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Next Stop Digital: How Logistics Service Providers Can Rethink Operating Models to Benefit From Emerging Technology

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The changes affecting the future of logistics service providers (LSPs) have never been so fast moving. As many are still trying to pull away from the 2008/2009 recession, new innovations and technologies are pushing LSPs into a digital future—whether or not they are ready. It’s an exciting crossroads where LSPs must decide if they are going to stick with business as usual, or take a new path that may be ripe with opportunities—but also a few obstacles.

Digital disruptions: By land, air or sea

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Freight rate flux. There is still volatility, instability and pressure on freight rates—particularly for container shipping. Some ocean carriers even have to park vessels to reduce capacity, hoping to stop declining rates. In many cases, we even see rising rates due to this artificial reduction of capacity. Ironically, lots new of large-size vessels are still pushed into the market.

Some of the industry changes that make for a bumpier road include:

Wearing new hats. The speed and scale of customer demand for specialized industry services is growing. Customers expect LSPs to take on activities that include pre-assembly, light manufacturing and quality inspection—activities beyond commodity transportation that will help LSPs to profitably grow.

High input costs. Fuel and resource costs continue to be major drivers of cost structures.

Dwindling bargaining power. As liner vessel sharing alliances form and big M&As take shape, carriers gain power and the strength of LSPs is diluted.

Sluggish global trade. Global trade volume growth has slowed substantially and the trend of ‘globalization to regionalization’ is impacting the business of freight forwarders.

Disruptive technology. Digitalization offers opportunities, but many LSPs are struggling to figure out how to adopt new ways of working. For instance, e-commerce platforms provide an online solution for seamless processes from order to invoice. If LSPs fail to employ logistics solutions using latest technology, they’ll see a rise of niche players providing these platforms who are ready to jump in the game with the intent of becoming a 4PL service provider.

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Taking technology further

LSPs are on the cusp of sweeping change. The high performers would be the ones who adopt enabling technologies such as big data, telematics and cloud to help increase operational visibility and flexibility—rather than being swept away by old and new future competition.

Big data and analytics Early adopters have found ways to use big data and analytics to help them fuel revenue and open up new value streams. These are just some areas in which big data and analytics can be a lever of value:

• Operational efficiency and planning: LSPs can use big data and analytics for capacity planning and building a predictive network that includes route optimization.

• Customer experience: LSPs can use data from multiple customer feedback sources as input for new product innovations and ideations or to enable continuous service improvement. C.H. Robinson Worldwide, Inc.’s TMC division has equipped clients with on-demand business intelligence, arming them with information to conduct dynamic analysis that will help them in making profitable decisions and building highly efficient supply chains.1

• Supply chain risk management: Analytics can synthesize data from a wide array of sources—such as social media, blogs, weather forecasts and news sites—to keep LSPs apprised of local developments in politics, the economy and nature. Equipped with this insight, LSPs can better evaluate risk and shape a resilience plan. Through DHL International, Ltd.’s risk management system, DHL

Resilience360, customers can assess critical hot spots in their supply chains, visualize them and build a “just in time” risk profile.2

• Business model innovation: Shipment records (origin, destination, type of goods, quantity and value) can be sold/offered as valuable market intelligence. At a macro level, LSPs can use it to analyze the business potential in a certain region. At a micro level, they can use real-time local intelligence for address verification to help with last-mile delivery.

There is no denying that big data and analytics are being embraced as a driver of business value across industries. LSPs can use big data and analytics as a market differentiator that helps to improve efficiency, transparency and visibility, to enhance the customer experience, to bring sophistication to the supply chain, and to inform new business models.

Telematics and sensor technologies Telematics involves remote devices that help freight operators by combining information technology and modern telecommunications to control or monitor shipments, vehicles, drivers, trailers and other mobile assets. Some of these systems can monitor the location of consignments and assets and their activity at any given time, as well as staff performance.3

Many high performers are using telematics to get real-time supply chain visibility, effectively manage risk and help verify insurance claims, improve internal communication and customer service, and to locate delivery points and avoid congestion.

1. TMC, a division of C.H. Robinson Worldwide, Inc., “On Demand Business Analytics,” http://www.mytmc.com/TMSTechnology/BusinessIntelligenceReports/2. DHL International, Ltd.; DHL Resilience360,”Managing Risks in Your Supply Chains,” http://www.dhl.com/resilience3. Great Britain Department for Transport, Freight Best Practice; “Telematics for Efficient Road Freight Operations”; page 6; 2009; http://books.google.com/books/about/Telematics_for_Efficient_Road_Freight_Op.html?id=0keuQwAACAAJ 4. DHL International, Ltd.; Supply Chain Matters; “Greener driving;” July 22, 2013; https://www.dhlsupplychainmatters.dhl.com/sustainability/article/282/greener_driving5. Schenker, Inc.; “Telematics;” December 12, 2013; https://www.logistics.dbschenker.de/log-de-en/company/innovation/smartSolutions/telematicsMobileDevices/telematics.html

Driving forward with telematics and sensor technologiesLeading LSPs have explored the benefits of remote devices enabled by modern technology. These include:

DHL International, Ltd. Since 2010, DHL Supply Chain has used vehicle telematics to monitor and optimize fuel usage and better understand how the vehicle is being driven. The company is also using tracking systems to oversee route planning, understand the need for variances and enable future planning across the network. These systems offer, for instance, the added benefit of enabling the company to track any stolen truck.4

Schenker, Inc. Since 2012, Schenker has equipped its entire fleet of swap bodies with specially designed GPS modules that provide information about the location and status of the fleet, increasing transparency and allowing for more economic and ecological production. In addition to telematics solutions that focus on fleet management and load carriers, Schenker Deutschland AG offers customers sensor solutions that can be used for transports of valuable or high-security freight.5

CloudBased on our observations, cloud technology is leading the revolution in how supply chain services are provided. Leading LSPs are shifting away from traditional purely static ERP-based models to dynamic, transaction-based models.

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What LSPs can capture from the cloud Demystify the data chaos. Typically, LSPs build their IT infrastructure using different formats of interfaces to create data connections with different partners. As the number of partners rises, so does the complexity of connecting them all. The cloud simplifies the process of integrating supply chain data with multiple standards, formats and communications channels. You only have to connect once—no longer do LSPs need to build new interfaces again and again—everything is housed on a single platform.

This is uncharted territory for most LSPs, though it is fertile ground for supply chain efficiency.

Connect your partner network. Many LSPs right now have to externally integrate with brokers, suppliers, 3PLs, ocean carriers, air forwarders and more. All systems can talk to one another in the cloud, making for easier transactions such as uploading orders or checking order status, booking or downloading invoices.

There already are logistics cloud services, such as GT Nexus™, e-commerce platforms, private clouds and custom in-house solutions, which can close a gap of which many LSPs are not even aware.6

6. GT Nexus™; http://www.gtnexus.com7. Schenker, Inc.; “Your route to global markets’” http://www.dbschenkerusa.com/log-ca-en/Products_and_Services/airfreight/DB_Schenker_Advantage.html8. C.H. Robinson’s Navisphere®; http://www.chrobinson.com/en/us/About-Us/Navisphere-Technology-Platform/Navisphere-Online-Access/Introduction-to-Navisphere/9. Panalpina®; MyPanalpina+; http://www.panalpina.com/www/global/en/home/tools/mypanalpina-.html

Cloud champions

It’s no surprise that cloud initiatives are abounding among LSPs.

DB Schenker. Since 2008, DB Schenker Logistics has been using GT Nexus for supply chain visibility and cloud supply chain technology. DB Schenker Integrated Cargo Management customers enjoy capabilities that include end-to-end inventory and shipment visibility, purchase order management and origin management. The supply chain monitoring system covers events while inventory is on order, in production, at origin, in transit, in customs, inland and through final delivery. Customers have quick access to information necessary to react to supply chain disruptions and new opportunities.7

C.H. Robinson. Cloud-based Navisphere® provides end-to-end visibility into shipments on a single global platform, across all services, in every region where customers do business.8

Panalpina®. MyPanalpina+ is a cloud-based order and freight management system deployed to the company’s ocean freight division. It can be configured to the processes and applications of each customer. The application strengthens a shipper’s’ supply chain by reducing costs and improving visibility, accuracy and flexibility.9

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The art of the possible with digital

Digital and physical worlds are blurring, with smart objects, devices and machines capturing information that—with analytics—can be turned into insight and control over the physical and virtual world. LSPs can use this newfound layer of connected intelligence to help them complement employees, automate processes and incorporate machines into operations.

Augmented reality and wearable technologies Augmented reality and wearables such as glasses, watches, smart badges and bracelets can revolutionize LSP operations and processes.

Digital warehouses are a powerful example of how LSPs can improve efficiency, reduce errors and drive down costs. This is especially important with warehousing operations accounting for about 20 percent of all logistics costs, and picking accounting for 55 to 65 percent of the total cost of warehousing operations.10

Range imaging sensor systems can enhance effectiveness and scanning/sorting capabilities by allowing LSPs to compute necessary shipping capacities, optimize packing structures, and scan shipment sizes in order to help to control sorting systems or to determine spaces.

As augmented reality technology and adoption evolves, so will its influence on the LSP market. Potential benefits include:

• Fewer errors and better handling of damages / lost goods.

• Shorter lead times in every step of the process, from goods retrieval to driving times inside the warehouse.

• Shorter and lower-cost training, making it easier to get temporary staff to get up to speed.

• Less paper as mobile connectivity allows real-time monitoring.

• Better security with the help of digital security checks.

Augmented reality is in early stages of adoption in logistics. However, LSPs would need to overcome a number of technical and people challenges such as high investment cost, network performance issues, privacy and public acceptance; but in the end, it would be worth making the investment to seek operational benefits.

Smart applicationsAs LSPs strive for greater operational agility and customer centricity, modular, context-aware and analytics-enabled apps can make customer-facing and internal operations more efficient and intelligent.

Customer-facingRising pressure from customers and the persistent pressure on margins would force LSPs to invest in smart apps going forward. Such apps can help LSPs to innovate, collaborate, improve customer experiences and enrich personal interactions. For instance, DHL Global Forwarding’s Cargo Mobile Tracking allows customers to track their air and ocean cargo by relevant search criteria. The app also includes a six-month shipping history and location finder for the nearest DHL Global Forwarding office.11

CEVA Logistics has an app that allows customers to track air and ocean freight and US import brokerage shipments. Along with tracking shipments in real time, signature of recipient upon delivery is also available via the app.12

Internal operations Trucking and warehousing industries have been embracing intelligent apps from innovative startups. Take for example KeepTruckin. This startup provides mobile and web-based electronic logs and a fleet management platform. Drivers can track their progress via the electronic logs and receive alerts if the logs have hours of service violations. The logs can also be signed, e-mailed or faxed to dispatchers.13

Online inventory and order management app Lettuce integrates order capture, payment processing, shipping, tracking, customer relationship management systems and more. Its cloud-based web app allows for easy access between mobile devices and computers.14

Transportation management system companies such as MercuryGate are offering apps that deliver capabilities such as load tracking as well as reports, rates and capturing signatures—all via smartphones.15

E-commerce platforms There are threats from e-commerce players—when shippers can compare rates in real time, it might impact forwarders’ margins. Carriers could take away a portion of the forwarders market by building capabilities across the value chain. LSPs recognize that they need to act on the threat from e-commerce platforms, but many lack a cohesive strategy and a future vision.

On the flip side, there are opportunities in e-commerce. These platforms can offer higher process automation, cost efficiencies and better customer-facing technology. Also, they are often in the cloud and could bring all the benefits previously described.

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10. Accenture; Accenture Technology Vision 2014 Report; Accenture.com/technologyision11. DHL International, Ltd.; “Cargo Tracking on the Go;” http://www.dhl.com/en/logistics/customer_resource_area/freight_tracking_and_applications/cargo_tracking_iphone_app.html#.VDPikksSeEg12. CEVA Logistics; “Freight management;” http://www.cevalogistics.com/en-US/whatweoffer/FreightManagement/Pages/default.aspx 13. Keep Truckin, Inc.; https://keeptruckin.com14. Lettuce; https://lettuceapps.com15. MercuryGate International, Inc.; http://www.mercurygate.com/solution_highlights/mobile_app/


Closing the gapSo what is an LSP to do in response to growing competition in e-commerce? There is a variety of options that range from partnering with an e-commerce provider to improve capacity, to developing one’s own e-commerce platform to maintain control—but this comes with high cost and effort.

LSPs will continue to be challenged by innovators, such as e-commerce platforms themselves, strong market players with technological capabilities and end customers who are using these technologies themselves. Cloud-based e-commerce platform providers have begun to infiltrate the Ocean segment, and have sites set on the Air and Contract Logistics segment. To gain more market traction themselves, LSPs should react to the emergence of such disruptive platforms.

Putting heads together for improvement

Knapp, SAP and Ubimax are developing a head-mounted display that holds enough energy to last at least one work shift. Workers can access hands-free digital support during manual picking operations. The vision-picking software provides real-time object recognition, barcode reading, indoor navigation and seamless integration of information with the warehouse management system.16

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16. Glockner, Holger; Jannek, Kai; Mahn, Johannes; Theis; Björn; DHL International, Ltd.; “Augmented Reality in Logistics: Changing the Way We See Logistics – a DHL perspective;” 2014; http://www.dhl.com/content/dam/downloads/g0/about_us/logistics_insights/csi_augmented_reality_report_290414.pdf


Emerging operating models that offer LSPs control as the digital tides turn As the world dives into digital technology, the speed of business is quickening—sometimes to the point that businesses may feel they are losing control. Yet the reality is that digital opens up new ways of working that can put control back into the hands of LSPs.

Technology will not change the fact that LSPs are responsible for handling and transporting cargo. Technology will, however, give LSPs choices in terms of how much control they want to have over the logistics processes of their clients. More control could mean more responsibility, but with that better margins could come. Less control could mean less burden, but when LSPs take a back seat to managing logistics functions, they may be opening the front door for shippers to take over these functions themselves.

We have identified three possible models that LSPs consider, depending on the client’s (shipper’s) strategy:

Model 1 (IT provider’s control)The shipper outsources the tracking/visibility function to a third party technology firm. The IT solution provider (or control tower) controls key strategic intelligence and 4PL functions. All supply chain-specific planning and management remains with shipper, while the provider uses its control tower to coordinate with individual stakeholders. The provider sends out instructions to LSPs who execute orders such as freight forwarding or transportation warehousing functions.

Model 2 (LSP’s control)The LSP partners with or acquires a technology firm, and then uses its control tower solution. All supply chain-specific planning and management remains with the shipper. The LSP uses the control tower to coordinate with individual stakeholders and track data on a real-time basis. Based on the data, the LSP executes the respective functions.

Model 3 (Shipper’s control)The shipper has control over the supply chain as they operate a technology solution in-house. The shipper uses the control solution to coordinate with individual stakeholders, and then they send instructions to LSPs who solely execute the orders.

It all comes down to the fact that either the shipper (or the consignee) of goods (i.e. the party who pays for the freight due to agreed incoterms) decides to what extent it wants to engage in and have influence over the supply chain. There are, for instance, large consumer goods producers who are highly interested in setting up their own supply chain control tower framework, and in keeping their logistics expertise in house (model 3). Others may want to focus on their core business and either outsource this function to a technology firm (model 1) or an LSP (model 2).

Each LSP in the market should look at what supply chain strategies their large client accounts pursue, and depending on which accounts they target, they should decide what their control tower concept should be like. No matter what, they should have a sophisticated answer to today’s—and especially future—client needs.

We believe model 2 is the most appealing option for LSPs that want to retain control over their turf and pricing power, while being prepared to meet the requirements of all clients. For instance, if the client asks for a fully outsourced logistics control tower model, the LSP would be able to deliver it because they would have partnered with a technology provider, or the LSP would have developed the skills and technology in-house.

There may be clients who do not ask for such a fully outsourced logistics service, but with model 2, all other requests could also be handled by the LSP.

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Functionalities of a 3PL supply chain control towerControl towersA transportation and logistics control tower could offer a set of planning and execution capabilities that can be organized as a centralized shared service. LSPs might use a control tower to improve a specific business objective for a specific client for a defined period of time or covering a specific geography.

Many LSPs have claimed to have a control tower concept in place for years now, referring to the fact that they call themselves 4PL or Lead Logistics Provider (LLP). But a name is not all a business needs to operate a control tower. Technology is a critical element, and many of the emerging technologies described in previous sections of this paper contribute to a successful control tower. In fact, technologies such as the cloud and big data/analytics are what could enable control towers to deliver more effectively.

A set of capabilities that would enable a 3PL provider to work with a customer to manage their planning, visibility and execution of end-to-end supply chain.

Capabilities

Enabled by new technologies that brings together large amounts of data to support decision making.

New Technologies

Focused to deliver a specific set of business outcomes—targeting improvements in costs, inventory, quality, customer service, and asset utilization.

Focused Business Outcomes

An integration of supply chain processes and tools across silos (enhanced collaboration).

Integrated Process and Tools

An integrated framework of real time visibility, root cause and predictable analytics enabling rapid response, and continuously improving process execution.

Integrated Framework

Organized as a centralized shared service across the end-to-end supply chain process.

Centralized Shared Service

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Who’s got control?

Realizing the benefits, a wide array of players are positioning themselves in the control tower services space.

Caterpillar connects supply sources, plans and dealers/customers through its control tower cloud. Users have visibility into parts, components and finished vehicles; can perform modeling and plan shipments and tap into unprecedented business intelligence. Use of the control tower has enabled Caterpillar to remove three days of inventory from the supply chain, reduce transportation costs and serve as a central global supply chain operating platform for Caterpillar.17

Pfizer, the world’s largest pharmaceutical company with 90 global manufacturing sites and more than 300 external suppliers uses a cloud supply chain to be more agile, have better upstream pre-shipment visibility and save more than 10 percent on transportation spend.18

17. GT Nexus Customer Case Studies; http://www.gtnexus.com/global-supply-chain/our-customers/success-stories/18. Supply Chain Brain; “Pfizer Delivers Total Logistics, Visibility and Control”; http://www.supplychainbrain.com/content/research-analysis/supply-chain-innovators/single-article-page/article/pfizer-delivers-total-logistics-visibility-and-control-1/


Shared services

In this model, the client receives a service that is shared in the LSP. There are numerous opportunities for LSPs to share services for internal as well as external customers to reduce costs savings and improve efficiency across robust logistics processes—from the back office to the front lines of transportation. Areas where shared services can help include:

While outsourcing of administrative activities to either captive or external shares service centers has become daily business for almost all LSPs in the market, operations shared services is clearly a new trend and we observe that some LSPs not only think about it but already have operations functions being outsourced. This is clearly one of the hottest topics on each C-level agenda across the freight & logistics business.

Which way forward?

Figuring out the right operating model calls for asking “how much control do we want, and in what areas?” For instance, does the LSP really need control in every country, every station and for every accounting process? Giving up local control of back office processes would make sense if the LSP could get the same quality at a lower cost. In turn, the business could focus energies on increasing control where it counts— in the areas that drive the bottom line.

Operations Shared Services

Administration Shared Services

Operational back office

Finance and accounting

Document management

Indirect procurement

Status monitoring

Direct procurement

Sales and customer service

Transport operations

Human resources

Campaign management

Revenue management

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Empowered by digital

The well-traveled path is familiar and comfortable, but technology has put a fork in the road where LSPs must decide on a new path forward. The choices: relinquish control and allow e-commerce competitors and other players enter your lane. Or, be a pioneer that captures market share as technology opens the door to new opportunities. No matter which direction you take your business, you need a co-pilot on that journey.

We are passionate about this industry. We work with 80-90 percent of the top LSPs. We have built software to streamline logistics processes and we work with LSPs to find the preferred route to improve margins and gain agility with the help of technology.

Accenture can be a teammate to LSPs by collaborating on joint control towers. In this way, we could be able to help leverage the best of both parties’ DNA. LSPs bring the deep-rooted knowledge and experience about logistics. Accenture brings leading-edge digital talent, analytics specialists, shared service experts and field-tested technology tools that add value for transactional functions that influence profitability.

Let’s bring together the best of both of our businesses.

Three of the top 10 cargo carriers, in both air and ocean segments, use Accenture software.

Accenture freight and logistics software processes more than 17 million booking transactions annually and manages in excess of 2.9 million active contract lines.

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About Accenture

Accenture is a global management consulting, technology services and outsourcing company, with approximately 319,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

Contact us

Michael SturmMichael Sturm is managing director and leads Accenture’s management consulting business for Air, Freight & Logistics and Travel. Mr. Sturm joined Accenture in 1996 and works with leading clients in travel and transportation. He holds a master’s degree in business administration. He can be reached at [email protected].

Jörg JunghannsJörg Junghanns is a senior manager and an executive member in Accenture’s global Freight & Logistics core team. Based in Germany, he has worked in the past 12 years on international assignments with transportation and logistics companies, with a strong focus on strategy and process execution. Mr. Junghanns holds a degree in international business. He can be reached at [email protected].

Michael EichstedtMichael Eichstedt is a management consultant in Accenture’s Freight & Logistics group. He has worked with many leading logistics service providers on various projects covering both operations (Air, Ocean, Land and Contract Logistics) and administrative functions. He holds a degree in logistics management. Mr. Eichstedt can be reached at [email protected].

Accenture research

Sreejith SreedharanAbhishek Gupta

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This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative.

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