From flying shuttles to rolling robots, automated supply chains are almost here

Emerging technologies prepare the ground for the autonomous world, including the unmanned supply chain with many benefits but also risks to be mitigated. The main challenge and responsibility for the leaders of today is to capture the benefits while finding meaningful activity for all of us.

ASCFrom Amazon’s delivery drones to self-driving cars, autonomous factory equipment to Elon Musk’s 760 mph vacuum tubes – automated vehicles are on the rise.

Even beyond the grounds of private companies, tests of automated transport have been successful. A truck platooning system, in which groups of two or three “smart trucks” travel closely behind one another communicating wirelessly, arrived in Rotterdam in April. The Ministry of Transport in Singapore seeks proposals to develop something similar.

Also in Singapore, Airbus is pursuing an autonomous air taxi project to deliver parcels to ships in the port. On the water, the cargo ships of the future are expected to be crewless and remote-controlled.

The so-called “last mile”, delivery to the doorsteps of businesses and consumers, is probably the most complex task in the supply chain – especially in busy urban environments full of cars, bicycles and children playing in the streets. Intelligent self-driving vehicles can transport up to 100 pounds. In Paris, two entrepreneurs are building a flying river shuttle that will bypass traffic by travelling above the Seine.

Raw materials can now be extracted in automated mines; they then reach the smart factory 4.0 and are transported from there by wireless truck or delivery drone to the automated distribution centres of retailers or the smart boxes of individual consumers.

The point? The autonomous end-to-end supply chain is almost complete.

Automatic benefit

Automation in the world of logistics will create enormous opportunities when it comes to making the flow of goods safer, more efficient and more environmentally friendly. Self-driving cars alone would reduce accidents by 70%, improve fuel efficiency by 20%, and save about 1.2 billion hours of driving time over a period of 10 years. Less congestion will make the flow of goods and people faster – and those countries with driver shortages, such as the United States, United Kingdom and Germany, will find relief.

The improvements do not come without challenges, however. One key concern is cyber risk. We need to ensure that autonomous units cannot be hacked. Also ethical questions need to be answered – how to decide whom a vehicle is supposed to save in case of an accident, for example. Policy-makers also need to consider the impact on jobs: where to start, where to slow down the autonomous economy to avoid unwanted consequences, starting with unemployment.

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The autonomous movement, which began in the early 1950s, is now in full swing. Of 1,433 consumers surveyed in the US, 70% think they will order the first drone-delivered package within the next five years. The majority of policy-makers (88%) expect autonomous vehicles to gradually become a reality within the next 10 years, based on a recent worldwide self-driving vehicle study by the World Economic Forum.

According to the same survey, 60% of policy-makers expect a ban on private cars in cities over the next 15 years. And this might not be limited to private vehicles: over time cities will further regulate goods deliveries, which are one of the main causes of daytime congestion. Therefore, not only transportation companies, but also shippers need to prepare for an autonomous future.

Capturing the full potential of the automated supply chain requires rethinking entire logistics systems. There will be an evolution from the fixed “collect in the evening and deliver during the morning” approach to a fluid system of continuous movement and supply. Platoons, drones, tunnels, tubes, rolling robots and automated warehouses make the constant flow possible.

But this requires flexibility and innovation on the operator level, as well as investments in technology and infrastructure. It requires close collaboration between not just manufacturers, retailers and developers, but policy-makers and the citizens themselves.

Image: REUTERS/Wolfgang Rattay

This blog was originally posted on the World Economic Forum Agenda.

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How the cloud makes central planning a reality

Imagine the delivery of the hairdryer you ordered 18 hours ago was planned in a center 5,000 kilometres away – roughly the distance between Warsaw in Poland and Kashgar in China. Impossible? In fact, this is not a far-fetched fiction but soon to come reality.

Since the 1980s, the personal computer has helped businesses to plan and control many activities locally – from sending mass mailings to local customers to the managing of inventories and orders. The decentralized planning has helped to make products cheaper and more adapted to the local situation. For example the Spanish subsidiary of a global transportation company has replaced the 9am global service by a 10am local delivery option, as more people are expected to be in the office at that time. However, these local advantages pose major challenges to the international standards multinational customers expect from global brands. Therefore, global brands require central planning and control, which is back on the agenda – thanks to the internet and the cloud.

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How can the cloud bring the planning back to the center? While the personal computer helped create enormous efficiencies in almost each and every unit of a business, the cloud will surpass its abilities and ease the work of those charged with ensuring global standards and organisational efficiencies. The cloud is the place where all relevant data, information and applications can be stored available for all – locally and at the center – who have the necessary access rights. With easy to access storage capacity provided by providers like Amazon and IBM, the cloud offers an almost unlimited range of tools and databases – not only to the large but also to the small and mid-sized enterprises. This brings enormous advantages to the world of the so-called global supply chain.

It is the supply chain bringing the goods, ranging from food and medicines to the above mentioned hairdryers, to the supermarkets and stores, as well as everything that is needed to factories and other businesses and organizations. Thanks to the road and rail systems, water ways and air corridors, bilateral and multilateral trade agreements, this chain of continuous flows spans across borders and continents, cuts across international manufacturing networks and multiple distribution hubs and centres.

Today materials and parts are treated and transformed – in various stages and different locations on the globe – into an unprecedented variety of products. These goods are delivered globally, whether to consumers in the metropolitan areas like New York and Mumbai or to factories in the South African city of Uitenhage and in the province of Bac Ninh in Vietnam. This highly proliferated, and at the same time dense, global labyrinth of flow of goods is also exposed to many potential risks and disruptions.

The more precisely this supply chain is understood, i.e. described, analysed and planned, the higher the chance of smooth delivery and proper responses to market dynamics and unexpected shocks. Although the cloud allows the collection of data from stations, customers and situations all over the world, whether in the most distant corner of sub-Saharan Africa, the tip of South America or the tiniest island in the Philippines, only a central team closely collaborating with the country organisations might be capable of capturing the trends, threats and opportunities to determine quickly the most appropriate response.

How does the central way of supply chain planning and management work in practice? Each time when, for example, delivery plans are needed, the order requirements for customers are uploaded to the cloud. There, a powerful computing unit, utilising multiple parallel processors – called the optimisation engine – generates delivery plans satisfying the many constraints imposed by weather and climate, geographic and traffic situation, as well as the delivery location, which could be on the 45th floor in a high rise in Hong Kong or at a tiny farm on an island in Indonesia.

The optimisation engine evaluates alternative ways of transport and determines the best options for delivery. These optimized plans are then transferred to computers or tablets at decentralised warehouses where the orders are loaded to reach the buyers by road, boat or planes. In real-time and constantly the data about the moving of these goods can be collected and analysed to preserve the highest level of central control and chance of an on-time delivery. Furthermore, all data and analysis – including information about the status of production in the factories of possibly thousands of suppliers, as well as the actuals versus the sales plans of the many employed or serviced third-party sales teams – can represent valuable input for upcoming planning cycles.

The benefits of central planning are more than obvious: compliance with global standards, better forecasting, cost and carbon optimized routes, reduced hiring and training costs, and higher customer satisfaction and lower recovery costs through better quality control and more appropriate and timely responses to irregularities and disruptions.

Therefore, the next revolution in the supply chain will be the central orchestration team which collaborates closely across entire organisations to establish full visibility and ensure well informed decision-making. Applying predictive analytics and artificial intelligence will enable manufacturers, traders and logistics companies to receive clear predictions in respect to potential disruptions and even more so recommendations to store hairdryers at specific quantities and the perfect location – possibly long before we even thought about placing the order 18 hours ago.

This blog was originally posted on the World Economic Forum Agenda.

China: Yesterday, Today and Tomorrow

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Over the last three decades, the relentless rise of China’s export-driven economy has changed the face of world commerce. But China is now in flux as its economy transitions into a new stage of development, rendering the assumptions of yester-year obsolete. Tomorrow’s China will be a very different place, creating new opportunities, with new risks for manufacturers, traders, banks as well as supply chain and other service providers.

This whitepaper has been published at Transport Intelligence on 20 September 2013.

 

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CVA – Corporate Value Associates, a global strategy boutique, tracks critical trends in consumer and customer behaviour, companies, capital markets, infrastructure investment, government and social policy. CVA uses this information to help evaluate and forecast economic growth, and identify and capture opportunities by designing strategies and implementation plans that create value for companies around the globe.

Bruno Salle, Managing Director (Asia-Pacific) at CVA, believes the current slowing of GDP growth is part of a natural, needed rebalancing of China’s economy. “China is moving from an economy where growth was overly reliant on investment and exports to one where internal, private consumption is becoming one of the key drivers of growth,” he says. “This is a major structural transformation. Exports are – and will remain – an important contributor to China‘s economy. But the focus of growth is shifting from construction and manufacturing to more services, innovation and consumerism”.

First and foremost, China’s next stage of economic evolution will mean slower GDP growth rates. Reliance on exports and foreign investment will decline and the economy will be rebalanced to reflect the spiralling number of middle class consumers. These buyers will continue to grow in confidence and sophistication, driven by quality of living rather than just price. “The current slowdown isn’t the end of Chinese growth,” explains Salle. “It’s the start of growth that is not primarily bound to exports and heavy industry. But this is a process still in its infancy and it is important it is viewed in this context. It will take some time until a clear picture of China emerges, but there are clear trends evident already.”
Certainly, government policy makers are already leaving more and more decisions to the market. We also expect to see the rise of large private enterprises, the quality of suppliers of most products and services to broaden, and more determined steps taken to tackle corruption. The winning state-owned enterprises will need to learn to be more market driven as competition becomes increasingly fierce and government more transparent. Logistics value chains will largely be shaped by China’s inland development, the embrace of e-commerce and evolving international trade flows, particularly on intra-Asia lanes as China’s trade with neighbouring emerging markets continues to grow. Together, these three trends will bolster the logistics and supply chain business in China.

China‘s relatively strong road, rail, air and communication networks, large and flexible labour force and manufacturing know-how, particularly in the area of mass production, will remain major draws for producers of all shades. But the high cost of land and rising cost of labour on the coast, allied to growing domestic demand, will accelerate the shift inland of non-premium manufacturing. “The government is promoting the development of middle and western China, so foreign investors will face diminishing preferential policies in coastal areas,” expects Jian Lou, Partner (China) at CVA. “As businesses adapt to higher costs, new innovative business models will emerge.” China will transfer best practices to hinterlands, take more control of its own production standards and make greater efforts to protect intellectual property rights. However, Chinese refinements of western researched, designed and manufactured products will remain a concern.

China’s restructuring will have a major impact on logistics needs and demands. The market will, for example, become more specialised by industry sector and mode. Consolidation can also be expected, and logistics companies will be forced to continue expanding networks as markets move to Northern and Western China. The more balanced manufacturing landscape in China will bring more balanced flows and should therefore result in better capacity utilisation and lower costs for carriers, logistics companies, shippers, as well as buyers and consumers in China and worldwide. But extracting the full benefits and value of making this transition will require new skills and ways of operating transportation businesses and networks.

E-tailing is a standout Chinese success story. Massive investments in e-commerce businesses and IT has opened new markets beyond the tier one and two cities in China. E-commerce has also driven demand for Chinese products in other parts of the world, such as Russia and Brazil. This is creating vast new internal and international distribution requirements and is having a major impact on the logistics value chain. Backing up this success within China will require higher delivery standards and more efficiency. In international markets, e-commerce companies and logistics providers are facing major challenges in customs clearance and finding the appropriate delivery platform. These trade and business obstacles also need to be overcome. “The transfer and adaptation of best practises from the West will be as important as bridging the gap in business practises and culture between the different markets,” says Lou. “Leveraging the knowledge of experts and companies experienced in this field will be critical to success.”

The renminbi (RMB) is gradually being internationalised, paving the way for even more efficient commerce, particularly between Asian countries. Indeed, intra-Asian travel and trade is expected to prosper, not least as ASEAN member countries create a new free trade area from 2015. China will not only seek to bolster its regional influence, but look as well to emerging markets in Africa, South America and the Middle East, where it has already forged relationships through its huge consumption of commodities and investment in infrastructure. Logistics players focusing on intra-Asian flows and emerging markets will benefit from these developments.

A paradigm ‘thought’ shift in China among citizens and policy makers will be a key driver in a gradually growing embrace of environmentalism and Corporate Social Responsibility by individuals and State. This, in conjunction with the increasing enforcement of laws and operating standards, will impact the choice of equipment and the way logistics players operate. Companies need to be aware of all the trends and changes and need to assess the relevance of these developments for the future operating requirements and business plans.

All participants in the logistics value chain need to adjust to the changing landscape. The attractiveness of the logistics offer to shippers and supply chain customers is a function of all components of the logistics value chain, including information, security and inland transport to, for example, ports in respect of price, time and quality. Logistics companies will look for the optimal value proposition at river ports, seaports and airports and will go where they can make the best margins when serving their customers in an increasingly competitive market. While larger logistics players will act strategically to serve their more sophisticated buyers, smaller transportation and logistics companies will go wherever they get the best offers from brokers and consolidators.

Overall, increasing sophistication in the logistics value chain can be expected, which represents a major opportunity for those players which prepare best, and a major risk for those who do not. It will be a challenging journey for all participants and much of the path remains unclear. What is clear, however, is that companies wishing to win and grow in China need to deeply understand China’s international economic dependencies and interdependencies of internal markets, including government views and plans. For example, expanding business or moving production into China’s interior requires a deep knowledge of different cities, verticals, customers and competitors – local and foreign – if all options are to be properly assessed and the no regrets and best value option moves identified and successfully executed.

China will remain an opportunity to diversify business portfolios and overtake even larger competitors for companies which have the necessary insights. For those who do not, it will be a harsh proving ground.

“It might take time for China‘s economic output to shift from growth in manufacturing and construction to economic growth built on services and innovation and domestic consumption,” says Salle. “What should be remembered is that China has been able to weather and overcome huge economic, social and political challenges and manage far reaching reforms throughout its history, including over the last three decades.” There is no reason to think it will not be able to do so again and again.