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Leveraging technologies is the key for cost advantages and operational excellence in logistics industry. Refer to our last blog sharing, we have discussed about the conceptual framework of big data with focus on cargo consolidation in logistics industry. Now, we are going to discuss automation, virtual reality, mobile and cloud computing technologies. With increasing decentralization and mobility, cloud computing provides a fundamental infrastructure that bring in all the emerging technologies of automation, visual reality, and mobile together. It enables more efficient and effective way of sharing of resource, computing capacity, and collaboration.
Before going to details of each aspects, let's have a quick look for a real example of CEVA, a logistics service provider, what is the capacities of her?
Automation
High manpower cost and service failure problem are two of the critical issues of most of the logistics services provider nowadays. In order to reduce human mistake and enhance the productivity of the operations. A lot of automation technologies has been developed in the logistics industry in order to strengthen the competitive advantages. For instance, to reduce picking error, logistics company introduce the concept of light picking for workers to follow. (for more information, refer to below video)
Moreover, electronic data interchange (EDI) is one of the most common automation interface which being used in logistics industry. By using EDI, logistics service provider can get or send data with customer's system automatically, this is a process of data exchange between computer to computer. As no manual input is needed, it can speed up the data processing time as well as eliminate the manual mistake. (for more information, refer to below video)
Still, in logistics industry, more details operation procedures, automation technology is of the most important technologies which help the industry players to improve their performance. Virtual Reality Technology The VR technology provides an interacting environment for modeling and simulating operation activities by means of the 3-dimensional (3D) visualization in the computerized electronic system. As a result, this enables in controlling the logistics operation process and in making decisions effectively at the warehousing and the port container terminal.
VR technology integrates with the Augmented Reality (AR) by adding virtual layers of contextual information at the right place in the right time at the electronic devices. AR will provide new perspectives in visual analysis, logistics planning, process execution.
Mobile Technology
As the world is transforming into a knowledge based society, there is a cogent need for us to continue to renew our technology and skills. Given the plethora of data flow in the logistic industry, the introduction of mobile technology helps create a paperless environment as well as improving the accuracy of data. As a result, it will improve the productivity of the logistic industry in receiving more volumes of business and thus creates more business opportunity.
However, the emergence of data leakage and system break down
may loom if the mobile technology needs to be sublimed or upgraded to the next
version. Hence, the more sophisticated a mobile system, the higher the cost
should the system breaks down in any circumstances. Therefore, the consistency
and stability of the mobile system ensures the reliability of the business
especially in the logistic industry.
Cloud Computing
Under globalization, deep industry expertise and leveraging technologies extensively are the keys for internal operation excellence and business service optimization in logistics companies. With increasing decentralization and mobility, the application of the emerging technologies, automation, virtual reality, mobile, and big data would have great impacts in the future logistics industry. Cloud computing provides opportunities of bringing in the emerging technologies at lower costs, because the cloud enables more efficient sharing of resources, more computing capacity and easier collaboration. The following video demonstrates a example of cloud-based visual collaborative work space.
The power of the cloud computing does not require the asset-heavy IT infrastructure and employed IT experts to maintain the software and hardware system. Instead, people use technology to create access to an abundant source to create a powerful new cost-effective logistics system.
Collaborative consumption is not only the key concept of cloud computing, but also has social, economic and environmental impacts in the logistics industry. With technologies being used, there is an evolving change in the logistics business model. It is important to understand how the challenges and opportunities may arise in the future.
Last but not the least, should you want to know more the details of these emerging technology and logistics, please read the coming individual sharing which coming soon...
Introduction: What are "logistics" & "freight forwarding"?
When we talk about "logistics", you may think of cargo movement. In fact, "logistics" is the process of planning, implementing, and controlling the effective and efficient flow of goods and services from the point of origin to the point of consumption for the purpose of conforming to customer requirements. (Kate, 2013) Therefore, the definition of "logistics" should including inbound, outbound, internal and external movements. For example, international transportation (freight forwarding), warehousing management, order fulfillment, inventory management, logistics network design etc, are some of the topics which under the scope of "logistics".
The freight
forwarding industry sector is a subset of the logistics industry. It
generally provides services that guarantee products getting to the proper
destination by an agreed upon date, and in good condition. Freight forwarders
usually work closely with shipping or airline companies as agent and their
major customers are manufactures and traders. The key mission of freight
forwarding service is to save the client’s time and provide reliable
transportation of products at competitive rates. In responding to the changing
markets, many freight forwarders also provide more value-added services such as
warehousing, distribution and total logistics solutions.
To understand the works of a freight forwarding company, you can refer to the below video for a basic idea.
Video 1# How Does A Freight Forwarding Company Work ?? (How to video, 2013)
Evolution of “Big Data” To understand Big Data, you can refer to the below video: What is Big Data and how does it work? (Funk-e Studio, 2013)
Big data means the practice
of collecting electronic information from huge sources and applying analytics
to identify patterns, trends, and other intelligence. In general, the analysis
could be something have happened but not easy to perceive, or something can be
predicted and will happen in the future. Early in the 1900s, doing data
analytics was very difficult. It required manually computing all the
statistics. Everything was done by hand or by calculating machines. Then
calculator came along in the 1970s and made it easier to utilize more data. But
the volume manageable with a calculator is still small. In the 1980s, computers
became the mainstream. Yet, they were still expensive to work with data at that
time. As the decades have passed, the amount of data has grown as fast as the
computing power of machines. Then, many new technologies, such as cloud
computing, mobile and automation, has continued to advance at a pace that made
the volume of data grow even faster every year. Many companies have taken
harder look at the evolving role of technologies in their supply chains as a
way to support better decision-making. It has been practical for the industry
dealt with structured data captured in proprietary software system, such as CRM
and ERP, in the past. But nowdays, the emerging technological disruption erupt
unstructured data involving in huge
volume, wide variety, and high velocity. IBM (Forbes, 2012) estimates that every day 2.5 quintillion bytes of data are created – so much that 90% of the data in the world today has been created in the last two years, and Zikopoulos et al. (Understand Big Data, 2012) expect data volumes to reach 35 zettabytes by 2020. Moreover, new big data sources are pushed further across the boundaries. Data can be generated terabytes to petabytes of data in days or weeks. According to Peter F. Drucker (HBR, 1998), among history-making innovation, those based on new knowledge, whether scientific, technical, or social - rank high. Safe and proper use of Big Data can facilitate discovery and support new knowledge. Hong Kong Freight Forwarding Industry Overview In Hong Kong, the freight forwarding industry has
benefited from Hong Kong’s world class infrastructure, business-friendly and
open environment. Total freight movements increased by 9.3% year-on-year (YOY)
to 244 million tonnes in the first nine months of 2014. Most of the larger
freight forwarders have a wide network of overseas branches, and act as agents
for international air and ocean liners. More than 70% of Hong Kong’s exports
are sent to other Asian markets, with Western Europe and North America
accounting for about 10% each. Western Europe and North America, as long-haul
markets, tend to account for a bigger proportion of the total. (HKTDC Research,
2015)
The services provided by the industry vary
according to the sophistication of the freight forwarder. The larger freight
forwarders usually offer a full range of logistics services. Their main
customers are time-sensitive manufacturing, trading and retail sectors. Thus,
larger firm concentrate on their core competency and reduce business cycle
time. The smaller freight forwarders provide more basic and economical
services. Thus, the smaller firms provide more flexibility and more personalized
services. Generally speaking, the forwarding service performance is strongly
associated with the reliability, efficiency and predictability of service delivery for customers. Challenges in Freight Forwarding Industry As global supply chains become more and more complex, the freight forwarding industry is threatened by the following main factors: Keen competition
In certain extent, freight forwarders is only an agent of international transportation, they are not producing any products, so the development of a freight forwarding company really subject to the market movement. For example, if the production line of a customer move from South China to Vietnam, then it will cause a direct impact to the freight forwarder which doing business with that factory in South China. Of course, some of the international freight forwarder may able to secure the business because they may have branches in Vietnam. However, somehow, from the customer point of view, it is very easy for them to find substitution in the market because it is no difference for the factory to use forwarder A or forwarder B for moving cargo from port to port. So, somehow, in freight industry "price is king". If a company has a better networking in particular market, that company maybe the dominant player in that market. For example, DHL and Schenker DB in European market, Expeditors in American market, Nippon in Japanese market, Toll Global Forwarding in Australian market etc. Under this keen competition on price, so some of the smaller freight forwarder may strengthen their services by providing certain kinds of value added services (such as labeling or pick and pack) to their customer before/ after shipping at their warehouse and even providing tailor made supply chain solution for their customer.
In addition, for the customer with very large cargo volume, they may even making duel with freighter directly, i.e. get space and equipment from shipping line or airline. For instance, Zara group, they always get space from airline directly because she can even arrange charter shipment from Spain to worldwide. Under this condition, freight forwarder id they can get cargo from these kind of big customer, the profit margin is very slim. So, most of the freight forwarder usually make use of big customer to secure space and get lower cost from carriers and then get more smaller shipments from different smaller customers to maximize their profit margin.
Fast changing market
On the other hand, freight forwarding industry has a very close binding on the international trading. For instance, the trading terms (Incoterms) between shipper and consignee change, it will totally affect the business environment of freight forwarding industry. Say, if freight forwarder A has a key customer in South China which doing business under trading terms CFR (i.e. Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Insurance for the goods is not included.), under CFR condition this key customer will pay for the freight charge to forwarder A. However, if one day, the trading terms change from CFR to EXW (i.e. The seller makes the goods available at his/her premises. Buyer responsible to arrange pick up and freight) Under this situation, forwarder A may loss the customer suddenly because seller is no longer responsible to pay the freight and buyer can nominate another forwarder to arrange freight service on her behalf.
Furthermore, customer demand is related to consumer needs and government policy. If any changes, cargo volume may change suddenly. One of our group mates is working in logistics industry over a decade, he can see the change of market. For example, the popular of digital camera and the decline of film camera & photo related accessories. Free duty for importing red wine to Hong Kong, jet up a big volume in wine transportation. In short, a good market forecasting and strategy development plan is very important for freight forwarding industry. Otherwise, it is very easy to loss the market share.
The way to go..?
Under globalization, competitive advantage is very important for each individual forwarding company. There is emerging need for better leverage networks and new technologies to ensure that they meet the expanding needs of the customer's changing markets and competitions. With a technological assist, we can coordinate across time and space, resulting in higher productivity, faster cycle times, reduced facilities costs and greater freedom to structure work arrangements beneficial to both. (nGenera Corporation, 2009). Moreover, freight rates, more or less is transparent in the market. So, business strategy and direction is very critical on top of pricing. As mentioned, big cargo volume can help a forwarder to get a lower cost from shipping line and airline. However, smaller volume shipment should be the focus of all the market players. Yet, how to get clear picture of the market and cargo movement? Big data is one of the solutions. Different Strategic Approaches and Potential Applications of Big Data In respond to meet the challenges, on the one hand, freight forwarding companies in different size and cultures must consider a number of strategic fits and adopt different strategy to defend against competitive forces and gain market share. Some may adopt differentiation strategy to become a “one-stop-shop-provider” as a way to achieve differentiation advantage. Some may use cost leadership strategy to improve logistics process efficiencies and reduce unnecessary costs as a way to sustain a competitive advantage. Some may focus on developing core competencies that can act as an entry barrier. Others may adopt multiple generic strategies through creating different business units for each of them. On the other hand, Big Data represents a potential new source of competitive advantage for freight forwarders by harvesting data for insight into market trends, cost structures and market demand. With the rise of smart technologies, professionals have started to collect all the data together to do analysis for freight forwarding industry. There is an emerging need for the companies constantly seeking opportunities for cost and service improvement through data mining and analytics. They can use Big Data to find answers that are more specific and significantly more useful. When freight forwarders handle millions of transactional data everyday, not only from a single computer system, but also many other sources on the internet, including content, weather, location, maps, voice video, and digital images, these data enable new capabilities to respond to fast-moving market conditions more intelligently. In fact, more and more IT companies are providing solutions to covert Big Data quickly into business intelligence. Through value creation and value extraction from Big Data, service providers can operate more efficiently and improve the scalability of their business.Different applications of Big Data technology have been adopted in the markets. For example, there are:
Use Big Data analytic to drive value that aligns with core competencies and creates a competitive advantage, e.g. use data mining to segment different customers for better service personalization.
Enable the organizational change to move towards fact-based decisions, adoption of new technologies, and embrace collaboration, e.g. bringing Big Data to cargo transport to improve capacity utilization by making it more efficient and environmentally friendly.
Deliver faster results by capitalizing in the ever-changing global market place, e.g. utilizing data analytics and building predictive model to deal with uncertain shipping situations.
Case Study - Cargo Smart: Big Data and Freight Forwarding Industry
Cargo Smart
CargoSmart is a global software solutions company which providing global shipment management software to enable shippers, consignees, logistics service providers (including freight forwarders), and ocean carriers to improve planning and on-time deliveries. The data sources come from over 30 ocean carriers, CargoSmart leverages big data sources and a cloud-based platform to offer award-winning sailing schedules, visibility, documentation, contract management, compliance, and benchmarking solutions. Regarding on the Big Data, it is including 5500 vessels covering 90% of the world's ocean container traffic. Moreover, CargoSmart is providing a real-time big data processing for their customer and they are helping over 130,000 transportation and logistics professionals to increase delivery reliability, lower transportation costs, and streamline operations.
Application of Big Data in Freight Forwarding Industry
According to 2013 KPMG report, only 9% of logistics professionals have visibility into their supply chain because they are lack of access to quality data and still rely on manual data processing. Under this condition, many logistics professionals still under the condition of inefficient supply chain visibility. As a result, a big information gap formed and even caused inefficient processes. (Environmental Leader, 2013) Back to the success case of CargoSmart, some of the customers from CargoSmart make use of big data to analyze and act on any significant trends, opportunities and risks arising from events. So, if any freight forwarder able to spot out the cargo trends and opportunities, then eliminate the cargo risk impact, such forwarder should able to get a higher competitive advantage. Nevertheless, is it possible for freight forwarder to make use of big data in their consolidation planning and development?
Big Data helps forwarder to make better consolidation planning?
What is cargo consolidation?
First of all, cargo consolidation is when several small shipments, all being forwarded to the same region or location, are bundled and shipped together. This service can be beneficial both to the customer and to the freight forwarder. Consolidation is one of the common core functions which are highly associated with profitability and competitiveness in the industry.
How does cargo consolidation work?
Freight forwarder set up container freight station (CFS) in different location to keep different shipment from shippers/ consignee and then group related region/ location cargoes for container loading/ break bulk for inland feeder and delivery.
Strategic advantages to focus on improvement freight consolidation by Big Data
Cost competitive advantage: When the price competitiveness is strong in the market, the fundamental cost reduction relies heavily on cost control. Poor forwarding service not only affect profitability and competitiveness in the industry, but also raises the costs of trading and reduces the potential for global integration. There are several cost advantages to freight consolidation, both for the customer and the shipping company. First, consolidating small shipments lowers operation costs for the freight forwarder. Second, forwarding small shipments together lowers total shipping costs for the customers.
Differentiation advantage: According to Caplice (Logistics management, 2013), logistics manager are usually the last to know when supply chain problem occurs, but the first to respond when there’s a problem. Make use of big data may help to spot out the risk in advance.
SWOT Analysis: Make use of big data to have better consolidation development and planning
Strength
Cargo consolidation is one of the most important activities for freight forwarder to generate more income. So, the better consolidation efficiency and effectiveness, the more income can be generated. Make use of big data, forwarder can know the cargo trend and potential risk etc. Then, forwarder can have better consolidation development and planning.
Weaknesses
As mentioned above only 9% of logistics professionals have visibility into their supply chain because they are lack of access to quality data and still rely on manual data processing. Still, this is no doubt a fact in freight forwarding industry. First of all, not every forwarder is usual systematic way to handle shipment. Most of them are still using manual data processing. Thus, the data source in freight forwarding industry is not very good in quality at this moment. Freight forwarder may not easy to generate quality information for consolidation development and planning.
Opportunities
For sure, at this moment, only few logistics players in the market have visibility into their supply chain, in other word, if a company can get a better quality data source and make use of big data analysis in their company. She should able to get a higher competitive advantage compare with other forwarders. So far, DHL is one of the international freight forwarders that is using big data in her business sector.
Threat
The same, as only few logistics players in the market is making use of big data to enhance her visibility into their supply chain. In order word, any companies who are not doing freight forwarding business but she has business which may related to freight forwarding sector, then she may expand her business coverage to freight forwarding industry. For example, Maersk (Shipping line) build up a subsidiary company Damco (freight forwarding and logistics company) to take care the upstream needs. Under this situation, the competition of existing freight forwarders become more keen.
Conclusion
When we talk about "logistics", you may think of cargo movement. In micro view point, this is definitely correct. Yet, when we talk about "logistics", talk about "big data", have you think of globalization? That correct, under the impact of globalization, everything is possible because the boarder of each single industry is no longer separated. Of course, for freight forwarding companies, big data analysis may still very new at this moment. However, it is sure that with the popularity of different big data software come to the market, big data analysis will sooner or later can apply to the whole consolidation planning.
Zikopoulos, P.C., Eaton, C., deRoos, D., Deutsch, T. and Lapis, G.
(2012). Understanding Big Data. McGraw
Hill, New York.
Peter F. Drucker
(1998).Week 5 Reading:
Optional HBR 1998 The disciplibe of innovation.pdf
nGenera
Corporation(2009) Week 7 Reading: Building the Collaborative Enterprise: Ten
Questions to Ask about Business Opportunities through Collaboration
