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Supply Chains Are Under Stress: Is Artificial Intelligence the Key to Saving Them?

Oct 10, 2022 | All Content, Manufacturing

The supply chain continues to dominate corporate discussion. Disruptions to the supply chain in the wake of the COVID-19 pandemic have had ripple effects far beyond what anyone could have imagined in the early days of 2020. Today, these effects are well understood. Experts are now looking for ways to make supply chains more resilient and agile. Artificial intelligence is often hailed as the solution to all of the supply chain’s woes. Is it really the panacea we need?
Artificial Intelligence in Supply Chains

Supply Chains Are Under Stress: Is Artificial Intelligence the Key to Saving Them?

Business owners often focus solely on their supply chain, namely, the raw materials they need to sell a finished product. However, in today’s globalized economy, companies cannot pay attention to just their portion of the supply chain. Indeed, as early as a decade ago, experts warned that we should stop thinking in terms of supply chains and instead shift to a “supply web” concept. The same shift occurred in science classes as the “food chain” became the “food web.”

When we refer to the supply chain, we’re really talking about the infinitely complex network of individual supply chains. This network is vast and disturbances on one end can have effects on a completely unrelated business on the other side of the world. Therefore, any attempt to make your company’s supply chain more resilient will require monitoring and analyzing global logistics. AI is touted as the only way to accomplish this gargantuan task after seeing human efforts fail recently.

The Great Supply Chain Collapse

Mandatory lockdowns imposed by governments worldwide halted production overnight. Although primary sector activities could and did continue operating in many nations due to their distance from populated centers where the virus could spread easily, the pause in industrial production meant there was no demand for raw materials. As a result, the primary sector stopped producing. Unfortunately, it takes much longer for primary sector businesses to resume activity than it does for a factory. Service sector workers barely missed a beat.

The United States published a report about supply chain disruption in 2021, noting that the industries that relied most on raw materials were the most affected. Manufacturing and construction continue to face supplier delays, while retail and wholesale businesses also struggle to keep shelves stocked. Those weeks of lockdown continue to result in weeks of delays for consumers. A regression to the mean has been slow to develop. The supply chain is still stressed, and it’s having a major impact.

Micro Issues Become Macro Problems

At a glance, these supply chain issues may not seem like a major problem. Can’t consumers and businesses just wait a little longer to get what they need? Unfortunately, this persistent lag in the supply chain is generating significant inflation as scarcity leads to higher prices. A perfect example of this is the chip shortage. Chip manufacturers, many of which are located in Taiwan, were forced to stop production for several months due to the country’s strict lockdown.

Specifically, advanced graphics processing units from companies like Nvidia became extremely difficult to acquire. These chips are great at processing visual data and sensor data. Most modern vehicles need these chips to execute safety functions like lane-keep assist or collision prevention. Thousands of Ford vehicles have languished in lots, missing only a chip. Ford was not alone. With few new vehicles available, car prices soared to unprecedented highs.

Existential Risk for Companies

With prices on a seemingly unstoppable rise, and production shortages plaguing manufacturers, executives are understandably concerned. What happens when consumers simply cannot make purchases? Entire companies could see sales plummet and find themselves on the verge of collapse.

Although it seems that most companies will be able to weather this storm, attention is now shifting towards the supply chain itself. How can we prevent another scenario like this from developing in the future? Artificial intelligence promises significant supply chain improvements. However, without proper implementation, AI-based supply chain solutions may not solve all of our problems. Companies need to invest in AI experts that can deliver real solutions.

Artificial Intelligence: The Next Step in Supply Chain Management?

The traditional supply chain management paradigm clearly has weaknesses that AI can address. Under a traditional approach, companies only keep track of the most relevant supply chain elements. For instance, an aerospace manufacturer would be keenly aware of aluminum supplies. An especially wise company would keep an eye on other industries that compete for the same resource so as to stay one step ahead of potential shortages. Nevertheless, no business will invest indefinitely in monitoring seemingly unrelated supply chains.

This is where AI has the most potential. AI can process significantly more data from a wider variety of sources. With this data, AI-driven supply chain management could more easily predict shortages. If a company sees a shortage on the horizon, they’ll likely send purchase orders out to more suppliers earlier. This could trigger suppliers to increase production before a shortage hits. The end result may be no shortage at all. Production could continue as usual. Is this really possible?

AI Is Already in Use

Many experts believe that predictive AI in the supply chain is the key to supply chain resilience. Looking back at the COVID-19-induced shortages, one could easily argue that if companies had known about the upcoming lockdowns, they could have stockpiled in advance and avoided massive disruptions. However, in order for AI to predict outcomes, it needs a wealth of data. Fortunately, many companies are already collecting this data using AI.

Business logistics systems have been using AI to automate repetitive tasks for the past decade. Meanwhile, these systems have collected years’ worth of valuable data which could serve to fuel predictive AI in the future. This is why it is important to invest in AI now. Companies cannot go from traditional systems to fully automated systems powered by AI overnight. The more data you have, the more accurate predictions will be.

Overcoming the Limitations of AI

Despite the excitement surrounding AI in the supply chain space, there are still some issues that need to be addressed. Predictive AI relies primarily on historical data. How would an AI interpret an event that it has never seen before, like a global pandemic? While we would likely fare better in the next outbreak, what if the next global disruption is an entirely different event? Experts in AI implementation have an answer: simulations.

Once an AI system has lots of data to work with, data scientists can run simulations on supply chain models to determine what effects certain events could have. Data scientists could envision the impact of an imaginary war, a hypothetical hurricane, or a surprise regime change in a fragile state. However, this can only happen if companies have access to global data that extends far beyond the scope of their business activities. The cloud is the solution.

Expanding the Cloud

Cloud-based supply chain management solutions aim to deliver the data that individual companies would likely overlook. Companies like Infor have invested heavily in logistics tools powered by AI. Businesses that implement Infor software can access global data across a multitude of industries. Predictive AI then becomes a possibility. Artificial intelligence is available and it can perform the functions companies need to avoid supply chain crunches in the future. So, how do you implement it properly?

The best approach is to rely on an experienced solutions provider. Look for a technology enabler that can help you capture the data you need for your AI projects to succeed. Companies that have experience with complete digital transformations can take your business from an analogue operation to a completely digital one, complete with AI tools. The sooner you act, the sooner you’ll be prepared for the next global disruption.

Human Intelligence Still Matters

We firmly believe that AI has the potential to help companies avoid catastrophes. Nevertheless, it takes human intelligence to leverage AI to its full potential. Likewise, executives have to make smart decisions with the insights that AI provides. One company that largely dodged the chip shortage was Toyota. They detected the upcoming shortage and bought up as much stock as possible. While others had to cull production, Toyota kept on. When artificial intelligence and human intelligence combine, success follows.

That same principle drives us at SAAB RDS. We help businesses modernize with the latest solutions, while also bringing our experience and intelligence to the table as expert consultants. To learn more about how to implement AI and digitize your supply chain management, contact SAAB RDS to get in touch with one of our experts.

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