Digital Supply Chain
sup･ply chain ar･ti･fi･cial in･tel･li･gence (AI)
uses automation for problem solving, continuous learning, and pattern matching. The key innovation in Supply Chain AI is predictive intelligence which is invaluable in using data to foresee disruptions, forecast demand, inventory planning, and utilize resources more efficiently.
Some companies regularly share future demand with their suppliers. This exchange is pivotal to Just-In-Time (JIT) and Just-In-Sequence (JIS) flexible manufacturing, and the most efficient way to transfer this information is digitally. These companies also reduce Muda (“futility; usefulness; wastefulness”) by minimizing forecast variability which lessens demand side variability – a key contributor to the Bullwhip Effect. This is when actual customer demand is multiplied at each supply chain tier because of demand variability or invisibility. It ripples through the upstream supply chain causing amplification, oscillation, and time lags of the original demand signal. By minimizing Muda, companies can reduce supply chain shock. They ensure uninterrupted production while decreasing Muda in the supply chain.
The Bullwhip Effect
During normal times, most organizations that sell physical products to their customers struggle to avoid running out of and having too much inventory, even when there are no supply chain disruptions, manufacturing challenges, weather related disruptions, quality issues, worker shortages, etc. Manufacturing and distribution companies struggle to establish production targets and inventory replenishment levels respectively because they have no visibility to future customer demand. Things become more complicated when a Black Swan event such as a pandemic is combined with the lack of downstream supply chain visibility. The solution for extreme demand volatility is not building up large safety stocks. Excess inventory ties up working capital, reflects poorly on balance sheets, requires additional storage space, risks product obsolescence, leads to waste, and is not environmentally friendly. The ideal way to manage demand volatility is to improve downstream supply chain visibility. But very few manufacturers outside of the automotive industry have the financial appetite or the desire and technical know-how to share their current inventory levels and future demand with their suppliers digitally (“Digital Supply Chain”).