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Digital logistics: Technology race gathers momentum
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DIGITAL LOGISTICS: TECHNOLOGY RACE GATHERS MOMENTUM
November 16, 2023 | Article
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A survey of more than 250 global shippers and logistics providers reveals that
technology investments are set to increase, with numerous companies already
piloting advanced use cases.
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Article (11 pages)
Turbulent market forces are compelling companies to transform their logistics
functions for greater flexibility, predictability, efficiency, and resilience. A
new McKinsey survey of more than 250 logistics leaders, representing both
shippers and providers, confirms that companies are increasingly turning to
technology to solve their many challenges.12023 McKinsey Logistics Survey,
conducted May 5–20, 2023 (n = 258).
Sidebar
ABOUT THE AUTHORS
This article is a collaborative effort by Sandy Gosling, Jason D. Li, Arsenio
Martinez, Marcela Miguel, and Fernando Perez, representing views from McKinsey’s
Operations Practice.
The survey’s most important message is that now is the time to invest in
logistics technology. Even under difficult market conditions, most respondents
said their companies have sustained or grown their technology investments since
2020. That leaves laggards with less and less room to maneuver.
Yet for shippers and providers alike, the technology landscape has become
increasingly complex and crowded. Companies face questions about not only what
value they expect from a technology but also how that technology will fit into
their enterprise-level technology landscape, their day-to-day operating models,
and their underlying logistics processes. Data and technology integration is
typically required as well.
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The survey shows that both shippers and providers are moving beyond foundational
technology and turning to leading-edge solutions to gain or maintain a
competitive advantage. Moreover, the results highlight substantial common ground
between shippers and providers, implying that closer collaboration could unlock
new solutions to shared challenges.
Together, the survey findings suggest that if a company isn’t reimagining the
way it works in conjunction with technology—all while building newer
breakthrough capabilities—achieving the expected ROI from technology commitments
may become harder than ever.
SHIPPERS AND PROVIDERS SHARE COMMON PAIN POINTS
Shippers and providers continue to face challenges in their operating
environment: namely cost management and labor shortages. Cost management, driver
management, and productivity improvement were the top three pain points reported
in transportation. In warehousing, survey respondents identified labor
management, productivity improvement, and performance management as the most
pressing issues (Exhibit 1).
Exhibit 1
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Interestingly, the pain points for shippers and providers are similar—and, in
some cases, they affect providers more acutely. In the short term, driver and
staffing shortages are not expected to significantly improve; however, shippers
and providers have an opportunity to address other shared challenges,
particularly wherever they can coordinate and complement each other’s
capabilities. This could lead to improved efficiency, reduced costs, and
increased customer satisfaction for both parties.
Unsurprisingly, logistics companies are turning to technology to reduce costs
and improve productivity in transportation and warehousing. Tools that support
real-time transportation, visibility planning, and telematics for fleet
management are seeing above-average adoption and investment rates.
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As companies plan their future investments, they can shape their decisions
around the solutions that will address their top challenges and help them
develop or sustain a competitive advantage, while also building internal
capabilities to ensure sustainable change.
TECHNOLOGY INVESTMENTS CONTINUE TO GROW
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Sidebar
THE TRANSFORMATIONAL POWER OF DIGITAL LOGISTICS
Expanding digital logistics capabilities can generate significant value with
regard to cost and service delivery, boosting operational performance,
sustainability, customer satisfaction—and revenue in some cases.
On the operations side, digital tools are optimizing logistics across planning,
execution, and settlement. Leading logistics players are already seeing
performance improvements of 10 to 20 percent in the short term, and 20 to 40
percent within two to four years.
By integrating resilience into core business decision making through digital
logistics tools, businesses can derisk their EBITDA by up to 60 percent and
boost company valuations by up to 20 percent, as customers increasingly show
preference for companies boasting green-shipping credentials and stable service
levels.
In tandem, carriers and warehouse providers can often see revenue uplift of 5 to
10 percent within two years of a successful transformation, thanks to efforts
like pricing optimization, tailored value propositions at the customer level,
and integrated omnichannel sales and customer service.
Both shippers and providers have grown their investments in digital logistics
since 2020, across all technologies (see sidebar, “The transformational power of
digital logistics”). Some 87 percent of shippers reported maintaining or growing
their technology investments since 2020, and 93 percent said they plan to
maintain or increase their spending over the next three years (Exhibit 2).
Exhibit 2
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FOUNDATIONAL TECHNOLOGIES ACHIEVE MAINSTREAM ADOPTION
Providers have been leading in investment over the past few years, showing
higher adoption rates across both transportation and warehousing technologies.
But shipper companies are planning to close the gap, reporting strong investment
plans for the next two years (Exhibit 3).
The survey also reveals that foundational technologies like warehouse management
systems and transportation management systems are now mainstream. Companies that
have not invested in these systems could be at risk of falling behind their
competitors.
Exhibit 3
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SHIPPERS AND PROVIDERS ARE MOVING BEYOND FOUNDATIONAL TECHNOLOGY
With foundational technology adoption now commonplace, the next frontier of
productivity could come from leading-edge solutions, such as robotics, network
digital twins, and real-time insights.
As the technology landscape matures, shippers and providers can assess where
they are in their transformation journeys in relation to the wider logistics
sector to identify which capabilities and technologies will make the difference
(Exhibit 4). The multitude of use cases makes it challenging for companies to
know which ones to invest in and how best to ensure value capture, particularly
if there’s a relatively innovative use case that has not been widely adopted.
In transportation, digital freight procurement (14) and asset tracking and data
mining (13) are in broad use. Automated guided vehicles (AGVs) for internal
transport (7), enhanced driving solutions (10), and digital yard management (12)
are starting to scale up. Cutting-edge technologies, such as delivery drones (3)
and hydrogen vehicles (1), are at much earlier stages of development.
A cluster of warehousing technologies, including real-time distribution center
performance management (13), AGV-based goods-to-person solutions (14), and
warehouse management systems (11), are already in (or nearing) broad use.
Digital warehouse twins (8), dynamic labor management (10), and gesture and
motion tracking (7) have proven themselves in piloting, while fully automated
item picking (2), network digital twins (3), and smart shelves (4) are
demonstrating feasibility.
In planning, technologies in wide use include automated replenishment (9) and
data mining and automated root-cause analysis for performance management (10).
Machine learning–based forecasting (6) and microsegmentation (8) are now in
selective use.
Digital command centers with micro-apps (5), which are moving out of the pilot
stage, enable oversight of the entire logistics system: transportation,
warehousing, and planning, all in one place.
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TECH AND REGIONALIZATION BOLSTER SUPPLY CHAINS, BUT COMPLACENCY LOOMS
Read the article
THE TECHNOLOGY LANDSCAPE IS INCREASINGLY COMPLEX
As well as having to select the right use cases and navigate an increasingly
complex landscape, shippers and providers are under pressure to ensure seamless
integration of their numerous transportation and warehousing solutions. A
plurality of providers (34 percent) now have as many as eight or nine different
technology solutions in their transportation tech stacks, and 37 percent have
five or more solutions in warehousing (Exhibit 5).
With the logistics technology landscape becoming increasingly complex, effective
integration of data flows and complexity management will be critical to
achieving optimal performance and ROI.
Exhibit 5
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COST AND CHANGE MANAGEMENT CONTINUE TO PROVE DIFFICULT
Integrating and embedding new technologies is not easy, and most companies
called out ROI, change management, and training as the main challenges they face
when implementing new solutions. Around 68 percent of shippers and 80 percent of
providers cited cost as the biggest challenge for transportation
transformations; for warehousing, a majority of shippers and providers also
cited cost (Exhibit 6).
To get ahead in the digital logistics race, companies need to understand not
only where to invest but also how to transform their operating models through a
multipronged approach that encompasses the following:
* creating a vision of the future state, including the from–to transformations
needed in processes, systems, and capabilities
* building capabilities to scale and sustain specific use cases across business
units
* developing change management programs and defining new ways of working to
achieve a high-performing organization
* getting the right systems and data infrastructure in place to support new
technology
* adapting processes with an eye toward value to ensure chosen solutions are
sustainable and scalable
* measuring regularly and adapting early, with real-time performance management
and decision-making support
* conducting proof of concept sprints to iterate and learn
Exhibit 6
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--------------------------------------------------------------------------------
By investing in digital logistics technology—and the operating model changes
needed to embed it and capture value—shippers and providers can harness the
competitive advantage increasingly needed to outperform under tough market
conditions. As the digital logistics technology race gathers pace, foundational
technology is becoming the absolute minimum needed to remain competitive. Those
providers and shippers that go beyond their competitors to integrate
leading-edge solutions into their tech stacks could be the ones that pull ahead
of the pack.
ABOUT THE AUTHOR(S)
Sandy Gosling is a partner in McKinsey’s Miami office, where Fernando Perez is a
senior partner; Jason D. Li is an associate partner in the Toronto office;
Arsenio Martinez is a partner in the Washington, DC, office; and Marcela Miguel
is a consultant in the New Jersey office.
The authors wish to thank Mike Doheny and John Murnane for their contributions
to this article.
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