Transforming IT in Global Logistics for Strategic Advantage

March 10, 2016

Global Logistics

Information technology has always been a key part of all logistics operations. Even in the first postal or courier operations centuries ago, it wouldn’t have been possible to deliver goods to recipients without some kind of understanding where the physical items should be delivered. Fast-forward to the current day, and the information requirements are constantly increasing. Recipient information is still there, but today customers (both senders and recipients) want to know the exact status of shipments. In some cases, the recipient may want to transfer the delivery route dynamically based on his or her current location. In any case, the volumes require that delivery orders and billing are fluent and automated.

Because of this, many logistics operators are struggling. They have been implementing their information systems over decades, and the increasing – especially cross-continent – volumes cannot necessarily be handled by old systems that are possibly designed for domestic or otherwise limited use. As new customers require more and more automation (manual work is slow, error-prone and expensive), there are new requirements for public APIs that operators need to provide. Traditional batch-based information exchange may not be enough anymore, as connected customers and partners want to have everything in real-time. Depending on your age, your improvement backlog can be quite long.

Some of the players that are changing the landscape have taken a completely different approach to the logistics operations. Take Alibaba, for example. With 8.5 million sellers and massive transaction volumes, Alibaba is actually just one huge computer, integrating merchants, customers, payment providers, and logistics companies. The whole concept is based on the effective use of information technology on a scale that is hard to understand by us mortals.

Certainly, traditional players understand the need to renew. Because challenges in the physical transportation of goods are pretty well known (the same challenges have been there for centuries), they are fairly simple to understand and act upon. The only way to compete in a changing world is the use of innovative information technology, causing increasing pressure on logistics companies’ IT organizations.

The IT challenges in logistics are similar to those in any industry that heavily rely on IT. Transforming to the new century is not necessarily easy, and typical failures in renewing IT can be seen in logistics –the same failures that happen across all industries. One example is DHL’s failed New Forwarding Environment project, which had an ambitious goal of renewing just about everything. This huge project, apparently carried out with a goal to create another monolithic ERP to handle everything in one place, was terminated last year, resulting in DHL writing off 345 million Euros in costs.

So, what went wrong? My educated guess is that DHL tried to do things in a “big bang” kind of way, trying to replace everything at once. If this had worked well, it probably would have been pretty cool. But there are always huge risks associated with a big bang – things like putting the continuity of all the existing operations at risk.

A few months back I happened to watch an old Finnish educational program from the early 70’s. The program focused on providing its audience a peek into the emerging IT industry, and explaining different jobs that are available within the industry. Even though some jobs (like filling in punch cards) do not exist anymore, I remember a quote from a systems designer they had interviewed. This young guy, in his suit, sitting behind his desk with a pencil, drawing pad and a fully packed calendar, said something that brought a smile to my face. He said, “The one problem in this industry is that it is so young that all working procedures have not fully evolved. For instance, it looks like every time we are trying to do work effort estimates for a new project, we are always too optimistic… It looks like none of our projects are finished within the estimated work amount or schedule”.

That was over forty years ago, and I bet a lot of people in the IT industry will still agree.

The problem with estimating work efforts, and the risk of “big bang” kind of deployments has been understood within computer programming for a long time. In order to manage these risks, the agile software development principles have been adopted across the software industry. The basic (maybe oversimplified) idea in agile development is to create quick benefits to the customer by first creating quick, working and tested prototypes, and then incrementally add functionality to the existing solution.

Even though any software designer you encounter is most probably familiar with the concept of agile development, are you? If you are developing business, can you agree with the idea? If you are not familiar, I strongly suggest you to read the agile manifesto, and consider if this would be the correct way of developing your business. No big bang, but simple, quick changes and additions. No risking your existing business, but creating new services and products in an agile manner.

Another change in IT that has happened since that young suit was interviewed in that 70’s educational program is the substantial increase in available software components. The nature of programming is changing from building everything yourself, into integrating existing components. These components can come in the form of packaged software suites, external services exposed by your partners, or software components that you can integrate tightly in your own applications. To put it simply, today we are in a situation where it is hard to find a single problem that someone else has not yet solved. Instead of re-inventing the wheel, you can just get the wheels you like, and integrate them into your overall solution. After all, if you are going to buy a new car, but don’t like your dream car’s tires, do you end up building the whole car from scratch instead?

I encountered a sample of some innovative design when I was reading about Aalto-1 satellite, a student project of Finnish Aalto University. This nanosatellite, scheduled to launch into orbit later this year, has its own integration challenges. Without knowing too much detail, I love one specific part of its design.

In order for the satellite to communicate with the ground station, it of course needs antennas. These antennas have their own requirements – they need to fit into very small space before deployment. They need to expand reliably when in space, and they need to handle the huge vibration caused by the rocket launch.

I am sure Aalto University understands its memory metals, but I just love the way they’ve found a well-proven, cheap and resilient technology that they are using in the antennas – see this video. (If you didn’t quite grasp what those antennas are made of, I can hint that if you have ever done some renovation, and needed to measure something, you most probably have this technology in your toolbox). A beautiful example of integration proven technologies to a modern solution.

Bottom line. There are good technologies out there. In logistics IT – as in any business-critical IT – you no longer need to risk building everything from scratch. You can use the best technologies out there, integrate them as you need, and do all of this in agile manner. With this approach, you will see fast results helping your customers (and increasing your revenues), minimizing the risk to your existing operations (no big bang), and maybe, most importantly, enhance and expand your operations quickly and in a controlled manner. All this can happen, and with controllable costs.

The world is changing. Don’t be afraid to change with it.

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