Date posted: 10/11/2022 8 min read

How AI is transforming supply chain management

In an increasingly fractured global environment, AI-enabled digital supply chain management can be transformational for businesses. Brought to you by Microsoft.

During the first few months of the COVID-19 pandemic, as shoppers began panic buying toilet paper, flour, rice and other essentials, many supermarkets also panicked and instructed their suppliers to ramp up production to meet the seemingly insatiable demand.

The shortages then moved upstream as manufacturers and raw material producers ran out of stock, their own supply chains disrupted by travel restrictions and strict lockdowns, both in Australia and overseas.

The resulting crisis was described by Microsoft’s Mark Weimann in a white paper outlining the unique problems that continued even after suppliers turned the taps back on. Factories were operating 24/7 to produce tons of toilet paper to fill the empty shelves, but, by then, consumers had several months’ worth stacked up in their cupboards so didn’t need any more.

The extraordinary situation highlighted how a sudden supply chain disruption can have significant – and costly - knock on effects, especially if a company doesn’t have a robust supply chain management plan.

And it’s not only global crises like COVID-19 that cause problems, supply chains can also be vulnerable to the kind of mundane issues that occur regularly like weather events, travel delays or new legislation.

Boardroom conversations

In a follow-up paper just about to be published, Weimann, ANZ Microsoft’s senior technical specialist for supply chain management, warns that the situation now is actually even worse.

“There have been other causes of disruption,” he says. “There was the ship that parked sideways in the Suez Canal for seven days, the shortage of truck drivers in the UK and the war in Ukraine. It has brought the supply chain conversation, particularly around resilience, into the boardroom.”

It also exposed inherent weaknesses in perceptions around how supply chains work.

“A supply chain is not so much a chain, but a pipeline. If a chain breaks, you fix it where it broke and immediately it works again. That’s not what happens in supply chains.

“Shops begin to run out as supplies aren’t replenished. Then distributors and manufacturers run out as the pipe slowly empties. And even when manufacturers ramp up production, it takes a long time to fill back up.”

Fortunately for organisations that depend on supply chains, these disruptions have come at a time when there are affordable AI (artificial intelligence) supply chain management solutions.

How do they help join up disparate parts of a supply chain? Consider what we had in the past.

“People used to print spreadsheets for meetings,” Weimann says. “They contained only their own organisation’s historical data, typically held in silos. Data from suppliers was only visible with great delay. Decisions were based on a very limited information set.

“Now it is possible to have a digital twin of an operations, overlaid with real-time data from suppliers and customers. And AI tools will understand its patterns and give recommendations in seconds.”

Essential ingredients of supply chain resilience

For Weimann, successful supply chain management can be boiled down to three ‘V’s.

1. Visibility in real-time across the entire supply chain.

“I’ve been at that point where all I had visibility over was inventory within my company. The technological solution is a control tower offering visibility up and down the supply chain, sharing data with suppliers, warehouses, retailers and customers.”

2. Volatility tamed by technology

“Who could have guessed toilet paper would become the most volatile item? Normally, it’s high-tech, high-value items. AI lets manufacturers, distributors and retailers connect across a single supply chain, enabling real-time, automated recommendations to assist decision making.”

Mark Weimann, MicrosoftPictured: Mark Weimann, Microsoft

“Who could have guessed toilet paper would become the most volatile item? Normally, it’s high-tech, high-value items.”
Mark Weimann, Microsoft

3. Velocity of decision making

“This is about being able to calculate impacts of supply chain shocks in seconds, not days. That enables excellent decisions to be made just as quickly, creating immediate value.”

A competitive advantage

Several leading businesses are already enjoying tangible benefits with technology powered by Microsoft’s Dynamics 365 Supply Chain Solutions giving them an edge over rivals.

One example is JB Hi-Fi, who had to deliver flexible fulfilment to become an e-commerce leader. This involved developing an agile, localised warehousing system with a management platform that boasted intelligent services, real-time visibility for all stakeholders, better and faster fulfilment and customer service capabilities and, through numerous customer touchpoints, a new level of customer engagement.

Digital boosts sustainability

Importantly, technology is also beginning to enable a circular economy.

“Organisations have traditionally thought of supply chain as a one-way flow,” says Eugene Lee, GTM lead for Supply Chain & Commerce at Microsoft ANZ. “But what if the bottom of the pipe then returns back to the top? How do we build sustainability by reusing and recycling? There’s always been a lot of thought about how we get the product to the customer. But now companies are exploring how we get the product back from the customer to create incremental value.”

Microsoft has begun closing that loop within its data centres by recycling a large chunk of its tech waste, particularly end-of-life hardware. The program has so far reduced carbon emissions by 145,000 metric tons, and it’s only just getting started.

“In industry, this circular economy idea is not yet at an advanced stage and universally adopted,” Lee says. “But it’s something that’s beginning to shift dramatically thanks to pressures from corporate social responsibility expectations.”

Building sustainability as a core imperative in supply chain operations across all tiers of suppliers and manufacturers enables both upstream and downstream efficiencies beyond just environmental and social factors. By building the core to optimise an organisation’s ESG footprint, impact can be felt across the value chain, directly reducing costs and driving value creation.

Find out more:

For powerful insight into digital twin supply chain management, watch the Create Agile and Digital Supply Chains with Dynamics 365 webinar, with Amanda Hillman, Microsoft’s principal of product strategy, and Ali Aksut, director of worldwide sales.

To learn more, read Mark Weimann’s Seven Principles of Effective Supply Chain Management whitepaper