Less ‘flashy’ logistics tech holds most immediate payback

Less ‘flashy’ logistics tech holds most immediate payback

A truck travels on a US highway.

Echo is one of a cadre of Chicago-based logistics companies founded in the 2000s that grew rapidly to become billion-dollar enterprises, largely through judicious application of technology. Photo credit: Shutterstock.com.

Logistics technology these days generates more buzzwords than a Christmas tree has light bulbs — blockchain, artificial intelligence (AI), visibility, machine learning, Internet of Things. There’s no shortage of “shiny objects” for shippers to chase or be distracted by. The critical technologies, however, may be those that operate behind the scenes, without branding campaigns.

“We have projects that are strategic and outward facing to the market, and then there’s another technology nobody gets to see because it makes us run more efficient internally,” said Doug Waggoner, CEO of Echo Global Logistics, a $1.9 billion Chicago-based third-party logistics provider (3PL) and freight broker that is also, in effect, a transportation technology company.

“The back office is enormous” in terms of the opportunity it provides for automation, efficiencies, and savings, Waggoner said in an interview. And money spent on improving “back office” technology that supports and enables the “front office” can provide much greater value than “customer facing” technology alone, as that technology needs back-office data to succeed.

“There’s a lot of moving parts that have to be in place just to pay one freight bill, and we do that 60,000 times a day,” Waggoner said. “Back office technology isn’t all that sexy, but it can make a big difference in the quality that customers perceive and on our operating costs.” And the end-game goal, Waggoner noted, is to use technology to solve customer problems.

Echo is one of a cadre of Chicago-based logistics companies founded in the 2000s that grew rapidly to become billion-dollar enterprises, largely through judicious application of technology. Those firms represented an early generation of market “disruptors” now targeted by the more recent wave of digital brokers hoping to benefit from mobility technology and new apps.

In brokerage, scale matters, and Echo’s ability to tap more than 40,000 trucking companies gives it an advantage over competitors trying to start marketplaces from scratch, Waggoner said. But the ability to deploy technology, and to write the algorithms underlying it, is just as important. Echo has written more than 17 million lines of proprietary code to get there.

“It’s not one big step or epiphany,” he said, “it’s ongoing continuous improvement and creating a roadmap to automation over time.” For Echo, that roadmap started in 2005, when the 3PL was launched with a $7 million investment. For Waggoner, it started with the post-deregulation less-than-truckload (LTL) business, with Consolidated Freightways, Yellow Transportation, and USF.

“When I got into the industry, it was a good-old-boy industry lagging the business world in terms of application of technology,” Waggoner said. “That was a long time ago. I’ve had the pleasure of watching the industry revolutionize the way it works through technology. On top of that, right now you have a revolution in technology itself, with cloud computing and mobile apps.”

Back-office technology — not as sexy, but a backbone

Technology, he pointed out, “is becoming easier and easier to do. It’s easier and cheaper than ever to build technology.” AI solutions often are created using open-source software, for example, and application programming interfaces (APIs) are rapidly being used to develop connections between big data systems and mobile smartphone applications.

“This is where the industry is going to go,” Waggoner said. “Everybody’s automating right now. But you’ve got to know what you’re trying to automate. In the case of Echo, we’re a mature company. We’ve perfected our processes over the years. As you scale your business, as you want to become efficient, you have to build technology around optimized processes.”

That may not be as exciting as developing AI solutions or perfecting supply chain visibility, but without a back-office foundation, those technologies may never deliver promised benefits. “It’s about being aware of what technology can do, and what you can do with process automation, AI, and machine learning, how and where to apply them.”

Visibility and machine learning are among the hot technologies right now, but Waggoner doesn’t find them that “sexy.” “Visibility as the term is banded about today means people want to do with truckloads what they did with LTL shipments 30 years ago, which is to know where it is all the time,” he said. “With small shipments and parcels, visibility hasn’t been an issue for 30 years.”

There’s never been uniform visibility in truckload, however, he said. “You always had owner-operators and drivers with no electronics, and they’d check in every 10 hours,” Waggoner said. “Now you’re seeing that era come to an end because all the trucks have electronic logs and more shippers are saying, ‘You can’t haul my freight unless you tell me where is.’”

Machine learning is ‘simply looking for patterns humans can’t see’

Likewise, machine learning “is just pattern recognition,” he said. “There’s a lot of buzz around it, and it’s the gee-whiz thing of the day, but it’s simply looking for patterns humans can’t see. The more data you have to measure, the more you can predict the patterns.” As data floods the market, and AI and machine learning tools get better, picking out patterns becomes easier.

The patterns that interest Waggoner involve customer behavior. A share of Echo’s “back-office” technology budget goes to better understanding how and when shippers purchase transportation services. “We do a lot of stuff that you can imagine Amazon does in looking at customer behavior patterns and learning from those patterns a better way to sell to them.”

For example, gaining a better understanding of customer price sensitivity. “Shippers are always looking for the best speed at the best price,” he said. “We’ve put a lot of investment into price discovery to make sure we have the best price we can have and that we’re profitable. If I don’t know what that truck should cost, I’m not going to make a very good quote to the customer.”

The trouble is once a price is “discovered,” it changes. Again, Echo is automating a continuous process, rather than looking for a static solution. “The challenge is anticipating what the market is going to do,” said Waggoner. “You don’t see change coming until it’s there. In July, we were humming along and didn’t see any reason to expect change.” Until change arrived, that is.

Change, in logistics and transportation, is now a constant that requires shippers to adapt and adopt technologies and more innovative approaches to getting goods from point A to B.

“Companies that are agile enough to change are the ones that are successful,” Waggoner said.

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @willbcassidy.

Comments

Interesting article, one phrase caught my eye "what you can do with process automation". It depends - did you refine and improve the processes first? or just automate what was there? No doubt the back office is a prime opportunity for process improvements and then development of technology to support the refined processes. Done in that order, great opportunities and likely very beneficial results in efficiency and effectiveness.

Interesting article. Thanks, on the shedding light at the backoffice technologies in improving logistics performance. I think the logistics industry’s investment in technology have improved a lot since the past few years and can’t wait to see upcoming advancements in the area. I never thought automations can enhance logistics operations until I came across these logistics technology implementations use cases which was implemented in the recent times ( https://www.zerone-consulting.com/Industries/logistics.html ). I would recommend such smart implementations as it could highly cut down costs, operational errors while making business more disciplined, streamlined and highly profitable.