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The use of AI in retail planning is now a strategic imperative in the fight against waste of all kinds — including the rampant waste created during the holiday season.
As the festivities of Halloween fade and retailers stock their shelves for
the winter holidays, a pressing issue lurks like a shadow: spoilage and waste —
particularly for fresh and short-shelf-life products such as pumpkins. While
challenging, there is a critical opportunity for retailers to apply artificial
intelligence (AI) and machine learning (ML) to reduce waste and
align with the increasing consumer demand for sustainability.
Retailers, grappling with inflation and economic uncertainty, are finding it
increasingly difficult to accurately plan for the holiday demand. The complexity
is exacerbated during occasions such as Halloween — where seasonal items such as
pumpkins have a finite shelf life.
According to the US Department of
approximately 1.5 billion pounds of pumpkins are grown annually — the majority
of which are in high demand between October and December, here in the US;
and with only about 20 percent being used for
food, most of the rest end up in landfills.
However, there may be a shift as consumer consciousness rises — highlighting the
potential for AI to help retailers predict the tipping point between consumer
wastage and consumer consciousness.
Beyond consumer habits, it is the retailers who are under pressure to curtail
this waste upstream — from within the supply chain. The integration of real-time
analytics into the demand forecasting process can make businesses more agile in
reacting to unexpected changes, making the system robust against sudden shifts
in market dynamics.
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The key to achieving this lies in harnessing the predictive prowess of AI and
ML. By implementing AI-driven demand forecasting, retailers can capture the
nuances of hundreds of demand drivers and translate complex consumer data into
actionable insights. This means businesses have visibility into future demand,
allowing for improved planning processes across merchandising, supply chain and
operations — ultimately, leading to reduced waste.
The challenge, however, is not just in forecasting demand but also in ensuring
that this information propels a collaborative effort across the entire supply
chain. Decisions on production numbers for items such as pumpkins, which require
a lead time of 90-120 days from seed to shelf, happen months before their
popular season begins in October. Coordination between retailers and producers
is therefore vital. By sharing forecasts and planned orders well in advance, the
entire supply network can adjust accordingly — reducing the risk of
overproduction and subsequent waste.
Another critical application of AI in this endeavor is inventory planning. By
automating replenishment and allocation tasks in all nodes of the supply chain,
AI ensures that the flow of goods is synchronized with real-time demand —
reducing the chances of overstocking and the need for deep markdowns that often
fail to clear excess inventory.
Markdown and clearance optimization also play a pivotal role in this
orchestration. AI systems can dynamically adjust prices throughout the season,
ensuring that products reach consumers before they lose their relevance — thus
avoiding the post-holiday slump that turns potential sales into waste.
The strength of an AI system in retail lies in its ability to be tailored to the
specific needs of different business models and scales of operation — ensuring
that every retailer, regardless of size, can reduce waste and improve
sustainability. With the National Retail Federation
holiday spending to increase to roughly $960 billion in total sales, the
opportunity to optimize the supply chain with AI is more significant than ever.
Simply put, the use of AI in retail planning is now a strategic imperative in
the fight against waste. As we move through the holiday season, the onus is on
retailers to adopt these advanced tools and practices to optimize their supply
chains and develop a more sustainable retail strategy. As retailers embrace this
technology, we edge closer to a future where holiday waste becomes, quite
literally, pulp fiction.
Published Nov 16, 2023 7am EST / 4am PST / 12pm GMT / 1pm CET
Svante Göthe is Head of Sustainability at supply chain & retail planning platform RELEX Solutions.