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 investment in supply chain and logistics innovation initiatives in the next 2 years
37% listed "Lowering costs/improving reliability" (tie) as top reasons for innovation.

24% indicated that WMS was most in need of innovation

43% described their pace of innovation as "ahead of the competition" or "industry leader".

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%).

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 believes 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.

Impact of innovation importance on financial performance and employee turnover.

Respondents who said they were better financial performers were 20% more likely to have senior management who believes innovation is important and 16% more likely to have lower employee turnover.

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.

Respondents who said they had lower employee turnover were 15% more likely to have management who believes innovation is important and 23% more likely to have better financial performance.

Over half of the respondents (53%) describe their company’s employee turnover as “better than average.”

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

%
59

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 have accelerated the innovation plans of over one in three companies.

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.

%
59

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 logistics technology solutions are helping the company, not hindering it.

--

What innovations are companies deploying, and how far along are they?
Digitization efforts are closely aligned with supply chain and logistics innovation because they’re about transforming company performance in ways that allow customers to see the positive difference. Supply chain and logistics operations are very extensive, so it’s highly unlikely that companies would have digitization programs that address the entirety of their operations. The study identified the top digitization initiatives companies have focused on as order fulfilment (47%), customer experience (45%), and transportation processes (44%).

Where companies are applying innovation
The answers to three questions paint a picture of where companies believe they are most innovative in their supply chain and logistics operations, where they had the greatest need for innovation, and where they will focus innovation for the next two years. In general, no one area dominated the results for the state of innovation today and future focus.

Innovation and advanced computing technology
Advanced computing technology has been touted as the next wave of supply chain and logistics innovation. When looking at full deployments, with the exception of data analytics (40%), most advanced computing technologies such as machine learning (20%), artificial intelligence – non-machine learning (17%) and robotic process automation (16%) are still in the early stages of full production use.

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.”

Respondents in the Nordics (50%) and U.S. (48%) were more likely to regard their company’s pace as “ahead of the competition” compared to only 28% of U.K. respondents.

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.

The Descartes Systems Group, Inc. | www.descartes.com | Supply Chain and Logistics Innovation