By Geoff Thomas, Senior Vice President, Asia Pacific and Japan, Infor

Australia’s manufacturing sector is at a critical crossroads. Rising energy costs, economic shifts and workforce shortages have challenged the industry to remain competitive. On the brighter side, government initiatives and technological innovation have been driving a transformation.

In particular, AI has transitioned from a tool promising to simply enhance automation, to a powerful technology that drives significantly smarter decision-making and dramatically improves operational efficiency. Despite its potential, many Australian distributors are still struggling to implement AI at scale.

Globally, 82 per cent of supply chain organisations are using AI and GenAI across an array of use cases, according to an EY survey. But the Australian Government’s SME AI Adoption Tracker reveals that our nation lags behind, with only 31 per cent of distributors having adopted AI, displaying higher levels of unawareness compared to our international counterparts as well as other industries such as retail, healthcare and hospitality, which all boast adoption rates of over 40 per cent.

Despite the potential of AI to generate real business impact, distributors are not prioritising the adoption of AI, often viewing it as a short-term fix instead of a strategic investment.

This can largely be attributed to distributors approaching AI without a clear strategy, subsequently implementing applications that fail to align with core business goals. For true value to be unlocked, distributors need to develop a scalable and flexible foundation, and implement integrated management systems to facilitate the game-changing benefits of AI.

Even though roughly 95 per cent of global distributors are exploring AI use cases across the value chain, according to a study by McKinsey, only 30 per cent say they have sufficient talent within their organisation to scale these efforts.

Less than 10 per cent report having an AI road map with prioritised use cases for deployment.

This is a missed opportunity, particularly with the rise of agentic AI, which can free organisations of lower-value tasks by autonomously performing tasks and pursuing predefined goals. McKinsey’s research also shows that only 23 per cent of surveyed organisations are scaling an agentic AI system somewhere into their enterprises, and an additional 39 per cent say they have only just begun experimenting with AI agents.

Although some hesitancy around agentic AI remains, Australian businesses are accepting that to remain competitive and profitable, they will need to deploy some level of agentic capability at scale. Within the distribution industry, agentic AI could be a real game-changer, enabling distributors to problem-solve and execute actions with minimal human assistance.

The uptake of agentic AI in Australian distribution is still slow and guarded, with businesses that are scaling agents doing so in a limited capacity. But the Large language Models (LLMs) and Natural Language Processing (NLP) techniques agentic AI is based on can be employed for a range of applications. The best part of this emerging technology is that AI agents learn and adapt their behaviours over time.

For Australian distributors still struggling to realise value from AI, it is important to remember that successful AI transformation depends on the capabilities that are used in tandem. Targeted investment in skills, data foundations and operating practices, alongside agentic AI deployment, can strengthen business processes and drive workplace efficiency – but only when organisations invest in developing the right capabilities and practices.

With these foundations in place, distributors can gain real-time visibility into warehouse operations, enabling smoother task management and more efficient scheduling. Equally, cloud-native solutions can play a pivotal role in this ecosystem by eliminating the need for investments in hardware and infrastructure. Over time, IT resources previously dedicated to maintaining data infrastructure can be redirected towards higher-value initiatives that improve customer experience and deliver clear returns.

The Australian distribution sector is now at a critical juncture – and AI upskilling will determine whether distributors fall behind or evolve at the pace of the industry.