Council Post: 5 Ways AI Can Benefit Demand Forecasting And Inventory Planning
Alex Koshulko is a leading supply chain planning expert with over 10 years of experience. Ph.D. CEO and cofounder of GMDH Streamline.
Many supply chain managers I’ve talked to over the past several months say the same thing: “Three years ago, our inventory management processes were manual. We were using spreadsheets, but it worked. Then Covid-19 hit and the wheels fell off. We are still experiencing the supply chain disruptions caused by it. We now realize we need to move to a more robust solution.”
Before the pandemic, supply chain managers were accustomed to using reliable historical sales data. It was the same data showing similar patterns and seasonal trends year after year. Besides, the supply chain itself was rather predictable. Suppliers’ lead time was more or less stable. All of this made inventory management much easier than it is now.
Today, supply chain managers have to deal with a new set of challenges such as supplier unpredictability, missing historical data and various supply chain disruptions. Moreover, they still need to do their everyday job, namely, balancing inventory levels, meeting their customers’ expectations and preferably outperforming competitors.
Adding to these challenges is that they are required to react to changes almost immediately. In fact, according to Gartner, “60% of [chief supply chain officers] are expected to make faster, more accurate and consistent decisions,” often in real time.
The pressure to deliver targeted service levels consistently despite these challenges forces managers to look for new solutions, such as AI-powered ones, to help them play by these changing rules and succeed in this new reality.
To be practical, these tools may not be the best choice for smaller companies that can manage supply chain planning manually. But for companies with hundreds or thousands of SKUs, the old-fashioned Excel-based inventory management strategy is no longer a realistic option. So, for companies considering a more sophisticated solution, tools powered by artificial intelligence (AI) may be a beneficial option.
Here are five ways that AI-powered inventory planning software can help supply chain management and three things that companies should consider before implementation.
Five Ways AI-powered Inventory Planning Software Helps Supply Chain Management
From my experience, AI-driven tools have at least five notable benefits over traditional solutions. In short, it’s all about reducing the number of manual processes, cutting the number of errors resulting from supply chain complexities and, finally, helping supply chain managers order the right number of products at the right time.
Workflow Automation And Data Consolidation
Supply chain managers at medium-sized to large companies often work with dozens of Excel spreadsheets to manage data from their enterprise resource planning (ERP) systems. Doing this planning manually takes weeks and usually means that different team members rely on outdated data. Alternatively, AI solutions can integrate with all data sources and automatically update the data in ERP by submitting daily suggested purchase, transfer and manufacturing orders to the ERP system.
Ordering Plans Are Updated Automatically
As a supply chain manager, you are constantly faced with questions like “What will my future sales be? What should my inventory levels/assortment look like? What inventory do I have now? What is being delivered currently and how might delays affect my supply chain? What should my replenishment plan look like to minimize overstock costs and out-of-stock losses?” AI tools give instant answers to these questions by dynamically simulating how all the company schedules collide.
Such solutions may also automatically update your ordering plan while incorporating any number of demand and supply constraints. As a result, your replenishment plan can become more realistic and always remains up to date.
Dealing With Supplier Unpredictability
Inventory management depends on the predictability of supplier lead time to a great extent. With the recent supply chain instability, supply chain managers are forced to deal with constantly increasing lead times. What used to be 30 days can easily become 90 days or more. Such changes can significantly disrupt inventory planning. As a response to the problem, AI tools instantly take into account new lead times and automatically update ordering plans.
Selling Products With No Historical Sales Data
To create effective ordering plans, supply chain managers need to forecast demand accurately. To do that, they require reliable historical sales data, which may be impossible to get for some products, such as new offerings with no sales history. In such cases, AI software can use the demand forecast model for a similar existing product and automatically update it as new data comes in.
Minimizing Overstock And Stockouts
The trick with inventory planning is to order just the right amount of product to satisfy customer demand while avoiding overstock or out-of-stock issues. AI solutions can constantly rebalance demand and supply by automatically analyzing all available data and constraints.
As a result, these solutions give supply chain managers an optimal purchasing plan ready for execution at any given time.
Three Things To Consider Before Choosing A Platform
There are many choices of supply chain planning platforms to select from. Here are three key considerations to keep in mind.
Does the platform incorporate advanced statistical analysis and AI methodologies to perform demand forecasting? This will help to ensure accuracy when taking into account anomalies in historical data and other supply chain complexities.
How well does the system deal with the delicate balance between overstock and stockouts, and does it provide a constantly updated replenishment plan to optimize these often competing objectives? Check whether it can simulate how its demand forecast and replenishment plan play forward in time to show how it meets these objectives.
Does the vendor identify your business requirements during the implementation process (i.e., in addition to your IT requirements)? When meeting with a potential vendor, determine whether they understand your planning workflows and individual roles.
It is also important to make sure they configure their platform to meet your planning focus, such as top-down by category/item first, or by client/channel separately. The more the configuration of their solution matches how you do business, the more successful the outcome will likely be.
Whatever software you choose, here’s the bottom line when selecting a vendor: You should feel as though their planning platform is working for you, and not that you’re working for it.
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