Why Logistics Technology Matters Now More than Ever
It’s easy for leaders to get distracted by shiny objects––marketing technology being one of them––even if that’s not where the business begs for investment. For example, the global market size of marketing tech (martech) is a whopping seven times that of logistics tech, despite the global market size of logistics being twice that of e-commerce. Martech is now a $121.5 billion market worldwide servicing an approximately $5 trillion global e-commerce market, compared to logistics tech coming in at a mere $17.4 billion market worldwide. This is despite the fact that the logistics industry is so big that it is measured as 12% of the GDP, or $9.6 trillion (estimated).
So, why is the investment on logistics automation trailing so far behind marketing? Why are businesses front-loading their budget instead of shifting it to the engine that drives their ROI?
Before entering the logistics industry, I worked in the B2C e-commerce space for many years. In that world, the priority was always on product and branding in order to create and maintain happy, loyal customers. However, when Amazon arrived onto the scene making two-day shipping a core tenet of e-commerce brands as the industry standard, brand values and messaging shifted. It was no longer just necessary to have a superior product; it also needed to arrive with lightning speed.
In order to stay competitive in a world where Amazon exists, fulfillment and customer service (aka the back end of a transaction) must become the shining star, rather than a cool brand marketing and advertising experience. This new demand has forced companies to focus on an aspect of their logistics that they never had to before. While the attention has shifted, I don’t always see the budget follow.
It’s time for businesses to pivot their investment toward departments that demand more––even if they’re not as sexy. Now it’s not just trying to keep up with Amazon. In a Covid-era world, logistics is more important than ever to a brand surviving volatile social and economic environments––thus the need for robust technology investment is critical. So where should these dollars go instead?
On-Demand Technology and Fulfillment
On-demand apps like Uber, Doordash and Instacart have invested billions in location and mapping technologies for real-time orchestration of fulfillment by flexible workers picking up geographically distributed inventory and fulfilling an even more distributed set of customer locations. There’s no reason this same technology couldn’t be applied to other types of industries. Feedback loops into AI models ensure that every order makes the next one more predictable—and, therefore, more convenient at a lower cost. On top of the network effects of demand and supply, these businesses enjoy the data network effects of location intelligence.
Beyond on-demand commerce, consumers expect an immediacy that can only be satisfied with micro-fulfillment centers (MFCs) that help deliver goods to doors in 10-15 minutes. Instant commerce from MFCs requires replenishments the same day, even multiple times a day. Same-day fulfillment to MFCs followed by quick fulfillment to home requires real-time orchestration that old-world logistics tech is structurally inadequate to fulfill currently, and would need a sizable investment to overhaul.
Warehouse Automation Technology
Warehouse automation in the form of robotics, wearable technology and sensors are another vital investment necessary to achieve the delivery expectations of today’s consumers. Today, warehouses face increasing pressure to reduce shipping time and cost, while also battling labor shortages. Both of these challenges have been exacerbated in the past two years, and the need for automation solutions is growing rapidly across industries.
Warehouses across the globe are modernizing with robotics, automated conveyor systems and warehouse technology that better coordinates humans through their logistics tasks. Human pickers, shippers and packers are working hand in hand with automated material handling robots, providing immense productivity gains. There are more data points than ever before on the moving pieces of the supply chain, and humans and machines are becoming intertwined in the logistics dance. Currently, 50% of warehouses have no form of automation at all, and we expect these businesses will spend heavily over the next decade to compete with their automated counterparts.
Supply Chain Software
It used to be that technology investments in logistics required a relatively lower lift. They mostly involved updating a previously manually managed operation into the 21st century with the basic digitization of order completion and payments and the business analytics of cost and performance. But now every company needs to essentially become a software company to some degree. Building this type of technology from scratch is impossible, so supply chain software companies deliver reusable chunks of code that developers piece together to make finished applications called APIs.
In order to have full visibility and control of their logistics operation, companies are burdened with melding several different pieces of technology into one main hub. From warehouse management systems to robotics platforms, labor analytics and fleet monitoring, logistics operators will most successfully drive toward their goals with platforms that can integrate and communicate effectively. The cost of integrating logistics technology platforms will prove to be a prominent part of technology budgets for the foreseeable future.
It’s not a matter of if but when we start seeing companies investing more heavily in logistics than other previously dominant departments like marketing. Consumers and the market are demanding an unprecedented level of expectation around fulfillment and customer service. Once brands have captured their audience with marketing, they need to quickly pivot to making sure the rest of the customer experience is perfect––and this will be seen across all industries.
Gabe Grifoni is founder and CEO of Rufus Labs, developer of a connected operator platform for warehouse and industrial environments, comprised of workforce analytics software and rugged wearable technology.
