It doesn’t matter whether a company manufactures cars, frozen meals, or clothing, its supply chain is critical to success. To be profitable, a company must effectively manage its supply chain. Over the years, the supply chain has evolved in many ways. The most recent development—and the one that may just have the most profound impact of all—is the rise of the intelligent digital supply chain and predictive sourcing.
Before exploring what an intelligent digital supply chain means, it’s important to review how we got to this stage.
Products Get More Complicated, Supply Chains Become More Complex
While there are exceptions, a general rule of thumb is that products have become more complex over the years. We can see an example of this trend in the automotive industry.
When Ford began production of the Model T in 1908, the vehicle was estimated to have several thousand different parts. Each had to be sourced, manufactured, delivered to Ford’s factory, then assembled into a finished Model T car.
Today, a car can have 30,000 pieces, ranging from tiny screws to computer processors. The finished product is far more complex, and that means the supply chain for auto manufacturers is vastly more complicated.
The auto supply chain has expanded to incorporate different tiers of suppliers, depending on whether a company directly supplies a finished component (like a seat or an entertainment system) to an auto manufacturer or whether they produce parts that are used in turn by other suppliers. In 2017, one estimate put the total number of automotive suppliers in the U.S. at over 285,000 companies.
Can you imagine making 285,000 phone calls in a day, to possibly source just one thing from each supplier? Can you imagine tracking the status of each part manually? It is akin to two people trying to have a conversation with morse code and smoke signals.
The same scenario has played out across many industries—products today are more complicated. Sometimes that complexity is less about the number of components and more about requirements such as the transportation and storage temperature requirements for raw materials. It becomes nearly impossible to stay ahead of your business in every industry without implementing the correct tools.
Supply Chains Go Global
Adding to the complexity of the supply chain has been the move toward globalization.
Going back to the automotive industry example, suppliers for the Ford Model T were likely all based in America.
When a new car is assembled in America today, odds are the factory will be receiving components from Tier 1 manufacturers located in the U.S., Mexico, and Canada. However, many of the 30,000 parts that ultimately go into that car could have been produced anywhere in the world.
This has of course changed due to the COVID-19 pandemic and Joe Biden’s executive order, but in general globalization brings with it a wide range of factors that must be accounted for, ranging from currency exchange rates to natural disasters. Some of those suppliers are in high demand, and that means competing against other manufacturers from around the world.
Tracking and adjusting for all of those factors and managing all of those suppliers makes procurement one of the most critical divisions for any auto manufacturer.
The Era of Accessible Artificial Intelligence
Time for a quick segue into Artificial Intelligence, or AI. Most people are familiar with AI in terms of supercomputers like IBM’s Big Blue—the first computer to defeat a human world champion at chess. Systems like Big Blue were critical first steps in the development of AI, but their size and cost meant they had limited applications.
In recent years, advances in parallel processing have meant AI and machine learning no longer require a supercomputer that occupies an entire room and costs more than a small country’s annual GDP. This has been a game-changer. So has the rise of cloud-based services.
Combine the two, and you have the powerful AI capability that’s widely accessible. It can be incorporated into web-based software, making this incredibly advanced technology available on a scale that wasn’t even remotely possible just a few years ago.
And that has huge implications for the supply chain…
The Intelligent Digital Supply Chain and Predictive Sourcing Software
When you apply the power of AI to the challenge of procurement, you have the newest era: the intelligent digital supply chain, and Predictive Procurement Orchestration—Arkestro.
Arkestro can track innumerable variables in real-time. It can then make assessments based on the trends and patterns in that data, picking up nuances that a human would never notice. Arkestro predictive AI can sense patterns, predict market changes, and drive two to five times more savings to sourcing teams.
Machine learning is also an integral part of this AI revolution. In terms of procurement software, the application of machine learning means we can implement complex predictive machine learning modeling and turn repetitive tasks over to the AI. This frees up staff for more critical tasks, improves negotiation cycle time, and eliminates errors and compliance issues the human eye can miss.
Take the First Step Toward Adopting AI and the Intelligent Digital Supply Chain
Whether your company operates on a global scale or within a limited region, adopting the intelligent digital supply chain makes your procurement team far more effective. Remove morse code and smoke signals from your daily process while increasing quote velocity, predicting opportunities, and driving significant savings.
Predictive sourcing software gives your company a big competitive advantage. Find out just how transformative the only predictive procurement platform is by contacting Arkestro for a demo. Whether sourcing car parts, screws and fasteners, frozen vegetables, or clothing, your sourcing squad will thank you.
Predict. Procure. Win. Keep your business ahead of the market.
CPO Summit is an industry-leading event. Our team will be present to see what’s going on in the industry, and chatting about predictive sourcing. Find us on May 5-7!