As your supply chain expands, the challenges of increased lost sales and ballooning holding costs can quickly become overwhelming, unless you find a smarter way to manage things.
Warning: the following article contains images of spiderwebs. Not spiders. Just their webs.
Effective supply chain management seems fairly straight forward if you're only carrying a small number of products, sourced from a handful of suppliers and only sold through a few outlets. If things are running smoothly, the thought of adding a few extra SKUs, suppliers or retail outlets doesn't seem too daunting – but you can quickly run into trouble.
Running a lean, efficient supply chain requires thinking ahead to ensure just the right amount of each product is available at each outlet. The basic idea is to minimise stockouts, without tying up too much cash in holding stock (click here for our intro to replenishment if you're new to the game)
Once your linear supply "chain" becomes more complex, it begins to look more like a supply "web" – known as a "multi-echelon" supply chain. From here, even slight expansion sees your supply chain management challenges grow exponentially. Increasing your range of products by 10 per cent, or opening 10 per cent more retail outlets, increases your workload and challenges by far more than 10 per cent.
A multi-echelon supply chain also amplifies issues with fluctuating stockouts and oversupply. The scramble to compensate creates a bullwhip effect which causes bigger and bigger waves back along the supply chain. These waves quickly swamp your business.
The traditional way to meet this challenge is to create safety buffers at each point of the supply chain. This is a valid approach, but must be seen as a very myopic view, as it fails to look across the business and fails to look forward. Stockouts might be kept to a minimum, but at great expense when it comes to holding vast amounts of safety stock.
As complexity increases, optimisation becomes an incredibly challenging mathematical problem. All the while, the business is accelerating towards a tipping point where it becomes completely overwhelmed.
The upside?
Multi-echelon supply chain management is the kind of challenge on which AI thrives, by taking a holistic look at an entire supply chain. It is outcomes-based – focused on meeting business goals rather than merely applying a complex set of rules.
Regardless of the complexity of your supply chain, AI considers the status of every location, supply level and stock order. It weighs up every possible outcome and runs simulations to understand the wider impact of each decision.
Unlike traditional supply chain management processes, AI doesn't need to make a significant trade-off when it comes to stockouts versus excess stock. As a result, Remi AI’s clients typically see a 10 and 20 per cent reduction in both lost sales and holding costs.
Remember, AI isn't out to replace people. Instead, it's there to handle the basic decision-making so your people can focus on more important issues (you can read more about decision overload here).
That said, when handing over SKUs to AI-based automated replenishment, it is important to ensure AI is making those decisions all the way along the supply chain. It needs to make decisions based on contextual data points across the rest of the network.
AI should also oversee internal transfers, allowing it to recommend balancing stock between outlets – outside the normal route through the supply chain – in order to meet exceptional demand.
The exponential growth in multi-echelon supply chain complexity means that even slow and steady growth can overwhelm a business before you even know what hit you. That's why it's important to think about these challenges before the day your supply chain is completely swamped.
Want to know more about inventory management and replenishment? Head here to find out how AI can help you avoid stock-outs, or here to learn all about the things you need to consider before implementing AI. You can also see our platform in action via our case studies - including how we helped a wholesale distributor reduce stock-outs by 24%.Once you’ve had your fill of content from our blog, why not drop us a line here.