While customer demands used to soar to levels once considered impossibly high only during holidays like Black Friday and Valentine’s Day, today, customer demands rise to these levels on an almost daily basis. These demands can cause a steady stream of turbulence. Retailers like Walmart and Target are pushed to stay competitive year-round with online initiatives, and Amazon.com continues to normalize instant gratification with its one-day shipping program. This means that supply chains will have to adapt to year-round “holiday-like” pressure to prepare and meet consumer expectations.
Now, every day of the year, retailers find themselves struggling to adjust to the negative impacts that come with high demand for instant access — including website crashes and sold-out inventory — with no additional assistance from suppliers that have extended lead times, limited warehouse capacities and inflated expedited freight rates. Manufacturers that can’t meet this demand will find themselves addressing frustrated customers and dealing with lower sales. Instead I said: These losses speak even louder as we find ourselves living among the current worsening retail climate, where brands have already closed thousands of stores this year. While the shift to e-commerce has made a drastic impact on these closures, the basic question remains: How will organizations keep up with these high expectations as more shoppers look for immediate gratification and further embrace online shopping?
The Right Technology Makes a Difference
Artificial intelligence (AI) may be one answer. Currently, AI is making a huge difference for retail supply chain optimizations, especially as the desire for faster delivery increases and focus on tight inventory control becomes significant. A report by Capgemini estimates retailers could save as much as $340 billion by taking AI to scale across the value chain. In addition, another AI provider reported that AI inventory management implementation resulted in a 32 percent reduction in costs across its operation.
AI helps retailers better understand exactly how their supply chain is operating. It also helps retailers make improvements throughout their operations as well as eliminate waste and overhead. Let’s further explore these benefits of AI for the supply chain, illustrating why this technology will be necessary for success, regardless of the time of year.
AI Forecasting and Intelligence
AI and machine learning provide powerful tools for retailers to predict and analyze trends and datasets through the use of predictive and prescriptive analytics. Extracting information and business intelligence from large supply chain datasets supports more informed retail decision making. At the same time, AI will be necessary to integrate with other systems to balance potential demand, supply and capacity changes for products and inventory.
AI Automation and Routing
Route optimization, automation and tracking makes transporting retail goods through the supply chain faster and easier. Examples include:
- automating cars, trucks, ships, delivery robots and more allows for effective, self-guided robotic operations;
- utilizing multiple data sources, including in-motion with GPS tracking, to understand progress through the supply chain and optimize routing for maximum speed and efficiency; and
- planning operations and movement throughout the supply chain.
Competitive Pressures Fuel Supply Chain AI Investment
Much of the investment in AI and machine learning is driven by external pressures. For example, this RSR report found that almost six in 10 retailers cite faster delivery times from competitors as a major business challenge. This pressure only increases because of the desire for instant gratification by consumers (e.g., “I want it in my size, my color, and I want it now”). Of course, these demands are intrinsically at odds with the realities of supply chain constraints, which result in products reaching their final destination warehouse in the Midwest in 60 days to 90 days, from its originating manufacturer in Shenzhen, China.
Despite these pressures, the speed of delivery is a major differentiating factor for winning business, and fortunately, that’s an area where AI can excel. By leveraging AI and additional machine learning technology, retailers can work to address this “impedance mismatch” by improved demand sensing and optimizing supply chain planning. About four in 10 retailers currently offer same-day delivery. More than two-thirds of retailers are expected to offer same-day delivery within the next three years. Of course, speed isn’t the only competing factor among businesses, especially when quality and a great customer experience can be guaranteed. But to remain as efficient as possible, AI will help the supply chain live up to existing customer expectations.
AI Supply Chain Networks
Integrating AI across the supply chain network delivers benefits for all parties:
- reduces freight costs for third-party logistics businesses and their shipper clients;
- provides better upstream and downstream planning for raw material producers, manufacturers, logistics companies and other supply chain stakeholders;
- estimates internal and external costs and expenses at every stage of the supply chain;
- improves the speed, accuracy and quality of supplier deliveries;
- manages and minimizes the risk for suppliers through understanding environmental factors and other variables; and
- takes corrective action during unexpected and disruptive events.
AI Improvements for Automation and Planning
Retailers can receive the most benefit from AI by focusing on automation of manual tasks, like responding to queries, automating invoices, order management and tracking, GPS location, and similar administrative tasks. By planning across many key areas — including demand, supply and capacity management; route optimization; extracting business intelligence from data; continual supply chain optimization and similar tasks — retailers can be sure that they’re maximizing the value of AI across their supply chains year-round.
Of course, introducing AI into the supply chain can be tough. If organizations want to meet the challenge, they’ll need high-quality supply chain datasets and properly trained people across their organizations. The extended retail supply chain still needs a little work for complete AI optimization, and focusing on data collection is necessary in order to incentivize all stakeholders to use AI as intended. But the benefits are vast. With these changes, organizations will lower costs, increase delivery speed and enhance customer satisfaction. By acting now, retailers can prepare for the changes necessary to experience all the benefits AI has to offer.
Steve Dowse is the senior vice president of product management at Blume Global, a supply chain solutions provider that deliver products and services more efficiently for assets, visibility, finance, optimization and logistics.