Disruptions are critical. Disruptions are growth-killer, and nobody wants disruptions, especially when business operations across multiple departments are functioning smoothly, like a well-oiled machine.
Yet, there are times when you cannot predict what’s coming next – until you adopt AI. Among multiple business operations, supply chain and logistics are often considered to be the backbone of large organizations and without the induction of AI, the system is marginally away from a failure.
Just like many other business functions, the use of AI in supply chain management is growing, and organizations around the globe are leveraging it to bring unprecedented, fruitful results.
The Real Use of AI in Supply Chain Management
Have you ever considered the complex journey that your favorite products embark on before they reach your hands?
This rather complex process is known as Supply Chain Management, and it’s being profoundly transformed by Artificial Intelligence (AI).
But what is a supply chain?
A supply chain is a network of interconnected stages – from raw material procurement to the delivery of the final product. Now, think of an intelligent system that can streamline this entire process with minimal human intervention.
That’s exactly what AI does, and the use of AI in the supply chain is revolutionizing how logistics and supply chains are managed more efficiently.
Adoption of AI in Supply Chain Worldwide: The Overall Trend
AI was a buzzword a couple of years ago. Today, it is found everywhere, complementing various industries, improving their business operation, and integrating multiple functions, including supply chain.
The graph below shows the AI adoption rate worldwide in 2022 and the expected adoption of AI in the supply chain by the year 2025.
The graph by Statista shows a clear increase in the overall adoption of AI in the supply chain, including the companies and businesses that think AI is critical for their business to stay competitive and not become obsolete.
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7 Benefits of Using AI in Supply Chain Management
Wherever AI is used, there are clear improvements, and the same is the case when artificial intelligence is used in the Supply Chain. Here are a few benefits of using AI in supply chain management.
1. Lower Operational Expenses
AI in supply chain management is a cost-effective solution. By integrating AI, businesses can cut operational costs and streamline their buying and production processes, boosting efficiency. This can lead to significant business benefits and result in better growth.
2. Enhanced Productivity and Lower Labor Costs
AI has the potential to automate manual tasks, increasing productivity while lowering labor costs. It’s estimated that AI can automate up to 40% of activities during the sales process, resulting in significant savings. This efficient outcome can be a major advantage when competing in low-margin, high-competition regions.
3. Strengthened Relationships with Partners
AI doesn’t just improve internal operations but also strengthens relationships with external partners through various features. Fostering effective collaboration, facilitated by AI, helps companies avoid overstock or understock scenarios, ensuring smooth operations and customer satisfaction.
4. Faster and Timely Deliveries
On-time deliveries are critical. AI in the supply chain aids in tracking shipments and analyzing data patterns for timely deliveries. Companies such as Walmart, Target, and more are already leveraging AI to optimize inventory levels, ensuring products are available when customers need them.
5. Optimized Transportation Networks and Routes
AI in the supply chain revolutionizes the transportation and logistical aspects as well by identifying the most efficient routes and networks and designating vehicles smartly. By considering factors such as the number of trucks, fuel usage, and travel times, AI ensures cost-effective and efficient transport of goods.l
6. Minimized SCM Risks
Potential risks can significantly impact businesses, especially when there’s manual work involved. With AI’s ability to provide comprehensive warehouse management data, companies can identify potential hazards and proactively address them, creating a safer and more efficient work environment.
7. Improved Decision-Making Abilities
When making critical decisions, speed and accuracy are paramount. AI can quickly analyze vast amounts of data and provide increased visibility and insights, leading to more accurate and efficient decisions. AI doesn’t aim to replace humans but rather to augment human decision-making capabilities.
Essentials of Implementing AI and Data Analytics in Supply Chain
Although designing and implementing an AI-powered supply chain solution is a task that is better carried out by AI experts, there are a few steps that you can follow to ensure every due process is followed and you are headed in the right direction.
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Setting Clear Goals
Begin by outlining clear goals for integrating AI and data analytics into your supply chain. Work with stakeholders to pinpoint areas of focus, such as demand prediction, inventory management, route planning, or risk control.
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Gathering and Organizing Data
Systematically collect pertinent data from various supply chain sources, including sales data, customer details, inventory records, logistics information, and external factors like market trends and weather conditions. Ensure this data is well-organized.
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Cleaning and Preparing Data
Address any data issues, discrepancies, and missing values through cleaning and preparation. This includes removing duplicates, correcting errors, filling data gaps, and guaranteeing proper data formatting.
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Selecting AI Algorithms
Choose suitable AI algorithms that align with your set objectives, i.e., effective restocking. Depending on the specific challenges in your supply chain, you might choose regression, classification, clustering, or deep learning methods.
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Choosing AI Technologies
Partner with AI development specialists to select and implement AI tools and methods that match your organization’s goals. This could involve using technologies such as robotic process automation, computer vision, natural language processing, machine learning, or predictive analytics.
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Modelling Data
Conduct a critical data modeling process that includes selecting appropriate machine learning algorithms. Experiment with various data sources, transforming and building features to highlight data variability. Make sure data preparation aligns with the mathematical assumptions of your chosen AI algorithms.
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Integrating with Existing Systems
Incorporate AI capabilities into your current technological infrastructure, including ERP, WMS, TMS, or other relevant software. Ensure seamless data transfer across systems. A single source of truth makes the results better, less skewed, and more efficient.
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Testing and Validation
Put AI models and integrated systems through rigorous testing and validation processes. Compare forecasts against actual results to check accuracy, reliability, and performance. Refine models based on testing results.
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Pilot Testing and Deployment
Carry out pilot testing on a small scale before implementing it across the entire supply chain. Assess system effectiveness, identify issues, and fine-tune algorithms for optimal performance. The better the testing, the better AI in the supply chain will work.
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Ongoing Improvement
Consider AI implementation as a continuous process. Regularly assess its impact on business processes. Adapt AI-based supply chain management to boost productivity, precision, and decision-making. Stay updated on AI advancements and seek opportunities for continuous improvement within your supply chain.
Top 3 Use Cases of AI in Supply Chain Management
The incredible capacity of Artificial Intelligence (AI) is revolutionizing industries, and supply chain management is no exception. By leveraging AI, businesses can streamline processes, reduce costs, and improve efficiency.
But how exactly is AI making a difference? Here are the top three use cases of AI in supply chain management.
1. Demand Forecasting
Accurate demand forecasting is a critical component of any successful supply chain. With AI, businesses can analyze vast amounts of historical sales data alongside external factors like market trends, economic indicators, and even weather patterns.
This allows companies to predict product demand with exceptional accuracy. For instance, companies like Amazon use AI to forecast demand, ensuring they have the right inventory levels to meet customer needs while avoiding overstocking.
2. Inventory Management
Managing inventory is a complex task that AI simplifies. AI can monitor stock levels, predict when replenishment is needed, and even automate ordering processes. This not only reduces the likelihood of stockouts or excess inventory but also saves time and resources.
Walmart, Target, Ikea, and others, for example, use AI-powered drones for real-time inventory tracking, significantly improving the efficiency of its warehouse operations. This keeps everything sorted and aligned.
3. Logistics Optimization
Artificial Intelligence can greatly enhance logistics by optimizing routing and scheduling for deliveries. By analyzing factors such as traffic conditions, fuel costs, and delivery windows, AI can develop the most efficient routes, reducing delivery times and costs.
For example, UPS, a global leader in logistics, utilizes an AI-powered tool called ORION to determine the most efficient delivery routes, saving millions of miles and gallons of fuel annually. Similarly, you can also have a solution custom-designed for you to get you the results you need.
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Real-world Challenges in Implementing AI in Supply Chain & Solutions
Data Quality and Availability
- Challenge: The accurate functioning of AI algorithms relies heavily on the availability of a substantial volume of high-quality data. However, the effective deployment of AI models in the supply chain is hindered by potential inconsistencies, incompleteness, or low quality within the available data.
- Solution: Invest in data cleaning and validation processes to enhance data quality. Implement robust data governance procedures to ensure the accuracy and consistency of the data. To improve data availability, explore strategic partnerships and alternative data sources.
Infrastructure and Technology
- Challenge: Integrating AI into existing supply chain systems may encounter technical challenges. Outdated systems, incompatible platforms, and inadequate IT infrastructure can impede the seamless integration of artificial Intelligence in the supply chain.
- Solution: Conduct a comprehensive technology audit to identify gaps and requirements for AI integration. Upgrade the infrastructure and consider adopting cloud-based solutions for enhanced scalability. Collaborate with technology partners and IT teams to ensure smooth integration, mitigating potential disruptions.
Vendor Choice and Collaboration
- Challenge: Engaging external vendors, AI solution providers, or technological partners demands a careful assessment and selection process to ensure compatibility and reliability and establish enduring partnerships. If it goes wrong, it can trouble multiple departments and deliveries at once.
- Solution: Choose reputable, experienced, and trustworthy partners offering scalable, generative AI services through thorough research, due diligence, and vendor assessments. Clearly articulate your requirements and expectations, establishing effective communication channels. Maintain an ongoing feedback loop and engage in continuous communication to promptly address any problems or concerns that arise.
Frequently Asked Questions
Q1: How is AI used in supply chain management?
AI for the supply chain is utilized in various ways, including demand forecasting, inventory optimization, route planning, risk management, and logistics. Machine learning in the supply chain aids in making data-driven decisions for more efficient and accurate operations.
Q2: What is the future of AI in the supply chain?
The future of artificial intelligence in supply chain management looks promising. AI for supply chain optimization will continue to evolve, incorporating advanced technologies like machine learning. Artificial Intelligence in the logistics market is expected to grow as businesses increasingly leverage AI for enhanced efficiency and competitiveness.
Q3: What is the main benefit of artificial Intelligence in the supply chain?
The main benefit of AI in the supply chain lies in optimization. AI for supply chains enables improved decision-making, reducing errors, enhancing forecasting accuracy, and streamlining overall operations. This results in increased efficiency, cost savings, and a more responsive and adaptable supply chain.
Q4: What are the problems with AI in the supply chain?
Challenges with supply chain AI include issues related to data quality and availability. Inconsistent or incomplete data can hinder the effectiveness of AI models. Additionally, integrating AI into existing systems may face obstacles such as outdated infrastructure and platform incompatibility. Careful vendor selection and collaboration are crucial to addressing reliability concerns and establishing successful, long-term partnerships.
Conclusion
AI in supply chain management is going to be a critical factor in the future. There’s no doubt that for large organizations, it will be a make-or-break situation regarding their market performance.
If you own a business that is critically dependent on the supply chain and cannot afford it to be disrupted, an optimized and AI-powered supply chain solution is what you need to be future-ready.
