, the use of new models starts delivering more value to businesses and their customers than the old ones.
- Domain transformation involves the use of new technologies to give a new look to the offered products and services. Often, this involves companies from different industries working on the development of a new product.
- Cultural transformation – when companies can’t work relying on the old paradigms anymore and they have to shift their mindsets to adapt the existing technologies to be successful in the market.
Currently, most of the companies in the logistics and SCM sector are at the first two levels of digital transformation – process automation and business model improvement. To effectively progress in line with these levels, businesses should use a wide range of technological advancements that will help them improve their workflows. These technologies include cloud-based systems for inventory management, GPS tracking for shipments, drone delivery, blockchain for enhanced data protection and transparency, predictive analytics for demand forecasting, and more.
Main Reasons For Digital Transformation
It’s expected that global spending on digital transformation in the Logistics industry will grow from $52.2 bln in 2022 to $75.5 bln by 2026, increasing at a CAGR of 8.8 during the forecasted period.
While the digitization process encourages competition between the companies in the logistics and SCM domains, the main driving factors that trigger digitization can be defined as follows:
- Better meeting customer expectations – customers’ demands increase together with technological advancements that offer faster services and more convenience. Today, customers require from businesses uninterrupted hours of service, ease of return or compensation, faster delivery, and much more. As they can obtain quick and convenient services from other industries and spheres, they will expect logistics and SCM companies to adopt the same approach.
- Flexible response to any changes – today’s ongoing economic and socio-political events worldwide create an unstable and quickly changing environment. To survive in this environment, businesses have to quickly respond to these changes and adjust to them accordingly. When it comes to logistics and supply chain businesses, the recent pandemic showed how fragile they can be – 94% of Fortune 1000 companies stated that they witnessed serious supply chain disruptions due to the Covid-19 outbreak. Without proper adoption of digital techno