Optimizing the Supply Chain: How Digital Transformation Can Revolutionize LatAm Logistics

Digital technology is currently reshaping industries – even entire countries – worldwide, but the Latin American market seems to be falling behind. This is unfortunate, especially since a recent report from the World Economic Forum indicated that Latin America could potentially experience as much as $2 trillion worth of societal benefits through digital transformation, particularly in logistics and transportation. 

However, that same report also mentioned a number of barriers preventing the sector from going fully digital. Let’s talk about why some companies in LatAm remain unprepared for digital transformation and continue to struggle to adopt new technologies. 

Understanding digital transformation in logistics

Digital transformation refers to the technologies and processes that allow companies to operate digitally instead of on pen and paper. Typically, adopting the latest technologies like artificial intelligence, automation, 5G, and the Internet of Things (IoT) are all considered part of digital transformation. 

I believe the logistics industry should be at the forefront of digital transformation, considering how many other industries and careers directly depend on the efficiency and capabilities of the supply chain. Moreover, companies in the supply chain that delay digital investment risk a 23% reduction in cash flow over the next six years, unlike their digitally-forward peers. This stark contrast underscores the crucial role of digital processes in determining a company’s future success or failure.

How could digital transformation have such a significant impact on cash flow? The key lies in acquiring better data and optimizing processes. By using smart sensors and digital tracking software, companies can gather more accurate data, leading to optimized routing and closer monitoring of inventory. This precision in logistics, augmented by AI analysis for route optimization and stakeholder communication, bolsters the reliability of the entire supply chain.

Bridging an international gap

Still, just because digital transformation is a huge advantage doesn’t mean it’s always easy to attain. Although Latin American companies do have greater access to technology and digital resources than ever before, nearly half of companies in the transportation industry alone admit to being far behind their international peers in digital transformation. Recent reports have suggested that the main barriers are lack of experienced human talent, the high cost of new technologies, and misplaced managerial priorities.

Certain Latin American countries are more heavily affected by the talent shortage than others. In the 2023 IMD World Digital Competitiveness Ranking, Colombia ranked 62nd out of 64 countries for its digital readiness, capabilities, and potential. By contrast, Chile ranked 42nd, and the highest among the Latin American nations analyzed. 

So if you’re having trouble filling positions that could help you bring digital transformation to your company, you can look outside our country and either hire remote workers or offer generous relocation incentives. Either of these options may turn out to be expensive, due at least in part to currency exchange rates and cross-border fees, but they can help if your main problem is lack of talent as opposed to lack of funds. 

If you don’t have the money for digital transformation, or your management team has other priorities when it comes to funding, these can be harder problems to solve. After all, digital transformation requires a lot more than just purchasing the latest software. A big part of the cost of new technologies is also moving away from legacy systems that don’t offer the efficiency you need to take full advantage of digital transformation. These systems might not work well with newer technologies, requiring additional expensive custom integrations to ensure they can still serve their purpose. 

But older systems are often more vulnerable to security threats, necessitating constant monitoring and updates to protect against new vulnerabilities. Considering that the average cost of a data breach in LatAm was as high as $3.69 million in 2023, outdated systems are a liability. What’s more, the reduced efficiency of legacy systems leads to higher operational costs overall. So maybe it’s time for a meeting with management to explain why it might actually be cheaper to modernize. 

You can also look into financing options. Certain Latin American banks and other financial entities offer financing specifically for scientific and technological pursuits. Or, you can partner with other logistics companies that already have access to various types of software and tools you need and share the costs. This practice is called infrastructure sharing, and it’s an effective way to reduce the expenses normally incurred in digital transformation. Regardless of your method, getting the funds to facilitate digital transformation needs to be the priority. 

Final thoughts

Ultimately, you need to be able to convince management and the rest of your team that digital transformation is worth the trouble and the cost. Companies all along the supply chain depend on your success. Fortunately, the data is on your side and the resources exist to help you do it. 

Álvaro Villar López is the Country Manager at Nowports. He has over 15 years of international experience in operations, strategy, and product, leading expansion projects in different industries in Latin America, such as WeWork, Marriott International, and Grupo Carso. He holds a degree in Hotel Management from Les Roches Crans-Montana Global Hospitality, a Master of Business in Hotel and Lodging Management from Kendall College, and a Bachelor of Arts in Psychology from the University of La Laguna, Spain.