In today’s hyper-connected economy, supply chain management (SCM) has become more complex to manage for businesses of all sizes. Firms must deal with increasing demands to roll-out products faster, reduce costs, and keep up with the growing demand of the market—at the same time dealing with unforeseen circumstances like natural disasters, geopolitical tensions, or pandemic spreads. Due to these challenges, traditional supply chain models are falling short.
Today, AI is revolutionizing supply chain management, providing businesses with the agility and accuracy they require to thrive in a highly competitive market.
This blog explores the current challenges of SCM, how AI can solve them, and the benefits it offers.
Challenges of SCM Management
The supply chain management ‘hand on the wheel’ method that was working seems to be an uphill task nowadays. Businesses today are facing various limitations like the inability to consistently forecasting demand, since the changing consumer demands carts the products at such a fast pace, a projection on the demand may fail. It was estimated by a study that more than $900 billion of total worldwide annual revenue in the commercial market could be lost due to “Out Of Stock” (OOS) events. In addition to that come supply shocks such as: plant shut down, shortages, delayed deliveries that do not depend on company’s will but nevertheless construe supply chain management into a more complicated process.
Warehouse storage and inventory control has also been a challenge even as organizations find themselves constrained between “overstocking”, a practice that results in considerable holding costs to the firm and “stock outs” which disturbs sales by missing sale opportunities. A lot of businesses are also unable to get real-time data on the status of their supply chains, rendering them unable to prevent potential bottlenecks.
Lastly, due to the growing concerns about the sustainable development, it is expected of companies to embrace the strategies that help in eliminating wastes, minimizing the amount of carbon emissions and the entire supply chain has to be monitored and controlled to prevent unethical sourcing. As per a recent news article, 80% of global corporate carbon emissions originating from the supply chain, sustainability has now become a major concern of supply chain managers.
These problems combined with increasing consumer pressure on delivery time and costs simply requires a better level of service. This is where the power of AI comes in.
Introduction to solutions based on AI in SCM
With the advent of AI, supply chains are not just one dimensional, rigid systems anymore. They are also more fluid, flexible and smart-web type networks which can meet the current demand of the society and any other problems which may arise in the future and seize the impending problems and opportunities.
AI-driven SCM solutions are primarily based on machine learning, natural language processing (NLP) and advanced analytics technologies and assists in optimizing each part of the supply chain and the entire supply chain as well. To put it simply, AI utilizes data to optimize the decision-making process, automate routine tasks, and enhance accuracy in predicting events. As per Infosys’s recent article, the size of the global supply chain AI has been predicted to be at $14.3 billion by 2028 growing at CAGR of 20.17% from 2021.
Few key areas where AI is making big waves:
Demand Forecasting
This includes AI computing techniques like modeling of historical sales data and other determinants, current trends, and external dependencies such as climate or social influences to produce accurate demand estimates. In such instances, companies can find themselves ready and appropriately vested with stock to meet the demands. Did you know that understocking can cause about 70% of the consumers to buy from another provider (e.g. the Amazon effect), resulting in a staggering loss in revenue of $175 billion every year?! That is why managing forecasting errors and optimizing inventory levels is essential, which brings us to the next issue at hand.
Inventory Optimization
As pointed out earlier, AI is helpful in always managing sufficient stock levels across businesses. Many businesses tend to lose over $300 billion revenue because of ineffective inventory management. By regularly examining sales data, inventory levels, and supplier performance, AI can adapt reorder limits and related metrics in about the shortest possible time to ensure that order fulfilment is done on time. As per the IBM Global AI Adoption Index 2022, 1 out of 4 companies use AI for real time inventory control.
Ineffective management of Stock and Supply chain management
Considering the increasing demand for quicker delivery of products, organizations are assisted by AI in evaluating and suggesting the optimal way of shipping products by forecasting delays and improving transportation planning. Fortunately, it aids not only in cutting the cost, the duration of the delivery but also the amount of carbon produced into the atmosphere. As a case, with the integration of AI and fast planning of the delivery routes, United Parcel Service saved approximately $50 million.
Resource Management
AI based solutions are designed to ease the process of selecting suppliers, performance assessment, and risk evaluation management through the deployment of the data obtained in due time through the system enabling cost reduction and less interruption of the supply chain. Patterns routinely overlooked by people are picked out as AI aids in the performance of tasks, which increases efficiency as well as strong relationships and supply chains of the organization.
Automation of Repetitive Tasks
AI-powered systems excel at handling mundane, time-consuming tasks like order processing, invoice matching, and data entry, freeing up human efforts to focus on more strategic activities. For example, AI can automatically process orders by cross-referencing purchase requests with supplier inventories, reducing errors and delays. It can also match invoices to corresponding purchase orders and receipts, ensuring accuracy in billing and payments without the need for manual review. By automating data entry, AI minimizes the risk of human error, improves data consistency, and ensures real-time updates across systems.
Benefits of AI in Improving Supply Chain Optimization
AI is super beneficial technology that has been applied in the SCM and its advantages are numerous in terms of efficiency, cost reduction, agility among others.
Efficiency and Speed
AI accelerates decision-making by processing large datasets in real time, providing insights that are impossible for humans to identify manually.
Cost-Savings
According to IHL Services, an estimated loss of $1.77 trillion incurred due to inventory distortion in the year 2023 of the world’s. Businesses can optimize the working capital by regulating their inventory levels. In addition to that, AI reduces harmful emissions by eco-friendly route planning and more efficient transport operations. Economically, AI spares the high amount of money attributed to labor costs due to the loss caused by structural manual work. It was possible for first adopters of the use of AI in SCM to cut down their logistics expenses by 15%.
Agility and Resilience
As the world continues to evolve and grow in many ways, agility should be an essential virtue for every individual and organisation. In today’s technological advancement, AI has also proved its worth in making supply chains more flexible by forecasting even the relatively minor disturbances and averting them timely. Because of this forward-thinking strategy, companies can dynamically change their supply chain strategies, thus enhancing their capacity to deal with market shifts, interruptions from suppliers, and other unexpected events.
Better Decision-Making
Over 60% of CEOs believe that it is possible to hand over routine tasks to the AI and this will boost the decision-making process even in the management of the supply chain. Using predictive analytics, AI deepens information and therefore gives supply chain managers the ability to take decisions more accurately. To answers questions like when to order, how much to stock, and who to purchase supplies from? AI-backed data comes handy and removes any room for guessing.
Enhanced Customer Experience
Efficiency in the supply chains will mean quicker time, reliable services, and consequently happier customers which means overall satisfaction enhancement. For instance, the early adaptors of AI enabled supply chain management have experienced improved service levels by 65% over the competition.
Environment
And lastly, AI also gives the supply chains a paradigm shifts towards better sustainability goals. For instance, it analyses how much energy consumption, transportation emissions, and other resources can be decreased through telematics. A report prepared by McKinsey suggests that AI tools can assist companies in reducing CO2 emissions by up to 10% while lowering energy expenses by 10-20%. Also, it was noted that costs of delivery can be reduced by about 20% using AI routing optimization system as compared to the normal routing optimization. According to the World Economic Forum, Artificial Intelligence (AI) will be able to cut carbon emissions in manufacturing by nearly 20% by the year 2050 in the three highest-emitting sectors (energy, materials, and mobility).
Impact on Successful SCM Transformation with AI
The impact of AI on supply chain transformation is both profound and far-reaching. Organizations that have adopted AI-driven SCM solutions report better operational performance, greater resilience, and a more proactive approach to mitigating challenges. Today, global giants like Amazon and Walmart, have heavily invested in AI to optimize their supply chains. Amazonemploys 200,000 robots in its warehouses, while 26 out of its 175 fulfilment centres are equipped with robots to aid people in choosing, sorting, transporting, and storing inventory. From automating warehousing and using predictive analytics for demand forecasting to implementing advanced robotics and drones for quicker deliveries, Amazon has set the gold standard for AI-driven SCM. DHL, on the other hand, employs AI to optimize vehicle routes and reduce fuel use, resulting in lower emissions and increased sustainability.
For strict quality checks, Samsung, relies on AI-powered Visual Quality Control to inspect their smartphones, televisions, and home appliances. Similarly, Tesla uses computer vision systems to inspect the surface quality of their car bodies, identifying defects like paint imperfections, scratches, and misalignments. Other giants like Pfizer, Nestlé, Siemens and Airbus also employ AI-based quality control systems in their manufacturing and production processes. By implementing an AI-driven navigation system, UPS saved 10 million gallons of fuel in one year while DHL reduced its delivery costs by 7% by using AI to optimize routes. Similarly, Walmart leverages AI route optimization applications to reduce fuel costs and emissions.
Smaller companies are also realizing the value of AI. By adopting AI tools, they can level the playing field, gaining the same competitive edge, that was once only accessible to large corporations.
How Felix Solutions services can bring value
Felix Solutions’ cutting-edge AI-based solutions will help you unlock the full potential of your supply chain and logistics operations. Implementing advanced technology in solutions, organizations can experience real-time insights, seamless coordination, and optimized performance across the entire supply chain ecosystem.
By providing complete transportation visibility and data-driven decision-making, it empowers businesses to efficiently manage their fleet, maximize revenue potential, reduce operational expenses, and improve overall customer experience.
Felix’s Revenue Optimization Platform is designed to revolutionize revenue management by offering end-to-end supply chain visibility and advanced analytics. Focusing on optimizing freight income and lowering costs, this platform collaboratively works with operations and purchase to achieve unmatched results.
Felixs’s Fleet Visibility Solution, on the other hand, offers cutting-edge and intelligent fleet management for enterprises by enabling real-time monitoring of vehicles, tracking asset locations, driver behaviour, and fuel consumption patterns to enhance fleet performance, safety, and cost-effectiveness.
Conclusion
While adopting AI may seem daunting, the rewards far outweigh the initial capital. Whether it’s automating routine tasks, predicting demand, or responding to unforeseen disruptions, AI has the power to transform supply chains in ways we couldn’t have imagined just a few years ago. The key to success lies in understanding how this technology can be integrated into existing SCM practices and leveraging its complete potential to unlock new opportunities for growth, efficiency, and innovation.
Take the first step towards a streamlined and agile supply chain by scheduling a consultation with Felix Solutions today. www.felixsolutions.in