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Funding Challenges Hinder Supply Chain Management Innovation

By Karen Lynch

Global supply chain management executives face significant challenges in accessing the capital they need to roll out next-generation digital supply chains, according to the fifth annual survey by MHI, an international trade association for the material handling and logistics industry.1

Released in April 2018, the survey underscored supply chain managers' drive toward digital transformation. The digital supply chain will be the predominant model in the next five years, according to eight in 10 survey respondents – a higher level of buy-in from supply chain managers than at any point in the survey's past four years. Yet, today's actual adoption rates were reported as significantly lower than survey respondents had predicted in 2014 – by an average of about 30 percent.2

 

Funding is one of the top challenges holding back supply chain managers, according to the report, which was published with the professional services firm, Deloitte Consulting LLP. Specifically, many respondents said that the top barriers to digital supply chain adoption included the lack of a clear business case and the lack of access to capital to make investments.

 

These two challenges can work together to stymie supply chain management innovation because, as reported in Entrepreneur magazine, "without a solid business plan, investors probably won't consider your loan application."3 The situation is such that, in a separate survey in Canada, only 5 percent of small and midsize enterprises (SMEs) said they planned to seek a loan to finance their innovation projects.4

 

Whether for external or internal funding, "justifying investments in new and innovative technologies is [an] ambiguous process," according to the MHI report. "Innovation, by its very nature, is full of open questions – especially in the early stages – and information about costs and benefits is often imperfect and speculative."5

 

However, avoiding supply chain management innovation did not appear to be an option for most survey respondents, who said they face an even bigger challenge: ever-escalating customer demands. "Digital disruption and continued globalization are sending customer service expectations through the roof and stretching supply chains to the farthest reaches of the planet – putting supply chains under more stress than ever before," the report said. The next generation global supply chain will have to be digital, on-demand and always-on, to meet customer demands for increased speed, flexibility, visibility, and transparency, according to the report.6

 

Top Digital Supply Chain Technologies

 

Eleven technologies will make up the next-generation digital supply chain, according to the report, and survey respondents ranked them by their potential to disrupt or create competitive advantage. Robotics and automation were at the top of the list, followed by predictive analytics, the Internet of Things (IoT), sensors and automatic identification, inventory and network optimization tools, artificial intelligence, driverless vehicles and drones, wearable and mobile technology, cloud computing and storage, blockchain and distributed ledger technologies, and 3D printing.

 

Of these, cloud computing today has the highest adoption rate (57 percent) in digital supply chains, followed by sensors and automatic identification (45 percent), inventory and network optimization tools (44 percent), and robotics and automation (34 percent). At the lower end of the adoption scale are such innovations as wearable and mobile technology (23 percent), predictive analytics (20 percent), 3D printing (16 percent), driverless vehicles and drones (11 percent), and blockchain (6 percent).7

 

All of which raises another issue when drafting a business case for supply chain innovation, the report said: "Not only is minimal objective data available for innovative technologies, but the combined impact of innovations is often many times greater than the sum of their individual impacts, making it even more difficult to prepare a realistic business case."8

 

Making a Business Case for Supply Chain Management Innovation

 

Companies that have successfully implemented innovative technology in their global supply chains employ several leading practices, the report said. One approach is to think big but start small. That is, to break the value proposition into small pieces with provisions to pilot, learn fast, refine, and roll out.

 

The evaluation stage will result in a decision on whether or not to fund and proceed, according to the Gartner Inc. market research firm. "Determining the benefits and risks of a new idea can be very challenging because there's often little evidence available about the real value until the idea is put into practice. At this stage, there's no substitute for hands-on evaluation activities such as experiments, pilots, and trials, which build practical evidence of both risks and benefits."9

 

To estimate costs, which is another key aspect of the evaluation process, supply chain managers should assume that the return on investment will be lower and later than initially expected, Gartner said. "Some risks and costs become clear only in hindsight. Having the discipline to start small, to scale up successful ideas, and to stop failures quickly will contain risks and keep innovation moving forward."10

 

Effective supply chain management business cases also evaluate innovations against a baseline of inaction, whose potential costs and consequences can include un-scalable operations, loss of competitiveness, loss of market share, and others, the MHI report said. Involving customers in developing the business case is another best practice, to understand where they are headed and what they would be willing to pay for.

 

Once the benefits and risks of a supply chain innovation are better understood, they should be mapped to revenue growth, operating margin, and asset efficiency – and ultimately, to overall company performance, the report said.

 

The Supply Chain Management Horizon

 

The report also breaks down the expected impact (as opposed to disruptive potential) of key supply chain technologies over the next 10 years. The highest rankings went to inventory and network optimization tools, sensors and automatic identification, and predictive analytics – all selected by over 90 percent of survey respondents. Eighty to 90 percent selected the IoT, robotics and automation, cloud computing and storage, and wearable and mobile technology. Seventy to 80 percent chose artificial intelligence, driverless vehicles and drones, and blockchain and distributed ledger technologies. Sixty-two percent chose 3D printing.11

 

The

Takeaway:

Global supply chain managers are under pressure from increasingly demanding customers to implement next-generation digital supply chains. A recent survey from MHI ranked the 11 top technologies involved in this transformation. However, the survey also underscored the internal and external funding challenges to supply chain management innovation, and concluded that building an effective innovation business case is key to addressing these challenges.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. 2018 MHI Annual Industry Report: Overcoming Barriers to NextGen Supply Chain Innovation, MHI and Deloitte Consulting LLP; https://www.mhi.org/publications/report.
2. Ibid.
3. “8 Reasons Your Business Loan Was Rejected,” Entrepreneur;https://www.entrepreneur.com/article/284810
4. “When to Seek a Loan for Your Innovation Projects,” Business Development Bank of Canada; https://www.bdc.ca/en/articles-tools/business-strategy-planning/innovate/pages/when-to-seek-loan-innovation-projects.aspx
5. 2018 MHI Annual Industry Report: Overcoming Barriers to NextGen Supply Chain Innovation, MHI and Deloitte Consulting LLP; https://www.mhi.org/publications/report
6. Ibid.
7. Ibid.
8. Ibid.
9. “A 5-Step Innovation Process for Supply Chains,” Gartner Inc.; https://www.gartner.com/smarterwithgartner/a-5-step-innovation-process-for-supply-chains/
10. Ibid.
11. 2018 MHI Annual Industry Report: Overcoming Barriers to NextGen Supply Chain Innovation, MHI and Deloitte Consulting LLP; https://www.mhi.org/publications/report

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