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Unleashing the Power of AI: Transforming the Supply Chain for the Future

Aug. 21, 2023
Artificial intelligence and machine learning are reshaping supply chains as they empower businesses to optimize operations, streamline processes and reimagine their approach to supply chain management.

In today’s fast-paced world of global commerce, the supply chain serves as the vital lifeblood connecting raw materials to end consumers. Artificial intelligence (AI) and machine learning (ML) are making waves in every sector, and supply chain management is no exception. With the global value of AI in the industry expected to reach $17.5 billion by 2028, these tools are reshaping supply chains in companies like FedEx, UPS and DHL as they empower businesses to optimize operations, streamline processes and reimagine their approach to supply chain management. In fact, by the time a consumer receives an Amazon package at home, AI has predicted the demand for the product, moved it throughout the warehouse using robotics and optimized its delivery route. Behind the scenes, AI and ML are driving a revolution to enhance efficiency and sustainability. The potential for creating supply chains with lower carbon footprints is within reach if businesses act now to implement these tools.

AI and Supply Chain Efficiency

AI is transforming the supply chain landscape, from demand generation and forecasting to warehouse automation and sustainable practices. This transformation occurs in three ways: demand generation forecasting, optimizing inventory levels and enhanced data analysis.

Accurate demand generation and forecasting are crucial for maintaining optimal inventory levels and reducing costs. Traditional methods often struggle to cope with the complexities of today's dynamic market conditions. FedEx, for example, has implemented AI technologies to improve its demand forecasting accuracy. Its AI systems analyze historical data, market trends and customer preferences, optimizing inventory levels and enhancing overall supply chain efficiency.

Inventory management has always been a balancing act. Maintaining excessive stock levels ties up capital and increases storage costs, while insufficient inventory leads to lost sales and dissatisfied customers. AI has proven to be instrumental in optimizing inventory levels. UPS, for instance, leverages AI and ML to optimize its inventory replenishment processes. By analyzing multiple variables, such as historical demand patterns and supplier performance, UPS can accurately determine safety stock levels and improve order fulfillment, reducing carrying costs and enhancing customer satisfaction.

AI and ML technologies are transforming demand forecasting and inventory management processes, bringing about significant improvements. DHL harnesses the power of AI and ML to optimize its order fulfillment operations. Through the analysis of historical data, demand patterns and customer preferences, DHL's AI systems enhance the accuracy of predictions, resulting in higher order fulfillment rates and increased customer satisfaction. These advancements are made possible by leveraging the vast amount of information commonly referred to as “big data” that is available for AI and ML applications.

These new systems enable supply chain executives to make more accurate predictions about future demand and effectively align their production and procurement activities, minimizing stockouts and reducing the need for costly rush orders. This ability can be as detailed as Customer A will be out of the office or home from 8 AM to noon and requests packages to be delivered at 1 PM. Thanks to these tools, better service is now in reach.

The abundance of data in the supply chain, however, offers both advantages and obstacles. AI enables sophisticated data analysis, empowering businesses to derive valuable insights from intricate datasets. By leveraging AI algorithms, supply chain professionals can identify crucial performance indicators, uncover inefficiencies and optimize processes. UPS employs AI-powered analytics platforms to attain real-time visibility into its supply chain operations, empowering decision-makers to make well-informed choices that enhance efficiency, minimize waste and improve overall performance.

Planning and Risk Mitigation

AI and ML technologies have supplemented the hard work of human executives, giving them better tools that lead to enhanced planning capabilities and improved risk mitigation. It cannot be said enough that these tools do not replace humans in the planning and strategy spheres but can provide humans with more accurate data in real-time. The advances break down into analysis and risk mitigation leading to sustainability.

In addition, supply chain planning involves managing several variables, such as demand fluctuations, lead times and operational constraints. AI and ML techniques offer powerful solutions for optimizing these processes. DHL deploys AI to analyze demand, lead times and constraints. By modeling scenarios and simulating potential outcomes, the company can identify optimal plans that balance customer service, cost efficiency and sustainability.

Efficient supplier management is crucial for the overall success of the supply chain. AI offers valuable assistance to businesses in evaluating and choosing suppliers, considering factors such as price competitiveness, quality and delivery performance. DHL employs AI-assisted supplier evaluation and monitoring to establish reliable supplier networks and mitigate risks in the supply chain. Similarly, FedEx uses AI technologies for risk assessment and monitoring, taking proactive measures to address potential issues and uphold a resilient supply chain.

In today's era of heightened environmental awareness, achieving sustainability is a key priority for supply chain professionals. AI and ML technologies offer valuable tools for promoting eco-friendly practices throughout the supply chain. For instance, FedEx's implementation of AI and ML has led to a significant reduction in energy consumption, emissions and waste generation. These data-driven insights have empowered the company to identify areas for improvement and suggest environmentally friendly alternatives, significantly contributing to sustainable practices. UPS also focuses on reducing waste and emissions through optimized inventory management and AI-powered route planning that reduces excess mileage.

A Greener Future

As transformative as AI and ML are, it's important to acknowledge that they are not without challenges. These technologies rely heavily on the quality and completeness of the provided data, and any inaccuracies or biases in the data can lead to suboptimal results. It’s imperative for businesses to prioritize frequent testing, troubleshooting and regular data collection monitoring to fully maximize the benefits of these game-changers.

AI has undoubtedly revolutionized the supply chain industry, and it's clear that the businesses that have embraced these technologies are reaping the rewards of enhanced risk mitigation, efficiency and sustainability. As the costs of AI and ML tools continue to decrease, it is an essential business strategy for all stakeholders in the supply chain to explore how these technologies can be integrated into their operations. By leveraging the power of AI and ML and addressing the challenges along the way, the supply chain industry can be steered toward a greener and more sustainable future.

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About the Author

Arjun Sharma | Global Program Manager

Arjun Sharma is a global program manager at a FAANG company, where he manages a part of the cloud business. He is a subject matter expert in the areas of supply chain management, manufacturing and negotiations. Sharma has 18 years of supply chain experience across organizations such as Apple and the Indian Army. Sharma holds an MBA degree from Washington University in St. Louis.