Digital Supply Chain Technology Investments Spurred by Disruption

With continued shortages and bottlenecks contributing to inflation in 2022, the general public finally grasps the criticality of supply chains to their daily routines. In turn, consumers’ heightened awareness of—and negative personal experiences with—supply chain issues have lifted the strategic importance of supply chains to a position of prominence at the highest levels of companies worldwide. 

That has placed supply chain leaders into the optimal position to drive impactful, lasting transformation within their organizations.

Indeed, the supply chain challenges that arose in 2020 and 2021 from the COVID-19 pandemic have inspired a tsunami of investment in emerging and innovative technologies. That revelation was among the key findings of this year’s ninth 2022 MHI Annual Industry Report, researched by MHI and Deloitte Consulting LLP, “Evolution to Revolution: Building the Supply Chains of Tomorrow” (free download at mhi.org/publications/report). 

As nearly every major company’s forecasts were impacted by continued supply chain bottlenecks and constraints, 87% of the more than 1,000 manufacturing and supply chain leaders surveyed said COVID-19 elevated the strategic importance of their supply chains. Nearly 78% of supply chain leaders from both large (+ $1 billion) and smaller (+$50 million) operations say their digital transformation accelerated due to the pandemic, and 64% of them increased their digital supply chain investments. 

(By the way, we’re currently conducting the survey for the 2023 MHI Annual Industry Report. Add your input at surveymonkey.com/r/2023AIR.)

Where Investments are Focused

Two out of three organizations reported plans to spend more than $1 million in the next two years. Notably, over 2021, the biggest jump in projected spending was in the middle range of $5 million to $10 million. Overall, 41% of respondents plan to spend between $5 million and up to $100 million, while 18% plan to spend at least $10 million.

Investment has been primarily devoted to the following innovations, and MHI’s ninth Annual Industry Report tracks the current level of adoption and the expected level over the next five years:

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

Respondents said all these digital solutions will achieve an adoption rate of 66% or higher over the next five years. Cloud computing and storage has the highest current adoption rate at 40% and will grow to 86% in the next five years. Although presently used by only 28% of respondents, inventory and network optimization tools will match that growth rate, hitting 87% in five years. 

Other technologies expected to approach or exceed 80% adoption in five years included sensors and automatic identification (31% currently use), and robotics and automation (28% currently use), predictive and prescriptive analytics (22% currently use), and IoT (21% currently use). The technology expected to grow fastest is AI, which participants said will rise from 15% current use to 73% in five years—a nearly five-fold jump.

Further, expected investment levels over the next two years are rising, with 82% of respondents saying they will spend between $1 million and $10 million. This is a clear acknowledgement that supply chain is now a technology-driven industry, and organizations that do not invested in transformational digital solutions will fail to meet their top 2022 challenges:

• Supply chain disruptions and shortages (57%)
• Hiring and retaining qualified workers (54%)
• Customer demands for faster response times (51%)
• Out-of-stock situations (48%)
• Forecasting (46%)

Notably, the tight labor market is also prompting investment in technologies that reduce their need for labor, as well as in those that help them better prepare for unknown disruptions. COVID-19 proved that supply chain leaders could no longer address issues solely on experience-based judgment. Instead, they need technologies such as digital twin simulations that analyze data and filter through potential solutions quickly to increase resiliency and the ability to navigate future uncertainty.

Making the Business Case

As for companies who have not deployed transformational technologies, the biggest investment barrier was the lack of a clear business case. Although leadership may understand philosophically that their supply chains will benefit tremendously from digital supply chain innovations, they are stymied by ongoing pressure for profitable growth as well as concerns about anticipated costs and potential operational distractions. 

To help build a successful digital supply chain technology investment business case, MHI offers the free Supply Chain Digital Consciousness Index (DCI) self-assessment tool (mhi.org/dci). The tool allows companies to quickly assess their digital mindset and evaluate their adoption progress. Further, this year’s report shares a framework for building a business case that minimizes risk, creates discipline, establishes a case for change, and provides control.