Some of the world’s most significant leaders and thinkers are claiming, that Artificial Intelligence is history’s biggest paradigm shift. Yet, we are still only at the beginning of the AI (r)evolution. The question you might be looking for an answer to is perhaps: How will my company get started with AI in Supply Chain?

How to get started with AI in Supply Chain is a typical question that we hear from our clients.  The reason being, that to some Supply Chain Executives implementing AI, can seem as complicated as landing a space shuttle on the moon. But it does not have to be complicated. It is all about thinking big and taking a step by step approach. Even though some of the world’s most significant leaders are suggesting that artificial intelligence is history’s biggest paradigm shift, we are still only at the beginning of the AI (r)evolution.

It may be difficult to imagine a world in which Artificial Intelligence (AI) creates production drawings, controls robotics to perform industrial operations or improves Supply Chain performance. However, it was once unfathomable that a computer could beat a human at chess or drive a car autonomously.

To get started with AI in Supply Chain there are some basic questions you could ask:

  • Which Supply Chain problems are we looking to solve with AI?
  • How transformational are we looking to be, i.e., how big a step are we looking to take?
  • How automated or autonomous are we looking to become?

Make sure to solve real Supply Chain problems and take a step by step approach

Given the broad scope of AI and variations of use cases, it is vital to start by identifying what problems to solve (key objective) and what opportunities to pursue and learn through piloting.

o be honest, what we are also trying to say here is that the most important thing is to start with something rather than starting with the right thing. Embarking on the AI journey is a true learning process.

As Walmart’s CEO says, “AI is less like a project and more like an ongoing effort. As an ongoing effort, you want to figure out how AI can impact every aspect of your business. You want to understand how it affects your businesses’ core decisions, how it changes your overall strategy and business model, how you can get it into the hands of your frontline employees so they can better do their jobs, how it automates processes that don’t need human interaction and how roles in your organization need to change to best complement what AI can do for you”.

5 Steps to get Started with AI in Supply Chain

Hire new skills ahead of the curve – or train existing talent

Success depends very much on the trust and capabilities that the employees are able and willing to put into adopting new technology. When designed with people at the center, AI can extend companies’ capabilities, free up creative and strategic endeavors and help achieve more.

Start by using historical data

A technology partner can guide you through your journey, establishing a solid foundational baseline model on which to layer more and different types of data. A phased approach will help ensure a sustainable solution that meets your business objectives today and as your needs change. Data volume, data granularity, data quality, and data variety play a vital role.

Choose self-adapting models

To achieve the stability and adaptability required for operational use, it’s crucial to use self-adaptive models. These models will require less rework as time passes. Though model evaluation and tuning will always be necessary to a certain degree.

Ensure a digital culture that allows for experimentation

From a leadership perspective, it is essential to foster a culture that allows for experimentation and failure. Not all hypotheses will work or give the desired outcome.

Partner with a company which has practical experience with AI

In this approach, you are working with a partner firm that can help you with your AI journey. This partner can work with you to come up with the right AI strategies and projects, help you build out and test new ideas, and help you grow your internal capabilities. Not all firms can help you with this.

To make this work, you need to find the right partner. You should look for the following characteristics:

  1. A partner that can help you generate AI hypotheses that will work or have a chance to change your Supply Chain. This comes with experience in the area and a mix of business and technical skills. This can be difficult when growing an internal team simply because of its small size.
  2. A partner with a wide range of business and technical experience. As you develop your AI competences, you’re likely to need a diverse range of skills to help you come up with innovative solutions.
  3. A partner with a willingness to be transparent and share. You need to learn how AI works, and you need to own the overall solution moving forward. The AI journey will not be static.

How automated or autonomous are you looking to become?

Your decision on how autonomous the process should be as an impact on how the AI technology should be designed to work. Below you will find a description of the different levels:

Predictive

What if you could predict how your suppliers will perform? You can. The technologies available can interpret massive amounts of data from your Supply Chain and make educated scenarios on future performance based on past deliverables. It is a prediction, so it might not be 100% correct. It is all about using real-time and past data to create likely or ideal scenarios for a given situation. The ability for AI algorithms to learn from historic data sets transforms decision-making. It allows executives to work alongside AI to make more efficient, informed decisions.

Prescriptive

Imagine if you could automate the selection of suppliers or the route optimizations for your vehicles? This can be done with the technologies available. By inferring and producing simple predictive and transparent “if-then logic rules”, you can enable the automation of many of the decisions currently being made.

Autonomous

Imagine if you could predict product demand so that you could order the right amount of materials from your suppliers before you need them? With AI, you can. Low-power, low-cost IoT edge devices cannot process conventional, math-based predictive models. They must send data, often lots of data, over the network to a large prediction server and await a response. Logic-based models can be processed by virtually any computing device and used in real-time to respond to events as they happen. They can make informed decisions based on automated alerts.

We hope we have inspired you to bring AI into your Supply Chain and sincerely hopes it can improve your Supply Chain performance.

It may be difficult to imagine a world in which Artificial Intelligence (AI) improves Supply Chain Performance. But it was also once unfathomable that a machine could beat a human at chess. In this white paper, we will share with you how you can create your own approach to Supply Chain AI and how to implement it.

It may be difficult to imagine a world in which Artificial Intelligence (AI) improves Supply Chain Performance. But it was also once unfathomable that a machine could beat a human at chess. Since the Supply Chain has a great influence on all cost drivers in a company, optimizing the Supply Chain through Supply Chain AI opens for possibilities to win new market shares, boost sales and establish new business models. Supply Chain Executives from various industries are turning their heads towards AI. AI is still the “stuff of the future” and some are even suggesting that AI is history’s biggest paradigm shift. No matter what, the Supply Chain landscape is changing.

Supply Chain AI can solve real Supply Chain problems

The changing landscape of the Supply Chain demand 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. Also here Supply Chain AI can become a competitive advantage as it is possible, with the use of the right kind of supply Chain AI technologies, to solve some of these real Supply Chain challenges.

This whitepaper will give you the following:

  1. You will learn how and why you should turn Supply Chain into a competitive advantage with AI
  2. You will learn how Optilon helped a Swedish manufacturer save 22% on their logistics cost – by automatically correcting addresses
  3. You will learn how you can create your own approach to AI in the Supply Chain and implement it in your own organization

Download your own copy of the whitepaper right HERE.

Download now

Complexity, one of the most used and ambiguous terms in business, is increasingly present in several layers of businesses today.
Due to its nature of being cognitively challenging to understand, complexity has a bad reputation in business. For instance, complexity in Supply Chain offers many challenges. However, complexity is not inherently bad as it can offer many benefits for businesses. Recently, Harvard Business Review wrote a striking piece about the strengths and costs of complexity in a business environment. Not the least, the paper offers methods for embracing complexity while eliminating costs and escalating benefits.

The many sides of complexity

Complexity comes in many colors and forms offering both strengths and costs. Harvard Business Review summarizes the most significant strengths and costs caused by complexity in a business context:

Strengths:

  • Increased resilience – due to an enhanced ability to be responsive when faced with unforeseen opportunities and threats. Complexity also gives increased buffering capacity and more fallback options.
  • A bigger diversity leads to increased adaptability. As it is easier to try out new ways of serving the customer by recombining existing elements in a new way. This will help companies sustain business performance.
  • Better coordination – since smaller groups/entities have a high interconnectivity making them easier to steer and manage.
  • Complexity often results to inimitability, since companies’ complex interrelationships among multiple elements are hard to copy.

Costs:

  • Managing a variety of elements in a complex company setup can lead to increased costs as efficiency is reduced.
  • The understandability decreases, as it can be a struggle for a business leader to identify the root cause of certain problems.
  • Unmanageability increase as it is harder to identify values and functions of every individual element and know when to intervene to manage performance – The organization becomes less like a machine and more like a complex natural system with a life of its own
  • The former leads to increased unpredictability as spontaneous and unexpected events can emerge. With lacking insights, interventions based on gut feeling can have undesired effects.
  • Leaders lose the grasp of how all elements are intertwined making it hard to predict what effects business decisions can have on the entire company

Solution for Taming Complexity in Supply Chain – Optimize Globally

As removing elements to reduce complexity is uncommon, leaders tend to move forward with new elements that add value on a more obvious and immediate level. Therefore, finding methods to retain the benefits of complexity and diminish the costs is of high priority. At Optilon we strongly believe in embracing the complexity and utilizing technology to gain competitive advantages – especially when handling high complexity in Supply Chain.

The evaluation of new processes, and structures should not only be based on how it will impact a certain group or entity of a company, but more importantly how they impact the company on a holistic level. This will help companies balance the trade-offs of a business decision. For instance, when evaluating future supply chain network models it is important to realize that the benefits of any single location may be concentrated in a smaller area, whereas the complexity costs may be distributed across the organization. By utilizing modern technology to create simplified overviews indulging the entire complexity in supply chain, companies can truly assess all potential costs and benefits following any operational, tactical or strategic supply chain decision.

 

Link to the HBR article

With a combination of front edge supply chain consulting and market superior supply chain applications, Optilon creates sustainable business value through supply chain optimization. By optimizing the flow of products throughout the entire supply chain we help companies increase revenue by reducing lost sales and expenditure of resources.. Learn more about Optilon here.

The retail industry is transforming through a period of unprecedented change. Emerging technologies such as Artificial intelligence (AI) and automation technologies have vastly altered every stage of the retail journey, from inventory management to customer service. Retailers are also integrating data analytics into every touchpoint of their business, including sales predictions, store optimization and product recommendations.

The ability of actors in retail to effectively use AI, data analytics and other emerging technologies to meet changing customer expectations will be a key determinant of becoming a winner in the new decade. These technologies will also dramatically impact operational activities, such as workforce management, inventory and sustainability efforts.

Robert Hetu, a research vice president with the Gartner retail industry services team, has gathered his thoughts around how emerging technologies will shape the future of retail. Optilon has summarized the most important trends from Hetu’s thoughts.

By 2024, Tier 1 retailers will reduce inventory carrying costs by 30%, dramatically freeing up working capital for digital investment, while revamping balance sheets.

Combining AI with a modern approach for demand forecasting, creating tailored market assortments and optimizing safety stocks will affect how much capital companies are tying in safety stock. A potential inventory reduction of 20% was already displayed in a recent report from Optilon.

By 2025, at least four of the top 10 global nonfood retail actors will establish a recommerce program as part of their global targets for zero carbon and sustainability.

While Gen Z and Millennials are more prone to sustainable practices, all generations are now a priority for sustainable consumption. Recommerce, meaning selling of previously owned products, is quickly growing in popularity. The secondhand apparel global market value reached $24 billion in 2018, with projections to achieve $51 billion by 2023.

By 2025, the top 10 retailers globally will leverage AI to facilitate prescriptive product recommendations, transactions and forward deployment of inventory for immediate delivery to consumers.

“Generation AI”, born after 2010 and that has always been influenced by AI, will start spending their money in the next decade. This generation will rely on technology to preselect the best offerings for them taking prices, ratings and product specifications into account. Retailers that will not be able to leverage prescriptive product recommendations will lose existing customers and won’t be able to attract new customers. This is due to lacking ability to stay relevant and influence their customers.

Link to article

Would you like to learn more about Optilon’s work within retail?

Please contact Area Manager Daniel Göransson on +46 70 937 92 88 or daniel.goransson@optilon.se

Watch this 30 minute webinar about how you can apply AI (Artificial Intelligence) in your own company. We provide you with insights, advice and the audience contributes with great questions.

Do you want to know more about AI in supply chain?

Please contact Optilon’s Application Board Director Anders Remnebäck on +46 709 379 282 or anders.remneback@optilon.se.

TO THE WEBINAR

Effective inventory management is one of the single biggest actions a company can take to maximize its competitiveness. It simply ensures that resources are being used smartly. In this blog post, we will look into how you can utilize AI to improve your Supply Chain inventory performance by optimizing your assortment.

Effective inventory management is one of the single biggest actions a company can take to maximize its competitiveness. It simply ensures that resources are being used smartly. That being said, a new report published by Optilon shows that many companies have a blind spot when it comes to inventory management. 22 percent of the inventory is redundant for a Swedish average company. This could be the case for many companies in the Nordics.

It’s not just about having fewer goods in stock. By always having the right mix of goods, missed sales are greatly reduced, while taking up less storage space and reducing the risk of an item being outdated. Having the right mix assures smart use of resources, but what is the effect of also understanding how you should manage your assortment? In this blog text we will look into how you can utilize AI to manage the product portfolio and increase your sales

Why is the right assortment important?
Effective inventory management can have a major impact on a company’s profitability. The findings in the report mean, that these companies have more goods in stock than they need. A product less in the warehouse does not only mean less tied-up capital, but also less warehouse space, reduced distribution, and administration costs and obsolescence (when a product becomes outdated).

Inventory optimization is not just about having fewer goods in stock. By always having the right mix of goods, missed sales are greatly reduced, while taking up less storage space and reducing the risk of an item being outdated. It provides an efficient recoil for the companies. They reduce costs while increasing revenue and freeing up capital.

Companies should reduce the inventory in specific categories of products, removing some SKUs, and minimizing the loss of revenues. They need to optimize the assortment without losing customers, taking into account, that customers may switch (together with all their purchases) to competitors if one of their favorite items is removed and it is not replaceable by any other.

The Traditional Inventory Approach
The Traditional Inventory Approach often entails removing SKUs that perform worst from the inventory, or in other words, remove products from categories that sell the least. Using this approach, it is possible that some clients are specifically interested in these SKUs, so that if they are discarded, customers are lost completely with all the revenues they bring.

A new algorithmic Approach
In contrast to the traditional approach, you can focus on removing SKUs which are indifferent to the consumer. With AI technology you have the possibility to predict if, from the consumer’s point of view, the removed SKU is replaceable by another item and we find the right match in term of profitability. In order to achieve this, our models, using only transactional data, answers the following inventory questions:

  • Frequent itemset mining – Which items are often sold together from a historical perspective?
  • Product alternativeness scoring – Which items provide good alternatives for items in the scope of removal?
  • Volume replacement scoring – How many customers actually buying item A will switch to item B if item A is removed from the inventory?
  • Revenue replacement scoring – Which portion of revenues is expected to be covered by the replacement product if the replaced product is removed?
  • Marginal replacement scoring – Which portion of margins are expected to be provided by the replacement product if the replaced product is removed?

Optimization Results
Our algorithmic approach has been tested side-by-side with the traditional method of removing least sold products and the algorithmic approach achieved 88% less estimated sales loss in the set of identified items for removal.

Are you looking for more information about AI and how you can incorporate it into your own Supply Chain – then you can download some of our great content via the below link.

Download whitepaper on AI

All things supply chain.

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