Inside Logistics

Supply chains face radical transformation

New technology, competition and consumer demand to shape the change


May 13, 2015
by MM&D Staff

Traditional supply chains will radically change over the next five to 10 years as a result of new technologies, competition and customer demands, according to a new study by MHI and Deloitte. On average, companies surveyed expect to invest heavily in new supply chain technologies over the next two years, with the top 17 percent spending over $10 million.

According to the 2015 MHI Annual Industry Report “Supply Chain Innovation — Making the impossible possible”, companies need to embrace this transformation today and focus on investing in new technologies to help compete and thrive as their supply chains continue to face constant pressure to do more with less.

“The speed at which supply chain innovation is being adopted—coupled with rising consumer expectations for anytime, anywhere service—is stressing traditional supply chains to near-breaking points,” said George Prest, CEO of MHI, the international trade association that represents the material handling, logistics and supply chain industry.

“Companies that continue to use traditional supply chain models will struggle to remain competitive and deliver orders that are accurate and on-time.”

The second MHI Annual Industry Report identifies the realities many companies face and the disrupters that are likely to drive even more change over the next 10 years. The report was launched at ProMat, March 23-26 in Chicago.

Reshaping the supply chain landscape
The survey focused on eight technologies that are driving next-generation supply chains:
• Inventory and network optimization tools
• Sensors and automatic identification
• Cloud computing and storage
• Robotics and automation
• Predictive analytics
• Wearable and mobile technology
• 3D printing
• Driverless vehicles and drones

“I believe that we are at the dawn of an innovation wave that will soon hit the material handling industry,” says Scott Sopher, principal, Deloitte Consulting LLP. “The convergence of big data, faster and cheaper computer power, and the increasing demands of customers will likely accelerate the adoption of innovative products and services in the material handling industry.”

The report groups these innovations into three categories—maturing, growing and emerging—based on current adoption levels and anticipated adoption over the next five years.

Maturing technologies
The report identifies inventory and network optimization tools, sensors and automatic identification, cloud computing and storage, robotics and automation as maturing technologies.

“Maturing technologies can create dramatic improvements in efficiency and service. For instance, inventory and network optimization tools can reduce supply chain costs by 10 percent or more, with larger potential reduction in total inventory costs,” Sopher said. “Current adoption levels are significant, with 35 percent or more of companies using these maturing technologies.”

Adoption levels of these maturing technologies are expected to reach 80 to 90 percent by 2019.

Growth technologies
Predictive analytics and wearable and mobile technology are seen as the growth areas in supply chain innovation. Adoption levels for technologies such as predictive analytics and wearable and mobile technologies are only at about 20 percent, but are expected to grow significantly over the next three to five years, according to the study.
The current adoption level of 24 percent for predictive analytics is expected to reach 70 percent in three to five years and 77 percent after six years.

Adoption levels for mobile and wearable technology—including smartphones, wireless devices and smart glass—sits at 23 percent, but is expected to reach 64 percent in the next three to five years.

Emerging technologies
Emerging technologies include driverless vehicles and drones, as well as 3D printing.

“Although current adoption hovers around 10 percent, company leaders should understand the current and near-term uses of technologies like drones and 3D printing and prepare for significant industry disruption over the next six or more years,” Sopher said.

“In reality, this idea is not new to the supply chain. Autonomous vehicles have been used in material handling applications for years, and many related systems are already in use today within the trucking industry,” said Prest.

Examples include electronic stability control (ESC), collision avoidance technology and rear- and forward-view camera systems. By 2017, the survey states that 20 percent of logistics organizations are likely to exploit drones as part of their monitoring, searching and event management activities. By 2030, vehicles capable of driving autonomously are expected to represent approximately 25 percent of the passenger vehicle population in mature markets.

“Today, we are seeing the most significant applications of 3D printing in aerospace and defense, automotive, healthcare, consumer products, and retail,” noted Sopher.

Top uses from companies surveyed include: New product prototyping (19 percent); small runs of high-value replacement parts (10 percent); complex personalized products
(six percent).

Barriers to adopting new technologies
Leaders surveyed in the study identified two key barriers to adopting these new technologies. Thirty-six percent cited “the lack of a business case to invest”, and 31 percent said there is “lack of adequate talent to utilize the technology effectively”.

Four important considerations for next generation supply chains
The study makes several recommendations for companies looking to remain competitive in the supply chain space.

“Companies that are early adopters of the innovations and technologies identified in this report can improve both their cost and service creating a strategic advantage,” said Prest. “Our industry makes supply chains work, and MHI pledges to be at the forefront of these developments to help our members and their customers boost efficiency, performance and business results.”

According to the study, deciding where and when to invest in technologies is crucial to survival over the next decade. This year’s survey found that 46 percent of respondents are developing partnerships with vendors, analysts, consultants and trade groups to help them understand evolving technologies and develop business cases for where to invest.

As many companies expand their global footprints, adjust their trade flows, and try to meet their customers’ ever-rising expectations for faster response times, they should invest in forward-looking technologies and capabilities that can help them assess and redesign their complex supply chain networks to help satisfy the demands of a constantly changing marketplace.

With cloud computing, predictive analytics and other advances, there are significant opportunities for companies to collaborate with value chain partners. Companies should invest where these collaborations can yield the best returns.

“Some of the best companies in the world use collaboration to create high-performing, customer-oriented supply chains. This collaboration not only provides visibility into the customer experience, but drives innovation by producing a more complete view of their products and supply chain,” Prest said.

According to the survey data, 31 percent of respondents cited the lack of adequate talent to implement and deploy the technologies as a significant barrier to their implementation. The supply chain workforce crisis is likely to only accelerate as new technologies demand a labour pool with increasingly advanced skill sets.

“Multiple factors are contributing to the talent shortage, including an aging workforce,” said Prest. “But the changing skill sets needed for jobs in the supply chain is the biggest factor. Our industry needs a sophisticated and well-trained workforce to operate leading-edge equipment and systems.”

The study was conducted by MHI and Deloitte and is based on interviews with more than 400 supply chain executives from a wide range of industries.