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AI • December 14, 2023

AI-Powered Retail Demand Forecasting: A Revolution in The CPG Industry

Staying ahead of the cutthroat competition has always been a daunting task for the key players in the retail industry around the world. With fluctuating market conditions and the availability of various options, consumer behaviors are constantly evolving. Today, leveraging the right tools and technology to predict future product demand at convenience stores as accurately as possible becomes a competitive advantage. This is why forecasting and inventory planning are the pillars of maximizing revenue in retail.

Let’s understand why forecasting demand accurately at the most granular levels is critical in the CPG industry. For one, demand forecasting is at the heart of every retailer’s supply chain and accurate forecasting at scale enables organizations to make informed business decisions regarding inventory, cash flows, promotions, and plans for growth. For instance, utilizing outdated IT tools makes it virtually impossible for retailers to forecast demand for thousands of products they sell at hundreds of outlets—forget including external factors of demand like weather and consumers' spending behavior. Inaccurate forecasts lead to suboptimal planning in inventory, supply chain, and operations.

Old-school methods of forecasting like manually keeping track of data on spreadsheets cannot optimize tons of data in different formats including historical sales data, market research data, capacity planning data, and stock replenishment data as market trends change. This results in businesses taking a hit to their sales because of less inventory, or over-stocking. The inability to embrace and adopt emerging technologies and analytics-driven innovation with the main goal of liberating data from siloed systems can have adverse effects on how retailers perform operations every day. Furthermore, traditional demand forecasting techniques followed by salespeople are time-consuming, ineffective, and expensive.

What can retailers do to stay ahead of the curve? 

The answer lies in the rise of accelerated adoption of new-age technologies like artificial intelligence (AI), machine learning (ML), and sophisticated statistical analysis that takes into account numerous variables to optimize prediction that results in better business planning and optimized inventory management. Cutting-edge technologies like AI combined with big data can do wonders when it comes to demand forecasting and planning. It helps retailers to predict the amount of inventory or the demand in a particular season. 

The adoption of modern technologies empowers retailers of all shapes and sizes to optimize their supply chain, increase customer satisfaction, reduce waste of products and inventory, and even improve sales and marketing activities. According to Juniper Research, over 325,000 retailers are expected to adopt AI technology to help unlock efficiencies across back-office operations and leverage advanced analytics in key functions such as demand forecasting and automated marketing.

A reliable and accurate forecast is virtually impossible as retail is inherently dynamic, with thousands of factors impacting demand on a constant basis. Every day, retail demand planners struggle to consider an immense number of variables, including but not limited to seasonal variations, promotions, price adjustments, changes to in-store displays, local events, or even the weather and natural calamities. However, machine learning and AI, fueled by the power of big data analytics, make it possible to consider their impact at a granular level. Given the range of benefits offered by new-age technologies, it comes as no surprise that so many retailers worldwide today are shifting their focus toward AI and ML-based demand forecasting. Let’s explore some of the key benefits of AI and ML-led demand forecasting that help retailers boost their bottom line.

Predict Orders with Historical Order Data: The science of product forecasting using historical data can generate future insights with a significant degree of precision. If used in the right way, advanced predictive analytics can help retailers make predictions about future orders based on historical data and analytics techniques such as statistical modeling and machine learning. Leveraging sophisticated predictive analytics tools and machine learning models can empower retailers to use past and current data to reliably forecast trends and behaviors—unique to specific products and services. Not only does using AI to analyze massive data sets can help forecast product demand but also transform the manual sales-order generation process of retailers and distributors worldwide. 

Generate Accurate Future Orders: Being prepared for any variations in average orders helps retailers save money, maintain a positive customer experience, and enable fulfillment services to be prepared for the changes in order volume. AI and ML-led demand forecasting can generate accurate orders with data-driven methods to easily adjust to shifting inventory and demand trends, significantly reducing understocking and overstocking of the products. AI, using advanced ML algorithms, can forecast the order a few days ahead of time. This not only reduces the reliance on sales representatives’ availability but also eliminates the requirement to hire contract laborers.

Scalability to Unlimited Stores and Sku Combinations: Demand forecasting helps retailers worldwide decide if it is the right time for the business to scale up depending on the market value of products. On the contrary, it could also be used to build a case that suggests low investments in the business due to reduced demand. Demand forecasting models further enable efficiency, scalability, and agility by allowing retailers to seamlessly scale to an unlimited number of stores and stock-keeping units (SKUs). This not only reduces costs in the long run but also allows retailers to maintain a stable level of profits as well as keep the workflow uninterrupted.

Improved Workforce Management: Another one of the top benefits of demand forecasting is an improvement on the labor-management side of operations in the retail industry. It's well known that inaccurate forecasts lead to excess inventory, lost sales, and also wasted man-hours. A capable and reliable demand forecasting solution can help retailers streamline and improve efficiency, saving both time and money. Demand forecasting can also help retailers acquire adequately trained workers to minimize control problems and loss of customers to the competition. Accurate demand prediction also helps businesses to efficiently handle a spike in orders.

Optimize Stock Levels and Avoid Stock Out: Stockouts and excessive stocks are among the worst nightmares of retailers and for good reason. Not only do they lead to lost sales, but result in reduced customer satisfaction, lower loyalty levels, poor quality goods, and degradation. Intelligent demand forecasting powered by advanced analytics, historical data, and state-of-the-art AI/ML algorithms review external market factors and help retailers optimize inventory levels, manage supplier lead times, prevent lost revenue, and increase customer satisfaction. 

AI-Powered Demand Forecasting is Reshaping the Retail Industry

As operations become more complex for retailers doing business both online and in-store, out-of-stocks, overstocks, and returns are costing retailers over $1.75 trillion a year—a number that’s only moving higher. So, what do businesses need in order to kickstart a successful business journey with demand forecasting? The answer is quite simply to rely on an AI-powered solution that takes a host of key factors into account and supports demand prediction with the utmost precision. Once businesses take a step towards developing forecasting models, data scientists leverage historical sales data to start training the models to accurately forecast retail demand. By processing this data, retailers are empowered with a powerful ready-to-use trained model(s) that analyzes varied demand patterns and provides a holistic view of the supply chain that helps in timely replenishment and efficient logistics. As a rule of thumb, businesses should also be willing to change and embrace new-age technologies for accelerated growth and ultimately prepare for a digitally-driven future of retail. 

The AI-led revolution has the power to empower global retailers with new ways to innovate, win customers’ trust, and promote loyalty. Quantiphi is one of the first AI-driven organizations to empower the retail and CPG industry to do just that. Our differentiated AI-powered solutions across the retail value chain create new opportunities for retailers to be better prepared for the rapidly evolving future. 


Recently, Quantiphi partnered with CONA Services (Coke One North America ) to build a state-of-the-art AI solution called OrderSmart™ for seamlessly automating sales order generation. OrderSmart™ is a predictive ordering solution that uses proprietary AI and ML algorithms to transform the manual sales-order generation process of retailers and distributors worldwide. To learn more about how Quantiphi can help retailers like you leverage a healthy blend of advanced analytics, cutting-edge AI, and machine learning techniques to ensure more efficient inventory allocation, improved operations, and an enhanced, personalized shopping experience, visit https://quantiphi.com/ or reach out to our experts.

Written by

Kraig Alexander

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