AI North of the Equator: A Holiday Case Study
To avoid getting put on someone’s not-so-nice list, I need to state before we begin that this is a purely fictional account of an AI implementation project. SAP Ariba’s commitment to driving procurement transformation via technologies like AI is certainly not fictional, however. For more information on what we’re working on, please visit us at www.ariba.com.
Remote locations pose significant challenges for manufacturers, especially those with complex distribution networks. Weather can wreak havoc on in-bound delivery schedules that can lead to downstream delays for customers. For one such organization,1 late deliveries aren’t just something to be avoided; they’re absolute non-starters. “We make all of our products in-house, using materials sourced from around the globe,” says Evelyn LaFontaine, VP of Manufacturing. “While this helps streamline production, it poses some real challenges on the distribution side.”
Keeping On-Time with Seasonal Demand
Always seeking to improve performance, the organization embarked on a high-priority technology initiative to implement AI in strategic process areas. First up was in procurement, where they were looking to better select and manage suppliers to ensure that raw materials arrived on-time to keep production on schedule. “You’d be surprised at the breadth of our offerings,” according to Ernesto L. Figueroa, the Director of Product Management. “We do huge volumes in areas you’d expect, like plastics for toys and rubber for bicycle tires. But there’s also significant investment in food ingredients for winter-time treats, where delays can mean spoilage – and higher costs.” To help alleviate these pressures, the organization focused on implementing a spend visibility solution that leveraged the latest is AI technology. Identifying suppliers with not just the best product cost, but also the lowest total landed cost and highest on-time delivery performance helped them keep things on track for a solid end-of-year season.
Rudolf Eindeer, logistics lead, sums it up best: “We’ve got a lot of suppliers and truly complex contracts, but as far as my organization is concerned, on-time performance is the only clause that matters.”
Focusing on Commodity Management
Unfortunately, they still struggled with demand visibility in one important commodity. According to their Commodity Manager, Eloise Franklin, “It’s not what we always like to focus on, but we do have a huge need for coal towards year-end. That said, we don’t lock down that customer list until well after our other production activities have begun. We’re always hopeful that not much will be needed.” Due to this timing, the organization saw tremendous value in using AI to help optimize both purchasing and staging locations, to keep product closer to the ultimate recipients. By analyzing historical demand across geographies and matching those requirements with local commodities exchanges, the organization has been much more efficient. “We’ve cut down transportation and storage costs by a factor of ten, at least,” shares the VP of Finance, E. Leopold Franck. “We’re able to buy in bulk, and have reoriented our distribution system to source locally rather than shipping everything to Corporate HQ ahead of time.”
Everyone Pulling Together
Tackling change to two core business processes without a service disruption wasn’t an easy task. Heads of each line of business were bought-in and worked closely with IT to ensure everyone was on the same page. The key component, though, was clear communication of executive buy-in. “We’re big, but we’re really a mom-and-pop shop at the core,” says Budrick T. Ellfe, the Executive Chief-of-Staff. “Once we got the word from Mr. and Mrs., we understood that they were committed to the project. With their guidance and support, we had the right headcount allocated to support the project, and we were assured that we’d be supported both managerially and financially to make this a success.” The program kicked off in early 2016 and the systems were implemented, tested, and deployed in time to drive the 2017 cycle.
“We’ve got a joke around here that for us, AI really means Arcti-ficial Intelligence,” says the VP of Operations, L.F. North. “We make a lot of stuff, but software just isn’t our forte. Working with a third-party really helped us execute quickly. They were on the ground with us, getting everything stood up, and helping troubleshoot when the inevitable issues popped up. I have to say, it really meant a lot to the staff to see folks with such spirit.”
If you’d like to read more about SAP Ariba’s perspective on AI and emerging technology, check out Intelligent Procurement from SAP Ariba: Making Procurement Solutions Smarter.