Supply Chain and Logistics Innovation Accelerates, But Has Long Way to Go

Descartes Research Report

Introduction

The recent past has highlighted that supply chain and logistics performance can make or break companies and that many supply chains are in dire need of innovation. A recent study by Descartes of 1,000 supply chain and logistics executives in North America and Europe identified that the challenges of the past several years caused more (57%) companies to accelerate their innovation initiatives with an even greater amount (65%) planning to invest more in supply chain and logistics innovation initiatives in the next two years. But does supply chain and logistics innovation translate to business success, and what role does management support play in both?

Top Level Findings

Below are high-level at-a-glance takeaways from the research

59% accelerated the pace of their innovation over the past 2 years
65% plan to increase innovation investment next 2 years
37% listed “Lowering costs/improving reliability” (tie) as top reasons for innovation
87% face obstacles to innovation
24% indicated that WMS was most in need of innovation
Over half of the respondents say they use a mix of internal and external resources to develop innovative supply chain technologies (55%) and strategies (52%)*.
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43% described their pace of innovation as “ahead of the competition” or “industry leader”

What accelerates—or inhibits—innovation?

One of the goals of the study was to get some sense of the connection between innovation and business health. We wanted to understand how three key factors—management importance, financial performance and employee turnover—enable supply chain and logistics innovation and, conversely, how innovation enables financial success and reduces employee turnover. It was our hypothesis that management importance is a self-fulfilling prophecy; that is, if senior management believe supply chain and logistics innovation is important, it would be reflected in the strategies and actions taken. Similarly, companies with better financial performance would be able to direct more resources toward supply chain and logistics innovation than those with lower financial performance—and better performers would also reap the financial benefit of the innovations they deployed. Finally, we anticipated employee retention to be critical as supply chain and logistics innovation requires deep domain expertise and workforce stability helps build and maintain this level of expertise.

What’s the relationship between business performance and innovation?

The study showed the following in terms of management importance, financial performance and employee turnover:

We compared responses from these three areas against each other to see if there was any correlation between business success and perspectives on innovation. The results indicated that innovation importance, financial performance and employee turnover do, in fact, have significant impact on each other. A higher level of senior management importance placed on supply chain and logistics innovation goes “hand-in-hand” with better financial performance and lower employee turnover. Management focus, better financial support and a more stable workforce are critical for accelerating supply chain and logistics innovation. Conversely, a lack of senior management support and financial wherewithal and higher employee turnover are significant inhibitors to fostering innovation.

Respondents who said that innovation was important to senior management were 20% more likely to be better financial performers and 13% more likely to experience lower employee turnover.

What’s driving innovation?

From dramatic shifts in demand to supply chain disruptions to labor shortages, the past two years have forced many companies to become more agile and rethink their supply chain and logistics strategies, tactics and technologies. The study showed that the majority of respondents (59%) said their company accelerated the pace of innovation as a result of the challenges in the past two years. This is the case for those companies who: had senior management support for innovation as very important (68%), were better financial performers (67%) and had lower employee turnover (66%). There was a significant gap in supply chain and logistics innovation acceleration for companies who: had senior management views on innovation as less important (45%), were poorer financial performers (48%) and experienced higher employee turnover (51%).

How has the past two years of supply chain and logistics challenges driven innovation in your organization?

59 Accelerated the pace of their innovation as a result of challenges over the past 2 years

Innovation and the environment

Company environmental programs, government mandates and consumers are challenging supply chain and logistics professionals to rethink product flows and transportation modes and were noted as factors accelerating supply chain and logistics innovation for just over half (52%) of respondents. Environmental programs were a greater accelerator for companies that believe supply chain and logistics innovation is very important (60%), are better financial performers (60%) and experienced lower employee turnover (60%). Environmental programs were less of an accelerator for companies that regard innovation as less important (39%), had poorer financial performance (39%) and experienced higher employee turnover (42%).

What is the impact of your company’s sustainability/environmental impact programs on your supply chain and logistics innovation?

52 Just over half have also seen an acceleration driven by their company’s environmental programs.

Increasing importance of cyber security

Cyber-attacks have been increasing dramatically, shutting down supply chain and logistics operations, exposing legacy bespoke technology and forcing the need to rethink business processes. Information and cyber security were an innovation accelerator for just over one-third of the respondents (36%). Again, there was heightened attention for information and cyber security as a supply chain and logistics innovation catalyst for companies where management believes innovation is very important (43%), companies who are better financial performers (41%) and those with lower employee turnover (44%). Information and cyber security programs were less of an accelerator for companies where management believes innovation is less important (24%), who are poorer financial performers (27%) and who experience higher employee turnover (26%).

Has information or cyber security impacted your supply chain and logistics innovation plans?

36 Information and cyber security have accelerated the innovation plans of over third of respondents.

Supply chain innovation by region

How have organizations in specific countries accelerated their supply chain and logistics innovation?

Two-thirds of French (67%) and U.S. companies (66%) have accelerated their supply chain and logistics innovation, compared to only (50%) in Canada.
French companies are leading in terms of acceleration due to environmental programs (59%) while Canadian companies rank the lowest at (34%).
France noted the highest level of acceleration on supply chain and logistics innovation from information and cyber security (50%) while Canada noted it had the least impact on innovation (20%).

In the U.S. (48%) and Canada (48%), inflation was noted as the top negative impact on innovation.

How important is technology to innovation?

Technology solutions have become closely associated with supply chain and logistics innovation. For many companies, technology is a differentiator, but others have not gained any significant benefits from their deployments. According to the study, 61% of respondents said their current supply chain and logistic technology solutions are helping the company, not hindering it. This leaves 39% that have experienced either no negative impact at all from their supply chain and logistics technology solutions, or no negative impact. Unfortunately, a lot of factors can dictate success for supply chain and logistics technologies that have nothing to do with the technology solution itself. The study did reveal, however, that the positive impact of logistics and supply chain technology solutions rises (70%) when senior management considers innovation very important and the company has better financial performance (69%). Conversely, the positive impact decreases when senior managers consider innovation less important (46%) and the company has poorer financial performance (49%). The results are almost self-prophecy. Experience says that management that places importance on innovation or doing well financially is most likely getting the most out of their supply chain and logistics technology solutions.

What inhibits the pace of innovation?

Innovation of any kind requires change. Because they are under constant pressure to adapt to changing market conditions, the pace of innovation is extremely important for supply chain and logistics organizations to stay ahead of competitive pressures. More than two-in-five respondents (43%) described their company’s innovation pace as “ahead of the competition” or even as “industry leader.” Only 12% believe their company is not keeping up with the pace of supply chain and logistics innovation in their respective markets.

Senior management importance and financial performance weigh heavily on the pace of innovation in supply chain and logistics. Of the 43% who described their pace as ahead of the competition or industry leading, 54% indicated senior management believe supply chain and logistics innovation is very important compared to 26% for those who believe it’s less important. For the same group (43%) of respondents, 60% indicated they were better financial performers compared to only 18% who had worse financial performance.

Inhibitors to innovation

Culture, preparedness and a number of other factors can inhibit supply chain and logistics innovation. According to the study, inhibitors were pervasive as 87% of respondents said they faced obstacles. The greatest inhibitor to supply chain and logistics innovation was cited as attitude to risk and reward at 26%.
The greatest inhibitor to supply chain and logistics innovation was cited as attitude to risk and reward at (26%).

Conclusion: Innovation builds a foundation for future success.

The light shone on supply chains in the recent past has highlighted that supply chain performance can make or break companies. The need to innovate supply chain and logistics operations has moved to the forefront of many C-level agendas out of competitive necessity or the recognition that top performing supply chains provide competitive differentiation. The results of this study point to the accelerated pace of innovation that’s underway in supply chain and logistics operations, and how management importance, financial performance and employee turnover can impact innovation. There’s clearly a lot of supply chain and logistics innovation underway but, for many companies, they’re early in their journeys, especially with the use of advanced computing technologies.

What has also been in the spotlight is that supply chains are “aging” more rapidly than ever. Given highly evolving market dynamics and the demands put upon supply chain and logistics organizations, standing still is not a viable option. Companies need to think about supply chain and logistics innovation as an evergreen program to remain competitive or industry leading, not only as a project to fix a supply chain performance problem.

Supply chain and logistics innovation at Descartes

Because supply chain and logistics are constantly evolving disciplines, a history of innovation is central to the longterm success of leading logistics technology solutions such as Descartes’ offerings. We believe that true innovation should deliver fundamental performance improvement for our customers. Our formula for innovation is simple: we treat it as a never-ending journey that only happens through hard work every day and fostering a culture that seeks to go beyond incremental change.