It’s a titanic industry that forms the backbone of global commerce. As such, robust technology is needed to ensure supply chains run smoothly.
Industry 4.0, driven by digital transformation, means technologies like artificial intelligence (AI), the Internet of Things (IoT), and automation are now becoming integral to modern logistics. New technology is revolutionising operations, enhancing efficiency, and enabling unprecedented visibility into the supply chain.
However, modernising infrastructure and implementing new working methods are not without its challenges in such a sprawling industry. Issues range from the cost of upgrading legacy systems to finding the right people to operate those systems.
The road to complete digital transformation is long, and those logistics organisations that fail to modernise may find themselves losing to more tech-adept competitors.
Businesses need to be aware of the challenges facing them in this new technology-intensive world, and what they can do to avoid falling behind.
The Rise of Technology in Logistics
Logistics is undergoing a massive transformation as cutting-edge technology replaces manual operations. Though the industry has been slow in digital transformation, in recent years logistics leaders have seen the benefits of powerful digital tools.
Digital transformation and plans are in place for two-thirds of logistics organisations, highlighting the growing necessity for change.
AI has become a cornerstone for optimising operations, enhancing predictability and assisting leaders in making data-driven decisions. For instance, AI-powered predictive analytics is leveraged for demand forecasting, and AI-driven systems help logistics teams build digital twins of supply chains to effectively simulate and analyse potential operational scenarios.
The Internet of Things (IoT) has revolutionised real-time shipment tracking and tracing, providing unprecedented visibility into the supply chain. It’s also instrumental in the proactive maintenance of equipment, significantly reducing unplanned downtime.
Automation, ranging from autonomous vehicles to automated sorting systems, is driving efficiency while minimising the risk of human error. Notably, drone technology is emerging as a viable solution for last-mile deliveries, particularly in hard-to-reach areas.
Challenges in Implementing Technology in Logistics
While the evolution of technology promises efficiency and transparency in logistics operations, it also brings about challenges that organisations must confront.
Infrastructure and Investment
Implementing new technology often requires substantial financial investment. While digital transformation can reduce costs by between 7%-34%, prohibitive upfront costs for emerging technologies prevent widespread adoption.
The costs involve the acquisition of the technology itself and potential infrastructure upgrades to accommodate it. SMEs in particular may find it difficult to allocate the necessary funds due to budget constraints. Moreover, the return on investment may not be immediate, making it difficult to get buy-in from stakeholders.
For instance, while AI costs for supply chain management have decreased in recent years, in some cases by more than 20%, the cost of buying the server and backups to accommodate the technology could run north of $12,000. A small organisation operating on tight margins may not have the time or money to devote to upgrading its infrastructure this way.
Greater connectivity across supply chains increases the risk of cyber attack if robust countermeasures aren’t also implemented. Up to 40% of attacks now occur indirectly through the supply chain.
The logistics industry is a valuable source of data and a prime target for disruption. A ransomware attack against one organisation in a supply chain can cause huge knock-on effects against other partners.
The 2021 Colonial Pipeline attack highlights how vulnerabilities in one link of a supply chain have ripple effects. When the US-based pipeline was rendered temporarily inoperable after an attack, 18 states were forced to declare a state of emergency to deal with petrol shortages.
Implementing technology necessitates creating a workforce with a new set of skills. Finding talent with the necessary technological skills poses a significant challenge at the moment. More than 40% of logistics organisations believe a lack of required skills or talent will prove a barrier to digital transformation.
Upskilling staff requires investment in training or recruitment for new employees familiar with the latest technologies. While skill gaps remain, organisations may not be able to fully utilise newly implemented technology.
Integrating new technology with existing systems can become complex and expensive. In an industry that is only now transitioning towards a digital future, there’s a risk that new software may not be compatible with legacy systems.
Around $300 billion in time is wasted every year as developers debug, fix and relearn systems. Properly integrating systems is key to success in digital transformation.
Planning and Budgeting
Large IT projects run an average of 45% over budget and 7% over time while delivering 56% less than the predicted value.
It’s crucial to start with a well-structured plan when introducing new technology. Organisations should identify their needs, research potential solutions, and assess their cost-effectiveness. By accounting for costs beyond the initial investment, such as maintenance and potential upgrades, project managers can avoid costly surprises.
Budgeting for technology is not about spending less, but about spending wisely. Understanding the potential return on investment and how it can drive business growth helps ensure the right decisions are made and establishes a clear vision.
Enhancing Security Measures
The average cost of a cyber attack in 2022 was $4.35 million.
Cyber security is an ongoing process that should be ingrained in the company’s culture. Regular audits of security systems, the use of encryption, secure passwords, and multi-factor authentication go a long way in protecting data.
The most common cyber threat is phishing, which means employees are the first line of defence against attacks. As such, organisations need to invest in regular training on the latest attack methods so the entire workforce understands the threats.
Training and Development
As technology continues to evolve, so must the workforce. Digital transformation requires buy-in from everyone, from warehouse workers to C-suite executives.
As such, organisations need to train their staff on how to use new technology and show them how it benefits their work. A culture of continuous learning, with incentives and opportunities for training and development, creates an engaged and dedicated workforce.
People are an organisation’s biggest asset – invest in them, and you’ll see a considerable return.
Selecting Compatible Technology
New technology needs to integrate seamlessly into existing systems and processes. Organisations need to consider compatibility and work with suppliers to select suitable options.
It’s essential to request demonstrations, trial periods, or proofs of concept to evaluate how a new tool aligns with the current infrastructure. Also, seeking suppliers that offer post-implementation support can ensure a smoother transition, as they can assist with troubleshooting and fine-tuning the system to meet the organisation’s unique needs.
Embracing the Future of Logistics
Industry 4.0 promises to transform industries like logistics. Automation, deeper insights, increased safety and greater productivity mean that the future is bright for logistics organisations – if they can fully harness the technology available to them.
There will always be challenges when changing processes and introducing new ways of working. By overcoming these challenges, logistics organisations can reap the benefits of transformative technology and help create more sustainable supply chains.
Would you like to understand more about how IT and Digital Twins can support your business?
Contact the AAG IT team today and we will be happy to discuss this, and any other questions you have, in further detail.
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