You may have heard the phrase “digital transformation,” and probably rolled your eyes, dismissing it as just another business buzzword. But the reality is that when it comes to logistics – particularly food and beverage logistics – digital transformation is more than just marketing speak. It could be the one thing that your company needs to survive.
According to a recent report, supply chain companies that delay digital transformation could see a 23% reduction in cash flow by 2030 compared to their peers who have already digitized. What’s more, implementing artificial intelligence (AI) could increase cash flow for those same companies by 118%. Because Latin America (LatAm) is an emerging market in which many companies have yet to go fully digital, the opportunity is likely even greater. Here’s what digital transformation means for the logistics industry.
LatAm’s food logistics
Digital transformation, in its simplest form, refers to the integration of digital technology into all areas of a business, fundamentally changing how it operates. It's about evolving and streamlining processes, enhancing efficiency, and leveraging technology like AI, big data, and Internet of Things (IoT) to drive growth and innovation. Digital transformation is particularly important in food logistics because shipments that get lost or delayed are more likely to go bad and be unusable even if they do eventually reach their destination.
Latin American companies need to ramp up digital transformation efforts to stay competitive in the global market. Here’s why: Latin America is currently a major focus of U.S. trade relations and supply chains. Right now, with the trade route blockage in the Red Sea and Europe due to the Israel-Hamas and Russia-Ukraine wars, a lot of U.S. suppliers are shipping overland from Mexico, which means they’re relying on Latin American logistics companies and suppliers. So the LatAm region’s digital transformation efforts affect international supply chains.
LatAm logistics companies and suppliers that haven’t undergone digital transformation are likely tracking shipments on paper. As a result, lost shipments are just that: lost forever, and there’s really nothing to do about it. Data entry mistakes compound the problem, resulting in overstocking, understocking, misplaced shipments, and so on. In addition, no one has visibility into inefficiencies or route blockages that are making the problems even worse, so these logistics companies can’t even begin to address the issues.
By contrast, if you have digital tracking in place, you can view data that tells you the best routes to take. You can see the last location of misplaced shipments and reduce mistakes so customers are getting the correct shipments at the correct time. The entire supply chain benefits.
Fortunately, 71% of LatAm companies on average have at least started to undergo digital transformation. However, in Mexico at least, only a little over half say they have had success in those efforts. Which means a fairly high percentage of logistics companies are likely struggling in their attempts to go completely digital.
In other countries like Colombia and Argentina, the problem is even more noticeable: over 70% of companies say they plan to start digital transformation this year, which means they haven’t even begun. Those numbers are deeply disappointing in a region that is rapidly becoming a linchpin for U.S. trade.
Making digital transformation work
To be fair, there are still a lot of barriers when it comes to bringing about digital transformation in Latin America. The Top 2 that leaders in the region cite are a lack of digital skills in current and potential employees and the lack of adequate investment funds for companies to build internal digital infrastructure and technologies.
Let’s first focus on the digital skills deficiency. This skills gap is preventing nearly two in three companies in many Latin American countries from feeling completely prepared for digital transformation.
You can take a multi-pronged approach to address this skills deficit. The first is to invest in regular training, which should include not just technical skills like big data analytics, blockchain technology, and generative AI but also soft skills that promote adaptability and continuous learning. Courses that foster these soft skills might include programs in critical thinking and analytical skills to promote problem-solving; or workshops on empathy and effective communication to develop emotional intelligence. Consider partnering with educational institutions for specialized courses to accelerate this process.
The other thing you can do is take a top-down approach to changing your company’s culture around digital literacy. Leadership should model and encourage a digital-first mindset, emphasizing the benefits of transformation for both the company and for individual growth. Initiatives could include digital literacy programs, innovation workshops, and creating platforms for employees to contribute ideas on how to move digital transformation forward.
As for insufficient funding for building internal digital infrastructure, one option is to take advantage of something called infrastructure sharing. Simply put, infrastructure sharing generally involves organizations leveraging existing physical infrastructure to deliver their services rather than building their own from scratch. There are different types of infrastructure sharing. For example, in passive sharing, organizations share physical infrastructure without sharing the equipment that provides the service. Examples include sharing towers for telecommunications and right-of-way for railways or highways. By contrast, in active sharing, organizations can share actual equipment in addition to physical infrastructure. In logistics, this could mean sharing software or computing resources that some companies might not otherwise have access to.
The final type of infrastructure sharing is called joint development. In this model, entities collaborate to build and use new infrastructure. Maybe you don’t have enough resources to build software internally, but you can partner with someone who can supply the rest of what you need in the form of developer expertise or even just a secure testing environment. This way, companies can split the high costs of development and maintenance, making projects more economically viable.
You can also rely on outside resources and platforms instead of building internal software, which can lower your overall costs. There are digital logistics providers who can help so you don’t have to build digital platforms and tracking systems from scratch. There are cloud computing services that offer scalable and flexible resources for storing data, running applications, and managing workflows. These services enable companies to access advanced computing power and software without the need for significant capital investment in physical infrastructure and without infrastructure sharing.
The cost of failure is high
Ultimately, the Latin American logistics industry cannot afford to fail when it comes to digital transformation. This is what is going to make the difference between whether logistics companies have a successful year with positive cash flow or close up shop in a few years.
But when these companies do succeed, this will lead to success for the companies across the world that rely on these companies to get shipments where they need to be.
