AI-powered
supply chains
Making your supply chain bionic
July 2019
About the authors
Lino Casalino
Supply Chain and Operations
and Americas Digital
Operations Leader,
PwC Canada
lino.casalino@pwc.com
Flavio Palaci
Global Data and Analytics
and AI Leader,
PwC Australia
flavio.palaci@pwc.com
Dr. Anand S. Rao
Global Artificial Intelligence
Leader,
PwC US
anand.s.rao@pwc.com
2 | AI-powered supply chains: Making your supply chain bionic | July 2019
Overview
Supply chains are the backbone of any
economy, particularly those of open, tradeoriented nations like Canada, where they
employ almost a million people, move
about CA$1 trillion worth of goods a year
and account for 10% of GDP.1
Today, supply chains everywhere are being
disrupted by digital technologies and
artificial intelligence (AI). These can give
businesses an edge by letting them pool
and make sense of their data, forecast
demand more accurately, predict and meet
the needs of clients more efficiently, and
source and move goods more securely.
But a chain is only as strong as its weakest
link, and in the 21st century, strength is
being conferred by digitization and the
insights it enables.
In 2008, the average age of the top five
global companies by market capitalization
was 59.6 years; in 2018, according to a
Forbes report, it was almost half that at
28.6 years. This corporate rejuvenation has
much to do with the way newcomers have
harnessed new forms of digital capital to
build modular and flexible supply chains,
which can deliver a wider range of goods
faster and more cheaply than incumbents
can.
“If you don’t use AI now as a gamechanger in your supply chain, somebody
else will, and they will define you,” says
Arnold Liwanag, Chief Technology Officer
at IVADO Labs, a Montreal-based AI
specialist for supply chains. “That means
you’ll be reacting to them and you’re very
likely to lose market share to them.”
Consider how quickly new companies have
come to dominate capital markets.
1. “Strategic Plan.” SCALE.AI, 2017,
https://scaleai.ca/wp-content/uploads/2017/11/SCALE_AI-STRATEGIC_PLAN-EN-FINAL-1.pdf
July 2019 | AI-powered supply chains: Making your supply chain bionic | 3
This paper builds on “The Bionic
Company” by Miles Everson and John
Sviokla, published in the autumn 2018
edition of strategy+business. We’re
now at a point of convergence of
technology capabilities and fast-changing
customer expectations—a perfect storm
driving massive change. New digital
technologies like AI, robotics and the
Internet of Things (IoT) combined with
consumer expectations for a higher level
of personalization, transparency and
speed are creating an environment where
leading companies are leapfrogging their
competitors.
“
Digital isn’t something out on
the horizon that we need to
worry about tomorrow or at
some point in the future. It
is here and now. Companies
are looking for help sifting
through the noise in the
market and in assembling
tangible roadmaps and
business cases to charter
their course and justify their
investments.”
The opportunities to harness the power
of these digital technologies to meet
real customer needs aren’t theoretical
anymore—they’re real, and being captured
by leaders across multiple industries.
New digital technologies
Lino Casalino
Partner; Supply Chain and Operations and
Americas Digital Operations Leader,
PwC Canada
Changing end-customer expectations
Digital lifestyle drives proliferation of
interaction models and willingness to
share information
Internet of Things
Big data solutions,
AI and analytics
Additive manufacturing
Consumers expect seamless
experience across channels
3D
Augmented reality and
virtual reality
PUSH
Massive
Change
PULL
Demand for personalized
products and services
Robotics and drones
Customers expect order and
delivery visibility
Robotic process automation
and blockchain
Increased customer expectation for
instant order fulfilment/just in time
Source: Yoram Koren, The Global Manufacturing Revolution
4 | AI-powered supply chains: Making your supply chain bionic | July 2019
New forms of capital creating value in the
21st century
Whereas a generation ago, leading
companies excelled at harnessing
traditional forms of capital—natural
resources, labour and finance—the most
successful companies today are masters
of three new forms of capital introduced
by the digital era.
2. Miles Everson, John Sviokla and Kelly Barnes. “Leading a Bionic Transformation.”
strategy+business, Winter 2018,
https://www.strategy-business.com/article/Leading-a-Bionic-Transformation
These new forms of capital are:
Behavioural capital: the awareness and
insight developed by tracking ongoing
activity
Cognitive capital: knowledge codified into
digitally managed algorithms
Network capital: the digital connection
points combining humans with
technology2
The Bionic Company
Behavioural
capital
Network
capital
Cognitive
capital
Human
capital
Financial
capital
Nature
capital
July 2019 | AI-powered supply chains: Making your supply chain bionic | 5
Digitization and the use of AI—the ability of
machines to perform functions associated
with human minds, such as reasoning,
learning and problem solving, both in
robotics and analytics—are critical to all
three new forms of capital. Successful
connected supply chains today make use
of digitization and AI tools to put these
three new forms of capital to work. Here’s
how:
You need behavioural capital to better
understand your customers. For example,
take a firm that rents out excavators. How
much does that company know about how
its equipment is being used? When will
customers need spare parts? What are
the characteristics of the building sites the
excavators are working on? Modelling data
can help understand and predict client
behaviour.
You then need cognitive capital to put
these insights to work: AI can be used to
provide advanced analytics and insight,
so the company knows when to service
equipment; it can also be used to automate
processes that augment human decision
making and processing, such as preemptively shipping spare parts when the
time comes for them to be replaced.
3. Miles Everson and John Sviokla. “The Bionic Company.” strategy+business, Autumn 2018,
https://www.strategy-business.com/article/The-Bionic-Company
4. Everson et al, “Leading a Bionic Transformation.”
6 | AI-powered supply chains: Making your supply chain bionic | July 2019
Network capital is about linking staff,
suppliers and customers through digital
applications that deliver additional
insights from sharing data. It’s about
digital apps and digital workers, because
equipping staff with the right skills is a key
component for transformational success.
For example: will the staff in the excavator
company be able to recommend where
and how to excavate using geolocation?
Will they be able to recommend the most
appropriate attachments, know how to
optimize the excavation routines or even
automate them? You need trained people
and large amounts of relevant data to be
able to put AI to work.
Companies that seamlessly marry
traditional and new forms of capital are
known as “bionic companies.”3 They
compete in unprecedented ways by
“combining digital prowess, human
ingenuity and strategic purpose, as if
they were the corporate equivalent of
superhuman cyborgs such as Marvel
Comics’ Iron Man.”4
“
Companies that deploy
behavioural, cognitive and
network capital, or BeCoN
capital for short, quickly
attain monopolistic power.
One can combine these capital
forms in interesting ways.
For example, using data and
behavioural capital to create
a virtuous cycle in which,
every time the system is used
or a product is sold, the extra
data generated contributes
to even better behavioural
insights. This is known as
a data network effect and
creates a distinct competitive
advantage.”
Dr. Anand Rao,
PwC Global AI Leader
The game-changers can come from any
sector, not just tech. Inditex, the world’s
largest fashion retailer, known for its Zara
chain of clothing stores, achieved global
dominance in just 20 years by pioneering
the use of sales-point data to scrap lines
that weren’t selling and ramp up those that
were.
The reason tech giants (e.g. Alphabet
(Google), Alibaba, Amazon, Apple,
Facebook and Microsoft) have gained
immense value in a very short time is
that they manage all six forms of capital:
financial, human, natural, behavioural,
cognitive and network.
Amazon and Apple each became US$1trillion companies by market capitalization
in the summer of 2018. Amazon took only
21 years as a public company to hit this
milestone, and Apple took just under 38
years.
AI algorithms and analytics allow bionic
companies to use data-driven insights to
increase the pace and effectiveness of
their decision making, sensing and shaping
demand thanks to AI-powered forecasting.
This targeted use of critical information
gives bionic companies a huge advantage
over the competition.
Businesses like these create value
that competitors will find difficult
to erode.
July 2019 | AI-powered supply chains: Making your supply chain bionic | 7
AI isn’t just for digital natives
For better or worse, digital giants are
setting the bar for customer experience
and showing how quickly they come to
“own” a category. As a result, companies
of all sizes need to work toward a bionic
supply chain.
For instance, Amazon owns almost 50%
of all online retail commerce in the United
States, or about 5% of all retail commerce
across any platform in the country. eBay is
a very distant second. Present trend lines
suggest that it won’t be long before more
people will spend money on Amazon than
on all other online retailers put together.5
The same story is being repeated in cloud
computing where Amazon Web Services,
with a 34% global market share, is bigger
than its next four competitors combined.6
“
In a world with more and
more choices, you’re shipping
more products over a larger
base, which means you need
to figure out how to be as
efficient as possible.
This is a big challenge and it
ripples down to suppliers. For
example, shipping 2,000 each
of five items is less efficient
than shipping 5,000 each
of two items. But customers
want choice, and as a retailer,
it’s our job to provide it.
And this is enabled through
innovation.”
Traditional bricks-and-mortar
businesses are under pressure from
clients to act more like Amazon.
5. Ingrid Lunden. “Amazon’s share of the US e-commerce market is now 49%, or 5% of all retail spend.” TechCrunch, July 13, 2018,
https://techcrunch.com/2018/07/13/amazons-share-of-the-us-e-commerce-market-is-now-49-or-5-of-all-retail-spend
6. “The Leading Cloud Providers Increase Their Market Share Again in the Third Quarter.” Synergy Research Group, October 25, 2018,
https://www.srgresearch.com/articles/leading-cloud-providers-increase-their-market-share-again-third-quarter
8 | AI-powered supply chains: Making your supply chain bionic | July 2019
John Salt
SVP Supply Chain,
Canadian Tire
Why AI in supply chains?
Supply chains that are stuck in the preconnected era are little more than a series
of discrete, siloed steps through marketing,
product development, procurement,
manufacturing and distribution—and finally
into the hands of customers. There’s no
real sense of a collaborative ecosystem.
Parts of the chain don’t talk to each
other. As a result, a firm has limited ability
to anticipate or respond to disruption,
whether it comes from changing customer
habits or new competitors.
The movement from a traditional model
to a connected supply chain requires
companies to make the most of all three
new forms of capital: behavioural, cognitive
and network.
Leading companies are making
significant investments to evolve their
supply chains to be more consumer
focused, differentiated across
channels (versus a one-size-fits-all
approach) and agile.
July 2019 | AI-powered supply chains: Making your supply chain bionic | 9
Traditional supply chains
Connected supply chains
Manufacturing-focused supply chain
Consumer-focused supply chain
One-size-fits-all supply chain
Differentiated by channel needs
Forecast-based supply chain
Demand-based and pull-driven
Inventory to decouple manufacturing
from demand volatility
Agile and flexible manufacturing with
minimum inventory
Push-based, fragmented SKU portfolio
Consumer-driven personalized products
Slow information flow and silo-based
optimization
Fast information flow and automated
processes across silo barriers
It’s hard enough to embark on bionic
transformation in a single company. The
greatest challenge for supply chains—more
often than not global networks of widely
dispersed and loosely related companies—
is how to work together to deploy digital
and AI technologies. How do you agree
on common standards and coordinate
the transformation? How do you prioritize
digital investments? Will you be able to
trust a supplier or customer with your
data?
“There’s no question that collaboration can
be challenging,” Canadian Tire’s Salt says.
“But if we don’t figure this out, if people
don’t find ways to comfortably share more
information, then this challenge will be
an unnecessary stumbling block toward
improved efficiencies in Canada at a time
when global supply chains are increasingly
effective.”
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That’s why Canada is pioneering an
innovative approach to this collective
challenge. SCALE.AI (Supply Chains
and Logistics Excellence AI) is a CA$1
billion industry-led innovation consortium
supported by some 80 companies and 40
enablers, including academic institutions,
government partners, incubators and
venture capital firms.7 This collaboration
hub aims to set a new global standard for
AI-powered supply chains within the next
five years. In doing so, Canada hopes not
only to strengthen the competitiveness and
productivity of Canadian firms, but also
position itself as an exporter of AI solutions
for supply chains globally.
“
Developing ‘digital
twins’ that simulate the
behaviour of market
participants can add
an additional layer of
intelligence to allow
supply-chain executives
to plan for supply-chain
breakdowns and build
resilience.”
Trust is perhaps one of the biggest
hurdles for integrating and coordinating
digital efforts. One area of collaboration
for SCALE.AI is providing access to a
secure data exchange among firms that
are sometimes partners and sometimes
competitors.
Fortunately, digital solutions exist to
let firms share data without any loss of
competitive edge and, in addition, protect
each other’s data from cyber theft.
Dr. Anand Rao
PwC Global AI Leader
AI solutions can also help with the
traceability and sustainability of goods in a
supply chain—an increasing preoccupation
for millennial consumers. Companies that
work together to strengthen trust emerge
stronger and more competitive as a result.
7. PwC Canada is a founding member of this initiative and our interviews with member companies informed this report.
July 2019 | AI-powered supply chains: Making your supply chain bionic | 11
How AI is helping
supply chains
BeCoN capital helps to improve the
efficiency and resilience of supply chains.
It also helps unlock new sources of
competitive advantage.
For example, data modelling can assist
companies with over- or under-stocking—a
chronic problem in supply chains that
use past data to forecast demand. By
recording customer behaviour in real time,
forecasting becomes more predictive,
which considerably diminishes the risk of
over- or under-stocking.
Ssense, a Montreal-based lifestyle portal,
is doing just that. A digital native, it uses its
portal and social media to establish trends
and then taps into its supply chain to fulfil
the demand it has created. Predictive
analytics lie at the core of its business
model.
Smart procurement—which is part of what
Ssense does—allows companies to use a
variety of Big Data tools and techniques to
connect more closely with suppliers, aid
the planning process, improve sourcing,
actively manage supplier risk and boost
collaboration.
12 | AI-powered supply chains: Making your supply chain bionic | July 2019
The results are lower costs and faster
delivery throughout the supply chain as it
becomes increasingly automated. Other
companies, such as infrastructure groups,
have also begun to use smart procurement
to find the most competitive suppliers that
are closest to a building site, for example,
which cuts costs and improves the odds of
goods being delivered on time.
Smart warehousing can also help eliminate
inefficiencies. Simons, one of Canada’s
top 10 e-commerce sites, is investing
in robotics at its distribution centre in
Quebec City, with an eye to taking on
greater market share. Logistics is another
challenge when firms are receiving orders
across multiple platforms. Here, cognitive
capital, in the form of machine-learning
processes that automate and continuously
improve routines, is key. It could be one of
the answers to handling small shipments
of many different kinds of products as
efficiently as bigger shipments of fewer
kinds.
AI-powered supply chains will ultimately be
able to optimize for any number of factors
across their entire length. Given enough
data, analytics-based modelling can
produce a minimum-cost scenario showing
how much money could potentially be
saved and how to achieve this goal,
all while mitigating risks. Ultimately,
prescriptive analytics will be able to offer
scenarios at a very fine level of detail,
describing how shifting to a new supplier
might affect product quality, or even
whether the introduction of a new kind of
autonomous vehicle would increase safety
on the warehouse floor.
“
In the financial sector,
banks are actively looking
for practical AI applications
to improve customer
services.
“In call centres, the context
of a client’s problem can
sometimes get dropped
when transferring their call
from one person to another.
We’re using AI to better
predict client issues and
to use those predictions to
move efficiently through the
discovery phase of problem
solving when our clients call
in. This creates a smoother
customer experience.”
David Furlong
Senior Vice President of Artificial
Intelligence and Venture Capital and
Blockchain, National Bank of Canada
July 2019 | AI-powered supply chains: Making your supply chain bionic | 13
AI in supply chains today
The use of AI in supply chains isn’t something
futuristic. Here are two examples of how
it’s being applied today to drive significant
improvements in performance.
1
Transforming an international home goods retailer’s demandsensing capabilities with behavioural and cognitive capital
What was the situation?
An international home goods retailer
wanted to improve its forecast accuracy
and hence product availability to meet the
changing needs of consumers.
What did it do?
Working with a cross-functional team,
the retailer conducted workshops to
identify all relevant demand-influencing
factors: daily point-of-sale data, order
data, promotions, local events, weather,
webpage traffic data, social listening,
customer ratings and feedback.
14 | AI-powered supply chains: Making your supply chain bionic | July 2019
To develop a proof of concept, it reviewed
two years of historical data plus actual
data for a three-month horizon where
historical data was not available. The data
was loaded into a demand-sensing engine
and used to identify influencing factors and
predict demand.
How did it go?
The company successfully improved
forecast accuracy by 10% to 15%.
There was better product availability
and increased service levels as a result
of improved demand sensing. Overall
inventories were reduced in size and cost.
2
How network capital helped reduce costs and improve
functional integration in the supply chain of a global consumer
products group
What was the situation?
A leading consumer products group
facing operational and service
challenges was looking to develop a
control tower program—a set of supply
chain skills and processes, supported by
advanced technology and organized as
a central service—to speed up decision
making based on real-time information
and analytics.
In essence, the company wanted to move
from a traditional supply chain model to a
connected supply chain ecosystem.
Implementing control tower functionality is an important first step to
provide visibility, connectivity and integration across the supply chain
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July 2019 | AI-powered supply chains: Making your supply chain bionic | 15
What did it do?
The company underwent a planning,
logistics and customer-service integration
that included:
• improving local market customer
collaboration to aggregate higher
quality demand data
• creating regional planning hubs
to coordinate demand and supply
planning and serve as centres of
excellence
• introducing logistics hubs to
coordinate warehousing, inventory
and transportation, including last-mile
delivery
• setting up internal fourth-party logisticslike structures to monitor third-party
logistics and other external vendors
against agreed service level agreements
• moving transactional order-to-cash
activities (e.g. order entry, order service
management) to control tower hubs
• segmenting clients to deliver tiered
customer service
How did it go?
By implementing regional control towers, the company
achieved the following outcomes:
• Established pan-regional planning, logistics and
customer service control tower hubs
• Delivered about 99% accuracy versus on-time
delivery goals
• Reduced planning, logistics and customer service
costs by about 30%
• Increased inventory turns, reducing overall inventory
levels by about 15%
• Built centre of excellence capabilities at the hubs
16 | AI-powered supply chains: Making your supply chain bionic | July 2019
No time to lose
According to our 2016 Global Industry
4.0 survey, one-third of the industrial
companies surveyed said their organization
had started to digitize their supply chains
and 72% said they expected to have done
so within five years.8 But have they made
the expected progress since then?
Flavio Palaci, PwC Global Data and
Analytics and AI Leader, also highlighted
two key findings from our global 22nd
CEO Survey: “The survey asked 1,300-
plus chief executives in more than 90
territories to share their views on the year
ahead. Some 85% of CEOs agree that AI
will significantly change the way they do
business in the next five years, which is
close to the 84% in Canada. Of the global
CEOs who are extremely concerned about
trade conflicts, two-thirds are adjusting
their supply-chain strategy.”9
Benefits of investing in digital technologies
Digital
Digital
vs.
Novices
Champions
Digital
revenue
increases,
2018–2023
Efficiency
gains/cost
reduction,
2018–2023
10%
11%
17%
23%
of product and service
1 Digitization
offerings
in customer-centric
2 Leadership
solutions
of a partner solution
3 Management
network
4
7
Digital strategy
and
implementation
roadmap
+
Near real-time, end-to-end
integration and planning platforms
5
Full vertical integration/MES of
manufacturing operations
6
Tech innovations (e.g. Al
solutions, collaborative robots)
8
Digital experts
and dedicated
training
programs
Source: Industry 4.0: Global Digital Operations Study 2018
8. “Industry 4.0: An opportunity to shine for Canadian manufacturers.” PwC Canada, 2016,
https://www.pwc.com/ca/en/industries/industry-4-0.html
9. CEOs’ curbed confidence spells caution.” PwC, 2019,
https://www.pwc.com/gx/en/ceo-agenda/ceosurvey/2019/gx.html
July 2019 | AI-powered supply chains: Making your supply chain bionic | 17
Here are some straightforward steps you can take to start your bionic transformation:
1
Ask yourself what you know about
your customers’ behaviour (or that of
the end users in your sector). Do you
capture it, analyze it and model the
ways it might change? If not, why not?
2
What can you automate using AI
and advanced analytics? How can
you use systems that respond in real
time to give customers faster service,
better products and a more powerful
experience? How can you train your
employees to help them become bionic
enablers?
3
How can you build a complex,
effective network? This network lets
you manage your customers and
use your deep knowledge of their
behaviour, providing service from
other companies in your business
ecosystem as well as your own,
packaged in a way that meets your
customers’ needs.
Where are you along
your transformation journey?
18 | AI-powered supply chains: Making your supply chain bionic | July 2019
Take note
July 2019 | AI-powered supply chains: Making your supply chain bionic | 19
Acknowledgements
Arnold Liwanag
Chief Technology Officer
IVADO Labs
David Furlong
SVP Artificial Intelligence and Venture
Capital and Blockchain
National Bank of Canada
John Salt
SVP Supply Chain
Canadian Tire
Annie Veillet
Partner
PwC Canada
Rajiv Sujan
Senior Director
PwC Canada
Prashant Hurrynag
Senior Director
PwC Canada
Christian Bracamonte
Manager
PwC Canada
Irena Cerovina
Manager
PwC Canada
© 2019 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved.
PwC refers to the Canadian member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity.
Please see www.pwc.com/structure for further details.