Investment in new technologies for your Supply Chains

Roger OakdenGlobal Logistics, Logistics Management, Procurement, Supply Chains & Supply NetworksLeave a Comment

Project proposal measure

New technologies list

Articles, conferences, workshops and subjects in degree programmes continue to promote investment in technologies that are considered ‘new’. But when are these technologies right for your organisation to implement?

Technologies currently considered as ‘new’ (enhanced from the Deloitte consulting list) are:

Software

  • Analytics: Predictive (using ‘big data’ within and between connected devices to enable decisions) and Prescriptive (data supported decision options for evaluation)
  • Artificial Intelligence – decision-making enabled by computers learning in real-time from data patterns, behaviours and feedback provided by other digital technologies and human interfaces, rather than being pre-programmed to follow a fixed set of rules
  • Cloud computing and remote storage technologies
  • Digital labour automation tools for customer service
  • Distributed ledger (Blockchain) technologies
  • Optimisation tools for inventory and supply networks

Hardware (industrial automation)

  • Additive manufacturing (also called 3D printing)
  • Augmented and virtual reality
  • Autonomous vehicles; automated guided vehicles (AGV) and drones
  • Industrial Internet of Things (IIoT) comprising:
    • Sensors
    • Instruments and programmable logic controllers (PLC)
    • Automatic identification and data capture (AIDC), including barcode scanners, optical character recognition (OCR), graphical user interface (GUI) and radio frequency identification devices (RFID)
    • Materials handling equipment (MHE)
  • Robotics in process automation
  • Wearable and mobile technology

Overall control is provided through a Supervisory Control and Data Acquisition (SCADA) system. This communicates with both SQL databases and the above operational equipment, providing the bridge between technical and commercial systems.

To consider which businesses would be most likely to adopt these technologies, consider shippers and Logistics Service Providers (LSPs) as different businesses. While logistics is a part of a shipper’s business, for those LSPs providing goods movement services, logistics is their business. Examples of these organisations are:

  • Third party logistics (3PL) – goods movement and storage services
  • Transport services (sea, air, road and rail)
  • Logistics infrastructure providers (sea & air ports, container parks)
  • Logistics Services multi-modal cluster providers – logistics hub, inland ports, freight village

As customer focused service businesses, LSPs could be more ready to invest in ‘new’ technologies. The Harvey Nash/KPMG CIO Survey 2018 contained responses from 144 businesses in the Transport/Logistics services industry. The responses identified the following:

  • Digital strategy: About 50 percent of respondents have a clear digital business strategy. Low effectiveness in using digital technologies to advance the business strategy
  • IT emphasis: deliver consistent and stable IT performance; increase operational efficiencies and improve business processes
  • Digital investment priorities: improve business process efficiency and enhance customer experience
  • Enhance customer experience: companies rated weak at leveraging data to deliver personalised experiences and providing a single view of interactions across all service channels
  • Innovation priorities: Industrial Internet of Things (IIoT) and digital labour automation for customer support

This survey indicates that innovation priorities of IIoT and digital labour automation appear to be influenced by investments in large distribution centres, designed for replenishing retail outlets or servicing eCommerce orders. The ‘assemble to order’ (ATO) model, at low order fulfilment cost (to address ‘free’ delivery), moves the equipment buying decision from being about stand-alone pieces of equipment, to integrated sub-systems with their own control systems, integrated or interfaced into the overall warehouse management system (WMS), which is integrated with the commercial ordering and administration system.

For other customer focused service business, the report identified five necessary IT capabilities:

  1. Measure profitability by customer
  2. Create an engaging customer experiences
  3. Generate actionable insights from customer data
  4. Leverage customer data to deliver personalised customer experiences
  5. Have a single view of customer interactions across all service channels

At shippers, IT investment continues to be predominantly within silos, because the focus continues to view supply chains as a number of individual functions within an organisation, rather than a process to better serve the business, its customers and suppliers. It is therefore more difficult to structure a proposal concerning the need for applications and technologies which cross functions, when each function is only responsible for one part of the Supply Chains in the business.

IT budgets and the business case  

Businesses of all types are likely to spend between 4-7 percent of their revenue on IT, with the higher percentage spent by smaller businesses. This range has not changed in more than thirty years, although the amounts budgeted for various elements have changed. Of course, businesses that invest the most in IT are not necessarily the best performers.

From US based surveys, the distribution of IT budget expenditure is approximately:

  • Business Operations between 50 – 60 percent
  • Business incremental change (upgrades, bolt-on applications) about 25 percent
  • Business innovation about 15 percent

So, for a $100m turnover business with an IT budget of $5m, investment in ‘innovation’ could be about $750,000 per year.

The IT spend and technology spend figures can differ, depending on the budget scope allowed. Operating groups such as manufacturing, logistics and engineering may be authorised to buy technologies which do not directly integrate with the commercial IT system.

However, before evaluating, buying and implementing any of the technologies, a business case must be structured to justify the investment and obtain a capital expenditure (CAPEX) authorisation.

This requires an initial justification, answering a few basic questions:

  • What is the business need for the technology?
  • What are the criteria for evaluating the value of the technology?
  • What approach will be used to evaluate proposals from prospective suppliers?
  • Who will drive (and be responsible) for the evaluation and buying process?

Understanding when and how to adopt digital supply chain technologies requires consideration of your organisation’s cultural dynamics. This will be shown through the lack of support from key stakeholders due to:

  • Business priorities not aligning with the proposed investment
  • The organisation’s willingness to accept change and disruption

Then consider the potential challenges with technology investments:

  • Insufficient underestimating concerning complexity of the project; therefore over-promise and under deliver on the expected results from the investment
  • Unplanned delays through the project that generate cost overruns against the budget
  • Security risks in the technology that could bring operations to a halt

Experience in past decades with ‘new’ technologies, such as Computer Integrated Manufacturing (CIM) and RFID in retail, informs me that it is preferable to let ‘first mover’ organisations (those with money) experience the challenges.

For those working outside large distribution centres designed for replenishing retail outlets or servicing eCommerce orders, learn about the ‘new’ technologies and their applicability in your supply chains. But question all claims concerning rapid acceptance and implementation. If possible, propose small-scale, non-critical versions of the technologies that are appropriate to your business. From these you can learn from mistakes and what the technology sales people forgot to mention.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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