From the October 2021 print edition
How much money could you save your company if you really knew what was happening in your supply chain, and you had the time to act on that information? Another way of asking that is: What could you do if you had working artificial intelligence (AI)?
Why? At its most basic, AI is a computer system that can think and act like a human being. What’s key is that AI can review so much more than any person possibly could, so much faster. It can make connections between data points that no human ever would, and even behave like a virtual “robot” and automate processes.
That means companies can both learn supply chain insights at scale and have the capability to act on them. This is important because millions of dollars are at stake.
Purchasing departments, suppliers and partners produce massive quantities of data. This huge volume provides substantial opportunity for added value but, in general, the data is not analyzed in depth.
According to McKinsey, across 19 industries, there is $1.2 to $2 trillion of supply chain value to
be created from AI. Only sales has the same massive opportunity as supply chain.
In an increasingly competitive marketplace, this problem needs to be fixed. Failing to act on AI will be damaging to the reputation of procurement teams, as they will continue to be seen as less strategic partners in the company.
Of course, it’s hard to be an innovator on artificial intelligence. Not only is the subject matter complicated, most of the jargon-free information comes from vendors. Procurement advisors deserve independent, vendor-agnostic AI advice.
Framing the trends
We get how challenging this is. That’s why we’ve reviewed the most recent independent research on AI and summarized the biggest opportunities for you. We suggest that you frame the trends in AI
and supply chains in three broad categories: tactical, operational and strategic.
Tactical – Automation: The most common way that procurement teams use AI is to automate and optimize processes, such as purchasing, contract management quality control and answering questions from contacts.
People currently carry out these tasks, but AI is capable of processing incomparably greater quantities of data than humans, with higher reliability at lower costs. This means the processes are easier to control and monitor, and that they save teams both time and money.
Operational – Forecasting: Suppose that you had a better sense of what was going to happen. Instead of working with the same forecast for a month, AI combines multiple sources, like the latest sales data, to be able to predict better what consumers will want, when and where.
With enhanced demand forecasting, there is better inventory management. That means there are fewer shortages, fewer over stocks and less waste of disposable items. There is also more time to optimize the transportation of goods.
Strategic – Greater Resilience: More than ever, companies understand the importance of having the right suppliers. AI can help with the selection process. Similar to a dating site, AI can review historical data, or be trained by teams to make recommendations on who the best suppliers are. Once suppliers are in place, maintaining good relations and becoming a privileged client is a priority for many firms, especially in a time of emergency, or for the most innovative projects. AI now allows for access to more sources of information on supplier opinions, which guides organizations on which relations to invest most heavily in.
Weighing the risks
However, it is best not to be naïve about AI. The enormous potential is balanced by risk. Sadly, most
AI projects fail to deliver their promised value, and almost all projects end up being delayed.
Still, it is reasonable to look a year into the future and imagine your CEO being thrilled and amazed by the quality of your analysis of AI in procurement.
It is possible to take a topic that most people find complicated and simplify that topic into business terms that make sense to everyone, and for your environment.