Rethinking Logistics: The Future is Phygital

Traditionally, industry stalwarts such as Royal Mail and DHL owned and maintained physical assets like warehouses and fleets of trucks. However, digitization has led to the popularity of asset-light logistics, driven by software firms.

The ascendancy of “just in case” (JIC) features within supply chain management systems is another notable shift and represents a significant departure from the conventional “just in time” (JIT) approach that has been a cornerstone of logistics and manufacturing for many years. Alongside this, companies are placing greater emphasis on diversifying their supply sources rather than relying on a single, cost-optimized supplier to hedge against the risks of supply chain disruptions.

Meeting these dual transformative trends and their associated challenges requires the integration of physical and digital supply chains that blend physical and digital strategies to enhance efficiency, cost flexibility, and sustainability.

Integrating physical and digital supply chains

The transformations within supply chains have laid bare the limitations of traditional asset-heavy services with little to no digital capabilities. Phygital is a hybrid operating model integrating physical assets like warehouses, vehicles, and distribution centers with cutting-edge digital software systems. This hybrid approach enables providers to sync various elements within their physical and digital operations, facilitating the delivery of services that have been previously difficult or even impossible to provide while meeting rigorous customer standards. These encompass advanced data analytics for tracking and sharing, the efficient use of fulfilment centers, and the integration of third-party service partners.

Advanced analytics & predictive modeling

Integrating sophisticated software yields significant advantages, particularly when allocating resources pre-emptively and making informed proactive decisions to mitigate and manage potential risks. A compelling example is DHL’s adoption of asset maintenance schedules synchronized with demand, which optimizes inventory levels in anticipation of seasonal fluctuations, fine-tunes delivery routes, enables preventative maintenance, and enhances vendor due diligence. DHL has also augmented its analytical capabilities by assembling a team of over 230 data scientists.

Inventory & supply chain tracking

The logistics industry has seen a significant technological shift over the last decade, primarily spurred by the proliferation of IoT technology and advanced industrial robotics.

Tracking the supply chain through innovative platforms is now a pivotal aspect of modern logistics operations. They enable last-mile providers to anticipate supply needs and ensure products are prepared for timely delivery, evolving their capabilities from merely predicting demand to proactively acting upon it.

IoT and AI provide valuable insights and advanced automation, resulting in increased efficiency, especially in repetitive and mundane tasks. These insights can only be effectively translated into actionable improvements within a “phygital” model, as the provider has complete control over their physical assets, ensuring that efficiency gains can be fully realized.

Asset light third-party storage & delivery solutions

Asset-light third-party storage and delivery solutions are provided by external companies that do not own or operate the physical assets like warehouses, trucks, and delivery fleets needed to store and deliver goods. Given the industry’s challenges and uncertainties, acquisitions in this space should come as little surprise. They have been fuelled by a convergence of factors, including industry shortages such as a lack of fleet and skilled human capital, supply chain bottlenecks resulting from global crises, demand fluctuations, geopolitical complexities, and the closure of factories and mines. And this has all occurred amidst broader macroeconomic uncertainties.

In light of the logistics industry’s growing complexity and competitiveness, logistics providers will continue to expand their skillset by acquiring new capabilities. To remain competitive, these providers must offer a comprehensive array of services to meet their customers’ demands such as providing last-mile delivery and storage services.

Delivery platforms

With the rise of just-in-case strategies and the convergence of physical and digital trends, delivery platforms are helping logistics providers navigate growing imperatives. They are enabling the prioritization of environmental responsibility by embracing eco-friendly practices to meet the demands of both consumers and businesses.

Additionally, they focus on optimizing last-mile efficiency, streamlining delivery routes, and reducing idle time in the delivery process, which is essential for meeting customer expectations around speed, convenience, and sustainability. They also leverage technology and data for functions such as route optimization, tracking, and analytics, giving providers real-time visibility into their supply chains and enabling them to adapt to changes in demand.

The future is phygital

In a dynamically evolving operational landscape characterized by escalating costs, heightened customer expectations and complexities, and disruptions in supply chains, a well-coordinated “phygital” approach empowers providers to mitigate risks in their supply chains, enhancing operational efficiency and flexibility in managing costs.

Through sustained innovation and strategic business planning, these efforts have already yielded tangible results. By utilizing an increasingly sustainable model, providers can ensure a consistent and dependable customer delivery experience in the face of recent disruptions and global crises. This momentum is showing no signs of waning.

We anticipate consolidations in this domain to persist and accelerate in the forthcoming years as more well-established industry leaders venture into relatively new arenas such as e-commerce, social commerce, and AI-driven demand forecasting and management platforms.

About the author:

Vishwas Mishra is an analyst at DAI Magister, a global investment bank specializing in mergers and acquisitions, advisory services, and venture capital investment with offices in London, New York, Paris, Singapore, Lagos and Oman.

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