From weather reports to Instagram likes, AI-driven forecasting draws on a disparate range of data sources to gain a clearer view of the big picture.
While traditional forecasting attempts to predict the most likely outcomes, AI-driven forecasting embraces uncertainty. It weighs up all the possible outcomes using probability distributions, so your business is better prepared for anything.
Taking a more holistic approach to forecasting requires looking much further afield than everyday business data such as historical sales records. Instead, AI-driven forecasting also scours the physical and digital worlds in search of valuable insights.
Drawing on more data improves the quality of your forecasts so, when engaging with a new client, we're always on the lookout for valuable sources of insight. It doesn't need to be neatly organised, our AI-driven forecasting can work with unstructured data – so it can find insight in the most unexpected of places.
Search trends and website traffic reports give a good indication of customer intentions, which can impact demand, but AI-driven forecasting can dig much deeper. Social media likes and comments, along with online customer reviews, can also feed into the model to give a clearer picture of customer intent.
Out in the physical world, we can study foot traffic in retail outlets and even across a city. During the COVID-19 pandemic, we've drawn on city-wide mobility data to help our clients allow for the impact of lockdowns and travel restrictions when adjusting their forecasts.
Of course, you are the master of your own destiny and AI-driven forecasting is not just about tracking external forces.
It is also important to take into account your business' planned promotions and promotional spend. You might also include the pricing, promotions and stock positions of your competitors by scraping those details from their websites. If you have want to look into short-term demand forecasting, check out this blog.
If one of the major players in your market offers an attractive promotion on a certain product, it can lead to a 70 to 80 per cent drop in sales from competing retailers. Likewise, if you're running a promotion you can anticipate a significant boost in demand.
A competitor's stockout is your new customer.
Meanwhile, if a competitor experiences a stockout on a key product, it can drive sales your way. Even a stockout of a similar item can send more customers your way as they search for an alternative.
Taking all this into account can have a major impact on your demand forecasts. Optimising your stock levels to avoid stockouts, without holding too much stock, can significantly improve your cash flow and customer satisfaction rates.
AI-driven forecasting doesn't just look backwards to predict the future, it also looks ahead.
On the supply side, it can take into account everything from the price indexes of raw materials to international shipping delays. For example, the Suez Canal blockage in 2021 created huge ramifications along supply chains in a butterfly effect which quickly spread around the globe.
Weather forecasts can also provide valuable insight. Whether you sell warm woolly jumpers or ice-cold drinks, short-term forecasts can give a strong indication of demand. While longer-term weather forecasts are less precise, the likelihood of a hot summer or mild winter can certainly factor into your long-term planning.
All this is a lot to take into account when forecasting, but it's the kind of challenge on which AI thrives. By drawing on such a wide range of auxiliary data streams, we've seen our clients' forecasting accuracy improve by 20 to 50 per cent.
Remember, AI doesn't claim to be more accurate than traditional forecasting. Instead, it aims to better manage uncertainty. The more data you can feed it, the better it can prepare your business for facing the unexpected.
Want to know more about inventory management and replenishment? Head here to find out how AI can help you avoid stock-outs, or here to learn all about the things you need to consider before implementing AI. You can also see our platform in action via our case studies - including how we helped a wholesale distributor reduce stock-outs by 24%.Once you’ve had your fill of content from our blog, why not drop us a line here.