The Many Reasons Why You Should be Automating – and Incorporating Artificial Intelligence (AI) into – Your Demand Planning

A more accurate and trustworthy "prediction" is just the start.

Today, business leaders around the world, especially those in charge of consumer packaged goods (CPG) companies, are using artificial intelligence (AI) in their distribution networks and supply chain as part of their constant evolution in such a competitive market. 

Their main objective in leveraging AI is to obtain more precise and efficient demand management, leading to correct and optimal management of inventories, cost reductions and revenue growth. The hope is that it will have a positive impact on the supply chain and the entire company. 

I don't have to tell you that demand is a critical factor in the CPG industry. You depend on the ability to accurately forecast what consumers will want, how much they will buy, and at what price. However, that capability hasn't always been easy to come by. Fortunately, things are changing - and fast.

AI is Revolutionizing Demand Planning 

Go back a few years and imagine those responsible for demand planning and analyzing historical sales trying to calculate what will be sold, what will be produced, what will be purchased, how it will be distributed and delivered, etc. 

It's hard to believe this was possible without AI - that demand forecasts were once based on more traditional approaches, such as statistical models and historical analysis. It's no secret those methods often failed to capture the complexities of the modern market. Today, those types of projections and forecasts would not give us the necessary peace of mind because now the only certainty is uncertainty: pandemics, war movements, financial crises, natural disasters, horrible traffic, etc. Disruptions, large or small, in a supply chain can cause a product to not reach the market at the right time. 

Having a sales forecast that guarantees the availability of your product in the market is a differentiator today. Some say it is the differentiator.

The main reason this paradigm has changed is because AI enables us to incorporate a wide range of data into a single system for analysis, including social media information, online search trends, and more. 

Finally, we can generate trustworthy predictive models versus always operating in a reactive state.

Because AI models use advanced algorithms and machine learning to process and analyze large amounts of data in real time, it's no longer impossible nor painful to identify the subtle patterns and emerging trends which ultimately result in a much more accurate predictive ability. 

Unlike demand forecasts that were based on historical sales, computational neural networks are key to combining and understanding historical behaviors with real-time variables and potential future elements, such as issues of seasonality, potential growth, promotions, price increases, or even weather factors. 

These models can be trained to recognize not only traditional seasonal cycles, but also exceptional or abnormal events, such as economic crises or even constantly evolving lifestyle trends. 

But where AI is really changing the market is in the accuracy of demand predictions.

Working from a more accurate demand prediction not only has a significant impact on your inventory and distribution management capabilities, but it also unlocks a host of additional benefits across your entire supply chain. 

Some of the most important advantages you gain include the ability to: 

1. Adjust production processes to meet demand 
   
2. See more efficient ways to use manufacturing resources, which helps minimize waste and production costs
   
3. Optimize your warehouse and inventory management processes 
   
4. Improve distribution logistics since accurate demand prediction with geographic detail allows for more efficient scheduling of distribution routes. 
5. Assess better indicators of market shifts and opportunities for more strategic decision making

In other words, the application of AI in supply chain management provides you with a competitive advantage by helping you improve operational efficiency, reduce costs, and provide a positive customer experience. 

If you take advantage of emerging technologies that leverage AI, you will be better equipped to adapt to the rapid and complex changes in the current and future business environment. AI not only transforms demand planning management, but also lays the foundation for a smarter, more efficient supply chain overall. 

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About the Author

Octavio Hinojosa and the team at Wise Athena are on a mission to help CPG companies to optimize their pricing and promotion strategies through AI, thereby increasing their sales and margin.