HIDDEN COSTS FORWARDERS FACE BY AVOIDING DIGITALIZATION

 Every business strives to enhance its operations and improve its bottom line. With increased access to high-speed internet, finding information is no longer a major challenge.  Instead, the main hurdle is to deliver efficiently with no room for any discrepancies or setbacks. This raises questions like:

• How can we make processes more efficient?
• How do we ensure updates and upgrades survive long-term?
• What if we need to make new changes?

Traditional systems, such as paper-based or manual file transfer methods, leave much room for human errors and process inefficiencies. The evident drawbacks include:

1.     Error – prone due to manual dependency;

2.     Time – consuming document transfer;

3.     Document misplacement risk;

4.     Difficulty locating information;

5.     Drop in efficiency due to human dependency;

6.     Delayed approvals  due to doc. Transfers through multiple departments;

Let’s see in this article, how the best shipping company in India is providing cost-effective logistic solutions by adopting and using digital technologies over traditional methods in this industry.

WHAT IS DIGITIZATION ?

Digitization is the process of converting text, image, sound, or any information into a digital format that can be understood by a computer for further processing, storing, and retrieving. Digitalization in business can be defined as using digital technologies innovatively to change a business model for good and to leverage the same to open up new avenues for revenue and provide value-added services or products to its customers. The impact of digitalization on business was felt during the pandemic as the businesses that have embraced digitalization have suffered less and bounced back quicker than the ones that have not transformed digitally. And those businesses that have incurred losses during the pandemic have understood the importance of digitalization and are opting for a digitalization business model for their businesses. But how can a digital business transformation help survive various calamities, disasters, and disruptions – whether expected or unexpected and why is digitalization a must for any business? Digitization, digitalization, and digital transformation are the key terms associated with the use of digital technology in any form of business.

WHAT IS A LEGACY SYSTEM?

Any technological solution based on outdated elements with respect to current technology (either software or hardware) is considered a legacy system. These legacy systems are often highly customized due to years and years of patching and modifications, making them complex and maintenance-costly in practice. And in a business with such low margins as freight forwarding, any possibility of saving costs must be considered.

Drawbacks of legacy system?

We generally view the term ‘legacy system’ as something currently in use that brings about positive, qualitative results. However, in the digital world, legacy systems are seen as overworked and time-worn. Furthermore, these systems could pose subtle challenges and hamper business activities with their limitations.

The problems that arise from the use of legacy systems are many and quite severe. From the difficulty of its maintenance and the very high specialization required, to the impossibility of making these systems compatible with current standards. This means, for example, that a legacy system may not be able to communicate with a current cloud-based SaaS service. Or that it cannot accept an XML data format because when it was created, this format simply did not exist.

It may seem that a possible solution is to upgrade these legacy systems and adapt them to current technologies, but this is rarely possible at all. Even if it is, it turns out to be an extraordinarily complex and costly process. If the differences between software developed in 2011 and a current one are already enormous, those between software from 20 or 30 years ago and existing applications can be insurmountable. Sometimes these differences can even have legal consequences. The privacy and data protection requirements required by law today are very different from those 20 years ago.

Hidden cost of maintaining legacy System ?

While going digital might seem expensive, relying too much on legacy systems could incur increasing costs over time. But what exactly are these costs? And how can they impact your business?

Costs involved with legacy systems

Legacy systems are often not easy to fully understand, maintain, or work with. The younger workforce tends to find working with these systems laborious, reducing overall productivity and efficiency. These systems incur direct and indirect costs, which some businesses tend not to consider while retaining the legacy systems. One of the most trusted shipping freight forwarding companies in India is an example at hand which has undergone end to end digital transformation  and thus making a major change in their  business models keeping in line with the new market trends .

Let’s examine a few of the costs of working with legacy systems:

A.    Direct costs

1.     Upgrading Cost

Every dollar invested in digitizing business would require companies to spend around three times that much to upgrade their legacy system. Legacy systems in general lack certain version enhancements or modules, leaving businesses with no other option but to upgrade. One thing leads to another, and businesses end up spending more lot to upgrade those modules too.

This in turn often does not provide businesses with workaround options. What’s more, these upgrades could cause companies to spend amounts upwards of 6 digits. It is difficult to pinpoint a specific figure because the cost can range from a few thousand to a few hundred thousand dollars depending on the size of the system.

Maintenance Cost

According to a survey, 25% of IT budgets are estimated to go towards supporting and maintaining legacy systems. From our understanding, enterprises incur annual maintenance costs for these systems, which are pre-determined and agreed upon. While this might sound straightforward, it adds up to a great deal of money spent over time .

B.    Indirect Costs

Time taken to maintain the system. Implementing upgrades or enhancements  to legacy systems can prove to be an arduous task. The administrator and server team might spend countless man hours to identify and replicate the steps and actions for legacy system maintenance. As such, much of their time and effort would be inefficiently used. In today’s demanding times, where time is money, such a valuable team spending their time purely in an attempt to understand a system might be viewed as unacceptable.  

1.     Employee productivity

In today’s competitive world, employees can find it difficult to adjust to outdated legacy systems with less or only basic features. 

 A report by one of the top freight forwarding companies in India confirms that 95% of employees confirmed that they would be satisfied with their work if they had better software to work with .   Having fewer features, tools, and software not only reduces employee productivity but can reflect badly on a company and its future-proofing strategies. As such, employees are often faced with reduced efficiency due to less-than-optimal systems, impacting the customer’s experience.

2.     Customer Satisfaction

Customer satisfaction directly depends on communication and timeliness. For service-based industries, such as banking, finance, and healthcare, system performance directly affects overall satisfaction and customer experience.  

Delays in processing documents or handling requests or being unable to obtain approvals on short notice (among other issues) can harm vendor and partner relationships in any industry. Furthermore, business partners will often react negatively when they are faced with inefficient processes, a lack of innovation, or an inability to keep up with business trends.

3.     Lack of B2B integration

The concept of partner ecosystems has been gaining popularity in the business world.  A partner ecosystem refers to a seamless method of communication between steps in the supply chain for easier document interchangeability, transaction monitoring, and documentation. These can all be seen as steps in External Integration and Vertical Integration strategies to enhance the supply chain processes. 

In such cases, enterprises with legacy systems usually find it extremely difficult to adapt. Due to the communication methods available, types of data creation, and general system rigidity, implementation and troubleshooting take an inordinate amount of time. This can result in a potential loss of business opportunities and even discontinuation of partnerships, causing a direct impact on employee turnover. Worse, being unable to meet partner initiatives can drive satisfaction down, directly impacting a brand and company’s market reputation as well as its overall performance.

HOW DIGITILIZATION CAN OVERCOME IT?

1.      Business Drivers 

Your current software system may have once been the perfect solution to your business problems, but over time it may have become a liability. If your software can no longer keep up with the changing needs of your business, it is time to consider upgrading to a newer system. Continuing to use outdated software can compromise business efficiency and revenue.

2.      Unable to Utilize Data

Often, older technologies were not designed to handle the big amounts of data that are generated by modern businesses. So, these systems can have issues with processing and analyzing data in a timely and accurate manner. This can limit an organization's ability to gain insights into its operations and make informed decisions. Modernized data integration may offer many benefits, such as simpler and quicker access to data, more accurate information, and improved collaboration. However, many legacy systems are not compatible with other systems, leaving a huge number of companies unable to reap these rewards.

3.     The Underlying Technology is Obsolete

Software that runs on obsolete technologies should be completely reengineered, even if it is not particularly old. This is particularly important for technologies that have reached the end of their life, such as Adobe Flash and Microsoft Silverlight. These tools are no longer supported by most browsers and are obsolete. It is important to avoid using them in new software development projects.

4.      Systems are Unable to Scale

If your business model, processes, or scale of operations change, your software must be able to adapt. If it lacks the flexibility to accommodate these changes, you may be forced to change your business to fit your software, which can hinder growth. As a result, such legacy systems can become overwhelmed as the business grows, leading to system crashes, slow performance, or other issues. Your software should be able to support increased production capacity and scale with your company. If it cannot, it may be time to consider replacing it or building a new system.

5.     Vulnerable to Security Threats

Outdated systems are often more vulnerable to security threats such as malware and data breaches. Additionally, they may not have been designed with modern security features in mind, leaving them open to attacks or unable to detect them. For example, older systems may have improper authentication protocols as the best practices for password security and encryption methods have changed over the years. 

Legacy systems often store large amounts of sensitive data that must be properly secured to avoid potential criminal lawsuits. This can be costly, and failure to adequately protect this data can have serious consequences. You’ve worked for years to secure the loyalty of your clients, but one data breach can ruin your reputation and destroy the trust you’ve built.

6.      Difficulty in Maintaining Systems

Outdated and poor-quality systems can be slow and cumbersome, crashing and failing to perform as expected. This can lead to reduced efficiency and productivity and can cause significant waste if it affects a large number of employees. Modernizing or reengineering such systems can improve their performance and efficiency, helping businesses save time and resources.

 

AFM Logistics have seen firsthand some of the advantages our clients have gained from modernizing legacy applications, software, and systems.

These benefits include improved performance and efficiency, increased security, better integration with newer technologies, and the ability to more easily adapt to changing business needs and requirements, including mergers and acquisitions. 

Modernization can reduce maintenance and support costs, and improve the user experience for employees and customers.

Additionally, modernizing your legacy system will help your business:

1. Be more competitive
2. Increase user retention
3. Hire more easily
4. Scale (keep up with trends, the potential for big data, integrations, etc)

 

If you would like a consultation on how to modernize your legacy systems, or are interested in guidance and team enhancement for efficient modernization, we are happy to help!

Clearly, the freight-forwarding industry is about to experience enormous change as new technologies take hold. Incumbents will need to transform significantly to use digital technologies to their advantage. Companies that are innovative and flexible enough to catch this wave will reap the rewards of profitable growth. There are comprehensive solutions on the market for freight forwarders based on technologies such as cloud computing, blockchain, SaaS, API, etc., which offer all the functionalities that a company in the sector may need. AFM Logistics is a complete import and export agent in india offering tools such as  rate management solutions, instant quotation, TMS integration, analysis, tracking, etc. These tools help freight forwarders not to depend on different tools in their daily operations. The above-mentioned areas are the major ones where you can clearly see the positive impact of digitalization on business viz., greater exposure, valuable insights, and enhanced customer experience.