Sector News

Why AI-Managed supply chains have fallen short and how to fix them

October 2, 2022
Sustainability

The root cause of the problem lies not with technology but with how and where companies are applying it.

Why hasn’t artificial intelligence fully transformed supply chains? Several years ago, some of us predicted that AI-powered automation would lead to “the death of supply chain management.” We saw the potential to turn supply chains into self-regulating utilities that optimally manage end-to-end workflows with little human intervention. However, despite heavy investments, companies have not realized the vision of AI-managed supply chains.

A recent study by BCG and Aera Technology sought to pinpoint the source of companies’ struggles to maximize value from AI in supply chains. We found that the root cause lies not with technology but with how and where companies are applying it. Most still focus on using AI for analytics and prediction—for example, to forecast demand and plan production. Companies have not pursued the more valuable application of using AI to make recurring decisions by recognizing patterns in big data that humans cannot see.

To unlock the full potential, companies need to deploy an AI-powered learning system that is integrated across functions. This system makes decisions based on enterprise-wide and external data and continuously learns from the outcomes to improve performance. Analytical engines automate decision making instead of just providing insights to practitioners, who must retain the burden of making decisions. Success requires fostering people’s trust in AI and introducing a new operating model, among other enablers. Companies that make the right investments will increase their resilience to market volatility and talent scarcity and achieve higher sustained performance.

Fundamental Problems Persist
BCG’s analysis of supply chain KPIs from 2011 through 2020 reveals insufficient progress in addressing fundamental supply chain problems. (See Exhibit 1.) During that period, delivery performance declined independently of inventory and staffing levels. Even when companies boosted inventory and staffing levels at the onset of COVID-19, they still could not prevent a steep decline in service. READ MORE

By Pepe Rodriguez, Stefan Gstettner, Ashish Pathak, Ram Krishnan, and Michael Spaeth

Source: bcg.com

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