Automate Logistics Documentation: Is It Possible to Cut Costs with Technology?

The logistics industry has been moving toward digitalization for some time, which involves transitioning from paper to digital or electronic documents. Digitalization with the elimination of paper has been motivated by the expectation of lower costs, fewer delays, and a better grip on inventories and goods in transit. It also involves more accurate greenhouse gas (GHG) and carbon dioxide (CO2) emissions calculations as the basis for their reduction.

Electronic documents are considered more sustainable than paper documents as they reduce the use of physical resources, minimize waste, and avoid deforestation for paper production. According to Global Efficiency Intelligence, the pulp and paper industry is the fifth-largest industrial energy user, accounting for approximately 2 percent of direct industrial CO2 emissions. But turning paper into bytes also needs energy. The transition itself moves slower than people, including myself, have expected. I did my first digital document project in 1988. 

Today, we want to present to you our interview with Wolfgang Lehmacher, an expert in logistics with a wealth of knowledge in the supply chain field. 

Meet Wolfgang Lehmacher: Supply Chain and Logistics Expert

Good day, Wolfgang! Could you provide a brief overview of your accomplishments, experience, and areas of expertise? 

Today, we want to present to you our interview with Wolfgang Lehmacher, an expert in logistics with a wealth of knowledge in the supply chain field.

Good day! Yes, of course. I help organizations to stay ahead of the curve in the digital world. During my over 20 years in executive and advisory roles in supply chain, logistics, and transport at leading global groups, including Fortune 500 firms and international organizations, like the World Economic Forum, I led major change initiatives in the transport and logistics sector.

Today, I am an independent board member and chairman, C-suite advisor, and business mentor offering expertise in leadership, foresight, strategy, Log & Trade Tech implementation, freight operations, and partnering, empowering individuals and organizations, including corporates, consultancies, research institutes, startups, investors, and policymakers to realize their transformational goals. 

I was the Director and Head of Supply Chain and Transport Industries at the World Economic Forum, New York and Geneva, Partner and Managing Director, China and India at strategy firm CVA in Hong Kong, President and CEO of GeoPost Intercontinental, the global expansion vehicle of France’s La Poste, in Paris, and Head of Eastern European and Mediterranean Regions, and Country General Manager Switzerland at TNT, now FedEx.

Costs & efficiency

Thank you! So, let’s move on to our topic. What are the main cost drivers associated with traditional paper-based supply chain documentation?

In supply chains, paper documents cause significant expenses and create major inefficiencies, far beyond the paper, printing, storage, postage, and archiving costs. Costs vary but the costs of a paper document could be more than 140 times higher than those of a digital document.

The paper-driven expenses are included in the supply chain and logistics process costs. Paper-based processes are error-prone and slow. An electronic invoice can be processed four times faster than its non-automated paper version, and time is money. Paper delays orders, shipments, and payments. Digital documents are easier to keep compliant, and compliance breaches can be expensive.

How much impact do you think digitizing documentation can have on reducing these costs? Are there specific examples where you’ve seen significant cost reductions?

The cost reduction potential of the digitalizing of paper is significant. The savings range from paper-related cost reductions to improved cash flow, fewer errors, mismatches of invoices, delays of shipments, more cost-effective risk mitigation, and easier and more accurate GHG/CO2 emissions calculations. Industry-wide, supply chain actors spend an estimated US$ 3 billion annually on paper-related costs. This does not include paper, ink, and printing expenses. Adding the process costs and the costs caused by the negative impact on climate, eliminating paper is worth the effort. 

A global healthcare provider digitized and automated their document management processes, increasing productivity by 90 percent and decreasing paper by 97 percent. I am currently involved in an international project of a multi-billion-dollar global enterprise that will eliminate 17,000 freight paper purchase orders in one country alone. 

In your experience, what is the biggest bottleneck in the documentation process that could be solved through digitalization?

Paper chokes automation, visibility, and compliance. Stripping paper out of supply chains is like a silver bullet. Certainly, the digitalization of paper is a sine qua none for automation and advanced analytics.

In the back offices, robotic process automation (RPA) saves companies millions. Yet over 50 percent of invoices are still issued on paper. Piles of paper are produced in transport. The digitalization of paper brings visibility in business and transport processes to new heights, also laying the foundation for improvements in trade and supply chain finance. Through digitalization and advanced technology, the letter of credit (LC) process time can be reduced from weeks to hours.

Benefits beyond cost savings

Besides cost reduction, what other benefits does digitalizing documentation bring to the supply chain?

Beyond efficiency gains and direct cost savings, digitalization eases compliance with rules and regulations by eliminating the risks that come with manual and paper-based processes. Errors can lead to hefty fines and penalties. Those nations that push for digitalization reduce red tape and corruption, which also come with their costs. Visibility and transparency help customs clearance and homeland security agencies, as well as exporters and importers, reduce risks and costs. Digitalization of paper is a prerequisite for the integration of systems and smooth processing of trade documents.

Also, the environment and climate suffer from the use of paper. Twenty-six percent of solid waste in dumps originates from paper. An estimated 23 percent of man-made CO2 emissions originate from the loss of forests, with about 14 percent of deforestation attributed to paper. This adds to the energy consumption of the paper industry.

How can digital documentation improve collaboration and communication between different stakeholders in the supply chain? 

Data travels much faster than paper. Data enables instant access, provided digital systems are connected, interoperable, and able to deal with massive amounts of data. In an integrated world, people have access to the so-called one-source-of-truth, which not only reduces miscommunication but will eventually even eliminate the need for communication, exchange, and validation of information at all.

Real-time updates and alerts, e.g., when regulation changes, reduce compliance risks and allow for fast response and short adjustment times. Storing information in systems or at least pointers to such documents eases the processing of documents in international supply chains, accelerating export and import processes through seamless and instant communication and collaboration between the parties involved.

Digitalization-driven efficiencies also result from the data being captured only once instead of multiple times for different systems. Digitalization and visibility also ease version control and the tracking of changes, avoiding uncertainties about the latest version of documents and easing the collaborative preparation, editing, and sharing of information. Digitalization enables virtual workspaces for joint planning and problem-solving across supply chain networks. The gains in communication and collaboration span across entire supply chain networks from suppliers to partners and customers.

Have you seen improvements in supply chain transparency and real-time tracking through digital documentation? If so, can you share an example?

Digital documents, like mandate letters or a power of attorney, are used to gather transport plans and cargo position data from different actors along the supply chains. New standards for such and other digital documents can be expected. In the future, digital certificates will also travel with the goods and inform buyers about the carbon intensity of alternative fuels.

Technologies

What trends do you see in the digitalization of supply chain documentation? Are there emerging technologies that are gaining traction, like AI?

Digitalization is all about technology. In the cloud, artificial intelligence (AI) can categorize documents, route them based on their content, and improve optical character recognition (OCR) accuracy, which is fundamental as an interim step before one day all documents are turned into datasets. AI extracts structured and unstructured data from a broad range of sources, like documents and images. However, AI can also organize documents into data streams and easily add new data for large-scale analysis and automation. 

The smartphone has probably been the most impactful contributor to the mobile revolution. Today, digital documents can be produced, shared, and consumed everywhere and by everybody. Apps capture, digitize, and scan documents directly to the cloud. Distributed ledger technology (DTL) minimizes the risk of tampering, and biometric authentication provides secure access to the electronic documents stored with advanced encryption methods to ensure their security. RPA and business process automation (BPA) are building on digital document management solutions as the basis for workflow integration and process automation.

Expanding the implementation of document digitalization technologies across organizational borders and end-to-end supply chains will lead to unprecedented gains in supply chain coordination, automation, and, hence, capital creation.

Can you share any success stories of companies successfully transitioning to digital documentation and significantly improving their operations?

A global cement company and a real estate trust both implemented document management solutions for their accounts payables and eliminated paper processes, which led to improved efficiency and cost savings. The digitalization of documents in supply chain and logistics often requires a collaborative effort, pioneers, early followers, and many adopters to scale. 

In air freight, the e-AWB has become the standard and default contract of carriage for air cargo shipments on enabled lanes since 1 January 2019. Over 85 percent of all air cargo transport is now using e-AWBs, and IATA has set the goal of reaching 100 percent e-AWB adoption by 2026. The e-CMR protocol for road freight has been ratified by 35 countries,s and several additional countries are working on the ratification. In 2021, MSC and then both Hapag-Lloyd and ONE made a big step and pioneered the electronic bill of lading (eBL) in their operations. Jointly with other actors, the industry is now striving to reach 100 percent adoption of digital documents in ocean freight to reduce costs, errors, delays, and time.

How do you see the future of digital documentation evolving? Could we reach a point where paper-based processes are fully eliminated in global supply chains? 

I envision a future where all paper-based processes are substituted by much more efficient digital processing of data. The term “document” will disappear and be replaced by “datasets,” which are much more hand-friendly for digital architectures, applications, and systems. Realizing this vision will take some time, we have seen continuous progress. A risk going forward is the increasing geopolitical fragmentation, which can disrupt the development. We may end up with multiple standards, e.g., one for the United States and their allies, one for China and the China-related countries, and possibly standards for other nations. Multiple transportation and trading systems may emerge. AI might help deal efficiently with fragmentation.

Implementation challenges

What are the common challenges companies face when transitioning from paper-based to digital documentation systems?

Document digitalization faces traditional limitations, like cost and resource constraints. The initial investment in digitalization needs to produce sufficient returns to be justified. I am confident that the document digitalization business and investment cases make sense. However, smaller organizations might struggle with it. Here, the public sector should play its role and provide financial and information support. A classic barrier is the challenges around change management. Companies also face an overwhelming offer of different digital products and solutions where external advisors can help companies make the right choice.

A challenge is the legacy systems with their outdated infrastructure. Although these systems are hard to change, the risk of holding on might be much higher than the risks that come with changing them. 

Differences in software, technical specifications, and file formats lead to challenges in the integration of systems. Another barrier is partner inertia. Transitioning to digital documents is not a purely technological but a socio-technological undertaking. Sponsors and project leads must win the minds and hearts of the people not only in their organizations but along entire chains as documents move from actor to actor. Data sharing meets resistance, but the future is open supply chains with one source of truth and various supply chain towers for transport, inventory, and production.

Many government agencies insist on paper documents, which slows down the transition, but this will not last forever. Today, varying requirements across jurisdictions, government agencies, and transport modes make adoption complex. Many jurisdictions do not recognize digital documents, in particular, negotiable instruments like the eBL, as equivalent to paper documents. Some laws place ill-defined criteria, like the United Kingdom Electronic Trade Documents Act which requires “reliable systems” but does not well define the criteria for reliability. Or the need for “exclusive control” requested by legal frameworks, like the Rotterdam Rules, which makes e-documents function as documents of title technically difficult to implement. The need for ancillary agreements like additional service agreements adds to the complexity. But Covid-19 brought a first major mind shift, and I expect accelerated progress.

Is there any resistance to digitalizing processes in the supply chain sector, and if so, what are the most common reasons for it? 

The resistance to driving digitalization in supply chain and logistics can stem from resistance to engage in the necessary investments and change efforts, or vested interest and the fact that certain actors in the sector benefit from the lack of transparency and integration.

How can companies overcome issues such as data security, integration with existing systems, and compliance when digitalizing their documentation?

Cyber risk is among the major challenges that come with the digitalization of documents or digitalization in general. This includes the risks of loss of digital documents and operational disruptions. Cyber security comes at a cost. The higher the targeted level of security, the more a company must spend. Experts can help with the calculations and design of an effective cyber security program. As a reminder, cyber security is not limited to information technology measures, instead, it is a company and chain-wide management challenge to mitigate a broad range of threats with potentially enormous consequences which requires anchoring cyber security at the board level. 

What are the risks involved in digitalizing supply chain documentation, and how can companies mitigate them? 

Beyond cyber and compliance risks, e.g. data privacy must be managed properly, which are technical issues that companies should be aware of and deal with. 

These include incorrect indexing or metadata assignment risks hindering retrieving documents. There are also compliance and legal considerations. Organizations must ensure compliance with regulatory requirements and that the digital versions of documents meet the regulatory standards for accuracy and integrity. The transfer of data from paper to digital versions is risky, as it can cause corruption and loss of data. The transfer of data from paper to digital versions as such is risky, as it can cause corruption and loss of data. 

Most software solutions and their provider offer precautions, and legal and compliance departments can help to deal with such challenges. Companies can mitigate risks through skilled personnel and experts as well as diligent planning and execution. Of course, replacing legacy systems that are not able to handle digital documents at scale is another major change initiative that goes far beyond digital document considerations and requires proper decision-making and project management processes.

Are there any sectors or regions where digitalization is more challenging or less likely to succeed, and why?

The ease of implementation is determined by factors like infrastructure, digital literacy, and regulation. Across the whole world, there also are cultural differences that must be considered when designing solutions and decision-making and implementation processes. In the least developed countries (LDC), only 36 percent of the 1.4 billion people are connected online. They often suffer prohibitively high internet costs. Furthermore, LDCs regularly lack policies that enable a digital transformation, and workforces are not sufficiently trained to scale solutions and benefit from digitalization and digital documents.

Infrastructure gaps add to the complexities. From an industry perspective, FinTech, e-commerce, and digital health are among the frontrunners of digitalization. The self-organizing supply chain and logistics sector, where several actors are usually involved in a single end-to-end operation, faces bigger digitalization challenges. This should certainly not hold us back, considering the rising pressures and significant rewards of digitalization. 

Suggestions 

What advice would you give to supply chain managers who are considering digitalizing their documentation processes but are unsure where to start? 

Those that have not yet must start to digitize. The digital train has left the station, and the catch-up game can get expensive. I recommend involving external experts who are experienced in digitalization projects. Experiment. Define easy-to-digitalize focus areas, e.g., eliminate paper in one department, which will probably expand into a cross-company effort. Take your time. Digitalization is not a sprint but a marathon. It is the future of business.

Bring everyone on board. Map the as-is process as the basis for to-be optimization. Leverage the digitalization effort as a vehicle to standardize. Seek partnerships as testbeds and learning opportunities. You will need partners for the cross-industry document digitalization initiatives anyway. Hence, select your partnerships according to future needs, and these partnerships can expand into other areas like decarbonization.

Looking ahead, how essential do you think digital documentation will be to maintaining a competitive advantage in the global supply chain market?

Digital champions will dominate the digital economy, and I can only recommend investing in building digital and particularly data management capabilities. The risk of digital laggards being pushed out of the market at some point in time is almost certain to materialize.  Today, data-based competence and intelligence is a competitive edge, tomorrow it will be the license to operate.

Document digitalization is a major industry opportunity that goes far beyond saving paper costs. It is the supply chain and logistics of heart surgery. The industry is poised to become more digital and transparent. Regulations that come into force will increase the pressure. Companies should specifically monitor sustainability regulation, e.g. around circular economy and its consequences for supply chain operations caused by the need for foundational digitalization. Every actor can and should contribute to making the industry more digital and sustainable at the same time.