Cognitive Computing and Paradigm Shifts Affecting the Supply Chain

Stephen DeAngelis

September 29, 2015

“To-date,” writes Adeel Najmi (@AdeelNajmi), Chief Science Officer and Senior Fellow at JDA Software, “the entire supply chain has been orchestrated to service ‘demand’ while keeping inventory and logistics costs down.”[1] You might be asking, “What’s wrong with that?” After all, many analysts have been insisting that the best supply chains in the future will be demand driven. Najmi doesn’t disagree with that assessment. He insists, however, that how companies deal with demand is undergoing a paradigm shift. He explains:

“In the next decade, the focus will shift from forecasting product consumption to anticipating customer needs, catering to personal preferences and engaging customers through unique paths to purchase. Offers will be co-created with the customer and the supply chain will be configured dynamically to fulfill these personalized orders. Today, any discussion of ‘last mile’ is more about logistics and delivery. As digital convergences with physical, it is not hard to imagine that products will be personalized, or even manufactured entirely, very close to the customer. Managing these ‘selfie supply chains’ will require a fundamentally different approach where information flow is optimized together with product flow.”

Another paradigm shift that Najmi believes will dramatically affect supply chains is how they use data; especially data about customers using the digital path to purchase. He observes:

“Today, most companies have separate functions for planning and execution operating in silos. Optimized plans are made first, then handed over to other departments for execution. I envision a future where planning and execution will happen concurrently and continuously. This will move us to being always-on and connected to smart decision support as you execute.”

The final paradigm shift identified by Najmi deals with risk management. “How we cope with risk and uncertainty is also changing from a rigid ‘best plan’ driven mindset to a much more dynamic, risk aware, resilient, self-learning and adaptable approach,” he writes. “Rather than striving for a best plan upfront, we are moving to a mindset of planning scenarios and contingencies anticipating likely risks and then letting the plan take shape as uncertainties unfold.” It should be clear from Najmi’s description of these paradigm shifts that he believes emerging technologies will play a vital role in transforming supply chains to meet the challenges posed by these shifts. Adam Robinson (@TweetsByARob) agrees that technology is going to play an essential role in digital supply chains. “Many different factors play into why the supply chain needs an increased degree of technology in use,” he writes. “However, the direct causes are ultimately consumers and capacity issues.”[2] Cognitive computing systems are emerging at just the right time to deal with all of the challenges discussed above.

 

Digital Path to Purchase

 

The digital path to purchase emerged as the World Wide Web matured. Robinson observes, “Prior to the rise of the Internet, consumers had no option for obtaining products beyond retail stores and catalogs. Supply chain entities were focused on providing the right product at the right place at the right time. Today, supply chain entities need to have any product available at any place at any time.” For those old enough to recall the early days of online commerce, you remember that the first e-commerce sites were little more than electronic catalogs and, like orders made using their paper counterparts, consumers had to call a number and speak with a sales representative who would write up the order and begin the fulfillment process. Today, Najmi writes, “We expect retailers to practically read our mind and deliver immediately.”[3] One reason that we expect retailers to practically read our minds is because they have been using troves of data (e.g., Web tracking data, POS data, and loyalty card data) to get to know us better. As a result, they are able to tailor offers to our personal preferences. Cognitive computing can help with this kind of behavioral marketing because it can deal with more confounding variables than previous computing systems. As supply chains become global, their complexity increases dramatically and companies need a system that can deal with complexity. As Robinson notes, ” If latency, delays, and other problems occur in supply chain functions, it may lead to customer dissatisfaction, which in turn, results in lost profits for the supply chain.” You often hear the term “digital supply chain” used to describe the supply chain of the future, I prefer the term “cognitive supply chain.” For more on that subject, read my article entitled “Imagine: A Cognitive Supply Chain.”

 

Demand-Driven Supply Chain

 

A cognitive supply chain is much better suited to making a demand-driven supply chain a reality. Najmi writes:

“Today, most companies have separate functions for planning and execution operating in silos. Optimized plans are made first, then handed over to other departments for execution. I envision a future where planning and execution will happen concurrently and continuously. This will move us to being always-on and connected to smart decision support as you execute. When a mobile app provides you directions to a destination as you drive, you are planning, executing, monitoring and course-correcting — all at the same time. Sometimes, you are driving to a destination and the app reports that traffic patterns have changed such that an alternative route just became faster. With rapid advances in big data, machine learning and cloud computing occurring now, this paradigm will become the norm in supply chain planning and execution as well.”

Najmi adds, “Now, we must go beyond predicting demand of individual stock keeping units to continuously anticipating needs of individual customers in real-time and understanding their attitudes and paths to purchase. It is now less about pushing product to be positioned in the right store or location and more about listening to the customer and presenting the right offer at the right time to the always-connected customer, and then letting her ‘pull’ the purchase on-demand to wherever she wants it delivered.” Cognitive computing systems are particularly adept at helping with decision-making processes. Not only can they provide decision-makers with actionable insights and recommendations, they can make routine decisions on their own — only alerting decision makers when an anomaly occurs. For more on that topic, read my article entitled “Improving Business Decisions Using Cognitive Computing.” They are also bring a better predictive analytics capability to the digital supply chain.

 

Supply Chain Risk Management

 

In the area of risk management, Najmi writes, “How we cope with risk and uncertainty is also changing from a rigid ‘best plan’ driven mindset to a much more dynamic, risk aware, resilient, self-learning and adaptable approach. Rather than striving for a best plan upfront, we are moving to a mindset of planning scenarios and contingencies anticipating likely risks and then letting the plan take shape as uncertainties unfold.” I agree completely with Najmi on this point. The “best plan” approach often resulted in the plan being put on the shelf and it only got dusted off and opened when a crisis occurred. The results were predictable. Today’s best-of-class businesses are pro-active in their risk management approaches. They constantly monitor activities that could negatively impact the supply chain (e.g., weather, natural disasters, labor and political unrest) and conduct “what if” exercises so they are prepared to deal with crises when they occur. And they will occur. Disruptions of one sort or another affect every global supply chain. Because there are so many things that could adversely affect a supply chain, it is virtually impossible for humans to monitor them effectively. That’s where a cognitive computer system has the advantage. Not only can it monitor numerous activities, it can find relationships among those activities that might not be obvious. Since it learns as it works, a cognitive computing system gets better every day.

 

Conclusions

 

Najmi concludes, “I believe these three paradigm shifts will fundamentally change not only the questions we ask but also how we arrive the answers related to supply chain planning and execution decisions.” A cognitive computing system has the capability of asking and analyzing its own questions, which can greatly improve supply chain performance. The cognitive supply chain is coming and companies that survive and thrive in the decades ahead are going to be those that implement it wisely.

 

Footnotes
[1] Adeel Najmi, “Three paradigm shifts that will shape future supply chains,” Supply Chain Insights, 25 August 2015.
[2] Adam Robinson, “Technology’s Ever-increasing Role in Supply Chain Functions,” Cerasis, 4 September 2015.
[3] Adeel Najmi, “Why the Digital Consumer has Changed Everything!Supply Chain Nation, 27 January 2015.