Ten Ways AI-Powered Algorithms Will Transform Your Supply Chain

Editor’s Note: George Bailey is managing director of the Digital Supply Chain Institute, a nonprofit research organization focused on the evolution of enterprise supply chains in the digital economy. He is also the Executive Professor of Digital Innovation and Management at Pepperdine University

At the Digital Supply Chain Institute (DSCI) we've been working with senior executives from 72 companies around the world to develop the tools and insights to accelerate the transformation from a traditional supply chain toward a more powerful Digital Supply Chain.

There are many actions that companies can take to build a leading-edge Digital Supply Chain, but Artificial Intelligence and Machine Learning (AI/ML), is essential to capitalizing on the flood of data instead of drowning in it.

We made a list of the Top Ten Insights that we think will be essential for companies to utilize AI/ML to make rapid progress. Consider which of the Top Ten are priorities for your organization.

The Data 80/20 Rule – Getting it Right

What's the optimum mix of collecting, cleaning and storing data versus analysis and execution? Companies should spend 80 percent of their effort on analyzing data and making decisions and 20 percent on collecting and cleaning the data. Unfortunately, too many companies are mired in the opposite equation. Hire the data analyst and data scientist talent who know how to collect, manage and analyze data. Educate line and staff people on the skills needed for data-driven decision-making. And stock up on AI/ML talent.

Real-Time Demand Shaping Beyond Forecast Accuracy

Forecast accuracy is important but Digital Supply Chains must do more; they must increase and manage demand. How? Invest in the technology to capture new data, develop new algorithms and use it to make decisions in real time. Incent people to collaborate to make things happen.

Battle of the Algorithms

Companies must collect more customer data and use AI/ML to develop algorithms that win in the marketplace. Algorithm-based approaches that can learn, improve, and eventually reveal hidden patterns in large volumes of data are within our grasp. By uncovering hidden patterns and unlocking predictive power in information, supply chains will have the best chance of competitively satisfying customers. Just look up the valuations of some such algorithm-driven companies as Amazon, Google and Netflix.

Visibility Reduces Risk

Visibility into suppliers and customers is an essential way to reduce the risk of supply chain disruption. Developments in tracking and analytics will enable a true, transparent, end-to-end supply chain. This new transparent and secure system will be enabled by Blockchain, allowing for trust and increased visibility.

New Talent Management for Supply Chain Talent

New people with data scientist skills and deep analytical skills must be found and current people must be trained in data-based decision making. Develop a new talent management plan with three components: First, hire people with the skills to develop algorithms that better predict and manage customer demand. Second, improve the overall level of data-driven decision-making skills across the workforce. Third, change job descriptions and develop new compensation plans to attract and retain people with the right experience.

New Business Models We Can't Anticipate

Get the data and use AI/ML to discover new ways of adding value to customers. Define critical business problems and determine what new data sources should be identified and gathered to help address them. Once companies have identified, gathered, processed and aligned large “lakes” of data, they will start to discover that there are new ways to create value in the marketplace that were previously hidden.

New Product, New Wins

Digital Supply Chain knowledge should be added to the process of deciding what to make or do to drive growth. Winning companies will adopt a more integrated cross-functional view that includes their DSC to gather important customer insights and information. They add value by being in touch with the customer and learning from them through delivery and infield use. This insight will help develop algorithms that best predict the customer demand for the new product and analyze DSC availability to produce and deliver.

Dynamic Pricing

Rapidly adjusting pricing as market conditions change will alter the way that the supply chain is managed and drive profitability. Predictive analytics will be used to continually set and adjust pricing for more and more products and services. AI will guide companies on customer buying behavior, mega trends and history. New production and delivery methods will enable companies to seamlessly integrate the speed of getting the product to the customer into their dynamic pricing.

Own It or Clone It and the Tools to Know

Decide what DSC functions should be outsourced and which should be revenue producers using new tools. More companies will insource production as 3D manufacturing lowers labor costs and permits operation near the target end customer. The challenge will be to help make the right “in or out choice” and then make either choice work well. AI/ML will be used to gather and control production information either way.

Algorithm Council: The Secret Weapon

Form a cross-functional team to create algorithms that drive data collection, analysis, market focus, manufacturing, inventory and a host of other critical business decisions. We call this team the “Algorithm Council.” This team will include members from Sales and Marketing, Supply Chain, Information Systems, HR, Enterprise Risk Management and Finance. The primary purpose of the Algorithm Council is to build algorithms addressing the right issues that lead to market dominance and make decisions that increase sales while increasing margin and/or lowering cost.

Each company should set out a plan for addressing these insights. Not all insights can be handled at once so set priorities and support these actions with an investment plan and clear revenue and productivity goals.

Customers will love what they get and will soon insist that a company have a true Digital Supply Chain or they will move their business elsewhere.

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