The World is Unstable: Get Used to It!

The emergence of AI is going to change how we work, how we plan, and how we manage supply chains.  But one thing it will not do – is eliminate uncertainty.

I recently spoke to Richard Widdowson, Vice President of Global Retail and Consumer Goods Solutions for SAS, who made some very interesting observations. “We hear it everywhere, and say it to one another on a daily basis.  Let’s come to the realization, after having an honest and hard look – that these supply chain challenges are not going to go away.”

This is something that a lot of people are not acknowledging.  The reality is that even though we are in the post-COVID era, we will be living in this world of instability for another five to ten years.  Consider the following:

• The conflict in the Ukraine shows no sign of slowing down
• The Middle East is in turmoil. Hamas and Israel will be in conflict for years to come, and the Red Sea Houthi attacks funded by Iran will continue for some time.
• The presidential election in the US in November – whichever way it goes, will not be able to change this picture overnight.
• Left wing governments in Latin America are refusing to honor the fair election process, causing more economic turmoil

In this environment, these problems will not resolve themselves overnight.  They are not going to go away.  Although it is cool to hear about all of the new technology… the fundamentals of supply chain management are still a challenge. As Richard noted: “The ability to plan and to have visibility to what you have in inventory remains essential. When you peel all the technology back – the fact is that many managers will admit that ‘we don’t know what we have and where it is – and we don’t know accurately what we will need in the coming year.'” 

For too long, companies have relied on historical demand as the basis for forecasts.  Your plan for next year is to take what happened last year, make a few tweaks based on what you guess might happen, and there you have your forecast.  But this isn’t working anymore.  You can’t use that historical pattern anymore.  Everything is so different – It changes all the time, and the volatility and direction of change is impossible to predict.

The other element that is fundamental to supply chains, and which is critical to survive the volatility ahead – is the ability to integrate planning with our key supply chain partners.  Ask yourself the question:  if you and your partner were both a single company – what woujld you do differently?  How would you share information?  How would you structure your supply chain design?  How could you become more efficient?

In the current environment, if you could move the needle even 1% to have improved availability from your supplier – that would equate to millions of dollars.    This is the only way to increase margins in this environment.

Some of the questions that arise in this context include the following:

• How do you create the safe space to get buyers, sellers, transport providers, and retailers to have a dialogue on how to achieve this capability?
• How can all parties make money, and not risk their competitive nature, by coming together to solve this problem?
• What is the role of humanitarian and healthcare logistics in the years ahead?  How do governments create the ability to shift resources, move assets to different regions, plan for resources such as fuel and electricity, move doctors and nurses to impacted areas, and ensuring medicines are available when trauma strikes.

The problem is also around data.  Big retailers such as Walmart, Target, and others are happy to provide access to your sales data.  But their attitude is to provide a massive one-way data dump – and then ask, “Why aren’t you improving your results?”  Many suppliers do not have the analytical tools to take this data, identify the hidden patterns that lurk in the data, and make improved decisions on risk, availability, inventory positioning, and so many other variables.

In today’s environment, if you have 100 SKUs in 1000 stores, and that data is coming in every day, you are overwhelmed with the volume of that data.  So much of it is lost, as the rush to respond to emergencies doesn’t allow the time to sit back, analyze, think about the patterns, and improve efficiency.

The other problem is that as consumers move to online shopping, they are relying on individuals to go out to the shelves and shop the products for them.  But if the product is in the building, but it’s not on the shelf – the associate will not pick the product – resulting in a mis-pick!  But so often, a mis-pick is not registered in the system!  As a supplier, how do you tackle this problem that your product is not being sold to the consumer even when it is in stock.  The data dump does not capture these events, unless you go to the store and see for yourself.

AI holds the possibility of helping with these issues.  What you can expect soon – is that your preferences will be captured and used for your benefit.  Say you are having a football party for 12 guests in the afternoon.  You go to the Walmart site, type in your request “Football party for 12 on XX date” – and the system will generate a pick list and have the products ready for you that morning when you come to pick it up.  It will also substitute products which are not on the shelf.  And as suppliers – the challenge will be “How do I become part of that basket?”  What are the tags I need to include with my product that the AI engine will capture?  How do I make sure the algorithm picks me?

This is a whole new level of complexity in the supply chain.  Using seven years of historical data won’t cut it anymore.