Innovation in Logistics: From a Supply Chain to a Demand Chain
A massive industry rife with inefficiency, short on data and long on GHG emissions, global logistics represents opportunities for innovation to power it toward a more digitized, de-carbonized and resource-efficient future.
Last week Cleantech Group, along with Silicon Valley Bank and Wilson Sonsini Goodrich & Rosati, hosted a Power Breakfast to explore key innovations in the logistics industry. Our speakers included:
- John Urban, Co-Founder and Former President, GT Nexus
- Kelly Chen, Principal, Data Collective
- Earnest Sweat, Investment Manager, Prologis Ventures
- Adam Compain, CEO, ClearMetal
- Dave Lyons, Co-Founder & Chief Innovation Officer, Peloton Technology.
The logistics industry is estimated to be worth $1.2 trillion globally. On average, a country spends 12% of GDP on logistics, but this can be as high as 25% in less developed economies and as low as 8% in Germany and the USA. However, combining all of the opportunities to emit greenhouse gases along a supply chain, the industry accounts for 28.5% of global GHG emissions.
No wonder many billions of venture capital are now invested annually into supply chain improvements across the spectrum, from picking and sorting to the last mile of delivery.
An industry in transit(ion)
Optimization of logistics and the supply chain in the last thirty years has mostly meant brute force. Bigger ships, bigger ports, larger warehouses and more delivery vehicles were the solution to increasing demand. And the answer to growing complexity was to scale supply as fast as possible. This has led to a system where large amounts of stock can idle in warehouses, or wait in port systems for days, sometimes without a way to tell the recipient the delivery has arrived and someone should come and pick it up. Holding stock like this is expensive for everyone. Unnecessary transportation is rife.
In an age of rising global trade, the industry could get away with it. No more. With global trade now flat, the logistics industry’s wafer-thin margins are no buffer to deep-rooted inefficiency.
The logistics system is getting smarter. Increasing precision in tracking freight and packages is just the start. What the supply chain needs is intelligent use of this data to find efficiencies.
One example was offered by ClearMetal. The company took existing freight tracking data and paired it with satellite data. This meant they could tell a customer not just when a ship had arrived in harbour, as is common, but the time the ship physically docked and began unloading. This reduced port delays from 3 days to 4 hours, and scrapped the practice of sending trucks to wait at a port in anticipation of an unknown pickup time.
Moving from a Supply Chain to a Demand Chain
Logistics solutions aim to tackle complexity until they are no longer guessing at supply needs but instead predicting demand in order to reduce the need to hold, warehouse, over–order or throw away goods.
This is not about just-in-time logistics as pioneered by Mitsubishi – which required proximity of suppliers. The audience was reminded that some bookstores tried to print books in-store when Amazon started rolling over bookshops 10 to 15 years ago. It is not just about putting supply close to the customer.
The demand chain is also about getting to understand your customer better, tracking your shop floor and adding logistics intelligence to be able to stock exactly what is required when and where it is needed. Predictive logistics would allow for distance between manufacture and demand.
Retailers are discounting product as soon as it is ordered. Stock is over-ordered, supply chains delays are priced in, and if the delivery arrives it often receives further discount in-store as if it does not match demand. One estimation tallied $4.3 billion of unsold clothing in the US alone. This leads to heavy discounting, squeezed profits from unsold stock and premium brands burning stock to prevent discounting.
One solution to the problem facing the clothing industry was for retailers to find ways to own re-sale markets to avoid waste. Yerdle, a developer of reselling and white-labeling programs for clothing brands, has worked with companies such as Patagonia to help them build a re-sale market to deal with returned and used products. This not only reduces waste in clothing logistics but allows companies to increase revenue per product.
If the Logistics Industry as a whole is responsible for 28.5% of global GHG emissions, it is estimated that trucking accounts for around 83% of the industry’s emissions in the US. The cost of trucking was broken down as being split 35% for fuel, 35% for driver, and the rest consumables (such as insurance, maintenance, tires and parts). Peleton Technology have designed a platooning system that aims to encourage trucks to drive in a controlled convoy, enabling a 4.5% fuel saving for the front truck, and 10% for the truck behind. This combines dollar savings for the operators and less GHG emissions for the industry.
Once fuel savings are improved, autonomy will likely reduce the 35% cost prescribed to the driver. However, the regulatory hurdles mean this is still ten years away, according to our panel. Autonomous systems are also unlikely to solve last-mile problems in the medium-term and so the focus is on the 43,000 miles of interstate in the US, described as ‘not that much’, as the first target.
Cold chain and food waste
A real surprise came when the panel labelled the cold chain for food as a niche in their industry. While this is a reflection of the volume and spend as a proportion of the total logistics industry, the panel acknowledged the particular difficulties or transporting perishable, low-margin, goods which depreciate in value through the supply chain. However, the US throws away 30% of food, and so creation of a demand-chain for food was seen as a key challenge. This challenge is one we’ll be looking at in more detail this May in Stockholm.
The Amazon Effect
There is massive opportunity to root our inefficiency, but things are not moving as fast as you might imagine – principally, according to the panel, due to risk aversion, inertia embedded in the structure of the industry and a lack of competency in moving from a physical-dominated industry to one powered by AI and data. One reason it is now starting to change was labeled the Amazon Effect.
Ten years ago, shipping time of three to seven days was acceptable. The Amazon Effect has changed that beyond recognition. Amazon has also placed the customer experience at the front of concerns for logistics providers, who not only have to provide improved information about deliveries, but also have to provide flawless customer service. Predictive logistics and moving the industry toward a demand chain are seen as vital strategies that can enable logistics companies to keep up with the largest company in the world.
Watch this space. There is more innovation-powered action to come.
For more expert insight on the impact of logistics on our food supply, join us in Stockholm on 21-23 May.