8 Ways Gen AI Can Improve Supply Chain Risk Management

Generative AI (or Gen AI) has made a lot of news since last year. Not without a reason.

This technology has the capability to transform all business functions.

From content creation to instantaneous query resolutions and natural language outputs that resemble coherent human language, this rapidly evolving branch of AI can do a lot of things that couldn’t be imagined before.

It has made the transformative potential of AI truly visible to all business users.

In the annual CPO Compass 2024 report by Procurement Leaders, 46% of senior procurement executives said they believed the Gen AI technology would transform the function “to a great extent”.

Another estimate suggests that by 2026, 60% of Asia’s top 2000 companies will use Gen AI tools to support core supply chain processes and dynamic supply chain design.

Clearly, the technology’s capabilities have sparked tremendous interest among procurement and supply chain teams, many of whom are struggling to address supply- and supplier-related risks in increasingly complex supply chain networks.

In fact, supply chains are perhaps more complex than any other business function today.

Intricate supplier networks, supply uncertainties, demand fluctuations, rising input costs and an overall environment of economic uncertainty have put most businesses on the backfoot.

The question now is: How exactly can the use of Gen AI help in supply chain risk management?

Can it help supply chain professionals anticipate deviations and take proactive action to mitigate their impact?

There is little doubt that Gen AI can empower teams to leverage overwhelming data volumes and make sense of diverse data sources. In a plain conversation with the virtual model, users can ask questions and receive a generated summary of unstructured data and long-form documents.

Further, with each interaction, it can capture and hold knowledge to ensure the delivery of accurate and pertinent information.

Here are 8 ways Gen AI can streamline risk management in supply chains:

1. Sourcing:

Gen AI can automate many of the routine, time-consuming everyday tasks of procurement and supply chain teams. Identifying the right suppliers by looking at their past records and current proposals, determining costs, negotiating favorable terms and getting suppliers onboard — technology is well-equipped to handle all these tasks with ease.

2. Supplier Selection:

Gen AI can analyze a wide range of supplier data and past performance as well as risk profile to help procurement make an informed decision. In fact, leading businesses have started relying on this technology’s assistance to select suppliers as well as to drive negotiations. Retailers, for example, can use Gen AI-powered bots to negotiate costs and purchasing terms with vendors in a short timeframe. By automating core functional tasks such as supplier selection, Gen AI allows procurement to shift its focus to strategic business tasks, explore emerging risk trends and improve risk management processes proactively instead of reacting to a threat.

3. Contract Creation and Management:

Gen AI’s ability to generate content can help simplify the cumbersome task of creating and filing vendor contracts. In this process, it can save time and resources, enhance contract accuracy and reduce the possibility of errors that could occur during manual processing.

Additionally, Gen AI can review existing contracts and quickly extract key information. It can also highlight any inconsistency or vague language and suggest revisions. Large language models can also identify missing controls or enhancements needed in existing contract documents to create a more robust framework. They can also help the team better prepare for contract renewal discussions.

Further, with continuous monitoring of regulatory changes, Gen AI can help procurement teams stay agile in a dynamic environment. It can also check for gaps and compliance misalignment and send alerts for potential breaches.

4. Vendor Profiling and Segmentation:

Gen AI tools can be used to classify and rank vendors according to their risk profiles. They can scan through vendor profiles and data to identify and categorize risks, such as data privacy concerns, operational risks, compliance issues and geopolitical risks. They can also evaluate vendors based on ESG and sustainability parameters. Such risk-based segmentation allows procurement to prioritize and allocate resources to effectively manage different vendors based on their risk profiles. It also helps to monitor their progress over a period.

5. Demand Forecasting:

Inconsistencies in demand patterns have irked many businesses in recent times. With Gen AI, they can analyze large historical sales data sets, market trends and other variables to create demand models in real time. Accurate demand estimates can, in turn, help align inventory levels and production schedules.

6. Decision-Making:

With access to real-time market intelligence, Gen AI can drive proactive decision-making and cost optimization. It can also help procurement manage supplier relationships effectively, ensure compliance and minimize disruptions.

7. Data Mining:

Just like a search engine, Gen AI can quickly find pertinent information for specific queries. However, unlike a search engine that merely provides the user a list of links to review, it can provide precise, curated answers. Such capability can help procurement constantly monitor internal and external data sources to detect and rank threats to supply chain operations.

The technology’s capability to mine data to identify hidden threats can also help businesses scrutinize internal data as well as transaction data across various departments for outliers linked to specific suppliers or operations.

8. Improved Communication Among Stakeholders:

Gen AI can help break down functional silos that hamper collaboration and information sharing. By connecting different functional areas, it can unlock collective intelligence and promote seamless collaboration and workflows.

Additionally, it can help procurement communicate more effectively with internal and external stakeholders to identify potential risks. Clear and timely communication can make a key difference in risk management by notifying concerned stakeholders about the likely occurrence of risks and their mitigation.

Improved coordination between procurement and different internal teams can enhance monitoring and control mechanisms and strengthen the overall risk management framework.

Risk Management Needs Humans and Technology to Work Together

Just like other business functions, technology alone cannot address all underlying concerns. Human oversight is essential to ensure that the results derived from technology are valid and correct.

No doubt, Gen AI tools are superior to humans in understanding and processing large volumes of data, but they still require human intervention to pose the right questions and guide them. Therefore, the right blend of technological prowess and human oversight is required to transform risk management.

Additionally, there can be risks in the use of Gen AI in supply chains, especially if integration is rushed across businesses and their supply chain networks.

As such, the tools are only as powerful as the input data, and therefore depend on the availability of reliable data from supply chain partners. There is therefore a clear case for human oversight and strong governance mechanisms in the implementation of this technology in supply chains.