Artificial intelligence in retail: 6 use cases and examples
Six use cases for AI in retail, including optimizing inventory management, improving forecasting, and personalization.
When the pandemic upended global supply chains, leaving store shelves barren and shoppers frustrated, many thought things would return to normal once the emergency ended. That might have been wishful thinking.
Supply chains have certainly improved. Retailers are finally clearing all of the inventory they’d stockpiled to offset shipping unpredictability, and many once-shuttered factories are humming along. But retailers still face a slew of other, non-COVID problems that continue to wreak havoc on their supply chains as well as their bottom lines.
Thirty-four percent of US business leaders cite supply chain disruption as a top risk to their companies, a PwC survey found. Seventy-percent are focused on improving supply chain resiliency.
Overcoming retail supply chain issues won’t be easy because they’re incredibly complex, involve numerous factors beyond the control of any one company, and are likely to persist. Brands must take action now to address the risks in their retail supply chain management strategy.
5 retail supply chain management challenges
Before we look at ways retailers can protect their supply chains and reduce the risks, let’s take a look at the top problems impacting supply chain stability today.
1. Labor shortages: If you don’t have enough people to make, box, and ship products, the entire production lifecycle can theoretically slow down or come to a standstill. In fact, 57% of 2,000 supply chain executives surveyed by MHI, a supply chain industry trade association, rank hiring and retaining qualified workers as this year’s greatest challenge.
2. Global warming: Whether you believe in climate change or not, hotter temperatures around the world are increasingly affecting supply chain efficiency. In 2022, for example, Chinese automobile, electronics, and other factories shut down due to record-setting heat and the worst drought in decades. More recently, extreme weather in Central America cut water capacity in the Panama Canal, one of the world’s most important waterways for trade, forcing its operators to reduce the number of ships by 36%. Not surprisingly, 66% of 1,490 experts surveyed by the World Economic Forum ranked extreme weather as today’s top global risk.
3. Geopolitical conflict: The Red Sea crisis has caused shipping companies to reroute away from danger zones and take long, costly routes around the Cape of Good Hope. The Russia-Ukraine war has stranded hundreds of ships carrying wheat, corn, and other goods in Black Sea ports. Geo-economic confrontation ranks as one of the three most concerning risks in the next two years, according to a survey of 1,200 risk experts.
4. Rising operations costs: Inflation continues to pose a risk to retail supply chains. Costs for staffing factories and paying workers are expected to rise about 5.2% this year, compared to 5.8% a year earlier, according to the Institute for Supply Chain Management.
5. Lack of supply chain visibility: Frequently, supply chain inefficiency occurs due to the technology retailers use (or don’t use) to manage the movement of goods. In fact, 45% of companies in an IDC Global Retail Survey ranked lack of real-time visibility into accurate inventory availability across their networks and warehouses as their top supply-chain challenge.
For most companies, things have leveled out somewhat since the pandemic, and organizations are making some progress, says Jordan Speer, an IDC retail insights analyst.
“But visibility into tiers of supply is still not there,” she adds. “If you can’t see into your supply chain, you can’t make decisions based on real data, which puts your enterprise at risk.”
4 ways retailers can manage supply chain risks
While experts say there’s no magic formula or one-size-fits all approach for retail supply chain management, experts advise having a multi-faceted strategy to address volatility.
“Taking a proactive approach to addressing and mitigating supply chain problems is key,” says Abe Eshkenazi, CEO of the Association for Supply Chain Management (ASCM).
Here’s what retailers can do to fortify their supply chains:
1. Supplier diversification: IDC’s Speer says a lack of supplier diversity was one of the key causes of supply chain disruption during the pandemic. With too few suppliers, retailers were vulnerable and didn’t have enough insight into their operations to respond quickly when production faltered. Going forward, retailers need better visibility into supplier operations and a more diverse group of suppliers to choose from, she says.
One concept gaining traction is “friendshoring”— companies or government agencies fostering collaboration with suppliers in countries that share their cultural values and beliefs. The idea is to re-route product shipments to and through countries perceived as politically and economically safe or low risk.
The US, for example, has said it will prioritize components and raw materials from “friendly” countries to protect domestic production.
2. Bringing supplies closer to home: For years, American manufacturers have relocated to factories to countries like Taiwan and India to trim labor costs. But with rising inflation, transportation costs, and geopolitical tensions, more retailers are considering reshoring by bringing production back home and closer to points of consumption. This would help trim distribution costs and reduce carbon emissions. Some companies also are turning to technologies like 3D printing to locate a printer almost anywhere and produce parts or products quickly and efficiently without having to stock them on warehouse shelves or ship them by land, air, or sea.
3. Talent recruitment & retention: No plan for achieving supply chain excellence can succeed without addressing the ongoing staffing crisis, writes Eshkenazi in Chain Store Age:
“Retailers and supply chain leaders must focus on attracting new talent and upskilling workers to use new technology that will allow them to remain resilient to adverse effects and fluctuating markets.”
While technology like artificial intelligence can handle routine or manually intensive tasks and improve employees’ work, more complex jobs and decision making requires some human expertise.
4. AI solutions: Speaking of AI, Eshkenazi advises that if they haven’t already, retailers need to make it a priority for better operational efficiency, reliability, and visibility. AI-enabled location intelligence can offer real-time insights and predict future conditions, helping businesses avoid delays and bottlenecks, he says. AI also can help with route planning for last-mile delivery to reduce fuel consumption and improve arrival times.
Most retailers seem to recognize AI’s potential for improving supply chain resilience. In fact, 97% of North American supply chain executives surveyed by DP World and Economic Impact say they’re already using AI in at least one aspect of their operations, such as inventory management or trade expenses.
Gartner, meantime, says half of supply chain executives plan to implement generative AI this year, 14% are in the process or have already done so, and 5.8% of their budgets are being dedicated to these deployments with an eye on boosting productivity and cutting costs.
