Intractable problems are frequently where complexity meets resilience.
And while some of the most historically entrenched problems, like those surrounding global logistics payments and supply chain processes, may be opportunities in disguise — that simple fact doesn’t make solving for their long-time snarls any easier.
“If you think of [legacy freight workflows] from a payments perspective, you have a sales order and you have a purchase order, and those are just two sides of the same transaction, but the data is siloed on both sides. And that siloed data traps your profit because it takes 50 days on average in this industry, one of the largest industries in the world, to clear a transaction,” Matt McKinney, CEO and co-founder at Loop, tells PYMNTS CEO Karen Webster.
“The whole [logistics] industry is focused on the wrong problem,” McKinney adds. “They’re trying to grow revenue and book business, but the back of the house is where all the opportunity lies … there is a real opportunity here to unlock liquidity by unifying the data together.”
From freight to funds, the journey of logistics payments is one of the trickiest across business. But the approach organizations are starting to take toward tackling them, and solving for the data silos, manual processes, and complex contracts that lead to significant inefficiencies, has evolved in recent years.
McKinney said that three high-level issues contributing to the supply chain industry’s persistent payment bottlenecks are physical paperwork, manual workflows and the intricacies of freight billing contracts.
In the logistics industry, physical paperwork is still a major challenge. This includes not only traditional paper documents but also scanned images, PDFs and various forms of unstructured data.
“There is no standardization when you are dealing with a lot of paper, and that creates a ton of problems in itself. But then you combine that with the second problem, which is all these workflows are manual,” said McKinney.
After all, a significant portion of logistics workflows remains manual. This manual intervention, which includes data entry, validation, and approval, increases the likelihood of errors due to human mistakes.
The third problem, McKinney noted, is that “you need a PhD in freight billing to understand what is going on in most contracts.”
Without a deep understanding of contractual intricacies, errors can easily occur, leading to costly discrepancies.
“Friction in the supply chain is then passed on to consumers in the form of higher cost of goods. We’re paying higher amounts for eggs at the grocery store because of this friction that’s involved in a logistics payment,” McKinney said.
That’s why, he explained, data must be a primary focus in solving these inefficiencies. By leveraging generative AI (artificial intelligence) technology, messy and unstructured data can be unified from various sources, allowing for better insights and accurate transactions.
“The individuals that are performing this type of back-office work, they’re aging, they’re approaching retirement age. The 20- and 30-year-olds that are coming into this market and into these job, they don’t want to do these manual processes,” added McKinney. “There’s this natural transition of a skilled workforce that is happening in very real time in most of these companies.”
Data-driven decisioning also leads to faster onboarding, reducing the time to value for participants.
And first-class data also supports the streamlining of end-to-end logistics payment process, helping to automate critical and historically fragmented workflows like invoicing, validation, approval, and payment. This not only reduces manual labor but also eliminates a substantial number of invoice errors.
Beyond that, having access to real-time data provides real-time visibility into supply chain transactions, allowing for more informed decision-making and improved profitability analysis.
“We fundamentally believe that this is a data business, and you have to build a compounding data moat,” McKinney said.
Institutional inertia remains a consistent and thorny barrier to change, progress, and modernization efforts across sectors, perhaps none more so than the shipping and logistics sector.
But McKinney credited a combination of the COVID-19 pandemic and significant venture capital investment as driving an accretive level of innovation across the logistics industry.
For one, the pandemic acted as a catalyst in bringing supply chain issues to the forefront of the industry, and McKinney noted that with the inability to work from traditional office spaces, the ongoing problems associated with legacy and paper-based workflows became glaringly obvious.
“The second piece of it is, over the last five to 10 years, you’ve had a lot of venture capital dollars poured into the logistics technology industry, which built a lot of the plumbing and a lot of the infrastructure. And this forced the incumbents in the space to go on their digital transformation journey to build APIs [and compete],” McKinney explained.
Additionally, macro factors like the rising cost of capital and the potential cost savings from streamlined logistics payments incentivize companies to adopt new practices.
Similarly, the rise of sector-specific trends like onshoring and nearshoring also accelerates the impact of data-driven decision-making in supply chain management.
Efficient logistics payments provide valuable data for making these decisions, acting as another incentive for organizations to take a second look at innovating their workflows.
“By having a fundamentally different technology and solution, you’re able to differentiate,” said McKinney.
“Still, we have to be able to seamlessly transact, to seamlessly ingest documents and invoices, seamlessly validate them, approve them, and then pay them and reconcile them. That has to happen before we can go build out this global supply chain payments network,” he added.
As for what the Loop CEO sees the future holding?
“The world is not getting simpler. It’s not getting less complex. The complexity is only increasing and a lot of those factors we talked about, nearshoring and onshoring, e-com, penetration, all these different factors, they’re all in an inflationary state. So, if organizations don’t get a handle on their supply chain costs right now, those costs will also be climbing. You need technology that embraces the chaos [of Supply Chain 2.0] to help you control spend and reduce cost and control margins,” he said.
“And the leader in this space will be the leader that has the highest quality, accurate data that can better underwrite, that can offer a differentiated financing product to serve the constituents with the cheapest cost to capital available,” McKinney adds.
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