Is our logistics ready for "Industry 4.0"?

Times are more turbulent than ever in terms of global drivers, political dictates and price pressure on Swiss companies. Swiss companies are being asked to adjust their prices because of political events. A presidential election like the one in France this spring could have an impact on procurement sectors, as could the UK's exit from the EU.

At the same time, the Swiss export market posted record results in 2016. Export turnover climbed by 3.8 percent to CHF 210.7 billion (compared to 2015). "A new record high", as reported by the Federal Customs Administration (FCA) at the beginning of 2017. This boom was driven by the chemical-pharmaceutical industry, while the Swiss watchmaking industry, for example, is recording ever higher losses.

Not all Swiss companies are breaking records. In addition, around 60 percent of the total turnover of the Swiss logistics market volume is generated by ten established companies alone. A few Swiss companies dominate the local procurement market. Finally, local SMEs are facing major challenges in terms of digital developments such as e-commerce and mobile networking with suppliers.

"Cost and supply pressures are driving the procurement activities of Swiss companies with more than 250 employees," according to a series of studies by FHNW. The 10th logistics market study by GS1 also emphasises that companies with fewer than 500 employees "are not currently concerned with digital networking".

What ultimately seems unthinkable for large corporations is hardly on the agenda of Swiss SMEs: how "Industry 4.0" is already reshaping supply chain management today.

Fundamental hurdles
It should be obvious: Procurement companies can only become more agile in their target markets by analyzing legal and technical market principles and operating accordingly. No matter how good their management strategy, supply chain management (SCM) means constantly adapting corporate processes and projects to market conditions.

Nevertheless, there are various conditions and (contractual) relationships along the supply chain. For example, there are already some regulatory hurdles in the digitalization of many paper-based processes.

Limited flexibility
The extent to which SCM can consistently serve digital areas in the context of "Industry 4.0" is subject to the logistical orientation and certainly also depends on the quintessential question of whether internal or external software is taken into account. This is where the "transfer of tasks" to other partners or service providers begins. - In more than half of the cases, the willingness to outsource is high or rather high when it comes to the transfer of tasks.

"Not all Swiss corporations are setting records."

The study "IT in Procurement", which is carried out annually by the Institute for Business Informatics at the FHNW in collaboration with procure.ch, states that "IT in Procurement" is a key factor in the transformation of content, orders or invoices into an electronic form of ordering.

The study also shows that around 90 percent of all respondents would welcome external added value and the appropriate know-how from the service provider. At present, many logistics companies are showing a willingness to display - including the archiving of business documents - various workflows.

In the midst of contract relationships, data management and IT measures must be continuously aligned and Big Data policies clearly defined (see box above).

However, many SMEs in the logistics sector show strategic handicaps because, for example, the number of connected suppliers varies. Likewise, confidential delivery data could harbor risks if it is read or electronically edited by just one person or by several hundred people at once.

Two thirds of Swiss SCM companies therefore operate with an IT concept that reduces the connectivity flexibility of new suppliers, underlines the study "IT in procurement". Most Swiss shippers and logistics service providers have also not yet implemented any comprehensive solutions or applications for digital networking.

Quo vadis - where is "SCM 4.0" heading, where are the hurdles and potentials of digital implementation?

Technological efficiency
The 10th logistics market study by GS1 Switzerland underlines that the action levels "for networking and integration", "full automation", "self-control" have hardly been taken up by logistics service providers or implemented company-wide. Digitalization in inventory management is gaining importance rather hesitantly. At present, the first sensor-equipped, mobile devices and digitized machines, systems, vehicles and load carriers are driving "Industry 4.0" forward. Logistics service providers (and public institutions) are now looking to business process reengineering to improve their processes.

They also rely on tactical means such as the "Just in Time / Just in Sequence" logistics method (delivery on time or sorted according to product sequence) on Swiss soil. Other methods of digitalisation such as "Efficient Customer Response" (optimisation of the supply chain) as well as tracking and tracing systems are the first innovations to electronically coordinate or serve segmented areas in supply chain management.

"Many shippers and logistics service providers do not yet have end-to-end system solutions."

Nevertheless, large technological and financial investments are required. According to estimates by the companies surveyed by GS1, the annual investment rate corresponds to about 15 to 23 percent to bring the implementation of Industrie 4.0 technologies and solutions to a high level over three years.

How good is "good practice"?
For some time now, supply companies have been pursuing a clear forecast-to-fulfill cycle in inventory management, whereby lower inventories and costs are reduced, while higher service quality is targeted. Good practice companies also have more transparency with regard to their inventories and process costs along the supply chain.

They can provide information to partners and customers "anywhere, anytime". The "best" difference to average suppliers is particularly clear in terms of inventory strategy (+ 50 %) and process efficiency (+ 30 %). There is no significant difference in process control. There is a great need for action here, even in good practice companies.

So it is not just a question of whether an SME in the forwarding sector is defined solely by the all-important "General Terms and Conditions of the Association of Swiss Forwarding and Logistics Companies" (AB SPEDLOGSWISS), but also by more subtle technological orientations.

According to expert assessments, delivery reliability (e.g. in temperature-controlled logistics) is still evident. Increasingly, not only safety and environmental aspects, but also corporate connectivity are becoming important in a constantly updated procurement market.
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