AI in Inventory Management: Why you need it

With more complexity in inventory management, supply chains are looking for tools and solutions to navigate and streamline the inventory management process, and AI has emerged as a viable option.


The rising consumer class will reach over five billion people by 2030. It shouldn’t be a shock that inventory and supply chains have become more complex. Applying AI in inventory management would give your supply chain an edge in an increasingly consumer-centric world. 

One of the tools you can turn to as an inventory or supply chain manager is artificial intelligence(AI).

Artificial intelligence, whether as software solutions or robotics, has shown remarkable results and a significant rise in market value. The experts expect a rise of over $50 billion in value within the next year.


What is Inventory Management

It used to be that corporations were only concerned with acquiring or making as much Inventory (raw materials or finished products) as possible to keep their supply chain flowing.

As supply chain management evolved and became more customer-focused, corporations began syncing all the arms of their supply chain together for optimal output. Thus the birth of Inventory management.

Inventory management is the supply chain management process that directly entails the optimal buying, storage, and sale of Inventory.


What is AI?

AI is a discipline of computer science concerned with the creation of intelligent machines capable of observing their surroundings, learning from experience, and making data-driven judgments.

Unlike traditional computer programs, which obey a set of established rules, AI systems process enormous datasets and adjust their behaviour accordingly.

Syncing your supply chain processes will create more complexities, resulting in the need for supply chain solutions such as AI.


Reasons Why you need AI in Inventory Management

AI is a computer intelligence that relies on an algorithm. They learn and assist businesses or humans by consuming and analyzing data.

They have been incredibly efficient because they are created and optimized to focus on particular business solutions, improving your business by as much as 100%.

The supply chain is no different. Here is why


1. Forecasting Accuracy

Demand and supply forecasting have always been a part of supply chain planning and, frankly, any business planning.

However, it’s been a constant battle of formulas and permutations to get accurate or near-accurate forecasts for our supply chains.

With AI, you can have the accuracy your supply chain needs.

Artificial intelligence can give your supply chain a competitive edge with real-time data analysis on consumer behaviour, seasons, market trends, and styles.

By accurately forecasting demand and supply, inventory management becomes less cumbersome and more customer-focused, getting what your supply chain needs at the right time.

 2. Increase Productivity

AI can increase inventory management efficiency with algorithms customized for each supply chain or inventory management.

Artificial intelligence is faster. That means it can process the inflow and outflow of products three or four times faster than the average human.

Speed in inventory management also means the warehouses, distribution, or fulfilment centres can increase output and attend to more customer orders.

Artificial intelligence is more efficient, leading to fewer errors in inventory management.

Warehouses and supply chains are famous for mixing up customer orders, which is understandable when using human labour. We all make mistakes.

With artificial intelligence, you will have fewer errors, leading to fewer returns and saving your supply chain a ton of money.

Increased productivity in your supply chain will also positively affect components of your supply chain, like cycle time and lead time of your supply chain management.

 3. Cheaper Inventory

As a supply chain manager, you hold Inventory to prevent demand or supply disruptions. However, Inventory can be costly to hold. Think of the security cost, insurance cost, damage cost, and overall money tied down on the cost of Inventory itself.

By integrating AI into Inventory management, you can get precisely the amount of Inventory needed without spending over or beyond.

Inventory management styles like the pull or just-in-time Inventory have made it possible for supply chain managers to reduce inventory costs significantly.

With the new ability to react speedily to market demands, your supply chain doesn’t need many stocks on its books. It can afford to do more with less, freeing up capital for other business investments.

 4. Identify flaws in the Inventory management system.

Businesses or systems often do have flaws with their process. However, they can be difficult to identify.

From order processing, delivery process, or stock-keeping practices, flaws can be unique to different supply chains.

Flaws in the supply chain can be identified through process auditing.

With the help of artificial intelligence, you can mine and analyze data from your inventory management processes to identify flaws in the system.

You can also use AI in brainstorming solutions for your supply chain.

 5. Waste Control

Eliminating waste in the supply chain was a famous concept spearheaded by the Japanese in the 80s. Today, it is a widespread practice among supply chains across the world.

Waste is expensive to the supply chain, but maybe more depressing is getting rid of the waste. It is a loose-loose situation for any supply chain or business.

Several factors cause waste in inventory management.

  • Overproduction
  • Delay in production
  • Unprocessed raw materials
  • Transportation waste

What do they all have in common? All of them can be prevented with better supply chain planning.


Key components of Inventory management where Artificial Intelligence comes in handy

  • 𝗣𝗿𝗼𝗰𝗲𝘀𝘀 𝗮𝘂𝗱𝗶𝘁: As an inventory manager or supply chain manager, you should constantly review your inventory management process to ensure optimal system.
  • 𝗙𝗼𝗿𝗲𝗰𝗮𝘀𝘁𝗶𝗻𝗴: This uses data to calculate future demand and supply potential, helping you plan adequately.
  • 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆 𝗳𝗹𝗼𝘄: Also known as stock flow, it is the movement of stock in and out of the warehouse or distribution centre.
  • Safety stock: This is the minimum amount of any product inventory held to prevent disruption of the supply process should a problem occur.
  • 𝗦𝘁𝗼𝗰𝗸 𝗿𝗼𝘁𝗮𝘁𝗶𝗼𝗻: The system of stock arrangement ensures stocks are well positioned to leave the warehouse in the necessary order. Example: expiring or perishable products go first.


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