The use of AI in managing supply chains has been increasing. In an article in the Georgetown Journal of International Affairs, authors Maxime Cohen and Christopher Tang, the offer an analysis of how AI can create a resilient supply chain.
Here is an excerpt from the article.
A supply chain becomes more resilient when it can quickly detect and respond to disruptions, thereby minimizing the impact. According to the supply chain risk management literature, three capabilities are necessary to build resilience: (1) detecting a disruption quickly, (2) designing an effective solution in response to the disruption, and (3) deploying the solution swiftly. Traditionally, firms have ensured supply chain resilience by developing advanced systems to enhance detection, setting up proactive contingency plans, and conducting stress tests for rapid deployment. However, AI and Industry 4.0 technologies, such as sensors, blockchains, and data analytics, can amplify these resilience capabilities manyfold.
With the ability to detect abnormal changes in supply and demand, AI tools can help companies evaluate and compare the effectiveness of different response strategies by conducting simulations. These simulations assess the impact of each possible response on demand and supply as well as the recovery time from disruptions. By analyzing the simulated results and examining the effects of different responses on various supply chain partners, a firm can swiftly develop a well-informed strategy in response to a sudden change. Response strategies may involve modifications to product design, adjusting prices, and switching upstream suppliers. In terms of potential use cases, AI could help a government agency design a supply chain for medical countermeasures to defend against bio-attacks. Retail companies could use AI to simulate and predict the impact of implementing rationing policies in retail stores. More broadly, the goal is to evaluate alternative scenarios to ensure resilience against potential unforeseen disturbances and understand how mitigation strategies affect each part of the supply chain.
AI can help firms respond to crises, but importantly, it can also help companies strengthen supply chains before they are strained. AI can recommend changes to a company’s supply chain policies based on a multitude of factors, such as seasonality and macroeconomic trends. For instance, AI can identify the best supply chain configuration, the optimal number of suppliers (and their locations), and the most favorable terms of the supply chain contracts.
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