The Application & Impact of Artificial Intelligence on Digital Supply Chain

Written by Jason Ng, MSIPMM

by Jason Ng, SIPMM

The Application & Impact of Artificial Intelligence on Digital Supply Chain

Written by Jason Ng, MSIPMM

by Jason Ng, SIPMM

by Jason Ng, SIPMM

The impact that Artificial Intelligence (AI) has on digital supply chain can be found across various functionality, such as inventory management, logistics, procurement practices, customer service and demand forecasting. This article explores the use of AI on various key functional areas and discusses the challenges of job security, talent gap, and ethical issue.

Inventory Management and Demand Forecasting

The holy grill of inventory management and demand forecasting is to find the sweet spot of balancing inventory levels and consumption levels. Having too much stock drives up inventory cost and having too little risk losing out of potential business. This is especially important for products which are time sensitive in industries like horticulture industry and electronics where with each passing day, food will risk turning bad and electronics growing more obsolete.

An example is the use of Multi-Echelon Inventory Optimization (MEIO) module.

MEIO automatically seeks the optimal balance of inventory at the right locations, and provides optimal inventory parameters and positions by stocking location to establish optimal buffer locations and quantities. Using MEIO can reduce total inventories by upwards of 30% while maintaining or improving customer fill rates.

Optimizing Logistics Operations

In logistics, we are focused on optimizing the movement of goods and services and at the same time keeping cost to the lowest. The use of AI in logistic is one of the most visible uses around. Technologies such as route optimization and driverless vehicles can be easily accessible to the public soon.

Many last mile delivery companies have invested heavily in AI to help them plan their route. United Parcel Service for example, reply on a program call ORION, On-Road Optimization and Navigation for their last mile delivery services. During its testing phase of 2010 – 2012, it has already managed to save 3 million gallons of fuel. It is projected by end of the 2017 where all vehicles will be fitted with ORION, UPS will save $50 million by just cutting 1 mile from each driver’s daily route.

Driverless vehicles are in their developmental stage and could hit the markets soon. In the US, Ford and Domino’s Pizza are in the testing phase of using driverless cars to deliver pizzas. Users will interact with an interface that comes with the car to retrieve their pizza. With driverless vehicles and route optimization technology, business and consumer can stand to enjoy not just faster and more accurate delivery forecast, but also in the long run, lower delivery overheads. Thereby increasing the customer satisfaction levels and user experience (UX).

Domino's Pizza Driverless Car Prototype

The picture above shows the Domino’s Pizza Driverless Car Prototype. (Extracted from Boudette, 2017)

Procurement Practices

In procurement, AI help power various analytics software to aid procurement practitioners in their daily work. An example would be the use of spend analytics software. Instead of relying on people to help manually sort and tabulate spending data, all data will go through a centralized software where it can give real time trends, spot mistakes and raise flags for any over or underspend items. It helps to save the time and effort to do traditional analysis, prevent costly mistakes, keeps a secure ledger of records and prevent possible fraud.

Another aspect of the use of AI analytics is vendor qualification. Algorithm can be built into a software that instantly screens vendor’s record over the internet. Such as spotting any negative news, track share prices and flag out complaints from another customer base. This would help to prevent managers a more holistic picture of the vendor’s standing and remove any human biases and bribery.

This gives procurement mangers more sufficient time to react and switch vendor source before any issues happens which would otherwise be very time consuming and requires daily attention spend on it.

Customer Service

In 1909 the phase “The customer is always right” was created by Harry Gordon Selfridge, founder of the Selfridge’s department store in London. Since then, businesses have always tried to strive to be a customer orientated model. With the pace of life ever increasing, do does the pace of doing business and satisfying customer. Chatbots are the latest inclusion in the world of customer service. Instead of having a human operator answering your questions, chances are that you would be talking to an AI robot.

For example, in China, an app developed by the China Merchant Bank called WeChat Messenger, is equipped to answer up to 1.5 to 2 million customer conversation per day. A Task which would otherwise require thousands of operators to do so.

The AI is pre-loaded with frequency asked questions and answers that is harvest from data. Using key word recognition, the AI can interpret your question and give you the answers or direct you to the correct source. Not only is the chatbot able to handle the volume and speed, more importantly, they are able to ensure the customer experience is consistent. You will never get an operator who is in a foul mood with a AI chatbot in place.

The Challenge of Job Security and Talent Gap

The most negative sentiments that AI has created is the type and number of jobs that could be made obsolete.

In a research paper originating from Oxford University by Carl Benedikt Frey and Michael A.Osborne in 2013, a study was made on 702 jobs and their likelihood of being made obsolete by computerization. Below is a chart by the business inside online that extracted 18 occupations listed in the research paper and their probability of being made obsolete. In a statement in the research paper, it claims that 47 percent of total US employment is at risk.

Jobs made obsolete by AI in 20 years

The diagram above shows the jobs made obsolete by AI in 20 years. (Extracted from Yarrow, 2014)

With a simple search on google for technologies replacing jobs, one will find no lack of articles available with clear concern with public sentiments on AI displacing human jobs. Ironically, while jobs are being replaced by AI, the talent required to support the growth of the industry is also lacking.

In a report published in July 13, 2017 by Dr. Bernd Welz, executive vice president and chief knowledge officer for Products and Innovation at SAP, he cited a clear talent gap across all digital domains including AI and its crucial supporting functions.

Shortage of digital skills set across all domains

The diagram above shows the shortage of digital skills set across all domains. (Extracted from Welz, 2017)

Institutions and corporations are now playing the catch-up game. Corporations are investing more in their internal training program and partnering with schools to develop courses to cater to this digital industry.

Unless corporations and government is able to pace the implantation of AI and ramp up retraining of workers, in the near term, we might be faced with a situation where the number jobs seekers obsoleted by AI outpace the available jobs in this newly created industry.

The Challenge of Ethical Issue

Lack of emotions are common critics of artificial intelligence. As decisions are based on algorithm programmed by human rather than emotions, it creates certain a grey area of liability when human ethics and lives are involved.

An example would be driverless technologies. In the event of a critical decision to choose the course of action, such as to avoid a pedestrian or the other motorist? Who should be blamed?

Conclusion

In the past 5 years alone, investments, interest and adoption of AI’s growth has been astronomical. Spurred by advancement in areas like smarter algorithms, more powerful GPU, big data growth and cloud services, AI is become more powerful than ever. And it doesn’t stop there.

Global yearly financing history

The diagram above shows the global yearly financing history. (Extracted from CB insights, 2016)

Investments in AI is also growing exponential. More money is being poured into AI technologies and start up more than ever. While there are areas of genuine of concern surrounding AI, we cannot deny the benefits AI has in improving our lives. In fact, we have very likely been benefiting from this new technology.

Instead of being fearful, we should focus on areas on how we can better equip and position ourselves to capitalize on this new opportunity.


References:

Boudette, Neal E. (2017). “There’s a Pizza Delivery in Ford’s Future, by Driverless Car”. Retrieved from https://www.nytimes.com, accessed 9 September 2017.

CB Insights. (2016) “Artificial Intelligence Explodes: New Deal Activity Record For AI Startups”. Retrieved from https://www.cbinsights.com, accessed 9 September 2017.

Frey, C. and Osborne, M. (2017). “The future of employment: How susceptible are jobs to computerisation?”. Technological Forecasting and Social Change, 114: 254-280

Konrad, A. (2013). “Meet ORION, Software That Will Save UPS Millions By Improving Drivers’ Routes”. Retrieved from https://www.forbes.com, accessed 9 September 2017.

Wang, J. (2017). “How Machine Learning Can Improve Supply Chain Efficiency?”. Retrieved from https://www.linkedin.com/pulse, accessed 9 September 2017.

Welz, B. (2017). “Study Finds Little Progress on Digital Skills Gap Despite Growing Awareness”. Retrieved from https://news.sap.com, accessed 9 September 2017.

Yarow, J. (2014). “These Are The Jobs That Will Be Safe From The Imminent Invasion Of Robots”. Retrieved from http://www.businessinsider.com, accessed 9 September 2017.

About the Author: Jason Ng is currently a planner and was previously an Engineer on Reliability and Inspection. He has developed a keen interest on the use of big data and artificial intelligence. He is a qualified member of the Singapore Institute of Purchasing and Materials Management (MSIPMM).

Jason holds a Bachelor of Engineering degree from Nanyang Technological University, and he is completing the course on Graduate Diploma in Supply Chain Management (GDSCM) at SIPMM Academy.

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