Key Applications

for AI in the
Supply Chain
Who We Are
AltaML is a leading North American applied AI company. With offices
across Canada, our mission is to elevate human and business potential
through ethical applied AI. To do this, we build AI Products that solve
industry problems in partnership with industry organizations. We also
deliver custom AI Solutions with a focus on the following industries:
Healthcare, Power and Utilities, Financial Services, Energy and Natural
Resources, Supply Chain, Public Sector, Insurance and Agriculture and
Forestry. To date AltaML has served more than 80 customers with more
than 300 unique AI projects delivered.

Learn more at AltaML.com/learn

Contents

01 Introduction »

02 Artificial Intelligence in Supply

Chain and Logistics »

03 The Power of Predictability and

Resilience »

04 How Machine Learning Differs

from Predictive Analytics »

05 Benefits of AI in Supply Chain

Management »

06 Optimizing Key Supply Chain

Functions with AI »

07 AltaML Case Studies »

» Reducing Forecasting Errors to Right-

Size Supply

» Demand and Visibility

08 Conclusion »
 PART 01

Introduction

In the past two years we have witnessed a seismic

push by companies across the globe to digitally
transform their organizations.

According to a 2021 IDG Digital Business Study,

91% of organizations have adopted or have plans
to adopt a “digital first” business strategy.

Often we associate digital transformation efforts with IT. Indeed, 97%

of IT directors surveyed in 2021 confirmed that their organizations went
through digital transformation efforts. As a result of these accelerated
transformational efforts and the dramatic change in consumer shopping
behavior, we saw global commerce burst to $26.7 trillion in 2020. That
dramatic swing towards digital commerce has inflicted great stress
on logistics environments. The corresponding supply chain issues that
plagued the economy through the COVID-19 pandemic show that digital
transformation efforts can’t be restricted to how we purchase goods. It
must also involve how we deliver them.

Thus it should come as no surprise that 57%

of companies now believe that supply chain
management gives them a competitive edge that
enables their organizations to further develop
their business.

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 This realization that companies must advance their supply chain
management systems is exemplified by an IDC report which showed that
42% of businesses are driving a digital transformation within their supply
chains. With the growing complexity of elongated supply chains coupled
with growing consumer expectations shrinking delivery windows, it is
clear that companies can no longer rely on legacy management systems
that are overly dependent on human intervention.

It is time to integrate AI and machine learning into supply chains.

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 PART 02

Artificial Intelligence in
Supply Chain and Logistics

AI and machine-driven systems are ideal for

logistics management.

They have already proved their worth in gaining visibility and insights into
complex structures of vast scale within other industries.

Supply chains now traverse the globe, consisting of interconnections

and interdependencies that make them highly vulnerable. A change in
one element of the chain can quickly generate domino effects that may
disrupt the entire chain.

Because of this interconnectedness, supply chain resiliency is a core

attribute required as we go forward. It is driven by scenario planning
to understand, in real time, how a change in one element cascades
throughout the value chain.

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 The estimated annual cost of global supply chain
disruptions was $184 million per company on a
global basis in 2020, $228 million for U.S. companies

According to a McKinsey & Company Report, chain disruptions cost the

average company an estimated 45% of one year’s profits over the course
of a decade. The integration of automated intelligent systems that can
consume and analyze mammoth amounts of data drawn from multiple
sensory data points can not only help avoid costly disruptions and delays,
but streamline workloads to further reduce lead times and reduce costs.

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 PART 03

The Power of Predictability

and Resilience

Everyone appreciates a predictable outcome.

Predictability generates anticipation, which induces preparedness,

which further ensures the desired result. The ability to accurately predict
inventories, shipping delays and industry trends can undoubtedly provide
strategic and competitive advantages to a business. Future predictability is
also a means of mitigating risk. Regarding the supply chain, predictability
can be synonymous with trust and resiliency. Drivers trust that the gas
station will be resupplied as it has in the past. Many online shoppers
consistently choose Amazon because of the trust they have that their
packages will arrive within 48 hours.

In other words, companies tend to be deeply invested in maintaining and

improving the predictability of their supply chains. One of the traditional
methods that companies have relied on for forecasting is predictive
analytics.

Predictive analytics uses historical and current

data along with statistical algorithms to predict
future trends and human behavior.

For instance, insurance companies rely on historical data to calculate that

young males under the age of 25 that have a speeding ticket have a much
greater risk of being in an accident. A stock trader may sell a stock based
on its historical chart behavior and past performance.

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 While predictive analytics has made significant strides
in enabling decision makers to make anticipatory
forecasts, there are limitations to predictive analytics.

Its forecasting ability is only as good as the acquired data. It also relies on
human interaction to query the involved data and is dependent on human
understanding to interpret it, which has its natural human limitations.
Predictive analytics also may not account for unknown variables and is
restricted by the confines of the stated algorithm.

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 PART 04

How Machine Learning Differs

from Predictive Analytics

AI and machine learning are taking the art of

forecasting to new heights.

Analytics are used for traditional inventory forecasting, making use

off-the-shelf analytical tools like Excel, a rules-based approach. While
predictive analytics is a statistical process, machine learning is a
computational one.

Take, for example, ordering supplies for a repair job. Standard forecasting
for inventory and service order planning is driven by static algorithms that
use historical data averages (such as lead times and parts used for a repair
work order) to plan the work orders.

Machine learning learns what parts are often

required for a specific job, assesses current
external data sources to accurately predict lead
times, and will drive the reprioritization of work
order schedules based on criticality, labor and
material availability.

As an example, AltaML reduced lead time variability by 80% for a client,

allowing for proactive communication with customers in providing accurate
estimates when orders will arrive. The ability to accurately predict and
recommend service order materials improves the allocation of labor and
job planning and reduces downtime caused by product delays, which
leads to significant cost savings. Furthermore, this tool would help make
employees more efficient by reducing work hours spent on time consuming
and menial tasks.

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 AI is completely autonomous and does not rely
on on-going human interaction. This gives it the
ability to analyze data and make predictions at a
speed and scale that goes far beyond the capability
of humans; changing it from merely “forecasting”
to the more nuanced “demand sensing.”

Its ability to consume limitless amounts of data helps to increase its

accuracy. AI can draw information in continuous fashion from multiple data
sets, then test and retest that data to discover every conceivable outcome,
if necessary.

As its name implies, machine learning is capable

of learning on its own, allowing it to become
progressively more accurate without being
reprogrammed to do so.

Whereas commonly used statistical models provide a static result that

requires human intervention to update, ML allows for the models to
continually improve, reducing variability from all the inputs. Rather
than depending on the assumptions of the past, it can create its own
assumptions without being instructed how to extrapolate the data.
Instead of being confined to a structured algorithm, ML algorithms can
evolve, and thus improve over time.

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 PART 05

Benefits of AI in Supply Chain

Management

One of the primary reasons for companies to

vigilantly pursue digital transformations is to
attain greater visibility and agility for their
organizations.

This enables their businesses to react to dynamic environments, disruptive

events and ever-shrinking product cycles. Establishing this visibility and
agility throughout your supply chain network can vastly increase the
responsiveness of your logistic environment in both strategic ways and in
more specific, tactical ways.

Additionally, AI and ML are being utilized

by taking data inputs from your network
and using those inputs to improve your
organization's ability to improve the safety of
workers and the health of our planet.

By using computer vision models to quickly identify safety issues within

a production facility or monitoring and managing emissions output, AI
and ML are driving value within your operations environment and for the
greater ecosystem you are a part of.

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 Some of the other benefits of an AI-driven supply chain management
system include the following:

More Informed Decision-Making

An air traffic controller requires constant information to get a read on the
changing dynamics of the airfield to make the right decisions. In the same
way, automated management systems need access to huge amounts of
data in order to gain the necessary visibility of their logistic environments
and improve their decision-making. The ability of AI to process such
vast amounts of information quickly and find hidden data correlations
far exceeds the capabilities of legacy manually dependent systems.
McKinsey estimates that the use of AI and ML among early adopters to
support better decision-making concerning supply chain management had
improved logistics costs by 15%, and inventory levels by 35%.

Greater Visibility
Visibility within the supply chain is essential. A recent survey revealed
that 83% of supply chain executives believe a lack of end-to-end visibility
within their organizations was a barrier to growth. Supply chain visibility
today entails the ability to track a widget as it makes its way from the
factory to the assembly plant, wholesale distributor and retailer or
customer. It also includes all the individual components of that widget
as well as its sub-assemblies. That’s a tall order, which is why Gartner
predicts that 50% of global product-centric enterprises will have invested
in real-time transportation visibility platforms. These platforms will
involve fleets of IoT devices, producing sensory data that can improve the
transparency of a component’s route through the supply chain network.

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 Actionable Insights Through Digital
Twins
Responsiveness and visibility depend on the ability to act on actionable
insights and respond to even the most subtle event. Using AI and ML
models on a digital twin platform, AltaML can provide the ability to
scenario-plan the impact of real-time and proposed events in either
specific components of an organization’s network or operations across the
entire value chain. If a pump goes down on the production floor, or there is
the need to reallocate capacity to a different manufacturing line, or cargo
gets stuck in a port, having the visibility to plan is key. Artificial intelligence
and machine learning provide the ability to change the variables using real
time data and see the impact across the network, giving the opportunity to
scenario plan the critical components across the network.

Overall, better visibility and planning drives cost savings, mitigates risks,
and improves customer relationships. By leveraging AI-based solutions,
companies can implement automated systems that can rapidly analyze
troves of actionable data to aid in this kind of decision-making.

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 Improved ESG Score
Environmental, social, and governance (ESG) concerns are a priority across
industries. According to the Global Sustainable Investment Alliance
2020 trends report, global sustainable development investments topped
$35.3 trillion. As awareness of these factors grows and investors require
ESG to be part of a company’s strategy, organizations must look for ways
to improve where they can. According to McKinsey, this growth has been
“driven by heightened social, governmental, and consumer attention
on the broader impact of corporations, as well as by the investors and
executives who realize that a strong ESG proposition can safeguard a
company’s long-term success.”

AI-driven supply chain management is a powerful tool to employ to aid

in meeting ESG goals. Simply put, supply chains control the spend of
organizations and are consulted in the selection of suppliers. For example,
by using Natural Language Processing (NLP), a type of machine learning,
organizations can review contracts quickly to identify terms and clauses
that impact your ESG score, such as confirming suppliers contracts adhere
to recent environmental legislation changes. This means procurement
and contract professionals have massive influence as drivers on their
organizations’ ESG score, specifically due to supply selection, impacting
the top and bottom line.

Improved Safety
In 2020, the US Bureau of Labor Statistics reported 4764 workplace
fatalities and 2.7 million injuries and illnesses in private business. The
National Safety Council puts the cost of these incidents at a hefty $170
billion in 2019, including wage and productivity losses plus medical and
administrative costs. That doesn’t even include the reputational impact,
which can be costly in ways that are less easy to quantify. AI machine
learning can identify risk patterns that jeopardize the health of warehouse
and delivery workers, ensuring compliance and a safer health environment
that also reduces costs. The integration of computer vision, intelligent
robots and sensors can monitor and identify potential risks, thereby
reducing the need for personnel in risk-prone environments.

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 PART 06

Optimizing Key Supply Chain

Functions with AI

The end goal of AI-driven managed systems is to

optimize and mitigate risks across all areas of the
supply chain.

A recent study showed that 79% of companies with high-performing

supply chains achieve revenue growth greater than the average industry.
Supply chain is no longer viewed as a backend operational function and
the narrative is changing in regards to how supply chain can increase
revenue. This shift is expanding the use of AI and ML in logistical
environments to improve spend analytics, in customer and product
segmentation, for category management, and risk management.

Some of the primary SCM functions that AI can optimize include:

Contract Management
AI and ML models can both increase the efficiency of contract reviews
while mitigating risks throughout the contract management lifecycle.
AltaML has developed models using Natural Language Processing (NLP)
to expedite the review of contracts. In addition to ESG applications
identified above, NLP will identify opposing terms and conditions as
well as highlighting key risk areas for consideration at the start of the
contract review cycle. As the contract moves through the lifecycle from
managing to closeout, ML models can predict which suppliers will not
meet their contractual obligations, such as service level agreements, and
automatically identify pricing discrepancies. Take for example a large
services contract for a construction company. ML models can quickly assess
if the invoices match the contract terms and conditions, progress updates,
and labor reports to allow operations and finance to manage by exception.

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 Supplier Performance Management
Aligned with reviewing contracts throughout the lifecycle to predict areas
of concern, ML and AI are being implemented to proactively manage
suppliers. Most organizations measure supplier performance on a quarterly
or annual basis using historical data such as lead times, percentage of
service level agreement targets met, and quality control. ML and AI tools
can be embedded in this process to review real time trends of these
inputs, identify potential geopolitical challenges that may impact delivery
and predict when intervening on a supplier proactively could reduce
operational risk (e.g., non-payment, availability of goods). AI models can
then further identify what the trends are for supplier relationship managers
to identify and mitigate challenges ahead of their occurrence.

Proactive Inventory Planning and

Management
The elongated supply chains of today are open to so many variables,
making manual dependent management systems challenging and time
consuming. Factors ranging from the vast amounts of data (from both
internal and external sources) to determine what inventory is needed, to the
disparate organizational structures across global industries make inventory
management a complex web that can be difficult to decipher.

Supply chain forecasting efforts of the past have relied on historical sales
to estimate future demand. Another way to describe this process is “best
guess” forecasting. AI-driven systems sever the dependency on the past,
extrapolating and unifying internal and external data drawn from within and
outside of the organization in real time using demand sensing rather than old
school predictive analytics. Besides macro forecasting, insightful correlative
data from this kind of demand sensing allows for granular forecasting by
departmental managers. For instance, AI can be leveraged to predict demand
using sentiment analysis so the inventory is proactively redeployed closer
to the customers’ location within the network. ML can also recommend
stocking levels and reorder points at the SKU level for a specific location that
automatically update using internal and external sources on the frequency
your organization determines. Processes are simplified when they are
automated. Supply chain management is no different.

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 Improved Logistics
By identifying and eliminating potential or real-time bottlenecks, delays can
be avoided, reducing costs and reputational damage that deferred deliveries
create. Whether it is to scenario plan for the future or react to impacts on
the transportation infrastructure such as natural disasters, AI systems
can identify faster alternative routes (known as “route optimization”) and
consolidate workloads when applicable. In addition to route optimization,
AI can be used for mode selection and logistics cost analysis by scenario
planning the movement of assets throughout your network.

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 PART 07

AltaML Case Studies

Now that we’ve covered the positive impact

that AI and ML systems can have on supply chain
management, let’s look at some of the work AltaML
has done in this area.

C A SE STUDY

AltaML Case Study: Reducing Forecasting Errors

to Right-Size Supply

This case study involved an independent distributor of industrial supplies. Due to

the low margins present within this industry, the company is constantly seeking
ways to eliminate waste and reduce costs. Because their market is so competitive,
any gain in operating efficiency, no matter how small, can create significant
competitive advantages. A major challenge for this distributor is the breadth of
industries they serve, requiring them to carry a wide variety of products — over
95,000 SKUs — with limited warehouse space . As a result, the company was
plagued with stockouts that would prevent them from fulfilling orders, as well as
excessive carrying costs from storing too much of the wrong inventory. They also
faced the constant risk of dead stock obsolete items that had to often be written off.

The objective was to improve the company’s forecasting ability to properly

allocate future supplies.

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 The company had relied on a rules-based enterprise resource planning (ERP)
system for its inventory demand forecasts. A machine learning solution model
was introduced to predict the demand for a group of items more accurately for
the upcoming month. The initial model yielded greater forecast accuracy that
would allow the company to right size their supplies with actual client demand
and reduce the inventory footprint in their warehouses. A pilot project was then
conducted for several months to validate the performance of the model with
current data.

After implementing the final project, the company was able to reduce their amount
of forecasting errors by between 10-20% when compared to the former ERP
system. This not only improved margins, but reduced the company’s required
working capital. The AI driven solution was also able to identify underlying
patterns, insights, and anomalies that the ERP system had failed to recognize,
allowing the company to further optimize the company’s operational performance.

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 C A SE STUDY

AltaML Case Study: Demand and Visibility

Here we had a large energy company that did not have full visibility on their spend.
The company’s platform, SAP, gives them the ability to complete detailed spend
analytics on the items and services procured using their transactional item and
service master data. The problem stemmed from the fact that there was significant
maverick spend in purchased goods and services that are not procured off an item
or service master, but more haphazardly, using free-text. Determining the spend in
a specific category was made difficult because of all the free-text items.

The use of free text became a real disadvantage when it came to category
management, spend consolidation, budgeting and forecasting. The free text items
couldn’t be consolidated into a category. Without knowing what the spend was
in a given category, the company was unable to effectively leverage their buying
power. This handicapped their ability to negotiate new contracts to attain pricing
considerations and improved terms.

The objective here was to extract the text from these various unstructured
fields, classify the material into the appropriate category and provide a
consistent structure so that the company had visibility into the total demand for
a given category of material.

Prior efforts to achieve this were reliant

on SMEs, which is costly and extremely
difficult to scale. Thanks to ML however,
the new AI driven solution could
effectively handle 1.5 million rows
of PO line items with ease. With the
new automated solution, the company
expects to save $10-$15 million a year
in material spend in one category.

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 PART 08

Conclusion
Thanks to the digitally connected world we reside and operate in, delivery
windows are rapidly compressing as order fulfillment expectations
continue to rise. What’s more, changing consumer trends have elongated
the typical supply chains and global commerce has resulted in complex
supply networks. Because of that, the need for visibility and data driven
decision making to ensure greater efficiency now exceeds the capabilities
of legacy solutions that rely on human intervention.

That’s why optimizing your supply chains and logistics can serve as a
power differentiator and be a competitive advantage for your company.

The future of supply chain management is clearly contingent on AI and

ML intelligent-driven solutions that can identify potential disruptions and
inventory issues that can lead to bottlenecks and stockouts. At AltaML, we
specialize in supply chain optimization. Our team of subject matter experts,
expertise and proven solution suite can help future-proof your supply chain
networks and achieve your logistical benchmarks and business objectives.

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 For more information
about AI in the Supply Chain,
reach out to our team:

Celia Wanderley Jil Macdonald Rick Makos Brent Willett

Chief Customer Officer Vice President, BD Regional Director, Regional Director, North
& Managing Director North America East America West and Supply
celia@altaml.com
Calgary rick.makos@altaml.com Chain Leader
jil@altaml.com brent.willett@altaml.com

Contributor:

Brent Willett
Regional Director, North
America West and Supply
Chain Leader
brent.willett@altaml.com

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