A major turning point for Logistics 4.0
The pandemic crisis has made its impact felt across the whole economic system. The sharp reduction in exports and freight due to the restrictions imposed continues to affect the logistics sector: according to research by the “Gino Marchet” Contract Logistics Observatory at Milan Polytechnic’s School of Management, in 2020 the sector is expected to record losses of 9.3% in Italy with a forecast turnover of 77.8 billion euro.
[legacy-picture caption=”Marco Melacini, Scientific Director at the Contract Logistics Observatory of Milan Polytechnic” image=”142bfdbe-8526-4e18-ab33-cfabd1700d7e” align=”right”]The research reveals that “logistics companies reacted well to the emergency thanks to the ability of management to rapidly reconfigure distribution networks and share assets along the supply chain,” explains Marco Melacini, Scientific Director at the Contract Logistics Observatory.
“However, the pandemic has had a huge impact on the sector. Mergers and acquisitions were one of the worst hit areas: of the 92 negotiations closed between 2015 and 2020, involving international (in 34% of cases) and national (66%) logistics suppliers, just nine were finalised this year, compared to 16 in 2019, and the turnover of the acquired companies has also fallen significantly, from 500 million last year to the current figure of 100 million euro,” Melacini points out.
It was a sharp and uneven decline, with most sectors and sales channels experiencing a collapse in volumes during lockdown (“with the exception of e-commerce and the food and healthcare sectors”) and then robust recovery starting in June, when volumes increased by 6% compared to the same period in 2019.
[legacy-picture caption=”” image=”9afa829b-65dc-40a6-a1e7-44c9761c15c4″ align=””]The emergency put a huge strain on logistics systems (the short recovery over the summer months did not make up for the losses accumulated during the first part of the year), and the growth trend recorded up to 2019 came to a halt. But Melacini believes that, "Covid has also placed contract logistics – in other words, the outsourcing of a significant part of the logistics process to a single supplier – at the core of business strategies, highlighting the resilience of a sector that was able to withstand the impact of the pandemic and operate even in difficult conditions. Importantly, innovation is still pushing forward with many new players entering the market along with innovative solutions attracting more funding than ever before; many companies are speeding up the digitalisation of their logistics processes".
[legacy-picture caption=”Damiano Frosi, Director of the Contract Logistics Observatory at Milan Polytechnic” image=”3cc8eb3f-db3b-4a30-b44a-c626bc9a77c4″ align=”left”]A resilient reaction due, according to Damiano Frosi, Director of the Contract Logistics Observatory, to a number of key factors: "the ability to make decisions and implement them rapidly, operational and strategic flexibility, the spirit of cooperation between the various players at each stage in the supply chain and between clients and the logistics service providers".
The reaction to Covid-19
As said, logistics was one of the sectors under the greatest strain during the emergency. "Its positive response was due first and foremost to the ability of its managers."
[legacy-picture caption=”” image=”c057b1d1-997c-4f30-9076-d24d7a14be5a” align=””]"They were able to make decisions quickly and created task forces to efficiently manage the various flows," explains Frosi. "The contribution of outsourcing was fundamental, as it enabled operational capacity to rapidly be adjusted, moving staff from sectors at a standstill to others with profitable peaks in demand, and it helped to quickly reconfigure the logistics network, opening new warehouses and transporting large quantities of goods. Intermodal road-rail transport and the pooling of assets from other sectors forced to close down during lockdown, have also become standard practices."
Contract Logistics
[legacy-picture caption=”Elena Tappia, Director of the Contract Logistics Observatory at Milan Polytechnic” image=”819d04f6-deb1-4677-b308-3582b8c60153″ align=”right”]"The third-party logistics model has proved to be a strong asset and Covid-19 is giving fresh impetus to the changes that were already underway", underlines Elena Tappia, Director of the Contract Logistics Observatory. "In warehouse management, for example, there is a greater focus on the organisation of suppliers and on developing well-structured organisations with advanced HR expertise".
However, the emergency has also revealed weak points where investments and improvements will be needed to make the sector more resilient. "The boom in e-commerce and developments in traditional freight delivery routes have confirmed the need to strengthen local distribution networks," Tappia explains. "The increase in demand has also highlighted the limits of intermodal transport, which will need to be upgraded. Finally, there is greater awareness around the importance of digitalising processes and supply chain visibility.”
The agenda for 2021
In recent months, the attention of logistics managers has shifted from having to guarantee services (in the most acute phase of the pandemic) to analysing the problems that have arisen, the organisational procedures that need to be redesigned and the development of new solutions. "The priority in 2021 will be to work on those aspects that will make the logistics system more resilient in terms of its adaptability to changing circumstances, as reported by 62% of the sample analysed in our survey, followed by the introduction of solutions to digitalise processes (50%) with a particular focus on Big Data Analytics, to better track business activities and supply chain processes. There is also a greater focus on the safety of workers (38%) and on simplifying the management of logistics flows (27%), which can also be achieved by overhauling and digitalising some processes", Tappia explains.
The transformation of logistics facilities
[legacy-picture caption=”” image=”28265730-ed68-4f8c-88e9-d30906d87acd” align=””]The emergency is also shaping the transformation of logistics facilities, "to varying degrees depending on the type of warehouse (storage, fabrication or distribution, local warehouses with or without stock, fulfilment centres in urban areas). The complexity of logistics networks is increasing, with 47% of the sample involved in our research using all four types of warehouses, as well as capillary distribution networks, with 40% reporting an increase in local warehouses and sorting facilities». Covid-19 is also driving the development of the last mile. Local and sorting warehouses are undergoing transformation, micro-fulfilment centres are springing up where order picking operations are automated and integrated with transport in the last mile, and there is an increasing need for multi-channel strategies and a focus on the sustainability of warehouses thanks to automation. Tappia added: "The Observatory has mapped 2.8 million square metres of warehouse space, and we have observed that new logistics facilities are getting closer and closer to becoming carbon neutral, that is with zero carbon dioxide emissions. The difference in the level of emissions between warehouses designed more than ten years ago and new buildings or those undergoing renovation showed a variation of 60%.”
Logistics start-ups
Melacini describes as interesting and decisive "the directions in which start-ups are developing. In their pursuit of innovation, companies are following a variety of strategies such as acquiring well-established start-ups, creating their own start-up, developing an internal solution or funding start-ups outside their group.”
Let's get down to the numbers: the Observatory lists 501 logistics start-ups internationally, 57% more than in 2018, with a total funding of 9.56 billion dollars, almost double the previous year (+92%). The start-ups with the most funding are suppliers of hardware solutions for logistics activities (85, +174%), with 3.28 billion dollars raised (+913%), and new players offering innovative logistics services in terms of geography, activities or technologies (160 start-ups, +45%), with almost 3 billion dollars raised in investment (+12%). The largest group is composed of new companies developing software for the management of logistics flows, with 168 start-ups in 2020 (+115%), which received 1.86 billion dollars (+400%). Conversely, platforms that match the supply and demand of logistics services (85 start-ups, 1.42 billion dollars raised) saw a 10% decrease both in the number and in the amount of funding they received.
"Of the new logistics players," Melacini explains, "65% offer solutions for distribution in the last mile, providing home delivery in new sectors such as medicines and experimenting with environmentally efficient pick-up and delivery services using mini-cargo boxes and electric bikes, drones or automated systems, and the creation of micro-fulfilment centres. 29% propose solutions based on digitalisation and the pooling of information among the various players on the Physical Internet model, which involves modular flows and the decentralisation of decision-making, as well as on the pooling of transport, storage spaces and public spaces.”
The platforms mainly match the supply and demand of transport and storage services, comparing the alternatives available and selecting the best using algorithms that analyse such parameters as the vehicle used, the distance from the shipping point, and the volume and weight of the package to be transported. "They are exploring new areas where their solutions can be applied, such as the management and handling of empty containers, intermodal transport, or identifying parking areas for heavy goods vehicles," Melacini adds. "Most software providers offer solutions for Supply Chain Visibility (65 start-ups) and Inventory & Order Management (35 start-ups), which together have raised 460 million dollars in funding."
To conclude, it emerges that the new frontiers for start-ups specialised in hardware solutions "include mainly smart vehicles (31 start-ups) and warehouse robotics (21), which together represent 61% of the start-ups in this category and received 97% of funding in hardware (3.18 billion dollars)", Melacini points out.
Big Data Analytics in logistics
[legacy-picture caption=”” image=”5720f292-c073-4c40-b014-48c22d916c8d” align=””]The last "secret" that helped companies react to the challenges of the emergency is Big Data Analytics. How did they do that? "By speeding up the introduction of technologies and making it possible for processes to be re-designed, especially for inventory management and demand forecasting," explains Melacini. "These solutions can be applied in warehouses, transport and supply chain processes.” In his opinion, Big Data Analytics applications have three main functions in improving logistics processes: "Descriptive, in other words the ability to describe the process under analysis, monitor progress and identify the current state; Predictive is the function that can foresee the trend of a significant variable over time; Prescriptive is the ability to support those who manage a specific activity and eventually replace them if necessary».