Revolutionizing Retail: A Guide to AI Demand Forecasting
September 8, 2023
by Kristin Brennan
It’s hard to deny the impact AI is having on almost all industries. And that doesn’t stop short with retail, where machine learning has revolutionized day-to-day operations. How? The greatest contender for transforming business operations is AI demand forecasting.
It ultimately changes how businesses predict customer demand and manage their resources. Retail veterans are undoubtedly familiar with traditional methods of demand forecasting, but by harnessing artificial intelligence and automation, retailers can make far more accurate predictions about future sales patterns, helping them to optimize staffing levels and inventory better than ever before.
This innovative approach goes beyond traditional forecasting methods by analyzing vast amounts of data quickly and accurately. It enables retailers to anticipate demand with a level of previously unattainable precision.
The benefits of AI demand forecasting extend across various aspects of retail operations. From ensuring sufficient stock levels during peak periods to preventing overstaffing during quieter times, this technology helps businesses operate more efficiently and profitably.
In an increasingly competitive retail landscape where consumer behavior constantly evolves, leveraging AI for demand forecasting has become crucial. This guide will delve into how it works in detail while highlighting its transformative potential in retail management.
What is AI Demand Forecasting?
Traditional demand forecasting methods involve taking careful measurements over time, manually identifying trends, researching possible external factors that may affect your projections, and determining what’s needed to address the findings.
However, in businesses where the landscape changes rapidly, such as the retail industry, these methods are hard to keep up with.
AI demand forecasting involves automatically analyzing historical sales data alongside external influences using sophisticated machine-learning techniques. The outcome? An almost effortless, incredibly precise forecast that anticipates future staffing, inventory, and budget needs at a granular level.
With Legion, those forecasts are fully automated and flexible—adapting as new real-time data is analyzed. The forecasts can even be seen at 15-minute intervals across different channels or locations.
This degree of detail empowers retailers to intelligently automate workforce and capacity planning. For instance, if an AI algorithm predicts high consumer traffic during specific hours based on past trends and other factors like holidays or promotions, the software can automatically create the right labor plan to allocate staff efficiently during those peak periods while simultaneously allowing for human control.
Potential Impact on Retail Operations
Retail companies stand to gain exponentially from leveraging AI-powered solutions for accurate demand forecasting.
When you can predict demand, you can better plan re-stocks and efficiently manage existing stock. This helps avoid overstock and under-stock scenarios, which leads to happier customers and a better bottom line.
Customers will also be pleased when they receive improved customer service from adequately staffed locations—another benefit to leveraging accurate forecasts. Say goodbye to employees milling around, feeling unfulfilled with not enough to do, and hello to just the right amount of staff to meet demand.
AI demand forecasting can predict customer foot traffic and needs precisely. It impacts inventory control, workforce planning, budgeting, and more. The result? Streamlined operations, optimal resource utilization, a more efficient workforce, and happier customers.
Benefits of AI Demand Forecasting
The retail landscape is riddled with complexities, and navigating through fluctuating customer demand patterns can be a challenge. Traditional forecasting methods often fall short of accurately predicting future sales trends. This is where artificial intelligence (AI) steps in, revolutionizing how businesses forecast demand.
- Better Accuracy and Efficiency: An AI demand forecasting system, such as Legion’s solution, utilizes machine learning algorithms to automatically analyze historical data along with external factors like weather or promotional events for accurate predictions. The efficiency provided by automating this process allows your team members more time to focus on strategic business operations instead of manual number crunching. A 1% improvement in demand forecast accuracy can lead to a .5 reduction in labor costs resulting in significant cost savings.
- Risk Mitigation Through Improved Planning: Accurate forecasts are crucial for effective risk assessment within supply chain management processes; they directly impact inventory levels, staffing needs, and budget allocation, among other things.
- Potential Sales Boost & Enhanced Customer Satisfaction: In today’s competitive market, where customers expect immediate gratification coupled with personalized experiences, having the right product available at the right place and time is key. Accurate models powered by machine learning algorithms enable retailers to meet these expectations effectively, thereby driving increased customer satisfaction rates potentially boosting overall sales performance. Read our use case on optimizing labor costs using AI-based workforce planning strategies for more examples.
A comprehensive understanding of these benefits will help you weigh the pros and cons while evaluating providers that offer solutions integrating AI-demand forecasting into their WFM software offerings or even replacing existing systems if necessary.
How Does AI Demand Forecasting Work?
In the retail world, having a handle on customer demand is critical. It’s all about ensuring you have just the right amount of staff and inventory at any given time – not too much to lead to waste, nor too little, leading to missed opportunities. This delicate balance can be achieved through accurate demand forecasting.
The Power of Machine Learning
A key player in this process is artificial intelligence which uses historical sales data and external data for precise predictions. The beauty of it lies in its ability to automatically learn from past patterns while considering present trends and other influencing factors such as weather or local events. Forecasts automatically adapt and improve even in changing business conditions.
This technology underpins Legion’s software, which harnesses advanced machine-learning algorithms for detailed analysis, resulting in reliable forecasts down to even 15-minute increments per channel/location/SKU basis.
Historical vs. Real-Time Data
Demand forecasting isn’t solely reliant on past performance; current market conditions also play a significant role. By combining historical sales data with real-time insights like ongoing consumer behavior across channels or SKUs, fluctuations within markets, etc., more comprehensive and dynamic projections are generated by these AI-driven models.
Sudden changes aren’t left out either—whether there’s an unexpected surge in product popularity or unforeseen disruptions in store operations they’re swiftly incorporated into updated forecasts, ensuring your business remains agile amid changing circumstances.
Real-time insights and sudden changes are almost impossible to factor into forecasts that use legacy methods, often leaving retailers unable to adapt.
Predictive Models & Actionable Insights
Turning raw numbers into strategic decisions regarding workforce planning or capacity planning requires sophisticated predictive modeling powered by cutting-edge AI algorithms.
These algorithms help translate collected information into future sales estimates, offering invaluable support when deciding staffing levels throughout the day/week/month/year, etc. As a result, understaffing & overstaffing situations become avoidable, significantly improving overall efficiency within business operations.
AI demand forecasting generates precise predictions based on historical and real-time data. This technology boosts operational efficiency by allowing retailers to swiftly adapt to sudden changes in a way that traditional forecasting methods don’t.
Implementing an AI Demand Forecasting System
In the fast-paced world of retail, implementing a system for accurate demand forecasting is no longer optional一it’s essential. The first order of business is evaluating your current workforce management software and its capabilities in this area.
Evaluating Your Current WFM Software
If you’re already using a WFM provider, consider their proficiency with artificial intelligence solutions. It may be time to look into other possibilities if your current WFM provider is not proficient with AI solutions or does not fit your requirements.
The search should focus on providers specializing in machine-learning algorithms and real-time data processing that can provide precise predictions about customer demand based on historical sales data and external factors impacting supply chains.
Finding the Right Product
Once you’ve taken stock of where you stand currently, move towards finding a product that meshes well with your operations. Key features to look for include capacity planning grounded in historical sales data and considerations for any external influences affecting consumer behavior.
A prime example would be Legion WFM, which offers AI-driven models capable of accurately predicting future sales at multiple levels—channel-wise, location-specific, or SKU-centric—all broken down into 15-minute increments. This level of detail significantly enhances supply chain planning by offering more granular forecasts than traditional methods used within the industry today.
Making An Informed Decision
Weighing the pros and cons becomes crucial before making such significant changes to the tech stack an organization uses daily. Consider factors such as the level of automation provided versus manual effort required, ease of use, integration with existing systems (if necessary), cost-effectiveness over immediate investment costs, etc., when deciding whether to implement an AI-based forecasting system into business operations.
Staying relevant and current in retail requires an AI demand forecasting system. Evaluate your existing software provider, consider options with machine learning and real-time data processing prowess, and then make a choice that suits your operations.
AI demand forecasting is the future of retail. This revolutionary technology takes the guesswork out of inventory, staffing, and budget planning. The benefits are tangible: accuracy in forecasts, happier employees and customers, potential sales boost, and no missed opportunities.
Implementing it may seem daunting, but with careful evaluation of your current WFM provider and products available in the market, it’s achievable.