For as long as commerce has existed, from ancient merchants to today’s multinational conglomerates, knowing the optimal amount of stock to hold across complex networks of warehouses and stores has been a persistent challenge. Now, in an increasingly digital age, supply chain managers are having to adapt even quicker.
Research last year predicted inventory distortion – the combined cost of loss of sales from out-of-stocks and excess stock – would cost retailers $1.77 trillion in 2023. With so much value at stake, failure to adapt to modern day challenges would be catastrophic for businesses and consumers alike. The seamless adoption of new solutions is critical to business development.
This is where AI has and continues to play a pivotal role. However, only a third of executives have a strategic vision for integrating AI into supply chain functions, with just 29% saying it’s pinpointed for “heavy investment” over the next three years. This lack of planning and investment could prove a business’s undoing if others take the lead on adoption.
For supply chain managers untuned to the world of AI, how can the technology optimise their processes? And what advantages can they expect?
Same problem, far greater variance
Economic downturns, geopolitical tensions, extreme weather events and changing consumer habits have always played their part in global challenges faced by supply chain managers. What’s more, a reliance on historically manual processes and spreadsheets has made it incredibly challenging to gauge what optimal inventory levels look like and how best to balance costs.
Today, unprecedented modern events have laid bare supply chains’ vulnerabilities, meaning solutions need to be found at pace. Not only caused by political or economic levers, even superstars impact global supply chains. Last year, Google search data showed a notable spike in the search term ‘metallic cowboy boots’ as Beyoncé’s Renaissance world tour kicked off and fans grappled to purchase their own show outfits. If you also consider vastly changing customer needs driven by economic uncertainty, supply chain managers are dealing with a host of obstacles; demand can change at the flick of a switch.
Disruption and uncertainty can always be expected, but striving for near-perfect inventory levels – including more SKUs and faster delivery – is almost impossible without AI.
Overstock vs out of stock: A balancing act
The key challenge for any supply chain manager is finding the balance between holding too much stock (especially when demand is low) and too little (especially when demand is high).
The former means they risk obsolescence, needing more warehouse space to house additional stock and potentially wasting vast amounts of products that go past their ‘sellability’. It can result in the business having to shift that stock at discounted rates and puts pressure on nailing every single sale. The latter of course means a host of missed sales opportunities, not only impacting revenue and operational costs but also brand reputation. The consequences can be critical to a business.
Forward-thinking companies are looking to AI to optimise their inventories. The more they can optimise, the less sales lost and the less capital tied up in excess stock. For example, by using AI, they can assess inventory levels in real time and instantly make decisions to balance factors like product availability and life cycles with operational costs, a process that used to take days or even weeks.
And for the early adopters, the proof is already in the pudding. Using AI, McKinsey research showed these adopters lowered their logistics costs by 15% and improved service levels by 65% “compared with slower moving competitors”. But if the results are attractive, why are more companies not jumping aboard the AI train?
Optimising team processes
It’s the unfortunate truth that supply chain teams are struggling for resource. In fact, a recent survey found that 76% of supply chain and logistics leaders are experiencing significant shortages in their supply chain workforce.
Part of this is due to recruitment challenges, which plague the industry. Enticing tech companies and roles attract talented tech workers. Supply chain is missing out on key talent. Organisations need to shine a light on these supply chain roles and companies to ensure there is a healthy flow of talent into the sector.
On top of recruitment challenges, to combat these pesky supply chain resource shortages, organisations need to optimise their team processes. But, what does this look like?
When AI is introduced into the fray, teams can regain time in both the short- and long-term, giving them much-needed time back to plan and strategise. AI-powered insights also elevate this strategic planning, empowering supply chain teams with a quantity and quality of data they might not have accessed previously.
An approach fit for the modern world
You can never truly predict future customer demand. But if you know how much variance there usually is between forecasted demand and the true level, you can implement a supply chain strategy and inventory level best suited to deal with this fluctuation.
It’s not an exaggeration to say that without using AI in the coming years, companies could be losing millions in margin compared to their AI-powered competitors. But if they can start to embed AI into their supply chain operations now, they can form a flexible and modern approach to tackle a problem as old as commerce.
Holly Clarke is Product Manager for Inventory AI at Peak, a UK-based artificial intelligence company building unique AI solutions for companies of all sizes in every market and vertical.
- AI in Supply Chain
- Risk & Resilience
