Just in time? Manufacturers turn to AI to weather tariff storm

Mint

3 days ago

Manufacturers use AI to manage supply chain amid tariff volatility
Generative AI spending for supply chains could reach $55 billion by 2029
AI aids in inventory management but isn't a complete solution, experts warn
LONDON, Aug 13 (Reuters) - Manufacturers like U.S. lawnmower maker The Toro Company are not panicking at the prospect of U.S. President Donald Trump's global trade tariffs. Despite five years of dramatic supply disruptions, from the COVID pandemic to today's trade wars, Toro is resisting any temptation to stack its warehouses to the rafters.
"We are at probably pre-pandemic inventory levels," says its chief supply-chain manager, Kevin Carpenter, looking relaxed in front of a whiteboard at his office in Minneapolis. "I mean 2019. I think everybody will be at a 2019 level." Among U.S. manufacturers, inventories have roller-coasted this year as they rushed to beat Trump's deadlines for tariff hikes, only to see them repeatedly delayed. But since their post-pandemic expansion, inventories have mostly contracted, according to U.S. Institute for Supply Management data. Instead, "just in time" inventory management - which aims to increase efficiency and reduce waste by ordering goods only as they are needed - is back.
But how can firms run lean inventories even as tariffs fluctuate, export bans come out of the blue, and conflict rages?
One of the answers, they say, is artificial intelligence.
Carpenter says he uses AI to digest the daily stream of news that could impact Toro's business, from Trump's latest social media posts to steel prices, into a custom-made podcast that he listens to each morning.
His team also uses generative AI to sieve an ocean of data and to suggest when and how many components to buy from whom.
It is a boom industry. Spending on software that includes generative AI for supply chains, capable of learning and even performing tasks on its own, could hit $55 billion by 2029, up from $2.7 billion now, according to U.S. research firm Gartner, driven in part by global uncertainties.
"The tool just puts up in front of you: 'I think you can take 100 tonnes of this product from this plant to transfer it to that plant. And you just hit accept if that makes sense (to you)," McKinsey supply chain consultant Matt Jochim said.
The biggest providers of overall supply chain software by revenue are Germany's SAP, U.S. firms Oracle, Coupa and Microsoft and Blue Yonder, a unit of Panasonic, according to Gartner.
Generative AI is in its infancy, with most firms still piloting it spending modest amounts, industry experts say.
Those investments can climb to tens of millions of dollars when deployed at scale, including the use of tools known as AI agents, which make their own decisions and often need costly upgrades to data management and other IT systems, they said.
In commenting for this article, SAP, Oracle, Coupa, Microsoft and Blue Yonder described strong growth for generative AI solutions for supply chains without giving numbers.
At U.S. supply chain consultancy GEP, which sells AI tools like this, Trump's tariffs are helping to drive demand.
"The tariff volatility has been big," says GEP consultant Mukund Acharya, an expert in retail industry supply chains.
SAP said the uncertainty was driving technology take-up. "That's how it was during the financial crisis, Brexit and COVID. And it's what we're seeing now," Richard Howells, SAP vice president and supply chain specialist, said in a statement.
An AI agent can sift real-time news feeds on changing tariff scenarios, assess contract renewal dates and a myriad of other data points and come up with a suggested plan of action.
But supply chain experts warn of AI hype, saying a lot of money will be wasted on a vain hope that AI can work miracles.
"AI is really a powerful enabler for supply chain resilience, but it's not a silver bullet," says Minna Aila, communications chief at Finnish crane-maker Konecranes and member of a business board that advises the OECD on issues including supply chain resilience. "I'm still looking forward to the day when AI can predict terrorist attacks that are at sea, for instance."
Konecranes' logistics partners are deploying AI on more mundane data, like weather forecasts.
The company makes port cranes that are up to 106 metres (348 ft) high when assembled. When shipping them, AI marries weather forecasts with data like bridge heights to optimise the route.
"To ship those across oceans, you do have to take into consideration weather," Aila says.
By keeping inventories low, firms can bolster profit margins that are under pressure from rising costs. Every component or finished product sitting on a shelf is capital tied up, incurring finance and storage costs and at risk of obsolescence.
McKinsey has been surveying supply-chain executives since the pandemic. Its most recent survey showed that respondents relying on bigger inventory to cushion disruptions fell to 34% last year from 60% in 2022. Early responses from its upcoming 2025 survey suggest a similar picture, Jochim said.
Gartner supply chain analyst Noha Tohamy says that without AI, companies would be slower to react and be more likely to be drawn into building up inventories.
"When supply chain organisations don't have that visibility and don't really understand the uncertainty, we go for inventory buffering," Tohamy says.
But AI agents won't put supply chain managers out of work, not yet, consultants say. Humans still need to make strategic and big tactical decisions, leaving AI agents to do more routine tasks like ordering and scheduling production maintenance.
Toro supply chain chief Carpenter says that without AI, supply chain managers might need to run bigger teams as well.
Is he worried that AI is coming for his job one day? "I hope it doesn't take it until my kids get through college!"
(Reporting by Mark Bendeich; Editing by Sharon Singleton)