May 29, 2024

Fortune 500 See High ROI with AI in Supply Chain

70% of CEOs state that AI in supply chain management is the solution to stock management, logistical optimization, and supplier risk management.

6 min read

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Paul Estes

For 20 years, Paul struggled to balance his home life with fast-moving leadership roles at Dell, Amazon, and Microsoft, where he led a team of progressive HR, procurement, and legal trailblazers to launch Microsoft’s Gig Economy freelance program

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  • Supply chain disruptions cost businesses $184 million yearly.

  • Brands like Walmart have leveraged AI in supply chain management to save over $900 million yearly.

  • 70% of CEOs have seen substantial ROI when using AI to overcome problems in their supply chain.

Staff writer

From AI to FinOps, our team's collective brainpower fuels this blog.

Supply chain disruptions cause businesses to bleed $184 million USD annually.

Supply chain management aims to reduce these disruptions by streamlining every segment of the global supply chain, including procurement, manufacturing, disruption, logistics, final-mile delivery, and even store management. 

Source: Estimated average annual cost to organizations due to supply chain disruptions by country. 

However, supplier-side risks, rising transportation costs, and labor management issues routinely derail supply chain management organizations. With a tiny disruption having disastrous consequences, supply chain businesses increasingly seek ways to overcome these issues.

Over recent years, AI has become a central technology in supply chain management, helping to prevent disruptions, enhance profits, and streamline movement across each supply chain stage. An overwhelming majority of 70% of surveyed CEOs state that AI delivers a strong ROI for their supply chain management operations. 

How AI is Transforming Supply Chain Management

Supply chain management requires a precise understanding of global contexts, advanced knowledge of connective links, and meticulous planning. With raw materials, products, and goods in stores all revolving around the seamless connection between phases of the supply chain, vendors are increasingly turning to AI to obtain complete visibility over their supply chain.

AI in supply chain management allows for the analysis of millions of data points for risk assessment, precise route optimization for transport, and even warehouse and store management for automated sales processes. Across every area of the supply chain, AI is already demonstrating an impressive ROI. 

Here are three central AI in supply chain management use cases that businesses are leveraging to enhance profit and solve typical industry-wide issues:

  • Use Precision Analytics to Conduct Supplier Risk Assessments: Supplier issues are one of the central factors causing significant disruptions in an organization’s supply chain. Typically, a supplier will fail to acquire the raw materials needed to produce a product or may face other disruptions, like geopolitical conflict. Artificial intelligence risk assessment tools can conduct 360-degree assessments to identify supplier risk and suggest mitigative steps to reduce the likelihood of disruptions occurring.
  • Curtail High Logistics Costs: Over the last five years, the average cost of transportation has dramatically increased. Businesses use artificial intelligence tools to streamline logistics with more effective route optimization. Early adopters of AI in supply chain logistics management saw a decrease in costs of 15%.
  • Labor Issues in Warehouse Management: By 2030, there will be 2.1 million unfulfilled jobs in warehouse operations in the USA alone. Alongside high wages reducing supply chain margins, businesses must contend with various labor issues in this sector. Artificial intelligence tools like warehouse robots are overcoming these problems, automating key jobs, enhancing productivity, and cutting back the need for core labor roles in warehouses.

Let’s discuss how AI in supply chain management is proving its worth in each of these three central ways. We'll bring each solution to life using examples of corporate enterprises that have already incorporated AI into the supply chain. 

Monitoring 100s of Suppliers and Conducting Comprehensive Risk Assessment with Emma Sleep

Emma Sleep is one of the largest mattress companies in Europe, the winner of several ‘Product of the Year’ awards in the UK, and an international supply chain manager. For years, Emma Sleep conducted manual risk assessments of its suppliers, resulting in inaccuracies, missed risks, and extensive time consumption.

On January 1st, 2023, the German Supply Chain Act forced companies operating in Europe to take full accountability for their suppliers, including environmental policy adherence and human labor laws. Failure to comply with this act was a high-risk scenario, potentially incurring fines of up to €800,000 and 2% of global turnover. Unable to rely on manual risk management to manage their 180 suppliers at once, Emma Sleep turned to AI-enabled risk management tools.

Emma’s AI risk management tool can compute millions of separate data points on suppliers, scraping information from public reports, published business documents, and even news sites to create a precise risk score for each. 

Each supplier has a risk score, which supply chain managers can use as a starting point for further investigation. Emma’s supply chain risk management software also suggests mitigative steps to overcome future risks, such as distributing suppliers, switching to more stable options, or renegotiating contracts.

Emma’s supply chain compliance managers no longer had to spend their days reviewing each supplier’s documentation; their AI tool automated every aspect of risk assessment.

Based on each company's total risk exposure, Emma Sleep was able to identify high-risk partners and find other potential suppliers ahead of time to ensure there were no future disruptions in shipments. Using AI in supply chain management, Emma could sustain its international web of suppliers, enhancing risk assessment accuracy to 99.9% and obtaining complete visibility over its supply chain. 

Solving the High Cost of Road Transport Logistics with AI at Walmart

Any global supplier that wants to operate in the USA has to contend with rising gas prices. Over the last 10 years, gas prices per liter have increased by around 69.5%, creating a much higher cost of operation in the USA. Considering that the vast majority of retailers have to transport products across the country from warehouse to stores, the cost of gas was making long trips increasingly unfeasible. 

Source: Average price of gasoline from 1978 to 2024 in USA.

In 2023, Walmart won the Franz Edelman Award for building custom artificial intelligence technology that enhanced route planning and optimized logistical transport links. Aiming to solve the high logistics cost in the USA, this supply chain giant developed its own AI technology.

Walmart’s AI system would interact with the navigation systems that transport drivers use, using real-time data to plot the most efficient route. In as little as one year, Walmart was able to eliminate over 30 million unnecessary miles with the AI tool, reducing costs and enhancing the speed of logistics delivery to stores. 

At an average cost of $3.14 per mile for transport trucks, these 30 million miles translated into an incredible cost reduction of well over $900 million for Walmart. 

Two Birds, One Robot: Solving Worker Shortages and Inventory Management with Sam’s Club

Supply chain operations have had to deal with two central contentions regarding warehouse management: a lack of available workers and high labor costs. Many businesses need distribution centers all over the United States, if not the world, creating a constant labor cost that is hard to keep up with. 

Sam’s Club, a premier warehouse retail store with over $80 billion annual sales, launched an AI robot to conduct warehouse management duties in January 2022. Using powerful computer vision and product recognition, the AI robot can move through warehouses, cleaning the floor while monitoring stock levels and localizing products for customers.

Source

This AI-enabled solution can considerably reduce the need for labor in Sam’s Club’s warehouses by automating the manual stock measuring and product tracking processes. This saves the business money and automates labor-intensive tasks that were once manual.

By automating these tasks, other working staff can instead focus on higher-value activities. For example, they analyze the reports the AI-enabled robots generate on which products interact with most customers. This allows for more precise future inventory management, as the AI system recommends which products a store should order more.

Todd Garner, Vice President of Product Management at Sam’s Club, comments on the use of AI in their warehouses:

“This intelligence allows us to proactively manage our clubs in an efficient manner. Inventory Scan assures items are available and easy to locate in the club, freeing up time for our associates to focus on members and the shopping experience they deserve."

Across the board, artificial intelligence allows Sam’s Club to manage the end of its supply chain more effectively. AI radically improves and optimizes warehouse management by overcoming the US labor shortage for warehouse workers and boosting revenue. 

Final Thoughts: The AI Revolution Transforming Supply Chain Management

AI in supply chain management has been one of the most powerful technologies to grace this field in recent years. It solves many central issues plaguing this sector by providing cost savings, productivity enhancements, and reduced potential disruptions.

In a relatively short time, companies like Walmart, Sam’s Club, and Emma Sleep have radically used AI to transform their supply chains. With AI in supply chain management, businesses can look forward to more cost-effective, productive, and optimized international transport links. 

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