From Procurement to Profit

Digital Supply Chains – A New Path to Productivity

By Persio Lisboa, Chief Operating Officer, Navistar

It is evident that the trucking industry will look really different in the future. How will the coming changes impact our businesses? A decade or two from now, how many of the companies in our industry today will remain competitive and winning in the marketplace?

Persio Lisboa

The main challenge for all of us is the increasing demands and expectation of the consumer. Their ideas about what they need, when and how they need it, will be much more demanding.

Customers’ expectations today are totally different than they were five years ago. In their eyes, 48-hour delivery is too long.

Direct shipments that skip one, sometimes two or three steps in the traditional supply chain are becoming the new normal … all in the name of speed.

The issue for us is what must happen in the back office to support the quality of delivery service that customers want and expect.

We recently talked with one of the largest carriers in North America, who provides services to Amazon.  They told us that, for every truckload of products reaching the Amazon customer, four equivalent loads have to move … either to generate transfers between distribution centers or to manage returns. That keeps the customer happy, but introduces a lot of waste into the supply chain.

Right now, inefficiencies in the supply chain are being absorbed within the system, as the customer is not willing to pay more for that level of service. Neither is Amazon. That is creating growing price pressure on carriers.

In addition, these online buying inefficiencies may well be generating an artificial demand for transportation capacity that might not exist tomorrow. That means we all have to ask what will be the real demand for transportation in the future, and how will we meet that demand?

The only answer that makes sense is that supply chains must reach breakthrough levels of productivity, because it is not reasonable to assume that our industry environment will stay the same.

The increasing pressures of urbanization and traffic congestion will limit our ability to add capacity by simply adding more vehicles. Likewise, shortages of truck driver are projected to be dramatic. So it’s clear that our current model doesn’t provide the solutions we need for the future.

This creates an opportunity for industry leaders to step up and make a difference. But it also opens the doors for disruptors, companies who can see beyond the traditional wisdom.

To understand what breakthrough productivity could mean, let’s start with a look at the size of the trucking industry. The industry’s annual spend is $719 billion, with 40% of that cost associated with drivers and the other 60% going to multiple operating and asset costs.

That creates plenty of opportunities for new technologies to transform how we operate and to yield major efficiency improvements.

Three megatrends that can dramatically move the needle on the industry’s productivity are Electrification, Autonomous Vehicles and what we call Digital Supply Chain.

Disruption in our market it will come from two angles:

First there will be business model disruption, as load-matching platforms revolutionize our supply chains.

Second, technology disruption will include electric and autonomous system that will reshape not only the operation of our trucks, but also new vehicle sales and the businesses of aftermarket parts and services.

Recent studies indicate that over the next five years, Electric and Autonomous advances could generate $79 billion in efficiency improvements.

In the same timeframe, a fully integrated Digital Supply Chain could remove close to $160 billion of inefficiencies. For that to happen, we must work collectively to create a network of connected vehicles.

We believe strongly that a Digital Supply Chain can be the foundation for new levels of productivity. That is why we’ve been investing so much in our platform for connectivity:  our OnCommand® Connection.

What started a few years ago as a tool for remote diagnostics has now become the most powerful connectivity platform in North America.

Today, every day, we monitor more than 325,000 connected vehicles in North America. We receive and analyze data daily from all these vehicles; together, they provide us with 8. 8 million miles of daily insights. We can see, at a VIN level, where and how 1. 3 million gallons of fuel per day are consumed. And much more.

How can data like this deliver billions of dollars in savings on an industry level? The answer becomes clearer when we look at some of the factors that are driving operational waste in today’s trucking industry.

A key issue is safety. Although trucks represent only 1% of US vehicle registrations, they are involved in 10% of accidents on our roads. That results in an unacceptable human and financial cost.

Over the last four decades, we’ve made only mediocre progress in safety. However, new collision mitigation technologies are evolving quickly that will help dramatically improve safety on the roads.

When we add in vehicle connectivity, which helps us monitor driver behavior and vehicle health, we find an additional level of opportunity.

Connectivity puts us on track to not only avoid accidents and the significant costs associated with them, but also to partner with insurance companies, maintainers and other service providers to reduce trucks’ operational costs and overhead.

Let’s start with the costs associated with the driver.

Our large carrier customers tell us that, for every 11 driving hours available to a driver per the Hours of Service regulations, on average only 6.5 hours are actually spent behind the wheel.

That means 4.5 hours of waste: drivers waiting for their loads to be released for hauling … sitting idle while loading or unloading … or “cooling their heels” while their trucks are in the shop for unplanned maintenance.

Automated safety technologies are the backbone of driver assistance systems that will make autonomous vehicles possible.

Very soon, we can expect to see ramp-to-ramp dedicated routes for platooning or self-driving vehicles. The driver will take the truck onto the entry ramp … move the vehicle into a platooning or self-driving mode similar to an autopilot on a plane … and then get some rest – rest that would help meet his or her Hours of Service requirements.

Vehicle-to-vehicle communication is a key enabler for this ramp-to-ramp concept. That’s another reason why connecting trucks is so important.

Close to 70% of the vehicles on the road today are under-equipped even in basic telematics. And that spells a major opportunity for disruption. By connecting this 70% — mostly owner-operators and small fleets — in an optimized supply chain network, digital load-matching disruptors can pose a real threat to the traditional players in our industry.

These disruptors can optimize the supply chain, closely connect carriers and shippers, reduce drivers’ idle time, increase truck utilization, and more. That’s why Uber, Transfix, FR8 and others are so aggressively taking positions in our market.

We may call it a disruption, but in the end it’s simply the search for productivity breakthroughs. And we believe these gains are very achievable, and much sooner than many in our industry may think.

If we continue looking for ways to reduce operating costs, unplanned truck downtime is probably the biggest challenge. In a world of self-driving vehicles and dedicated routes, the reliability of trucks on the road will have to advance to a new level of robustness.

All of us OEM’s are very focused on designing a truck that stays on the road and delivers uptime. However, there is still a lot of work to do before we can completely eliminate breakdowns that occur between scheduled service intervals.

Here again, the rapid advance of technology is helping. Today, prognostic capabilities can completely change the game on predictive maintenance.

Engineers rely on predictive statistical methods. Based on a sample of a population of failed components, statistical analysis can with remarkable accuracy predict the average life of the entire population of those components.

Our industry has used these tools for years to predict how long components will last, how many replacement parts we will need, etc.

In a world of connected vehicles, this kind of analysis becomes even more powerful. The reason is that connectivity yields a greatly enhanced availability of data. Thousands of records, monitored every day in specific systems, can achieve a much more accurate level of prognostics.

For example, in one of our internal studies, we were able to migrate from analysis of a failures of a single mechanical component, to analyses of 18,000 elements, based on sensor scans and their correlation with the failure mode.

Together, they provide us with a powerful prognostic tool that can not only tell us statistically what to expect from a certain component or group of components in terms of life, but can actually point us to the specific vehicles in the fleet that may be at risk of those components failing soon.

This means that, as we monitor our vehicles over 8.8 million miles per day, there is an enhanced opportunity to significantly reduce unplanned downtime between scheduled maintenance events.

In 2018, we are going to offer prognostic support services via On Command Connection. Our Live Action Plans will authorize customers to perform proactive repairs during the warranty period … even when there is no breakdown.

Our view of the future is that one day, when the supply chain system is fully integrated, breakdowns will be remembered only as something in the past.

Using big data from connected vehicles also provides a tremendous opportunity to help customers define the ideal specifications for their trucks.

When we add together the impact of these three megatrends – Electric, Autonomous, and Digital Supply Chain – the industry has the opportunity, over the next few years alone, to capture a 30% improvement in operating costs.

We believe the biggest step change that makes our industry more productive is right in front of us: connectivity of vehicles.

It will enable platooning and self-driving vehicles. It will make digital load sharing a reality,  dramatically improving capacity utilization. It will allow safety to be monitored and insured properly. And, it will yield improved design for the truck of the future … a truck that never goes down outside maintenance schedules.

Companies who participate in the network of connected vehicles that enables the digital supply chain will be a giant step ahead of those who don’t.

Persio V. Lisboa was  named EVP & COO of Navistar in March, 2017.  He previously was President, Operations for Navistar, which produces commercial and military trucks, diesel engines, and school and commercial buses. Earlier was Navistar’s Chief Procurement Officer.

Persio has a Bachelor of Science in business administration from Pontifícia Universidade Católica de São Paulo.

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