Freight and logistics companies know that their industry is undergoing rapid change. Digitalisation and automation are no longer optional extras to improve performance and business transformations essential for survival.
The logistics sector has been traveling along this road for a while, with some activities such as sortation of packages, for example, already largely automated. However, a number of threats and opportunities are currently converging to increase the speed of travel across the industry.
The drive to automate
Historically reliant on the availability of low-cost, often imported labour for picking operations, logistics firms have seen wages rise and labour-pools shrink over the past two decades. Now Brexit threatens to stem European workforce streams even more, further increasing the drive to automate.
The ending of the Brexit transition period on 31 December 2020 may also sound the death knell for the humble wooden pallet, which will no longer be able to move from the UK to or through the EU unless it has been heat-treated, thanks to ISPM 15 requirements for non-EU goods. That additional cost layer reduces the price gap between wood pallets and their plastic counterparts, which also interface far more successfully with automated equipment, as well as being recyclable and repairable. In this way, another barrier to automation is falling away and its momentum increasing.
At the same time, COVID-19 has caused businesses everywhere to re-examine their staffing strategies, reducing face-to-face human interactions as far as possible. The more automated an operation, the less it will be affected by lockdowns on the one hand, and the better able to cope with big peaks and troughs in demand on the other, without having to deal with staff shortages or furloughing of employees. In other words, automation can mitigate a lot of the new ‘people’ risks logisticians now have to deal with. Added to which, environmental concerns are pushing companies to look at their carbon footprint and endeavour to make energy savings through, among other things, lights-out warehouses and distribution centres.
Meanwhile, requirements of retailers and other customers are becoming increasingly stringent, with delivery on time and in full demanded as the norm, even as they turn up the pressure to reduce unit costs. That level of certainty at a viable price necessitates automated processes.
All of this means the writing is on the wall for manual systems.
The logistics sector is likely to become increasingly polarised over the next five years, with a growing gap between those focussing on applying appropriate technologies and management methodologies and those left behind. When the automation dust has settled, we may see a group of large, high-tech, global players developing lasting relationships with big brands on the one hand, and a reduced number of smaller, old-school companies competing for short-to-medium-term contracts on the other, while their margins are increasingly squeezed.
Following the auto route
Time is short, but automation is a large, strategic investment and it needs to be done right. That means stepping back from day-to-day operations to look objectively at the big picture. That way, you can ask the right questions to really understand the current and future requirements of your business and that of your customers. That’s the first step in identifying the approaches you might need to take to make the necessary big changes happen in order to remain competitive for the long term. It’s worth investing in the support of an experienced partner who can guide this process and provide a valuable external perspective.
Freight and logistics companies can learn a lot from the automotive sector which has long been applying improvement tools and techniques such as lean management across the supply chain to solve problems, assure quality, automate and optimise operations. Indeed, lean methodologies originated in 20th century motor vehicle manufacturing in the form of the Toyota Production System. But they are just as relevant today, and just as effective for service industries as for manufacturing.
While some larger logistics companies are already applying these approaches with some success, the sector as a whole has yet to fully embrace them. However, the inevitable arrival of automation may yet drive their take-up as they have the potential to greatly facilitate that transformation.
Maximising value through lean
Lean management, or simply ‘lean’, denotes a set of principles designed to eliminate all kinds of waste from business processes, while staying focused on delivering exactly what customers want, on time and in full. Lean is all about continuous improvement enabling companies to be sufficiently agile to remain competitive, survive and thrive. It helps improve productivity and profitability by eliminating everything that does not add value to customers.
Lean’s five core principles are:
•precisely specifying the value of each product or service
•identifying its value stream
•making value flow without interruptions
•allowing customers to pull value from your business
By looking at your services from a pull rather than push perspective and continuously striving to achieve an uninterrupted flow of the right process at the right place and time, you can make significant improvements to your bottom line and your offering to customers. As well as this, lean’s determined focus on innovation, efficiency and delivering what customers want can help streamline and shorten long tendering processes and increase contract-win rates.
Similar to lean is total productive maintenance (TPM). Widely used in the food and chemical industries, TPM uses eight ‘pillars’ of activity to provide a structured approach to eliminating all kinds of losses across a whole organisation and throughout its value stream. Because it aims to optimise equipment and processes to deliver zero breakdowns, zero failures and zero accidents by eliminating poor maintenance or operations practices, TPM is ideally suited as a methodology to implement and maintain automated operations. It can help you ensure the service reliability you need to differentiate your business in a crowded market.
How can smaller companies compete?
Transforming operations through automation may seem out of the reach of SMEs which lack big engineering departments. How, then, can they remain competitive if they can’t keep up with the larger players?
There’s a lot they can do to optimise the efficiency and value of their existing systems using lean techniques – and the need to do so is likely to become ever more pressing. By forensically reviewing and improving your current systems, layout and process flows, end-to-end, you can greatly boost your competitiveness.
Our benchmarking research shows that the greatest challenge for small and medium sized companies is the ability to develop and implement an effective vision and strategy that drives results. Applied systematically, lean can really help to crack that conundrum.
The prospect of bringing about transformative change across an organisation is daunting. Start with a pilot project – a service or process that is large enough to give some measurable impact and engage enough people, but small enough to be achievable. It has to be something that is significant to your business and within your gift to change within a timeframe of around six months. Learn from the experience, gather feedback and then feed that into a cycle of continuous improvement.
Industry Forum can guide you through the steps to help you understand your requirements in detail and design a decision-making process that will enable you to move forward in the right direction.
Look out for our future articles on transitioning to logistics automation, the distribution centre as a lean factory and sustainability and the green supply chain.
SMMT Industry Forum