Writing about trends is tough. Many trends are slow moving trains. Sometimes few people question that the trend is underway, they just want to know when it will impact them.
The other thing about making predictions, is ideally a prediction should be specific enough and testable enough that after the fact someone can look back and see whether it was right or wrong.
With those thoughts in mind, ARC will attempt to make pertinent and testable predictions.
Sustainable logistics is like a tsunami that is building far out at sea. Right now, the impact of sustainability on the lives of most logisticians is nonexistent. But eventually that tidal wave reaches the coast and things are never the same.
When it comes to sustainability, procurement professionals have been impacted by corporate social responsibility (CSR) programs far more than logistics professionals. Manufacturing, which often has large material impacts, and product development are also increasingly impacted.
But when ARC talks to our 3PL contacts, it is clear that at most companies sustainable logistics is not currently material. Potential clients for warehousing and transportation services ask about sustainability, but it is a nice to have, not a need to have.
When it comes to sustainable logistics, ARC can’t yet forecast when these initiatives will become action items for a large proportion of logistics professionals. What we can confidently predict is which logistics professionals will be impacted first by sustainability programs.
- Logistics executives working at big public companies will be impacted more quickly than smaller companies, who will be impacted more quickly than private companies.
- Companies that own their own fleets will be pushed to reduce CO2 and other noxious emissions from transportation far more quickly than companies that use carriers to move their goods. Emissions generated by the company itself, are always tackled before indirect emissions, emissions generated by supply chain partners.
- Certain industries are far ahead of others in their sustainability efforts. In high-tech, for example, leading companies have highly commendable CSR programs. In industries where large players have advanced CSR programs, the rest of the industry feels pressure to catch up. In high tech, for example, landfill reduction efforts have become the norm among large companies.
- When sustainability has a robust ROI, it becomes easier to justify these projects. A company with their own fleet can both reduce their freight costs and achieve CO2 reductions through the use of transportation management systems. In high tech, products are returned and valuable rare earth materials and high end plastics composites are demanufactured and harvested. This keeps material out of landfills but it also has a good ROI.
Omni-channel continues to be one of the hottest trends in supply chain management today. However, there are still major hurdles that logistics professionals need to overcome. First and foremost, there is an opportunity gap that exists in terms of adoption of omni-channel enabling technology. Retailers are not investing in necessary technology to align their omni-channel vision. Secondly, retailers are struggling to align what’s best for their business with customer expectations. This is due mainly to a lack of integration of business processes and technologies. Legacy technology is a main component of this problem. And third, as e-commerce continues to grow, retailers are struggling to find their optimal last mile solution. I’ll touch on this part later in the post.
So what does 2016 hold for omni-channel logistics? Below are a few predictions.
- The technology gap will begin to disappear. According to my latest omni-channel research, only 57% of respondents are using TMS and 54% are using distributed order management (DOM). These are two technologies that I think will become more critical due to the evolving nature of e-commerce and its impact on the global economy. My survey work next year will see how those adoption rates have (hopefully) grown.
- E-commerce will continue to change the way customers receive products. More people are shopping online, due to convenience, price breaks, and of course, the ability to have a product delivered anywhere at any time. More and more options have popped up over the last few years, including delivery to storage lockers and to your car (either in the parking lot or on the road). I believe we will see more innovation for safer ways to have packages delivered without the fear of theft, including more self-service options. I also think drones may finally become a viable delivery option in at least a few markets.
Mark Hurd, the CEO of Oracle, made some bold predictions for where the enterprise market is going this year at the Oracle OpenWorld Conference. These predictions are praiseworthy because they are bold and specific. In 2025, we will be able to look at the Enterprise market and see which of these predictions turned out to be right.
Prediction 1: 80% of all applications will run in the Cloud by 2025. Today, he said, 24 percent of enterprise applications are in the cloud.
Prediction 2: By 2025, Two Suite providers will have 80% of the SaaS Applications market. Further, Oracle will be one of the two.
Prediction 3: Virtually all Enterprise data will be in the Cloud by 2025.
If we were to substitute, the words “supply chain” for “enterprise,” ARC’s prediction is that Mr. Hurd has been too bullish in his predictions. I don’t think, for example, that 80% of all supply chain applications will be in the cloud by 2025.
But he is clearly right that this is where the supply chain application market is going, and that the changes are occurring fast. One reason for that is that Oracle is itself one of the largest providers of supply chain applications. As they encourage their new customers to go with cloud solutions, partially based on aggressive discounting for Cloud supply chain applications like TMS, the market share for Cloud will naturally increase.
Warehouse Automation and Robots
The market for warehouse technology, including warehouse management systems and warehouse automation and control, has been experiencing robust growth driven by changing fulfillment requirements resulting the proliferation of e-commerce around the world. The fulfillment of online orders requires increased agility and responsiveness compared to traditional replenishment methods. Practitioners have invested heavily in goods-to-person automation to effectively and efficiently meet the requirement of e-commerce fulfillment. Shuttle systems are continually maturing, becoming more agile, and increasingly being adopted. Additionally, mobile autonomous robotics have been used to a limited degree to support these processes. Until recently, Kiva Systems was the primary provider of autonomous mobile robotics for goods to person automation in the e-commerce fulfillment space. The market was disrupted when Amazon acquired Kiva for its internal operations and subsequently halted deliveries to external customers. Since then, a number of start-ups and larger automation companies have been developing mobile autonomous systems to meet these fulfillment process requirements.
ARC’s prediction for 2016 is that we will see not only one, but two or more companies bring to market and into operation mobile autonomous robotics supporting high-volume, light load, goods-to-person operations in the warehouse. Furthermore, these will be operational, reference-able commercial accounts (i.e. not academia or test cases).
Distribution Network Evolution
Distribution networks in the US and abroad continue to evolve along with global supply chains. In particular, distribution networks are evolving to better support timely fulfillment and the next day delivery demands of today’s consumers. As I stated in a prior post, structural shifts in supply chains are driving high levels of demand for warehouse capacity, supporting high levels of capital expenditures in these properties. Online retailing is one of the major factors behind the structural shift in warehouse capacity demand and the high levels of warehouse investment and investment returns.
ARC’s warehouse property prediction for 2016 is that this market will continue to substantially outpace the performance of other investment areas due to the structural changes and market pressures from the e-commerce paradigm shift. But how can you measure the accuracy of our prediction? For practical purposes, I predict that the 1 year return of the NCREIF property index Q4 2015 – Q3 2016 will be a total of 8 percent higher than the return of the S&P 500 Index (including dividends) for the same period. So if the S&P 500 total return is 4 percent, our prediction is that the NCREIF industrial property index growth will be 12 percent for the same period. This comparatively superior, and historically large growth will be driven by the fundamentals of e-commerce fulfillment requirements and real estate supply/demand imbalance, strong US imports, a strong US dollar furthering these trends, and strong investment in the US due to the strong dollar and comparatively strong economy.
“Autonomous” is a better term than “driverless” because the functionality that moves us to a fully “driverless” truck exists on a continuum. At the “simpler” end of the spectrum are features that are already widespread like being able to set your speed limit automatically or collision protection cameras that prevent an automatic guided vehicle from bumping into a human. In the middle of the continuum we might see trucks that can center themselves in their lane and follow traffic without getting too close, but require driver intervention when lane changes are required. More complex will be truck convoys that have a driver in the first truck, but other trucks in the convoy not requiring a driver. Finally, someday, a fully autonomous truck will be possible. So the key predictions, will be how fast we move up that continuum.
ARC’s prediction is that by the end 2020 we will see in the US full regulatory approval for trucks that can center themselves in their lane and follow traffic without getting too close, but require driver intervention when lane changes. In other words, for the next few years we will be more on the simple to middle of the continuum that takes us to full driverless trucks.
Uber and Freight
Transportation execution continues to be a hot topic as well, with more companies looking to handle their freight internally. Moving freight from origin to destination is a complex process, but one that companies are taking an increased look into. When it comes to freight moves, Logistics Viewpoints offers the following predictions for 2016.
- There will be an in increase in crowdsourced delivery options. These days, some company is always declaring itself the “Uber of insert industry here.” I think 2016 will be the year for the Uber of freight. There are more crowdsourced delivery options available to customers for almost any product, and 2016 will bring about an increase in the number of companies and the markets they serve.
- More companies will bring TMS in-house. Our latest omni-channel survey indicates that only 60% of respondents are currently using TMS. This represents a huge opportunity gap. With cheaper TMS solutions on the market, mostly due to less sophisticated functionality and cloud-based offerings, more companies will bring TMS functionality in house, rather than outsourcing to a 3PL.
- There will be more solutions for the SMB. From a pure-play TMS standpoint, the SMB market is still lagging behind the mid-market and enterprise markets. However, there is an emerging solution set that sits somewhere in between and MTS and TMS. We would not define them as TMS as they do not include optimization capabilities. At the same time, they are not MTS, as they do not actually offer many services. However, what these solutions do offer is a great fit for the SMB market, and that is namely transportation execution. It is a market that will be very interesting to watch in 2016 and beyond as more companies make a play in this space.