Turbulent market forces are compelling companies to transform their logistics functions for greater flexibility, predictability, efficiency, and resilience. A new McKinsey survey of more than 250 logistics leaders, representing both shippers and providers, confirms that companies are increasingly turning to technology to solve their many challenges.1
The survey’s most important message is that now is the time to invest in logistics technology. Even under difficult market conditions, most respondents said their companies have sustained or grown their technology investments since 2020. That leaves laggards with less and less room to maneuver.
Yet for shippers and providers alike, the technology landscape has become increasingly complex and crowded. Companies face questions about not only what value they expect from a technology but also how that technology will fit into their enterprise-level technology landscape, their day-to-day operating models, and their underlying logistics processes. Data and technology integration is typically required as well.
The survey shows that both shippers and providers are moving beyond foundational technology and turning to leading-edge solutions to gain or maintain a competitive advantage. Moreover, the results highlight substantial common ground between shippers and providers, implying that closer collaboration could unlock new solutions to shared challenges.
Together, the survey findings suggest that if a company isn’t reimagining the way it works in conjunction with technology—all while building newer breakthrough capabilities—achieving the expected ROI from technology commitments may become harder than ever.
Shippers and providers share common pain points
Shippers and providers continue to face challenges in their operating environment: namely cost management and labor shortages. Cost management, driver management, and productivity improvement were the top three pain points reported in transportation. In warehousing, survey respondents identified labor management, productivity improvement, and performance management as the most pressing issues (Exhibit 1).
Interestingly, the pain points for shippers and providers are similar—and, in some cases, they affect providers more acutely. In the short term, driver and staffing shortages are not expected to significantly improve; however, shippers and providers have an opportunity to address other shared challenges, particularly wherever they can coordinate and complement each other’s capabilities. This could lead to improved efficiency, reduced costs, and increased customer satisfaction for both parties.
Unsurprisingly, logistics companies are turning to technology to reduce costs and improve productivity in transportation and warehousing. Tools that support real-time transportation, visibility planning, and telematics for fleet management are seeing above-average adoption and investment rates.
As companies plan their future investments, they can shape their decisions around the solutions that will address their top challenges and help them develop or sustain a competitive advantage, while also building internal capabilities to ensure sustainable change.
Technology investments continue to grow
Both shippers and providers have grown their investments in digital logistics since 2020, across all technologies (see sidebar, “The transformational power of digital logistics”). Some 87 percent of shippers reported maintaining or growing their technology investments since 2020, and 93 percent said they plan to maintain or increase their spending over the next three years (Exhibit 2).
Foundational technologies achieve mainstream adoption
Providers have been leading in investment over the past few years, showing higher adoption rates across both transportation and warehousing technologies. But shipper companies are planning to close the gap, reporting strong investment plans for the next two years (Exhibit 3).
The survey also reveals that foundational technologies like warehouse management systems and transportation management systems are now mainstream. Companies that have not invested in these systems could be at risk of falling behind their competitors.
Shippers and providers are moving beyond foundational technology
With foundational technology adoption now commonplace, the next frontier of productivity could come from leading-edge solutions, such as robotics, network digital twins, and real-time insights.
As the technology landscape matures, shippers and providers can assess where they are in their transformation journeys in relation to the wider logistics sector to identify which capabilities and technologies will make the difference (Exhibit 4). The multitude of use cases makes it challenging for companies to know which ones to invest in and how best to ensure value capture, particularly if there’s a relatively innovative use case that has not been widely adopted.
The technology landscape is increasingly complex
As well as having to select the right use cases and navigate an increasingly complex landscape, shippers and providers are under pressure to ensure seamless integration of their numerous transportation and warehousing solutions. A plurality of providers (34 percent) now have as many as eight or nine different technology solutions in their transportation tech stacks, and 37 percent have five or more solutions in warehousing (Exhibit 5).
With the logistics technology landscape becoming increasingly complex, effective integration of data flows and complexity management will be critical to achieving optimal performance and ROI.
Cost and change management continue to prove difficult
Integrating and embedding new technologies is not easy, and most companies called out ROI, change management, and training as the main challenges they face when implementing new solutions. Around 68 percent of shippers and 80 percent of providers cited cost as the biggest challenge for transportation transformations; for warehousing, a majority of shippers and providers also cited cost (Exhibit 6).
To get ahead in the digital logistics race, companies need to understand not only where to invest but also how to transform their operating models through a multipronged approach that encompasses the following:
- creating a vision of the future state, including the from–to transformations needed in processes, systems, and capabilities
- building capabilities to scale and sustain specific use cases across business units
- developing change management programs and defining new ways of working to achieve a high-performing organization
- getting the right systems and data infrastructure in place to support new technology
- adapting processes with an eye toward value to ensure chosen solutions are sustainable and scalable
- measuring regularly and adapting early, with real-time performance management and decision-making support
- conducting proof of concept sprints to iterate and learn
By investing in digital logistics technology—and the operating model changes needed to embed it and capture value—shippers and providers can harness the competitive advantage increasingly needed to outperform under tough market conditions. As the digital logistics technology race gathers pace, foundational technology is becoming the absolute minimum needed to remain competitive. Those providers and shippers that go beyond their competitors to integrate leading-edge solutions into their tech stacks could be the ones that pull ahead of the pack.