The Role of AI in Efficient Inventory Management

Logistics Tech Outlook | Friday, February 22, 2019

Digitalization is bringing in new opportunities and is opening new doors for the automated world. The ever-growing technology has entirely changed the functioning of the corporate world. With the advent of robots to assist humans, the efficiency and productivity of the company are witnessed more evidently.

Industry 4.0 is already revamping the way businesses work across the supply chain. Using AI, sensors, and IoT, a smart and data-driven distribution system can be developed. As AI offers a list of benefits, the supply chain network can have a more significant economic interest. With the help of these technologies, distributors will no longer predict demand for products through guesswork but would instead make accurate predictions, enabling them to make well-informed business decisions.

1.  Inventory Efficiency

AI can help in predicting future demands and also forecast the demand of suppliers based on the previous orders. This helps in forming crucial decisions in optimizing stock levels. For instance, if AI lets a distributor know that many other distributors will demand the same equipment in the coming time, the chances are high that he jumps the queue and gets ahead by ordering it much sooner.

2. Cost of Goods Sold

What happens when the inventory level isn’t optimized? The cost of goods sold (COGS) decreases as one is not able to incur the costs of holding inventory beyond its use. According to a report by IHL Group, a research firm, in 2015 the value of overstocking was $470 billion, while the understocking cost was $630 billion worldwide. Hence, freeing up cash and storage space creates the potential for savings.

3. Reduction in Lead Times

As industry 4.0 empowers supply chain to manage different orders fast, lead times for customers were shortened automatically. However, this leads to an increase in the pressure to deliver products on time and that too every time. To overcome this problem, AI enables one to spot loopholes in an organization and also build and maintain a long-lasting relationship with their customers.

Whether AI implementation is on the want list or not, ensuring data collection and storage is a good idea. Adopting AI for inventory management can help in avoiding poor decisions as well as provide information for new investments; the success of technology depends upon the data quality. However, expecting all this overnight is too much.  

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