Investment in innovation expected to rise: MHI report

by Inside Logistics Online Staff

Nearly 80 percent of supply chain leaders say their digital transformation has accelerated due to the pandemic.

As a result, investment in supply innovation over the next two years is expected to rise dramatically, according to the 2022 MHI Annual Industry Report, “Evolution to Revolution: Building the Supply Chains of Tomorrow”.

Of the 64 percent of respondents increasing investments, two out of three say they will spend more than US$1 million over the next two years. Investments are particularly growing in the middle ranges from $5 million up to $100 million – where 41 percent say they spend more than $5 million and 18 percent say they will spend more than $10 million.

“Supply chain leaders have never been in a better position to drive impactful and lasting change for the industry,” said John Paxton, CEO of MHI. “With the white-hot media spotlight chronicling the after-effects of the pandemic, the importance of supply chain is finally coming into focus in boardrooms across the world.”

The 2022 report, the ninth in a series of annual industry reports published by MHI and Deloitte, provides updates on technologies that have the most potential to transform supply chains, including projected adoption rates of the next five years for each of the 11 categories of technology covered in the report and an analysis of common barriers to adoption.

The technologies covered in the report are:

  • Artificial Intelligence
  • Predictive analytics
  • Inventory and network optimization
  • Robotics and automation
  • Wearable and mobile technology
  • Driverless vehicles and drones
  • 3D printing
  • Internet of Things
  • Cloud computing and storage
  • Sensors and automatic identification
  • Blockchain

According to this year’s respondents, all technologies covered by the survey are expected to achieve an adoption rate of 66 percent or higher over the next five years.

Cloud computing, which is now the standard platform for most supply chain software, continues to have the highest current adoption rate at 40 percent. Inventory and network optimization is expected to rise to the top over the next five years, with an expected adoption rate of 87 percent (in a statistical tie with cloud computing at 86 percent). However, artificial intelligence is expected to see the most accelerated growth – rising from 15 percent to 73 percent over the next five years, a nearly five-fold increase.

Additionally, predictive analytics, currently at 22 percent, is expected to grow to 82 percent over the next five years. Industrial internet of things, currently 21 percent, is expected to grow to 80 percent. Robotics and automation, currently at 28 percent, is expected to reach 79 percent.

Robotics and automation

Robotics and automation continue to top the list of innovations that survey respondents believe have either the potential to disrupt the industry (17 percent) or to create competitive advantage (39 percent). However, a handful of other technologies are very close behind, including: predictive and prescriptive analytics; sensors and automatic identification; autonomous vehicles and drones; and AI technologies.

“Supply chains are becoming more and more a technology-driven industry. While firms have not adopted some technologies as quickly as they thought they would back in 2014 or 2015, what we are seeing now is a big jump in these investments. Where we used to say evolve or die, what we now say is transform or die,” said Thomas Boykin, supply chain specialist leader at Deloitte.

Disruption and labour

Disruption now tops list of supply chain challenges, talent shortage a close second. For the past nine years of the survey, hiring and retaining qualified workers was consistently the top supply chain challenge. However, in this year’s survey supply chain disruptions and shortages rose to the top at 57 percent – presumably due to the ongoing effects of the global pandemic.

Talent issues (54 percent) and customer demands (51 percent) remain top challenges but must now be addressed in the context of avoiding future supply chain disruptions. This shortage is spurring companies to invest in technologies that not only improve agility and efficiency but also reduce the need for repetitive, manual labour.

These investments create the kind of advanced technology environment that results in more rewarding supply chain jobs that appeal to today’s top talent. This could provide a new path to retraining current employees and attracting new talent – creating a more modern, capable workforce that can quickly adapt and adjust to changes in the technology and market landscape.

“Supply chain automation and technology provide tools to mitigate disruptions, but the real solution goes much deeper,” said Paxton. “It’s having the right culture and the right people in place to implement this technology and to bring it all together to exceed your customer demands and expectations – whether they are fast delivery, personalization, low cost, delivery transparency or ESG goals.”

Building a business case

Company leaders understand at a theoretical level that their supply chains could greatly benefit from investing in innovation, but potential gains often take a back seat to short-term profit targets and concerns over the cost associated with new technology and the threat of disruption to day-to-day operations. For the first time since the inception of the report, ‘lack of a clear business case to justify the investment’ was cited as the leading barrier to adoption for all 11 technologies in the report.

Many companies are now using the MHI Digital Consciousness Index (DCI) toolkit highlighted in the 2020 and 2021 reports to understand their organizations’ digital mindset and evaluate their progress on the journey to becoming more digital. However, for every key investment decision on that journey, a robust business case is needed to provide the foundation for informed decision-making.

“Building a business case provides the roadmap to supply chain technology investment, but it’s so much more, Paxton said. “It tells the entire story of why change is imperative to delivering on-going value. It really all comes back to using these technologies to better serve the customer.”

The report also provides real-world case studies of digital supply chain technologies and recommendations for leaders for developing strategies to implement these innovations.

The findings of the 2022 report are based on survey responses from over 1,000 manufacturing and supply chain industry leaders from a wide range of industries at the end of 2021. Eighty-one percent of respondents hold executive-level positions, and participating companies range in size from small to large, with 59 percent reporting annual sales of more than $50 million, and 13 percent reporting $1 billion or more.