AI Disruption in Distribution and Supply Chain

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Artificial Intelligence (AI) is not only changing the way we do business, but also allowing us the ability to commoditize our data: In the changing virtual business landscape, there is a call to adapt and do so rapidly: We’re here to help.

Recently, we at Liberty Advisor Group were asked to provide an evaluation of Distribution and Supply Chain for many current and potential clients: We took a thoughtful approach in understanding the current market space, the needs for change, and the obstacles that our clients have faced, but also that we’ve helped them to overcome: Many of them faced a similar issue: they know their business, but they don’t know how to integrate for change: That’s where we come in.

The Distribution Value Chain and Where It’s Going

*Source: Distribution Value Chain (sans blue and red dashed boxes) – Harvard Business School

What would it focus on if we started an electrical distribution business tomorrow? What does the storefront look like? What does eCommerce look like? What does an organizational hierarchy look like? What do the technical skillsets look like? What are your manufacturers focused on? How are your vendors producing? How are we enhancing price optimization? These are just a few of the questions we ask ourselves when thinking about the next generation.

We aligned these to three themes: 1) Becoming Data focused 2) Automation 3) Customer-centric lens: Currently, the Distribution Lens may perceive the business focus as procurement, sourcing, collections, freight distribution, collections, discounts/rebates: However, their Consumer Lens perceives their business as needing to evolve quickly and aligning more focus on B2C vs B2B and use more of the data available: We believe that to truly get ahead of the business, focusing on the customer, implanting automation to your advantage, and appropriately aggregating the data you have are the keys to success.

Where To Focus the Value Chain

To illustrate our thoughts, we took time to break down aspects of the business to better understand the need for change and where to apply them.

Where to focus The Value Chain

 

How Amazon.com Scales Using AWS – Data, Machine Learning, and AI

Many know how Amazon Web Services (AWS) have changed the distribution and supply chain landscape: As an example of our three themes in implementation, we follow the customer; a Lego fanatic: The Lego fanatic browses the internet and shops on Amazon.com for their desired Lego products: Amazon.com tracks shopping patterns and uses AI to predict if/when the Lego fan will make a product purchase. Amazon.com uses AI prediction models to move products in the supply chain to stage them closer to the buyer to ensure/enable Prime Shipping and a positive customer experience. They then refine the prediction models to begin moving pick bins closer to the warehouse pickers to reduce effort and ensure/enable Prime Shipping. Once the Lego fan purchases the product, Amazon.com uses AI to determine the appropriate packaging container for the Lego product; an example of this could be how collectibles need to be packed in a padded box where regular Lego toys can go into an envelope. Amazon sees the customer, uses their data and automates the business processes.

Technology Trends Driving the Shift

As the market has seen already, there is a continued push toward companies becoming digital and adopting “the Cloud.” The impetus behind this is the following: a renewed focus on digital and the cloud due to current socioeconomic conditions; for example, the pandemic of 2020, the expectations for supply chains and consumers, and the current economy. There is also a desire to use data to unlock additional business opportunities and insights, and cloud migration innovations are removing barriers to overall adoption. Finally, we are now seeing a greater desire to obtain ESG benefits by buying into high ESG benchmarks. A Fortinet study found that 39% of respondents are running at least half of their workload on the cloud and 58% plan to run that much workload in the cloud within the next 12-18 months (Fortinet.com). The benefits of more digitalization are long-term cost savings, technical flexibility, increased velocity to value, and advanced security. Overall, this also sets the foundation for any current and future data and analytics.

Over the last decade, we have seen an increased focus on the use of data, Machine Learning (ML), and AI: More data is being produced than ever before and growing at an exponential rate. In general, business data production is expected to double over the course of the next five years.

There is an increased need to integrate IT into the business model, gain a competitive advantage, unlock insights, and explore new opportunities. A Forbes study revealed that AI implementation in consumer-packaged goods has led to a 20% reduction in forecast errors (Forbes.com): Commoditization of data analytics, ML, and AI processing and tools makes it easier to drive adoption without needing special skills (Ex: Data Scientists, Data Engineers, etc.). Doing so provides the ability to uncover and unlock opportunities through data insights. AI and ML facilitate up-to-date business insights that evolve concurrently with technology improving business scale and production efficiency through automated machine decision-making.

Finally, the need to increase Cyber Security posture is greater than ever: Minimizing threat vectors and vulnerabilities as data and technology advances allow us to protect the enterprise. CheckPoint’s 2022 “Cloud Security Report” found that 27% of organizations have experienced a security incident in their respective cloud infrastructure within the last 12 months. Of these, nearly a quarter was due to security misconfigurations in cloud infrastructure (Checkpoint.com). This comes with an increased drive to utilize cloud managers to continuously monitor data security as well as to integrate IT and security in business strategy. The benefits of this provide continuous monitoring and software patches and reduces the likelihood of massive data breaches.

How Do We Get To that Future Organization?

So how do we get there? We set benchmarks in time: We start by surveying, gathering the necessary data, and charting the strategic paths forward: To do so we define organizational KPIs – and we drive them with data: We identify the “power user” story for customer experience: We mitigate our CapEx to OpEx transformation and move to Cloud-based technology: And finally, we build and develop the future teams who will drive the organization: Five years from now, inventory optimization at brick-and-mortar locations will be based on external environmental factors: There will be more machine-to-machine operationalization by way of automation: We will be more focused on the organizational change and the leadership/resources structuring to achieve this and learn from the needs for change throughout the organization.

Afterward, we establish governance, create detailed plans, then mobilize & execute: We mobilize our resources, enact governance in place, and ensure that we have detailed execution planning & resourcing. We conduct execution for value realization through modernizing IT: Ten years from now, we will see more implementations optimizing Maintenance, Repair, and Operations (Example: SAP Ariba): There will be more decentralized human-based procurement and machine-based pricing, distribution forecasting, and balancing of items: The distribution chain will be highly digital, data focused on trends and analysis for every touchpoint (ordering, shipping, etc.): Distribution Center FTEs will have less overall decision-making and be reduced to human-in-the-loop for processing: All of this demands a technically skilled workforce in forecasting, data, etc.

Summary:

With the right team of experienced professionals, implementing these trends will make your business better: At Liberty Advisor Group, we know there is no one-size-fits-all large-scale Distribution and Supply Chain modernization solution as every business is different: Every business needs to continue to analyze its data, automate where possible, and understand customers: This is the answer to why implementing effective Distribution and Supply Chain modernization solutions are beneficial to you.

Liberty Advisor Group’s Data and Technology Experience

At Liberty Advisor Group, we help our clients unlock the power of data through decades of IT and Data Analytics experience: We are experts in ERP, CRM, and Distribution strategies for complex problem sets and help clients across every industry that presents technology and software challenges.

Let Liberty Advisor Group guide you through the process and identify the best modernization approach for your business.

Fortinet 2021: http://www.fortinet.com/blog/industry-trends/2022-cloud-security-report

Forbes: http://www.forbes.com/sites/louiscolumbus/2020/05/18/10-ways-ai-is-improving-manufacturing-in-2020/?sh=1994bcfd1e85

Check Point’s 2022: http://www.checkpoint.com/cyber-hub/cloud-security/what-is-cloud-security/the-biggest-cloud-security-challenges-in-2022/#:~:text=According%20to%20Check%20Point’s%202022,security%20misconfigurations%20in%20cloud%20infrastructure.

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