Traditional supply chains to undergo radical transformation by 2025: study

New technologies, competition and customer demands will work together to radically change traditional supply chains over the next five to 10 years, notes a new report issued last week by international trade association MHI and Deloitte.

Firms polled report that they expect to invest heavily in new supply chain technologies over the next two years

“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,” George Prest, CEO of MHI, which represents the material handling, logistics and supply chain industry, says in a statement from Deloitte. “Companies that continue to use traditional supply chain models will struggle to remain competitive and deliver orders that are accurate and on-time,” Prest advises.

“As many supply chain organizations have spent years cutting costs and elmininating waste, incremental improvements are leading to diminishing returns,” notes the report. “This is driving the need for supply chain executives to seek more innovative solutions.”

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,” he suggests.

The 2015 MHI Annual Industry Report, Supply Chain Innovation – Making the impossible possible, recommends that firms embrace the transformation now unfolding and focus on investing in new technologies that will allow them to compete and thrive as their supply chains continue to face pressure to do more with less.

The survey found companies appear to be doing just that. On average, firms polled report that they expect to invest heavily in new supply chain technologies over the next two years, with the top 17% spending more than US$10 million.

A chart in the report shows that 51% of polled companies are spending less than US$1 million on new supply chain technologies; 23% are spending US$1 million to US$5 million; 9% are spending US$5 million to US$10 million; 9% are spending US$10 million to US$50 million; 4% are spending US$50 million to US$100 million; and 4% are spending greater than US $100 million.

Suggesting this dawn of an innovation wave will soon hit the MHI, Scott Sopher, principal for Deloitte Consulting LLP, points out that “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.”

There are, however, some overall challenges. In all, 51% of respondents cited customer demand for lower delivered costs as a challenge, 50% cited customer demand for faster response times, and 49% cited rising customer service expectations.

@CatullusB @UNFPA_ESARO @UNFPAZambia @UNFPATanzania #supplychain Innovation, making the impossible possible! https://t.co/nVaO91c5vS

— RH Supply Chain (@MyRHSupply) March 26, 2015

The report focuses on eight technologies that are reshaping the supply chain landscape: inventory and network optimization tools; sensors and automatic identification; cloud computing and storage; robotics and automation; predictive analytics; wearable and mobile technology; 3D printing; and driverless vehicles and drones.

Based on current adoption levels and anticipated adoption over the next five years, the innovations are grouped into three categories:

• Maturing – the report notes maturing technologies can create dramatic improvements in efficiency and service, 35% or more of surveyed companies are using these technologies, and adoption levels are expected to reach 80% to 90% by 2019;

• Growth – adoption levels for technologies such as predictive analytics among polled companies is about 24%, but are expected to reach 70% in three to five years and 77% after six years, while adoption levels for mobile and wearable technologies – including smartphones, wireless devices and smart glass – is now about 23%, but expected to reach 64% in the next three to five years; and

• Emerging – though the current adoption of emerging technologies such as 3D printing, driverless vehicles and drones is about 10% among polled companies, company leaders should understand the current and near-term uses of drone and 3D printing technologies and prepare for significant industry disruption over the next six or more years.

Eight technologies are reshaping the supply chain landscape: inventory and network optimization tools; sensors and automatic identification; cloud computing and storage; robotics and automation; predictive analytics; wearable and mobile technology; 3D printing; and driverless vehicles and drones

With regard to emerging technologies, the report shows that 75% of respondents believed that at least one of the technologies could either be a source of competitive advantage or disruption in their industry in the next 10 years. More specifically, inventory and network optimization tools was noted by 45%, sensors and automatic identification by 42%, robotics and automation by 39% and predictive analytics by 38%.

Noting that autonomous vehicles have been used in material handling applications for years, Prest reports the survey predicts that by 2017, 20% of logistics organizations are likely to exploit drones as part of their monitoring, searching and event management activities. And by 2030, vehicles capable of driving autonomously are expected to represent approximately 25% of the passenger vehicle population in mature markets.

As for 3D printing, Sopher reports that the top uses from surveyed companies include new product prototyping, cited by 19% of respondents; small runs of high-value replacement parts, noted by 10%; and complex personalized products, reported by 6%.

But there are also potential barriers to adoption. To clear those hurdles, the report makes a number of recommendations:

• make smart decisions about where to invest – 46% 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;

• align with customer needs – companies should invest in forward-looking technologies and capabilities that can help them assess and redesign their complex supply chain networks to satisfy the demands of a constantly changing marketplace;

• collaborate across blurring boundaries – with cloud computing, predictive analytics and other advances, there are significant opportunities for companies to collaborate with value chain partners, and companies should invest where these collaborations can yield the best returns;

• invest in workforce hiring and training – 31% of respondents cited the lack of adequate talent to implement and deploy new technologies as a significant barrier to their implementation, and the supply chain workforce crisis is likely to only accelerate as new technologies demand a labour pool with increasingly advanced skill sets.