Digital age

Supply Chains In The Digital Age: A Competitive Perspective

A dynamic and fiercely competitive market, along with a not easily tied down and demanding customer, are posing challenges to businesses, including to supply chain vendors and Third Party Logistics Providers (3PLs). A proliferation of channels and customer touch points is another challenge. Many retailers are opting for omni-channel approach.

From their point of view, the customer has become center of all transactions and conversations. Customers are asking for a single view across different channels and touch points, as well a unified and cohesive customer and brand experience. They are asking for single-day delivery, green supply chains, and integrated supply chains.

There are opportunities, created by advancement in information technology in the area of Internet of Things IOT and the amount of data and intelligence that can be are available from information systems, for optimization, better decision making and increased returns and better profitability.

It’s not as if supply chain companies have been slow to join the digital movement. Some have automated certain sections of the supply chain. Robots have begun to be used to perform labor intensive and routine tasks. While this has mostly happened to warehouse and distribution tasks, like order picking and selecting, it has also happened in customer facing tasks such as purchasing, invoicing, accounts payable, and customer service.

Digita Age

So, what exactly does the new digital wave hold out to supply chains as advantages or benefits?

Firstly, digital places certain constraints before it offers benefits. The operations of the entire business, including the supply chain, needs to be connected and integrated.  Next, all the processes or work flows need to be optimized for the supply chain to leverage the advantage of digital, through speed of execution and responsiveness to customer requirements.

Supply chains have traditionally relied on information to be efficient as well as for customer satisfaction – information about expected delivery, information about status, etc. Most of this information traditionally was related to order execution and customer service. However, digital allows supply chains the unprecedented information that helps them to anticipate orders and demands, to purchase and inventorize based on these predicted and anticipated demands. Artificial intelligence allows supply chains to model the order cycles, frequencies of cycles, fulfilment of cycles, seasonal factors, and so on, and to predict and to anticipate emerging demand. This helps them plan, schedule, purchase, store better and thus provide better customer satisfaction. Digital enables supply chains to become proactive and more engaging with customer, rather than the traditional reactive mode of operation.

With the rise of omni-channels, companies usually handle many channel providers. The result is that the supply chain operational space for the company has become fragmented and very unwieldy to manage. Digital offers remarkable capability here, by integrating all the channels and providing the customer and the client with one single view of the supply chain, across channels and touch points. For a supply chain provider, offering this could mean significant competitive advantage over other players, who are still in the traditional mode.

Also, even though retailers have opted for omni-channel retail experience for their customers, the experience for the customer is not a unified one.

Digital offers a truly unified experience that includes:

•      Automation and integration of sales, marketing, business operations and the different locations and people
•      Personalized customer service
•      Real time customer analytics and metrics for decision making
•      Mobile integration
•      Easy intuitive interfaces across web and mobile devices
•      Simplified checkout process and payment

Finally, digital makes the customer truly the center of all operations and decisions.  It could well be the strategic differentiator and competitive advantage that supply chain companies are looking for.

Using Artificial Intelligence in Supply Chains

Advances in storage, computing power, algorithms, and the advent of the Internet to Things (IoT) have given rise to different forms of Artificial Intelligence being applied to address challenges posed by businesses, organizations and customers.

Supply chains are one such area. Supply chains are evolving from linear supply chains to digital supply networks, where numerous automated systems, such as sales, inventory, production and logistics are integrated with each other. This means that logistic systems now have access to much more enterprise data and business and customer patterns such as buying behaviour, seasonal order placement, fast moving stock, average time for delivery according to geography and so on. Business owners potentially, can use make sense of this data and turn into business intelligence i.e. insight that can drive business decisions and actions.


In the case of supply chains this would mean better anticipation of orders, better planning of logistic, developing ‘cognitive’ capability in logistic systems i.e. a logistics system that can not only detect patterns and make useful knowledge constructs, but also learn from the application of this knowledge and understand business and customer situations better. This could also result in lowering of costs and overheads and improve the agility, responsiveness of logistics, improve turnaround time, and greatly improve customer satisfaction. Already, autonomous vehicles and robots are operational in large supply chains around the world.


Without taking advantage of the benefits that technology affords them, supply chains can become inefficient, out-dated and unable to keep up with the pressures of competition and demands of the customer.

A McKinsey study estimates that businesses could earn anything from 1.3 to 2 trillion dollars a year by using artificial intelligence based logistic systems.

Restaurants were the first businesses to embrace AI tools. They began by analysing Point of Sale data. From this data, they were able anticipate and forecast customer demands and plan better for it. This benefit cascaded throughout the supply chain to suppliers, and vendors who delivered quickly and ‘in time’.

Another illustrative example is that of a telecom manufacturer. The manufacturer analysed historical data of its production, sales and logistics and customer feedback, along data about season and weather. With this intelligence it was better able to tell its channel partners what products were available and when they could be delivered, at the earliest. This made for a more integrated and responsive supply chain, translating into better customer satisfaction and improved profitability.

Another area pertaining to supply chain, where Artificial Intelligence proves very useful is when it comes to preventive maintenance of equipment. Data generated by sensors on mission critical equipment along with maintenance reports can be interpreted by artificial intelligence to predict when it would be a good time to do a maintenance ‘check in’ and when it would be a good time to do preventive maintenance and when it would be a good time to repair. Such intelligence has shown to improve the productivity of the equipment and improve maintenance costs by nearly 10%. For mission critical equipment, this could mean significant savings, reduced down time, satisfied customers and even competitive advantage.

Overall the benefits of using Artificial Intelligence in supply chains are many. In the sum, they have the potential to make the supply chain more responsive, more integrated with the demands of the customer and the objectives of the business, and finally more productive and profitable.


To 3PL or 4PL, that is the question

With changes being witnessed within the supply chain, logistics, and distribution spaces choosing the right provider can be a difficult and cumbersome process for businesses. Owning to technological advancements, increased carrier movements, and heightened delivery models, providers now can take up many different shapes and forms.

For businesses it is imperative to understand their own specific provider needs and requirements as well as what they would like to expect from a provider. Unfortunately, many businesses have experienced problems with their providers and have borne the brunt of these through either financial losses, diminished reputation, or worse, negative customer service levels. With these significant implications in mind, businesses need to first take stock of what they would like their provider to do vis-à-vis the business and what exactly their capabilities are.

This is where the level of the provider comes into play. From 1PL to 4PL (and even beyond) the scope is vast. It is clear that businesses need to carefully understand what each “party” stands for before making any decisions that could significantly impact the entire supply chain management.

1PL – First-Party Logistics

The simplest and most basic logistics enterprise, which moves goods from one location to another.

2PL – Second-Party Logistics

Here, the enterprise directly owns the transportation to move goods from one location to another. An example of this would be “a local farm hiring a 2PL to transport their eggs from the farm to the grocery store.”


3PL – Third-Party Logistics

3PLs are currently the most common providers within the industry. Though as technology, transport, and innovation increase there is room and scope for much more. Basically, 3PLs manage and oversee major parts of the logistics operation, though in many cases, some parts of the execution are outsourced or given off to subcontractors or external vendors. Here, it is not always clearly marked which parts of the supply chain 3PLs work on directly and which are outsourced but part management and responsibility rests with them. One example could be (using the farm-to-grocery store analogy), “a 3PL may be responsible for packing the eggs in cartons in addition to moving the eggs from the farm to the grocery store.”

4PL – Fourth-Party Logistics

As the levels increase so does the responsibility. The 4PL model gives all of the activities of the logistics to an external party. This includes not only the execution of the supply chain but also responsibility and management. Such providers directly work with the company’s organization and inventory in terms of strategic inputs, long-terms goals, and business operations and functioning.

5PL – Fifth-Party Logistics

5PLs are a direct result of current technological innovations and rely on newer methods to optimize the supply chain. Such providers explore and leverage the use of blockchain technology, RFIDs, AI, Bluetooth, automation among others to create solutions, which are new-age and ahead of the curve. At present such providers are still not the norm and have not entered the mainstream market.

With this in mind it is clear that as provider level progress the amount of responsibility handed over to the logistics provider increases. For the sake of today’s most commonly-used providers – 3PLs and 4PLs – each one has its own distinct advantages and disadvantages.


The most common provider level, 3PLs have been tried-and-tested and at present and are the go-to supply chain method. There is just enough role and responsibility for both parties without infringing on each other’s roles. In fact a well-working 3PL can create a seamless, efficient and effective logistics partner. However, businesses need to realize that some direct control will be lost. This means keys areas like customer service and reliability can suffer. Here, customers expecting impeccable service, will raise their voices at businesses, leaving providers largely unscathed. Further, when looking to revamp operations the 3PL model can become difficult when changing providers or looking at taking back some of the work in-house.


4PLs are a rung over 3PLs in supply chain management and provide a “control tower view of their supply chains, overseeing the mix of warehouses, shipping companies, freight forwarders and agents.”

The jump from 3PLs to 4PLs stems from the use of the phrase “a single interface” coined by the global consulting firm Accenture. Here, businesses are looking at long-term, strategic, high-performance logistics providers. In many cases, 4PLs do not own specific assets e.g. transportation, warehouse infrastructure, etc. but still manage the entire process. This does not matter to businesses as they rely on a single point of contact with the 4PL provider and communicate directly through a common dashboard (interface). This also frees up time for businesses to work on their core competencies knowing that they don’t have to look into the day-to-day running of their supply chain.

3PL or 4PL?

Depending on the nature of the business both 3PLs and 4PLs have their strengths and weaknesses. 3PLs provide safety and security but the added responsibility of managing the supply chain in-house. 4PLs can take-over the entire logistics function but it can take time, effort and solid financial obligations to ensure the most appropriate provider. However, for more complex supply chain functions or for even bit part or agile functionality there are even niche 3PLs or 4PLs that can be used. Again this can be used as per specific business requirements, their models, financial health, and long-term goals.

What is clear is that finding the right provider is crucial to the success of the business – not just profitability and bottom line – but also customer satisfaction and reputation as well. In today’s highly competitive business environment every decision needs to be made with great care as it could make-or-break a business. It should be ensured that the provider – whether 3PL or 4PL – meets the exact requirements of the business, clearly understands its aims and goals, and can undertake, meet, and exceed expectations across the entire supply chain.