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The 2016 MHI Annual Industry Report Accelerating Change: How Innovation Is Driving Digital, Always-On Supply Chains Table of Contents The 2016 MHI Annual Industry Report Accelerating change: How innovation is driving digital, always-on supply chains Table of contents 2 Introduction 3 Survey highlights 5 How digitized supply chains are disrupting business models 12 Innovation: Eight technologies driving always-on supply chains 13 Predictive analytics 16 Robotics and automation 19 Sensors and automatic identification 24 Wearables and mobile technology 28 Driverless vehicles and drones 33 Inventory and network optimization tools 36 Cloud computing and storage 38 3D printing 41 Suggestions for supply chain leaders 44 About the report 46 Acknowledgements 47 Addendum 48 Tactical investments Key survey findings CHALLENGES EMERGING TECHNOLOGIES Top 4 out of 8 58% 57% 56% Robotics & Automation 51% Inventory & Network Optimization Tools 48% Hiring and Customer Customer Sensors & Automatic Identification 47% Retaining Demand Demand for a Skilled for Faster Lower Predictive Analytics 44% Workforce Response Delivered Times Costs ADOPTION RATE In-use Today 5-Year Compunded Annual Growth Rate 2014 Adoption 50 % 40% 30% 20% 10% Cloud Sensors & Inventory & Robotics & Wearable & Predictive 3D Printing Driverless Computing & Automatic Network Automation Mobile Analytics Vehicles & Storage Identification Optimization Technology Drones Tools BARRIERS TO ADOPTION PREPARATION 43% 38% 35% 56% 46% Lack of clear business Lack of talent to Cultural case to justify utilize technology Aversion to Risk investment. effectively. Training Workforce to Partnering with Vendors use New Technologies to Understand Benefits SPENDING 3% Companies spending on emerging technologies over the next two years. 12% 43% 42% $100 MILLION+ $10 MILLION+ 52% $1 MILLION+ Changing Organizational Increased Budget 48% Structure, Incentives - $1 MILLION The 2016 MHI Annual Industry Report Accelerating change: How innovation is driving digital, always-on supply chains 1 Introduction This report also provides an update on eight technologies that are enabling these always-on supply chains and profiles the dramatic impact they are having (and will continue to have) on supply chains and the people who run them. They include: • Predictive analytics • Robotics and automation • Sensors and automatic identification • Wearable and mobile technology • Driverless vehicles and drones • Inventory and network optimization tools • Cloud computing and storage • 3D printing A full 83% (up from 75% last year) of survey respondents believe that at least one of these eight technologies could either be a source of competitive advantage or a source of disruption for supply chains in the next 10 years. In fact, respondents considered each of them to be an even greater source of competitive advantage and disruption than just one year ago. The survey also found that two of these technologies Innovation is transforming traditional, linear supply chains (robotics and automation, driverless vehicles and drones) into ones that are more connected, intelligent, scalable, and have already had a bigger and more rapid impact on nimble. Sensors are enabling data collection, advancements supply chains than previously predicted. This accelerated in computing power have improved predictive analytics, and pace of change is dramatically altering the way supply supplemental tools – such as automation and wearables – chains work, how they are managed, and how the are creating digital, continuously operating supply chains always-on network is evolving. and interconnected networks of supply chain workers. “The always-on supply chain has the potential to deliver The 2016 MHI Annual Industry Report, developed in massive economic and environmental rewards. It can collaboration with Deloitte, reflects the views of nearly boost productivity and sustainability, drive new markets, 900 industry insiders – almost double that of last year’s and encourage innovation, resulting in exponential survey. Respondents included manufacturers, distributors, change for industry and society as a whole,” says service providers, and others – more than 50% of them George Prest, CEO of MHI. with senior executive, general manager, or department head titles. As the always-on supply chain becomes essential for business survival, companies from all industries will seek the The report introduces the concept of the always-on best ways to harness it. Of course, the secret to determining supply chain: who is ultimately successful will be in the details. Join us as we delve more deeply into the supply chain industry’s An integrated set of supply networks characterized challenges, with a particular focus on how technology by a continuous, high-velocity flow of information innovation can help pave the path to the supply chain of the and analytics, creating predictive, actionable future – a future that has already begun. decisions that better serve the customer. 2 Survey highlights According to the survey, the innovations covered in this report Most disruptive technologies – Robotics and are poised to grow significantly over the next five to 10 years. automation and driverless vehicles/drones both led Following are some of the more significant findings. in their perceived ability to create either supply chain disruption or competitive advantage, with a 12% growth The top technologies that respondents say can be a source spike since last year. of either disruption or competitive advantage are: • Robotics and automation (51%, up from 39% last year) Adoption rates – Cloud computing and storage and • Inventory and network optimization tools (48%, up from sensors and automatic identification are leading in terms of 45% last year) adoption rates – with 45% and 44%, respectively. However, • Sensors and automatic identification (47%, up from six of the eight technologies covered in this report have 42% last year) predicted adoption rates of 74% or higher over the next six • Predictive analytics (44 %, up from 38% last year) to 10 years. Driverless vehicles and drones and 3D printing have predicted adoption rates of 50% and 48% respectively over the same period (see Figure 1). Figure 1. Planned adoption of emerging technologies Survey question: When do you believe your company will mostly likely introduce the following capabilities in your supply chain? 100% 90% 90% 87% 86% 80% 80% 75% 74% 70% 60% 50% 50% 48% 44% 45% 43% 40% 35% 30% 26% 22% 20% 14% 9% 10% 0% Inventory Sensors and Cloud Predictive Wearable Robotics and Driverless 3D Printing and Network Automatic Computing Analytics and Mobile Automation Vehicles and Optimization Identification and Storage Technology Drones Tools In-use today 1-2 years 3-5 years 6+ years The 2016 MHI Annual Industry Report Accelerating change: How innovation is driving digital, always-on supply chains 3 Barriers to adoption – Fully 43% (up from 36% last year) 53% last year) say that training their workforce to use new of respondents believe the major barrier to investment in technologies is a top priority. Other significant challenges supply chain innovation is the lack of a clear business case, include customer demand for faster response times (57%, followed by lack of adequate talent to utilize technologies up from 50% last year) and customer demand for lower effectively (38%), and cultural aversion to risk (35%). delivery cost (56%, up from 51% last year). Supply chain challenges – In order to successfully Investments – More manufacturing and supply chain implement any of these technologies, companies need companies are upping their financial commitment to access to a skilled workforce. According to the survey, this innovation. New technology investments totalling is the biggest obstacle facing supply chain professionals, over $1 million have increased from 49% a year ago with a full 58% of respondents indicating that they face a to 52% today. Three percent of respondents plan to significant challenge in hiring and retaining a skilled supply spend over $100 million. chain workforce (see Figure 2). Additionally, 56% (up from Figure 2. Challenges for organization’s supply chain Hiring and retaining 11% 31% 31% 27% a skilled workforce Customer demands for 10% 33% 41% 16% faster response times Customer demands for 11% 32% 34% 22% lower delivered costs/pricing Increasing competitive intesity, 11% 37% 38% 14% rising customer service expectations Increasing volatility of demand 14% 41% 34% 10% Customer demands for more 18% 40% 30% 12% customized products and services Increasing numBer of products 22% 40% 31% 8% Increasing volatility of supply, 19% 49% 26% 6% including supply chain disruptions Customer demands for smaller, 34% 34% 24% 8% more frequent shipments Customer demands for more supply 33% 41% 20% 6% chain transparency/sustainaBility 0% 20% 40% 60% 80% 100% Not Challenging Somewhat Challenging Very Challenging Extremely Challenging Source: 2016 Survey results 4 How digitized supply chains are disrupting business models The innovations driving always-on supply chains are initially The exponential increase in computing power is a disruptive, but they can also help companies optimize particularly powerful contributor to supply chain disruption processes and improve operational efficiency, creating a and this is only expected to continue. Figure 3 shows the more flexible experience for workers and driving measurable projection that computing power will increase 30-fold over business outcomes. a 150-year period. Note that most of that occurred within the last 30 to 40 years. Technology-driven innovation The shift to an always-on supply chain has been facilitated by advances in technology,
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