Digitization of the Supply Chain means Mechanization of the Process

Posted on: July 20, 2023

Why is there so much talk about Digitization in the forwarding and supply chain space? Well, the key is that data moves freight and incorrect or missing data disrupts the movement of goods. Digitizing the process is much like developing a machine to handle the process, similar to how we use machines in manufacturing. The result is increased efficiency, consistency, and predictability. 

Digitization does not imply job losses – on the contrary. In fact, there will be more jobs requiring uniquely human skills, such as problem solving and education. These jobs involve determining what is feasible and setting up processes to meet the end customer’s specific needs and precise requirements. They also involve stepping in when things go awry and devising creative solutions to problems – also known as expediting freight.

What disappears with digitization are the tedious administrative tasks that involve repeatedly inputting data onto screens to generate forms. This is where errors occur or users lack the time to complete everything. 

Several components must be in place for the forwarding and supply chain process to succeed:

1). Quotes to Cash. The Sales Process must seamlessly integrate with the Operations Process, which then flows smoothly into the Accounting Process. This ensures that a salesperson’s quotes to the customer align with what the customer actually gets. Due to distance, timing, and the huge volume of available information, shipments are often set up roughly the way the customer desires and expects, but not always precisely. The discrepancy arises because humans are involved and they rely on their current knowledge when setting up shipments. This is the gap that needs to be addressed. 

If the rate quoted to a customer becomes the data set driving the shipment set-up (e.g., matching Origin, Destination, Via Port, etc.) then the shipment will exactly match the quoted rate every single time. This is the distinction between a mechanized process and a human process: using the mechanized process, the outcome is consistently as directed. This is similar to how machine manufacturing replaced human manufacturing in the physical production process many years ago. 

Lastly, the operations / booking process defines the volume of business, such as the weight (KGS), volume (CBMs), or the type and quantity of containers. Consequently, the accounting process becomes Rate x Quantity = Invoice. It is pretty straightforward and highly predictable, unlike the current state of the industry with an estimated 60% accuracy rate for freight invoices.

Why is this important? Beyond the obvious value of accuracy, there is a commercial value. NVOCCs, Forwarders, and other providers who can demonstrate accuracy through a mechanized and verifiable process gain a demonstrable advantage over competitors lacking that capacity. Frustrated customers are frequently let down in spite of the industry’s numerous claims and assurances, and they are eagerly waiting for providers who can differentiate themselves by being 100% reliable.

2). The second major part of the process that requires mechanization is Process Coordination. The rates set up the high-level framework, but the process now needs to be put into action. Each step of the process must be communicated to the underlying vendors responsible for transporting the freight. Who will be the ocean or air carrier? Who will do the pick-up? What is the pick-up timing and location? 

All this information needs to be documented and sent to the relevant parties. It resembles a complex dance where not everyone can always say “yes” to everything, so coordination is required. If this isn’t done, everything grinds to a halt.

Hence, the system must outline precisely what needs to be done, by whom, when, and where. This is Event Management.  While rates determine the shipment’s overall type and route, specific actions must be implemented. Timing is crucial. Did the action of instructing the vendor take place? And has the vendor successfully completed the action?

This is a lot like manufacturing on an assembly line, with everyone working together. Each time goods move to the next step; the first action is to confirm that the preceding action occurred according to specifications. If not, corrective action must be taken immediately. 

Only items requiring corrective action need human intervention. This approach is known as Management by Exception and is a well-known aspect of the quality manufacturing process, where humans provide critical input that machines, including “Artificial Intelligence”, cannot replicate. 

Digitization of the Supply Chain process is equivalent to the mechanization of the manufacturing process.  We are essentially “assembling” a shipment service as we move through the process. Mechanization is now needed to ensure consistent outcomes based on the customer’s specific order, making the supply chain predictable.

The next steps do not involve Artificial Intelligence but rather Automation.  How can the shipment set-up be automated based on predefined outcomes? We will delve further into this topic in our next article.

Logistic and Supply Chain Management | Trade Cash

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Logistic and Supply Chain Management | Trade Cash

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