Logistics Technology Report

The state of innovation in logistics

By Shisam Bhattacharyya, Head of Research and Development, SAFEXPRESS Group August, 2016

Introduction

Innovation and technology have been two significant topics that have dominated

logistics over the past 5 years. We’ve seen the introduction of disruptive,

innovative logistics start-ups as well as global technology businesses getting more

heavily involved in logistics. However, has the core industry started to catch-up?

It turns out that the answer is probably yes. This report explores the state of

innovation in logistics today. It also looks at IT expenditures and where those

budgets are focussed. Finally, it looks at some talent indicators that may

demonstrate that logistics are beginning to modernize. As IT budgets continue to

increase, there is evidence that logistics tech spending has started to flatten,

meaning that many major IT overhauls have been achieved. In addition, the IT

workforce is starting to change in traditional logistics companies towards a more

tech-heavy talent-base.

Logistics is by no means out of the woods: innovation and technology are its

future and we’ve only started to see the initial steps on this journey. Competitive

Solution provider

35%

21%

Logistics service provider

(3PL, 4PL, trucking,

ocean, freight, etc.)

43%

logistics companies though have already recognized this and have made

steps to transform their workforces, change their internal culture and address

some of the major challenges they face through creative problem solving.

Shipper (Manufacturer,

retailer, brand that

ships products)

357 total respondents

Who’s driving the need for innovation in logistics technology?

Logistics providers Retailers & manufacturers Solution providers

37% 35% 28% 22% 44% 35% 26% 35% 39% Logistics Shippers Solution Logistics Shippers Solution Logistics Shippers Solution

providers (ie. LSP providers providers (ie. LSP providers providers (ie. LSP providers

customers) customers) customers)

Who’s driving innovation in logistics? Well, it’s hard to say given that each

segment of supply chain thinks that they’re responsible. However, we can

draw some conclusions from who within organizations are expected to drive

Innovation. Currently, the senior leadership team is considered responsible

in logistics businesses while solution providers see operations as drivers.

This might only be a temporary arrangement however.

Which department is primarily responsible for driving innovation in your organization?

24%36% 35%22% 15%19% 18%15% 7%6% 2%3% Senior Operations IT department Innovation Marketing Sales

leadership team department

Solution Providers / Logistics providers

Is technology still a differentiator

for logistics companies?

Yes 93%

No 6%

It never was 1%

Technology is playing a significant role in innovation and differentiation for

everyone in the industry. Despite some concerns that technology is the new

norm in logistics, clearly this isn’t the case for all technologies. That being said,

the majority of respondents in the study felt that logistics companies were only

somewhat open to adopting new technology. This can help us qualify the initial

figure in this section in that while 37% of logistics providers think they are

innovation drivers, their customers and partners certainly do not agree. In fact,

the fact that only 22% of LSP customers see them as innovation drivers

indicates a significant gap between perception and reality which is worth

highlighting.

How open are logistics companies

to adopting new technologies?

15% 78% 7% Very open

Somewhat open Not open

Do you have an innovation centre at

your organization?

No 46%

While there is some reluctance to adopt new technologies, there is movement

within logistics organization to change this. The innovation centre is becoming

more and more common across the industry. The main priority of these centres is

to create new solutions and products. The rise of the innovation centre is also

indicative of shifts within logistics organizations and the responsibility of

innovation. The senior leadership team is likely going to be a lot less relied-upon

for innovation, with more of it coming from throughout the organization with an

added emphasis on specifically structure innovation teams.

Yes 54%

What is the objective of your innovation center?

To identify up and coming tech start-ups 2% 2%Other Differentiation between your

organization and competitors

To collaborate with customers 13% 21%

Solve long-standing 10%

challenges

Creation of new solutions and products

52%

How many developers (computer engineers, programmers etc.) does your company employ?

35%

30% 32.6%

25%

20%

15%

10% 11%

11%

12.2%

9.9%

8.8%

8.8%

5%

5.5%

0%

1-5 6-10 11-20 21-50 51-100 100-200 200+ None

Increasingly, logistics companies are becoming more technologically advanced.

Beyond making investments into hardware or software packages, they are

investing in making themselves as organizations more technologically nimble. For

instance, only 12% of logistics companies reported having no developers

(computer engineers, programmers etc.). 14% had over 100. In addition, 57% of

responding logistics companies was employing data scientists.

How many data scientists does your company employ?

50%

45%

40% 43.3%

35% 37.2%

30%

25%

20%

15%

10%

5% 5.6% 2.2% 6.7% 2.2% 1.7% 1.1%

0%

1-5 6-10 11-20 21-50 51-100 100-200 200+ None

Number of data scientists

Does your IT department work directly with customers?

Yes - at the

beginning of

development

20%

No 30%

50%

Yes - continuously during development

As technology plays an increasingly central role in logistics companies, the role

the IT department plays with customers’ increases. 50% of respondents said

that their IT department works directly on a continuous basis with customers

during the development of customer-facing IT. Only 30% of respondents had

no engagement with customers during the development of customer facing IT.

The ability for logistics companies to roll-out technology to customers or to

connect their technology with that of customers is clearly increasing in

importance. Manufacturers and retailers are having to respond more rapidly to

consumers. Their abilities to do this is more and more dependent on the

overall functioning of their entire supply chain – suppliers, solution providers

and logistics providers. Logistics companies looking to stay ahead of the curve

are going to want to ensure their IT teams are working closely with their

customer base to ensure rapid and seamless integration of systems as well as

the development of customer-centric IT solutions.

How are you attracting top technology talent to your organization?

30%

25% 26%

20%

15%

13.3% 13.3%

10% 9.9% 9.9%

8.8% 8.3%

6.6%

5%

3.9%

0% Collaborative Encouraging Other Pay Direct reporting Flexible Using top Training Constant

work an entrepre- incentives to top work hours tech talent programs feedback

environment neurial spirit management to attract more

tech talent

The shift in composition of the technology team has meant organizations need

to do more to attract top talent. The most popular mechanism for attracting

talent is through creating a collaborative working environment. An

entrepreneurial environment, not unlike a tech start-up, was the second

highest tactic. Interestingly continuous feedback, flexible work hours and

training programs,

Areas that millennials tend to prioritise, ranked very lowly. Millennials are by

no means the only tech-talent available, but their tendency to be more

technologically savvy and the fact that they are increasingly the majority of the

workforce mean that catering to them could be a beneficial tactic for securing

top talent.

Investments in technology

2015 2016

No Change No Change

26% 28%

7% Decreasing

74% 65%

Increasing Increasing

Once again, technology investments continue to rise overall. Between 2015

and 2016, however, there is a slight rise in decreasing budgets. This could be

indicative of some logistics companies settling into new tech strategies

having now updated their legacy systems. Effectively, it is possibly the first

indicator of the continued maturation of the technology boom we have seen

over the last several years.

The primary driver for increased technology investment has been to create a

differentiator for the business. Technology’s central role in the industry

means that investment in it as a differentiator is harder and harder, it is

more-so the norm. The second biggest driver for investment was to take

advantage of new technology. This is in-line with the new technology-centric

mentality of many logistics companies that is starting to infiltrate the

industry. This is also related with the industry-wide thinking of technology as

a differentiator as it suggests companies are looking to gamble on new

technologies should they create a competitive advantage.

What is driving your increased spending?

Keeping pace with the competition

7%

Customer demands 13%

Updating legacy systems 15% 45% Creating a differentiator

for our business

20% Taking advantage of new technology

What are you looking to invest in over the next 12 months? (2015)

80%

70%

61.7% 55.3%

60%

50% 44.7% 44.7% 42.6% 42.6%

40% 40.4%

34.0% 34.0%

30% 29.8% 29.8% 27.7% 25.6%

20% 21.3% 21.3%

17.0% 17.0% 17.0% 17.0% 14.9% 12.8%

10.7% 10.7%

10%

4.3%

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Investment areas have started to flatten, meaning many different areas of

investment share similar prioritization. For example, TMS and WMS have

dropped significantly between 2015 and 2016, indicating that more and more

organizations have implemented the technology in the interim. On the other

hand, business intelligence and predictive analytics have picked up some

ground in overall rank. This is indicative of the importance data is bringing to

the industry.

Most respondents are in the descriptive phase of data analytics. The

descriptive phase represents gathering data on performance and analysing it

to make future improvements. Usually this is the first step organizations take

towards utilising data in their operations. What is interesting in our study of

logistics technology is that 29% of respondents are actually utilizing advanced

analytics in their operations, with even 5% reporting prescriptive analytics:

Having an analytics system that is not only able to predict performance, but

prescribe the right course of action to take advantage of future conditions.

Conversely, over 18% of the industry has no data analytics. This is a

significant percentage of the industry to not be adopting one of the

technologies transforming the business.

What stage of data analytics are

you currently implementing/using?

None

18%

Prescriptive 5% Analytics

24% Predictive

53% analytics

Descriptive

analytics

The overall flattening of investment priorities speaks to the maturation

of the current environment in logistics: technology remains critical to the

industry, but many companies have already made significant

investments within it to remain competitive.

Conclusion

It looks like the logistics industry has started to reach a significant milestone in its modernisation. Innovation and technology investments are really start-ing to shape

logistics businesses. While investments in technology have been increasing for years, there are some clear indications that these budgets are being spent in some

more advanced areas including developers and innovation centres. For years there have been calls on logistics companies to innovate to escape commoditization. In

fact, since technology has started playing a more significant role in logistics, there has been a debate on whether logistics is a people business or a technology

business. Undoubtedly it will be both, but it is only recently that logistics businesses are utilizing technology to enhance the people side of the business.

While traditional logistics businesses are clearly modernising at an increasing pace especially as far as automating manual processes, another major industry

conundrum is set to take centre-stage. Automation works best on commod-itized services. Additionally, automation can drive commoditization. As such, as the industry

strives for innovation and technology to differentiate, is it just increasing the pace of the commoditization it was looking to fight?