A venerable trade
Maritime trade has been the foundation of global commerce for over 5,000 years. It has enabled the development and prosperity of nations, and remains at the heart of the modern economy, no matter how digital it is becoming. The need to get physical goods from one location to another endures.
This ancient system has been built on mutual need, but also on trust. Shippers have literally handed ownership of goods (and the information related to those goods) along the global supply chain. This process is well understood and largely efficient, supported by bills of lading and letters of credit.
It is a proven and trusted system that has served us well for literally hundreds of years, and will continue hundreds of years into the future. That doesn’t mean fundamental change is not going to happen to global supply chain management.
A sea change
As we have seen in almost every area of global commerce, the world is changing. Customers have been empowered by the information and access the Internet gives them. There is rising demand for greater transparency, and better service at more affordable prices.
Food is just one example. The consumer and regulatory pressure to be able to trace the provenance of food products from source to plate is growing rapidly, and extends to the transportation journey that produce takes. This is resulting in broad awareness and acceptance of the need to improve the global supply chain. A need to provide customers with faster movement of goods, at a cheaper price, with greater visibility and therefore confidence.
The ‘table stakes’ remain of course. Historical supply chain standards of OTIF (On-Time, In-Full) remains a primary goal, as does cost reduction. What is becoming increasingly important, according to industry studies, is visibility.
Visibility to the movement of goods is what can transform the efficiency of supply chain management, and therefore better meet growing customer demands. This is where the industry has a major challenge. The GEODIS: 2017 survey of 623 global supply chain professionals from 17 countries showed that 77% of the firms asked have either no visibility or a restricted view over their supply chain.
Why is this, given the countless supply chain solutions aimed at increasing efficiency, enhancing visibility and engendering collaboration.
The problem of siloed legacy systems
While advances in the physical supply chain have been made, the associated information supply chain is where the logistics industry has fallen behind. With existing technologies and solutions, supply-chain-wide transparency and visibility of information is almost impossible. Participants are restricted to sharing pre-agreed information on a point-to-point basis using pre-Internet communication protocols. This means the majority of cargo information is locked away in siloed legacy systems.
A problem with the current change initiatives in supply chain and logistics is that they are focused on driving innovation within the existing structure, approaches and thinking, including decades-old technology and communication standards.
While the existing information systems work well in the local ecosystem within which they operate, it is near impossible to drive the kind of global cooperation required to achieve significant change. It’s inside the system, which can only deliver incremental improvement.
Ironically one of the barriers is that ports and shipping lines have been innovators in IT, developing supply chain management software very early in the computer revolution, from the 1960s, to manage the point-to-point chain of shipping cargo.
Within the current approach there is no real room for disruptive innovation using technology. There has been no platform to facilitate interaction, by anyone, anywhere. A platform that is both supplier and consumer focused.
Transformation possible with ‘network orchestrators’
The lesson of modern transformation is that the Internet is best deployed when power is given to the customer. When power is wrested from the large dominant players and ‘democratised’ across an industry.
Does this mean we will see an Uber of shipping? An Airbnb equivalent of ports? This doesn’t seem credible, with the huge sunk investment in infrastructure and equipment, and a system that largely functions. Where the change can come is transforming the visibility of information sharing within this system.
Create a truly open and global network for exchanging information and those involved in this network will create the change. Harvard Business Review (HBR) calls these kind of platforms “Network Orchestrators”. Companies that “ . . . create a network of peers in which the participants interact and share in the value creation. They may sell products or services, build relationships, share advice, give reviews, collaborate, co-create and more.”
There are countless examples that are well understood. Airbnb as an accommodation chain that doesn’t own any property, Uber a transport company with no vehicles, Alibaba a global store with no goods of its own.
A better analogy for the global supply chain is a ‘network orchestrator’ like YouTube. Compared to traditional television, where a company produces content and pushes it down a pipe to the waiting viewer, YouTube is simply a platform where any provider can load content and any consumer can access it. It provides a platform for efficient exchange.
Another comparison is the ‘Google Docs’ suite, where one party can create a document like a spreadsheet on a shared platform, and securely invite trusted collaborators to work on it. Google are providing a platform for others to create their own value.
Orchestrating global logistics
Could the same principle be applied for global logistics? And why isn’t this happening already? The HBR article offers four barriers to this sort of network platform evolving in industries.
- These models require quite different technologies and skills, where leaders of the existing supply chain businesses are focussed on building, owning, and managing their own physical assets or people.
- Standard global accounting principles categorise physical assets as ‘assets’ (plant, property and equipment), others as expenses (people, training, and intellectual property) and ignores others (customers, sentiment, and networks) altogether. This results in an under-allocation of capital to intangible assets, such as an open network of information sharing.
- Third, is the fact that companies in the supply chain are conditioned to the existing model, focused on what they understand. For example, market entrants like Amazon have been able to prosper in e-commerce because incumbents didn’t respond to the need to become technology companies and left the online market open to radically different approaches.
- Lastly, it is difficult to unwind an existing business model from all parts of a company. Fundamentally changing the business model of something like a shipping line, requires changing capital allocation which is daunting.
Transforming the information supply chain
The global logistics industry’s fundamental difference from other ‘disrupted’ industries is the need to transform the sharing of information, not the highly established process of moving goods.
As in many other sectors, innovation needs to come from an independent network that exists only to help customers and their ‘suppliers’ (trucking, freight forwarding, shipping, customs etc.) share cargo information in the cloud. No enforced business process, no set standards, just the ability to share information about the core transaction – the cargo to be moved.
At its core, this sort of network would bring cargo originators closer to cargo receivers, the two key links in the cargo chain. That’s what will drive real benefit and therefore real change.
It would be about enabling people to look at cargo information in a fundamentally different way, and share information about it in an easier, more open but still trust-based way. The trust element has always been a barrier to opening up data sharing across the supply chain. Trust has been at the heart of the chain as the links literally hand ownership of goods to each other. New technologies now exist to enable the secure sharing of trusted data.
However the existing approach of tracking shipments point-to-point is a restrictive and complex supply chain strategy. How can we re-imagine the global sharing of logistics information? It takes two radically different perspectives:
- A shared, cargo-centric model. Changing from players passing select data along the chain, to anyone being able to share with anyone at any time, if they are trusted. At the moment, a sender and receivers have to wait for freight to ‘pop-out’ the other end before they know what’s happening with their cargo. Could we have a model where information could be shared with them at every stage, giving transparency to areas they are interested in?
- A distributed ‘system’ approach. Instead of trying to extend existing systems with integrations and new standards, or create global supply chain information systems, enable the thousands of individual, localised systems to share data and work together.
The way to transform global supply chains is not massive disruption of shipping and logistics, but the disruption of how visible information is. Maritime trade will continue for another 5,000 years, but the information needs of its participants will continue to change, and modern supply chain software opens exciting possibilities for radical improvement.
Sharing information – the CargoChain approach
CargoChain is a cargo information sharing and innovation platform and can be thought of as the information backbone to the physical supply chain. It supports the distribution of previously unavailable cargo information, and the development of third-party applications that will redefine the global information supply chain.
Our aspiration is to be the world’s largest repository of rich cargo information providing a single source of the truth to all supply chain actors.
CargoChain will achieve this by providing communities of application developers with pre-built supply chain functionality and the ability to access and share rich cargo information.
How can you improve supply chain visibility?
Download our insights paper Who shares wins: why information, not equipment, is the most important front in the battle for success in the global logistics sector