13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney The interplay of three technologies is transforming logistics The mutual fertilization of artificial intelligence, mathematical optimization, and blockchain will revolutionize supply chain management. Three hot topics are on the boardroom table of every logistics company around the world. In the race to implement solutions based on artificial intelligence (AI), mathematical optimization, and blockchain, well-established companies are forming special units and project teams and are scrambling for scarce resources in the form of specialists and specialized consultants. Meanwhile, start-ups are proliferating with innovative solutions and, as an example, are expected to create around 50 percent of the new jobs in logistics and supply chain management in Germany. Capabilities in these fields now have a relevant influence on the valuation of logistics companies. Logistics leaders understand the profound potential and impact of these advanced technologies, recognizing that the industry is at a tipping point. “The traditional model is facing unprecedented levels of disruption from new hardware technologies combined with information and analytics solutions,” says DHL Supply Chain’s Chief Development Officer José F. Nava. For example, smart sensors and machine-learning algorithms are capturing and processing information about aircrafts, ships, trucks, and rail rolling stock to optimize operations and maintenance into one integrated process. Although the potential of each of these advanced technologies is now widely discussed, what has so far been lower on the radar is the power of these technologies to work together to create new applications and achieve even greater productivity gains. As forward-thinking companies capitalize on this synergy, logistics and supply chain management will see a transformation in several dimensions: value chain configuration, sourcing and interaction between players, routing and scheduling, and allocation of capacity and the workforce. https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 1/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney In this paper, we first discuss what these three technologies are before turning our attention to how they can reinforce one other to create powerful benefits for the logistics industry. Three innovative tools Despite their ubiquitous presence on management agendas, AI, mathematical optimization, and blockchain are not well-understood, which is not surprising considering their complex nature. It is important to note that the three technologies are in very different stages of development. AI is at the forefront with high global investments driven by e-commerce, mobility, and defense. Meanwhile, mathematical optimization, which as a discipline of operations research has been around even longer, will be a fast follower in terms of the rollout of use cases. Blockchains and the implementation of the principles behind them in various formats still face several hurdles, which will put this technology in third position in making a large impact on logistics and supply chain management. We begin by briefly describing applications and characteristics of these technologies in supply chain management and logistics and how they might develop in the future (see figure 1). https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 2/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney A powerful convergence These three tools have the power to reinforce and cross-fertilize each other with an impact that is not additive but rather multiplies (see figure 2). https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 3/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney The effect of this interplay between the three technologies can be observed not only in terms of productivity gains such as reducing processing time, optimizing the use of resources, and moving tasks from humans to machines but also in terms of the speed of their adoption and the penetration into supply chain management (see figure 3). https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 4/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 5/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney Many applications are already taking advantage of this technology cross-fertilization. For example, global transport and logistics company Kuehne + Nagel’s comprehensive digital supply chain management platform KN ESP offers a modular architecture to connect all stakeholders in the company’s international supply chain—from sourcing, quality control, purchase order negotiation, and management to commercial invoice release, buyer’s consolidation, transportation, and delivery. KN ESP uses predictive analytics and AI to optimize orders and prioritize transportation decisions based on the customer’s defined business rules, costs, and service options.1 DHL is using machine learning for transport pricing by its in-house start-up Saloodo! The company is also using chatbots for customer service and deep learning-based computer vision to detect fraud and optimize air cargo loading.2 Forwarding and logistics services provider Panalpina is pursuing ways to integrate blockchain technology in core systems and is planning to run pilots and trials using blockchain together with start-ups for certain markets and specific customer needs.3 “Blockchain is one of the most promising technologies in logistics,” said Martin Kolbe, chief information officer of Kuehne + Nagel. In the rail industry, Deutsche Bahn is using mathematical optimization for predictive maintenance and to help dispatchers reallocate passenger trains during network disruptions, such as those caused by accidents or unplanned maintenance events. For blockchain technology, where benefits so often depend on cross-value chain or even cross-industry adoption, we are starting to see new partnerships that could profoundly change the logistics landscape by jointly establishing unified standards, achieving gravity, and overcoming first-mover disadvantages. For example, shippers such as Henkel, Beiersdorf, and Oetker are collaborating in blockchain-based track and trace and accounting of pallets.4 Microsoft and Ardents are developing a blockchain-based platform called Novatrack for tracking products end-to-end. Maersk and IBM are developing a platform based on blockchain and artificial intelligence, creating transparency into the supply chain and digitizing the import and export paper flow. The platform, which is open to forwarders, shipping lines, terminal operators, ports, and customs authorities, aims for the participation of several—if not all—players in the global shipping-related supply chain.5 “The potential from offering a neutral, open digital platform for safe and easy ways of exchanging information is huge, and all players across the supply chain stand to benefit,” says Maersk’s Chief Commercial Officer Vincent Clerc.6 Other examples of blockchain projects in the container shipping industry include the planned platform of MOL Logistics, NYK Line, and K Line, the TBSx3’s pilot with Hamburg Süd, DP World Australia, and DB Schenker as well as the feasibility study of Pacific International Lines, https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 6/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney IBM, and PSA.7 Hong Kong-based start-up 300cubits promotes a blockchain solution called TEU tokens. To succeed, the industry will need a joint adaptation. The future of logistics The implications for all stakeholders are both multidimensional and disruptive. With the convergence of artificial intelligence, mathematical optimization, and blockchain, logistics could look very different in the not-too-distant future. Following is our vision for what a future driven by these three technologies might look like for six categories of service providers and the challenges each is likely to face. Transport organizer For forwarding and broker firms along with courier, express, and parcel companies, almost all events in the supply chain are handled by algorithms with event management capabilities based on machine learning. They have much more flexibility to change routes, ports, and carriers. Routing is automated based on customer requirements and the optimal cost path. Algorithms optimize the mix of suppliers as well as the mix of spot buying versus wider commitments at any given moment. Paper documentation has been eliminated, and firstlevel customer service handling human requests is based on natural language processing. In the past, the most important suppliers were those physically handling the shipment during the transport process; today, the most important business partners perform different tasks of data management. Digital partner management is now a core competence. Transformational challenges: • Tap into the power of smart management, integration, and replacement of diverse legacy IT systems when competing against greenfield digital competitors. • Establish a digital platform model with enough gravity. • Manage the workforce transition. More than 50 percent of today’s office workforce will be reduced, and another 20 percent of the workforce will migrate to improving AI-, mathematical optimization-, and blockchain-related tools and processes. • Balance the hiring of costly talent in AI, mathematical optimization, and blockchain versus procuring specialized services. • Decide whether to invest in or buy new digital and analytics players at the right time. https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 7/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney • Choose whether to depend on local fixed assets or digital innovation for small players to differentiate in the market and survive. Carrier Owners and operators of mobile assets in road, sea, air, and rail are conducting their business in a much different landscape. Ships, trucks, locomotives, and inner-city delivery vans are autonomous. Fleet operators are not small subcontractors any more but large asset operators, including digital natives and original equipment manufacturers. Drivers and captains who support difficult operations are managed by specialized intelligent platforms automatically identifying the next available resource. Stowage planning, global container repositioning, and fuel-optimized speed for sea and air freight are fully automated. The combination of automation and meta platforms managing neutral fleet of containers allows for handling of more diverse sizes of sea containers. The share of the total fleet capacity available on demand is much higher and not locked up by a specific transport organizer or shipper in long-term contracts, for example, with rail car on demand. Predictive maintenance is fully integrated with operational optimization of resource allocation to make last-minute adjustments when things do not go as planned. All levels from strategic capacity planning to tactical operations and revenue management are fully integrated to optimize capacity utilization. Transformational challenges: • Set the right priorities and budgets on AI, mathematical optimization, and blockchain as leading competitors or start-ups may shake up the industry cost structure and customer experience. Some players will be too late to follow. • Manage the transition from dispatchers being the most valued people taking operational decisions to dispatchers being the most valuable people to improve algorithms. • Make sure the people who automate the processes, make decisions, and implement machine learning and robots know the physical reality (based on the Internet of Things, cameras, and site visits). • Establish an omnichannel business model with control over capacity allocation and pricing: direct to shippers, forwarders, platforms, container providers, and all parties acting as resellers. • Have the courage to compete with digital platform business models and on-demand capacity, including from smaller players cannibalizing comfortable long-term contracts and https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 8/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney stable revenues. • Manage the job shift from driving to maintenance and add-on services. Infrastructure operator For air and sea ports, rail tracks and terminals, roads, warehouses and depots, and sorting plants, the allocation of scare capacity to customers is based on auctioning algorithms for the long, medium, and short term. Long-term capacity allocations and commitments have shifted to more on-demand schemes and high-priced securing of specific AI-predicted bottleneck capacities. Optimization of utilization, maintenance, and event management is based on data from the Internet of Things from all equipment and pre-configurated and simulated events of all kinds. The 24/7 management of operations is highly automated, including for all foreseeable events, second-level support, and maintenance. Transformational challenges: • Integrate the data exchange between all stakeholders—possibly checking, cleaning, and enriching data in the process. • Maintain the cybersecurity of IT-systems of infrastructure. • Become the local digital platforms for all services connected to the infrastructure. • Connect or join standards with similar infrastructure globally to achieve scale for operations and for customers. • Become masters in reaping the extra profits for scarce capacity in peak periods, for example via auctioning, processing micropayments, and preferred service in real time against add-on fees. • Build new business models around separated infrastructure for service provision to transport organizers (for example, groupage courier, express, and parcel services or airlines offering cross-continental e-commerce parcels). Value-added service provider For fulfillment, confectioning, customs, document handling, payment-related activities, and data-driven services, all document-processing related activities have been significantly reduced and automated, including the clarification process for missing or wrong data. Confectioning and fulfillment are using more robots and android technology. Customs processes are fully automated with physical control by robots. Data-driven meta service https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 9/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney providers have achieved economies of scale across industries and regions in a logistics industry segment where scale used to be of minor importance. Micropayments for individual process steps are based on smart contracts, and crypto currencies are triggered by the Internet of Things devices connected to containers or cargo. Information, financial, and physical flows are fully synchronized. Transformational challenges: • Sell data against subscriptions and micropayments. In the past, customers and business partners were unwilling to pay for data. Now, they are willing. • Be mindful about small trackers and loggers. In the future, they may be at the heart of blockchain, micropayments, and automated event management and may reap a significant part of the profit pool, just as Google does in retail. • Expand fourth-party logistics and control tower services as they are flourishing, absorbing some of the workforce of forwarding customer service and dispatching. • Provide third-level support for supply chains based on robots and AI with new business models. • See compliance and process auditing become a major task for humans, assisted by AI. Digital platform For meta forwarders, meta brokers, and demand aggregators, almost every successful business is also a platform, allowing third parties to thrive on their physical or virtual infrastructure in competition and symbiosis with their business. The boundaries of a classical forwarder and a digital platform are now blurred, just as it happened for e-commerce versus stationary retail. New companies with a globally integrated IT architecture have outgrown and replaced established companies that failed to unify their fragmented systems fast enough. Successful platform providers are focusing on data-driven value-added combining services driven by AI, blockchain, or mathematical modeling space. Transformational challenges: • Be a scale and cost leader as high transparency drives out margins. Expect gravity to lead to selected digital platforms grabbing more than 50 percent of some logistics markets (such as INTTRA in ocean booking) but not for very long. https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 10/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney • Consolidate as players from different continents, especially China, India, and the United States, will go global and buy up other local and regional firms. • Understand that some platform business models with limited added value will disappear as large, integrated, and fully automated platforms operating at a minimal cost and low margins call for other pure digital players to clearly differentiate and innovate their services based on AI, mathematical optimization, and blockchain. • Build niche online services to seamlessly integrate and operate background logistics platforms, for example, around blockchain, event management, trade flow analytics (just as in online advertising and consumer analytics). Supply chain planner, procurer, and manager The supply chain departments of all major shippers, be it manufacturers or retailers, have used digital to integrate all tools and processes across geographies, subsidiaries, and, perhaps most importantly, across planning horizons. For network planning, network and transport sourcing, routing and allocation management, and event management, planning tools are fully integrated—from the strategic (manufacturing and inventory footprint) and the tactical (inventory rules and preferred ports) down to the operational (production plan and last-mile) level. Planners have shifted their time from adapting calculations to new requirements to improving modeling quality and devising conclusions from model results. Modeling results either support final human decision-making or automatically lead to changes in processes and supplier selection and procurement transactions within defined rules with no human interaction. Planning and sourcing tools are integrated. All transactions are transparent and documented using variations of blockchain technology with auditors and government agencies checking for compliance via constant data connections and AI-based methods. Transformational challenges: • Shift staff from supply chain administration and bottom-up planning to improving the planning and execution algorithms and surveilling and supervising the results. • Invest in automated execution and event handling. • Expand your supply chain partner ecosystem from forwarders to more companies and integrators. • Improve real-time supply chain key performance indicators to track results of automated decision-making on out-of-stock performance, quality, supply chain-related customer https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 11/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney satisfaction, and supply chain costs. • Rid yourself of fixed assets and capacities wherever possible, but build safety into contracts to secure peak capacity. • Leverage platforms to remarket your fixed supply chain capacity. Riding the wave of disruption AI, mathematical optimization, and blockchain are reshaping supply chains and the logistics industry—reinforcing each other in the possibilities they create, in their impact, and in their potential speed of adoption across supply chains and all related services. The speed of adoption may primarily be determined by the lack of specialists and project leaders, be it as employees, consultants, or service providers, and by the capacity for managing change by top and middle management, trainers, and every employee in supply chain management, transportation, and logistics. Data is the oil of the 21st century, and AI, mathematical optimization, and blockchain are the engines to burn it. Together, they will create an industry that is capable of fully integrating services around the physical movement of goods, the flow of payments, and the movement of information, which had been in the hands of various industries, such as financial services. The impact will reshuffle the industry and create a competitive race between large incumbents in infrastructure management, mobile asset management (carriers), and forwarding against new entrants with pure platform models, which may start with a specialization of services in one domain of AI, mathematical optimization, and blockchain but may converge in the future. At the same time, well-managed shippers will benefit from investments—whether in their own internal resources or with a unique combination of external services to achieve a competitive advantage—from greater market transparency, better service offerings, and more competitive pricing. As seen in numerous Kearney projects, prototypes for high value-creating AI or mathematical optimization applications can be built in two to four months, and solutions that are fully integrated into the IT environment can be implemented within six to 18 months depending on the complexity at hand. Typically, the payback for implementation of any one of these tools—or a combination of them—materializes in less than a year—often less than six months after project completion. https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 12/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney Although exponential growth can never be sustained, the speed of technological change will continue to pick up pace, creating a wealth of new possibilities. Forward-thinking logistics companies will master the transition of both their operating model and their workforce—from top management to dispatchers and front-line employees—by weaving together artificial intelligence, mathematical optimization, and blockchain in a step-by-step agile approach supported by intensive change management communication to create cutting-edge supply chain management. 1 Kuehne + Nagel 2 Saloodo!, EnterpriseTech 3 Panalpina in Air Cargo News 4 Wirtschaftswoche,base58.de 5 ShippingWatch 6 Forbes 7 Deutsche Verkehrs-Zeitung (DVZ) 8 300cubits, New Jersey Institute of Technology Authors Sumit Mitra https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 13/14 13/09/21, 14:34 The Interplay of Three Technologies is Transforming Logistics - Kearney Partner https://www.kearney.com/transportation-travel/article/?/a/the-interplay-of-three-technologies-is-transforming-logistics 14/14
