Artificial intelligence in retail: 6 use cases and examples
Six use cases for AI in retail, including optimizing inventory management, improving forecasting, and personalization.
While all businesses are accustomed to the concept of risk and the potential payoff of embracing the unknown, widespread uncertainty in the retail supply chain is a distinct challenge. It encompasses factors a company can’t control, which impact the bottom line in unquantifiable ways, including changing consumer demand, unexpected competition, and obstacles to supplier diversity.
The events of the last few years have heightened uncertainty in retail. Some of the most visible impacts of the COVID pandemic, for instance, were seen in the retail industry. Manufacturers and retailers were unprepared for the crisis and the demand it drove for certain products, leading to well-publicized shortages.
This wasn’t a one-off instance of volatility, however. Climate change is driving unpredictable weather occurrences that can sidetrack the transportation of products, while geopolitical and economic tensions stoke ongoing fears about access to materials and the production of goods.
Chief among the ways retailers can prepare for uncertainty in the supply chain is through scenario planning. In scenario planning, organizations forecast potential disruptions, their impacts, and the best response to sustain the business.
As uncertainty in this sector rises, retail supply chain scenario planning with a foundation of flexibility facilitated by technology is critical.
A new model of retail supply chain scenario planning
The integration of technology throughout the retail sector and the accelerated pace of change have transformed how businesses approach and leverage scenario planning. Modern scenario planning in retail must be agile and tech-enabled for the most impact.
Advanced technology enables business leaders to scale up one-time scenario planning, utilizing data-driven projections to envision more precise business impacts. For instance, organizations can turn to advanced computing power to determine how a range of tariff policies from the new U.S. administration could influence business outcomes.
Technology is a critical tool for drilling into the data more precisely, ultimately yielding more accurate projections.
Instead of forecasting customer demand units based on averages, for example, emerging technologies like AI and machine learning let business leaders rely on distributions. Whereas scenario plans in the past may have been built around the notion that the average demand is 20 units, modern tech can illustrate a likely range of 10-50 units, providing a better picture of a potentially impactful scenario.
Technology also has a critical role in helping leaders determine potential sources of uncertainty. Tools like AI can comb through data sources for high variance, suggesting possible future instability.
The best scenario planning is driven by collaboration
Like any business strategy, the most effective scenario planning leverages technology and human influence. Leaving uncertainty entirely to tech will miss the mark, as deep collaboration across business functions, leaders, and stakeholders throughout the retail supply chain promotes resilience.
Scenario plans created on a foundation of corporate purpose, with alignment across the organization on business goals, will be the force that can guide the company through volatile times.
Global retail giant Walmart brings this point to bear. As one of the world’s largest retailers, a seamless supply chain is critical to the organization’s success. Researchers studying its supply chain resilience found that advanced data-sharing technology effectively connects retailers, distribution sites, and transport fleets, enabling “rapid-response supply-chain management.”
An emphasis on information sharing is a principle of the individuals who manage the retail supply chain at Walmart. The strong relationships the retailer has developed with its partners ensure timely delivery of goods, leading to better customer service and lower costs, both core tenets of Walmart’s mission.
Balance is key for long-term profitability
While scenario plans are focused on potential individual occurrences, the most effective preparation is done through the lens of long-term sustainability. An extreme weather event, for instance, may sidetrack production and distribution temporarily, but conditions will change—and perhaps revert—again.
Overinvesting in one contingency plan could cost the organization in the long run. Instead, centering short- and long-term profitability in scenario plans enables business leaders to balance risk as they plan for uncertainty. Knowing how much profit the organization can lose in the near term to safeguard its profits in the long term can be an anchor to develop scenario plans for uncertainty.
Building robust key performance indicators (KPIs) related to costs and on-time delivery can reinforce that when a contingency plan is triggered, it’s executed in a way that keeps long-term sustainability at the forefront.
Clorox’s response to COVID illustrates this point. In the first few weeks of the crisis, demand for the company’s disinfectant products surged by an unprecedented 500%. Nearly overnight, the organization had to rethink its models, keeping production facilities open 24 hours, expanding one of its facilities to produce more wipes, and broadening its supplier network.
Instead of a plan that involved opening entirely new production sites, Clorox focused on building its current models to meet soaring demand by leaning into the notion that it had to think long-term as it managed a short-term crisis.
Rising to the occasion
For organizations to survive in today’s retail market, leadership must strategize for increasing volatility affecting the supply chain. Companies that thrive will leverage emerging technology tools and human foresight, underpinning contingency plans with data, deep collaboration, and a willingness to stay agile in the face of change.
Although ongoing uncertainty is a guarantee, effective retail supply chain scenario planning can enable a company to weather the upheaval and emerge as a leader in innovation.
