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The proportion of companies in the logistics sector that use each type of network service is very close to the average seen across other sectors. Figure 1 shows that IP VPNs are the most popular choice of networking technology in the sector, whether managed inhouse and run over the public Internet ("DIY Internet VPN") or a managed solution from a service provider ("managed IP VPN"). With an existing, relatively high use of IP VPN, the logistics sector is well placed to leverage network-based changes to its ICT environments through adding services on top of the existing network capability.
Key Business Drivers to Advanced Networking Services
Operational excellence is the key to competitive advantage in the logistics industry. Specifically, that means efficient execution resulting in high levels of freight delivery performance, reliability and flexibility (for example, to accommodate last-minute requests, changes to orders and tailored value-added services).
To achieve this operational excellence the industry must significantly improve its processes and workflows while minimising the associated cost structure. All this must be accomplished without compromising the fundamental sector objectives of optimising asset use rates, effective stock management, reliable supply performance and fast order leadtimes.
As a result, as IDC found in a survey of 99 logistics companies in October 2006, logistics ICT executives are focusing their efforts on the following key short-term priorities:
- Top priority — Supply chain and logistics management, IT organisation responsiveness and product innovation.
- Medium priority — Sales effectiveness, managing regulatory compliance, customer service improvements, mobile workforce productivity enhancements and developing new business models.
The primary driver behind all of this proposed activity is quite simply to improve a logistics company's competitive positioning through the provision of high-quality services while retaining corporate margins. These improved services are typically being provided through advanced distribution efficiencies and the development of valueadded services beyond warehousing, forwarding and freight. A modern, always-on, cost-effective and flexible network architecture is imperative in order to support these changes.
This competitiveness, and associated service provision, must be achieved while maintaining compliance with European directives. In particular, the industry must respond to directives aimed at improving product track and tracing (as well as the recycling process). Such directives might be regarded by some as a hindrance, but compliance spending is, to a large degree, funding itself through better-run business operations. This self-funding is a result of transport companies gaining significant productivity enhancements through the implementation of ICT solutions to enable end-to-end visibility across their value network.
The provision of improved, high-quality services also demands three underpinning operational improvements:
- Integration — Logistics companies need to integrate dispersed sites such as warehouses and service offices to cope with growing demand and increasingly complex supply chains. As a result, logistics service providers (LSPs) need to support multiple integration processes on a common data network infrastructure. To support this initiative, cost savings can be achieved through VoIP and MPLS IP VPNs in place of legacy technologies and services.
Real-time effectiveness — This must be achieved through: __ Managing collaboration with supply chain partners
__ Dynamically planning shipment schedules, routes and service deliveries
__ Implementing business performance management and business intelligence capabilities
- Mobile workforce optimisation — Logistics companies must ensure that mobile workers play a crucial role in enabling optimised processes and enhanced customer intimacy. They can achieve this through providing timely and accurate information as well as value-added services. In a recent survey of CEOs of transportation companies, IDC found that IT improvements aimed at supporting mobile employees ranked as the thirdhighest priority out of 15. Consequently, we expect that most of the leading transportation companies in Europe will continue to invest in mobile solutions and systems during 2007, with fullscale rollouts targeted for 2008.
In summary, IDC believes that among the most urgent ICT improvements, logistics organisations need to rely on advanced communication networks, aiming to achieve the following fundamental goals for their business growth:
- Real-time monitoring of mobile assets and cargo
- Enhanced mobile asset use
- Increased operational accuracy and higher transport efficiencies
- Higher productivity throughout bidirectional global supply chains and across meshed supply networks
- Improved cargo safety, product authenticity and compliance effectiveness
- Reduced communication costs
- Enabling flexible deployments of new workforce applications and customer-facing tools or services
- Improved customer service levels
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