Logistics 4.0: Drivers, Challenges and Opportunities
Without Profound Digitization of Logistics, Industry 4.0 Would Only Be a Buzzword
Logistics 4.0 is the answer to the Digital Transformation in the economy. Drivers of industrial digitization are globalization and the increase in just-in-time and small-batch production. This requires integrated and automated supply and logistics processes.
From Goods Exchange to Logistics 4.0
For as long as there has been an economy, people have been trading - across national borders and linguistic and cultural barriers. While in earlier centuries it was primarily reserved for the exchange of luxury goods, global trade has become commonplace in all sectors since the industrialization of the economy. As a result of the continuing international division of labor and, in particular, as a result of digitization, the exchange of goods and data has received another huge boost in recent years. Smooth, efficient logistics processes that integrate seamlessly into the supply chain with its ever more closely timed steps, are highly automated, and take into account the requirements of environmental and climate protection are indispensable.
Logistics 4.0: Old and New Challenges
The markets as well as legislators and the public are presenting logistics companies with new challenges, while other hurdles, such as the shortage of skilled workers, have been perennial issues for years. The digitization of logistics provides a remedy in many respects, provided it is carried out holistically - across the entire value chain and is not reserved for individual process steps. The greatest challenges for logistics companies include:
Just-In-Time Manufacturing and Delivery
Long gone are the days when the sale of goods took place primarily from companies' warehouses. On the one hand, manufacturing and retail companies have cut back on their storage capacities to reduce warehousing costs. On the other hand, customers increasingly expect suppliers to adapt their products to their wishes and needs. But that's not all: developments are moving more and more toward 3D printing or additive manufacturing. This means that the topics of batch size one and shorter supply routes are becoming increasingly important. And these trends are continuing unabated. On-demand production should nevertheless take place on time. This can only be achieved by digitizing logistics along the entire supply chain, particularly in the case of complex products with many suppliers.
Cost Competition in the International Arena
The next offer is often just a mouse click away in the digital age, even in B2B. Thanks to global networking, it is easier than ever to compare offers in terms of quality, price, and execution. The particular difficulty faced by European and mainly German companies is that they are competing with low-wage countries. Of course, this also applies to the logistics industry. Not to be forgotten: the rapid and ongoing development in e-commerce is leading to sharply rising parcel volumes with ever shorter delivery cycles at the same time.
Tracking without Blind Spot
In the end customer business, it is now standard for consumers to find out where their ordered goods currently are. Companies, too, want and need to see the current status of their orders at any time. However, it is not just a matter of knowing where the shipping company is at the moment, for example, with ordered materials or the end products to be delivered. Instead, manufacturing companies need information about the production progress at their subcontractors - and that in real-time and with little effort on both sides!
Worldwide Networking - Decentralized and Almost Down to the Last Corner
When it comes to international economic relations, there are only a few blank spots left on the map. This not only makes for very complex logistical relationships in some cases, but also for sometimes quite long transport routes that nevertheless have to be overcome as quickly as possible. In addition, the infrastructure is by no means as well developed everywhere as in the industrialized countries, for example.
The issue of skilled workers also plays a crucial role in logistics. It is becoming increasingly difficult to find young talent - a trend that is very likely to continue. In addition, solutions are needed to ensure communication even with people - such as warehouse employees or drivers - who do not necessarily speak German or English.
The Ecological Footprint
Like all sectors of the economy, the logistics industry is also required to implement suitable measures for environmental and climate protection. This is why companies are constantly optimizing their transport logistics, and not just for cost reasons - to avoid empty runs, find the best possible routes, and sensibly link different means of transport.
COVID-19 Puts One More on It
The global pandemic has thrown sand in the finely tuned logistical processes. For example, quarantine and illness have at times severely reduced the supply of labor. Closed borders or restricted border traffic, a temporary suspension of air traffic, and contact restrictions both within companies and with recipients of deliveries have not made the situation any easier for logistics providers.
Particularly tricky: From one moment to the next, supply chains in some industries have collapsed. One need only think of the lack of components and semi-finished products from China - such as semiconductor chips, for example, on which the domestic industry is urgently dependent. In some cases, alternative suppliers were found and entire supply chains had to be reorganized within a very short time.
Thanks to Digitization, the Cogs Keep Turning
Mastering the complex challenges - even more so under difficult conditions - is only possible thanks to the comprehensive digitization of logistics, keyword Logistics 4.0. In addition to supply chains interrupted due to shortages of raw materials and components, the difficult conditions also include media and information disruptions. These arise time and again during cross-company collaboration along the supply chain. This is mainly because the IT systems of the companies are not compatible with each other or cannot even exchange data externally due to a lack of cloud connection.
A recent study by the German Logistics Association (BVL) and Arvato Systems, for example, concluded that only around 50 percent of the companies surveyed from retail, industry, and logistics service providers work in the cloud. However, according to the aforementioned study, most of those surveyed are aware that their future is called Logistics 4.0. According to the study, the most important success factors include:
- Fully digital processes (90 percent)
- Digital master data management (89 percent)
- Agile approach (86 percent)
- Digital communication (76 percent)
- Culture of innovation (76 percent)
- Rules for collaboration (72 percent)
- Mobile access (70 percent)
The term Logistics 4.0 refers not only to the effects of technological developments in the area of Industry 4.0 on logistics but also specifically to the contribution of logistics to the design and support of Industry 4.0. The latter is primarily about the networking of processes and objects and the links in a supply chain - whether suppliers, manufacturers, wholesalers, and retailers, logistics service providers, or customers.
Information and communication technologies (ICT) are used to interlink supply chain members. These ensure greater efficiency through automation, process acceleration, and error reduction, among other things, as well as greater effectiveness through more flexible and individualized processes, products, and services. In this way, value chains can be optimized and integrated into value-creating networks.
The Digitization of Logistics in Practice
Logistics 4.0 means one thing above all: There are no more isolated solutions. All players, information sources, control and management systems are networked with each other.
Smaller order quantities and higher delivery frequency simultaneously - to maintain an overview and control the processes, all logistics segments must be taken into consideration. Not to be forgotten, for example, are incoming and outgoing goods, picking and packing stock transfers and transfer postings, and inventories. Added to this are the very high volumes of returns in some sectors, such as consumer products and fashion. Therefore, the digitization of logistics involves much more than "just" automating and integrating warehouse and transport logistics processes, which in itself is a complex undertaking.
It is about,
- efficient material flow thanks to the transparent allocation of materials and their rapid provision.
- to make optimal use of storage space, which requires efficient and fast warehouse movements.
- to automate inventory management for both warehouses and distribution centers, including replenishment and returns, and to access a nearby center in case of acute need.
- to open a temporary distribution center at very short notice if required, keyword "pop-up warehouse".
End-to-end information chains are no longer sufficient. Smart master data maintenance, therefore, plays a very important role in warehouse management.
Logistics 4.0 Also Includes Physical Processes
However, the IT processes and the real processes themselves must be automated as far as possible. The related technologies and equipment are available and have already passed their practical test. They include, for example, shuttles or Automated Guided Vehicles, pick-by-voice, pick-by-light, or pick-by-scan solutions, as well as AI-based systems for quality assurance and warehousing.
Even companies that do not yet use these tools or only use them in isolated cases know where the journey is headed. Most participants in the BVL study expect that in the future, it is very likely or likely that:
- Logistics will be paperless (88 percent).
- Artificial Intelligence will take over simple tasks in the warehouse (83 percent).
- Intelligent voice control will replace input in forms and via apps (80 percent).
To make user training unnecessary and to avoid application errors and ensure acceptance of the systems among the workforce - in the context of digitization in logistics - intuitive user guidance is imperative.
When numerous logistics processes are automated by means of AI-based control, employees - whether in the warehouse, transportation, scheduling or purchasing - are relieved of these activities and can instead concentrate on more complex, value-adding tasks. In addition, intuitive user interfaces not only eliminate the need for intensive user training, but also help overcome language barriers.
Digitization of Logistics - Only Really Conclusive with Cloud IT
The basic advantages of cloud-based solutions are well known: Anyone with the appropriate authorization can access them regardless of location and time. This means that everyone involved has access to the primary information - the keyword being "single point of truth". The group of users - which can also include people from outside the company - can be easily expanded or reduced at any time.
In addition, resources in the cloud can be scaled very easily and without delay. Even smaller locations can now be easily connected to central warehouse management processes, making it easier for companies to maintain decentralized warehouses or conveniently located micro depots. The high level of data and process security guaranteed by established cloud providers is another plus.
Mobile maintenance and service teams can manage inventory in the cloud in real time while on the road. The trunk is effectively a mobile warehouse. When the spare part is removed from the car, the employee books out the component via his app. If the stock level falls below a predefined limit, material planning automatically orders more.
Improving Last-Mile Performance
The so-called "last mile" is the distance in the transportation of goods from a transportation hub to the final destination - in the case of the consumer, for example, the place of residence. It has been proven in numerous studies that last mile distribution accounts for the highest proportion of supply chain costs.
In addition, the last leg of the journey often generates the most emissions, especially in large cities. For the entire transport route, but especially for the "last mile," the digitization of logistics provides significant relief by
- planning the shortest or fastest routes through the intelligent interaction of transport and warehouse logistics.
- Combining deliveries in a meaningful way.
- Selecting warehouses according to their distance from the destination.
- Combines means of transport. Long-distance goods transport should preferably take place by rail or ship. Trucks, e-scooters and bicycle couriers or, in the future, autonomous delivery vehicles will take over the local area.
- Optimizes routes by integrating not only its own historical data but also current information from external sources, such as current traffic conditions.
Logistics 4.0 in Subcontracting
Manufacturers use subcontracting to absorb peak loads and make use of the service provider's particular competencies. Nevertheless, companies must still be able to react very agilely to changes in the market and avoid interruptions in the manufacturing process. The prerequisite for this is that they receive all relevant information, for example, on the manufacturing progress at their subcontractor, in an uncomplicated manner, in real-time, and without any local or time restrictions. More information on the digitization of logistics in the subcontracting sector can be found in the checklist "Six tips for manufacturing companies to achieve full transparency in subcontracting."
Contract service providers are a mainstay in mechanical and plant engineering. Companies can respond much more flexibly to volatile markets and seasonal peculiarities by outsourcing even complex production units. This shortens lead times and reduces costs. However, it is crucial that the machine builder retains control and knows, for example, whether the partner is producing on schedule.
Even in unplanned changes, for example, if the subcontractor requires additional input material at short notice, the manufacturer is dependent on the subcontractor's information. However, it would be idle to query the processing status of all subcontractors constantly. Not to be forgotten: Especially in mechanical and plant engineering, production managers, shift supervisors, etc., travel a lot within the company and are sometimes difficult to reach.
The solution is a prime example of the digitization of logistics: There is a permanent, automated exchange of information and data between the partners, with the data also ending up in the right place. If a delivery is delayed, for example, the logistics department needs to know to reschedule the shipping company. If, instead, the material has to be reordered, the purchasing department has to take action.
Without Tools, No Logistics 4.0
Any Device - For Maximum User-Friendliness in Logistics 4.0
Especially in transportation and warehousing, employees are on the road a lot. It is therefore not enough for logistics processes to be controlled on a stationary computer. Smartphones and tablets must be able to be used just as smoothly. In the medium and long term, wearables and connected cars will also be important as end devices. It must be ensured that the devices are compatible with each other.
Chatbots to Simplify Time-Consuming, Paper-Based Processes
Voice assistants understand spoken and written human language. They are therefore particularly suitable where elementary queries or few process steps are involved. In logistics, for example, you can use them as:
- Information chatbot to provide information in the warehouse to production or service on order status, inventory, warehouse performance, i.e., the number of deliveries or packages going through goods issue or instruction, and relieve the hotline.
- Order bot, which answers inquiries about the availability of items and reorders them on request.
You can find other usage scenarios in the Innovation Brief "Streamlining complex, time-critical logistics processes - this is how it works with AI-based chatbots." It is expected that speech will be the medium for interaction between people and systems, and machines in the future. Individual voice-driven chatbots are, as it were, the first trailblazers for this.
AI - The Virtual Colleague for the Big Picture
The task of Artificial Intelligence (AI) is to link the numerous data generated in logistics processes, analyze them and recognize inherent patterns. For example, how an average trip duration depends on the time of day. Or whether the total available capacity of warehouse space corresponds to the actual demand and whether the locations are evenly utilized. But that's not all: by evaluating vast volumes of data, the intelligent system can forecast future developments extremely reliably and adjust logistical processes accordingly. For example:
- Plan staffing requirements accurately,
- optimize returns management with the shortest possible transport routes or bundle returns, and
- reliably predict transport requirements, considering external conditions. This includes, among other things, the day of the week or the time of year, seasonal peculiarities - such as Christmas, weather events, the launch of new products, or construction work on the roads.
The development continues. According to a Fraunhofer study, modern technologies such as voice and gesture control have already found their way into logistics. In order picking, for example, pick-by-voice or pick-by-light systems have proven their worth. Data glasses in combination with virtual and augmented reality are used to sort components, optimally stow sea freight containers, or load and unload trucks.
A recent British study concludes that - boosted by the further growth of the e-commerce industry and the need to make the last mile more cost-effective - autonomous vehicles will take over delivery in the foreseeable future. This may involve both cargo drones and technology for autonomous ground delivery.
Logistics 4.0 - A Preliminary Conclusion
The digital transformation of logistics with all its areas not only brings many advantages to commercial enterprises and logistics service providers. Customers and employees also benefit from the networked and automated processes. Worth highlighting are:
- significantly lower costs, significant efficiency gains
- better delivery service (on-time delivery, delivery quality)
- Reduced workload for employees
- reduced susceptibility to errors
- reliable forecasts and thus more precise demand and deployment planning
- very high flexibility
- reduction of over- and under-delivery
- lower environmental impact
- transparency along the entire logistics chain
On the downside, there is a lack of digital competence on the part of companies or individuals, as well as a lack of acceptance for the new technologies or for fundamentally changed processes - hurdles that can be overcome with training, best practice examples and by strictly adhering to compliance rules.
Then one thing is certain: Logistics 4.0 is profitable for all sides.
- Statista: Statistiken zum Thema Transport und Logistik
- Bundesvereinigung Logistik: Logistikumsatz und Beschäftigung
- Statista: Marktvolumen des Logistikmarktes in Europa in den Jahren 2008 bis 2021*
- Statista: Höhe des Marktvolumens des weltweiten Logistikmarktes im Jahr 2018 nach Segmenten
- Statista: Umsatzentwicklung des weltweiten Logistikmarktes in den Jahren 2015 und 2023
- Statista: Höhe des Marktvolumens des weltweiten Logistikmarktes im Jahr 2018 nach Segmenten
- Fraunhofer ILS: Transportlogistik 4.0
- GlobeNewswire: Global Autonomous Last Mile Delivery Market is projected to reach US$1,19,151.5 Million by 2031: Visiongain Research Inc