Blog

Achieving sustainable cost savings in logistics through technology

Jonas Mehrhoff
Jonas Mehrhoff
April 18, 2021
5 min read

Note on the authors

Heiner Murmann is the founder and CEO of Orkestra SCS, a logistics, technology and services company. In addition, Heiner serves as Executive Chairman for Evolution Time Critical and President of The Five Inc., and as an Advisory Board Member for both Metro Supply Chain Group and Black & McDonald Limited. Notably, Heiner previously held various senior executive roles at DB Schenker, one of the top three global logistics companies, as a Member of the Board of Management responsible for Air and Ocean Freight, and as CEO of the Region Americas.

Arnold da Silva, Senior Ocean Freight Advisor for Orkestra SCS, is head of an ocean freight consulting company where he actively advises global shippers on ocean freight strategy and execution. With 40 years of experience in the ocean freight industry, Arnold served as Executive Vice President for Ocean Freight Region Americas for DB Schenker. Arnold's passion is to conceptualize and implement innovative ocean freight solutions that transform one’s supply chain and promote a shipper's success.

  • Logistics and transportation costs account for up to 10% or more of the total costs of a product
  • Manual processes and repetitive tasks affect productivity in logistics and increases costs
  • Technology has the potential to unlock $4 trillion in value for the industry
  • Investing in technology has become a necessity to achieve sustainable cost savings

Logistics activities such as global containerized shipping have enabled the rise of globalization over the years. As globalization evolved and grew, so did the expenditure for the transportation of goods. Transportation services, which were easily available at a modest cost in the past, have become more scarce and expensive, largely due  to  an imbalance in global market supply-demand patterns.

In any organization, operational costs are one of the biggest cost elements, of which, logistics and transportation costs can easily account for up to 10%. One modern approach to control costs is the effective use of technology.

Technological advances in the logistics sector

The evolution of modern technology has been pushing the boundaries in logistics and supply chain and has made a big impact in recent decades.  

While digitalisation is fundamentally disrupting the logistics industry, it also has the potential to unlock around $4 trillion in value for the industry by 2025.

World Economic Forum

Technology has changed many aspects of how companies operate and manage their logistics and supply chain. Digital capabilities are becoming a prerequisite of a company’s success by allowing them to  compete at the highest level, secure new business and ultimately enter new markets.

Technological advances such as those listed below have taken the industry to levels never imagined.

  • IoT
  • Advanced Data Analytics
  • Automation & Robotics
  • Blockchain
  • Cloud
  • Digital Platforms
  • Artificial Intelligence
  • Machine Learning
  • Drones and UAVs
  • Achieving cost savings through digitalisation

Logistics and supply chain is inherently labour-intensive, and labour cost is a critical cost element in any organization. The logistics industry has been notorious for its manual processes, many of which are repetitive.  

A good starting point for cost savings is to deploy technology that can assist the company in reducing and avoiding repetitive tasks. Many of these repetitive tasks such as route planning or the picking process in a warehouse can be automated using AI technology, which can help in the reduction of costs.

One of the repetitive tasks that the industry is notorious for, is triggered by the amount of paperwork involved. Shippers can easily get lost in the plethora of documentation associated with each specific shipment. Digitisation of logistics documentation can help in not only cutting manual processing time but also avoiding costly errors. Advanced data analytics and automation help in reducing manual efforts and drive down costs of activities such as managing inventory levels, forecast and demand planning. Companies  can then achieve gains in areas of productivity while using that time to focus on developing business strategies and enhancing client service.

New technologies in the market are changing the business and cost model of companies and are creating a dynamic pricing model, helping optimising capacity utilisation. Technology allows clients to collect vital data on the global movement of their cargo allowing them to arrive at the right decisions for their supply chain. With many technological solutions available in the market, shippers deploy them in the decision-making process and to balance cost vs service for all their shipments.

Achieving cost savings through digitalisation & real-time visibility

Real-time visibility saves costs. Through real-time visibility, shippers can identify the current status of the shipments, in term helping them better plan their order placement and avoid challenges such as storage costs or costly expedited shipments.

Although globalisation has brought about many new opportunities, it has also added complexities to global supply chains. For effective global trade transactions, knowledge of regulations, customs duties, taxes, inland costs, fuel-related surcharges, currency rates and other accessorial fees in destination countries is crucial. Currently, shippers may be working without up to date knowledge, as this information may be sitting offline and unevenly distributed across the organization.  

TMS (Transportation Management Systems) and ERP (Enterprise Resource Planning) systems can be of benefit to shippers and provide comprehensive real-time information. Take the status and location of shipments and charges at destination for example. These systems have been around for decades, but they are fast becoming more integrated and smarter for the effective movement of goods across the globe.

More and more shippers are turning to visibility platforms to assist them to uncover and control cost in areas such as:  

  • Freight Billing
  • Transportation cost calculations for each leg
  • Load management and optimization of utilization
  • Detailed calculation of accessorial costs

TMS also allows shippers to identify, select and vet the best carrier in terms of costs, service levels, industry rating, and technology enabled capabilities, such as load tracking. By monitoring these metrics, companies can be proactive in setting up control measures and tightening up their accounting and cost reconciliation processes. These processes are critical to increasing a company’s bottom line and avoiding losses. By automating and digitizing processes, companies can optimize freight spend, reduce costs such as demurrage, detention, and extra storage.

For shippers, maintaining a low cost per order is of utmost importance for improving their bottom line. A fully integrated technology platform takes out the guesswork and instills confidence in the logistics processes being followed.

Achieving cost saving through client satisfaction and success  

Through investment in proper technology and the effective use of the same, companies can win business, improve client engagement, and save on client acquisition and management costs.

Technological integration between different systems provides soft benefits, such as enhanced client service and reduction of manual interventions. These can assist shippers in reducing costly errors and help them grow new business without overwhelming the existing team.  

The speed at which a shipper is able to respond to the ever-changing requirements of the market is crucial for business success today. Shippers require technological prowess to shore up their digital capabilities to be able to compete in a dynamic market. Using the appropriate technology, companies can better manage complexity, provide supply chain visibility to their clients, and continually improve operational efficiencies.

Key take away

Technology has become a key differentiator in logistics and supply chains and is a key driver for improved management of logistics costs.

Using modern technology, shippers can adopt and change their operation more quickly and with less risks, reduce the cost of operation, provide real-time visibility to their buyers, increase client satisfaction and engagement, and improve the bottom line of the company.

Currently, the demand for technology integration in the logistics sector is at an all-time high with technology companies and solutions entering the market fast. As supply chains evolve and grow, investing in technology has become a necessity to achieve sustainable cost savings. The business of logistics involves a high level of collaboration and planning and a company that is digitised and technologically empowered can implement and execute its plans and achieve cost savings.