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The fusion of the physical and virtual worlds

Many companies are still on SAP release stands that don't mesh with new technology trends. André Käber, CEO of SAP logistics partner Leogistics, talks in an E-3 exclusive interview about how the Internet of Things, blockchain and artificial intelligence are impacting the industry.
E-3 Magazine
April 2, 2018
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This text has been automatically translated from German to English.

What challenges does the further digitalization of the supply chain pose in your view?

André Käber: There is no universal recipe for digitizing the logistics chain: every sector and industry has its own specific requirements. Therefore, these requirements must first be understood and evaluated for their digitization potential.

In this context, companies and their logistics networks face the task of identifying, examining and testing a sensible combination of existing logistics and IT systems with new disruptive technologies and approaches. Only in this way will the step into new business models succeed.

This process of rethinking is not easy. Our experience shows: Lean, agile proofs of concept reduced to clear functional scopes are ideal for implementing and testing digital innovations. Seeing helps understanding!

What are the consequences for companies in the supply industry in particular if they do not digitize their processes?

Käber: They risk becoming increasingly disconnected from their customers' logistics chain. It can be assumed that customers will pass on the costs incurred due to manual processes and the resulting lack of digitization to the supplier in the future. In the long term, they could even be excluded from the supply network.

Many logistics service providers have a hard time with digitization issues. What usually causes the companies the most headaches?

Käber: In our environment, the area of supply chain execution, many customers are concerned with the digitalization of their transport and yard logistics.

Several influencing factors can be identified at present: First and foremost is the desire for seamless integration of future systems, specifically the change in the existing SAP landscape to S/4 Hana.

You come from a monolithic ERP world and now you have to upgrade the systems so that they are even IoT-capable. Many companies have a hard time with this; 15 years without an SAP release update is nothing unusual in the industry.

There is also the feeling that a lot of money has already gone into IT. Only after modernization, however, will it be possible to integrate sensor technology or radio systems and, above all, the large volumes of data that are being generated today, such as geodata for the intelligent routing of trucks.

Customers often expect a universally valid path: Unfortunately, there is no such thing. In the end, digitization is individual. Our approach is to take a holistic view of the supply chain and work with user companies to develop a transformation roadmap, for example, from SAP LE TRA to S/4 Hana.

With approaches such as Industry 4.0 and the Internet of Things, more and more things along the production and supply chain are becoming networked and trackable in real time. This also poses major challenges for logistics providers.

Leologistics

What problems do companies have to solve here and how important is the issue of open platforms?

Käber: There is a lot of effort in the area of hardware integration in plant logistics and the decoupling of manual process steps. Companies are concerned with how they can automate locations, including check-in terminals at the gate, scales, OCR recognition systems, scanners and, of course, sensor technology.

The customers of logistics providers increasingly want to manage their supply chains proactively. To do this, they want to know at all times whether a delivery will arrive on time and exactly when the transport will reach them. The reading of barcodes and sensor information is therefore the basis for being able to fulfill this customer need with real-time information inside and outside the factory premises.

Once the core systems have been brought up to a new, IoT-compatible level, so to speak, further steps should be taken to examine which business processes can be digitized and which technologies or platforms are suitable for this purpose.

It is important not to focus on just one platform, but to choose an open standard that makes it easy to switch platforms.

In the future, 5G networks, i.e. next-generation mobile communications, will offer interesting opportunities to enrich processes with even more data and further automate them.

Are there differences between the topics at large companies and medium-sized enterprises?

Käber: Medium-sized companies are no less complex than large corporations. On the contrary: Process steps that the large companies have outsourced are still carried out by medium-sized companies themselves.

However, there are significant differences when it comes to budgets. Because separate budgets are often not planned for digitization, SME decision-makers generally expect these topics to already be available "out of the box" on the market or in existing solutions. Unfortunately, the reality is quite different.

So where are the difficulties?

Käber: There is usually a missing layer that connects the classic ERP with the physical world, including sensors, collaboration processes, and the localization of goods. In practice, many manual intermediate steps are still common today.

Although there are data standards for container traffic, for example, everyone uses them differently. However, a benefit only arises when the data is linked in a tracking platform with existing data from the shipper.

This means a development and integration effort each time, coupled with discussion of where in the process an interface makes the most sense.

What role does the Leogistics solution Digital Supply Chain play in this context?

Käber: We have integrated our solutions for tracking & tracing, transportation planning, collaboration, transportation execution, and in-plant logistics processes, which complement the standard SAP SCM portfolio, into one platform.

The Digital Supply Chain forms the connecting layer between the physical and virtual worlds and supports the entire operational control of both internal and external transport processes across all modes of transport - road, sea and air - without media discontinuity.

Other process participants can be efficiently integrated into process landscapes, but also into IT and system environments. The platform can be linked with Internet-of-Things approaches and with other cloud IoT platforms.

Where in logistics management could blockchain technology significantly shorten processes in the future?

Käber: Blockchain technology will continue to gain in importance and establish itself, for example, wherever the same information is to be made available to a wide range of process participants in a change-proof manner. One example is freight and customs documents.

However, blockchain will also have far-reaching consequences for freight platform providers: The ability to handle requests and contracts in a legally secure manner via end-to-end communication could make expensive intermediaries superfluous.

Today, simply commissioning a transport costs up to twelve euros, which adds up to considerable costs for large volumes. For freight contracts in particular, blockchain technology could replace B2B relationships in favor of end-to-end relationships. After all, it's most interesting for any company to talk to its customers directly.

What impact will AI algorithms have on logistics? What does this mean for logisticians and for supply chain management?

Käber: AI is becoming an increasingly important topic in logistics. For example, AI algorithms based on image recognition can speed up inventory processes.

In a proof of concept, for example, we automated the counting of steel pipes in bundles by teaching the system to recognize the structures for steel bars. This saved a considerable amount of time during the inventory process.

For BMW in Spartanburg, USA, we analyzed data on the movements of vehicles on the plant premises in plant logistics. On the basis of machine learning, it was then possible to automatically calculate how long any given transfer of a truck load between two waypoints in the plant would theoretically take.

This enables the system to automatically specify when a trailer must depart. In the future, evolutionary algorithms are expected to change traditional JIT/JIS (Just in Time/Just in Sequence) logistics by allowing artificial intelligence to reschedule at one-second intervals.

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