Taming Supply Chain Bullwhips with DemandAI+
Bullwhip effect is a common term used in supply chain to describe how a small change in consumer purchasing pattern or a change in any demand pattern that can cause significantly large impacts to supply. It is an analogy that transcends from the pattern in which a cowboy slowly turns the whip until it gathers enough momentum to crackle and emit a sonic boom, which ‘tames’ the cattle it is intended for.
A turbulent climate for global supply chain
The world has had many more examples of classic supply chain bullwhips in a short time compared to any other time in recent history. We had the infamous toilet paper outage that began with consumers detecting small shortages of paper rolls, which triggered a paper shortage at the manufacturing companies. This led to hoarding behaviors that exacerbating the shortage and signaled manufacturers to produce more. The paper shortage recovered quickly within 2-3 months of the start of pandemic, but the nationwide hoarding behaviors lasted half a year into the pandemic triggering excess production and at the end, a huge surplus of toilet paper rolls in the United States.
There is a similar problem brewing beneath the surface right now, with the over-abundance of global freight containers and slowing demand of freight trucks. Retailers across the world have surplus inventory of nearly every kind of consumer goods – clothing, electronics, housewares. So much so that some big retailers are allowing customers to keep their returns instead of adding to the already excess inventories. With the higher oil prices and softening demand for freight trucks, the high demand for freight containers across global and local supply chains is waning. This is from the bullwhip effect of the pandemic when consumers limited purchases to essentials. With all the ensuing demand once vaccines became available, manufacturers overproduced inventory, causing excess stock. All of this is happening at a time when consumer sentiment is not very positive from the speculation of impending recession. Each one of these events has a ripple effect, contributing to the bullwhip.
Early detection of anomalies with DemandAI+
Stepping away from the granularity of these supply chain breakdowns, what can we do to prevent, or better control these bullwhip effects in the future? Adoption of artificial intelligence to build demand forecasts is a very powerful, less explored solution to control the bullwhip from ballooning to proportions hard to manage and costly to control. AI models have evolved significantly since relatively inexpensive cloud data storage became more available. That makes it possible for organizations to collect, process, and store useful data at micro levels. Excel-based tools lack these capabilities. These models can detect subtle anomalies in consumer sales data a lot faster and with improved accuracy. Therefore, if the demand for toilet paper ever goes up unusually again, AI will make it possible to trigger demand forecasts that consider the short-term effects of hoarding behaviors. Longer term demand enables more predictions of realistic consumption, which can prevent over-production, and over-stocking.
Traditional demand forecasting uses historic sales data to model future sales. Historic data, is full of exceptions, misleading signals, and more volatility. To factor in historic sales, without carefully interpreting short-term consumer behaviors, or orders being placed by B2B businesses would be irresponsible and short-sighted. DemandAI+ is a powerful platform that can help companies build proactive supply-chains.
Key Takeaways: AI for planners and supply chain professionals
In summary, AI-first in demand forecasting can help significantly by:
- Catching macro & micro-trends in consumer behaviors quickly and accurately
- Removing the sole dependency on historical sales in the face of volatile business landscape
- Reducing reaction time to adapt to drivers of change in demand, therefore directly impacting the bottom line of organizations
There are proven AI solutions in the market right now that consistently raise the bar for planning functions. If you have not explored them yet, no time is better than now. Ready to get started? Contact us.