Driving efficiency in distribution and logistics through the power of AI

In today’s highly competitive global marketplace, making sure your distribution and logistics capabilities are effective and efficient is not just a desired business goal – it’s a necessity.

Put simply, any company unable to make sure its supply chains are ready for the modern age will undoubtedly suffer from slower response times and higher operational costs, meaning it could end up potentially unable to meet customer expectations.

Artificial intelligence (AI) has quickly become the most powerful tool for transforming how goods are moved, stored, and delivered in the modern age, with AI redefining the logistics landscape by unlocking significant savings in time and cost – so what can your business get out of the technology?

IDC predicts that AI will contribute $19.9 trillion to the global economy by 2030, accounting for 3.5% of global GDP during the same period.

“In 2024, AI entered a phase of accelerated development and deployment defined by widespread integration that’s led to a surge in enterprise investments aimed at significantly optimizing operational costs and timelines,” said Lapo Fioretti, senior research analyst, Emerging Technologies and Macroeconomics, IDC.

“By automating routine tasks and unlocking new efficiencies, AI will have profound economic consequences, reshaping industries, creating new markets, and altering the competitive landscape.”

The state of modern distribution and logistics

Traditionally, distribution and logistics operations involve complex, multi-tiered supply chains comprising suppliers, manufacturers, distributors, retailers, and consumers – and the challenges of managing these incredibly detailed and volatile processes have only increased with the rise of global commerce.

Today’s supply chains must balance ever-shifting consumer demand, inventory management, vast swings in fuel prices, and often unpredictable global transportation bottlenecks. With customers now demanding faster deliveries and transparency throughout the process, it becomes clear why making your logistics operations as efficient as possible has become such a critical driver of business success. This is where AI comes in.

“Top-performing supply chain organizations make investment decisions with a different lens than their lower-performing peers,” said Ken Chadwick, vice president analyst in Gartner’s Supply Chain Practice.

“Enhancing productivity is the key factor that will drive future success and the key to unlocking that productivity lies in leveraging intangible assets. We see this divide, especially in the digital domain where the best organizations are far ahead in optimizing their supply chain data with AI/ML applications to unlock value.”

The transformational possibilities of AI

AI offers unique capabilities to solve challenges in every industry, but what can it do for the distribution and logistics world? Here are a few examples.

• Predictive analytics: Being able to anticipate demand and adapt your supply chains effectively is vital in today’s modern logistics space. AI-powered tools can analyze historical data, measured alongside external factors such as market trends, economic conditions, and even weather patterns, to predict future demand more accurately, helping businesses prepare and optimize their inventory, reducing both overstocking and stockouts. By anticipating demand more effectively, companies can not only minimize waste and lower storage costs but ultimately ensure they can meet customer expectations without issue.
• Warehouse automation and robotics: Warehouse management is at the heart of distribution logistics, and AI-powered automation can provide major improvements, optimizing storage layouts, allocating locations for in-demand goods, and helping streamline the picking and packing process by analyzing popular routes or bottlenecks. Robots powered by AI and machine learning are now a common feature in many modern warehouses, where their functions range from autonomously moving and retrieving items, right down to preparing orders for shipment. These robots work faster and more accurately than human workers, reducing errors and increasing output.
• Route optimization: Transportation is often the most expensive part of a company’s logistics operations, but AI is able to help optimize delivery routes based on real-time traffic data, weather conditions, and even fuel prices. For example, AI systems can dynamically adjust delivery routes in real-time based on congestion, accidents, or road closures, ensuring goods reach their destination as quickly and cost-effectively as possible, while also reducing the environmental impact of transportation, all while boosting customer satisfaction.
• Improving fleet management: In addition to route optimization, AI can improve fleet management. Through the use of sensors and telematics, AI can analyze a range of variables, such as engine health, fuel efficiency, and driving habits, to predict maintenance issues before they cause breakdowns or track driver performance to do just the same for humans. Spotting these issues early helps reduce potentially costly downtime, improving efficiency, as managers can assign fleet vehicles to routes in the most efficient manner possible, taking into account factors like load size, vehicle condition, and driver availability.
• Enhancing supply chain visibility: With its ability to quickly and effectively monitor and analyze large-scale datasets in real time, one of the most significant advantages of AI is its ability to provide end-to-end visibility across the entire supply chain. Businesses can use AI tools to track the progress of goods as they move, as well as keep track of inventory levels, and spot bottlenecks or potential delays before they happen. Giving access to all the stakeholders in the supply chain also provides improved transparency, meaning businesses can get more out of their planning processes and make more informed decisions about production, distribution, and resource allocation.

Boosting logistics efficiency using AI

By using AI-powered tools to reduce their operating costs, businesses can then contribute these savings to other areas of the business, such as product development, marketing, or customer service. But along with cost savings, businesses that embrace AI tools will be able to operate more flexibly, respond to changes in real time, and ultimately provide a better customer experience.

Modern consumers expect fast, reliable deliveries that they can keep track of. The new AI era will allow businesses to meet these expectations by optimizing delivery routes and automating order processing, meaning faster deliveries that lead to higher customer satisfaction.

Technologies such as warehouse automation also reduce the likelihood of human error in tasks such as order fulfillment, inventory management, and data analysis. This improves accuracy across the board, leading to fewer returns, better inventory control, and enhanced customer satisfaction.

In quickly changing markets, AI platforms will also allow businesses to adapt more quickly to changes in the market, whether it’s a sudden spike in demand, a supply chain disruption, or changes in customer preferences.

Finally, AI can also help businesses do their best to meet sustainability efforts – for example, optimizing transportation routes, reducing fuel consumption, and minimizing waste in the supply chain can help companies lower their carbon footprint and operate more sustainably.

Implementing AI

While the potential benefits of AI in logistics are clear, implementing AI solutions requires careful planning and a strategic approach.

If you are considering investing in AI for your distribution and logistics operations, it’s best to identify which areas stand to benefit the most. Whether it’s improving demand forecasting, reducing transportation costs, or automating warehouse operations, focusing on specific pain points will help maximize the return on investment.

Once you have your goals, your business needs to ensure it is investing in the right technologies, as AI is a very broad field, and not all technologies are suitable for every business – especially with the hype level remaining high.

Your company should establish a clear path for integrating AI with its existing systems but also look to foster a data-driven culture. AI relies on large amounts of data to function effectively, so businesses need to make sure they have robust data collection and management processes already in place, and encourage a new way of decision-making based on these new insights.

Businesses must avoid implementing AI for AI’s sake and instead ensure they have a robust foundation – focusing on data, infrastructure, and more – to build on.

“Business leaders are beginning to shape their future by raising strategic AI investments,” said Traci Gusher, EY Americas AI, data, and automation leader, when the firm launched its first AI Pulse Survey in July 2024.

“But the survey uncovered significant risks on the path to enterprise-wide AI adoption, including data infrastructure, ethical framework, and talent acquisition. These are key to fully maximizing AI’s abilities and will allow organizations to differentiate themselves in the marketplace.”

Gusher added: “AI is clearly moving out of the hype phase and firmly toward being a viable means of productivity for organizations. As we move into the next phase of full-scale AI integration, leaders will need to develop a holistic strategy that completely reimagines the entire enterprise system to create an AI-centric business that best harnesses the transformative power of the technology.”

Ultimately, the goal of AI is not to replace human workers, but rather to augment and enhance their capabilities, so introducing your workers to understand and work with AI-powered systems effectively is also a vital consideration.

The application of AI in distribution and logistics is no longer a futuristic concept – it is already transforming the way many businesses operate today. Utilizing AI means companies can drive significant improvements in efficiency, reduce costs, and provide better service to their customers.

As AI technology continues to evolve, its role in logistics will only grow, making it a crucial investment for any business looking to thrive in an increasingly competitive market.