How Audi is using AI as a supply chain risk radar - Just Auto
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How Audi is using AI as a supply chain risk radar

By David Leggett 18 Jun 2021 (Last Updated July 20th, 2021 09:26)

Since October 2020, Audi has been using what it terms ‘intelligent algorithms’ to analyse news about suppliers from publicly available online media sources and social networks as part of a pilot project being conducted in around 150 countries worldwide. This analysis encompasses sustainability criteria such as environmental pollution, human rights violations, and corruption. If there is any suspicion of potential sustainability violations, artificial intelligence sounds the alarm.

The ‘sustainability radar’ is designed to uncover violations at an early stage and initiate appropriate consequences.

Audi has outlined its sustainability requirements for business partners in its “Code of Conduct for Business Partners.” Audi says it takes well-founded indications of violations extremely seriously and follows them up systematically. The brand’s defined environmental, social, and compliance guidelines form the basis for collaboration and are an integral part of the automaker’s risk assessment processes. A sustainability rating (“S rating”) for suppliers has been a mandatory criterion for awarding contracts since 2019.

Audi uses this procedure to verify whether its contractual partners comply with the requirements laid out in the ‘Code of Conduct for Business Partners’. Audi only works with companies that pass this audit.

In 2020, more than 13,000 suppliers provided the Volkswagen Group with a self-assessment of their own sustainability performance. More than 800 suppliers were audited on site, and more than 1,300 have improved their sustainability performance and now meet Audi’s stringent standards. Audi’s 14,000 direct suppliers from around 60 countries are also expected to ensure that their upstream partners comply with the sustainability requirements laid out in the Code of Conduct for Business Partners. In order to verify compliance with the requirements of the S rating, Audi also maintains several traditional complaint channels. These include, for example, more traditional channels such as post office boxes and ombudsmen.

Artificial intelligence has supplemented supply chain monitoring at Audi since October 2020, complementing the traditional complaint channels with a proactive tool. “In order to handle the complexity of our supply chains in a responsible manner, we rely on strong alliances and new technologies,” says Susanne Lenz, supply chain sustainability strategist at Audi. Comprehensive risk monitoring at Audi combines different methods and systems – including with the aim of responsibly managing complexity in the supplier structure.

AI software: monitoring in 50 languages and 150 countries

The digital early warning system for sustainability risks used by Audi together with Volkswagen and Porsche collects publicly available news in more than 50 languages and from around 150 countries. This includes social media channels such as Twitter or YouTube as well as local news outlets. Since the AI developed by Austrian startup Prewave uses automatic speech recognition to understand the meaning of the respective messages, potential sustainability violations can be identified flawlessly, it is claimed. “We are delighted to be working with Audi, Volkswagen, and Porsche to carry out this flagship project in the automotive industry. Our technology is being used to screen thousands of globally distributed suppliers for sustainability risks in real time. Machine learning and automated language processing thus makes possible what would be impossible to do manually – perform continuous risk assessments across the entire supply chain that Procurement can then use to proactively approach suppliers,” says Harald Nitschinger, CEO of Prewave.

It is claimed the intelligent algorithms are constantly learning and therefore that the system is continuously improving. The system’s ability to recognize indications of developing risks is increasing, Audi says. However, the main advantage of the AI used by Audi is the speed at which it recognises relevant information online and transmits it in packaged form. “Because we receive indications earlier, we can assess potential sustainability risks to our supply chain in a timely manner and respond quickly,” says Lenz.

AI with a wide range of applications including social issues, the environment, and cybercrime

The AI covers a wide range of different areas. In the “social” category, for example, it focuses on violations of labour law, unrest in the workforce, child labour, or discrimination in the workplace. Relevant criteria in the “environment” category draw on public data regarding, among other issues, air pollution, water pollution, water consumption, or waste problems. And when it comes to topics such as cyber risk, the AI analyses reports indicative of suspected cyber-attacks, data fraud, or data theft.

Whenever the AI detects a potential sustainability risk developing, Audi is notified automatically and those responsible at the automaker then examine the situation in more detail. If the information received is correct, appropriate action is taken, Audi says.

AI as an enabler of sustainability

This means that Audi, Volkswagen, and Porsche can, if necessary, demand the partner immediately initiate improvements or even completely terminate the business relationship. “Artificial intelligence and machine learning are becoming enablers of sustainability at our company,” says board member Dirk Große-Loheide, who is responsible for procurement and IT at Audi.

A tool for greater transparency in the supply chain

The reliability and predictive capability of the installed software is currently being verified at more than 4,000 supplier companies. Initial results indicate that the AI used at Audi is suitable for responding quickly and effectively to the dynamic risks in supply chains, which change daily. “Analysing massive amounts of data using artificial intelligence highlights how digitalisation can uncover risks in our supply chain. Thanks to our collaboration with Prewave, we are using an adaptive, powerful tool to increase transparency and efficiently monitor sustainability agreements,” says Lenz.

It is also claimed the use of AI in supply chain monitoring gives Audi a clear competitive advantage. According to a study conducted by Capgemini in early 2021 that surveyed customers in Germany, the UK and the US, almost 70 percent of car buyers view sustainability as an important factor in their purchase decision.

‘Supply chain law’

Besides VW Group, Prewave has announced it is collaborating with supplier Yanfeng to bring more transparency and sustainability to its global supply chain. “With Yanfeng we are able to demonstrate the full extent of Prewaves sustainability monitoring capabilities and we are excited to play such a pivotal role in making Yanfeng ready for the upcoming Lieferkettengesetz (supply chain law),” says. Harald Nitschinger, CEO Prewave. What is the upcoming ‘supply chain law’? It is a new due diligence requirement in Germany.

The Supply Chain Act is designed to hold companies accountable for human rights violations along their supply chain and aims to prevent child labour and inhumane working conditions. Prewave also claims it can check new suppliers against historical data to rule out problems in advance.

“Over the past few years, our direct supply base is committed to fulfill our sustainability requirements. We want to continue to build on that and connect the whole supply chain. Working together with Prewave and its Artificial Intelligence we will identify risks along the entire supply chain,” says Gunnar Büchter, Executive Director Procurement and Strategy, Yanfeng.

Using machine learning and automatic speech recognition, the Prewave platform continuously trains its proprietary algorithm to identify signals as risks from text in multiple languages, using publicly available sources such as social media to make qualitative factors measurable in real time. This, it says, is a critical step in optimising supply chain management.

Prewave has also launched a new feature to monitor commodities. It’s called the commodity dashboard and the company claims it gives an overview of a whole commodity based on Prewave’s accumulated supply chain data. It is claimed to provide an overview of market stress and production load of the commodity, while also helping the user evaluate the impact of risks like natural disasters, shortages, labour strikes or ’60+ other risk categories’.

Prewave says large scale data collection and geo-specific targeting allow it to deliver accurate early warning of labour unrest well in advance. Among the successes claimed by Prewave is predicting a seaport strike in Indonesia 18 days in advance.

The Vienna-based startup has also developed a Coronavirus Disruption Map that it says evolved from analysis of supply chain difficulties in China in early 2020. Prewave’s customers include automotive companies, logistics groups, banks, insurers and shipping companies.

‘Shit storm insurance’

Speaking to online tech publisher Futurezone a few years ago, CEO Harald Nitschinger noted that reputation risks are a big issue for insurance companies as companies seek to insure themselves against damage resulting from loss of reputation. He claimed his startup could help with calculating the premiums for such “shit storm insurance”. Recent automotive history suggests such premiums might be eye-wateringly large. However, there’s no denying that Audi and others are interested in tools that can reduce supply chain risks. Transparency down the supply chain is most definitely at a premium. Prewave appears to be on to something.