Resources Archive - Page 14 of 16

Every business want’s to gain competitive advantages by putting the conscious consumer in focus in the Supply Chain design. What is a conscious consumer, which competitive advantages could be achieved and how can technology support? Learn more in this blogpost.

What describes a conscious consumer?

Being a conscious consumer in 2020 is linked to the way we live, the choices we make and the meaning we create. What we are looking for is to simplify our options and having smooth purchasing experiences. More specifically we could say, that conscious consumers are becoming wiser. This is forcing companies to constantly innovate, drive prices down and streamline their offerings.

At the same time conscious consumers are becoming more self-sufficient. They make use of apps and personalization services to create a product uniquely to them. Being able to look after yourself is seen as a luxury, that allows people to be more versatile and expand possibilities. Dictating, designing and personalizing your life allows you to be more flexible.

At the same time, conscious consumers demand immediacy, an “I want it now” attitude. Consumers are seeking frictionless experiences that mesh with their lifestyles, allowing them to dedicate more time to their professional or social lives.

Conscious Consumers want a plastic free world. Consumers will use their wallets to protest the irresponsible use of it and create a virtuous circle, where industry stand to gain by improving sustainability. Consumers are rejecting the mass-produced and generic and will favor products positioned as simplified, back to basics and better quality.

The conscious consumer’s impact on the future Supply Chain
The Conscious Consumer increasingly drives innovation from the heart of the supply network, rather than being on the receiving end of the supply chain. This means, that we are shifting towards consumer-led, data driven, highly complex supply networks.

These shifts demand mass product customization, more accurate supply chain planning and synchronization, and faster multichannel responsiveness that go far beyond the abilities of the typical workforce and infrastructure. It requires instant visibility, quick decision making and increased flexibility across the whole network.

Digitalization is an enabler
Digitalization can be an enabler for both enhanced visibility and transparency, cost reduction, enhanced customer focus and service. As well as the foundation for a more agile and dynamic operating model and performance improvements in the full value chain. In building the vision, where should a company start?

You could be inspired by a recent study which PA Consulting Group has conducted:

74% say it is driven by the search for new ways to reduce costs
59% want to advance their technologies, such as automation
56% are seeing changes in consumer or customer behavior. They want sustainable products supplied with immediacy and personalization
51% say it is due to new business models. Integrated Supply Chain systems are becoming the foundation for the new business models to function
41% do it because of the fear of being left behind.

Digitization should bring value
According to the recent study done by PA Consulting Group, 30% of those who responded could not say what value digitalization would bring. 79% said, that they do not have the right mix of skills and capabilities. Half of the respondents said, that they have no clear vision for their digital Supply Chain.

This would mean that they have no way to align Supply Chain initiatives with the business strategic objectives, no formula to establish appropriate budgets for investments and no framework for establishing a dialogue around, how the future would look like.

How can digitization bring benefits to the company?
There are several ways in which digitization could bring benefits to the company:

Visibility and transparency
In order to respond to the different disruptions in the market and act with agility, resilience and predictability it is important to reduce the operational silos and mitigate risks. Data from digital systems reduces errors by removing data collection and manual reporting processes. It creates a stronger foundation for taking the right decisions. At the same time, it increases collaboration and agility and reduces response time to a few hours.
Better customer service
It is important to build a Supply Chain based on data, which helps you understand how customers buy and use their products and services. Understanding the customer could also mean opening up for new revenue streams, as well as responding to the immediacy and personalization which the customers are expecting nowadays. It would mean better delivery performance, customer focus and service.
Cost improvements
As soon as you start improving on visibility you start building the baseline for reductions in inventory and improving the balance between supply and demand in the whole value chain. Money and time which can be freed up for growth in other areas of the business.
Streamlining operations for better performance
AI and machine learning can help improve operations for better performance. It is about creating insights for improvements that are hard to do without. Read more about AI in supply chain here.

Create a knowledge funnel
As a leader you have to accept, that the shaping of a vision is an ongoing process of discovery, disruption, experimentation and learning. It is situational. It is not a fixed object it is invention in motion. As a leader you have to shape the vision, but you have to seek the broad involvement of a broad set of suppliers, employees, conscious consumers and other partners -which could provide an idea about how the future might look like. Even more, you uncover and partner with industry provocateurs and pioneers who anticipate what is next.

This will also help segment the complexities that exist within the Supply Chain and the marketplace you are operating in. It will help you understand the different consumers that exists within your Supply Chain and describe the patterns around them.

Organize the chaos
You can use the following framework to organize the chaos in the marketplace and describe the patterns of your consumers. For each category you can ask the following questions:

1. How will the trends within this industry affect our company and Supply Chain?
2. What opportunities and threats will these trends imply?
3. What actions could we take to anticipate and respond to these trends?
4. What characterizes our consumers?

Supporting categories:

Social: Changing lifestyles, social trends (urbanization, flexibility of where work is done, work-life balance, social mobility, globalization)
Technical: Increasing digitalization, the use of technology for efficiency, innovation, information and connection.
Economic: Global markets with new competitors, economic cycles, new business models.
Political: Political unrest, regulatory policies and shifts, increased nationalism or populism, global trade
Environmental: social responsibility, community reputation, effects of climate change, sustainability
Demographic: changing workforces, influence of millennials, unconscious biases and cognitive styles, aging employees

Design and visualize the future
Once you have organized your chaos it is time to design the future. Here it is important to visualize the interaction between the customer needs, the formulation of appropriate strategic responses and the successful execution of these strategies by shaping the necessary internal capabilities and corresponding leadership styles.

Use simulation and modelling Supply Chain technology to find opportunities. You should utilize data gathered from multiple sources, creating an authentic digital twin of your complete Supply Chain to visualize current and future Supply Chain models and find new opportunities.

Sources: Power Your Potential, The value of the smart Supply Chain

The COVID-19 pandemic is spreading at an extraordinary speed. As a company, you probably have put a crisis team in place and are doing all you can to keep your people safe and stay on top of your business. You deal with the uncertainty amid constant disruption. Close on the heels of the coronavirus outbreak, the biggest economic shock since World War II is headed our way. And it isn’t just an economic shock: it is a shock to customer behaviour and business models too.

Extreme level of uncertainty
The challenges associated with it will be orders of magnitude bigger than what we are used to dealing with. To handle them, you need to adopt an operating model that accommodates the extreme disruptive level of uncertainty facing your business. If you have not already done so, it is time to put together a team tha plans ahead. The plan-ahead team will help elevate your view above the day-to-day response that your crisis team is managing. Its objective is to enable modular, scalable thinking that any Supply Chain Manager needs to navigate this unprecedented and rapidly evolving situation.

Adapting to the new normal
Traditionally, Supply Chain Managers consider the cost, quality and delivery as their key metrics when developing Supply Chain strategies. But as the crisis has shown, major global events caused by pandemics such as COVID-19, as well as natural disasters, climate change and geopolitical tensions, can create significant disruption to the reliable supply of parts or products.

Supply Chains cannot be established overnight. It takes time and effort to qualify potential suppliers in areas of manufacturing quality, capacity, delivery, cost and their ability to respond to engineering or demand changes. Thus, Supply Chains are designed for longer-term needs. Once they are established, it can be difficult to change them quickly to adapt to unpredictable disruptions.

Supply Chain KPI’s are changing
The COVID-19 pandemic has reminded corporate decision-makers that there is a need to develop new business strategies in their future supply chain designs. The KPIs to be considered for future Supply Chain designs likely will contain both traditional metrics such as cost, quality and delivery, and new performance measures including resilience, responsiveness and reconfigurability.

The understanding of supply-chain risk will be changed forever. Too much risk has accumulated in the global supply chains that has left no room in dealing with disruption. The balance of low cost and flexibility needs realignment. Supply-chain strategy development and execution will be sought-after skills. Thinking beyond the smooth flow of products and services needs much more focus on risk and corporate responsibility.

According to a recent study from Accenture – 94% of Fortune 1000 companies are seeing supply chain disruptions from COVID-19. 75% of companies have had negative or strongly negative impacts on their businesses. 55% plan to downgrade their growth outlooks (or have already done so).

The use of digital twins will increase
Given that Supply Chains need to be redesigned to treat disruptions as the norm, detect early warnings and be able to sense and pivot seamlessly to offset situations like the ones mentioned we believe that the use of digital twins will increase. Organizations can use them to create business process simulations that can be updated in real time as circumstances change. For example, this could include finding the best way to shift production to alternate locations, move inventory to different warehouses, increase or decrease safety stocks and be better prepared overall.

Source: https://www.supplychaindigital.com/supply-chain-management/accenture-building-supply-chain-resilience-amidst-covid-19

The ongoing COVID-19 pandemic is a reminder of the importance of Supply Chain Resilience. The challenges associated with the current disruption is showing us new consumer behavior with unprecedented variation in order volumes. To handle the demand variation, you need to adopt an operating model that accommodates the extreme level of uncertainty facing your business.

Reactive capability
The concept of Supply Chain Resilience traces its roots back to the work of C.S. Holling, an ecologist who first noted the characteristics of a resilient ecological system in 1973. Since then, the notion of resilience has been applied to fields as diverse as psychology, systems thinking, disaster management, and more recently, supply chain management. For some, resilience is a reactive capability that occurs after a disruption or shock has taken place. Others see resilience as more proactive efforts toward helping the firm prepare for a disruption. In light of these divergent observations, it is not surprising that there is confusion surrounding this key concept.

Supply Chain Resilience is: “the ability of a supply chain to both resist disruptions and recover operational capability after disruptions occur”. As mentioned above, viewed from this perspective, resilience consists of two critical but complementary system components: the capacity for resistance and the capacity for recovery. Let’s look more closely at those elements.

Resistance and recovery capacity
Resistance capacity is the ability of a system to minimize the impact of a disruption by evading it entirely (avoidance) or by minimizing the time between disruption onset and the start of recovery from that disruption (containment).

Recovery capacity is the ability of a system to return to functionality once a disruption has occurred. The process of system recovery is characterized by a (hopefully brief) stabilization phase after which a return to a steady state of performance can be pursued. The final achieved steady-state performance may or may not reacquire original performance levels, and is dependent on many disruption and competitor factors.

Risk and uncertainty are different in meaning
The distinctions between supply chain resilience, risk, and uncertainty are often blurred and unclear. Unfortunately, this issue is exacerbated by the fact that some use risk and uncertainty interchangeably, implying that these two concepts are the same. Yet, this is not the case. While linked, they are separate and distinct concepts.

Risk exists so firms have to deal with the possibilities of encountering situations that can adversely affect them. However, not all future events are equally unknown. Past experience offers some insight regarding what events could occur, the probability of occurrence, and the impact. Firms can predict the likelihood of these events over a set time period to help them determine how to potentially react when they occur. Events with a greater likelihood and significant potential impact require greater preparation.

In contrast, uncertainty considers unpredictable events. Typically, these are events that have not been previously encountered. Alternatively, they are events where the type of event falls outside of past experience. In a COVID-19 world, supply chain leaders need to adjust best practices away from being reactive or bureaucratic.

Use digital twins to create a resilient Supply Chain
Given that Supply Chains need to be redesigned to treat disruptions as the norm and Supply Chain Resilience, we believe that the use of digital twins will increase. Organizations can use them to create business process simulations that can be updated in real time as circumstances change. For example, this could include finding the best way to shift production to alternate locations, move inventory to different warehouses, increase or decrease safety stocks and be better prepared overall.

Supply Chains have grown in length and complexity as companies expanded around the world in pursuit of margin improvements. According to a McKinsey study, since the year 2000, the value of intermediate goods traded globally has tripled to more than $10 trillion annually. However, these choices can sometimes lead to unintended consequences if they are not calibrated to risk exposure. In this blogpost we will dive into the concept of Supply Chain resilience and how you can create a resilient business with a modern Supply Chain.

The definition of Supply Chain resiliency
The concept of Supply Chain resiliency traces its roots back to the work of C.S. Holing, an ecologist who first noted the characteristics of a resilient ecological system in 1973. Since then, the notion of resilience has been applied to fields as diverse as psychology, systems thinking, disaster management, and, more recently, Supply Chains. For some, resilience is a reactive capability that occurs after a disruption or shock has taken place. Others see resilience as more proactive efforts toward helping the firm prepare for disruption. Considering these different observations, it is not surprising that there is confusion surrounding this key concept.

We define Supply Chain Resilience as:

“The ability of a Supply Chain to both resist disruptions and recover operational capability after disruptions occur.”

As mentioned above, viewed from this perspective, resilience consists of two critical but complementary system components: the capacity for resistance and the capacity for recovery. The distinctions between Supply Chain resilience, risk, and uncertainty are often blurred and unclear. On top of that, some use risk and uncertainty interchangeably, implying that these two concepts are the same. Yet, this is not the case. While linked, they are separate and distinct concepts.

Supply Chain networks are typically designed for efficiency, cost, and market proximity, but not necessarily for transparency and resilience. Now they are operating in a world where disruptions are regular occurrences. Averaging across industries, companies can now expect Supply Chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll.

Risk exists so that firms must deal with the possibilities of encountering situations that can adversely affect them. However, not all future events are equally unknown. Experience offers some insight regarding what events could occur, the probability of their occurrence, and the impact. Firms can predict the likelihood of these events over a set time to help them determine how to react if they were to occur. Events with a greater likelihood and significant potential impact require greater preparation.

93% of Supply Chain leaders plan to increase resilience
Every Supply Chain leader seeks an optimally designed network to reduce costs while improving its resiliency, efficiency, customer service levels, and competitive advantage. Furthermore, business and Supply Chain leaders understand that changes in demand, service expectations, market costs, and reverse logistics can affect the effectiveness of Supply Chain networks. Hence, it could be a business advantage to periodically re-evaluate the Supply Chain design or determine whether a restructure is needed. However, this can be quite costly and time-consuming when done manually. According to a McKinsey survey, 93% of global Supply Chain leaders plan to increase resiliency, and 44% would increase resiliency even at the expense of short-term savings.

Most companies are still in the early stages of their efforts to connect the entire Supply Chain with a seamless flow of data. Digital technologies can deliver major benefits to efficiency and transparency that are yet to be fully realized. Companies now have access to new solutions for running scenarios, assessing trade-offs, improving transparency, accelerating responses, and even changing the cost structures.

Supply Chain complexity is rising
The need to source products from farther around the globe and move them faster while delivering at lower cost has increased complexity and risk while making it harder to respond to sudden disruption. Companies have typically managed their Supply Chains with relatively stable networks, policies, and modes of transportation. This can be challenging in a world of uncertainty. Old ways of planning driven by static assumptions around Supply Chain design are no longer enough. There is an increasing acknowledgment that resiliency necessitates building optionality in nodes, modes, and flows of Supply Chain designs.

We also live in a world of accelerating change, where the future is less and less a copy of the past. Some would argue that change has been accelerating. This sudden acceleration is the product of radical shifts in the growth of computational power and network capacity. For example, an iPhone has nearly 6000 times more transistors than the i486 chip that powered PCs in the late 1980s. Global internet traffic amounts to more than 46,000 gigabytes per second, a nearly 40-million-fold increase since 1992.

Demands are shifting
Both business-to-consumer (B2C) and business-to-business (B2B) companies expect to see meaningful shifts in the shape of future demand. This will affect commercial models. During the COVID-19 pandemic, many households prioritized buying goods (especially basic products such as groceries) over services (such as restaurants and hair salons, many of which were closed anyway).

As a result, pent-up demand could lead to a spike in spending on services as and when normalcy returns. What is still unclear is which services will return and in what form. For example, consumers have been spending more on home-based products, such as streaming and meal delivery. Will those preferences stick, or will consumers revert to their pre-pandemic habits? Or something in between? How quickly will travel and related services recover, and what will consumers expect from these experiences?

The expectation for seamless on-demand delivery will likely require companies to collaborate with the ecosystem in networks. Also, we will see that they will require a personalized experience, which could increasingly replace more traditional, isolated channel strategies. Few companies will be immune to these shifts.

The Supply Chain should be an integral part of the business strategy
For companies competing on a global scale, things can change quickly. All too often, Supply Chain strategy and business strategy have been kept separate. Driven by greater global complexity and the enormous stress that has been placed on networks, from higher customer expectations to dynamic delivery solutions, companies should challenge the traditional thinking that the Supply Chain exists simply to meet the commercial needs of the business. Instead, Supply Chain considerations should become central to business strategy.

The business must be agile in responding to change
Supply Chain agility can be defined as: “The ability to respond rapidly to unpredictable changes in demand or supply.” Many companies are at risk because their response times to demand changes or supply disruptions are too long. Two key ingredients of agility are visibility and velocity. Supply Chain visibility is the ability of all members of the Supply Chain to see from one end of the pipeline to the other. Visibility, for example, implies a clear view of upstream and downstream inventories, demand and supply conditions, and production and purchasing schedules with clear lines of communications and agreement on “one set of numbers.”

Velocity is defined as: “Distance over time.” To increase velocity, time must be reduced. Here we are talking about “end-to-end” pipeline time, i.e., the time it takes to move product and materials from one end of the Supply Chain to the other. It is not just velocity that matters in the creation of agile Supply Chains. It is acceleration. In other words, how rapidly can the Supply Chain react to changes in demand, upwards and downwards? These are the basic foundations for improved Supply Chain velocity and acceleration: Streamlined processes, reduced in-bound lead times, and non-value-added time reduction.

Utilize the digital capabilities of Supply Chain planning
Companies, that utilize the digital capabilities of Supply Chain planning, will be much more resilient, better equipped to handle challenges and compete more effectively. What does that mean in practical terms? What is the point here? Firstly, it is not the first time that Global Supply Chains have experienced a disruption and it will probably not be the last time either. But how do you actually prepare for the next ” disruption ” or for some companies – an obvious opportunity to sell more.

Supply chain planning is still, in many companies, based on a 60 year old paradigm. It assumes, that you predict demand and then massage it into the rest of your supply chain. The premise for doing this is, that you are able to create a precise plan that you can execute. But in that, there is one challenge: the lack of being resilient and uncertainty of whether the plan can be kept at all. In the military the terminology “no plan survives first contact with the enemy ” is used. The same goes for the Supply Chain. It is difficult to predict uncertainties. Uncertainties like what future demand looks like, whether deliveries are on time etc. are difficult to estimate. Some companies try to compensate by working with security stocks.

What can you do instead? Our suggestion is that you start working with the resiliency in the way you do your planning, in other words create a resilient planning model. What do we mean by that? The technologies (cloud-based) should be utilized to a greater extent. Also, you should start working with the planning mindset of the company. This means, practically speaking, that you should work with scenario planning (several scenarios at once) and work with your forecasting accuracy. You can work with your forecasting accuracy by automatically taking into account, as examples, seasonal fluctuations, weather, order sizes and the impact of campaigns. Machine learning combined with human fine-tuning can help improve the demand model over time.

Work with a “Digital Twin”
Another initiative would be to create a physical supply chain and align decisions across the supply chain by working with a “digital twin ” i.e. a digital model of your current Supply Chain. With the digital model of the supply chain you will be able to simulate, how resilient your Supply Chain will be facing a certain variation and uncertainty. It will be possible to test how the Supply Chain will react under different scenarios. It is not possible to guard 100% for the unknown unknown. What you can do is to invest in a planning model and technology that has already incorporated advanced algorithms that are based on a delivery performance towards the markets and at the product level. Technologies that also consider the company’s financial goals such as minimizing working capital, maximizing margins and reducing the risk of an obsolete inventory. It’s about having the technology that constantly helps in making these trade-off decisions.

Companies, that try to plan in the “normal” way will have big challenges in the future. On the other hand, companies that utilize the digital capabilities including automation, advanced algorithms and machine learning will be much better equipped to handle the challenges and compete more effectively.

If you would like to learn more about a digital twin, checkout this blogpost.

There is a widespread fear of a global economic meltdown. Particularly today, it is visible to everyone how critical Supply Chain performance is. A well-run Supply Chain ensures that we all get our daily goods such as toilet paper, hand sanitizers, masks, tests and drugs.

For the Supply Chain Manager and the CEO, experiencing such a major crisis for the first time, it can be challenging to navigate both mentally and operationally in this challenging environment. That’s why we have gathered a crisis checklist. The checklist is of course not covering all aspects, but it can work as a starting guide.

The following crisis checklist is of course not covering all aspects, but it can work as a starting guide.

Crisis checklist step 1: Move the crisis into the boardroom
Like never before, the Supply Chain has the attention of the board. A survey conducted by PwC showed that 9,34% of the CFO’s said Supply Chain issues were among their top 3 concerns in the current climate. That being said, 30% of the companies where thinking about making changes to their existing Supply Chains. The conclusion is though that the duration of the impact is the most important factor. It is expected that the learnings from the outbreak will most likely move the competitive forefront of Supply Chain operations toward more comprehensive, proactive modeling.

Crisis checklist step 2: Establish a war-team and understand your supply exposure
You should start out by asking yourself:

What are the challenges, our supply chain is facing?
What actions could be taken to tackle unexpected challenges?
What is the short-term immediate action plan? Can we short term look at different sourcing strategies?
What aspect of supply chain management is most challenging – demand forecasting, logistics, manufacturing?

If you have not already done so – establish your crisis team. Make sure it works cross functional. Some companies are working with daily dashboards in order to handle it operationally. It is not enough to handle the issues on a high-level track driven approach.

For many companies it means looking into production and part-level mitigation. It could also be beneficiary to look into your n-tier exposure, which means reaching out to tier-2 and tier-3 sources and risks. It is about being fact based: which components are affected, at what production burn rate and what is supposedly on-hand and in-transit.

A way to proactively mitigate risk is to build extreme scenarios. It could be: “this is a 100 year event”. If you do not have the digital software yet, short term operational solutions can be established if working agile and focused.

Crisis checklist step 3: Protect your employees and customers
The advice is to implement and overinvest in the best-known guidelines available for both employees and customers. Overcommunicating with full transparency is not possible.

Crisis checklist step 4: Defend against revenue decline
How will this effect business results and how are we minimizing the negative impact on business results?

Start by putting the customer in the centrum. How will you build trust, loyalty and market share through and beyond the crisis. Build specific revenue mitigation actions for core revenue stream declines. Pivot resources to pockets of current and future growth, online and beyond

Crisis checklist step 5: Plan urgent cost take-out to conserve cash
After stabilizing operations to “new normal” it is time to look at whether it is necessary to reduce cost in order to conserve cash. One of the ways to release cash is by looking at what you have in stock, what the demand looks like and how the processes are towards your suppliers. Research conducted by Optilon shows, that in average 22% of what companies have in stock is not necessary.

Crisis checklist step 6: Design your future Supply Chain around risk competitiveness
Already now companies are experiencing product and material shortages. For most of the companies the short-term focus is on getting things working. In the long term though, many companies are looking at rethinking their Supply Chains, making them less risk prone and creating contingency plans. Many companies are now realizing that they designed their operations with cost in mind. And not around risk competitiveness.

You could start out by asking yourself:

What is our long-term action plan?
How are we planning to reduce the risk posed by any future health crisis?
Do we have any business continuity plans and protocols to hep us tackle this?
What are the ongoing challenges for our supply chain moving forward?

While it is impossible to predict the outcome of this kind of crisis, maintaining and adapting your operations to these fast-changing events is complicated but possible. It is critical for you as a CEO, Supply Chain Manager or business leader in general to have a clear understanding of the disruption consequences and the actions required to restore your business foundation.

References:
https://www.prnewswire.com/news-releases/pwc-cfo-covid-19-pulse-survey-the-first-in-a-bi-monthly-series-that-shows-how-cfos-and-finance-leaders-plan-to-react-to-covid-19–and-what-impacts-they-expect-to-see-301024904.html

Many Supply Chain Executives are nowadays questioning what AI (Artificial Intelligence) in Supply Chain is. It is still the “stuff of the future” for some organizations and to some history’s biggest paradigm shift. Yet, we are still only at the beginning of the AI (r)evolution. In this blog post, we will look into what is AI in Supply Chain.

What is AI (Artificial Intelligence) in the Supply Chain? To some Supply Chain Executives it is still a mystery. How can this technology provide a competitive advantage to the Supply Chain? To learn more about how you can gain a competitive advantage by using AI in the Supply Chain you can read this blog post. In the following, you can learn more about the basics about AI and through an example learn about the logic behind.

The basics of AI in the Supply Chain

In its simplest form, artificial intelligence is when a computer or computer-controlled device runs functions and performs tasks that would normally need human assistance. Depending on its use, this may require a computer to understand speech, have a visual perception, or be able to make decisions that are independent of human intelligence (aka manual intervention).

Many AI machines can also learn on their own and make decisions based on past events. Or, they can interpret massive amounts of data from a company’s supply chain history to predict future outcomes with incredible accuracy.

Terminologies used within AI:

Artificial Intelligence: A program that can sense, reason, act and adapt
Machine learning: Algorithms whose performance improve as they are exposed to more data over time
Deep learning: Subset of machine learning in which multilayered neural networks learn from vast amounts of data

The following three trends have put AI within everyone’s reach.

Costs for data storage and processing has gone down
Data availability has increased, not only inside the company but also outside
Advanced mathematics has enabled complex data modeling

Though the concept of AI is half a century old, interest in the technology has snowballed over the past decade. This has been driven particularly by increased data availability, a lower cost of data processing, and new advanced mathematics, allowing for a significantly lower cost of predictions and analytical capacity.

In Optilon we are seeing particularly fast growth in three areas of AI:

Text and numbers: Today, a wealth of information can be found in text and number formats.
Speech: AI can also be used for speech recognition, which translates spoken words into text.
Images: One of the most common uses of AI is image recognition. AI can be used to categorize, edit, and parse this image data.

Explaining AI using examples

In order to take out some of the mystery which is surrounding AI let us take an example from outside the Supply Chain.

The Real Estate Agent

Imagine a real estate agent who sells apartments. Every time a new seller signs up, the first task is to suggest how much their apartment can be sold for. The real estate agent is busy, and it is time-consuming to inspect all those apartments, so he decides to automate the task using artificial intelligence. The formula behind the intelligence sounds simple. Price is equal to the number of square meters times 20,000. Therefore, an apartment of 100 square meters is always priced at two million. After a short while, the real estate agent discovers the challenges of using this method.

Obviously, there are other things than just land, which affects the price. As an example, ground floor apartments are typically not nearly as expensive as apartments with views. Therefore, the next generation of intelligence puts a sum for each floor apartment located above ground level.

After looking at data for actual sales prices, the formula is refined a bit, because it is mainly on the lower floors that the distance from street level makes a difference. In other words, there is a greater difference in price between the living room and the first floor than between the sixth and seventh floors. In the real estate agent’s formula, it is fixed by taking the square root of the floor number and multiplying by DKK 100,000. Then an apartment on the first floor will be priced DKK 100,000 higher than the ground floor, while one on the ninth floor will be DKK 300,000 higher.

The following generations of formula incorporate further conditions: Whether there is a lift in the property, how attractive the area the apartment is in, whether the apartment is in good condition, how busy the road is, and whether one can see the sea.

Along the way, the formula has become somewhat longer and somewhat more complicated. It has been necessary to use both square roots and logarithms, but it can still be shown on an A4 sheet of paper if you use small print. One can question whether it is reasonable to call the formulas in the real estate example and software in self-propelled cars “intelligent”. As we have seen, in both cases, these are just formulas. Very long formulas, but still only formulas.

They are not, in principle, different from the functional machine whose intakes consisted of the formula y = 2x + 1. Artificial intelligence is, therefore, in no way intelligent. Absolutely not. The name probably describes researchers’ wet dreams about what technique one day they will be able to develop themselves. Not what it actually is.

So now, we hope we have taken out all the mystery, and you should be ready to look at how you can incorporate it into your own Supply Chain.

All things supply chain.

Contact us to book a meeting

All things supply chain.

Contact

Offering

Community

About Us

Contact us to book a meeting