InfoBrief, sponsored by SAP | April 2024

The Importance of AI
in Supply Chain and Operations
Simon Ellis
Group Vice President,
Manufacturing and Supply Chain, IDC
 The Importance of AI in Supply Chain and Operations

Table of Contents
CLICK BELOW TO NAVIGATE TO EACH SECTION IN THIS DOCUMENT.

AI Everywhere — Focusing the Spotlight Business Process Importance and Alignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Across the Supply Chain and Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
AI High Priority Use Case Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
AI Everywhere and the Emergence of New AI Use Cases . . . . . . . . . . . . 4
Use Cases in the Supply Chain by Sub-Segment. . . . . . . . . . . . . . . . . . . . . . . .15
Three Key End-User Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Assessing AI Value/Business Outcomes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
AI Strategy Within the Supply Chain
and Related Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Who Is the Expert?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

The Importance of the Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 AI Use Cases for Supply Chain Planning and Forecasting. . . . . . . . . . .18

Data Privacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 AI Use Cases for Warehousing/Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Leader/Fast Follower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 AI Use Cases for Logistics/Global Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Embedding AI into the Business Process Recommendations/Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

and Key Applications: Supply Chain Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
About the IDC Analyst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Embedding AI into the Business Process
and Key Applications: Supply Chain Logistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Message from the Sponsor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Embedding AI into the Business Process

and Key Applications: Manufacturing/Operations. . . . . . . . . . . . . . . . . . . . . . . 12

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 The Importance of AI in Supply Chain and Operations

AI Everywhere — Focusing the Spotlight Across

the Supply Chain and Operations
Context
With intelligence becoming the primary source of value creation, we are
AI Artificial Intelligence (AI)

on the verge of the “Intelligence Revolution,” where artificial intelligence and Machine Learning (ML)
ML
automation-oriented technology will be the main accelerators of business change.
In the realm of “AI Everywhere,” generative AI emerges as a transformative force, Deep Learning (DL)
potentially revolutionizing the future. This branch of AI enables the machine-driven DL GAI ASR/
NLP Automatic Speech Recognition,
autonomous creation of new content, from images to music and even written text,
CV Natural Language Processing (ASR/NLP)
with remarkable accuracy. Early applications of generative AI have showcased
its potential in fields such as the creative arts, content and code generation, and Generative AI (GAI)
personalized recommendations. However, it also raises concerns regarding bias
and privacy: AI algorithms can inadvertently perpetuate biases and pose threats to Computer Vision (CV)
personal data. As a result, regulation is crucial to ensuring the responsible and ethical
IT Impact
use of generative AI. Despite these challenges, the possibilities are vast, ranging from
improved customer experiences to innovative problem-solving. Harnessing the power Businesses are already jumping to get a piece of the AI
of generative AI and navigating its associated complexities could shape the future of pie, afraid to miss out on the opportunities it presents.
industries and drive advancements in the AI-driven world. Though we are in the early days, monetization and the scale
of AI solutions are expected to evolve rapidly. However,
Modern cloud applications, including cloud ERP, are an important precursor for this comes at a time of relative economic uncertainty and
extracting full value from AI use cases and enhancing the ability for supply chains increasingly constrained IT budgets. AI is not without risks,
to remain nimble. In the IDC 2024 Supply Chain Survey, 48% of respondents cited especially when it comes to ethical AI and data privacy, and
legacy/on-prem systems, or integrations to these systems, as major impediments to companies need to carefully consider the best use cases to
their ability to respond to disruptions. implement AI effectively.

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 The Importance of AI in Supply Chain and Operations

AI Everywhere and the Emergence of

New AI Use Cases
IDC defines a use case as a technology-enabled, business-funded initiative that delivers a measurable
outcome. There are three broad types of AI use cases as highlighted below:

Productivity use cases Business function use cases Industry use cases
are aligned to work tasks such as summarizing tend to integrate a model (or multiple models) will generally require more custom work
a report, generating a job description, with corporate data for use by a specific (and, in some cases, may even require
or generating code in Java. AI functionality for department or function (marketing, sales, building your AI model). Examples include
productivity improvement is being infused into procurement, etc.). Many organizations generative drug discovery in life sciences and
existing applications. are testing these types of use cases but generative material design for manufacturing.
are concerned about intellectual property These are likely to be a source of real
For many of these use cases, it is possible leakage and data governance. business value creation for larger enterprises
to deliver business value purely through These business-function use cases require that can put together a sufficiently large set
the content and data that the underlying integration with established enterprise of training data or work with other parties
foundation models have been pre-trained. applications and platforms from vendors in their ecosystem to share data to train the
Foundation model providers themselves (have such as Salesforce, Oracle, SAP, ServiceNow, model. These specialized use cases tend
already seen success with this approach. Sage, Workday, Informatica, Appian, to be built around very specific choices of
Pegasystems, and UiPath. Their capabilities models and model providers, with custom
will need to reference or be constrained by integration architectures designed for
their clients’ business data (customer data, individual clients and significant custom
product data, knowledge bases, etc.). implementation work required.

There is a mix of internally and externally facing use cases, each with its level of potential risk and business impact that requires
incorporation into a use-case prioritization framework for any organization kickstarting its AI journey.

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 The Importance of AI in Supply Chain and Operations

3 Key End User Questions

How should I be
Should I be a leader/ thinking about AI — as
early adopter, or is part of the analytics
Is my data in good being a fast follower “layer” or embedded
enough shape to take a better strategy? within functional
advantage of AI? “Is there a first-mover advantage to investing in
applications?
AI, or will the initial costs of training models or
“We think of AI through the lens of key supply
“We are concerned that the quality and reach adopting immature tools mean that leaders will
chain use case. How should we be thinking
of our current data will mean that our efforts to end up being too expensive?”
about adoption — as part of traditional supply
implement AI will either fail or be marginalized.
chain tools such as demand planning or as a
Do we need to improve our data before diving — Director SC Planning, Hi-Tech
layer within control towers or the supply chain
into AI and GenAI more broadly?”
digital twin?”
— CSCO, CPG Manufacturer
— VP of Logistics, Automotive Supplier

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 The Importance of AI in Supply Chain and Operations

AI Strategy Within the Supply Chain

and Related Operations
Which of the following best describes how your organization’s overall
Priority business outcomes are: AI strategy, including traditional AI and generative AI, supports/will
support your ERP business objectives?
Operational efficiency (26%)
Business resilience (25%)
Improved employee productivity (24%) Operations Supply Chain

We have an AI strategy that is linked to business

objectives, and it includes a measurement 52% 63%
strategy to evaluate success with ERP.
Companies say they will spend
$13 million on AI-powered ERP projects
within the supply chain and operations over We have an AI strategy that is linked to business
the next 12 months, with an additional objectives, but it does NOT include a measurement 32% 13%
$155 million the year after that. strategy to evaluate success with ERP.

We have an AI strategy, but it is not linked to

our overall business objectives for ERP.
10% 9%
Supply chains cite advanced analytics/
AI as the most important technology
investment over the next three years
(2024 IDC SC survey). We do not have an AI strategy. 7% 15%

Source: IDC Cloud as the Platform for AI Innovation survey, November, 2023

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 The Importance of AI in Supply Chain and Operations

The Importance of the Data

At the heart of successful AI How companies look at where data

implementations is the data, both in should be managed depends on the
Priority business outcomes are: Supply chains will also have to
terms of the quality of the data and the kind of data. It is best to manage the
supply chain/operations having enough to collected, analyzed, and used data consider how and where data is
properly train the models. As companies locally at the edge and globally manage accessed and in what form it initially
progress through the data maturity levels, data that is more broadly collected and/ presents (electronic, paper, etc.).
AI performance should improve. or analyzed and acted upon centrally.

Data Maturity in the Supply Chain

6% 44% 35% 12% 3%

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Low High

There are undefined data Data management policy Global organization drives Data management Data management is
management processes is driven at the local level the standardized data is standardized and standardized, measured,
and zero or limited use of without alignment with management policy measured across and continuously improved
data analytics. the global organization. in place. the organization. with a focus on learning.

Source: IDC Supply Chain MaturityScape Benchmark 2023

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 The Importance of AI in Supply Chain and Operations

Data Privacy
93%
87% 89%
79%
How important is data 71%
security and privacy
in AI-powered ERP
software delivered by
the ERP vendor?

Role Business Role

IT LOB Operations Supply Finance/

Chain Accounting

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 The Importance of AI in Supply Chain and Operations

Leader/Fast Follower
Begin to explore how AI tools can help with productivity and performance across your
supply chain without delay. Tools are already available to provide support across a broad
The future range of supply chain activities, even if data quality and process integration require some
is NOW additional effort. Although GenAI tools will certainly evolve, the immediate insights gained
and learnings for future implementations will outweigh the work “wasted” training older tools.

Identify internal roles for AI innovation and transformation. Establish partnerships with
Grow AI technology providers and system integrators that understand your company, the supply chain,
expertise and the industry. Facilitate the sharing of goals, capabilities, and values across the product
development ecosystem.​

Implement AI data governance standards to reduce potential biases (e.g., training

data diversity) and improve data privacy. Enforce robust security measures to protect against
AI risks breaches with the continuous monitoring of the model and output and ensure compliance with
and security legal and ethical norms. Have Multi-disciplinary teams should perform regular audits of large
language model (LLM) decisions and outcomes to identify and correct biases that arise over time.​

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 The Importance of AI in Supply Chain and Operations

Embedding AI into the Business Process

and Key Applications: Supply Chain Planning
What are the top 2 expected benefits in using
The acceleration of decisions and AI for your supply chain planning processes?
elimination of latency

Real-time decision-making 51%

The enabling of direct material supplier selection/

alternatives in the event of disruption Supplier selection 38%

Inventory optimization 38%

Inventory that works more
efficiently and effectively
Improved predictive analysis 37%

Process automation as the aspirational

capability (54%) for supply chains not Process automation for 36%
currently using AI for planning increased efficiency

Source: IDC Cloud as the Platform for AI Innovation survey, November, 2023

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 The Importance of AI in Supply Chain and Operations

Embedding AI into the Business Process

and Key Applications: Supply Chain Logistics
What are the top 2 expected benefits in using
Important enabler of AI for your supply chain logistics processes?
operationalizing sustainability

Optimization of ecological footprint 45%

Optimization of delivery lead times while
reserving asset usage efficiency Reduced delivery lead times 42%

Warehouse automation 41%

Warehouse worker shortages leading to
the use of AI tools to enhance productivity
Cost reduction 36%

Route optimization as the aspirational

capability (48%) for supply chains not Transportation route optimization 35%
currently using AI for planning

Source: IDC Cloud as the Platform for AI Innovation survey, November, 2023

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 The Importance of AI in Supply Chain and Operations

Embedding AI into the Business Process

and Key Applications: Manufacturing/Operations
What are the top 2 expected benefits in using
The driving of efficiency and AI for Manufacturing?
waste elimination

Analysis of usage data for 45%

cost and footprint optimization
The driving of asset performance with
real-time, iterative predictive maintenance Predictive maintenance
(for IoT native and retrofit assets) through sensor data 45%

Process automation for 42%

Labor/skills shortages in the factory putting increased productivity
pressure on process automation to augment
people and accelerate time to expertise Quality control through
AI-powered visualization
37%

Visualization tools to recognize and Production planning 31%

contain/constrain poor quality creep and scheduling

Source: IDC Cloud as the Platform for AI Innovation survey, November, 2023

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 The Importance of AI in Supply Chain and Operations

Business Process Importance and Alignment

In your opinion, how important is

Key priority AI business processes for supply AI to the following?
chains include manufacturing operations,
management of working capital (mainly through Financial Close 74%
the lens of inventory management), and procure to
pay, particularly for direct/ complex procurement. Budget to Plan 73%

Using AI to help align product life cycles, Working Capital 72%

particularly later-stage capabilities for
manufacturing scalability and fulfillment, Project Management 72%
remains a challenge for most supply chains.
Procure to Pay 72%
Although project management tends to focus
on specific/discrete efforts, linkages to factory Manufacturing Operations 72%
efficiency, availability, and inventory availability
Product Life Cycle and Fulfillment 69%
connect back to the supply chain.
Quote to Cash 67%

Source: IDC Cloud as the Platform for AI Innovation survey, November, 2023

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 The Importance of AI in Supply Chain and Operations

AI High Priority Use Case Areas

The pace of the supply chain means that operations

Which of the following use cases/
people need to be able to quickly identify and use case categories are the highest
assess the impact of data through self-service priority for AI-powered ERP?
knowledge “discovery.”
Self-service Knowledge Discovery 41%
Data visualization and modeling help supply chains
and operations make sense of data quickly and in a
Data Visualization and Modelling 39%
people-intuitive way. Data-driven decisions in real time
mean better performance and reduced decision risk. Intelligent Summarization 39%
Supply chains and related operations are often
“buried” in unstructured data, such as manuals,
Planning and Forecasting 38%
goods receipts, and invoices. Intelligent summarization
Generate Customized User Interfaces 37%
means more easily ingesting these materials and
improving productivity and output. Retrieval Augmented Generation (RAG) 36%
Planning/forecasting remains a major source
of frustration for the supply chain and related Avatar-Driven Q&A 36%
operations. The view that better and quicker use
Optimizing Inventory 35%
of data is broadly held.

Source: IDC Cloud as the Platform for AI Innovation survey, November, 2023

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 The Importance of AI in Supply Chain and Operations

Use Cases in the Supply Chain by Sub-Segment

Planning/Forecasting Network Design
• Dynamic Demand Forecasting and • Service Level Agreement Optimization
Inventory Management and Insight
• Supply Chain Orchestration • Supply Chain Network Design
• Enhanced Risk Management and Identification • Supply Chain Carbon Footprint

Warehousing/Inventory Factory Floor

• Automated Inventory Replenishment • Asset Maintenance

• Workforce Planning/Labor Forecasting • Visual inspection
• Order Picking/Slotting • Agile Production Planning

Logistics/Global Trade People Productivity

• Asset Operation Optimization
• Optimizing Load Balancing and Distribution
• Employee Augmentation — Task Automation
• Automated Customs Clearance
• Accelerated Time-to-Expertise
• Freight Volume Forecasting

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 The Importance of AI in Supply Chain and Operations

Assessing AI Value/Business Outcomes

Which of the following are the three most important business
outcomes that your organization is trying to achieve from
leveraging AI, including traditional AI and generative AI, for ERP?
The initial lens for AI has been one of
productivity and operational efficiency, ■ 18 Months ■ 3–5 Years
including higher machine/asset
utilization, quicker time to productivity Increased operational efficiency 59%
for new employees, and task relief for and employee productivity 52%
established ones. 56%
Improved customer satisfaction
53%
In many instances, processes that 51%
Revenue growth
were previously aspirations can now 61%
be practical. Examples include dynamic
42%
inventory deployment, real-time demand Reduced business risk
30%
forecasting, and operational offsetting.
41%
Cost savings
It must be about the use case. How does 43%
AI help to solve problems or take better 40%
Faster time to market
advantage of opportunities? 35%
23%
Developing new business models
35%

Source: IDC Cloud as the Platform for AI Innovation survey, November, 2023

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 The Importance of AI in Supply Chain and Operations

Who Is the Expert?

The AI model vendors are today’s “bright,

Where are you currently looking
shiny objects,” but in the long run, application for AI advice and tools?
vendors will be the better source for AI tools,
as they understand the business process and
The AI model vendors 31%
are aware of how enabling technologies will
work most effectively.
IT infrastructure provider 18%
IDC expects to see AI increasingly embedded
IT consulting/SI partner 12%
in specific applications, including supply chain
planning, transportation, and logistics, rather
than a “layer.” Application vendors 12%

Cloud platform
It will be about operationalizing AI within the providers/hyperscalers 12%
business and specific functions to the point
where the line-of-business user may not even Generative AI start-ups 12%
realize that AI is being used. It simply helps
them do their jobs more effectively.

Source: IDC Cloud as the Platform for AI Innovation survey, November, 2023

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 The Importance of AI in Supply Chain and Operations

AI Use Cases for

Supply Chain Planning and Forecasting

Dynamic Demand Supply Chain Enhanced Risk Management

Forecasting and Inventory Orchestration and Identification
Leverage standard (numeric) and Leveraging LLM/unstructured data, AI will be able to read and interpret
non-standard (LLM) data to better SCO tools will be able to support traditional supply chain data as well
derive forecasts, inventory plans, and the integration of information across as “news” events (illnesses, conflicts,
strategies. The combination of AI, LLM, all silos of the supply chain and resource constraints) to predictively
and ML will enable advancements in connect internal and external data. By highlight supply chain risk and suggest
modeling and selecting demand and integrating standard data (e.g., track courses of action.
inventory plans and support scenario and trace, manufacturing WIP, and
modeling and IBP decision-making inventory) with unstructured (e.g., news,
(e.g., sales investment, promotions and emails, texts/dms, phone discussions,
pricing, and manufacturing investment). and meeting minutes), SCO tools
can evolve to further integrate and
automate end-to-end orchestration.

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 The Importance of AI in Supply Chain and Operations

AI Use Cases for

Warehousing/Inventory

Automated Inventory Workforce Planning/ Order Picking/Slotting

Replenishment Labor Forecasting
Predict and act on future inventory Analyze data such as throughput and Analyze and streamline the process
requirements by analyzing sales data, staffing levels and recommend the of order fulfillment, including product
market trends, and other external future workforce needs for specific attributes, picking frequency, and
factors to anticipate changes in times. It can utilize historical data real-time order priorities. Systems can
demand and generate “what-if” and factors such as employees’ work recommend the best order-picking
scenarios, helping to foresee demand experience to make predictions. route, including product location
variations. Automate the generation By combining time series analytics, and order-picking tasks. Information
of replenishment orders, considering workforce data, and ML, companies can collected will then map out the most
factors such as supplier lead times and forecast future labor requirements. efficient picking routes and product
cost, improve optimal stock levels, and placement.
adapt to market changes and potential
disruptions.

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 The Importance of AI in Supply Chain and Operations

AI Use Cases for

Logistics/Global Trade

Optimizing Load Balancing Automated Customs Freight Volume

and Distribution Clearance Forecasting
Create strategies for distributing cargo Generate and manage customs Estimate future freight needs to plan
optimally across a fleet, considering documentation to automate and resources, optimize loads and inventory
variables such as weight, volume, expedite the customs process. Ensure levels, and estimate freight capacity.
route, weather, and delivery timings. accuracy by applying international trade Identify patterns and correlations
Vehicle utilization and fuel optimization laws, tariff codes, and compliance rules that allow for the forecast of freight
are achievable by detecting efficient to classify goods, calculate duties, and requirements by analyzing historical
patterns from past data and suggesting keep documents up to date, reducing freight data, seasonal trends, market
innovative loading patterns, providing errors and delays. dynamics, consumer behaviors, and
detailed plans for cargo arrangement, real-time factors such as weather or
and adapting them in real time to economic indicators. Simulation and
changes such as vehicle malfunctions continual model improvement from
or new delivery requirements. new data improve forecasting accuracy,
adapting to changing market conditions.

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 The Importance of AI in Supply Chain and Operations

Recommendations/Considerations
The Future is NOW: Trusted content repositories: Grow AI expertise:
Begin to explore how AI tools can help with Establish easily accessible data repositories where Identify internal roles for AI innovation and
productivity and performance across your supply it is possible to host, manage, and maintain similar/ transformation. Establish partnerships with
chain without delay. Tools are already available to help common source content (synchronized with real-time technology providers and system integrators
across a broad range of supply chain activities, even systems of record with real-time connectivity and that understand your company, the supply
if data quality and process integration require some integration to key business data). This cache of chain, and the industry. Facilitate the sharing
additional effort. Although AI tools will certainly evolve, long-lived, validated, unstructured content forms of goals, capabilities, and values across the
the immediate insights gained and the learnings for the basis of RAG, allowing LLMs to deliver trusted, product development ecosystem.
future implementations outweigh the work “wasted” contextual, relevant results.​
training older tools.

Process/productivity optimization: AI risks and security: Prioritize security:

Use AI to ingest unstructured data that traditional Implement AI data governance standards to Maintain data sovereignty over IT processes
AI tools can then integrate into optimization efforts, reduce potential biases (e.g., training data diversity) and implement proactive AI drills to mitigate
either for full business process improvement or and improve data privacy. Enforce robust security the risk of sophisticated cyberattacks.
the movement away from paper and paper-based measures to protect against breaches with the Improve security by renewing IT infrastructure
approaches. continuous monitoring of the model and output and to accommodate the growing training data
ensure compliance with legal and ethical norms. needs of LLMs.​
Have multi-disciplinary teams perform regular audits
of LLM decisions and outcomes to identify and
correct biases that arise over time.​

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 The Importance of AI in Supply Chain and Operations

About the IDC Analyst

Simon Ellis
Group Vice President,
Manufacturing and Supply Chain, IDC

As a program vice president, Simon Ellis is responsible for providing research, analysis,
and guidance on key business and IT issues for manufacturers. He currently leads the
supply chain strategies practices at IDC Manufacturing Insights, an IDC industry research
company that addresses the current market gap by providing fact-based research and
analysis on best practices and the use of IT to assist clients in improving their capabilities
in critical process areas. Within the supply chain practice, Simon is directly responsible
for research in the supply chain planning strategies practice while also managing the
supply chain execution strategies practice. These supply chain practices specialize in
advising clients on supply chain network design, sales and operations planning, global
sourcing (profitable proximity and low-cost sourcing), transportation, logistics, and more.
He also supports IDC Retail Insights IT strategies practices.

More about Simon Ellis

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 The Importance of AI in Supply Chain and Operations

Message from the Sponsor

SAP’s strategy is to help every business run as an intelligent enterprise. When your business
depends on your production, your supply chain is critical. It is the engine that drives your business.
It can equally be a source of constant risk that can impair your operations.

A risk-resilient and sustainable supply chain is one that is connected, contextualized, and collaborative.
SAP Digital Supply Chain solutions can help you holistically manage and mitigate business risk within
your supply chain.

With a global network of customers, partners, employees, and thought leaders, SAP helps the world
run better and improve people’s lives.

Learn more

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