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AI is the answer for what ails forecasting and replenishment systems

04.29.2022 | By Mark Speyers
 

All retailers saw their business disrupted throughout the pandemic, but drug stores experienced a unique set of challenges. It stands to reason that a global health crisis would have a profound effect on retailers who have health care, wellness, and beauty at the core of their value proposition.

And of course, that is exactly what happened. Retailers saw volatile sales trends in categories such as vitamins and nutritional supplements as shoppers sought immunity boosting products. Sales of hair color, nail polish and makeup saw unusual demand patterns when the work-from-home movement affected normal beauty regimens. Seasonal promotions, a staple of drug stores’ merchandising strategy, were affected by how holidays were or were not celebrated.

One of the biggest impacts was seen in the cough/cold category where measures to reduce the spread of COVID-19, such as wearing facial coverings, frequent hand washing and home-schooling, greatly reduced the incidence of colds and influenza. Category sales fell off a cliff in 2020, before rebounding sharply in 2021 as restrictions eased. Meanwhile, customer traffic patterns were greatly affected early on when trips were generated by COVID-19 testing followed by vaccination administration.

Data Anomalies, Legacy Approaches

Amid the chaos and uncertainty of the past two year, retailers’ forecasting and replenishment systems faced challenges that were unprecedented, but now new challenges have emerged. Here’s why:

  • The utility of sales data from the past two years is limited. Historical sales data is typically a solid foundation on which to build a forecast, but not when demand was distorted by a host of non-recurring variables.
  • Relying on pre-COVID-19 data is of limited value. Two years is an eternity in retail and that is especially true in beauty and wellness categories where consumer behavior is trend-driven and affected by media and the whims of social media influencers.
  • Shoppers are all in on omnichannel now in ways they weren’t prior to the pandemic. This creates new demand patterns, operational expectations and forecasting and replenishment challenges for stores of varying sizes and category space allocations.

These are just a few high-level examples to illustrate the point that drug store retailers understand, even if they have yet to take action; legacy approaches to managing the complexity of the health, beauty and wellness business won’t work going forward. The wild demand swings of the past two years showcased the shortcomings of relying on forecasting and replenishment systems that don’t leverage the latest technology.

Dynamic Demand and the Case for AI

The pandemic has faded, companies are encouraging workers to return to offices and air travelers and commuters are rejoicing the lifting of mask mandates. What everyone in retail is trying to understand, regardless of channel and region of the world, is which of the shopping behaviors and consumption patterns from the pandemic period remain and do they strengthen or decline.

Good luck figuring that out on an Excel spreadsheet with dated technology that may have been workable enough prior to the pandemic but isn’t built for a future in which dynamic demand is an everyday reality. AI-powered forecasting and replenishment systems solve tomorrow’s business challenges by giving retailers unprecedented capabilities to manage unprecedented complexity and increased competition more effectively.

For example, a cloud-based, AI powered forecasting and replenishment solutions allows retailers to build forecasts in hours that are more accurate than those created manually that typically take weeks. Likewise, AI can detect sales patterns, correlations, and anomalies, and make reliable data-driven recommendations to produce optimal forecasts and replenishment plans.

These optimal decisions then lead to other benefits such as reduced waste, out-of-stocks or spoilage, which is an increasing concern for drug stores with fresh and refrigerated products.

Pivoting to the Future

An abundance of operational challenges kept retailers busy throughout the pandemic, but priorities have shifted, and we see a major emphasis on the concept of future-proofing. This is evident in all aspects of the business but forecasting and replenishment is getting a lot of attention because when properly executed it has a huge impact on the customer experience.

It is not overstating things to say that those who fail to embrace AI-driven forecasting and replenishment solutions will be at a severe disadvantage to those who already have or are in the process of doing so. The simple reality is that data volumes are increasing and that makes detecting customer purchase patterns more complex and forecast and replenishment decisions more challenging, even if an army of people are thrown against the challenge.

AI is the answer. This point was made abundantly clear by the pandemic. With the power of AI, forecast and replenishment processes can be automated and decisions can be made faster and more effectively to satisfy shoppers, increase revenue and accelerate growth.

Drug Stores face unique forecasting and replenishment challenges that AI-based solutions help solve. For more insight on winning in the dynamic demand environment, speak with one of our solutions experts.

Dynamic demand is a global phenomenon testing retailers of all types in new ways, and requiring equally dynamic approaches for future success. To learn more, join this event with The Grocer called, “Category Management for the Dynamic Demand Era.”

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