Digitalization in logistics: Why is it important?

Digitalization may be broadly defined as the integration of digital technologies into all processes of a company, optimization of existing processes, and creation of new operational processes, which lead to the capability of offering more value to customers. The concept of digitalization deals with factors that change the big picture and touch every stakeholder in a holistic manner, rather than simple operations such as digitizing data. It represents a cultural shift to more agile and smarter ways of doing business, powered by technologies such as advanced analytics and artificial intelligence.

The application areas of digital transformation that has become the most important agenda item for companies with the impact of COVID-19 have also deepened and gained tremendous speed. $1.3 trillion was invested in digital transformation in 2020. This rate is expected to grow by 82% every year and reach $2.4 trillion in 2024. Companies that have massively digitized their processes are estimated to contribute more than half of global GDP by 2023.

Digitalization in logistics refers to the use of digital technologies in the logistics industry to create new business processes, corporate culture, and the customer experience in order to meet changing business and market requirements. Digitalization of logistics operations, which is one of the items that have the greatest impact on operating costs, allows company resources to be optimized and shifted to areas with a higher leverage effect. As companies save resources such as finance and time, they can invest these resources in areas such as innovation and R&D to further improve the customer experience. In addition to the reduction of costs through resource optimization, they can also increase their earnings with the values they offer such as speed, efficiency, and accurate timing. Regardless of their size, there is an opportunity for all companies to explore digital business models in logistics and this way, offer more value to their customers.

Worldwide

The global logistics industry is estimated to surpass $8 trillion in 2020. The industry is expected to reach a volume of $12 trillion by the end of 2022. E-commerce also has a great impact on the rapid growth of logistics, as new business models the impact of which is felt in all sectors demonstrated themselves, especially in the field of e-commerce. The global e-commerce sector reached a size of $4.28 trillion in 2020 with the effect of the pandemic.

With sales of $876 billion in the first three quarters of 2021, the global e-commerce market is expected to reach a volume of $4.9 trillion by the end of the year. The 2022 expectations are that e-commerce will become a giant market with a volume of $5.4 trillion.

It seems obvious that the habits of customers which have changed during the pandemic will remain this way after the pandemic. Even though physical shopping will rise again to a certain point, the majority of the audience accustomed to online shopping will not return to their old habits. Companies have to optimize their logistics operations to respond to increasing demands.

Türkiye

In Türkiye, the volume of the e-commerce market increased by 66% in 2020, reaching ₺226.6 billion. ₺138 billion of this volume was made up of card payments. The rate of e-commerce in general trade reached 15.7%. Logistics operations across the country increased rapidly in parallel with e-commerce.

The share of the logistics industry in Türkiye’s GDP is considered to be approximately 12%. While 50% of this rate comes directly from logistics service providers, the remaining half comes from companies that carry out transportation in-house.

The International Trade in Services Statistics suggests that logistics activities have the largest share in both imports and exports. In 2019, service exports amounted to approximately $33.8 billion, while service imports amounted to $24 billion.

Being an integral part of every sector from production to health, logistics has the nature of improving all other  sectors and the economy. For this reason, it is one of the top priority areas in the 11th Development Plan of Türkiye. The Eleventh Development Plan states that the service level parameters such as flexibility, speed, predictability, safety, quality, the economy of scale, and innovation in logistics activities should be improved within the scope of policies to be implemented for the development of the logistics industry. In order for the Turkish economy to develop and keep progressing in international competition, all companies with logistics operations, as well as the players in the logistics sector, need to invest in digitalization.

Digital Thinking in Logistics

As we have mentioned, the needs of today’s business environment and the new expectations after the pandemic have revealed the need for innovative approaches in logistics and supply chain management. Especially in our country, a company still makes dozens of phone calls to meet the need or shipment, dealing with many papers, documents, and paperwork. In addition, if there is not enough product to fill the entire truck, the shipping process becomes overdear.

On the other hand, flexible, fragmented, and instant logistics operation has become a necessity during the pandemic process. As we are in an unpredictable period with a significant increase in demand, the challenge of capacity management has also emerged. In addition, we observe an increase in export-oriented production due to the shortened supply chains and the competitive position of the Turkish lira. This has increased the search for a logistics partner that offers high-quality service abroad at an affordable price. Moreover, we can tell that there has been a significant bottleneck in logistics infrastructures, especially with the rise of online shopping and retail. In the light of all these factors, we believe that shared and partial transportation will grow even more in the future.

The World Economic Forum foresees that by 2025, 15% of the truck market will use shared transportation platforms and 20% of the warehouse market will enter into joint agreements. Based on this foresight, we believe that the economy should be shared in logistics and supply chain management in our country as well. There are many national and local logistics companies in our county, and the industry, which hosts 700 thousand individual carriers, has to share the economy.

In order to utilize the dynamics of the sharing economy, first of all, data will probably gain importance in the logistics industry. Today, it is very difficult to find healthy and clean data in the industry. For this reason, both industry players and stakeholders cannot access service KPIs and performance data in a healthy manner. How many vehicles/capacity is idle, timely collection/distribution data, and damage rates cannot be followed instantly. However, through the digital transformation, the logistics industry will learn to think via data with all its stakeholders and will develop data-based decision-making processes by gaining a data perspective. Service quality, service inclusiveness, and sustainable growth will be achieved through a data-based, correct vehicle, and correct load matching.

On the other hand, automation will add significant value to the transformation. Today, there are many manual and inefficient business processes in the way of doing business. Especially the paperwork procedures are at a high level, there are even departments that only issue waybill and delivery notes in large logistics companies. By transforming the industry into a digital network and integrating stakeholders on common solutions, the creation of a digital logistics value chain from beginning to end will contribute to instant access to every information and every document in the online environment and automate processes.

All these transformations will ensure that all logistics stakeholders, whether corporate or SME, receive better and quality service. Customers will have the opportunity to choose service and capacity according to their needs.

Türkiye has very significant advantages in terms of carrying out this transformation. Initiatives such as public targets, ministry practices, and next-generation regulations, the digitization of the paperwork process in the sector, the introduction of the e-invoice process into our lives, the logistics centres in the 11th Development Plan contribute to the transformation of the sector. However, the operational capability of the Turkish sector players is pretty strong. Warehousing and flexible logistics opportunities stand out in the competition. In addition, with its market size and feature of being a critical transit on logistics routes around the world, our country has a greater chance of becoming a logistics centre than ever before.

Volkan Özkan – Founding Partner and CEO- Yolda.com