How AI is Transforming Inventory Management

We have all been hearing how AI stands to transform life as we know it, for good or for worse. In some industries, AI has already become the standard. In manufacturing and inventory management, they have changed the landscape substantially.

An efficient inventory management system creates a balanced seesaw of enough items in stock on one side but not too many on the other. That equilibrium sits where the business can meet demand but not stock more than is necessary, with the goal of not tying up any more money in stock than required.

In the inventory business, no news is good news. Drama is only created when there is a shortage or a mistake. Even at our most efficient, humans make those mistakes. Robots, when properly maintained, rarely do. And inventory software that controls the manufacturing process can do it all without ever getting tired or taking a lunch break.

Stock shortages can result in thousands of dollars lost in holiday sales for some businesses. Too much stock could end in the dumpster out back for others. The goal is to always have only what you need, and fine tuning that for a smaller business is more manageable for us humans. Once your inventory gets the size of – let’s say Amazon, to be bold – there’s simply no way to tackle that kind of volume without AI lending a hand.

Inventory Method

Bigger businesses need perpetual inventory software or risk being blind to their profitability. There are two different approaches to managing inventory and different types of software to do them. The periodic inventory method only updates the inventory count when it is physically counted.  Some businesses close shop to perform this function; others work at off-hours. The gross margin can only be calculated once the inventory counts are updated and reports generated against the sales.

In a perpetual inventory system, the inventory count is updated in real-time. Every time a product is sold, the information about that product is sent back to a central system where the cost of that product is measured against the purchase price to calculate the profit. When inventory counts are updated, stock can be reordered to replace it before the business encounters a shortage.

Despite the efficiencies artificial intelligence can bring to an inventory system, it is best combined with human oversight. Machines still do break and malfunction; maintenance and verification of accuracy are still necessary. Operations that move at high rate don’t lend themselves easily to a periodic inventory system. The communication between the machines operating the inventory system keep the physical counts in check in real-time. 

The trend for artificial intelligence in manufacturing is on the rise. In addition to increased speed and accuracy, robots also increase profitability after their costs are recovered. Unfortunately, the downside of the trend is the loss of jobs for workers.

Artificial intelligence reaches beyond the warehouse into the internet cables to access news updates. That real-time information is used to make predictions that are then turned into actions. If shipments from a country are being held up, as we are currently experiencing with the Coronavirus epidemic, then AI would relay that information to the inventory software.  That information can be used to place orders with alternative suppliers to ensure inventory levels stay full. User demand, supplier backorders, warehouse optimization, stock levels are all being guided by either machine learning or more complex artificial intelligence systems. Real time information about user demand based on trends, weather predictions and backorders from suppliers are all calculated to adjust purchase orders from each supplier, update stock count and provide information to make decisions about upcoming events. There are a variety of information sources available to plugin to AI technology to make predictions. The industry a business is in will determine the most important factors. Businesses that import parts from international sources have many more factors to consider such as international politics, events, natural disasters, storms, and unfamiliar laws. Different products may require difference predictive information. That means the AI must be programmed specifically for certain product types. It will take a well-seasoned person to provide the vital information for AI setup. It is also possible there are some products in your inventory you won’t be able to predict.

AI is responsible for communicating with the machines that move product on and off the shelves, fill and pack boxes, affix shipping labels and move packages out the door. Ai technology unifies machines, hardware, cables, software and data to centralize all operations, at every touch point, and give complete control of all fine points of the business to the business owner. AI makes infinite growth scalable and anyone trying to keep up with big box stores will need to incorporate AI at some point to make the leap.

AI technology is fed information (a formula) and given data to process to reach the goal designated in that formula. The technology uses a learning process to reward or punish the model for certain outcomes. The model then learns to avoid those negative outcomes resulting in an optimization for the best results. The model might be punished if products go out of stock or if an item sits in inventory for too long. The technique is a variation of animal behavior modification created for a machine. Businesses can see great outcomes using this technique and significantly increase their profits.

AI can be integrated with a business’s existing inventory software using APIs. The more information the artificial intelligence is fed, the faster it learns and the smarter it becomes. When a business transitions to AI, it must have a plan to update the workflow and designate which tasks will be handled by the software and which will be handled by the staff. Reaching the right balance may take a period of trial and error, eliminate redundancy, and optimize efficiency.

When price is not the consideration, AI would be a great fit for many companies using perpetual inventory methods. Over time, high tech gadgets and machines tend to decrease in price with innovation, increase in demand and broad appeal.

Leave a Reply

Your email address will not be published. Required fields are marked *