How to avoid overstocks and understocks with better demand forecasting

Gepost op 12 februari, 2019

Category Principal/Industry Lead- Retail & CPG (Cloud+AI)

Promotional planning and demand forecasting are incredibly complex processes. Take something seemingly straight-forward, like planning the weekly flyer, and there are thousands of questions involving a multitude of teams just to decide what products to promote, and where to position the inventory to maximize sell-through. For example:

  • What products do I promote?
  • How do I feature these items in a store? (Planogram: end cap, shelf talkers, signage etc.)
  • What pricing mechanic do I use? (% off, BOGO, multi-buy, $ off, loyalty offer, basket offer)
  • How do the products I'm promoting contribute to my overall sales plan?
  • How do the products I'm promoting interact with each other? (halo and cannibalization)
  • I have 5,000 stores, how much inventory of each promoted item should I stock at each store?

If the planning is not successful, the repercussions can hurt a business:

  • Stockouts directly result in lost revenue opportunities, through lost product sales. This could be a result of customers who simply purchase the desired item from another retailer—or a different brand of the item.
  • Overstock results in costly markdowns and shrinkage (spoilage) that impacts margin. The opportunity cost of holding non-productive inventory in-store also hurts the merchant. And if inventory freshness is a top priority, poor store allocation can impact brand or customer experience.
  • Since retailers invest margin to promote products, inefficient promotion planning can be a costly exercise. It’s vital to promote items that drive the intended lift.

Solution

Rubikloud’s Price & Promotion Manager allows merchants and supply chain professionals to take a holistic approach to integrated forecasting and replenishment. The product has three core modules detailed below.

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The three modules are:

  1. Learn module: Leverages machine learning to understand how internal and external factors impact demand at a store-sku level, as well as a recommendation framework to improve future planning activities.
  2. Activate module: Allows non-technical users to harness the power of machine learning to better forecast demand and seamlessly integrate forecasts into the supply chain process.
  3. Optimize module: Simulates expected outcomes by changing various demand-driving levers such as promo mechanics, store placement, flyer, halo and cannibalization. The module can quickly reload past campaigns to automate forecast and allocation processes.

In addition, AI automates decision-making across the forecasting lifecycle. The retail-centric approach to forecasting applies novel solutions to more accurately forecast demand. For example, to address new SKUs, the solution uses a new mapping approach to address data scarcity and improve forecast accuracy.

The Price and Promotion Manager solution is built on a cloud-native, SaaS data platform designed to handle enterprise data workloads, covering all aspects of the data journey from ingestion, validation, to transformation into a proprietary data model. Users can seamlessly integrate solution outputs into their supply chain processes. The product design recognizes the challenges faced by category managers and enables a more efficient planning process (for example, a quick view to YoY comp promotions).

Benefits

  • Addresses data sparsity introduced by new product development and infrequently purchased items to better predict demand through new SKU mapping.
  • Translates stacked promotions and various promotion mechanics to an effective price, to better model impact on-demand.
  • Uses hierarchical models to improve forecast accuracy.

Azure Services

Rubikloud’s solution uses the following Azure services

  • HDInsight: allows Rubikloud to work faster and to have full confidence that they are taking advantage of every possible optimization.
  • Cosmos DB: provides the convenience of an always-on, reliable, and accessible key/value store. Also provides a reliable database service.
  • Blob Storage: easy to use and integrates well with HDInsight.
  • Azure Kubernetes Service (AKS): uses the power of Kubernetes orchestration for all Azure VM customers.

Recommended next steps

Explore how Price & Promotion Manager enables AI powered price and promotion optimization for enterprise retail.