Spreadsheets Can’t Keep Up: Three Reasons Why You Should Let AI Do the Forecasting
December 10, 2020
If you’ve experienced the ups and downs of inventory and supply management that COVID-19 has created this year, this story might hit a little too close to home.
It’s about a food brand that didn’t have AI-driven demand forecasting.
The year started out pretty normal. (As it did for everyone!) Then the pandemic hit, and lockdowns pushed everyone into the kitchen. Suddenly, cooking and baking hit all-time highs – and demand for products did, too.
While it was a “good problem to have,” it quickly devolved into chaos. The spreadsheets couldn’t keep up. They needed real-time stock levels and inventory notifications, data down to the SKU level, and sales and unit forecasting that was actually accurate and algorithm-driven – not just guessing.
Does this situation sound familiar to you?
It’s all too common among both CPG and DTC brands. Fortunately, artificial intelligence and machine learning have accelerated in both sophistication and adoption this year, to the point where we can now achieve over 90% forecast accuracy. Our AI-engine delivers forecasts and PO predictions across channels because it can “see” the entire value chain.
More importantly, during times like COVID, there are disruptions in supply chains and operational challenges, coupled with volatility in consumer demand patterns. Our forecasting model can take into account publicly available COVID-19–related data to increase the predictive power of models and generate COVID-19 adjusted forecasts in the short-term that guide vital planning decisions.
Even factors like unemployment rates, most-affected industries, and which products consumers are stockpiling are taken into consideration in the algorithm!
Take toilet paper, for instance. No one, not even economists, predicted the sudden surge in panic buying. The data from that surge, however, fed the software algorithms which then predicted that many shoppers would suddenly stop purchasing toilet paper as they ran out of room to store them. As a result, retailers were able to adjust to a small surplus, thus prepared to deal with future shortages.
But it’s not just about being able to be prepared with surplus. Here’s what will happen if you use AI for 90% accurate demand forecasting:
More cash in your pocket.
When demand forecasts are more accurate, you can make decisions about inventory that save you cash in the short term. Even just small tweaks can result in significant differences. One consulting firm noted that when they saw a 1% increase in the accuracy of the demand forecast, it led to a reduction of at least 0.5% in the inventory carried. This translated directly into freed-up capital. And as we all know, especially when you’re dealing in goods, cash is king. There’s nothing like extra capital.
BONUS: Read how one brand improved its forecast accuracy by 180% during the early months of the pandemic using Tradeswell’s algorithms to manage purchase orders and allocation across sales channels.
Avoids overgeneralizations that can cannibalize sales.
Particularly during times like we’ve seen this year, it’s easy for planners to paint broad strokes over entire categories of products. “No one is buying makeup,” for example. But when you apply machine-learning at the SKU-level, you’ll find a more rigorous analysis can surface opportunities where you may have assumed there were none. When looking at a health and beauty brand’s product lineup at a granular level, there are sub-categories, and even specific variations on one type of product, that AI can predict will perform better than others based on the multiple levels of data it is leveraging.
Protect your margins and boost the bottom line.
During times of unforecasted sales, margins can run amuck. Why? Because misinformation about future sales doesn’t just mess with inventory levels, it also affects your advertising budget. Luckily, when your forecasting technology is also tied to other parts of your business, like marketing, you can have more control over what you should be spending, through real-time predictions of the conversion rate at the keyword level.
If you’re ready to make the transition from spreadsheets to AI-driven forecasting and demand planning, connect with us today to see how Tradeswell’s machine learning can empower your team for ecommerce success.