Companies today are faced with upward pricing pressure from multiple fronts. In addition to continuing disruption and labor shortages, inflation is a crucial driver affecting almost every decision.

Perhaps nowhere is the impact felt more painfully than in inventory management, where inventory inaccuracies can result in significant loss.

As companies work to digitize their operations so they can leverage data better to make critical decisions, it becomes clear that a digital supply chain is a necessity for better inventory optimization. What may be less clear for these manufacturers is understanding where AI might fit in.

The Benefits of a Digitized Supply Chain

To gain better control over inventory, managers must have control of the entire demand cycle and supply chain. This requires end-to-end visibility across the entire ecosystem. And the only way to achieve that is through digitization.

Benefits of a digital supply chain include:

1. Automated Processes – A computerized supply chain system eliminates manual data and its inherent bias and error-prone tendencies. Data is shared across unsiloed functional areas and analyzed and distributed in real time. This removes phone calls, emails, and other impediments to information flow.
2. Improved Demand and Supply Planning – With a digital platform, the availability of real-time and accurate information allows for sharper demand plans and lean supply plans that reduce holding costs and remove the dangers of overstock or shortage. Planning is more agile. It also features advanced “what-if” contingency tools that help companies plan for disruption and act quickly when it occurs.
3. End-to-End Supply Chain Visibility – Traditional bullwhip and caterpillar effects are removed in a digital supply chain. Complete visibility allows quick intervention to prevent issues or significantly reduce the effects when disruption or demand spikes occur.
4. Advanced Analytics – Advanced analytics is already used in production, maintenance, and many other areas. Companies can leverage predictive analytics and trend analysis within the inventory and the entire supply chain using a smart manufacturing platform and demand and supply software from Plex.

Using AI for Inventory Optimization

With unprecedented inflationary pressures, inventory optimization isn’t just about cost. It’s about accurately predicting, handling, and dispersing the proper inventory when and where needed to meet demand.

Because they balance a wide range of KPIs, statistics, requests, and transactions, automated inventory systems make economic sense. However, the case for taking this one step further in inventory optimization with AI is compelling.

AI inventory optimization has several requirements. First, it must manage many variables, like weighing not only forecasted accuracy but the variability of materials lead time, MOQs, and constraints such as capacity.

Inventory optimization with AI can also assist with simple tasks like FIFO in a perpetual inventory system and more complex cases like expiration, regulation, and compliance.

AI in inventory optimization can be used for:

• Predicting Inventory Levels – Advanced analytics within smart manufacturing platforms lets AI models predict inventory based on data from multiple inputs that human analysis may miss.
• Predicting Demand – Because AI inventory optimization would by necessity be tied into a company smart manufacturing platform, it can also assess data to help predict demand, considering nuances like regional events and differences, or weather trends that human analysis may not consider.
• Sophisticated Inventory Management Techniques – One example is ABC analysis. While this method has existed for many years, an AI with access to all data can better predict and categorize which products make the most sense and profit. This allows company leaders to target specific markets and optimize their product lines and number of SKUs (and corresponding need for raw materials) during shortages or constraints.

The Future of AI in Inventory Optimization

The use of AI in inventory optimization is still evolving. However, it is a growing part of an overall trend toward digitization of business processes. There are still concerns over data security as the reach of AI expands. And contrary to many assumptions, AI models must be trained to reduce the risk of concept bias or error.

But overall, the predictive benefits of deploying AI in inventory applications outweigh the risks in light of continuing inflationary pressure, global disruption, and rapidly evolving consumer tastes.

You can consider whether AI makes sense by beginning your journey and using smart manufacturing software from Plex Systems. Inventory optimization, supply and demand planning, and other advanced systems are available to get you started so that when the time and opportunity to consider AI arrives, you’ll have a solid digital foundation under your feet.

Read more about the importance of inventory accuracy and inventory forecasting.