Mitigating Supply-Side Service Risks with AI

In September 2021, we asked members of our Indago supply chain research community — who are all supply chain and logistics executives from manufacturing, retail, and distribution companies – “Is your company becoming more supply driven?” A majority of the respondents (58%) said that they had become more supply driven in response to current market challenges. We’re also seeing a shift from “forecasting” to “sensing.” What is the difference between the two? What does supply sensing mean, and what benefits can companies achieve by enabling it? Those are some of the questions I discussed with Mehmet Demirci, SVP of Global Solutions at e2open, in a recent episode of Talking Logistics

Forecasting vs. Sensing

Since many of our readers may not be familiar with the concept of supply sensing, I began our discussion by asking Mehmet to differentiate it from supply forecasting and why it is an important practice for today.

Mehmet notes that supply forecasting is still an important supply chain function that feeds many operational processes such as S&OP, financial planning, inventory management, and many others. He explains that forecasting tries to predict future needs by analyzing historical patterns. “It’s a little more aggregate and longer term, typically six months to a year. Even companies that are demand driven have to have some form of forecasting in the background.”

Mehmet also points out that forecasts are often wrong as wild swings in supply and demand, as we experienced the past couple of years, play havoc with historical forecasts. “The realities at the time when plans are actually executed are different than when they were forecasted,” he says. “Forecasting helps align resources to what the future might look like so you’re not walking blind and it helps midterm sales and operations plans, for example, so people are looking at one plan to guide the company forward.

“Sensing [using real-time signals and AI technology] automatically fine-tunes that plan at a very granular level and ties it closer to execution. With sensing, you get some proactive warning and automatic adjustments to make the plan work and understand if you need to prioritize something.”

What is Supply Sensing?

So, what exactly is supply sensing? Mehmet comments that supply sensing is an answer to the current environment where supply problems lead companies to ask not just what is in demand, but what they can actually supply to their customers. It’s a key factor executives now must deal with. 

In fact, Mehmet notes that last year for the first time in e2open’s annual Forecasting and Inventory Benchmark Study, customer service metrics actually went down. “That puts brand loyalty and customer experience at risk,” he says. 

Mehmet explains that while supply planning is important, it assumes everything will go according to plan. But in reality, a thousand things can go wrong or not as expected. Supply sensing complements supply planning using AI to monitor, learn, and adjust plans to current conditions. “It understands and interprets disruptions in the network; it projects the confidence level for getting the right supply at the right time to enable probabilistic planning; it converts these projections into service-level projections across the network to support customer service and experience; and it proactively recommends actions to deal with disruptions,” Mehmet says.

The Benefits of Supply Sensing

What are the tangible benefits of deploying supply sensing? Mehmet notes the most obvious benefit relates to improving customer service levels as just discussed, improving revenues, customer experience and alignment of supply and demand. It also improves inventory management to reduce costs at various service levels and helps balance inventory shortages and excesses. And AI helps project future gaps and/or improvements in supply going forward, an essential tool for supply management.

Supply Sensing in Action

Mehmet went on to share some customer use case examples to show the value of AI supply sensing, including a major electronics manufacturing company dealing with Tier 2 suppliers, a high-tech company trying to align with its supply base, and a CPG company trying to improve customer service levels. For details on these case studies and how companies can begin to incorporate supply sensing into their operations, I encourage you to watch the full episode for all of Mehmet’s insights and advice. Then keep the conversation going by posting a comment and sharing your perspective on this topic.