How Artificial Intelligence is Spreading Through the Supply Chain

A supply chain is a company’s flow of goods and services including the movement and storage of raw materials, work-in-progress inventory, and finished products. Its definition is “the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally.”

The approach of supply chain management is to move specific elements and materials to particular organizations, such as the movement of raw materials into an organization and the movement of finished goods from the organization to the consumer. As companies increase in size, they typically reduce ownership of sources and channels and hire outside companies to take over. However, as AI develops and advances, businesses are recognizing the impact artificial intelligence could have on production and distribution. For example, according to Goldman Sachs, the possible number of routes for delivering 25 packages adds up to over a trillion. Artificial intelligence could be used to more efficiently and conclusively determine the best routes, allowing organizations to focus more on core competencies.

It is believed that the integration of artificial intelligence and the supply chain will have a more substantial economic impact and affect a more significant number of businesses than any other application of AI. McKinsey & Company, a global management company, estimates that firms will acquire up to $2 trillion per year in economic value from the use of AI in manufacturing and supply chains.

AI computing techniques such as machine learning, deep learning, and natural language processing can be used to streamline and automate various processes. It is no secret that supply chain procurement is only effective if the inventory is properly managed. If the supply chain produces higher than the demand, overstock could occur, leading to a decrease in revenue. If the supply chain fails to meet the demand, company time and money go to waste, and customer satisfaction is all but guaranteed. However, with the integration of AI, companies alleviate this concern while increasing transparency.

AI is still in an early stage, although early adopters of the technology already see profit increases. A study conducted by McKinsey in 2017 found that those using AI with a proactive strategy in the transportation and logistics sector earned profit margins higher than 5%, while other respondents in the industry were in the red.

Artificial intelligence can offer incredible benefits to supply chain and logistics operations, such as improved forecasting, improved customer service, faster deliveries and optimized routes, and cost reductions through reduced redundancies and risk mitigation.