Logistics & Supply Chain Optimization: Top 10 Challenges and Solutions

The race to win customers and gain market share is driving companies to continually transform their supply chains and enhance their logistics operations. Investors and consumers keep pushing for supply chains to become greener, and consumers returning to in-store shopping have increased expectations for seamless, fast, and reliable delivery of goods. The pressure also comes from rapid tech advances and global market and economy shifts.

Yet, achieving an effective supply chain has its challenges. A lack of visibility across the supply chain, disconnected or siloed operations, and an over-reliance on manual processes make it challenging for companies to compete. Addressing these issues is crucial for businesses aiming to optimize their supply chain and logistics operations and enhance overall efficiency.

In this article, we’ll explore the current pains logistics and supply chain companies face and how software solutions can solve them.

But before that, let’s check what exactly supply chain optimization involves.

Supply chain optimization is the ongoing process of refining the structure, processes, and operations of a supply chain to maximize efficiency, reduce costs, and improve profitability.

Traditionally, supply chain optimization focused on areas like securing the lowest trucking costs, strategically locating warehouses, and ensuring the proper inventory was available at the right time. This approach worked well in a pre-Amazon world, where the market moved slower, and changes were more predictable.

However, the landscape has quickly changed, especially since the COVID-19 pandemic, which accelerated digital transformation across industries. Today, consumer demands shift rapidly, market disruptions are more frequent, and competition is fiercer than ever. Let alone the AI transformation, which is already improving the intelligence of business operations. All these innovations and changes make it essential for supply chains to be agile and adaptable.

Optimization of the modern supply chain relies heavily on advanced technologies, such as AI, real-time data analytics, and automation, to help businesses quickly respond and adapt to changes, and maintain smooth operations.

Yet, building an effective supply chain is not a piece of cake. Let’s figure out why.

Supply chain operations are inherently complex. They involve the coordination of various activities such as procurement, transportation, warehousing, inventory management, distribution, and last-mile logistics. Traditionally, companies managed these activities manually, with spreadsheets or basic software tools. This often led to errors and so increased companies’ operational expenses.

Today’s rapid industry growth presents various challenges that logistics and supply chain software implementation can mitigate and solve. With more than nine years in logistics software development, Leobit has analyzed our customers’ most pressing pains and concerns and wants to share insight into how software can solve them.

Accurately predicting customer demand is one of the most complex challenges in supply chain management. With 73% of supply chain leaders still using manual or outdated methods, this task becomes even harder, leading to two costly outcomes: overstocking or stockouts. Overstocking can tie up your capital and increase storage costs, while stockouts can cause lost sales and unhappy customers.

Luckily, adopting advanced software solutions powered by AI/ML can significantly improve demand forecasting accuracy. They can analyze vast amounts of historical data and combine internal company data with new external factors like seasonal trends and market fluctuations. By identifying patterns and predicting demand more precisely, businesses can avoid costly mistakes.

According to McKinsey, 90% of executives plan to implement new demand forecasting solutions within the next five years, with 23% already having taken steps in that direction. However, it’s important to note that the accuracy of these forecasts depends on the quality of the data used. Even with the best AI and analytics tools, incomplete or outdated data can still lead to poor results.

As of 2024, all supply chain and logistics areas are affected by labor shortages and limited resources. However, the severity of the issue varies depending on the function. Recent studies reveal that labor-intensive sectors like transportation (61%) and warehouse operations (56%) are facing the most significant resource shortages.

The International Road Transport Union’s 2023 driver shortage report states that over three million truck driver positions remain unfilled across 36 countries, representing about 7% of the total positions. The report also predicts that this shortage could double by 2028.

So, is logistics software capable of making an impact on labor shortages?

The answer lies in automation. For example, route optimization software can reduce the workload on drivers by planning more efficient routes. Automated scheduling tools can ensure that drivers are distributed effectively, taking into account their schedules, clocked hours, and preferences.

Another example is using warehouse management systems (WMS). They can reduce the need for manual labor by automating inventory tracking and order processing. For instance, Ernst & Young states that using AI to optimize picking routes within warehouses can increase workforce productivity by about 30% while also cutting operational costs.

Limited visibility is one of the most pressing issues in today’s supply chain and logistics operations. McKinsey states that 45% of companies have little to no visibility into their supply chain, with many only able to track their operations as far as their first-tier suppliers. This lack of visibility can cause substantial cost overruns and blind handoffs when goods are transferred between multiple parties without clear tracking or communication. These blind handoffs correspond to 13%-19% of logistics costs, potentially resulting in up to $95 billion in annual losses in the U.S. economy alone.

A recent KPMG study found that two-thirds of global business leaders want better visibility in their supply chains. They believe it to be the key to maintaining operational resilience. Reflecting this priority, the market for visibility solutions has grown rapidly, with startups offering them attracting around $7 billion in funding since 2022.

Logistics software plays a crucial role in improving visibility across the supply chain. This is an area where many logistic organizations have reported significant progress. McKinsey states that, as of 2022, 67% of companies have used digital dashboards for supply chain visibility. The study shows that these companies were twice as likely to avoid supply chain disruptions that many others faced in early 2022.

Additionally, a recent McKinsey survey with over 250 logistics companies found that tools for real-time visibility in fleet management are seeing high adoption and investment. McKinsey also states that with the increased and proper adoption of AI and generative AI to provide visibility into supply chain operations, waste coming from blind handoffs can be cut by as much as 40%.

Another issue coming from poor visibility into the supply chain is customer dissatisfaction due to unreliable delivery estimates and a lack of real-time updates. When businesses lack visibility into their supply chain—such as not knowing the exact location of shipments or the status of inventory—they can’t offer accurate delivery estimates or real-time tracking updates, which customers now expect as standard.

A study by Verte Research reveals that 80% of consumers have high or very high expectations when it comes to package tracking. In fact, a recent Accenture survey found that over 75% of consumers under 30 consider same-day delivery a crucial part of their shopping experience.

Given this high expectation, it is no wonder that 59% of consumers view shipping delays as a major logistics issue. The main causes of this issue are traffic jams and poor route planning. Without access to real-time traffic data, drivers can easily get caught in unexpected jams, leading to late deliveries and frustrated customers.

Luckily, advancements in AI and logistics software are making it easier to manage delivery delays and enhance transparency. Integrating GPS tracking can provide users with real-time updates on the location of shipments. This allows companies to monitor vehicles throughout their journey and make route adjustments as needed. For example, if there’s a traffic jam, the AI-powered route optimization software can automatically reroute the vehicle to avoid delays.

Integrating automated notifications with estimated delivery times, delays, and other relevant updates can help logistic providers update customers and stakeholders about the status of their deliveries. Offering a customer portal where users can track their packages independently also boosts satisfaction—especially since 70% of American consumers prefer to check tracking information themselves rather than contacting the shipping company. This approach reduces the need for manual follow-ups and improves overall communication.

The lack of interoperability between different systems, departments, and functions (e.g., planning, warehousing, and transportation) often leads to data silos. This happens when critical information becomes trapped within one system and so other parties can’t access it.

Siloed operations can lead to duplication of efforts and increase operational expenses, as different departments may perform the same tasks independently without coordination. To bridge the gap between systems, companies may tend to rely on manual data entry. Yet, it only increases the risk of errors and consumes valuable time and resources. In fact, the Forrester report states that data silos cause employees to lose 12 hours a week chasing data.

To address these challenges, logistics companies can adopt cloud-based logistics solutions or migrate their existing software to the cloud. In addition to that, building APIs will allow real-time data sharing and coordination across departments and stakeholders.

Manual data entry has been a long-standing practice in the logistics industry, especially among small and middle-sized companies seeking cost-effective solutions for managing operations. Deloitte states that 41% of logistics providers view outdated business processes and manual operations as their most significant challenge to scaling last-mile operations.

No surprise since this approach is inherently prone to mistakes, such as typos, incorrect data input, and misinterpretation of information. Even minor errors can have a cascading effect, resulting in incorrect shipments, inventory discrepancies, and billing problems.

For SMBs, manual data entry might seem like a cost-saving option, but it becomes increasingly burdensome as the volume of information grows. So, how can software tackle this problem?

Setting up integrations between dispersed systems is the first step to fighting manual processes. As we’ve already mentioned, these integrations can be done through several methods, the most popular of which are EDI and API. They can allow the automated transfer of critical information, such as purchase orders, invoices, shipment notifications, and inventory updates, between trading partners and internal systems. But that’s only one part of the solution.

Deloitte states that 50% of logistics providers are already exploring ways to use automation to meet growing delivery volumes. For instance, business process automation can help minimize human intervention by using advanced technology, including AI and automation tools. Technologies like optical character recognition (OCR) and AI/ML can automatically extract and input data from documents such as invoices, shipping labels, and order forms. This can considerably reduce human errors and accelerate data processing.​​

While industries like healthcare and finance have established robust data standards, the logistics sector continues to struggle with fragmentation. This lack of standardization in data formats and communication protocols often leads to errors and inconsistencies, which can negatively impact the bottom line.

The current standards can help mitigate interoperability issues, but they can’t completely eliminate them. To learn why, let’s look at the most popular options in use today.

• Electronic Data Interchange. EDI is one of the most established methods for exchanging business documents between companies in a standardized electronic format. It is widely used in logistics and supply chain management for transmitting orders, invoices, shipment notices, and other documents. While EDI is standardized, different companies might use different versions of the EDI standard (e.g., EDIFACT is primarily used in Europe and international transport, while ANSI X12 is the leading standard used in North America). Besides, these standards are updated regularly and may have multiple versions (i.e., EDIFACT version D12, Release B), which may lead to compatibility issues, further complicating integration.
• API integration. With the rise of digitalization, more companies have developed proprietary APIs to connect internal systems and share data between them. Yet, unlike traditional standards like EDI, APIs are not standardized across the industry. Proprietary APIs can often make integration complex and costly when dealing with multiple partners.
• GS1 Standards. GS1 is an international organization that develops and maintains standards for barcodes, RFID, and supply chain communication. The GS1 system includes standards for product identification (e.g., GTIN), logistics labels (e.g., SSCC), and electronic business messaging (e.g., EDI-based GS1 EANCOM). While GS1 standards are globally recognized, not all companies or regions fully adopt them. This can further complicate data exchange.
• DSCA standards. The Digital Container Shipping Association (DSCA) is a nonprofit organization working on developing digital standards for data exchange through the container shipping industry. As of today, nine ocean carrier members have already committed to fully adopting an electronic bill of lading based on DCSA standards by 2030. This switch from physical paper bills could save up to $6.5 billion in direct costs for stakeholders.
• Blockchain and distributed ledger technologies. Blockchain is emerging as a potential standard for secure and transparent data exchange in supply chains. It allows multiple parties to access and share data, ensuring each step is verifiable and secure. For instance, Walmart has been using blockchain for almost a decade to enhance food traceability. The company didn’t stop there, and now it also employs blockchain to manage invoices and payments dealing with its 70 third-party freight carriers. Despite this, the technology is still in its early stages of adoption, and there is no single standard.

The absence of established standards and protocols pushes companies to invest in middleware and custom integrations, significantly increasing operational costs.

Fuel expenses make up a significant part of logistics companies’ budgets. In June 2024, the global fuel energy price index reached 186.04 points, which is almost twice the base level of 100 in 2016. This increase in fuel prices directly affects logistics companies, their operational expenses, and profit margins. To keep us, they must reassess their budgets and strategies.

One effective solution to this issue is adopting logistics software for smart route planning and optimization. These AI-powered tools can consider various factors to identify the most cost-effective route, including:

• Current fuel prices
• Traffic congestion
• Road tolls
• Drivers’ working hours
• Weather condition

As a result, the use of route optimization software can minimize fuel consumption and overall transportation costs, helping you mitigate the impact of rising fuel expenses.

Empty or deadhead miles are the distance freight vehicles travel without cargo. This issue often leads to wasted fuel, unnecessary wear and tear on vehicles, and so increased operational costs.

In the EU, trucks traveled empty for 21.2% of their total distance in 2021, while in the U.S., it was nearly 15%. In the UK, the situation with deadhead miles is even worse. UK’s domestic road freight statistics report reveals that 30% of the kilometers driven by heavy goods vehicles were without cargo. This amounts to three billion miles each year, equivalent to circling the Earth 120,000 times.

The 2024 Tech Trends Report stresses that companies can save money by combining last-mile delivery routes. In fact, shipment consolidation can reduce total shipping costs by 40% and decrease fuel consumption and emissions. However, those companies that don’t manage to reduce empty miles could miss out on these savings.

Advanced logistics software can tackle this issue by using algorithms and real-time data to optimize routes and plan stops so trucks are maximally loaded throughout their journey. Backhauling, where trucks that have completed a delivery pick up another load on their return journey, is another strategy supported by logistics software platforms. It can help minimize empty miles by matching supply and demand.

McKinsey states that logistics emissions from freight and warehousing cause at least 7% of global greenhouse gas emissions. Despite the urgent need to reduce these emissions to meet decarbonization targets, only a few companies have clear plans to do so.

Last year, 46% of global institutional investors named the low-carbon transition as their top investment priority for the next three years. Yet, while most companies have started integrating green shipping into their logistics programs, significant gaps still remain.

Despite the promising future of green logistics, progress has been slow. Nearly half of the companies surveyed by McKinsey have yet to set decarbonization goals. Of those that have, only a quarter are confident they have the means to achieve them, while a similar number doubt they can meet their carbon-reduction targets.

The same McKinsey analysis suggests that existing technologies can help supply chain companies achieve a 40-50% reduction in logistics emissions by 2030. These technologies include automation, route and warehouse optimization, and cloud usage, among others. They can help you better monitor emissions and build strategies to comply with ESG standards and regulations. For example, Accenture research found that using the public cloud could cut IT-related carbon emissions by 5.9%, which translates to nearly 60 million tons of CO2 saved globally each year.

Many logistics and supply chain businesses are still relying on outdated software. While critical to daily operations, these legacy systems limit the potential of modern supply chain functions. Accenture states that legacy systems, underinvestment in digital upgrades, and reliance on patchwork solutions for tasks like demand planning and transportation management lead to businesses missing out on the data-driven insights needed to better predict and manage every aspect of the supply chain.

With the growing use of advanced analytics, cloud computing, and IoT in supply chains, to stay afloat companies need to assess and modernize legacy systems, outdated workflows, and static data structures.

However, in some cases, updating existing software or investing in several dispersed systems may not cover current business needs. In those instances, building a new custom software solution from the ground up may be the best way to address evolving challenges and keep up with the tides.

As the logistics industry struggles with many challenges, the need for effective solutions becomes increasingly urgent. Addressing these issues requires a strategic shift towards digital and AI transformation. This is where efficient logistics software solutions come into play.

With over nine years of experience in logistics and supply chain development, Leobit has worked closely with SMBs and enterprise industry leaders, helping them build custom web, mobile, and embedded solutions. Our expertise covers the development of real-time tracking systems, manufacturing execution systems, supply chain management software and analytics tools that provide end-to-end visibility across the entire cycle of supply chain processes.

At Leobit, we focus on helping businesses simplify operations, reduce paperwork, and ensure quick and secure access to data. This makes it easier to manage the complexities of suppliers, distributors, and transportation and helps businesses become more agile and efficient in responding to market demands.

Here are a few recent projects that demonstrate our ability to tackle supply chain optimization challenges.

Our customer, a Nordic logistics software solution provider, approached us with an idea to revolutionize waste container management. They faced a challenging software migration of their legacy Android application to the cross-platform Flutter framework and sought our expertise to help reengineer their logistics application, ensuring it could support future growth and development.

The app lacked a solid architectural foundation, making future updates and maintenance a challenge. Leobit addressed this by introducing the BLoC (Business Logic Component) architecture, which made it easier to manage future enhancements and ensured smoother integration with backend components. We also modularized the app into sections and added abstraction layers, so now it has become easier to implement changes when business logic or backend components change.

Leobit also implemented the HERE SDK, enabling the app to plan and display routes for garbage trucks, track their progress along those routes, and show the locations of waste collection containers. Additionally, to handle internet connectivity issues, we integrated the Isar database to store data locally, allowing the app to operate offline and sync progress once the connection is restored.

Learn more about the project and the work we did in our Logistics Route Optimization Solution
case study.

A leading supply chain SaaS provider approached us to develop a custom procurement system tailored to the jewelry industry. The goal was to streamline the movement of jewelry from manufacturers to retailers while simplifying the often complex pricing processes. Existing market solutions didn’t meet the client’s unique needs, so custom software development was essential.

As a result of our cooperation, we developed a one-of-a-kind solution that combines products from manufacturers and offers company clients and their users:

• Advanced search system powered by Google Vision API Product Search
• Event functionality with real-time tracking of visitor activity
• Real-time price calculations with automatic price updates based on the latest supplier data and stock market fluctuations
• User management with granular access control and permissions for different team members within a corporate account
• One-on-one and group chats for communication among employees

Additionally, we developed a comprehensive product lifecycle management platform that allows users to configure, visualize, and aggregate purchases from multiple vendors. The platform automatically centralizes and maintains a complete record of each product’s development history, ensuring full traceability and transparency.

You can find out more about this complex project in our Jewelry Supply Chain Procurement System case study.

Given the complexity of supply chain operations, even one inefficient or outdated process can bring your entire business to a standstill (as actually happened with many businesses during the pandemic). To stay competitive, businesses must now embrace a more holistic approach, where supply chain optimization isn’t just about cost-cutting but about creating resilience and adaptability throughout the entire operation.

Since the conditions in which a supply chain exists are constantly changing, your business should focus on reviewing its optimization strategy regularly to get the most from its supply chain. Investing in modern logistics and supply chain management solutions can help your teams and partners work together more effectively and adapt quickly to any changes in the fast-paced market.

Leobit can help analyze your supply chain challenges and design a custom software solution tailored to your specific needs. Contact us today to get a consultation from our experts.