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How integrated IT platforms can increase efficiency in the logistics sector

Urban logistics is more dynamic than ever before: Our cities are growing; we’re ordering TVs, pizza and even our sofa online; sensors can tell when recycling containers need to be emptied; new demands from online shoppers, such as for fast and flexible delivery, are increasingly being copied by local companies and even the restaurant trade. Every month a new startup surprises us with innovative solutions for the delivery, collection or storage of goods. In short, logistics is increasingly influencing the evolution of the modern city.

If we look at urban logistics as a complete system, one of the things we find is that goods deliveries are growing increasingly complex while the efficiency of the logistics network is actually declining. Established and up-and-coming providers alike are increasingly making direct deliveries, and average vehicle loads as well as consignment sizes are falling as a result. In three out of ten cases, direct delivery to consumers is unsuccessful at the first attempt, and the number of complex and expensive return consignments is steadily on the rise too. All of this ultimately leads to larger vehicle fleets and a bigger environmental impact.

At the same time, sensor technology or dynamic route optimization are not being used enough to enable logistics firms to switch from delivering along fixed routes to flexibly making the trips that are actually necessary. And though experts, trade associations and logistics providers may publicly profess that cooperation is a key driver of innovation in urban logistics, what we find in reality is that ambitious projects involving numerous participants far too often fail to get beyond the test stages. There are many ideas circulating on new technologies and concepts and various schemes being trialed, such as decentralized warehouses or aggregating goods flows, but there’s been no scaling so far: Urban logistics today functions the same way as it did decades ago – only the volumes are significantly larger now, and they are steadily growing.

Whether logistics in our cities could be better organized is one of the central questions occupying minds in the sector. An analysis by Civitas, a network of European cities, calculated that there are between 300 and 400 goods transports per 1,000 people per day. And that has consequences. In Germany, for example, almost one fifth of city-center, traffic-related NO2 emissions are attributable to commercial vehicles, according to figures from the Federal Environment Ministry. But beyond the issue of environmental damage, logistics companies are constantly looking for ways to improve their business, despite record volumes, due to the chronically low margins in the industry.

We are convinced that if it were possible to pool the innovation capacity of all urban logistics players, the sector would be able to tap a huge amount of efficiency potential. Central to this is the genuine integration of the system – initiated and controlled by a city that is actively shaping its evolution.

The key to a solution: Thinking of urban logistics as a whole

Let’s imagine how it would work: A city builds an ecosystem in which the various logistics players are all interconnected with one another. Three things are necessary for that to happen. 1) All relevant market participants – from large carriers to bicycle couriers – record their delivery capacities in a central IT platform. 2) This platform makes it possible to establish digital, physical and operational connectivity between the players and to control their actions. 3) All of the involved parties agree on certain IT standards, and ideally on shipment sizes that are modular so that they can be flexibly combined to enable the interconnection of the different parties to run smoothly.

A central platform of this kind would therefore know all of the transport capacities available in the city – in real time and, what’s more, in advance. If you then feed demand into this system, you hold the key to enabling efficiency gains in the logistics sector. The ideal transport capacity would be assigned to each consignment – whether large and planned in advance or small and last minute. Established parcel delivery companies would be just as much a part of this system as taxis doing courier trips or trucks delivering to retailers, which instead of returning empty could collect cardboard packaging for recycling. With actual traffic planned in real time, it becomes possible to manage daily flows and also to react to additional volumes or any disruptions. And this maximum conceivable transparency around supply chains means that the urban logistics network will genuinely be as efficient as it can be.

That may sound utopian. But the real-life success of this kind of approach involving an intricately interconnected logistics ecosystem is demonstrated not just by the numerous startups operating through platforms but even more so by the behemoth that is Amazon. The American retail, technology and logistics giant has built up an infrastructure that enables it to determine and accurately forecast all of its logistics demand in real time. Amazon has an exact overview of its value chain at all times and builds its own urban supply chains wherever it can’t rely on partners to meet the standard it requires. However, the Amazon system only works where there are sufficient volumes along with prespecified size and delivery standards. Because Amazon does not accept any external volumes, the system is limited geographically and in terms of type of goods. But even that is changing: Since the end of June 2020, Amazon has also been picking up and delivering parcels for third parties in the UK – and it’s to be expected that this model will be rolled out internationally.

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