A recent report from the World Trade Organization (WTO) says global trade growth forecasts are heading to the south pole due to increasing trade tensions. The projections suggest that certain sectors may experience a contraction of up to 2%. Experts believe that such a contraction could have significant consequences, potentially causing widespread disruption.
Another research report from the Institute for Supply Management (ISM) has revealed that over 60% of manufacturing companies have experienced increased costs due to tariffs imposed on goods.
The main characteristic of Trade wars is “tit-for-tat” behavior exhibited by the countries involved in the trading. These trade wars are characterized by escalating counter measures between trading countries. Often trade wars lead to sanctions, export restrictions, and other trade barriers which lead to a retaliatory action by all the parties involved in the process. In summary, trade wars generate an unpredictable environment for the nations engaged. With state-of-the-art data analytics, businesses can use AI to fight trade wars to protect domestic industries.
Can AI in Trade War Create New Economic Power Shifts
Increasing trade wars between nations lead to unprecedented challenges that include increased volatility, rising costs, supply chain disruptions, and market access restrictions. Factors like increased volatility affect all aspects of business planning. Businesses need to be agile and adaptable. Rising costs impact business fundamentals, forcing them to raise prices and potentially lose customers. Supply chain disruptions can lead to production delays, lost sales, and damage to reputation. Similarly, challenges like market access restrictions curtail the opportunity to grow and expand into new markets.
AI in trade war creates risks for global supply chains. Artificial intelligence driven trade policies disrupt supply chains, reshaping logistics, manufacturing, and cross-border commerce.
What is the way out? Can artificial intelligence be a panacea to address the challenges created by increasing trade wars between prominent nations? Yes, AI in trade war emerges as a critical tool for building resilience. Businesses can leverage AI’s capabilities in data analysis, prediction, and automation to mitigate the impact of trade wars.
This blog is an attempt to decipher how AI-driven tools can be put into action to mitigate the risks emerging out of increasing trade wars between various nations across the globe.
The Potential for Artificial Intelligence in Supply Chain Management
Adaptive Automation: Streamlining Operations with AI
Through adaptive automation, streamlining operations is much easier. AI-driven tools can automate repetitive tasks, freeing up human resources to carry out more strategic tasks. AI tools can optimize tasks in real time and thus eliminate errors, reducing waste. Further, AI-driven tools can speed up production life cycles and reduce labor costs. Moreover, AI-driven systems optimize resource allocation, leading to lower power consumption and material costs. Finally, AI-based quality control systems can carry out automated inspections, saving time and labor.
Here are some salient applications of AI in the supply chain:
- Robotic Process Automation (RPA): This is used for automating data entry, order processing, and invoice management.
- Automated Warehousing: This tool is used in the form of AI-powered robots for picking, packing, sorting, and many other functions.
- Autonomous Vehicles: These vehicles and drones are for last-mile delivery.
- AI-Powered Quality Control: These automated machines can view and detect defects in products.
- AI Optimized Routing System: To help route delivery vehicles
AI-driven systems exhibit the capability to create agile and responsive supply chains that outperform traditional systems with a plethora of features:
Production schedules need to change dynamically based on real-time demands. AI systems have the capability to change schedules rapidly and are thus more agile and responsive than their traditional counterparts. Handling supply chain disruptions is a herculean task for supply chain managers. AI-driven systems can automate the process of disruption identification and respond quickly. AI-driven tools can optimize inventory levels by reducing stockouts and overstocking. Further, they can reroute shipments in real-time during unforeseen delays. They have the ability to scale based on market demands and make operations ready to address the changing needs.
AI a Beacon for Data-Driven Decision Making
AI systems can analyze large datasets from supply chains. Through such analysis, systems can arrive at actionable insights.
Derive Data-Driven Insights
AI systems can process data from multiple sources, like sensors, ERP systems, market reports, etc., to produce valuable insights. Further, AI can identify hidden patterns and trends that go unnoticed by humans. End-users and leadership teams need dashboards and reports to get an overall insight into the data analyzed. AI systems can prepare comprehensive dashboards and reports providing insights into supply chain performance. These tools use natural language processing to extract information from unstructured data. They also provide visual representations of complex data sets.
AI for Demand Forecasting and Inventory Management
Demand Forecasting: Supply chain managers can rely on AI tools for accurate future demand predictions through the analysis of historical data and market trends.
Inventory Management: AI tools empower businesses to optimize inventory levels to minimize costs and prevent stockouts.
Logistics Optimization: AI tools enable supply chains to optimize routes, predict peak demand, and improve warehouse layouts.
To ensure accurate data-driven decision-making, data quality and integration play a critical role. To achieve good data quality, businesses should have a comprehensive data governance and data security policy.
Predictive Analytics: Anticipating Trends and Challenges
Impactful Analysis of Geopolitical and Trade Policies
AI tools have an inherent capability to analyze any form of data; geopolitical and trade policies are no exception. AI algorithms ingest and process huge volumes of geopolitical data that include trade agreements, political stability indices, and economic indicators. These algorithms identify correlations and patterns. These tools can detect trade routes with an increased risk of disruption due to political instability, trade wars, or policy changes; thus, AI in trade war can be used to navigate geopolitical uncertainties.
AI systems exhibit abilities to analyze the language and sentiment of various policy documents and diplomatic statements, detecting even minute shifts or warnings expected, like trade disputes or sanctions.
Importantly, AI systems can be used to construct predictive models that simulate situations arising out of various trade policy scenarios, allowing organizations to fine-tune their sourcing and distribution.
AI technology trends reshape risk management, offering businesses predictive analytics, intelligent automation, and data-driven insights to mitigate uncertainties.
Early Warning Messages of Disruptions from AI Monitoring of Social Media
AI system’s Natural Language Processing (NLP) capabilities can be leveraged to scan social media platforms, news, articles, and industry forums to find mentions of disruptions, such as labor strikes, resource deficits, and changes in regulations or policies.
These AI-driven systems, through sentiment analysis, can measure public opinion and sense emerging hotspots of unrest or dissatisfaction that lead to supply chain disruptions. Through such warning signals, organizations can take the necessary steps to mitigate potential risks and adapt their operations to changing scenarios.
Precise Tracking of Weather-Related Disruptions
AI-driven systems can process voluminous meteorological data that includes satellite imagery, radar readings, and weather station reports to produce precise and localized weather forecasts.
Further, Machine learning models can detect patterns and predict expected extreme weather events, such as hurricanes, floods, or any natural calamities that can disrupt supply chain systems. Through the integration of weather forecasts and supply chain data, AI can reroute shipments, adjust production schedules, and mitigate the impact of weather-related disruptions.
Predict Disruptions Based on Historical Data
AI algorithms can learn from historical data about past disruptions. Using this learning, they can build predictive models to forecast the severity of future disruptions based on current conditions and emerging risks. Also, it helps businesses to develop a comprehensive contingency plan.
AI for Business Resilience Beyond Supply Chains
Customer-Centric AI: Enhancing Experiences for Loyalty
Personalize Customer Experiences:
AI-driven tools analyze customer data to offer personalized recommendations, offers, and communication, creating an immersive experience.
Maintain Customer Relationships During Volatility:
AI can identify, at-risk customers with sentiment analysis so that proactive outreach and support are extended during uncertain situations.
Cost Optimization: Navigating Budget Constraints with AI
Identify Cost-Saving Opportunities:
AI helps reduce costs by minimizing waste and bringing efficient systems through process optimization.
Optimize Resource Allocation and Reduce Waste:
AI algorithms optimize resource allocation by predicting demand, scheduling tasks, and managing inventory, minimizing waste, and maximizing efficiency.
Perform Cost-Benefit Analysis:
AI tools help make informed financial decisions by processing vast amounts of data through cost-benefit analysis.
Financial Decision Support: AI as a Strategic Advisor
Analyze Financial Data for Strategic Insights:
AI helps provide valuable insights for strategic decision-making through the analysis of financial data.
Predict Impact of Trade War Scenarios:
AI can analyze financial data to predict the impact of various trade war scenarios, providing valuable information for strategic planning.
Advanced Strategies to Counter the Trade War
Dynamic Cost Pass-Through with Precision:
AI enables businesses to arrive at real-time dynamic pricing based on various factors like fluctuating costs, demand, and market conditions. This is accomplished through the analysis of vast datasets, including raw material prices, transportation costs, and competitive pricing, to arrive at optimal pricing. Through this strategy, businesses can pass on increased costs to consumers while remaining competitive.
For example, in the manufacturing industry, AI can track the cost of components and fine-tune product prices accordingly. The logistics industry can dynamically price shipping services by factoring in fuel costs and delivery times.
This strategy is beneficial to businesses with volatile input costs and rapid market changes so that trade-war induced fluctuations can be mitigated.
Segmented Pricing for Strategic Resilience:
Different customer segments have different purchasing preferences. AI tools help businesses to come up with a segmented pricing strategy that suits a particular group of customers. Artificial intelligence analyzes customer data from various sources, such as history, demographics, and online behavior, to identify such segments. This strategy enables organizations to offer customized pricing, promotions, and product bundles.
Predictive Analytics to Anticipate Retaliation:
As AI algorithms and tools can analyze complex trade data, geopolitical scenarios, and historical patterns, they can easily anticipate the retaliation behavior of trading nations or organizations. It can also forecast which particular products or services are impacted by tariff hikes or trade barriers. This enables businesses to do scenario planning and risk assessment, arriving at a comprehensive contingency plan to meet the challenges of trade wars. Instead of having a reactive approach to retaliatory actions, organizations can prepare proactively by relying on AI-driven predictive analytics.
Conclusion
The world is witnessing a new trade war, and every organization and nation is skeptical about its impact on their business. AI powered tools can definitely work on building a resilient system against the trade tariffs and disruptions that might result from the rapidly changing geopolitical environment and uncertainty prevailing across the globe.
Please do share your thoughts on how AI is impacting your business in these uncertain times, witnessed by organizations across the world due to the ongoing trade war between nations.
