Global trade disruptions have a major impact on supply chains, as the COVID-19 pandemic has demonstrated. Ecommerce has exploded as buyers confined to their homes turned to online shopping, leading to higher sales for certain products and services and a drop in others. The lack of manpower due to lockdowns and fluctuating demand have also been challenging for retailers.
Businesses deal with other unforeseen circumstances every day, from natural disasters to political uncertainties. Risk management systems driven by artificial intelligence are designed to predict these disruptions and allow supply chains to become more adaptive, agile and resilient. Read on to learn more about how AI is impacting risk management in trade.
AI and Supply Chain Risk Management (SCRM)
Supply chain risk management aims to identify, assess and respond to unexpected events that can have a negative impact on the supply chain. The SCRM process starts by identifying risks, quantifying the risks and suggesting potential solutions to mitigate the impact of the risk. Risk is an event that can potentially have a negative impact on the business and supply chain. Risk can come from many sources (internal, external, upstream, downstream), and there are many techniques used to quantify the risk. After identification and quantification, the SCRM can avoid, postpone or transfer the risk.
SCRM strategies usually make use of AI methods like machine learning, big data analytics and mathematical programing to make adaptive decisions. Artificial intelligence is the ability of a program or system to analyze information and make independent decisions. Machine learning is a subfield of AI that crunches massive amounts of information from different sources (big data), including the internet, to identify patterns, trends and problems. ML-based risk management systems are able to learn and improve on their own without being programmed to do so. The longer the system performs this task, the smarter it gets and the more accurate its predictions.
In trade and logistics, ML algorithms in supply chain management systems predict risks and accounts for both known and unknown factors to ensure that the flow of goods is uninterrupted. It’s usually the unknown factors that cause disruption. Examples are the pandemic, trade tensions, natural disasters, business solvency, the explosion of ecommerce, and changing cross-border trade regulations. Adding new unknown variables to the ML model improves prediction accuracy as the model gets closer to reality. In time, the system allows you to find solutions to unexpected problems as they arise, shielding your business from potentially expensive mistakes.
AI risk management systems for trade can boost forecast accuracy and lower risk for your business by giving you more accurate predictions about orders, demand, delivery, production, regulatory impact and other variables to make your supply chain more resilient. SCRM systems are both proactive (they can be programmed to make recommendations in anticipation of an event) and reactive (they can automatically run solutions to mitigate the negative impacts of this event). Businesses can start by having the AI-driven system recommend solutions to known problems, then let the system take over automatically once it has learned to recommend accurate solutions.
How AI-Driven Risk Management Can Help Your Business
AI-driven risk management is used widely in different areas in the supply chain. Systems can help your organization with everything from order planning to monitoring supply chain partners.
Trade advisory and compliance
World trade in goods reached US$18.8trillion in 2019, despite a significant decline in export growth rates for goods and services (UNCTAD data). China led the world in exports and export value, followed by the United States, Germany, Netherlands, and Japan.
In 2020, the sharp decline in international trade due to COVID-19 was most pronounced in developed countries compared to developing countries. East Asian countries were the most resilient, with Q3 export values turning positive year-over-year. Overall, China exports in the first nine months of 2020 were comparable to the same period last year.
The rise of global trade and ecommerce has driven many customs agencies to update trade regulations. New de minimis rules and revised cargo declaration requirements for parcel shipments are designed to facilitate the flow of legitimate goods while increasing national security and preventing the influx of illicit shipments.
For trade participants in top importing/exporting countries like China, Hong Kong, Singapore, Japan, the United States and the European Union, there is an increased need to keep abreast with these rules and regulations in order to avoid cargo delays and heavy penalties for noncompliance.
An AI-powered risk management platform alerts you whenever customs and other government agencies change their rules, and it can recommend actions to help your business adapt to these changes moving forward. At the very least, an AI-powered trade platform collates important trade data in one place to mitigate risk and help you make more informed decisions.
Planning and predictions
Businesses use AI risk management tools in the planning phase to eliminate guesswork and make better decisions. For example, AI can tell you what products to order based on factors like demand forecast, number of current orders, storage space and supplier availability. It gives you more options for moving freight and connects you with agencies and industry partners. AI can also be used to predict issues with delivery, whether its deliveries from the supplier to the warehouse or the final mile. Smart forecasts allow you make alternative delivery plans and even prevent holdups.
It is very difficult to track all potential supply chain risks manually. AI automates this process and alerts you to the dangers, like regulatory changes and reduced supplier deliverability. For example, COVID-19 has led to a drop in apparel sales because buyers are not able to go out and try on clothes. AI systems alert managers to these trends so they can cut back on apparel orders and increase orders for top-selling products. Another issue is product recalls. AI can significantly mitigate the negative impact on your bottom line by making accurate decisions on what products to recall based on origin and material components.
Supply chain partnerships
Monitoring third-party suppliers manually is extremely time-consuming. Instead of conducting due diligence on each partner in the supply chain, AI can automatically do this for you. The system will scan information databases and create detailed and up-to-date company profiles that so you can monitor your partners for solvency, technical capability and other performance criteria. If you need an IT provider to help you grow the business, for example, the system can connect you to the best prospects.
How AI is Impacting Risk Management in Trade: CALISTA Intelligent Advisory (CIA)
CALISTA intelligent advisory - The One-Stop Trade Advisory Service - Enabling easy and smart search for trade compliance information of over 180 countries worldwide
Powered by Natural Language Processing (NLP) capabilities, the CALISTA intelligent advisory (CIA)
analyses historical data to devise trading strategy to assist the global trade community.
CIA trigger actions to orchestrate supply chain activities based on budget, timelines, and modalities. In case of unforeseen circumstances, ranging from delivery holdups to natural disasters, the platform will automatically recommend the next best steps to take. With thousands of supply chain participants at your fingertips, you can access multiple freight and logistics options to plan routes more effectively and save money.
Compliance is more important than ever as cross-border trade and ecommerce continues to ramp up. It’s easy to keep up-to-date with global trade compliance requirements with CIA. Businesses can leverage on free trade agreements (FTA) for applicable shipments, receive alerts on cargo status and movements, find accurate HS codes based on product descriptions, calculate total landed costs and understand trade barriers that may impede the flow of goods. Traders can view required trade documents, duties and taxes, and customs regulations for multiple different countries from a single dashboard.
- HS Smart Search - Provides applicable HS codes by simply entering layman product description, country of origin and country of destination.
- Compliance eAdvisory - Provides comprehensive trade compliance information based on the selected HS code.
- Landed Cost Calculator - Calculates the landed cost and tax payable easily and fast when exporting
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