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AI/ML Based Demand Forecasting

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demand forecasting

Introduction of AI/ML Demand Forecasting:

Demand forecasting aids the company in understanding and anticipating consumer demand, as well as assisting in important supply choices to improve business outcomes.

Incorrect projections may result in storage concerns, disruption of supplier connections, poor cash administration, and cost increases. As a result, enhancing the business’s forecasting model ought to be a top focus.

Artificial Intelligence-based Demand Forecasting:

Artificial Intelligence demand forecasting may help firms estimate supply chain expenses and precisely prepare for different product swings by utilizing machine-learning algorithms. According to Gartner, AI will generate $2.9 trillion in value for businesses by the course of this year and contribute to 6.2 billion hours of work performance worldwide.

Demand Forecasting Trends and Patterns:

Experience how strong forecasting improves logistics by optimizing the forecasting process by taking into account multiple elements such as past sales data, present trends, and sometimes even social media buzz.

Artificial intelligence may assist in enhancing this data and extracting relevant information from it in order to forecast resource demand in advance. By forecasting demand with machine learning, logistics operators may predict demand qualitatively and correctly across the supply chain.

Example Cases:

Below are the real-time case studies to depict how artificial Intelligence based demand forecasting tools can break or make the business.

How Nike used demand forecasting tool:

Demand forecasting is a crucial component of a business. As a result, investing in or implementing the appropriate forecasting model is crucial. Nike engaged in demand-planning software in 2001. However, the prediction was inaccurate owing to insufficient testing. Due to an overstock of close-to-the-bottom shoes and a scarcity of famous Air Jordans, Nike lost roughly $100 million in sales.

How IKEA has done forecasting:

On the other hand, IKEA’s forecast model has aided the company’s growth. The logistics department at IKEA properly estimates sales for the following several days and orders merchandise to match the predicted market based on POS and warehouse control system data. When the manager notices a discrepancy, he or she physically counts the goods in stock.

While forecasting has existed for a while, AI-enabled forecasting is still in its early stages. As more businesses begin to harness the potential of AI, we anticipate that this trend will continue and grow over time.

Artificial Intelligence in Logistics and Supply Chain:

Artificial intelligence (AI)-enabled forecasting improves logistics by optimizing the forecasting procedure by taking into account multiple elements such as past sales data, present trends, and even popular media buzz.

AI may assist in enhancing this data by extracting relevant information from it in order to forecast resource requirements in advance. By forecasting demand with machine learning, logistics operators may estimate needs qualitatively and correctly across the distribution chain.

AI/ML in Logistics:

In the logistics business, AI-enabled forecasting has become increasingly crucial. With its capacity to anticipate consumption and consumption patterns, AI-enabled demand forecasting improves logistics by allowing organisations to prepare for future demands and stock up on supplies before they run out.

Types of demand forecasting:

Short term: Used to anticipate sales, customer needs, or any other form of stock projection for a short period of time, often less than a year.

Active: Used to anticipate sales and marketing campaigns, as well as growth and development plans. These estimates are frequently used by new businesses to get investment capital or to anticipate scaling timelines.

Long-term: Used to provide projections over a longer duration than the short-term framework (typically up to two to four years into the future.) These estimates can also consider capital investment, supply networks, and logistical concerns.

Internal: Used to generate internal predictions in order to gain a more complete understanding of financials, distribution network concerns, product demand, and general operations.

Passive: Used to anticipate demand if a corporation has a large amount of past data.

External: Used to generate a realistic outer prediction of total firm condition, taking rivals, goals, and development into consideration.

Why demand forecasting fails:

No demand forecasting system can ever get the forecast exactly correct every time. External and internal variables like selling prices, marketing, weather patterns, or even a posting on social media by an influencer might all contribute to consumer volatility.

It is critical to recognize that any forecast will always have an element of uncertainty. Consider the epidemic. No forecasting tool could have foreseen the epidemic or the resulting disruption to both supply and demand.

Because conventional techniques are easier than intelligence procedures, they are frequently significantly less expensive to deploy. As a result, it’s critical to compare the expense of your preferred approach against the goals you want to achieve with your predictions, as well as assess which method would best meet the increasing strategy of your items.

Recent Statistics:

Amazon started using ML for demand predictions more than ten years ago. According to Gartner, 55 per cent of organisations will invest in machine learning over the next two years. To create predictions, AI and ML-based apps use data. The image compression, cross-validation, and grid search mechanisms allow the algorithm to improve the model and minimise mistakes by adjusting the features and parameters.

Stability is a crucial need for statistical prediction performance. We think that history cycles itself and that events from two or three ago will return. This is far from the case. In a perfect scenario, statistical approaches would forecast irrational changes in client preferences and when the marketplace would occur.

Inventory Optimization:

Inventory optimization is a larger process that includes but is not limited to predicting. It uses “forecasts and knowledge to anticipate demand for various commodities at various points along the supply chain,” quoted by the Institute of Business Forecasting and Planning.  Demand planners participate in inventory management, assure the accessibility of desired items, and analyze the gap between projections and current revenue, in addition to developing estimates.

Importance of demand forecasting:

In the absence of demand forecasting, you’re essentially winging it with little to no notion of what to expect. Your guide may anticipate that the road will remain straight, as it did 20 minutes ago, using statistical forecasting.

With intelligence forecasting, your guidance would consider historical data as well, but also take into account external data, such as what they could indeed hear or see in the surrounding area, any signboards or shoe prints that imply what other people have done, and predict that the path may turn sharply or that you’ve managed to reach the edge of the forest. While these two projections don’t differ significantly, they can influence what you do next, with different consequences–whether that’s continuing on or taking a break.

High-level results:

This increase in precision has the unintended consequence of optimising buffer-stock levels, allowing you to avoid the danger of overstocking while preserving the availability of products. Furthermore, as buffer-stock levels are lowered, external financing and space utilised for product storage are reduced as well.

Overall, AI-driven forecasting can help you keep fewer stocks on hand (reducing the risk of having dead goods that won’t sell) and lower logistical costs whilst preserving customer happiness.


Artificial Intelligence demand forecasting is transforming how businesses manage their supply networks and make choices.

Artificial Intelligence forecasting gathers and mixes data sets and analyses them for trends and problems rather than depending on manual methods. As a result, businesses may make decisions ranging from stock purchases to pricing markdowns based on demand estimates rather than hunches.

The advantages of employing AI and machine learning-based demand forecasting systems are numerous. According to McKinsey, using AI-based approaches to estimate demand may reduce mistakes in supply chain operations by 30 to 50%.

Adopting these approaches might assist organisations at all stages in making accurate projections

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