This year’s Kenco study reveals an “innovation paradox” in which organizations increasingly depend on innovation to mitigate inflation, yet inflation itself is making those projects harder to fund and execute.
According to the 2026 Innovation Report, nearly half of respondents cite inflation (45%) as their primary innovation driver, followed by labor shortages (28%), and sustainability priorities (27%). At the same time, cost constraints (51%), workforce challenges (45%), and technology integration issues (29%) remain the biggest barriers to progress.
“Supply chain leaders are past the stage of experimenting with innovation just to see what’s possible,” says Kristi Montgomery, VP, strategic transformation at Kenco. “They’re looking for solutions that positively impact cost, service, and resilience. This year’s research shows that AI and automation only deliver results when rooted in strong data foundations, proven processes, and partners who know how to operationalize innovation at scale.”
Key takeaways:
· Even with these challenges, companies remain committed to investing in innovation, as 83% of respondents reported having a dedicated 2026 innovation budget. While overall budget increases declined compared to the prior year (35%, down from 39%), nearly half of companies (49%) noted an innovation budget of at least $500,000, underscoring continued emphasis on modernization. Leaders are concentrating on foundational improvements, prioritizing quality (33%), inventory management (27%), and labor efficiency (23%).
· When undertaking innovative initiatives, respondents noted how organizational challenges – not technology –provide the biggest implementation hurdles. Respondents point to misalignment across operations, IT, HR, risk, and legal as common causes of delays. This pragmatic mindset also surfaces in technology selection: 42% favor established technologies, and 43% prefer a blend of existing and emerging solutions, signaling that reliability continues to outweigh novelty.
· Respondents expect third‑party logistics (3PL) partners to provide strategic insights in today’s supply chain environment.
