Urban logistics are increasing and already account for 20% of all traffic and for 30% of pollution in our cities. As our society comes to demand even more immediacy as well as with the COVID-19 pandemic boost in online shopping, deliveries in urban areas present a major and increasingly complex challenge for logistics actors.
To address this topic, Professor Olivier Badot, Scientific Director of the Chair and Full Professor at ESCP and Elisabeth Denner, President of the Chair and Partner at BearingPoint welcomed:
- Professor Joe Miemczyk, ESCP
- Laura Morroll, BearingPoint
- Richard Walters, BearingPoint
- Tony Mannix, Chief Executive Officer at Clipper Logistics.
During this session, Retailing 4.0 Chair discussed the technological and sustainable challenges and opportunities in urban and city logistics, as well as trends, e-commerce examples and the fascinating world of supply chain management and deliveries. What is the role of technology in Logistics 4.0? Will autonomous delivery robots be a reality or not? What are the sustainable challenges in urban logistics? What are the challenges to e-commerce and urban deliveries?
Urban Logistics 4.0: from past to present
The Fourth industrial revolution is uncovering a series of disruptive changes in both business models and their supporting production chains. Logistics, an elementary component of these processes, is unavoidably impacted by such significant changes. This fourth revolution is characterised by its speed, magnitude and depth. The changes will undoubtedly alter the way we live, work and relate to one other, companies, industries, countries, and society in total. Consequently, future logistics systems must aim for interconnected information and optimised time and resources, with considerable investment in development and innovation to maintain competitiveness.
To understand such revolutions, we address in the following section the evolutions through which logistics have overcome until contemporary times.
I. The Evolution of Retail Logistics
Retailing has experienced a considerable evolution of its logistics in recent decades, with globalisation and e-commerce being the factors having the most significant influences. Evolution in retailing has involved new and more effective forms of distribution and can be summarised in four main phases:
(i) Direct Replenishment (1970s): Up to the 70s decade, most of the sourcing was domestic. It was provided either directly by suppliers or by wholesalers specialising in specific categories of retail goods. Such suppliers had their own warehouses directly supplying their customers. Imported goods, even being present, represented only a small share of retail sales, usually for specialised or luxury goods.
(ii) Rationalisation (1980s): the emergence and expansion of solid retailing chains such as Walmart boosted the rationalisation of logistics, in which many retailers developed distribution centres in peripheral areas. They acted as warehousing facilities between the suppliers and stores, often within the nearby regions (the so-called regional distribution centres). For large retailers, a streamlined and high throughput form of distribution centre occurred as a cross-docking facility.
(iii) Global sourcing (1990s): Two areas expanded the spatial reach of sourcing strategies, namely, outsourcing and offshoring. It started to involve, then an increasing number of overseas suppliers and long-distance transportation. The result was an essential share of retail imports becoming containerised, leading to import centres facilities rising nearby container port areas.
(iv) E-commerce (2000s): Web-based retail sales raised, triggering the development of new logistics assemblies. Since most digital retail purchases are shipped as parcels, this distribution structure witnessed the rise of e-fulfilment centres, which are large facilities that embrace individual orders shipped through parcel services. Such parcels are then moved to hubs that consolidate shipments or sortation centres that arrange shipments by their regional/local destinations. Sortation centres feed parcels directly into local postal delivery routes or into the carrier's local delivery system. The parcels then reach a delivery centre, in which they are placed on specific local delivery routes. In urbanised areas, local depots can also be used for urban deliveries using small vehicles (last-mile logistics). The final stop is either the customer's residence, a point of collection, or a delivery point such as a postal box.
Each of these phases in the retail logistics evolution was not totally replacing the earlier ones but normally added to them. There are yet direct deliveries from suppliers to stores, but this strategy is less present at a local scale and concerning small manufacturers and distributors. E-commerce did not replace standard retailing activities supplied by national or regional distribution centres but provided additional new distribution channels that can compete with existing retailing or be complementary when a retailer is both involved in conventional retail and e-commerce (the so-called omnichannel strategy). In this context, the store concomitantly acts as a standard retail outlet, a distribution centre, a showroom, and a pickup point for online purchases; an omnifacility.
II. Retail Logistics current panorama
Over the last decade, e-commerce has experienced significant growth throughout the world. This thriving has been reinforced by urbanisation, an increase of electronic devices households (computers, tablet, smartphones), improved internet quality, expansion of products available for online purchase and, of course, faster delivery times. For instance, 24hr delivery is new normal in countries such as the US and China, where same-day delivery reached more than 10% of parcel deliveries daily. In Europe though, same-day delivery accounts for only 5% of deliveries, but this trend is expected to change in coming years. These instant and same-day delivery solutions are now key service differentiators pushing firms to redesign their strategies and apply more agile models that leverage economies of scale while still meeting consumer demands.
By 2025, nearly 20% of retail will happen via online channels globally. Moreover, when it comes to more developed digital retail markets such as the UK and US (with their high per-capita online spending), over 25% of retail will be online. These online channels' growth will transform traditional retail models, with most retailers becoming hybrid 'bricks and clicks' model in the future. Most stores are already transforming to become more connected and interactive by introducing hybrid models such as virtual stores. It will hugely impact urban logistics, especially for parcel deliveries. In the future, parcels will become lighter, smaller and a lot more frequent with increasing average orders per week.
Simultaneously, with the highly demanding consumers, cities are being affected by traffic jams and air pollution. The World Economic Forum affirmed that the number of delivery vehicles (including construction material transport, waste and e-commerce deliveries, supply retail and restaurants) in 100 cities in the world will rise by 36% by 2030, representing a rise of over 30% in emissions. ADEME (French Environment and Energy Management Agency) expects that deliveries – which represents up to 20% of city traffic – account for one-third of the CO2 emissions of the country, a quarter of greenhouse gas emissions and half of the particles linked to urban circulation.
Therefore, on the one hand, e-Commerce is growing fast and changing the way we acquire goods. On the other hand, as a result, the supply chain market is becoming more complex in a time-constrained environment as the speed of delivery and user experience emerge as critical factors. This scenario is posing different and complex challenges as well as opportunities for this sector that are addressed in the following section.
Challenges and Opportunities for Retail in Urban Logistics
I. Challenges
Home deliveries growth put additional pressure to provide better last-mile services but is facing various challenges that are difficult to mitigate:
(i) Failed deliveries: when there is no one available to receive the delivery, an alternative arrangement must be made, involving either another attempt or delivery to another location. Failed deliveries, for whatever reason, are financial and time costly.
(ii) Residential and office attended deliveries: It normally happens in apartment buildings where a concierge or offices are convenient delivery points. Their presence results in a high likelihood of an individual available to receive the parcel. Nevertheless, this means a potential excessive workload for the concierge or the receptionist. Offices are now prohibiting using the workplace as a personal delivery point for online purchases. Likewise, large residential facilities such as apartment buildings are implementing parcel management systems to deal with the increasing volume of deliveries.
(iii) Returns: The e-commerce developments have also been associated with a growth in the number of returns, which tend to be higher than standard retail purchases since the consumer perceives the product only through a visual intermediary. Returns, then, create a form of reverse logistics requiring labour and facilities.
(iv) Environmental issues: Deliveries have a higher level of emissions than comparable B2B deliveries. Moreover, delivery vehicles also generate noise, which can be an annoyance source. Rising congestion within urban limits has resulted in increased levels of pollutants, including CO2. This has forced city authorities to deploy severe regulations that impact logistics providers in terms of how they operate. To tackle this issue, cities such as London, Berlin, Paris and Utrecht are some of the European cities that have incorporated measures, including strategies like low emission zones (LEZs), loading/unloading zone time windows, urban consolidation centres and special lanes.
In London, the issue was identified in 2010 with freight transport responsible for about 38% of nitrogen oxide and about 40%-50% of particulate matter 10 (PM10) emissions. The main challenges are frequent start-stop driving and the use of old delivery vehicles. With the London LEZ project, the city has seen a substantial decrease in road traffic pollution while sustaining high economic costs. Restrictive time zones strategies have also had an impressive impact. For instance, In Berlin and London, local environmental laws encourage minimising freight traffic between 10:00h and 16:00h.
These regulatory controls facilitate the creation of innovative business models such as click and collect and locker box solutions, which increase convenience while allowing delivery firms to avoid transport miles.
II. Emerging Distribution Channels
Distribution channels for e-commerce deliveries are getting progressively flexible. With the retail sector sourcing relying on global networks, even standard brick-and-mortar stores are adopting an 'Online-to-Offline' (O2O) strategy, in which online channels attract customers to physical facilities. Retailers use online store windows as well as physical ones to maximise their exposure to consumers. The physical store is a selling point and an omnichannel facility that includes a showroom where customers can experience or choose products previously seen online. In the UK, many large store-based online retailers offer click-and-collect services in which customers collect their orders from the store of their choice rather than opting for home delivery.
In todays' e-commerce logistics, the distinction between supply chain actors becomes more and more blurred as new business models challenge existing activities. These new times in e-commerce is forcing some online retailers to become logistics operators and to develop extensive delivery capabilities. The logistics market is now facing an increased competition between logistics service providers, e-retailers or even start-ups that provide creative solutions to satisfy the time requirements of urban consumers. For instance, Amazon has entered the parcel carrier market in some locations with its own logistics and delivery capabilities. By adopting such a strategy, Amazon delivers as many parcels in the UK as some of the largest carriers operating in the country. A similar reality applies in the United States, where Amazon has made significant inroads with a share of home deliveries, competing directly with UPS or FedEx.
Unfortunately, small stores can be negatively impacted by online large-scale retailers competition. Large retailers have suffered from the closing of several stores due to declining sales. A mitigating strategy in use is creating last-mile delivery brokers within a variety of urban areas, allowing people to buy goods from local stores and have them delivered by local drivers to the home or office locations. For instance, the Google Express platform allows consumers to order products from a range of brands available locally online or through a mobile application. According to each order, a Google truck picks up the parcels to its sortation centre, and a small vehicle redistributes the goods to their final destinations. Consequently, even being a great benefit for large service providers, e-commerce also provides niche services that benefit small retailers.
III. Trends
Innovative solutions in logistics have changed the way goods are transported and delivered. The industry is witnessing many new solutions focused on unique value-added services, which are disrupting the overall supply chain ecosystem. In the future urban logistics will be dominated by connected, shared, autonomous, and electric solutions. For instance, emerging technologies such as IoT, Big Data, predictive analytics, cloud computing, crowd-sourcing platforms and connected devices will be deeply present in logistics.
Urbanisation is closely related to the future of logistics. The development of Mega Cities around the world will drive new demand for logistics services within urban areas. Research shows that by 2025, there will be over 30 Mega Cities in the world, 21 Mega Regions and 21 Mega Corridors. Such an expansion will require unique city logistics solutions that are expected to open up avenues for smart and integrated logistics solutions. The urban landscape will also require suitable IT solutions with a higher focus on cloud services and vehicle-to-vehicle technologies that will allow providers to effectively manage load factors, improve fuel efficiency and deliver better economies of scale. For instance, new local branch concepts are being put to the test in city regions, new “corner shop” style stores, drive-in-concepts and even pop-up stores are leading to changes in sales area ratios and store sizes, as well as to product ranges, which in turn mean logistics services have to face changing order quantities and delivery frequencies.
The role of technology in Logistics 4.0
A plethora of technologies available on the market today is responsible for significant disruptions in the logistics industry. Basically, they have the potential to integrate information and facilitate interoperation with other production and distribution systems, and even with intelligent transportation systems (ITS), thereby favouring communication among production actors, devices and logistics infrastructure. As results, the reduction of times, costs, and negative social and environmental externalities are the expected effects of this interoperability.
Disruptive technologies will affect almost all logistics and economic processes related to domestic and international transport. And change will then be a constant, so the biggest challenges will be related to knowledge management, permanent training and innovation as a differentiating source of competition. Some examples of technologies with the biggest disruptive impacts on trade logistics are presented down below:
(i) Automation and robotics: these are two technologies that go hand in hand as they permit repetitive actions or processes to be carried out automatically. Developments in available information and IT techniques for real-time analysis facilitate more efficient operations management, decreased operational failures, and a sharp decline in total costs once social investment has been amortised. In logistics, automation and robotisation are present, especially in ports where output has been augmented thanks to high efficiency and productivity. In the medium term, they are projected to be incorporated autonomously into the logistics chain, in the operation of boats, trucks and other transport modals, as well as in intermodal terminals, which will improve output, security and responsiveness to specific changes.
(ii) Blockchain technology: it offers a security mechanism for the exchange of information between the different actors of the production and logistics chain. Blockchain technology was originally employed in cryptocurrencies, even though its use was later extended to other areas such as transport, telecommunications, foreign trade, and energy, and new applications are emerging constantly.
(iii) The Internet of Things (IoT): this technology allows the interconnection of smart devices that share data with each other and with other remote digital platforms and can be relevant for real-time decision-making. IoT devices' usage is expected to rise from 27 billion in 2017 to 64 billion in 2025 globally. For the logistics sector, the IoT represents an enormous opportunity to make services more efficient and economically profitable through real-time data capture that eases the flexible management of assets and the growth in value-added for the client. IoT boosts retailing logistics either through the follow-up of shipments, the optimisation of routes, or the improvement of last-mile delivery, among others.
(iv) The Industrial Internet of Things (IIoT): represents a specific application of the IoT in the industrial scenario, with the aim to maximise and automate data capture to improve the traceability of processes and real-time decision-making. In both cases, data trustworthiness and security are fundamental.
(v) Big data: involves the processing of vast volumes of different kinds of data from several sources at high speed, which facilitates the understanding of historical patterns and trends that aid in improving decision-making or the mechanisation of processes. Big data can also be seen as complementary to the IoT —which creates large volumes of data— as it analyses this information through data mining and big data techniques and facilitates the management and conversion of these data into valuable information for strategic planning and decision-making.
(vi) Cloud computing: it allows users to access technological infrastructure through external providers that supply shared and unrestricted access to data servers, storage, applications and services via the Internet, based on a pay-as-you-go model. Such a model presents undeniable advantages in terms of infrastructure costs and scalability, even though it requires high-speed nonstop Internet access and strict security controls to protect critical applications and data.
(vii) 3D printing: it allows the creation of objects by superposing (printing) successive layers of material based on a 3D model or drawing. It is essential to distinguish between 3D applications used in households and in industrial settings. In the first case, rather than dropping demand for logistics services due to the printing of objects in situ, demand is likely to remain steady or even increase slightly because of the need to deliver each household with the basic supplies to print products. Meanwhile, 3D printing in an industrial facility is different as it involves printing polymer parts locally, which could bring about relevant changes in some value chains. For example, suppose we consider the automobile sector. In that case, this industry could change the operating model by shortening the value chain and allowing the manufacturing of objects directly in factories or nearby, saving transport and time costs, as well as promoting higher flexibility in production in response to transformations in clients’ tastes and demand.
(viii) Artificial intelligence (AI): it is a machine learning system that enables the replication of human traits and is generally used for activities that require repetitive movements, replacing human labour with that of machines operating independently. It also enables the identification of patterns and triggers specific actions based on a large volume of data from different sources. In logistics, artificial intelligence is used mainly to predict demand patterns, allowing the flexible and rapid adjustment of inventories and optimising product distribution to reduce costs and delivery times.
(ix) Augmented reality (AR): it uses viewing devices to mix reality in a logistics environment with 3D information overlaid onto a display to improve decision-making. In logistics, warehouse management is being used to improve selection criteria, quality control, and product packaging procedures, which are routine tasks that account for a substantial amount of time and cost. Artificial reality could drastically cut costs and errors, improve delivery times, and improve customer service quality.
(x) Connected Logistics: The move towards more connected logistics is leveraging the key trends towards more connectivity and advanced data analytics. Data traffic per year is growing by 40% annually and was projected to reach a colossal 100.2 zettabytes by 2020. Accordingly, the logistics industry is being transformed by the same explosion in data. This increases prospects of logistics transforming into a data-centric industry, in which real-time data takes higher relevance. The ability of firms to create both structured and unstructured data onto the model facilitates them to make critical decisions regarding key logistics functions.
(xi) Shared Solutions: The evolving e-Commerce market and its connected technologies will make it possible for transport and logistics service providers to deliver packages in real-time. The leading innovators and new start-ups are pushing innovative solutions through ‘appification’ and crowd-sourced platforms, which are vital for pervasive on-the-go-type urban delivery solutions. Some of these innovators' capability to bring the stakeholders – such as consumers, retailers, service providers, etc. – under a common platform is expected to create great value in terms of the economy of scale. For example, we can see trends in which major auto manufacturers are cooperating with on-demand firms for shared mobility solutions such as on-demand taxi services by 2020. This technology could well be prolonged for delivering goods within urban environments.
(xii) Autonomous Logistics: Autonomous logistics certainly will play a fundamental role in the area of deliveries, and this has already stirred up a conversation around regulations and safety aspects of having such solutions, especially for last-mile urban deliveries. Some early testing has been done in closed environments, such as warehouses, but the process can take a bit long to be part of our daily lives globally. Many have subsequently been positively tested for outdoor environments such as dockyards. The point is that their benefits are undeniable. Such technologies can perform manual tasks and process orders and pick up and load deliveries four times faster than humans.
Conclusion
The digitalisation of business processes began in the 1960s with the first efforts to foster Electronic Data Interchange (EDI). This digitalisation grew more complex over time, with novel applications and the incorporation of technologies that improved the speed, flow, reliability and security of the information exchanged. Therefore, the management and exchange of data amid participants in the logistics chain is proving a key source of innovation and insight into customers’ needs, leading to the design of value-added services.
Nowadays, in the midst of the fourth industrial revolution, the logistics business model is transforming once again, placing emphasis on the quality of services, with unceasing information management and increasingly indistinct borders, which enables real-time supply chain management. A series of disruptive technologies, such as the blockchain, the IoT and big data, is conducting the fourth industrial revolution by interweaving and producing disruptive transformations in the corporate sector with a view to increasing efficiency, sustainability and providing the flexibility needed to adapt production rapidly to changes in demand and reducing associated costs and negative externalities.
Logistics 4.0, then, is characterised by the optimisation of time and resources, chain traceability, security and integrity of data and suitable interoperability between different human and digital actors. This digital ecosystem also facilitates innovation and the creation of new knowledge-based services and business models that foster a more socially and environmentally sustainable trade.
To sum up, the sector of logistics is permeated by various challenges and opportunities for the next years. Technology disruption and environmental legislation are two of the key aspects that must drive transformations and improvements in the sector. The stakeholders' integration to provide such changes and adaptation to consumers’ demand in a fast-paced world is also important drivers to successful developments in the area.
Campuses