How AI is Spreading throughout the Supply Chain

Driven by the globalization of production, supply chains have become increasingly complex to manage. The good news, however, is that the solution to manage risks throughout the supply chain is now at our disposal: Artificial Intelligence (AI). According to Goldman Sachs, AI will have a bigger economic impact in supply chain than in any other business domain. A recent study by McKinsey estimates that cost reductions between $1,3 and 2 trillion are possible through the application of AI in supply chain and manufacturing.

Many of the daily jobs that are part of the supply chain, e.g. payments of invoices, will be heavily simplified by AI. In a next stage, AI will also be able to forecast overdue payments of clients. In addition, computer-vision systems will be able to detect failures instantly after being trained with earlier flaws in assembly lines, which will in turn simplify the process of (finished) products inspection.

Operators of very large assets (freighters, mining companies) can benefit from AI to predict when equipment may fail and set-up maintenance proactively. Generating real-time data from sensors and comparing this with data from past performances can predict defaults with high accuracy. The US army and defense are already collaborating with IT start-ups to compare actual maintenance data with previous technical data.

In the retail industry, where margins dropped significantly, improving forecasts will allow them to lower inventory and free up store space. Given that the cost of both over- and understocking was estimated by IHL Group to be over $400bn in 2015, large companies such as Amazon have implemented AI to improve their forecasts.

The entrance of Amazon in the field of AI is an example of a broader trend. Over the next 10 years, AI is expected to reduce total logistic costs by at least 5%, or $25bn. This will attract a lot of new entrants which will redefine the current business and the end users will surely take the benefits.

Source: the Economist