Rootstock Software’s latest State of Manufacturing Technology Survey shows manufacturers entering 2026 with digital transformation and artificial intelligence (AI) embedded more deeply into daily operations, even as companies face mounting workforce challenges, tariff pressures and uneven integration across core business systems.

The January survey, conducted by Researchscape and based on responses from 520 digital transformation leaders at mid- to large-sized manufacturers in North America, Europe and Asia, finds an industry making steady progress but with few organizations considering themselves digitally advanced. 67% of respondents described their companies as “on par” or “slightly ahead” of peers in digital maturity. Meanwhile, only 7% said they are “far ahead.”

At the same time, 94% of respondents reported using some form of AI. The largest gains came among predictive AI, supply chain planning and process optimization. The results point to a shift from experimental AI use cases to applications tied directly to operations and production performance.

Cloud enterprise resource planning systems remain central to those efforts. Nearly half of respondents cited primary outcomes of cloud ERP investments as:

  • Simplification of IT infrastructure (49%)
  • Reduced overall costs (49%)
  • Improved business agility (48%)

Workforce impacts are becoming more pronounced. 45% said ERP is improving staff productivity. And 30% now see employee retention as a key benefit, linking technology modernization to labor stability.

Report highlights manufacturers integrations to start 2026

The survey highlights what Rootstock calls a “Manufacturing Signal Chain.” That refers to the integration of data and processes across finance, production, demand planning and supply chain operations. Respondents said progress toward this connected environment is uneven, with many organizations still struggling to integrate systems across departments.

While manufacturers report forward movement, internal challenges are slowing progress. 31% of respondents now consider themselves “slightly ahead” of peers, up from 25% in 2024. At the same time, more respondents identified workforce and organizational issues as key obstacles.

33% of respondents cited a lack of the right talent. That’s up eight percentage points from the previous survey and the largest increase among reported barriers. Lack of cross-department collaboration (31%) and resistance to change (24%) also rose.

Fewer respondents said budget constraints or being “too busy” to transform were limiting factors. That suggests organizational readiness is replacing financial capacity as the primary hurdle.

Manufacturers begin 2026 with a cautious economic outlook. 31% expect demand to decline this year, compared with 19% who anticipate growth.

Tariffs and global trade volatility are emerging as major cost concerns. 39% expect higher raw material costs tied to trade pressures and 37% plan to raise prices as a result. 29% expect supplier reliability to worsen.

Those pressures are influencing IT priorities. Operational and production performance remains the top driver of IT investment at 40%, followed by cybersecurity at 34% and growth initiatives at 28%. 61% of respondents plan to increase spending on enterprise software in the next 12 months, with many anticipating moderate, incremental budget increases.

AI integration in manufacturers operations in 2026

AI adoption is both widespread and increasingly focused on operational performance. 73% of respondents said they believe they are “on par” or “ahead” of peers in AI maturity.

Predictive AI adoption rose 12 percentage points to 48%. Interest in AI for supply chain planning increased 19 points to 35%, and process optimization rose 11 points to 36%.

The data shows manufacturers prioritizing AI use cases that affect throughput, planning accuracy, inventory management and production efficiency rather than experimental or customer-facing applications.

When asked about the consequences of failing to digitally transform, respondents pointed primarily to workforce and organizational risks. Equal amounts (27%) cited lack of digital skills, inability to transition to new business models and inability to respond to disruptions.

Concern about lack of customer insight remained high at 24%, underscoring the importance of data visibility across operations.

Fewer respondents than in prior years cited regulatory compliance or speed to market as primary risks, suggesting manufacturers increasingly see competitiveness tied to adaptability and skills rather than specific technical capabilities.

The survey paints a picture of measured advancement. Manufacturers are investing more in enterprise software, applying AI more broadly and relying on cloud ERP as a foundation for modernization. Yet only a small minority believe they have reached advanced levels of digital maturity.

The findings indicate that in 2026, competitive advantage in manufacturing is less about adopting new tools and more about integrating systems, aligning teams and applying AI across the enterprise in practical ways.

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