AI’s Untapped Potential: Retail and CPGs Have Not Embraced Technology Enough to Drive Accurate Demand Forecasting, According to a New RELEX Study

First annual State of Supply Chain report uncovers valuable insights into the challenges, strategic investment areas and opportunities for retailers and CPGs over the next 3-5 years

While 57% of retailers and CPG companies plan to invest in predictive and generative AI in the next three to five years, AI and machine learning (ML) ranked just fifth in importance for overall technology spend, behind demand forecasting, improved inventory management, and leveraging data analytics, according to a new global study by RELEX Solutions, a leading provider of unified supply chain and retail planning solutions. This implies that businesses might be undervaluing AI’s ability to address the volatility of consumer demand.

For retailers and CPGs, the RELEX State of Supply Chain 2024: Retail and CPG Dynamics report provides insightful information about the opportunities, key investment areas, and difficulties that they will face over the next three to five years. Global events and disruptions (50%), rapidly changing consumer demand volatility (55%), and an imprecise perception of customer-specific demand (43%), according to respondents, are the main obstacles to enhancing supply chain accuracy and efficiency during the next three years. Remarkably, 94% of participants stated that they have been affected by social media “de-influencing” or “influencing” in the recent 12 to 24 months. This indicates that identifying and foreseeing demand spikes in all channels will be particularly important for success.

Retailers Reshaping Networks for Omnichannel Demand

Retailers are rearchitecting supply chains to navigate evolving consumer expectations, channel shifts, disruptions and uncertainty. Key findings include:

• The top three most essential capabilities for retailers to manage consumer demand and inventory levels are real-time inventory visibility (45%), customer demand sensing (45%), and inventory optimization tools (43%)
• Another 59% of respondents are expanding omni-channel options from some locations to accommodate shifting consumer delivery preferences, tackling the need to evolve to changing consumer preferences
• More than half (53%) are expanding supplier base / sourcing options to add sourcing redundancy to diversify and mitigate risks associated with disruptions

CPGs: Balancing Investments with Tighter Retail Collaboration

Integrated supply chain planning capabilities are critical for CPGs to balance volatility and retail collaboration while expanding consumer touchpoints. However, change is difficult given complex legacy constraints and trade-offs required across disconnected organizations. Key findings include:

• 79% of CPGs report day-level planning is crucial for accurately forecasting and responding to consumer demands
• 32% say disconnected planning across different teams, systems, and regions, and 27% reporting slow and misaligned planning cycles and levels are impacting the synchronization of end-to-end value chain planning and execution
• Supply variability, including materials shortages and production disruptions, impact 82% of CPGs’ ability to meet order expectations
• To navigate macro-economic factors like inflation, CPGs are focused on adjusting inventory and production strategies via monitoring demand signals (48%), building in safety stock or keeping higher inventory levels (22%), and inventory turnover as part of their inventory and production strategies  

“The retail and CPG industries continue to face complex, global challenges that require actionable insights to accurately predict, anticipate, and manage consumer demand,” said Laurence Brenig-Jones, VP of Strategy & Marketing, RELEX Solutions. “To thrive in this new reality, companies must fundamentally transform their approach to supply chain management by breaking down silos, embracing new technologies like AI and ML, and fostering a culture of collaboration and agility. The winners will be those that can achieve resilience and flexibility, to sense and respond to disruptions and opportunities in real-time, and continuously adapt their strategies in the face of change. With the right mindset, tools, and partners, retailers and CPGs can build the supply chains of the future and unlock new levels of growth and profitability.”

The RELEX State of Supply Chain 2024: Retail and CPG Dynamics report can be viewed in its entirety here. 

Learn more at: https://www.relexsolutions.com/customers/