How to Increase Profit When the Supply Chain is Unpredictable

Long before algorithms, machine learning (ML), artificial intelligence (AI), and even computers, retailers have depended upon demand planning principles to stay in business. Demand planning is the foundation for resetting retail. Fortunately, retailers can now use demand planning powered by AI and ML. It can help retail chains maximize profit even in times of external disruptions.

Retailers Are Resilient

Its no secret retailers have been hit hard in 2020. Yet, the retail world isn't powerless. There are many things it can do to move forward and become stronger. This recovery depends on a foundation in demand planning. It may not sound as captivating as AI and ML, but without this in place, AI can send your supply chain in the wrong direction.

Is shopper behavior too unpredictable to survive external disruptions? No. COVID-19 isn’t the first external disruption. There have been others, even if on a smaller scale: hurricanes, earthquakes, blackouts, and even the 2008 housing crisis. Each of these have affected shopper behavior. Retailers can’t approach this disruption with the attitude of “there’s never been anything like this.” There have been enough past disruptions to see a pattern of expected recovery. The most profitable brick-and-mortar and e-commerce retailers have adapted in those situations by utilizing effective demand planning.

Data is Key

Every retailer already possesses data that's key to predicting what happens next, and what to do about it. Shopper behavior is different for each retail vertical, whether fashion, home improvement, luxury or department store. When the stock market is thriving, retailers have the data to know how quickly shoppers will buy diamond necklaces. When the economy takes a downturn, retailers have the data to know if customers will prefer lower-cost brands, and when this switch may occur.

In recent months, consumer spending has greatly shifted. Some areas of retail have seen tremendous sales growth (e.g., household supplies and packaged goods), while others have seen a major decrease (beauty and office supplies). Government restrictions have also played a major role in consumer spending. Shelter-in-place and stay-at-home orders have brought about everything from major panic buying to people stocking up and preserving food vs. eating out, to just saying no to certain products.

There’s so much uncertainty over how retail will look in the future, and how it could be affected by an uptick in COVID-19 cases. Demand planning tools powered by ML and AI are the best options at predicting what will happen next for retailers. If retailers analyze data from the past few months and leverage advanced analytics now, they'll be better prepared for the future. Demand planning can turn the focus from what's unknown to what's known: consumers always return to buying as quickly as they can. That’s why they’re called consumers.

Leverage Supply Chain Solutions

There are numerous supply chain and inventory solutions available to retailers. Since the inception of modern retail, avoiding understocks and overstocks has been an ongoing challenge. Having the right product in the right place at the right time is what creates a positive customer experience and increases profit. The heart of supply chain solutions is to enable retail chains to avoid understocking and overstocking

Once an AI-powered demand planning solution is in place as a foundation, other supply chain solutions can be added to maximize profit. If your retail chain wants to carry a new item, for example, the initial buy comes with risks. Will shoppers love it and want more, or will it sit on the shelves until it’s marked down too low? Initial buy solutions answer that question before you spend the money. In the same way, retailers are challenged with allocating the right product to the right store. How many medium gray puffer coats should you stock in your Cleveland stores vs. your Orlando stores? When does the season for coats start in different regions?

Retailers with these solutions in place are better equipped to accurately forecast demand and increase sales. Each of these supply chain solutions are proven to increase profit. However, they rely on a demand planning solution powered by AI and ML as the foundation for each of them.

Start With the Right Data

Keep in mind that demand planning solutions and ML algorithms are only as good as the data that feeds them. Most retailers are already capturing large volumes of data. Effective demand planning solutions enable retailers to analyze the data that matters for strong forecasting and decision making. Now is not the time to be experimenting with inventory. Retailers need trusted and tested solutions that are proven to improve profit and reduce supply chain costs.

If you need help managing your supply chain more efficiently, reducing costs, and increasing profit, a new supply chain solution could be the answer. Conduct a thorough analysis; put any vendors you plan to use to the test so they can show you results instead of just telling you about them. Once you see the results in action, it will be easy to select the right solution.

Marsha Shapiro is senior vice president of operations at 4R Systems Inc. 4R Systems uses science and technology to help retail chains maximize profit from their omnichannel inventory investment.