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5 Obstacles Impeding the Adoption of Automation by the Logistics Sector
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Digital Transformation has propelled technologies and innovation in Logistics. Artificial Intelligence is taking charge of a number of repetitive logistics tasks. Organizations are benefiting from Automation in streamlining their cumbersome processes and cutting down delivery times.
Automation is profoundly affecting the way Logistics are handled. It is disrupting the entire Logistics Supply Chain, not just the warehousing, picking, and sorting functions. The impact of Automation on roads, rails, and ports is immense. Ports are increasingly embracing Automation, but they haven’t yet started getting the return on their investments.
In Logistics, ocean and air shipment has potential for Automation—which is certainly under way—but its effect on enhancing throughput is yet to be seen. Logistics operations are being transformed at quite a pace with new models, concepts, and offerings evolving rapidly. With the current pace of technology evolution, experts believe Logistics operations would be done autonomously in the not too-distant future.
New technologies enabling Automation of the Supply Chain are continuously being evolved, with many in the pilot testing phase. However, Supply Chain businesses are largely hesitant and confused on investing in Automation. This is mainly because it is a bit unpredictable as to which potentially feasible prototypes will emerge as widespread technologies and generate positive return on investment and which ones will become obsolete within a short timeframe.
With the proliferation of E-commerce and worsening shortage of labor due to the pandemic, Automation is being viewed by many Logistics companies to be the only option to prepare for the future. However, they are quite conservative in accomplishing this owing to the risks associated with the transaction.
According to McKinsey’s research, the adoption rate of Automation in the Logistics sector will remain sluggish at ~3 to 5% annually till 2025. Such a slow rate of uptake for Automation by the Logistic sector globally is attributed to 5 main obstacles.
- Coopetition between Logistics and E-commerce
- Uncertainty of Emerging Technologies
- Issues with Automation Manufacturers
- Increasing Complexity with Fulfillment
- Risk of Short-term Contracts
Let’s talk about these obstacles in detail.
Coopetition between Logistics and E-commerce
The growth of the online retail sector is quite lucrative for Logistics companies. However, the unusual dynamics between the online retailers and Logistics companies cause some critical challenges for the latter, including:
- To gain a sizable share in this market, Logistics firms need to have 2 critical competencies: speed and variety. These 2 competencies often become a major shortcoming for the Logistics operators—e.g., managing delivery of thousands of products out of a multitude of SKUs daily (on same-day delivery term).
- Excess buying power of online retailers allows them to switch from one logistic operator to the other if they do not fancy their offer. This keeps the rates, revenues, and returns on Automation investment low for logistics companies.
- Large e-commerce retailers (e.g., Amazon) have their own Logistics units, allowing them to offer white-label products, which further shadows the offerings of Logistics companies.
- Large online retailers can easily establish warehouses in far-off areas, in addition to, offering instant and same-day delivery services—which isn’t straightforward for Logistics companies.
- Large online retailers have seasonal demand shifts—highest during Valentine’s Day or Christmas. To serve e-tailers during seasonal peaks, Logistics companies need to maintain excess capacity at all times, which isn’t affordable for many Logistics firms.
Uncertainty of Emerging Technologies
The unpredictable impact and future of the Logistics Automation technology is another major obstacle in its acceptance and implementation.
Interested in learning more about the other obstacles and challenges in the adoption of Automation in the Logistics sector? You can download an editable PowerPoint presentation on 5 Obstacles Hampering Logistics Automation here on the Flevy documents marketplace.
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Supply Chain Management (SCM) is the design, planning, execution, control, and monitoring of Supply Chain activities. It also captures the management of the flow of goods and services.
In February of 2020, COVID-19 disrupted—and in many cases halted—global Supply Chains, revealing just how fragile they have become. By April, many countries experienced declines of over 40% in domestic and international trade.
COVID-19 has likewise changed how Supply Chain Executives approach and think about SCM. In the pre-COVID-19 era of globalization, the objective was to be Lean and Cost-effective. In the post-COVID-19 world, companies must now focus on making their Supply Chains Resilient, Agile, and Smart. Additional trends include Digitization, Sustainability, and Manufacturing Reshoring.
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About Mark BridgesMark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.
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