Artificial Intelligence in Supply Chain Management

Published by MBA Skool Team, Published on December 15, 2017

Taking into consideration how frequently the word is used these days, ‘Artificial Intelligence’ is almost on the verge of becoming a cliché. Perhaps, that can be attributed to just how easy everything has become due to the former. Before proceeding, it’s crucial to understand what Artificial Intelligence actually is. Artificial Intelligence is a branch of computer science that focuses on the development of intelligent machines that work and behave just like humans. Artificial Intelligence can be divided into two categories, augmentation and automation. Augmentation refers to that AI which helps out humans in their day-to-day activities.

Examples of AI in the form of Augmentation are virtual assistants like Siri, Cortana etc., software solutions. Automation is that AI which functions completely on it’s own and does not require any human intervention for performing tasks. Self-driving car is an example of AI in the form of automation. Artificial Intelligence, either in the form of augmentation or automation, has made it’s mark in almost all the functional areas of a business like Human Resources, manufacturing, production and distribution among others.

Image: pixabay


Supply chain is a functional area where the importance of artificial intelligence cannot be undermined. It can be the differentiating factor between two firms competing for the leadership in the market. Following are some of the ways in which Artificial Intelligence will completely change how the game is played in the supply chain:

• AI, by using historical data and trends, will be able to streamline the entire process right from demand for the product to it’s supply. Moreover, this will be done with least human involvement, thereby reducing the cost, increasing the efficiency and saving a lot of time.

• One of the most time-consuming aspects of the supply chain is transportation. However, this can be changed by adopting use AI in transportation. The likes of Tesla and google have already achieved a fair amount of success with their self-driving cars. If this technology can be completely incorporated in the supply chain, it will lead to huge benefits for the firm, especially in terms of increased accuracy, decreased lead times and reduced human and labor costs.

• Supply chain is one functional area which is extensively based on data. Traditionally, supply chains are forced to stick to certain parameters on account of data limitations. But AI would not face this problem. With access to literally infinite sources of information, AI would be able to modify the supply schedule at will after considering the continuously changing conditions like weather, traffic etc. at minimal risk and error.


Artificial Intelligence has already been employed by companies and has resulted in a great success. Siemens, for one, has automated its production lines to such an extent that they can run unsupervised for several weeks. Siemens is also working towards creation of a fully self-organized factory. The aim of this factory is the automatic conversion of orders and demand into work orders, and incorporation into the production process.

Danone (food company) is another company which has benefitted from the use of AI in the supply chain. Danone used analytics coupled with machine-learning capabilities to analyse the demand-planning gains. This helped them reduce their forecast errors by as much as 20% and also reduce 30% in lost sales. The technology giant IBM has come up with Watson Supply Chain with the primary aim of increasing chain visibility and gaining risk insights. The system employs cognitive technology to gather and interpret discreet data from a variety of sources such as media, newsfeeds etc.

The game is not as easy as employing AI in the system and reaping immediate benefits. There are a few points that should be considered in order to ensure that AI can results in the desired benefits:

• The supply chain is completely data-based. More precisely, real- time data. The AI must be integrated in such a manner that it has instant and continuous access to data.

• Moreover, it must be made sure that the data is not restricted solely to the organization. Arrangements must be made so that AI can access data related to the entire industry including the competitors as well. This is because, if the AI is unable to see forward-most demand, the constraints and the costs in the supply chain, the results will be no better than that of a traditional supply chain.

• AI, in the supply chain, can be truly beneficial when it can not only make decisions but also execute them in a timely manner.

• Scalability is another limitation of the traditional supply chain. However, this can be overcome with the use of AI. AI must be able to process tremendous amounts of information at a rapid pace and should be able to make decisions efficiently, and more importantly, on a large scale.


It is crystal clear that Artificial Intelligence is the way forward now. It is now in the hands of the firm to decide whether to embrace AI or to stick with the traditional methods of supply chain management (which are certainly going to become outdated sooner rather than later). However, it must be noted that merely implementing AI in the supply chain is not enough and is in no way a guarantee for success. Just because AI has turned out to be fruitful for one doesn’t necessarily mean that it should have similar results for others. This is because no two firms are same. They differ in a lot of senses such as the kind of competition they face, the kind of processes they employ, the amount of financial and human resources at their disposal, the quality of management, the kind of raw materials used in the production process etc. Before going ahead with implementation of AI in the supply chain, these are some of the key factors, among others, that the firm needs to consider. Moreover, implementation of AI requires a fair amount of investment and it might require the firm to lay-off employees as well. So the firm should work out all these issues beforehand. All in all, if implemented properly, AI has the potential to completely transform the supply chain of a firm, thereby enabling it to increase it’s business manifold.


This article has been authored by Anurag Ajay Gupta from International Management Institute



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