Recently, the Consumer Packaged Goods (CPG) sector has faced unprecedented economic challenges, including record-high inflation and spiraling operational costs. As prices for labor, energy, materials, and distribution surge, AI and machine learning technologies emerge as essential tools, providing CPG companies with the innovative solutions they need to optimise operations, prevent waste, and safeguard profitability.
The key to success is the ability to quickly adapt to retail and consumer-level changes, maximising resources and inventory in a cost-effective manner. This may sound like a daunting task, but technology provides a solution, especially within three pivotal processes: demand sensing, demand shaping, and supply chain collaboration.
Harnessing AI for precision forecasting: The advancements and advantages of demand sensing
Demand sensing, powered by AI-driven machine learning, combines internal data, retailer POS data, and other external information to optimise short-term forecasts, enabling real-time adjustments based on new data. This approach outperforms traditional forecasting methods, which heavily rely on historical customer order or CPG shipment data. These methods often struggle to accurately predict upcoming trends, especially when the market is experiencing rapid changes.
There are several clear benefits to using demand-sensing technology:
- Greater forecast accuracy: Most recent data from retailers coupled with distribution center orders ensures the most accurate representation of present demand.
- Automation and efficiency: Machine learning identifies trends and demand fluctuations swiftly, cutting down the lag time between identifying a trend or change in behavior and taking action.
- Comprehensive data analysis: Demand sensing employs various data sets for a holistic view of demand forecasts, making it easier for teams to make data-driven operational decisions.
Balancing inventory and demand: The art and science of demand shaping
Demand shaping involves companies strategically influencing customer preferences to match their supply capabilities. This becomes particularly important for products with limited lifespans. For instance, if a company has an excess of a particular product, they may implement special promotions to increase sales. Conversely, in cases where there are supply chain disruptions causing delays in obtaining a specific product, companies might offer discounts on alternative products that are currently accessible.
In today’s business world, it’s crucial for companies to closely coordinate their supply chain operations, from sales to distribution. This requires a day-level plan that can be updated at least daily, allowing everyone involved to see the full picture. By having a clear and up-to-date plan, everyone from account managers to those in distribution can make informed decisions and work more efficiently.
This strategy goes beyond mere profit optimisation; it revolves around effectively aligning the existing inventory with consumer demand.
The benefits of demand-shaping technology include:
- Inventory optimisation: By quickly reacting to changes, companies can maintain optimal inventory levels, while also addressing regional variations in demand, ensuring that the inventory is efficiently allocated to the appropriate distribution centers.
- Consumer satisfaction: Improved product availability support the brand reputation and timely promotions enhance the buying experience and align with consumer needs.
- Waste minimisation: Reduces wastage, especially important for products with limited shelf life.
Given the current economic environment, the significance of demand shaping cannot be emphasised enough. Through proactive demand influence, companies can counter existing challenges, maintaining a balanced inventory, minimising wastage, and ensuring steady profit margins.
Supply chain synergy: Unleashing the potential of collaborative partnerships in the CPG landscape
Effective collaboration with supply chain partners is crucial for CPG companies. According to a recent RELEX survey, a significant 87% of consumer goods suppliers expressed a need for deeper collaboration with their retail counterparts.
However, the challenge lies in data often being siloed, especially when it’s in its raw or unprocessed form. This prevents a unified view and leads to inefficiencies but also underscores a concerning trend. Very few companies are able to automate the usage of this data. In fact, the majority have to cleanse, adjust, and harmonise data before various organisational divisions can leverage it in decision-making.
New collaborative platforms that use AI and machine learning solve this issue by providing a unified view of their supply chains and operations, making sure that teams are making data-driven decisions together.
Enhanced collaboration has several benefits, including:
- Automated data sharing: Sharing data in real-time facilitates better decision-making across all stakeholders.
- Actionable insights: Tools such as demand sensing enable suppliers to respond to changes in demand proactively.
- Improved communication: Collaborative platforms provide a centralised view of data, streamlining discussions and reducing delays in decision-making.
- Strategic alignment: Collaboration allows stakeholders to jointly plan strategies, ensuring that tactics like promotions and pricing are in sync with production capabilities.
As technological advancements evolve, integrating demand sensing, demand shaping, and supply chain collaboration becomes paramount in guiding the CPG sector’s trajectory, emphasising their indispensable role in enabling the industry to adapt and thrive amidst current adversities.
Michael Gylling is director of product – CPG at RELEX Solutions.