Revolutionizing Supply Chain Management With AI: Improving Demand Predictions and Optimizing Operations
How are AI and ML being used to revolutionize supply chain management? What are the latest advancements and best practices?
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In today's rapidly changing business environment, staying ahead of the competition requires constant innovation and adaptation. Supply Chain Management, a domain that is constantly under stress, has seen significant advances in recent years through the use of artificial intelligence (AI). By using tools and solutions augmented by the technological and methodological capabilities of AI, including machine learning (ML), companies can improve their demand forecasting processes and level up their operational excellence.
This directly impacts their efficiency and the need for them to achieve cost savings.
Machine learning is a type of AI that allows software applications to more accurately predict outcomes without being explicitly programmed. To do this, it’s made of algorithms that are able to automatically learn and improve their capabilities. Use cases include recommendation engines, fraud detection, cyber threat detection but also business process automation (BPA), and predictive maintenance.
Regarding supply chain management, solutions augmented by AI technologies (AI-driven) provide decision-makers with critical information, enabling them to make more informed choices in aspects including demand forecasting, forecast returns, reducing out-of-stock, new product forecasting, and price optimization.
“AI-based solutions help companies achieve next-level performance in supply-chain management” - McKinsey
According to McKinsey, AI-based solutions for supply chain (including capabilities like prediction models and correlation analysis) leads to a better understanding of causes and effects in supply chains, improving: demand-forecasting models, end-to-end transparency, integrated business planning, dynamic planning optimization, automation of the physical flow.
- Demand forecasting using machine learning is more flexible and accurate than traditional methods. It allows for a quick infusion of new information, making it more adaptive and beneficial for business.
- Digitizing and automating B2B transactions on a digital network streamlines connectivity and increases transparency with customers, suppliers, and business partners.
- By extending the principles of Sales and Operations Planning (S&OP) to the entire value chain, Integrated Business Planning (IBP) establishes a coherent and optimized connection between strategy and execution.
- Supply Chain Planning optimization enables efficient planning and rapid adaptation to business needs for complex business processes within the constraints and requirements of the organization.
- Traditional supply chain management can no longer keep up with the increasing level of demand requirements. To maintain a competitive advantage, it's crucial that the company adopt intelligent automation technologies.
ML models are designed to bring significant benefits to the business through their adaptability and accuracy. For example:
- Increase in sales: no waiting for long delivery times
- Customer satisfaction: their products are always available
- Optimize staffing costs: future demand analyses
The supply chain, as well as all operations in the enterprise, can take advantage of the contribution of new technologies, including Automation and AI, and digital approaches such as Data-Driven strategy. Immediate expected outcomes include streamlined workflows and increased process efficiency.
Technological areas include the Internet of Things (IoT), artificial intelligence and machine learning, advanced analytics and predictive analytics, Optical Character Recognition (OCR), and warehouse robotics, but the list doesn't end there.
Forecasting is a key element of supply chain management. It provides managers with the necessary elements to plan production cycles more efficiently and to operate with the levels of agility and transparency that are required in changing production environments. Accurate insight allows them to compare market demand forecasts with actual inventory levels in order to ensure sufficient supply to meet delivery schedules. This capability is especially critical when products are stored on just-in-time basis constraints.
Effective supply chain forecasting empowers operations managers with the crucial operational intelligence required to proactively eliminate bottlenecks at their source. AI-driven platforms are designed to predict these bottlenecks so that they can be avoided. Indeed ML algorithms optimize distribution planning and logistics control processes. They can be used also to design simulation tools. This facilitates the balancing of key operational components such as inventory management, packaging, transportation, and outbound logistics.
By leveraging ML techniques, forecasting models can be trained to predict demand trends based on historical company data, exogenous data, or real-time data. These types of actions have a significant impact on the long-term functionality of the entire value chain, resulting in increased productivity and efficiency.
AI-driven supply chain optimization solution leverages ML predictions and recommendations to augment decision-making processes resulting. This improves the whole supply chain implementation’s performance. It provides manufacturers with insights into the potential impact of different actions in terms of time, cost, and revenue.
The great added value of the ML lies in its ability to get the system to adapt and enhance its recommendations as conditions evolve through continuous learning.
“Through 2025, 83% of CSCOs plan to introduce AI-enabled real-time inventory management; another 83% expect to introduce self-monitoring, self-correcting assets; and 81% are looking to AI-enabled processes and workflows for real-time demand sensing.” - IBM
Many organizations today struggle to gain the necessary insights to make prompt, informed decisions that align with their goals. By harnessing the power of AI-driven automation, it’s possible to analyze vast quantities of data, identify patterns and evaluate trade-offs at a level of efficiency that surpasses traditional methods.
Many organizations have data but lack the ability to use it effectively. Advanced solutions, such as process mining, allow us to unlock the power of operational data and identify root causes of supply chain friction. Integrating AI into supply chain management serves the purpose to assist human decision-making in complex planning activities, such as demand forecasting, purchase lead time determination, and more.
When relying on a modern data platform, AI can be used to predict a range of unexpected events, such as weather events, transportation bottlenecks, and strikes, making it possible to anticipate problems and re-route shipments around them.
Advanced data analytics tools and methodology allow for the real-time identification of trends based on historical and external data models. By producing statistical and predictive analyses, AI and ML algorithms strengthen the anticipation and reaction capabilities of supply chain teams.
Finally, by providing a better understanding of the ecosystem, data-driven solutions allow Supply Chain teams to understand what drives demand, make more accurate forecasts, and optimize inventory levels.
According to IDC, “It is not enough to be able to see; you must also be able to act quickly. It is not enough to be able to act quickly; you must see where and how to act.” They state that one of the key levers to be implemented to achieve this is the ability for Supply Chain teams to leverage digital technologies such as artificial intelligence and advanced analytics.
“Companies need to trust AI’s ability to continuously learn and make decisions that optimize performance. The first companies to master the challenges will lead the way in capturing the full value of a self-regulating Supply Chain.” - Boston Consulting Group
Supply chain systems are under a lot of stress for financial, geopolitical, and ecological reasons. A Data/AI-driven strategy can help supply chains improve their performance by becoming more adaptable and agile to cope with unexpected disruptions.
An example of this is how Amazon uses data and AI to optimize its warehouse operations, resulting in cost savings and increased efficiency.
Even though they don't know it yet, all companies want to use data and AI in the broadest possible sense. They want to use machine learning, natural language understanding, computer vision, etc...supported by a corporate data strategy.
Companies that follow this approach can expect to see extensive results in terms of cost reduction and profit growth while also improving sustainability.
Published at DZone with permission of Frederic Jacquet. See the original article here.
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