AI in the electronics supply chain: a done deal?

Experts believe artificial intelligence will play a catalyst role in the evolution of the electronics supply chain. Adoption may be slow at first, though, but surprisingly, components distributors are already leading the charge with technical information and services

Purchasing and procurement, two of the stodgiest and yet fundamentally critical elements of the electronics component distribution business, are getting primed for an incredible makeover, courtesy of artificial intelligence. The breakout introduction of ChatGPT last year, coupled with the introduction of many variants of the application by enterprises seeking to leverage the advantages of AI, has sparked interest within the distribution world. Researchers say distributors, suppliers and their customers can benefit from the productivity gains other segments of the economy are squeezing from the deployment of AI applications. “AI has been a field of academic study since the 1950s, but only recently has it found concrete applications within procurement functions,” said Sievo, a data analytics and procurement services provider, in a report. “AI is transforming procurement. AI is automating or improving many time-consuming tasks or giving procurement experts additional insights based on extremely complex and large sets of data.”

The range of functions where distributors can inject AI is as wide as the broad breadth of services provided by the top industry players. In addition to their traditional role of serving as a middleman between OEMs and electronics manufacturing services (EMS) providers, on one side, and component suppliers, on the other side, distributors offer numerous other support services that could be optimized with the use of artificial intelligence, according to Sievo. These services, as detailed by the top publicly owned distributors in their filings with the Securities and Exchange Commission, stretch from design and engineering support to “demand-creation” and other value-added services. Distributors also enhance their value to customers with supply chain management programs, including warehousing, procurement of scarce components, stocking, regulatory compliance, new product innovation as well as import and export services support.

Supporting the tens of thousands of customers that a typical distributor sells components and services to can be daunting. Most distributors, including mid-tier players like Mouser and Digi-Key, have thousands of employees on their payrolls in addition to being present in dozens of countries globally. Their services are often provided in local languages and currencies, further complicating operations and raising demands on enterprise resource planning (ERP) systems, noted observers. With the digitalization of economies globally, distributors seeking to maintain operations at the highest efficiency level—to reduce or eliminate IT downtime—have had to invest heavily in ERP systems. Mouser Electronics, for example, has nearly 4,000 employees at 27 locations worldwide and supports more than 1,200 suppliers. The company said it ships products to more than 650,000 customers and stocks more than one million products, shipping from a one-million sq. ft. warehouse in Dallas.

Continuously adding new products and services is typical for the distribution world. Observers said companies in the segment are rolling out AI applications to help them stay on top of their growing roster of suppliers, customers, products and services. In addition to building out their own AI support infrastructure, distributors are also stepping in to assist engineers trying to make sense of the technology and its relevance to their professional operations. To support its engineering customers, for example, Mouser in July announced the rollout of its Artificial Intelligence hub, aimed at providing faster product information. The company said in a statement that it is offering engineers free educational content on AI technology via eBooks, blogs and articles. This is in addition to the information already available on Mouser’s website, said Kevin Hess, head of marketing at the distributor. “Our AI resource page is specifically designed to help engineers stay abreast of the latest developments in this fast and ever-evolving field,” Hess said. “We are committed to providing engineers with an unparalleled selection of products and content resources to help them learn more about this topic and other subjects at the forefront of today’s technology.”

Data hubs

Distributors aggregate a lot of data about their ecosystem. They collect information about suppliers, products, supply availability, sales and market conditions, OEM and end-customers, pricing, sourcing and supply chain management. In fact, due to the huge number of customers served by most distributors and their regular direct contact with all segments of the market, distributors can be regarded as the single most-extensive source of information about the electronics manufacturing industry. Finding a way to share this information—and with the right parties—without violating engagement conditions with customers can be complex. In addition to the data gleaned from OEM orders, for example, distributors can also have access to the component requirements of the customer’s immediate rivals.

“Procurement gathers data on clients, spend, transactions, pricing, suppliers, and contracts from RFPs, POs, spend reviews, contract management, e-catalogues, SRM systems, and expense reports, among others,” the Sourcing Industry Group (SIG), a purchasing trade association, said in a recent research report. “Similarly, every stage of the supply chain has incoming and outgoing data that affects the entire product journey, from upstream inventory planning to downstream demand management. The data can be hugely variable in its speed of delivery, structure and flow, with volumes fluctuating hourly to seasonally. It is also hugely complex, coming from many sources; consolidating, cleansing and finding patterns requires resource. This is where predictive analytics comes in—to make sense of it all.”

Being able to pool all these data into a digestible and accessible form for all players in the market without disclosing proprietary information is a valuable service that distributors can provide in an industry prone to erratic demand-supply swings and inaccurate forecasts. This is one area where access to AI tools can help to optimize pricing and product availability predictions, they said. “AI-powered methodologies can sift through immense amounts of external data to identify opportunities and provide benchmarks and recommendations for improving performance,” said Sievo, in the report cited above. “Let’s take, for example, the task of benchmarking your performance to those of others. Say, you are mainly using internal data as well as a static historical data set to benchmark your performance. This way you may get an accurate picture but are still missing out on some key observations. A whole new level of insight comes into play when external data, such as market reports and stock prices, enter the field.”

There are numerous other advantages the entire electronics industry can derive from the efficient deployment of artificial intelligence tools, according to Sievo. Using AI applications, supply chain partners, working in unison and sharing critical data, can improve the sources and type of information they capture about market conditions, increase their anomaly detection rate, and better manage supplier and customer contracts, the company said. AI can also be used for supplier risk management, accounts payable automation, purchase analysis and classification, trend analysis, accounts receivable management, product end-of-life management, employee training and regulatory compliance. The availability of AI tools will not eliminate procurement challenges, however. Distributors will still need to be methodical in introducing AI and not dive in first at the deep end, Sievo said. “To start with AI, don’t look for miraculous new solutions to change the way you run your procurement operations,” the procurement data analysis firm warned. “Don’t think of AI as magical new technology. Instead, think of AI from the business process point of view. Consider the challenging but boring business operations that already take time and resources to manage. The most immediate value of AI will not come from new applications, but from embedding technology into existing processes—for example, improving your existing spend analysis or contract management processes.”

Early days

Not everyone in the electronics supply chain is racing to add AI tools to their offerings or even introduce it within their own services. Purchasing market analysts said the terrain can be slippery although they encourage players in the supply chain to get involved, starting with efforts to assess their operations and enlisting the assistance of experts to determine how, when and in which areas to use AI services. For example, SIG said in its report that AI would have a transformative impact on the procurement function but also noted that it is too early to determine fully how companies could best leverage the technology innovation. “Procurement and supply chains, along with the wealth of data they generate, are both ripe to leverage the efficiencies and insights afforded by AI, and in some cases already are,” the SIG said, in a whitepaper. “However, the level of ambition, capabilities and change required to benefit from the technology can appear challenging.”

Despite the obvious challenges—of cost, use cases determination and implementation efficiency—the manufacturing economy is likely to benefit greatly from the digitalization of key operations, the SIG noted, basing its conclusion on a survey. It identified high-tech, telecom, manufacturing and financial services sectors as the likeliest early adopters of AI tools for productivity gains. Many of these economic sectors have focused their adoption of AI and digitalization on supplier compliance and supply chain risk management. These early adopters want to enhance their forecasting and analytical capabilities, the SIG determined. “The ability of automation to produce high-impact results across key measurables that matter for businesses—profitability, agility and driving positive customer experiences—is undeniable,” the SIG report noted. “Smart automation” initiatives, combining both AI and RPA capabilities, will improve decision-making and enhance productivity and cost savings. Traditional technology suites are facing incremental challenges to deliver upon procurement’s more recent expectations, making smart automation a priority. Encouraging results from early implementations of automation solutions are expected to move the needle from boardroom chatter to actual adoption.”

If the SIG findings prove correct, how fast can the electronics supply chain deploy AI applications in critical operational areas? Do not expect a hasty or accelerated deployment of AI in the supply chain, whether within distribution or in the larger electronics supply chain. Distributors, especially, have had rough experiences with IT tools in the past and are likely to be cautious in rolling out these tools without first determining the cost-to-benefit ratios. Distribution being a low-margin business, it is more likely that enterprises in the sector would find uses for AI where they can automate functions to further reduce costs and improve productivity. Such areas include contract analysis, human resource and sourcing management, information sharing and data analysis, invoicing and purchase order generation, fraud detection and other risk management activities, according to Dariusz Rafal Pielach, a procurement, sourcing and data analysis expert.

“In today’s fast-paced and highly competitive business environment, procurement teams face enormous pressure to deliver cost savings, manage risks, and account for factors previously unheard of, such as ESG (environmental, social and governance) considerations,” Pielach said, in a LinkedIn post. “However, traditional procurement methods are often reactive and lack the agility needed to keep up with changing market dynamics. This is where artificial intelligence can make a significant difference. By harnessing the power of AI, procurement teams can transition from reactive to proactive procurement, making informed decisions based on data-driven insights.”