Logistics industry

The industry today.

Today, the logistics industry is going through great changes, most of them driven by the 2020 pandemic. In a context where the world is recomposing itself from what this situation meant, this sector is experiencing an accelerated transformation in its operations and ways of doing business so far known.

In this period, the importance of logistics to interconnect markets was revalued: if logistics stopped its processes, the supply of food, merchandise, and supplies of all kinds would be affected. In the most critical stage of the pandemic, while the world was stopped, its role was central in supplying and keeping global transport connected in times of confinement.

For all this, logistics is necessary to reach materials to the required site, at the right time, in the most profitable way possible and in the best conditions.

This industry has evolved in recent years and industry leaders agree that the cargo volume is much higher than in previous years. Online commerce grew 16.8% in revenue in 2021, representing approximately USD $4.9 billion during the last year. If there are more purchases, there is more logistics movement of transport and immediate deliveries, which is known as last mile logistics.

The proliferation of online sales channels has increased the demand for transporting this merchandise, with the immediate delivery of large shipments being differentiated.

These changes in the industry have led to rethinking and new challenges to address.

Main challenges

Below, we will mention some of the problems that this sector faces, to which we recommend paying attention so as not to have to face worse consequences.

Logistics managers agree that one of the main challenges is to carry out planning and comply with it on time. In an industry like this, planning is key: the transported product, an ideal plan, should not be delayed in its delivery, so each actor involved must know what to do and when to execute it.

Today, planning becomes a challenge since planning in the long or medium term is avoided, while aiming to work following the daily demand: although it is true that in logistics times are limited and demand is constant, workers of the area should have a plan that sets the course and the deadlines to be met, as well as being able to better manage each of the stages so that they are fulfilled on time.

Logistics is synonymous with technology: software has completely transformed the industry, allowing certain facilities and control, as well as the automation of tasks.

Technology has modified logistics not only at an operational level but also from the point of view of customers, being able to visualize the route of their order in real-time. The appearance of the smartphone was a pivotal moment to be able to monitor and track shipments, which a few decades ago was unthinkable.

However, this becomes a challenge for those small and medium-sized companies that do not have the same equipment as the large companies in the sector. Some procedures are still done manually, or there is a disparity between the investment that is made.

For this reason, investment in technology becomes crucial for any logistics company that wants to increase its competitiveness and be more productive, shorten times and make storage and transport processes more efficient.

Logistics has had great growth since the confinement generated by the Covid-19 pandemic, which led to a fivefold increase in the volume of deliveries. In times of confinement, consumers bet on online purchases, which inevitably led to more merchandise being distributed.

However, this growth generated work overload, which becomes difficult for some small and medium logistics companies. Many of them found it necessary to restructure their priorities, resort to a larger transport fleet and review their planning.

The rapid growth of the sector led to concern about the future of the industry, in addition to the difficulty of bridging large distances. The main question, especially in SMEs, was what to do with so much volume and if they could sustain it.

In logistics, timing is everything: the shipment must be placed in the right place, at the right time, and in the best conditions. Operationally, the key activity of logistics is the reduction of time for each delivery.

Having accurate information in real-time is essential to ensure that the activities carried out lead to the achievement of the objectives in line with the company's planning. Measuring and controlling allow good decisions to be made in management and administration, which results in greater productivity and in obtaining a competitive advantage.

Particularly in logistics, measurement is a high-value activity, although it is often relegated due to limited work times. Some referents of the sector do not take the precise and adequate indicators to measure, or do not systematize their tasks. The challenge is to measure to control the time, and obtaining the appropriate indicators.

Route optimization consists of making transport logistics operations as efficient as possible. This means, among several ways, taking the route that makes it possible to make the fastest delivery, saving time and fuel.

The vehicle must choose the route based on the location of the deposits or warehouses, make the collection and later distribution in an efficient way.

However, nowadays the routes can generate incidents in the shipments since it is difficult to predetermine some actions that exceed the responsibility of the logistics company (for example, we can mention route closures, climatic problems that can delay the trip, and problems of traffic in urban areas). Through the application of technology, many of these risks can be reduced. This can be through the use of software to communicate with drivers, check vehicle activity, monitor routes, and ensure safe driving to the final destination.

This challenge is involved with planning since mitigating risks on the routes depends on having maps and having alternative routes drawn in case problems arise.

The customer is the center of everything: this is the current business paradigm. The logistics industry is no stranger to this vision, in which customers (whether they are another industry or a final consumer) are increasingly demanding and insist on knowing the origin of the product they requested, the quality of their processes, and how it reached their hands.

E-commerce brought about an approach of the final consumer typical of a B2C business model, who became increasingly familiar with logistics: a new customer was made way, who previously did not know how the requested package arrived at the door of his house. In this way, logistics has the challenge of communicating and engaging in feedback with it, optimizing its communication channels and customer service.

In addition, customers demand specific delivery times, and in the case of B2B, they understand logistics as an integral part of their business: they are no longer a separate actor from the logistics process, but rather an integral part of it.

In relation to the previous points, logistics companies today have a deficiency in their commercial area. How is this explained?

In logistics, there is a problem with estimating demand, which, as we have already explained, leads to planning problems. Not having absolute certainty of when your customer will ask for your services has repercussions on their cancellation, which means that logistics companies are forced to look for new customers.

For this reason, one of the challenges of this industry is to define a robust commercial process, which allows, in this way, to control and standardize the demand.

Our analysis.

1. Customers.

In the logistics industry, depending on the type of business established, there is a wide variety of customers. Some companies choose to be intermediaries, with the product being marketed to another company, which responds to a business-to-business (B2B) model. This is the case of companies that offer their logistics services (storage, distribution) having as customers another company that will market those goods or services.

On the other hand, a logistics company can also distribute and market with a final consumer (B2C), the typical case of e-commerce, with direct delivery of the products to the buyer.

Most of the logistics managers consulted with Drew agree that they diversify and work with customers of all kinds: some companies opt for the B2B and B2C models, and some are only intermediaries and operate on a B2B basis.

The diversity of customers is exemplified when the same company can transport vital supplies for health centers or pharmacies, as well as clothing or small loads.

E-commerce meant a change in the way logistics operators relate to their customers since by bringing their services closer to the final consumer, customers were able to understand and immerse themselves in processes that they were previously unaware of or did not contemplate.

Today, customers have more information than at other times: they can visualize the route of their product, they resolved in the delivery, and they have certain hours in which they can attend the delivery of their package. In general, it is a client committed to the process, especially if it is an end consumer.

At the same time, the expansion of e-commerce has led to end consumers becoming more knowledgeable about the logistics process: it is a new customer for the sector, which was previously not instructed regarding home deliveries.

Communication channels are often poorly directed at this consumer. The managers of the sector indicated that they optimize the Google search engine and their web pages since it is a great window for potential customers. Most of those who find their service online do so through this search engine, according to their studies, 65% of users and from the mobile version. Likewise, they have active social networks, but that is not where most of their recruitment comes from.

Some smaller companies still use traditional media to advertise, as well as billboards on public roads. Many managers consulted by Drew indicate that there is no feedback from the final consumer, even though they are a vital part of their commercial chain.

Today, a consultative sale is privileged, in which the customer has knowledge and presence throughout the process. The logistics operator must understand their times to accommodate the preparation of the order. However, their marketing and advertising actions in traditional logistics companies still have few defined actions.

In general, marketing teams within logistics should promote omnichannel and not forget that customer service is key to continuing to attract them.

2. Role of e-commerce.

As mentioned above, the pandemic and lockdown precipitated a boom in online sales, so today e-commerce represents an increasingly established form of purchase.

Users prefer the comfort of buying from home with only an internet connection without going to a physical store. In this, the distribution of this purchase plays an important role, so buyers place their trust in the arrival of that product at the established time. As an almost direct consequence, the volume of logistics activity skyrocketed.

The managers consulted agree that e-commerce increased their work fivefold: this leads to a rethinking of business planning and organization, and many times, to assess whether they had all the infrastructure to support more packages.

According to statistics, in the last three years in Argentina online commerce grew 90% percent year-on-year. This provoked a change in consumption and a great impact that, in the words of those who know the sector, forced them to restructure them.

"We have not pushed the market, we have received it" is often a repeated phrase among managers. While in other times the shipment of the order was optional, now the logistics service is imposed within e-commerce.

In addition, this new form of commerce forced the sector to be more flexible, since the increase in the volume of work fluctuates. "On holidays, consumption can go from 0 to 1000 deliveries," they point out.

However, this high demand also gives more profitability, especially when it comes to smaller packages: they are called priority cargo and other times express cargo, since delivery times are usually very fast, such as shipments on the same day.

3. Importance of planning.

Planning is a key stage in any industry, laying the foundations and establishing the "direction". Particularly in logistics, it becomes imperative to have these guidelines, since delivery times must be strictly adhered to.

Planning is a central part of logistics management since resources, assigned routes and delivery times must be anticipated in advance. In addition, it is important to anticipate the inconveniences that may arise and coordinate all actions between suppliers, transport, and customers.

Planning in logistics management involves the prior organization of the tasks necessary for proper development, as well as the strategy, techniques, and methods to be used.

When talking with leaders in the sector, we were able to identify that logistics planning is scarce or without a common criterion, sticking to the demand of the week, or even the day. Most managers point out that in an industry driven by daily activities such as logistics, it is difficult to plan.

However, planning could be carried out to guarantee better results: at a strategic level, planning involves manufacturing and maintenance of equipment, warehouse layout, the volume of shipments, dimensions of the transport fleet, as well as its distribution policy.

On an operational level, on the other hand, it would entail the establishment of lead times (delivery times), the reliability of supplies, the reduction of stock, and the speed of supply to the customer.

In general, the logistics managers consulted indicated that planning and agreeing with suppliers is a difficult task. "There is always an unforeseen event, everything is never calculated," they point out, although the reality is that incidents can be mitigated by establishing medium- or long-term planning.

In this, technology is very helpful because it allows control and information in real-time to anticipate risks or reduce them as much as possible. It is suggested to have contingency management to be prepared against risks such as a poorly provided delivery address, absence of a person who can pick up the order, lack of stock, and planning of the necessary transport fleet.

The referents of the logistics sector consulted by Drew point out that, when the company is just beginning its activities, it is difficult because they are forced to adapt their times and tasks to the customers. Then, as they grow, they can impose their processes.

The need to plan, they agree, was seen in the pandemic more than in other times. When planning, it becomes essential to know in which seasonal periods there is more demand, as well as to separate shipments according to their priority.

4. Key activities and traceability.

Traceability refers to the monitoring of the evolution of the different processes, being able to observe the steps that a product goes through from its beginning to its final location.

Knowing traceability becomes a key activity in the logistics industry, which allows verifying and tracking all the steps that the product goes through, which gives seriousness to the process.

It is a tool that allows customers to participate in the delivery, knowing the origin of the product from the time it leaves the warehouse until it reaches the door of their home.

Nowadays, the logistics company that is not aware of its traceability is at a disadvantage, since it grants credibility and customer satisfaction. It is not only applied in the follow-up of products by the customer but also in the management of any asset owned by the company.

5. Goals.

Setting goals is important for any company. Particularly in logistics, the most important thing is to provide a high-quality and efficient service, reducing costs as much as possible, so that it becomes a profitable activity.

There are three fundamental edges: gain flexibility due to high demand, reduce costs and increase service levels.

Meeting these three objectives is not always an easy path. The leaders of the sector need to balance these three variables to provide an effective service but at the same time generate profits.

6. Technology.

The role of technology is crucial in logistics processes. Its contribution maximizes and speeds up processes, and also allows you to automate tasks that decades ago could only be solved manually.

All those people consulted by Drew state that the application of software constitutes "a before and after" and that today, the logistics industry cannot be understood without this contribution.

Today, visibility systems, dashboards, and automatic commands are used. Technological evolution has made it possible to detect errors, control storage, and check how distribution is progressing.

In recent years, by downloading an application on smartphones, a large number of processes can be controlled in real-time. This advance represented a momentous milestone in the industry, in addition to satellite systems.

For customers, it is also an easy task, since they can generate a shipment, receive reminder emails and track their purchases.

In past decades, it was difficult to call the drivers to find out where they were: today, tracking systems make this part easier.

Technology crosses all parts of the logistics process, although, according to what was consulted, some manual processes still exist: dockets and little automation.

How can you optimize shipments?

In an ideal world, the vehicle that transports the merchandise should be filled to its maximum capacity one month before. As this is impossible (in some cases), many logistics companies transport standard volumes. The goal is for the truck to be 100% saturated, which is known as load consolidation. It is assumed that, if the vehicle travels all night to the assigned destination if the basket is not full by the end of the day, many logistics companies try to "sell" that space. The objective is always the saturation of the truck.

In the case of the 24-hour delivery model, for its application to be effective, there must be constant stock in the cargo centers of the cities, otherwise, it does not work. Each one has an established capacity, from where orders are dispatched to customers. For example, if an order is placed at 4:00 p.m. and is transferred to the same city, the order is dispatched in the morning shift, always to fill to maximum capacity.

Logistics works like a funnel, in which transports are measured:

6 axes (route between different provinces)
4 axes (Travel from one city to another)
2 axles or last mile logistics (Motorcycles, bicycles)

The question is, how to plan if I depend on how much a customer buys?

In a 6-axle route, in a 24-hour sale, viability depends on having a stock: this business model does not work without an intermediate inventory.

Most logistics companies are not counting on this, and depend on their customers. Without intermediate stock, deliveries cannot be made within 24 hours, thus making planning difficult.

Some companies, not having a defined business model, carry any type of load, regardless of its proportions, and dimensions. This is incompatible with an instant delivery model: the 24-hour variable implies planning. It does not matter to carry everything that is not comparable in the same compartment.

In this type of shipment, the information offered by the historical database is important, where the days when there is the greatest demand for transport are displayed: holidays such as Christmas, etc.

Historical database

The importance of the historical database is that it allows forecasting, marking trends, and statistical control of the processes.

The data provided by the historical base is used to analyze how much the demand increases at certain points, and based on these data, manage transport loads (if it is necessary to outsource or internalize).

In addition, it allows knowing the behavior of the market, since it provides information on consumption and the movement of merchandise at certain times.

This base allows for predicting the volume of certain times. There is usually a big low in January, which picks up mid-year, and in November-December, the volume is on the up.

The correct thing would be to have a business model associated with companies with a certain market behavior, otherwise, logistics would be about looking for a space in a vehicle and carrying what is needed.

The factor of anticipating market growth is important. Today, it is not difficult to implement technological tools that allow data to be loaded on a historical basis. Logistics companies must stop working with manual systems to load data into a system and generate a statistical model, with data that allows planning.

Before	After
Dockets in paper	Electronic dockets
Ambiguous information	Information in real-time
Uncertainty	Historical database
Very costly	Very cheap

The main mission of our company is to be able to provide the necessary tools to help solve the organizational needs that our customers have. In most cases of logistics companies, the solutions focus on the digitalization of processes, followed by the business model proposal to then strengthen the commercial area, and thus, finally, give way to the operations area.

When a logistics company arrives at Drew with a certain need, at our company, we propose to approach it, through meetings that allow us to get to know the organization and its ways of working. From these meetings, we generate a diagnosis with the main problems or needs that we identify and after that, once we validate all the information collected with the company, we present a joint work project, with objectives and goals that will allow us to recognize the improvement process.

The solutions that we suggest to companies in the logistics industry are based on two large groups: they can be solutions related to the implementation of technology to streamline processes, or they can be solutions directly related to the organization of company processes, and the possibility of combining them with project management.

After validating the improvement process, we proceed to its application through actions to restructure, or formalize, the processes that are deficient, combined with actions that allow maximum use of the digital tool that the company uses or chooses to start using (if the implementation of new software is decided).

It is important to note that the use of a technological tool according to the needs of the company is essential for the management to work properly. At Drew, we recognize the challenge of being a company that must adapt to technology and for this reason, we become strategic allies of our customers, offering them the most complete tools so that this challenge can be overcome and become a competitive advantage that boosts growth.

If necessary, we provide training so that the implementation of changes can take place in the best way and that resistance to change is minimal.

At Drew, we do not sell packaged solutions but we adapt to each customer, being the connection between the world of business and technology since we are certain that are different.