Supply chain disruptions, together with sudden spikes in demand, have derailed many businesses in the CPG industry. The growing uncertainty in the post-pandemic world is compelling businesses to find new ways to accurately predict demand.
If businesses don’t meet immediate market demand, they risk losing their customers and revenue.
Demand sensing is a solution that utilizes advanced technologies like AI, ML, and real-time data capturing to accurately perceive and predict customer demand. It helps to close demand planning gaps by offering real-time visibility of changing demand patterns.
AI-driven demand sensing solutions factor in real-world events such as changing consumer behaviors, market trends, and natural disasters. The objective of demand sensing is to enhance forecast accuracy. This, in turn, enables CPG companies to streamline inventory management, reduce operating costs, and increase business revenue. Let’s explore more about this in the following segments.
Key Applications of AI-Driven Demand Sensing in the CPG Industry
A detailed and accurate forecast of the CPG industry is virtually impossible. This is because the CPG industry is fundamentally dynamic with several variable factors such as seasonal variations, price adjustments, promotions, local events, and even natural calamities.
However, AI and machine learning make it possible to understand the impact of these variables at a granular level. Leveraging advanced algorithms and machine learning techniques, CPG companies can easily predict demand, optimize inventory, and streamline supply chain management.
Here, we will look at the key applications of AI-driven demand sensing in CPG.
- Demand forecasting
This is the most critical application of AI demand sensing. It allows CPG companies to predict demand with greater accuracy.
Traditional forecasting only takes historical data into account. However, with AI-driven forecasting, AI algorithms also utilize real-time data about consumer habits and behaviors. These algorithms capture data from multiple sources such as social media, online searches, and even weather patterns, to accurately identify upcoming trends and fluctuations in demand.
For instance, a certain product may go viral after a social media influencer’s endorsement. Advanced AI algorithms can easily detect such trends and adjust the demand forecast accordingly. This proactive approach enables CPG companies to reduce stockouts or overstock situations and maintain their competitive advantage. - Inventory optimization
AI-driven demand sensing helps CPG companies to optimize their inventory. By accurately predicting demand, CPG companies can plan their inventory level efficiently. They can minimize chances of over or understocking, thus reducing carrying costs.
AI algorithms can help to identify safety stock levels for each product based on changing market conditions. Additionally, AI can help to identify obsolete or slow-moving items. CPG companies can offer promotional offers or discounts on such items to clear their inventory before it turns into a financial burden. - Supply chain management
Another key application of AI-driven demand sensing is effective supply chain management. AI algorithms offer timely demand signals that can help to build a more agile and responsive supply chain.
For instance, if the AI tool detects an unexpected surge of demand in a specific region, it can prompt the re-routing of products from surplus locations to that area. This will meet the increased demand in the area. Additionally, it will boost supply chain efficiency, reduce transport costs, and improve customer satisfaction.
How AI-Driven Demand Sensing is Empowering CPG Industries?
AI-driven demand sensing is a game changer in CPG industries. Here are some of the most notable benefits of using this robust solution for CPG retailers.
- Forecast accuracy: AI-powered demand sensing solutions can drastically improve forecast accuracy as compared to traditional solutions. AI algorithms capture several real-time signals that identify demand shifts and help to swiftly respond to varying market conditions.
- Improved inventory decisions: According to McKinsey, AI-driven demand sensing solutions can reduce inventory errors in the supply chain by up to 50%. With these software solutions, supply chain planners can optimize inventory stocks and manage their entire network by considering available inventory in all warehouses and anticipated customer demand.
- Streamlined operations: AI-powered demand sensing helps to develop a robust roadmap to ensure end-to-end improvements across the supply chain. Thus, CPG companies can streamline operations and increase agility, even during times of change.
- Target a greater ROI: Demand planners are constantly seeking ways to achieve accurate foresight in every aspect of business operations. This includes demand sourcing, demand management, and distribution. Their ultimate goal is to obtain a better ROI. With an AI-powered system, they can predict accurately and strike a balance between their production capabilities and demand trends.
Here’s an example of how Algoscale helped one of its clients develop an efficient AI-driven demand-sensing solution
The experts at Algoscale developed a smart and efficient AI-powered demand forecasting solution that facilitated real-time AI recommendations. The robust AI algorithm helped the client to analyze massive volumes of data from multiple sources and identify real-time changes in consumer preferences and market dynamics.
As a result, the client was able to increase productivity by 40% and reduce capital costs by 15%. Also, the company was able to improve forecast accuracy by 5% and 8.2% in Year 1 and Year 2 respectively. All this led to optimized inventory planning, reduced stockouts, and increased customer satisfaction.
Conclusion
AI is a transformative technology that is quickly impacting every industry. In the CPG industry, this technology can seed much-needed agility and accuracy in the supply chain with streamlined demand planning. It can also drive a significant increase in operational efficiencies and a reduction in costs.
Algoscale’s AI-driven demand sensing solution can help CPG companies obtain actionable insights and eliminate bottlenecks from the demand planning and forecasting process. As a skilled Data Lake Consultant, we can help in building a robust data infrastructure to support AI-driven demand sensing. Get in touch with our experts today and unlock the full potential of your data.
