DiSCO is the Future: Keys to Successfully Optimize Your Supply Chain
It’s hard to imagine our lives today without technology enabling us to do virtually everything faster. We don’t even think twice about ordering a pizza through a voice-controlled device or reserving a hotel room with a tap on a phone. Digital technology has transformed our daily lives. From the way we communicate to how we buy things, everything has changed.
Digital transformation is also impacting the logistics industry. This transformation will not only empower shippers to find better pricing, it will improve service quality and business outcomes for both shippers and carriers.
So, how does the logistics industry take advantage of technology developments and transformations to empower change? We do this by thinking about Digital Supply Chain Optimization, jokingly referred to as DiSCO here at C.H. Robinson.DiSCO represents the next phase of digital transformation.
Digital Supply Chain Optimization Hierarchy
The first two levels of the optimization hierarchy encompass the attributes of digital freight matching, which, at its core, is nothing new as it has formed the foundation of the third party logistics industry since it started in 1980.
First, geographic proximity. This is the lowest bar for digital freight matching. All the machine has to do is calculate how close a load and a truck are together and match the two based on the lowest mileage matches.
Second, instantaneous communication. The mobile phone and its ability to triangulate geo-location makes it easy to pinpoint the location of a truck. This is especially helpful as a data-entry shortcut for owner operators (23% of capacity), who can make the decision to accept or reject a shipment leveraging the smart phone. Larger fleets, which distribute decision-making to dispatchers and fleet managers, require a more robust integration that facilitates the communication and negotiation of multiple trucks and commitment needs (forward looking).
Knowing where trucks and loads are, and if they’re close together, is a great starting point, but anyone in logistics knows that those facts alone far from guarantee a good outcome. To ensure quality outcomes for all parties entails a deeper understanding of the freight and trucks, the requirements of both businesses involved in the transaction and a broader understanding of market dynamics that go beyond transactional supply and demand.
Seismic changes are happening in logistics and the CIO is at the center of this revolution. In the future, those who see the digital transformation not as a threat, but as a shape-shifting business opportunity, will be able to compete and win in logistics
On to the third level in the hierarchy, service qualification. Qualifying the service required for a specific shipment, and the carriers that are well-suited to deliver that service, is where we start to separate tech companies dabbling in the freight business and true logistics professionals. Can that load move on different pieces of equipment? Can the carrier accommodate that weight? Does the carrier’s insurance contain coverage exclusions that put the shipper’s freight at risk? In short: is this carrier operationally qualified to move this load? There is no worse outcome for customer or carrier than putting the wrong load on the wrong truck, and the best truck isn’t always the closest one. Service qualification speaks to a real-world aspect of transportation that many do not understand: freight is not a commodity.
In the upper echelons of the hierarchy we move into pricing. Accurate pricing is a very important component of both transactional and contractual freight movements.
The fourth level of the hierarchy is robust supply and demand forecasting. To price accurately requires the ability to look into the future and determine the market conditions on a lane-by-lane basis. Doing this provides clarity not only to transactional and committed market pricing, but also provides an understanding of where capacity and freight imbalances may occur. Shippers want their freight moved, and carriers want to keep their trucks moving. Knowing where loads and trucks are TODAY is great… but where will they be four days from now? This requires an accurate picture of where imbalances may occur in the future, and to do that requires massive scale.
Finally, we can get to an accurate price. We know where the loads and trucks are, and where they will be. We can communicate with them efficiently and effectively. We have a good idea of what the plan for the loads and trucks are and can predict where imbalances will occur over the life of our commitment. At this point we can begin to identify the right price for a specific shipment or commitment within a broad market context.
Once we can identify the right price, it’s time for things to get personal, which is why the sixth level of our hierarchy is personalization. Think about this as the quantification and application of “shipper of choice.”If your shipping location typically takes six hours to load a driver while the dock next door takes 15 minutes, does it seem reasonable that you would pay the same rate for transportation? It doesn’t make sense to carriers either. With personalization, we identify attributes at the location and relationship level that impact the productivity of shipments and apply that within the pricing algorithms.
The seventh level and ultimate goal is optimization. This is the crown jewel of DiSCO. The logistics and supply chain experience can be completely revolutionized by optimizing the shipper and carrier experience through building collaborative networks of shippers and carriers and making commitments that benefit all. We aspire to match needs, not just loads.
What does this mean for the industry?
There isn’t a magic “off the shelf” solution you can buy to execute on all of these key areas and achieve optimization. No one can simply give you the keys to the castle. It is more complex than that. To master the digital freight matching hierarchy requires: forward-leaning technology built by and for supply chain experts; an information advantage that takes into account experience, data and scale; and being able to rely on people with expertise on a global scale.
Bottom line: You need both talent and technology.
Where are we today? The industry is still largely in the geographic proximity and instantaneous communication game. To move up in the hierarchy requires smarter digital solutions and the application of advanced technologies such as artificial intelligence and predictive analytics. At C.H. Robinson, we leverage our scale and information advantage with deep stores of data to create algorithms that are putting value-added solutions into practice for our customers to excel in areas higher in the hierarchy, such as supply and demand forecasting, price identification and personalization.
Seismic changes are happening in logistics and the CIO is at the center of this revolution. In the future, those who see the digital transformation not as a threat, but as a shape-shifting business opportunity, will be able to compete and win in logistics. Those who don’t will be left behind. Make no mistake, those who can successfully DiSCO will reap the rewards of greater optimization, lower costs and a better shipper and carrier experiences.