How AI and Demand Forecasting Work

The retail, e-commerce, and wholesale industries are full of rapid customer demand changes, unpredictable supply chain issues, and complicated logistics. Recent global events have exacerbated these challenges, disrupting the predictability of supply chains, changing the way purchases are made and fulfilled, and making historical sales data less reliable.

In order to balance inventory levels and make accurate forecasting predictions in today’s fluctuating market, businesses need to employ dynamic inventory planning solutions. Spreadsheets and manual calculations are no longer sufficient to keep up with the rapid changes merchants are experiencing.

Maintaining optimal inventory levels and knowing what and when to order requires software that can utilize up-to-date data to make complex calculations in real time. To navigate this new reality, many businesses have sought out advanced tools, including those that leverage artificial intelligence (AI), to help improve forecasting accuracy. In this article, we will look at ways that AI can help inventory planning processes, some of its drawbacks, and how Inventory Planner’s sophisticated algorithm is custom-built to help businesses achieve and maintain optimal inventory levels, no matter how volatile the market becomes.

Advanced Demand Forecasting in Inventory Planning Software

Inventory planning software helps businesses predict sales, anticipate customer demand shifts, and make informed purchasing decisions. These solutions simplify the entire inventory coordination and acquisition process, from the supplier to the warehouse and, ultimately, to the customer.

By employing distinct algorithms and, in some cases, AI-driven technology, inventory forecasting solutions eliminate the uncertainties associated with demand prediction. They eliminate the need for time-consuming manual calculations and labor-intensive spreadsheets, enhancing forecasting accuracy while improving purchasing decisions.

Using complex algorithms and advanced data processing techniques, inventory planning software like Inventory Planner not only refines every aspect of inventory forecasting and demand projection, but also improves supply chain management, offers accurate purchasing recommendations, and provides comprehensive reporting.

Benefits of Using Advanced Demand Forecasting

Advanced inventory planning tools, including those that use AI and sophisticated algorithms, provide a number of advantages over traditional inventory planning solutions. These features reduce manual calculations, decrease human errors, and help ensure businesses order the right amount of stock at the right time, regardless of seasonality, promotions, supplier lead times, and other variables. Here are a few of the benefits that improve the inventory planning process:

Automation and Consolidation 

Advanced demand forecasting can integrate with all your data sources, automatically updating purchasing recommendations based on the most up-to-date information. These tools can factor in future sales predictions, current stock levels, potential supply chain delays, and any other demand or supply constraints to ensure your replenishment plan is always accurate.

Managing Supplier Unpredictability 

Effective inventory planning relies heavily on the ability to accurately predict supplier lead times. As supply chains become increasingly complex and unpredictable, timeframes that were once reliable are now prone to frequent delays and deviations. These fluctuations can easily disrupt your inventory planning processes. With advanced forecasting tools, new lead time information can be automatically applied to ordering plans, making sure they stay accurate and up to date.

Simulating Historical Sales Data 

In order to maintain an effective ordering strategy, businesses must be able to accurately predict demand using reliable historical sales data. But for some products, such as new SKUs with no sales history, this can be impossible. With dynamic inventory planning software, advanced algorithms can be used to simulate a demand forecast model based on similar products, automatically updating it as new data arrives.

Reducing Overstock and Stockouts 

Advanced forecasting tools enable dynamic segmentation to create custom forecasting predictions across SKUs, product types, locations, and channels.​ This ensures that your ordering recommendations are specific to every SKU in your catalog, taking into account a variety of factors that can affect stock levels. By taking this dynamic approach, merchants can avoid the risk of overstocking or stockouts, giving them just enough inventory to meet demand without incurring unnecessary inventory holding costs.

Drawbacks of Using AI in Demand Forecasting

While AI in demand forecasting offers a number of benefits to retail, e-commerce, and wholesale businesses, there are also several challenges associated with its use. AI-based solutions require advanced algorithms to serve as guardrails against potentially inaccurate information. Here are a few of the drawbacks of some AI tools:

Data Dependency and Quality: AI demand forecasting requires accurate and relevant data. If the historical data used for training the AI model is incomplete, inaccurate, or not representative of current market conditions, the forecasts generated can be unreliable.

Seasonal Variations and Events: Pure AI models may struggle to accurately predict demand during significant market fluctuations, such as holiday seasons or unexpected events, leading to inaccurate forecasts and inventory imbalances.

Unforeseen Patterns: AI models may struggle to recognize novel patterns or shifts in consumer behavior that were not present in the training data. When faced with new market dynamics, this can result in missed opportunities or incorrect forecasts.

Continuous Maintenance: AI models often need regular updates and recalibration to stay relevant. As market conditions change over time, failing to update the AI models can lead to diminished forecasting accuracy.

Integration Challenges: Integrating AI forecasting systems with existing legacy systems and processes can be complex and require substantial effort. Poor integration can lead to data discrepancies and inconsistent forecasting results.

Lack of Customization: Some AI forecasting solutions might not be easily customizable to fit specific business needs, resulting in generic forecasts that don’t align with the business’s unique characteristics.

Accurate Forecasting With Inventory Planner

While AI technology shows promise in inventory management, it’s still evolving and requires careful attention to ensure its powerful capabilities operate based on accurate input. Inventory Planner uses advanced algorithms that, while not AI, are similar in their ability to synthesize data, adapt to new information, and automate processes. By taking into account historical sales, seasonality, market fluctuation data, and other metrics, Inventory Planner allows you to achieve accurate demand forecasting and improve replenishment recommendations.

Inventory Planner’s flexible options allow you to configure forecasting methods in various ways to meet your specific business needs, including by SKU, variant, bundle, supplier, channel, or warehouse. This gives you individual forecast demand for stock that trends differently and reliable replenishment recommendations for each product you need to order, as well as the reorder points for all components.

So, whether you’re selling items that follow different trends or assembling components, you’ll know precisely what to reorder and when. Once Inventory Planner has provided reliable ordering recommendations, its replenishment report makes the purchasing process a breeze. In just a few clicks, you can choose the products you want and generate all the necessary purchase orders.

Inventory Planner also syncs with over 30 e-commerce, accounting, inventory, and order management platforms. All your sales data is combined in one place, helping you make better sales predictions and data-driven business decisions.

Coupled with Inventory Planner’s comprehensive reporting suite, this helps you stay on top of your business performance. View data by brand, supplier, or warehouse for a full 360-degree view of your inventory health. With more than 200 metrics at your fingertips, you can focus on the ones that truly matter to your business.

While AI demand forecasting will undoubtedly be a powerful tool for retailers, e-commerce businesses, and wholesalers in the future, it’s best to rely on the experienced and dynamic capabilities of a dedicated, advanced, and algorithm-based inventory planning solution like Inventory Planner. These sophisticated tools provide the accuracy and reliability needed to navigate today’s complex market conditions without the potential drawbacks associated with early-stage AI implementations. Book a demo and start streamlining your inventory processes today.