Why Robotic Process Automation (RPA) is a game changer for Logistics & Supply Chain
Few industries have experienced such dramatic recent changes as Logistics & Supply Chain. Think about the surge of e-commerce, the US-China trade wars and Brexit. These trends and events on their own were enough to make the life of Logistics & Supply Chain executives a lot more stressful, let alone all at the same time. And then came the icing on the cake: the global disruption of the economy and supply chains caused by the Covid pandemic.
Now that the post-pandemic reality is taking shape, the new normal is arriving fast. Welcome to the reality of a digital economy. In April 2020, Microsoft’s CEO Satya Nadella stated: “We have seen two years’ worth of digital transformation in just two months.” In a recent Deloitte survey of 2,750 private company executives across 33 countries, 69% of respondents said the pandemic significantly accelerated their digital transformation — not just sparking but exploding the pace of adoption.
But not all digital technologies are being adopted at the same pace. Some IT segments have been set back, while others are prospering in the Covid age. With increased scrutiny of IT budgets, certain programmes were scrapped, while others were prioritized. One of the biggest winners is definitely Robotic Process Automation (RPA). In October 2020, research firm Gartner made a review of the IT landscape, by comparing their growth in 2020 with their expected growth over the next five years. As can be seen from the chart below, Robotic Process Automation (RPA) is quite prominent in the global post-Covid IT landscape. RPA is not only the fastest growing software segment of this year, but is expected to remain at the forefront of the global digital acceleration for the next years.
Robotic Process Automation is an emerging software technology that is based on the concept of a digital co-worker or software robot, who performs repetitive business processes in a similar way as its human colleagues, but at a fraction of the cost, without errors and at a much higher pace. Essentially, RPA is a type of lightweight automation, because with RPA robots you can automate business processes with only minimal changes to a company’s existing IT infrastructure. RPA enables the automation of any combination of software applications through their user interfaces. This is in contrast to heavyweight automation, such as Electronic Data Interfaces (EDI) integrations, that typically require much more complex integrations in backend systems.
Often seen as the “low hanging fruit of Artificial Intelligence, RPA is an affordable, flexible and relatively straightforward technology to apply. Typical RPA use cases are order entry, master data updates and invoice processing. But any business process that is repetitive, applies fixed rules and works with (semi-) structured data can be a good candidate for automation with RPA.
RPA’s applicability is extremely broad. It enables automation of processes that were until recently considered too expensive to automate. RPA underpins a global trend of freeing up white-collar workers from repetitive manual entry tasks. And the potential is huge: according to McKinsey Global Institute, about 60% of all jobs have at least 30% automatable activities.
Now, why is RPA so relevant for Logistics and Supply Chain in particular? We see the following five reasons why RPA is good match for this sector:
- The Logistics and Supply Chain sector is notorious for its heavy use of manual, rule based processes. Logistical companies typically have large armies of clerks that are copy-pasting data from various structured documents such as bills-of-lading, invoices etc and entering them into various backend systems. This manual copy-pasting is costly due to its FTE impact, but it also introduces lots of errors, leads to unnecessary delays and increases the risk of non-compliance. In general, we see a good match between the ideal RPA process and a typical logistical business process.
- There is a growing need for supply chains to be more flexible in order to react and adapt quickly to sudden changes. In order to orchestrate shipments and deliveries across various actors in such a changing supply chain, lots of data needs to be interchanged in a flexible way. Think about shipment information that needs to be collected from internal backend systems in order to update external customer portals. Many logistical companies have implemented EDI to a certain extent, where the volume of transactions are sufficient for a positive business case. But for lower volume suppliers/clients, establishing an EDI link is too expensive and its implementation trajectory is too long and not in line with the fast-paced changes that logistical companies are facing. With RPA, a cheaper, quicker and more pragmatic solution to achieve integration of information across various actors can be achieved.
- Many small and mid sized logistical companies are facing increased competition and eroding margins. Over the last decade, their large competitors have typically outsourced administrative processes to cheap labour countries, such as India or the Philippines. This has created a cost disadvantage, as smaller players do not have the scale or work too decentralized to be able to outsource their administrative work. But now RPA does offer these smaller companies the possibility to achieve cost savings on these processes, because RPA implementations are flexible and do not require huge up-front investments. The cost of an RPA robot is typically 10 to 19% of a local Full Time Employee (FTE) and roughly between 33 and 50% of an FTE in an outsourced location (Sullivan et al 2021). One of the big misconceptions that we see in the market is that RPA is only suitable for large corporates. Nothing is less true: the benefits for SME’s are equally big and often they can achieve results with RPA in a faster way than their large competitors.
- The logistical and supply chain sector is facing a deepening talent shortage. According to a recent study commissioned by DHL, finding employees with the right skillset required to run the complex operations of a logistical company, is becoming increasingly difficult. Lisa Harrington, author of the study, states that “unless companies solve this problem, it could threaten their very ability to compete on the global stage.” RPA can relieve the pressure on the current employees by automating significant amounts of work and, by automating the most boring and repetitive tasks, improving the job content of logistical employees.
- Usage of Robotic Process Automation is often the first step on a company’s digital automation journey. RPA facilitates complimentary technologies, as it is often combined with other digital levers such Intelligent Document Processing, IoT and chatbots. As several studies have demonstrated, in many cases RPA adoption paves the way for Artificial Intelligence, because It is a reasonable, low cost and lower risk entry-level approach. With Artificial Intelligence being the transformation technology of our time, many companies are trying to figure out how to exploit AI. And the potential for logistical companies is especially relevant. A recent article in The Economist has pointed out that the potential economic-value creation from AI in the supply chain sector is huge: McKinsey estimates that firms will derive between $1.3trn and $2trn a year in economic value from using AI in supply chains.
In short, we believe that RPA is a good fit for a company in Supply Chain & Logistics, because of the following reasons:
- The good match between RPA and the typical logistical business processes
- RPA’s flexibility and agility that can help companies to cope with fast-paced changes
- The possibilities that RPA offers, also to small and mid-sized companies, to achieve significant cost savings as an answer to competitors who rely on outsourcing.
- The talent shortage that many companies in this sector are facing
- The pivotal role that RPA can play by paving the way for Artificial Intelligence
Would you like to understand more about the potential of RPA for Logistics & Supply Chain? Together with Supply Chain Masters, we are hosting a free webinar on June 11 on RPA in Logistics and Supply Chain, full of live demo’s and practical use cases. Register here
Sullivan, Mac, Walter Simpson, and Wesley Li. “The Role of Robotic Process Automation (RPA) in Logistics.” The Digital Transformation of Logistics: Demystifying Impacts of the Fourth Industrial Revolution (2021): 61-78.