Logistics automation incentives switch from cost-cutting to value addition

Logistics automation incentives switch from cost-cutting to value addition

Automation is a scary word, never more so in a time when reduced demand for products is inducing cost-cutting at many organizations, but the drivers for investment in logistics automation may be subtly shifting away from those purely aimed at reducing staff. Photo credit: Shutterstock.com.

As they look to manage costs amid the coronavirus disease 2019 (COVID-19) pandemic, cargo owners and logistics providers are looking to automation to accomplish more than just cutting down on employees’ repetitive tasks.

Investment in such technology needs to help those companies win business, double down on customer engagement, or amplify adjacent investments in software, third-party logistics providers (3PLs) and solutions providers told JOC.com. 

While it’s clear that automation helps logistics providers reduce the time their employees spend on repetitive tasks, the incentives to invest in automation go beyond that simple threshold. 

In other words, if increased productivity was previously the chief selling point for automation, now it’s table stakes.

Robotic process automation (RPA), often called bots, refers to a type of program that emulates the work done by humans, especially as it relates to a specific process within a broader system. RPA was an increasingly hot topic throughout the logistics space prior to the COVID-19. Investment in it is likely to accelerate due to the COVID-19 pandemic as companies consider how to keep operating with reduced or existing staff levels.

Low value in rote tasks

“Something that’s automatically moving information between different systems, it will be more accurate,” Russ Felker, chief technology officer at freight broker and 3PL GlobalTranz, told JOC.com. The Phoenix-based company has been relying to a greater degree on RPA over the past five months as part of an initiative that predated the COVID-19 crisis. “And you get efficiency gains from automation, but the biggest thing we get is that it’s freeing up the time to be more strategic and more relationship-based than they are doing these rote tasks.”

The need to better position people to connect with customers and partners has been pushed even more to the fore by the COVID-19 pandemic, where Felker said it’s clear that “relationships are what makes a business solid, in a boom or a bust.”

“The ups and downs are made better by the quality of the relationships,” he said. “Automation frees up people to be with customers [virtually] and that’s the biggest benefit, even if that seems like a soft benefit.”

GlobalTranz’s internal investment into automation shows in the reduction of staff time devoted to addressing manual processes, specifically gathering track-and- trace information from carriers to input into its own system.

Before building bots to automate the collection of that information, Felker said GlobalTranz estimates it devoted 139 days' worth of time annually, per person, to pulling track-and-trace information.

“Even if it takes us 20 days to retrain an employee to do something else, that’s still 120 days we’ve gotten back,” he said. “GlobalTranz has continued to sign business [since the COVID-19 outbreak]. RPA has provided a way to keep that growth without having to add staff.”

Mark Suster, a Los Angeles-based venture capitalist who heads Upfront Ventures, said investment in enterprise technology can no longer be solely tied to productivity gains due to the new economics of COVID-19.

“In bullish markets, executives are paid to innovate,” Suster said in a presentation at SaaStr’s annual conference, which the company held virtually in late April. “But in bearish markets, you’re not paid to innovate. You’re paid to consolidate and cut costs. In the past, you may have seen companies talk about productivity gains. But honestly, productivity gains are so last year. Can your product change operations given the changed environment people will operate in?”

Suster named “monitoring people and assets remotely” and products that enable distributed operations as two areas that will logically get attention as a result of COVID-19.

More than labor cost arbitrage

To understand the extent to which automation technology is no longer solely a way to reduce hours associated with a particular task, it’s instructive to look at companies in Asia, where low labor costs have long been a hurdle toward automation adoption. If labor costs are low, companies can hire people at cheap salaries to do manual data entry.

One technology provider that works with forwarders told JOC.com that forwarders in Asia aren’t turning to process automation to cut staff, but because of a wider business imperative.

“It’s not about cost savings,” said Brian Glick, CEO of systems integration specialist Chain.io. “It’s about that you can’t actually function as a business if the connections between your systems aren’t automated. It’s time and data accuracy issues. You can’t be rekeying information from a [purchase order] management system into a [transportation management system]. That’s the driver of automation: not that it costs me money, but that it costs me business.”

Put another way, the time spent manually keying information between systems creates friction that hampers sales opportunities and customer service interactions for logistics services providers (LSP). If an LSP can quote faster or update a shipper on cargo location more quickly, not to mention more accurately, then it can win and retain business. 

Cory Margand, CEO of freight rate marketplace SimpliShip, told JOC.com that requires forwarders to rethink two things: their customer acquisition cost (CAC) and their customer experience. Those companies that use technology to reduce their CAC and reimagine online customer engagement will survive. Automation plays a large role in both.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.