Collaborative Intelligence: Harnessing the power of combined models
How can we improve demand forecasts’ accuracy of fast-moving consumer goods in the complexity of inventory planning?
aXialyze enhanced a forecasting technique to extensively reduce the number of stock-outs of fast-moving consumer goods. This technique enables you to have the right product at the right time in the most economical way.
There is an inherent complexity in the forecasting subject, especially for food retail companies.
With a continually growing number of products to forecast and the multiplicity of forecasting models, it is challenging to determine which model will produce the best forecast accuracy for a given product in a given period. There is also a need for constant trade-offs between target service level and inventory costs.
Combining forecast models using ensemble learning methods can improve forecasting accuracy, thus boosting profitability. Furthermore, it makes sense to steer the learning models towards optimistic or pessimistic forecasting depending on the product’s characteristics.
aXialyze saw a new way to combine forecasting methods in retail supply chain management. Tremendous value can be created by combining existing methods that are practically computable in a retail environment with thousands of forecasts to be generated on a frequent basis.
Moreover, instead of just using simple combination models, aXialyze makes use of Ensemble Learning techniques. Hence, individual models are combined with multiple machine-learning models to improve the stability and predictive power of the forecasting model.
Finally, one can complete the value of this method for decision making by differentiating treatment of products based on their ABC rotation classification. You can however also go beyond that and apply the preffered bias at article level using an item-by-item approach.
To harness the power of this approach, we introduce an asymmetric loss function to bias the model towards a specific treatment for each product category. Hence, you can individualise the learning method for each article.
This was the last step in creating tools that can be individualised to the product categories based on ABC and hence let you decide on the most efficient stock level.
- Products in very high demand (A) can never be stocked out
hence the forecast is biased towards overprediction, eliminating variability in demand.
- Products in low demand (C) often just take up space and tie up capital
hence the forecast is biased towards underprediction, enhancing profitability without losing customer loyalty.
Employing combination techniques in forecasting had an essential impact on the two key profitability drivers in the business, product availability and stock levels. Boosted accuracy allowed for more efficient inventory management, which in turn translates into an improvement in service level while reducing safety stock.
This showed that efficiently putting consumer expectations and needs at the centre of inventory planning can even have economic benefits, improving your business performance.
Talk to an expert
Contact Marie to discuss how you can use your data to boost forecast accuracy for more efficient inventory management and improve service levels while reducing safety stock needs.
Marie Maes MSc
Consultant – Expert Data Science