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LOGISTICS, SUPPLY CHAIN AND TRANSPORTATION 2023:

CHANGE AT BREAKNECK SPEED

IN ASSOCIATION WITH:

3 | LOGISTICS, SUPPLY CHAIN AND TRANSPORTATION 2023: CHANGE AT BREAKNECK SPEED

TABLE OF CONTENTS

4 INTRODUCTION

5 KEY FINDINGS

5 THE TRANSFORMATION OF LOGISTICS, SUPPLY CHAIN AND TRANSPORTATION

6 FOUR KEY FORCES OF CHANGE

8 TOP FIVE TRANSFORMATIONAL TECHNOLOGIES

10 TOP BENEFITS OF DISRUPTIVE TECHNOLOGIES

11 OUTREACH, COLLABORATIONS, ECOSYSTEMS

13 ACT NOW

14 METHODOLOGY

14 ACKNOWLEDGMENTS

COPYRIGHT © 2018 FORBES INSIGHTS | 4

INTRODUCTION

Today’s consumers expect a seamless, fast and free omnichannel shopping experience. This whatever-whenever expectation means that goods have to travel from multiple pickup locations, including distribution centers, warehouses or stores, to multiple destinations, such as private homes, stores or lockers. Thus, the last mile, traditionally the most expensive part of every product’s journey, multiplies as products are ferried to various locations, often back and forth when you factor in free returns and diverting products that are en route. It all happens in record time, often on the same day and most likely for free. Omnichannel delivery is more complex and expensive than traditional delivery. The average profit margin for an apparel retailer on an item bought in-store is around 32%. But today, customer expectation of a range of delivery modality is eroding that traditional buy-in-store margin. The same apparel retailer may realize a profit margin of just 12% on the same item that is bought online and shipped from a store.1

E-commerce and same-day shipping mean that B2B buyers are also becoming more demanding. Advanced technologies of Industry 4.0, such as artificial intelligence (AI), machine learning (ML) and IoT, help create a digital enterprise in which data collected from physical systems drives intelligent action back in the physical world. Such feedback loops lead to the production of smaller, customized batches and product improvements in real time, often based on customers’ feedback. Satisfying a B2B customer today demands a smart, networked supply chain of which delivery is the last, but integral, link.

Today’s transportation ecosystem is under pressure to perform. A strong economy means rising demand across nearly all sectors. Freight tonnage moved by trucks is forecast to grow 27% between 2016 and 2027.2 Not surprisingly, the industry is responding by taking steps such as expanding capacity. But even so, demand is rising so fast that, as the industry publication Fleet Owner reports, orders for new vehicles are so large “that the OEM production cannot keep up.”

These new logistics, delivery and new-equipment demands are happening against the backdrop of a surging U.S. economy, along with lower tax rates and actions on import tariffs, further spurring fundamental demand for transportation services, coupled with an acute shortage of drivers and an intense regulatory environment.

Measures vary, but conservatively speaking, activities associated with transportation and logistics account for 10% to 12% of global GDP. As such, so much change in transportation translates into massive disruption across the face of the U.S. and global economy.

And yet, businesses can ill afford to compete on logistics and delivery. Forbes Insights research has shown that customer experience, in which logistics and delivery play a significant role, is among the top drivers of digital transformations. According to Forrester, 72% of businesses say that improving customer experience is their top priority.

The answer lies in the same technologies that have led to heightened customer expectations. Data analytics, artificial intelligence and IoT, to name just a few, allow for dynamic and integrated demand forecast and order fulfillment optimization. By utilizing the same technologies, the logistics, supply chain and transportation function can create a supplier and carrier connectivity and thus meet customers’ expectations.

So how are businesses responding? Forbes Insights and Penske conducted a survey of 433 senior industry and functional executives in logistics, supply chain and transportation to gauge how they are incorporating new technologies in their efforts to address fast-evolving customer needs and interests. The following paper discusses their businesses’ current maturity, challenges and solutions, and suggests a way forward for companies that intend to keep their competitive advantage by leading in their logistics, supply chain and transportation operations.

1 THE OMNICHANNEL FULFILLMENT REPORT: How retailers can overcome challenges to fend off Amazon’s threat, BI Intelligence, 20172 American Trucking Association, “Latest U.S. Freight Transportation Forecast shows continued growth for trucking.”


KEY FINDINGS • SIXT Y-FIVE PERCENT OF LOGISTICS, SUPPLY CHAIN AND TRANSPORTATION

EXECUTIVES from across all major industries recognize that there are tectonic shifts in logistics, supply chain

and transportation processes. Just under two-thirds, 62%, say their own companies are already undergoing profound

transformation.

• CHANGE IS BEING DRIVEN BY FOUR FUNDAMENTAL FORCES, leading with advances in

technology, a surging U.S. economy, the “Amazon effect” and the intense regulatory environment. Among the top

technologies transforming the logistics, supply chain and transportation function are IoT/telematics, AI/ML and

blockchain.

• NEARLY TWO-THIRDS OF RESPONDENTS anticipate significant productivity benefits with the help of

technology. For example, AI, ML and blockchain give logistics teams greater visibility into actual assets in use as well as

upcoming or expected demands, which allows them to better optimize routes and equipment. The resulting customer

and worker satisfaction are among the top technology-enabled benefits.

• SIXTY-ONE PERCENT OF EXECUTIVES recognize they can’t do this alone: Responding to change and

achieving key logistics, supply chain and transportation objectives will require a significantly stronger reliance on

outsourcing, fleet leasing and related externally provided services. The industry is heading toward unprecedented levels

of cooperation and outreach as participants expand collaboration with suppliers, customers, partners and others playing

key roles across the logistics, supply chain and transportation value chain.

THE TRANSFORMATION OF LOGISTICS, SUPPLY CHAIN AND TRANSPORTATION For logistics, supply chain and transportation, it is an era of profound transformation. Those who are active in the field are taking notice. For starters:

• Two-thirds, 65%, say that there are tectonic shifts in logistics, supply chain and transportation processes throughout their industries—a figure reaching 76% among those surveyed with the largest fleets (20 vehicles or more).

• Just under two-thirds, 62%, say their own companies are experiencing profound transformation.

“We’re at a point where there’s more change taking place in this instant than what I’ve seen in 25 years on the front lines,” says the president and CEO of a major transportation and logistics provider. This transformation stems from the massive proliferation of business data—being extracted from telematics and IoT and further enhanced by the increase in computing power and storage—as well as by the use of machine learning and artificial intelligence for analysis. Other factors of change include advances in drones, driver safety technology, driverless vehicles and blockchain.


FOUR KEY FORCES OF CHANGE The views of Long and others interviewed for this report are borne out by our quantitative findings. Survey respondents point to four main transformative forces:

1. ADVANCES IN TECHNOLOGY

Fifty percent of respondents say advancements in technologies are exerting a strong impact on their company’s logistics, supply chain and transportation operations. Key among these are: IoT/telematics, artificial intelligence/machine learning, blockchain, safety enhancements (lane control, automatic braking, etc.), drones and driverless vehicles.

C. John Langley is a clinical professor of supply chain management as well as the director of development for the Center for Supply Chain Research at Penn State’s Smeal College of Business. According to Langley, though the transport industry has always been data-focused, today “we see all of this added computing power—IoT/telematic data collection, data mining, AI and ML—that can be focused on making better decisions, not only from an overall strategic and resource planning basis but in real-time decisions: which routes, which carriers?”

On top of this, today’s transport vehicles are also being outfitted with all manner of advanced safety equipment such as lane controls and safety braking. Respondents are also likely considering the coming impacts of drones and driverless vehicles on their fleets and strategies as well as the arrival of blockchain. All told, says Langley, “technology is transforming [logistics, supply chain and transportation].”

2. A SURGING U.S. ECONOMY

Half of respondents also say a resurgence in U.S. manufacturing is having an impact on their logistics, supply chain and transportation operations. Just under half, 45%, say the imposition of tariffs is proving to be a significant factor in shifting demand and therefore transportation patterns. Another 44% say lower U.S. taxes and related reforms, such as accelerated depreciation and incentives to move offshore cash home, are driving demand.

This resonates with the CEO of a major trucking carrier, who says, “We see it daily, the economy is rolling.” But this is both a blessing and a curse. Indeed, “there’s heightened demand for our services.” At the same time, however, “capacity is extremely tight, so the industry doesn’t always have the trucks it needs right where and when they’re needed.” Piling on, the industry for some time now has been experiencing a driver shortage—an issue that’s only exacerbated by a strong U.S. economy. Overall, says the CEO, “there’s more freight and more trucks than there are drivers to drive them.”

Having a supply chain enabled by advanced technologies is key for competitive advantage across industries. Fifty-eight percent of executives from industries like retail, industrials, materials, consumer goods and others recognize that supply chain, transportation and logistics are crucial to their company’s performance.

“Anyone whose success depends on their ability to fulfill orders of physical goods for customers is now caught up in this whirlwind of change,” says Mary Long, managing director of the Supply Chain Management Institute at the University of San Diego School of Business.


“The effect of Amazon is heightened expectations. Next week is no longer good enough. It’s got to be on its way now and arrive at destination within a day or two!”

C. JOHN LANGLEY, Clinical Professor of Supply Chain Management; Director of Development for the Center for Supply Chain Research, Penn State Smeal College of Business

Nearly half of respondents, 48%, say they are experiencing the need to reevaluate warehouse locations due to shifting trade patterns resulting from changes in the U.S. economy: taxes, tariffs and, to some degree, the return of manufacturing. All “impact the location of hubs and warehouses,” says Langley.

3. SHIFTING WAREHOUSE POINTS AND THE “AMAZON EFFECT”

For 44% of respondents, the so-called Amazon effect is having a dramatic impact on more than their logistics, supply chain and transportation operations. It begins with e-commerce, where consumers are able to find whatever they want, whenever they want, place their order and then receive what they want within two days, or increasingly within the next day or even the same day. “The effect of Amazon is heightened expectations,” says Langley. “Next week is no longer good enough. It’s got to be on its way now and arrive at destination within a day or two!”

But the Amazon effect runs even deeper. “Loads used to see two, three, maybe four touches before the goods were in the hands of the end-

consumer,” explains an earlier-mentioned CEO. But today, getting goods to consumers faster means “seven, eight or nine touches [moving] the freight to a network of warehouses and forward positions.” In short, says the executive, “that final mile is being redefined almost every day.”

In particular, says the University of San Diego’s Long, companies refocusing their competitive mindset on the needs of end-consumers is “becoming a principal driver of competition, innovation and change.” Consumers weaned on e-commerce and instantaneous gratification want things “now,” says Long. Moreover, competition between brick-and-mortar businesses and their internet-based adversaries greatly rewards innovation, accelerates advances in customer service and fulfillment, and generally raises the stakes.

Consider dealing with the likes of large, geographically dispersed yet highly customer-focused retailers like Walmart, Target or Walgreens. “Such companies are all about improving the customer experience, which includes availability and cost of products,” says Long. This in turn raises the on-time delivery and accuracy standards for suppliers. So for businesses whose goods rely on shelf space at these and similarly demanding buyers, logistics, supply chain and transportation-focused executives “have to work incredibly hard to meet a broad set of rigorous supply chain processes and benchmarks.”

4. REGULATION

Approximately 46% raise their hands to say regulations remain a key driver of change in transportation. One example of how regulations can impact the industry is a regulation mandating the use of electronic


driver logs (ELDs). The rules have long held that drivers cannot be on the road longer than 11 hours during any 14-hour period, and once they reach 11 hours, they must stop driving. But in practice, “it doesn’t always make sense to stop right at 11 hours,” explains an executive interviewed for the report (but preferring anonymity). “What if the driver is on a bridge or stuck in traffic or is only a few minutes away from a proper rest stop?”

Using the traditional paper-based system, drivers had a degree of flexibility. But with ELDs, that loss of flexibility can lead to higher prices. For example, as reported in the Chicago Tribune: “For Pete’s Fresh Market, a 12-store grocery chain in the Chicago area, truckloads of produce from Mexico have roughly doubled in cost since the new [ELD] devices were mandated—from about $2,400 for 40,000 pounds of produce to more than $5,000.”3

TOP FIVE TRANSFORMATIONAL TECHNOLOGIES Advancing technologies tops the list of change agents within logistics, supply chain and transportation, with the top five most disruptive comprising:

1. IOT/TELEMATICS: IOT DEVICES—often referred to as telematics in a transportation setting—and related data-capture technologies are nothing new. What is new is the type and scope of the developing telematics market. While 95% of this is currently from hardware, analysts expect that figure to fall dramatically amid falling hardware costs and rising software revenue.4 By 2026, the

market is forecast to be $10.9 billion, with software representing nearly $8.7 billion.

Having committed to such a large role for data, carriers could find it more and more necessary to maintain the ability to collect and make sense of it.5 If yesterday’s version of digitization measured route efficiency and increased preventative maintenance effectiveness, today’s version is beginning to monitor individual operators’ driving styles and the way they contribute to things such as tire wear.67

Going forward, more than four out of five industry professionals see the greatest value from digitization in fleet management, especially in routing optimization.

2. ARTIFICIAL INTELLIGENCE/MACHINE LEARNING:

But what to do with so much IoT data? That’s where AI and its close associate, ML, promise to enable leaders in logistics, supply chain

3 “Why a new trucking regulation is driving up the cost of produce,” Chicago Tribune, Greg Totter, January 28, 20184 Schiller, Maier, and Büchle, Global Truck Study 20165 The Future of Freight, Deloitte, 2017 6 Schiller, Maier, and Büchle, Global Truck Study 20167 Ibid.


and transportation processes to focus IoT and myriad “other” data feeds on achieving greater optimization and responsiveness across the whole of their enterprise. Consider the stated goals from Target, where a recruiting ad for supply chain and logistics roles states, “We’re becoming more intelligent, automated and algorithmic in our decision-making. We’re constantly reimagining how we get the right product to our guests even better, faster and more cost effectively than before.”8

At one major trucking carrier interviewed for the report, the logistics group handles a wide range of complex but repeatable tasks that require large amounts of input data in order to make the best choices. Optimal carrier selection, for example, means combing through thousands of possible candidates, routes and schedules. Ordinarily, that can take four to five minutes to reach a conclusion, but with AI/ML tools, the company can narrow the selections to just two or three, within a matter of seconds, then allow human intuition to make the best decision. “We’re putting a lot of [investment] into ML and AI to augment the human role in capacity optimization, mode selection, carrier selection,” says the CEO.

3. BLOCKCHAIN: “Blockchain is a technology that’s ideally suited to the transportation industry and will ultimately prove transformational,” says Craig Fuller, managing director of the Blockchain in Transport Alliance and CEO of FreightWaves. Broadly speaking, blockchain, with its smart contracts and distributed ledgers, becomes a means for people who may not know each other to be able to

immediately establish trust and do commerce.

The bad news is that in order for these, and other related benefits, to be realized, standards that can apply across the entire spectrum of logistics, supply chain and transportation participants—many thousands—must be built. But the good news, says Fuller, is that “we’re now well along in our efforts to engage the various participants to build a sound foundation.”

4. VEHICLE SAFETY TECHNOLOGIES: Whether long-haul, short-haul, truck or van, today’s delivery vehicles are equipped with a vast array of road safety features. For example, vehicles have lane departure warnings, so if they start to veer left or right, the driver will hear rumbling, a beep

or a vibration; they have systems that will slow them if there’s a hazard ahead. Other safety features can include forward-looking cameras and radar, alerts for drivers when objects are in blind spots, adaptive cruise control and rollover stability.

5. AUTONOMOUS VEHICLES AND DRONES: New market entrants are testing long-haul robotic trucks in states like Arizona, California, Florida and Texas. Meanwhile, Amazon has already demonstrated its first actual drone delivery. According to the Washington Post, CEO Jeff Bezos

“tweeted that the box arrived 13 minutes after the order was placed.” As these technological marvels evolve, their developers insist they carry the potential to broadly automate transportation in the very near future.

8 “Supply chain and logistics,” May 3, 2018, https://corporate.target.com/careers/corporate/supply-chain-logistics


TOP BENEFITS OF DISRUPTIVE TECHNOLOGIES The following are considered to be the top benefits of transformative technologies, according to logistics, supply chain and transportation executives:

PRODUCTIVITY/SPEED: Nearly two-thirds of respondents say they anticipate significant productivity benefits with the help of technology. For example, AI, ML and blockchain give logistics teams greater visibility into actual assets in use as well as upcoming or expected demands, which allows them to better optimize routes and equipment.

VISIBILITY/ACCURACY: Technologies like blockchain and IoT/telematics, used in concert, can mean instantaneous tracking of any shipment right down to its SKU level. With blockchain, it is also possible to see any handoffs that have taken place, or even the condition of the goods at any time or the temperatures at which they were warehoused or transported for what period. A related benefit, accuracy (cited as a significant driver of value by 57% of respondents), will also be fueled by greater visibility afforded by blockchain as well as by other evolving technologies.

WORKFORCE SATISFACTION: Competition for drivers and warehouse workers is intensifying, with nearly half of survey respondents saying they are already experiencing significant shortages. Meanwhile, workers tend to experience greater satisfaction when they are given the right tools to enable optimum job performance. Not surprisingly, workforce satisfaction, aiding retention and recruitment, is another area where leaders will be able to harness technology to drive innovation and competitive advantage.

CUSTOMER SATISFACTION: Fifty-three percent of respondents believe technology will deliver significant benefits across the whole of the customer experience. This starts with customer “intimacy,” where 55% of executives believe dramatic improvements are forthcoming. Using AI and ML, for example, says the CEO of a major carrier, “we will be able to better understand customer needs, shifting from a reactive to a more proactive relationship.” Those successful in this regard are likely to experience significant first-mover advantage.

UPTIME/FLEXIBILITY: Over half of survey respondents anticipate significant improvements in both uptime (53%) and flexibility (53%). Key uptime benefits will derive from technologies such as IoT, supplemented by AI and human intuition. By having a clearer window into vehicle usage and performance, fleet managers will be better able to use preventive maintenance to avoid potential breakdowns.


OUTREACH, COLLABORATIONS, ECOSYSTEMS Nearly two-thirds of logistics, supply chain and t ransportat ion execut ives say i t i s becoming increasingly difficult to keep up with changes in technology, demographics and the competitive environment. Just over half , in fact, fear their competitors are already moving significantly faster amid disruption in logist ics, supply chain and transportation.

One proven means to more rapidly reap the benefits of any fast-evolving set of technologies or business practices is to engage experienced third parties. Today only about one-third of companies say they outsource a significant degree of their logistics, supply chain and transportation operations/needs. But going forward, 61% say they will be relying significantly more on external sources—outsourcers, service, leasing and technology providers—to meet their fast-evolving supply chain, transportation and logistics needs.

One key area of outsourcing deserves added focus. Implementing new technologies can seem bewildering. Consequently, 58% of executives say that when it comes to pursuit of logistics, supply chain and transportation technologies, they plan to “rely on” (23%) or at least “heavily lean on” (35%) external partners. Only one-third (32%) plan to go it alone; a mere 11% say they will not be pursuing new technologies.

As outsourc ing of logist ics , supply chain and transportation becomes more prominent, one area likely to experience significant growth is fleet leasing. With technology changing so fast and more areas of the business to manage, you can make a case that companies should focus on what they do best and outsource anything that isn’t mission-critical. “It seems very likely that fleet leasing is going to become more attractive as a result of so much change. It’s a reasonable approach to keeping pace,” says Long.plan to either rely on or lean on

external partners when implementing logistics, supply chain and transportation technologies

58%

Going forward we will be relying significantly more on external providers for our logistics, supply chain and transportation needs

61%


Beyond expanding the range of commercial relationships with outsourcers and consultants, the trend in logistics, supply chain and transportation today in genera l i s g rea te r out reach and collaboration across the ecosystem—suppliers working with intermediate customers, shippers and 3PLs, end-customers, technology providers and so on. Certainly, if the goals are greater efficiency, speed and accuracy, it pays to forge closer t ies with others with shared interests and needs. Here, the survey shows that this sort of outreach is gaining traction, with half or significantly more of executives saying their companies are pursuing the following strategies.

TOP BENEFITS FROM FLEET LEASING

Lower capital costs

Access to latest technologies

Access to procurement

expertise

Fewer management issues (record keeping;

compliance)

Fewer maintenance issues

Fewer HR issues

Keep fleet up to date

Top five actions companies plan to take to address evolving needs

59%

57%

57%

60%

60% Expanded partnership with vehicle manufacturers

Greater outsourcing of transportation processes/fleet leasing/maintenance

Greater outsourcing of logistics processes (warehousing as a service/scheduling/carrier management)

Closer collaboration with suppliers

Closer collaboration with partners/distributors

Benefits rated as valuable—or extremely valuable—by survey respondents in descending order of frequency


ACT NOW

For the logistics, supply chain and transportation community, this is an era of profound transformation. “The reason people have got to step up—have got to invest and improve—is that it is the whole of the ecosystem that is changing,” says Langley.

The research conducted by Forbes Insights points to the following key action points:

• STEP BACK AND REEVALUATE THE WHOLE OF THE LOGISTICS, SUPPLY CHAIN AND TRANSPORTATION ECOSYSTEM: What is your role, what are your needs, what are your customers’ needs, and how might things be changing?

• PLACE YOUR LOGISTICS, SUPPLY CHAIN AND TRANSPORTATION PROCESSES UNDER THE MICROSCOPE: Where are the threats and opportunities?

• LOOK AT YOUR OWN SKILL SETS AND THEN DEVELOP A PLAN TO ADDRESS ESSENTIAL TECHNOLOGY TALENT GAPS—being sure to look at outsourcing, fleet leasing, M&A and other key tools.

• SET GOALS—and track your progress.


ACKNOWLEDGMENTS

Forbes Insights and Penske would like to thank the following individuals for their time and expertise.

• Craig Fuller, Managing Director, Blockchain in Transport Alliance; CEO, FreightWaves

• C. John Langley, Clinical Professor of Supply Chain Management; Director of Development for the Center for

Supply Chain Research, Penn State Smeal College of Business

• Mary Long, Managing Director, Supply Chain Management Institute, University of San Diego School of Business

METHODOLOGY

This research was conducted by Forbes Insights in partnership with Penske. The findings are based on an April 2018 survey of 433 senior executives from the C-suite or with senior roles in logistics, supply chain or transportation. Key demographics include:

CEO

COO

VP/SVP transportation

CFO VP/SVP logistics

VP/SVP supply chain

3%

20%

23%

20%

17%

16%

TITLE INDUSTRY

17%

7%

12%

6%

10%

6%

3%

7%

5%

5%

5%

5%

4%

8%

Retail

Computers and electronics

Durable goods

Rubber and plastics

Fashion and apparel

Chemicals

Other

Transportation

Food and beverage

Automotive

Industrial/manufacturing

Consumer packaged goods

Oil and gas

Building products


ABOUT FORBES INSIGHTS

Forbes Insights is the strategic research and thought leadership practice of Forbes Media, a global media, branding and technology company whose combined platforms reach nearly 94 million business decision makers worldwide on a monthly basis. By leveraging proprietary databases of senior-level executives in the Forbes community, Forbes Insights conducts research on a wide range of topics to position brands as thought leaders and drive stakeholder engagement. Research findings are delivered through a variety of digital, print and live executions, and amplified across Forbes’ social and media platforms.

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EDITORIAL & RESEARCH

Erika Maguire EXECUTIVE EDITORIAL DIRECTOR

Kasia Wandycz Moreno EDITORIAL DIRECTOR

Hugo S. Moreno EDITORIAL DIRECTOR

Ross Gagnon RESEARCH DIRECTOR

Scott McGrath RESEARCH ANALYST

Bill Millar REPORT AUTHOR

Zehava Pasternak DESIGNER

PROJECT MANAGEMENT

Casey Zonfrilli DIRECTOR, ACCOUNT MANAGEMENT

Tori Kreher PROJECT MANAGER

Brian Lee PROJECT MANAGER

Todd Della Rocca PROJECT MANAGER

SALES

North America Brian McLeod VICE PRESIDENT

[email protected]

Matthew Muszala EXECUTIVE DIRECTOR

[email protected]

William Thompson DIRECTOR

[email protected]

Kimberly Kurata MANAGER

[email protected]

Europe Charles Yardley SVP MANAGING DIRECTOR

[email protected]

Asia Will Adamopoulos PRESIDENT & PUBLISHER, FORBES ASIA [email protected]

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