Traditionally, industry stalwarts such as Royal Mail and DHL owned and maintained physical assets like warehouses and fleets of trucks. However, digitisation has led to the popularity of asset-light logistics, driven by software firms like Flexport and Project44.
The digitalisation shift has already swept through the e-commerce and retail sectors, enhancing the customer experience and driving growth. An example is Walmart, which executed a multi-billion-dollar e-commerce strategy, highlighted by acquisitions like Jet.com, Bonobos, and Eloquii. This strategic shift has resulted in e-commerce becoming Walmart’s fastest-growing segment at 26% in Q2 2023. Likewise, Nike’s digitalisation efforts, led by early investments in direct-to-consumer channels and a departure from retail giants such as Urban Outfitters, Dillard’s, and Zappos, have yielded positive results. Digital sales accounted for 42% of the company’s revenue in 2022.
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-optimised 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 centres 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 centres, and the integration of third-party service partners.
Advanced analytics & predictive modelling
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 synchronised with demand, which optimises 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.
Likewise, many retailers have embraced such technological advancements. Nike has made strategic acquisitions like Zodiac and Celect to leverage IoT devices and advanced software for demand forecasting and precise product availability and localisation. These capabilities balance maintaining adequate inventory levels and optimising costs while ensuring products remain accessible at the right time and place. Platforms such as Alloy.ai, Transmetrics, and Vekia have also gained prominence with retail and fulfilment providers as they enable them to gain valuable insights from their data and better grasp the dynamics of demand.
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. Noteworthy acquisitions, such as Teradyne, a leading supplier of automation equipment for test and industrial applications, acquired Mobile Industrial Robots, a supplier of collaborative autonomous mobile robots (AMRs). The company also led a $20 million funding round in industrial data start-up MachineMetrics.
In late 2019, Shopify acquired 6 River Systems, an AMRs solutions provider to the logistics and non-grocery retail sectors, for $450 million. 6 River Systems was subsequently acquired by the UK grocery industry leader, Ocado, following a series of widespread layoffs. 
Tracking the supply chain through innovative platforms like Verity, and Dexory 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.
Verity and Dexory stand out due to their integration of IoT and AI, which provides 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 realised.
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 skill set 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, illustrated by companies such as Urbantz and Instabee, to incorporating third and fourth-party logistics capabilities, as seen with offerings like InstaFreight and Byrd.
Notable examples of strategic interest in this domain include:
Flexport – Deliverr
Flexport’s recent acquisition of Shopify Logistics, which includes Deliverr, Inc., will accelerate the company’s efforts to become an end-to-end supply chain provider. This acquisition expands Flexport’s services to include ecommerce fulfilment, B2B distribution, and last-mile delivery capabilities. The purchase comes after the company raised $935 million in a Series E investment round in early 2022.
A.P. Moller – Forto
A.P. Moller Holding, an investment firm established by the Maersk family, participated in a $250 million funding round in Forto last year. The investment is a win-win for both companies, enabling A.P. Moller to harness Forto’s leading technology while granting Forto access to A.P. Moller’s extensive global network and expertise. The funding round elevates Forto’s valuation to $2.1 billion, further solidifying the company’s robust financial standing, with over $600 million in investments secured to date.
Another indicator of robust strategic interest in this domain is the organic growth of Walmart’s new last-mile delivery service business, GoLocal, which recorded over a million deliveries in its first year of operations. Like Walmart’s same-day delivery services, GoLocal deliveries are not overseen by Walmart’s internal workforce. Instead, they’re made by gig workers enlisted through Walmart’s Spark Driver program.
With the rise of just-in-case strategies and the convergence of physical and digital trends, delivery platforms like Mixmove, Airmee, and Hived are helping logistics providers navigate growing imperatives. They are enabling the prioritisation of environmental responsibility by embracing eco-friendly practices to meet the demands of both consumers and businesses. Additionally, they focus on optimising 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 optimisation, 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 characterised 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 utilising 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.
We also see players in emerging markets such as GIG Logistics in Western Africa and Bosta in the Middle East and North Africa region leapfrogging in this space, even at their relatively nascent stage. These companies can leverage the latest technologies and best practices without encountering the legacy systems and processes that more established entities must contend with.
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