Artificial intelligence (AI) has been a hot topic in recent years, with many businesses looking to harness its power. One area where AI can be particularly helpful is in the supply chain.
By leveraging AI, businesses can streamline their supply chain operations and improve efficiencies. In this article, we’ll explore how AI can be used in the supply chain and some of the benefits it can bring.
Global Supply Chains
A new era of machine learning and artificial intelligence is upon us, and with it comes a new set of challenges for the supply chain management. Global supply chains are becoming more complex and interconnected, making it difficult to manage them effectively.
Luckily, machine learning and artificial intelligence can help us meet these challenges head-on. By using these technologies, we can improve our understanding of supply chains and make them more efficient and effective.
As chief supply chain officers look to optimize performance and avoid disruptions, many are turning to artificial intelligence (AI). AI can help identify patterns and trends in data that humans might miss, making the supply chain more efficient and effective.
In addition, AI can help automate tasks and processes, further streamlining the supply chain. As AI becomes more advanced, its impact on the supply chain will only grow, making it a critical tool for chief supply chain officers.
Overall supply chain interruptions increased by 14% between 2019 and 2020. There were an estimated 3,700 supply chain disruptors in 2019. This figure is expected to rise to 4,200 by 2020.
The demand for supply chain management platforms is expected to grow significantly in the next few years as global supply chains become more complex. Organizations are seeking ways to improve their demand forecasting and supply chain management processes in order to stay competitive in the market.
Supply chain leaders are under pressure to create agile supply chains that can respond quickly to changes in raw materials availability and customer demand. This requires close collaboration between supply chain managers and other functions within the organization. Supply chain resilience is also essential to ensure continuity of operations in the face of disruptions.
The Potential of AI in Supply Chain Management
The world’s leading supply chain companies have begun to realize the benefits that AI can bring. IBM, for example, has created a software solution called “Harmony Intelligence” that uses machine learning and artificial intelligence to automate supply operations. It helps organizations react more quickly to business changes while improving their sustainability and overall efficiency at the same time.
Other organizations are already seeing the results of implementing AI solutions into their supply chain operations. BMW, for example, is using predictive analytics to identify possible risks in its distribution system and reduce costs. In addition, it wants to use AI in its operations to develop better products and make fewer changes as it grows.
How Does AI Transform The Supply Chain
The supply chain is an area where AI is already being used extensively today. As we’ve seen above, it can improve companies’ supply chain operations by automating certain tasks and allowing them to pinpoint problems faster than ever before. However, there are still some areas where AI needs to improve before it’s fully integrated into supply chain operations:
1. Improving Customer Experiences and Lowering Costs
There are many ways in which AI can measure up to customer expectations. For example, a company that uses AI-based logistics automation can provide accurate delivery times, which will improve the customer experience. It can also lower shipping costs by streamlining the process and reducing human error.
According to a McKinsey analysis, AI-enabled supply chain management reduced logistics costs by 15%, inventory levels by 35%, and service levels by 65% for early adopters as compared to “slower-moving competitors.”
2. Managing Complex Processes
AI can apply to more than just one business unit or aspect of a supply chain operation. Its talent for monitoring data sets and performing simultaneous tasks allows it to become more integrated into supply chain operations across the board. Organizations will be able to build custom solutions around AI, which can help them to understand the supply chain process in a new way.
3. Improving Collaboration With Suppliers
Many organizations are having trouble maintaining their supply chains. AI will make it easier for them to collaborate with their supply chain partners and work together as one team. It can monitor common needs and identify problems when they arise, helping all parties work together more effectively.
For example, it can reduce the need for multinational calls within a company, reducing their communication cost and allowing them to focus on solving real problems. This will increase collaboration between partners, making decisions easier and increasing efficiency across the board.
5 Examples of AI in Supply Chains
According to the Gartner, Inc. 2019 CIO Survey, the number of organisations employing artificial intelligence (AI) has increased 270 percent in the last four years and tripled in the last year.
AI can be used in supply chain operations to provide a number of benefits. We’ll look at five key examples below:
1. Rapid Product and Location Identification
An intelligent system can help businesses identify products based on their supply chain requirements, such as location or product type. Once they know what’s needed, they can buy products and locations in advance to ensure there is always the right inventory available on the shelf. Google has built an internal AI tool that allows businesses to do this.
2. Automated Multi-Principal Purchase Orders
Many companies have more than one supplier. When you place a call to place an order with a particular supplier, you tend to follow up on it later in your organization — typically after receiving confirmation from the supplier that your order is complete and ready for shipment.
AI can help reduce the time that it takes to follow up on orders. It would be efficient for an organization to let AI handle all of the communication with suppliers, including the purchase order. This will reduce human interaction between supply chain partners and allow AI to take over some of these tasks in a more seamless way.
3. Intelligent Vendor Selection Engine (VSER)
A VSER is a machine learning algorithm that acts as a matchmaker for businesses in their supply chain. Businesses can use it to find the best possible suppliers based on their requirements and current inventory levels, without having to do any research on their own. It can also help select the right product type, ensuring that companies only buy items that they need.
4. Electronic Procurement Platform
Electronic procurement platforms are being developed to allow businesses to automate their imports and exports. These platforms will allow businesses to buy products from all around the world in a single transaction, with the paperwork done automatically. This will reduce friction and make it easier for companies to manage their supply chains, especially as they expand their international activities.
For example, some of these platforms connect different countries’ government agencies for customs and tax purposes. Once this is put in place, companies will be able to import merchandise faster and more seamlessly across borders.
5. Design-For-Manufacturing
AI and machine learning can also help businesses look at their designs in a new way. They can use AI to test designs, reducing the amount of time it takes to develop new products and get them to market. By using AI, companies can design new products faster than ever before, without sacrificing quality.
7 Benefits of AI in Supply Chain Management
Overall, the supply chain is an area where AI can have a major impact. By automating certain processes, businesses will be able to focus on their core businesses and grow by delivering high-quality products that meet customers’ expectations. AI can also help businesses identify new opportunities and improve their current operations.
Let’s look at how AI can benefit each of these areas in more detail.
1. Better Forecasting and Forecasting Accuracy
In many parts of the world, finding accurate forecasts is difficult due to the large quantity of data that needs to be collated. This can make it hard for organizations to see what’s happening with their supply chains and consequently affect their decisions about what products to produce or where they should invest in expansion.
AI makes it easier for businesses to create more accurate forecasts by analyzing the massive amounts of data that are available and learning from past performance. For example, a company that uses AI in its supply chain operations can forecast sales more accurately by identifying patterns in customer behavior. This will allow them to forecast future trends and plan for their business accordingly, making decisions faster than ever before and avoiding delays.
2. Improved Visibility into the Supply Chain Process
Setting up automated monitoring systems is a major challenge for businesses that use old-fashioned methods. Systems are often set up manually, which can lead to mistakes. Automation with AI allows companies to set up monitoring systems more easily and in a way that’s customized to their needs.
This will give them improved visibility into their supply chains, making it easier to identify problems and troubleshoot them when they arise. Users can also get real-time reports based on the data that’s collected, which means that companies can make decisions faster than ever before.
In APQC’s annual Supply Chain Management Priorities and Challenges research, organizations reveal that supply chain planning is the most essential supply chain concern in 2018. The top priorities fall into more strategic supply chain functions versus the execution-style elements of logistics and manufacturing.
3. Better Resource Utilization
Many businesses struggle to make the most of their resources and produce higher-quality products at a lower cost. They often have to choose between two options — producing a high volume of low-quality products or a lower volume of high-quality products.
Using AI will allow businesses to do both at the same time, as it uses data to target production volumes and manage costs more effectively. It can do this by optimizing its production schedule to meet company goals, reducing overhead costs, and increasing profitability.
Businesses with optimal supply chains have 15% lower supply chain expenses, less than 50% of inventory holdings, and at least three times faster cash-to-cash cycles than those that are not focused on supply chain optimization.
4. Increased Collaboration with Suppliers
Many companies have trouble finding efficient ways to collaborate with their supply chain partners. They have to rely on complex systems that don’t offer a unified approach or the amount of real-time visibility that they need.
AI allows companies to set up better collaborations between their supply chain partners without having to set up complex software or work through a long sales process. It can map out their logistics operation for them, identifying common needs and making it easier for them to communicate with global partners.
5. Better Customer Experience and Lower Costs
Today’s customers expect more than just the products they’re buying. They expect an experience and to be kept in the loop during the entire process. AI can help companies deliver this experience by providing accurate delivery times and lowering shipping costs. In turn, it will lead to better customer satisfaction and a higher rate of retention, which translates into higher profits for businesses that use AI in their supply chain operations.
6. Faster Decision Making
Analyses and decisions are harder when companies have to rely on manual processes or outdated software. AI solutions can give companies immediate insights into their supply chains, allowing them to make better decisions faster. This is because it provides instant access to all the data that’s available, including historical information and customer feedback.
7. Reduced Supply Chain Costs
The use of AI in supply chain operations can help companies lower costs by identifying problems early and monitoring shipping rates in real-time. Systems like this are set up to work with future projections and will provide continuous improvements based on real-time feedback, which leads to a reduction of costs over time. This means that organizations will be able to become more competitive while reducing the cost of goods they sell.
5 Challenges of AI in Supply Chain Management
AI is becoming a major player in supply chain management. While it’s still improving, companies that use AI in their operations can achieve a lot of things quickly. However, there are things that need to be done to ensure the success of this technology. For example, these are some of the key challenges that need to be overcome as adoption increases:
1. Data Security
Any kind of AI use requires high-level security protocols since it can collect vast amounts of information about users and their behavior in different contexts. These data sets must be protected from hackers and other third parties who want to access them without permission.
Companies will have to ensure that the data they collect is encrypted and that it is used for the sole purpose of their operations. This can be achieved if companies use AI solutions from IBM, which have been built on a secure infrastructure.
2. Proper Implementation
Organizations using AI have to make sure that it’s implemented properly in their supply chain. There are two main factors that are essential to this — a clear plan and good implementation strategy. This means businesses need to define their business goals before starting a project with AI and find a reliable partner who will be able to help them achieve them.
3. Proper Incentives
AI systems need to be incentivized in order for them to work optimally. They may become too focused on accumulating data in the long run and may stop producing relevant results. The way they make decisions and how they react to data inputs will vary based on the kind of system they’re working with.
Businesses need to think carefully about what kind of system they want and how it will impact them in the long term. This means that they should find solutions that match their needs with their budget and timeline.
4. Marketing Materials are Lacking
The introduction of AI doesn’t mean that companies can stop using marketing materials. In fact, the use of AI can help them create more accurate and useful content. However, this kind of technology may not be good for all products or services.
When it comes to new products that are still under development, companies should make sure that they share accurate information about these products in the market instead of trying to use AI solutions.
5. Clear Goals and Measures
Companies that want to implement AI solutions into their supply chain operations will need a clear set of goals along with measurable objectives and KPIs (key performance indicators).
They will also need clear measures that give them access to data in real-time that doesn’t require a lot of resources. When you’re using AI solutions in your supply chain operations, it’s important to make sure that the data that’s collected is reviewed and analyzed in real-time.
The Risks of AI in Supply Chain Management
The use of AI in supply chain operations has the potential to have a huge impact on companies and their businesses. While many benefits can be achieved by implementing these systems, there are also risks involved.
Here are some of the challenges that organizations face when they implement AI into their operations:
1. Data Can be Stolen
As we’ve seen, AI solutions require a high level of security protocols to be implemented. This means that they’ll have to protect all data they collect. As a result, anyone who wants to access this information will have to have permission from the organization using the system. AI programs can also interpret data in different ways and may produce results that are not accurate. As a result, they’ll have to be reviewed by humans as well.
2. AI Systems can Interpret Data Wrong
When businesses use AI in their operations, they have to make sure that the right data is collected and used. If the machine is fed with the wrong information, it may produce bad results for the organization using it. While businesses that use AI will have access to more data from different sources and relevant trends, they need to ensure that this data is used properly in their operations.
3. AI Systems can be Hacked
A significant number of technologies that have been developed over the past few years have been hacked. This means that they can be accessed and exploited by third parties. In some cases, hackers can use AI to access information from businesses or sabotage their operations through it. While this doesn’t happen very often, it’s important for companies to take care when they’re using AI solutions in order to prevent this from happening.
4. AI Systems Aren’t Transparent
The organization needs to understand them better. Like other technologies, AI is complicated to understand for most people. It requires a lot of knowledge and expertise that only a few people around the world possess.
As a result, it’s hard for organizations to make sure that their AI system is working properly. This means that they don’t know when the system is misinterpreting data or isn’t providing good results. It can also cause errors and misinterpretations in the results they get.
5. The AI System can Eventually Self-Improve
AI systems have their limitations and weaknesses which can be overcome by humans — something that people should take into consideration when using them in supply chain operations as well as other business operations. If a system becomes smarter than humans, it may become too focused on accumulating data and stop producing useful information for the organization.
The Future of AI in Supply Chain Management
Companies need to invest in AI because it can bring many benefits for their businesses. The use of this technology allows them to generate accurate and relevant insights about the things going on around them. However, before they try to implement AI solutions, they should make sure that their operations are ready for it.
The global supply chain management market was estimated at 15.85 billion US dollars in 2020 and is predicted to grow to over 31 billion US dollars by 2026.
Although this kind of technology can be very complicated and risky, it brings a lot of benefits for companies that are willing to use it properly. For example, AI can help increase transparency in supply chain operations by providing companies with valuable data that lets them make better decisions about their business processes.
Final Note
In order to achieve its full potential, AI has to be embraced by all organizations. However, there are still some major challenges facing the use of this technology in supply chain management.
For example, it can’t work if a business is not prepared. Data security will be a very important factor as well as proper implementation and clear goals and measurements. These issues can be solved if companies don’t rush into the use of AI solutions but consider the benefits carefully instead.
Last Updated on October 12, 2023 by Priyanshi Sharma
