The scope and ingenuity of artificial intelligence (AI) was demonstrated earlier this year when a computer won against a human opponent at Go – a traditional Chinese board game in which the aim is to surround more territory than your opponent. This was a breakthrough – revealing how machines have developed new levels of human-like intuitive capability and processing, much faster than anticipated.
AI is already having a beneficial influence on business and, in particular, on the supply chain – a part of business operations all too often overlooked as a source of competitive edge.
Mitchell Osak, managing director, strategic advisory services at Grant Thornton in Canada, says “the application of AI or cognitive computing to make decisions that humans would otherwise take, or that humans are unable to take, based on data and analytics collected on the supply chain” is already happening. "It’s the next step in the development of supply chain management techniques, building on the current trend of using analytics and data as a tool to improve supply chain performance,” he explains.
Let’s backtrack a little. Osak says: “Location-based data is an example of how analytics can be applied across the supply chain.” This shows where your raw materials are in the global supply chain and “effectively provides visibility and makes your shipment trackable and adjustable. This means you have the ability to co-ordinate with other suppliers in real time to make sure everything culminates at the right place, at the right time.”
AI applications can add a whole new dimension to that capability by shifting some of the data-based decision-making to a machine. “AI creates self-learning systems where, for instance, a computer can automatically notify a production manager that a shipment of materials is at the nearby airport and will reach the manufacturing plant in an hour, so alerting them to be ready for intake,” says Osak.
“The computer will have processed the location-based data as well as previous data on journey times so notification becomes totally autonomous. There are still people involved at each end of the cycle, of course, but in between those points machines can make the decisions. Those decisions will be made faster and more reliably, and a machine can work overnight, with no coffee breaks or sleep needed.
“And the real beauty of the system is it learns from its successes and mistakes, so the level of accuracy continually increases.”
This is about making already good supply chains even better. Firms that are investing in such forward-thinking technologies recognise that their supply chains are not simply a mechanism to drive down costs but a source of innovation and new ideas; a means to gaining a competitive edge.
It’s a growing but not quite yet mainstream concept. “Japanese automotive manufacturers saw the light decades ago,” says Osak, but more recent converts have included retailers from the fashion world such as Zara, whose innovative supply chain management model has become iconic – and the result has been soaring profit and global growth. Hokey Min’s The essentials of supply chain management: New business concepts and applications chronicles this link in the case study, ‘Zara’s rapid rise as a cool supply chain icon’.
An approach that looks to compete through its supply chain brings a number of benefits, says Osak. “It can lead to better aligned strategies and a faster time to market with new products, improved manufacturing processes that bring efficiencies as well as better quality, improved customisation, greater knowledge sharing and expertise, and a generation of new ideas and innovative solutions.”
How can it be achieved? Through adoption of a new mindset that shifts the focus of attention from tactical supply chain management to strategic. In other words, the single-minded goal of making savings gives way to one of joint value creation.
“Vital to this is collaborative working, being willing and able to share comprehensive quality data with suppliers, having common goals and aligned strategies, regular and effective communication, and offering the right incentives,” says Osak.
At its heart is establishing trust. Boardroom commitment from both organisations is required to ensure the relationship is nurtured from a strategic point of view. Meanwhile, dedicated teams or managers can get on with the day-to-day job of managing the partnership at operational level, and its objectives and outcomes.
Developing this partnership mentality is a journey and takes time though, warns Osak. “It’s a long-term view and there are no shortcuts or silver bullets.” We are still only human, after all.
Click here to contact Mitchell Osak about how supply chain innovation can increase the competitiveness of your business.