New year, new predictions! Here's where I see opportunity for technology to impact the supply chain industry in 2018.
The last-mile delivery experience hasn’t changed much since the earliest days of the parcel industry. Despite e-commerce driving a radical shift in the utilization of delivery networks, the lack of competition among parcel companies has stifled innovation. Moving shopping online has meant more convenience at the cost of key service elements of in-store experience. Today this service does not meet the needs of the e-commerce market and has added friction to the purchase decision. Retailers have responded by exploring avenues for delivery without the parcel companies in attempts to restore service levels. This new source of competitive pressure will mean innovation in the last mile experience.
The moment of delivery is the last remaining physical touch point with the customer and an untapped opportunity for enhanced service.
Most supply chain networks include analog, manual processes that have evolved over time through heuristic decisions. Many times these decisions are made to solve a local problem without consideration of how that decision will impact the entire network. Examples include material handling within warehouses, local truck routing, freight matching, yard management strategy, container gate scheduling and courier staffing. To achieve system-wide optimization, not just for the local process but for the entire supply chain, mathematical representations or models of these analog processes must be built. These models or “digital twins” provide the ability to run simulations on analog processes in coordination with the digital aspects (WMS, TMS, ERP telematics, etc) of the supply chain.
True network optimization requires a complete model of the system and creating “digital twins” in an efficient, accurate manner is the first step.
The rise in e-commerce has been tightly coupled with a corresponding rise in returns. Under the limitations of online shopping, customers make a less informed purchase decision which translates to higher return rates (10% in-store vs 30% online). High return rates can be curtailed with comprehensive information (measurements, photos, reviews) but will always be a reality of the e-commerce sales channel. After shipment, a seamless return process can improve the likelihood of a subsequent purchase while, after the return has been initiated, the correct series of decisions can ensure value recovery.
Technology can improve reverse logistics by augmenting the information available before the purchase decision, improving the customer return experience and optimizing the inbound process flow.
Regional Distribution Centers
For decades, ship-to-store was the defining supply chain strategy. Large distribution centers were built with the expectation that the market had reached a steady-state fulfillment model. E-commerce quickly reversed this thinking and footprints had to be reconfigured to adapt to the dynamics of individual customer orders. The industry has grown from this experience by shortening business case timelines for capital investment and expecting constantly shifting fulfillment demands. Companies are sacrificing speed for flexibility and eschewing large, fixed automation systems for scalable robotics.
Distribution center placement has been further complicated by increasing customer expectations. Today’s premium delivery standard has been set at two days or less. To meet these high standards, companies are positioning inventory forward in the supply chain through a network of small, regional distribution centers or existing physical stores.
Regional distribution centers need new scalable, flexible technology across automation, software and advance forecasting.
Supply Chain Business Process Software
Outside of the areas discussed, there remains inefficiency in the form of paper records, faxes, business-by-phone and general analog process. While software brings operational efficiency in every industry, the benefits to supply chain companies are two-fold. Not only is the process itself more efficient but the physical assets the process directly or indirectly controls are utilized more efficiently: lower fuel cost, higher asset utilization, more precise labor efficiency, etc.
There is continued opportunity to attain efficiency through software in every aspect of the supply chain industry.
Thanks for reading! If you’re working in these areas and thinking about raising venture capital, it would be great to connect.