What is the common success factor between a major semiconductor manufacturer, a global logistics provider, a high-profit cargo airline and the biggest courier in one of the fastest growing EU member - countries? Big data!
NXP, Brussels Airlines, Speedy and Transmetrics presented their success stories during an exciting conference organized at Vlerick Business School. Information is one of the three main flows within every supply chain. Nowadays the information flow is mostly represented by data exchanged between different supply chain technology systems. Growth in the amount of data exchanged, usage of integrated supply chain systems and success in the logistics industry are tied in a reinforcing causal loop that drives innovation within the industry. Investments in low cost and short life cycle technologies will ensure that logistics companies decrease complexity of their information systems. Simple dedicated services allow high level of agility thought easier adoption of disruptive technologies and deprecation of legacy features.
NXP Using Big Data to Manage Disruption
Supply chain planning, forecasting and optimization are companywide efforts and include input from all functional areas. Moreover, the increasing usage of ERP, TMS, WMS and BI systems influences the positive effects of integrating data from different systems to facilitate better supply and demand matching. Evelien Klein presented the case of transforming NXP’s S&OP planning process by using systems integration. NXP is the 5th largest semiconductor manufacturer with the mission to contribute to a smart and connected world. In the past, NXP had decentralized planning organization without a dedicated demand manager. This prevented the company to capture on time the demand signals and supply the right products at the right time. After transformation of its forecasting process the company has integrated systems with a central data repository. NXP is now focused on strategic and holistic ways of forecasting. The new approach of forecasting allows the company to account for real-time demand changes in case of market changes such as the recent product failure of the Samsung Galaxy Note S7. The integration across departments and systems allows the company to account for demand changes based on forecasting of other products that may overtake the market share of the failed product. The usage of a common data repository across information systems increases the volume of data used and adds complexity to the statistical methods used to analyze it. NXP’s case is an excellent example for successfully handling the complex process of unifying business systems. The process of integrating complex business systems poses threads such as decreased profitability increased IT costs and increased complexity, all of which suffocate innovation. Therefore, the companies have to ensure agility and room for further improvement in their systems.
Transforming Logistics Company into Technology Company
Digitization and increased information systems usage across functional and geographical areas of international organizations accelerate the amount of input data used to make business decisions. Tim Fredholm presented his experience on dealing with increasing amount of data from the CFO’s perspective. Most of Mr. Fredholm’s experience has been at the C-level suite of logistics companies. During his professional experience, data served a different role than the one at NXP and its volume represented different challenges. In the supply chain business, from financial perspective, data poses two challenges. Firstly, data is supposed to serve as a business decision-making tool. However, the greater the volume of data and the higher the complexity of the algorithms used to interpret it, the more difficult it becomes for business decision makers to verify the accuracy of the information they have. According to Mr. Fredholm, management meetings will often become not about making decisions, but arguments on whether the information to base the decision on is correct. Secondly, the more the volume of data increases, the more expensive it becomes to manage it. Therefore, the question for the financial department is whether to invest in data and information technology or whether to invest in the core competence of being a supply chain or logistics company. The increasing data volume drives a new focus of the logistics companies on information technology. Focusing on information technology will help logistics companies improve automation of processes and introduce disruptive technologies such as Internet of Things and block chain. Therefore, information technology is the main tool to bring logistics companies to Industry 4.0 and make their supply chains more agile, efficient and integrated with customers and business partners.
Brussel Airlines and DPD achieving high capacity forecast accuracy
Logistics companies are transforming into technology companies that perform logistics services. Last in the conference two logistics companies presented their success stories of how they managed to turn around their business with better capacity utilization based on information technology.
Brussels airlines was not profitable in 2013 but managed to turn around in two years and make substantial profit in a low profit margin and very competitive industry. The key to profitability in the airline industry is ensuring high load factors for airplanes. Therefore, the airlines overbook capacity to mitigate the risk of “no shows”. However, the air cargo customers have a conflicting interest and do not want to be on the overbooked list. According to an IATA report, air cargo represents 35% of the total value of the transported goods and only 1% of their volume. When transporting high value products, speed is the most important logistics factor. Brussels airlines successfully optimizes capacity without hurting customer experience by overbooking flights. The strategy of the company is to make short-term and long-term capacity forecasts by using trend-analysis. The company achieves high capacity forecast accuracy by using external and internal factors in the two types of forecasts. The accurate capacity forecast ensures full airplanes and short wait times for its customers.
Transmetrics and Speedy (member of DPD Group) presented a case for line haul capacity optimization. Speedy is the largest courier company in Bulgaria. It has multiple distribution centers across the country and in the neighboring Romania and Greece. The purpose of the case is to optimize linehaul capacity utilization for routes between the hubs of the company. A major problem the company faces is to forecast demand variability effectively and in real time. The Bulgarian market is unique in terms of demand changes based on winter peak season, e-commerce growth and public holiday-peaks. The Transmetrics software deployed at Speedy allows the company to use internal and external data sources to forecast demand accurately. Based on the demand forecast the software will apply network optimization model to plan the total capacity needed to support the linehaul routes on a daily basis. The optimized network will allow the company to utilize the capacity of its trucks, by allowing for better fullness and decreasing the number of trucks to fulfill demand.
In conclusion, the success of logistics companies will increasingly depend on the reinforcing causal loop created between data and technology. Improvements in information systems make access to data easier. The easier access to data motivates companies to gather more data inputs. More data requires more complex information systems to manage it. The improved systems and data help companies make better decisions for more efficient and effective supply chains. The accuracy of data, the cost of managing and investing in complex information technology are new challenges that logistics companies will have to manage. Integrating already complex business systems into even more complex technology or embracing one end-to-end system may be good solution for some companies. However, the introduction of disruptive technologies such as block chain, Internet of Things, robotics and autonomous vehicles requires agile information technology that allows very fast adoption of innovation. As the companies are moving towards Industry 4.0, they will be giving up complex integrated systems and adopting specialized micro services that will facilitate innovation through flexibility, low cost, better data management and short life cycles.