How Retailers Can Use AI to Optimize Inventory Management

  • 19 June 2023
  • Business, General, Technology
  • Emily Newton

How Are Retailers Using AI Inventory Management?

Artificial intelligence (AI) has the potential to transform the retail industry. Businesses could use it in inventory management to increase sales and efficiency. Since it can handle a significant amount of information simultaneously, it can quickly process product data and carry out relevant tasks. Many are already implementing it in some way.

In May 2023, the retail chain Niemann Foods introduced an AI inventory management system in 43 of its stores to connect stock with predicted consumer purchasing behavior. It also accounts for seasonal trends like produce availability for grocery stores. Since it can forecast trends and account for product-level changes, it can maintain optimal amounts.

Retail stores, distribution centers and warehouses can be quite large, so constantly maintaining fully-stocked shelves can be a significant task. While simply installing cameras could work, humans must still continuously monitor a video feed. An algorithm could notify employees when something needs restocking, which saves the business money and time.

Why Should Retailers Overhaul Current Systems?

Businesses usually consider overhauling their old systems because AI can optimize inventory management and provide real-time reactions and data control. In addition, it can standardize the logistics process between stores. While traditional software monitors and regulates stock, sales, and deliveries, it can’t make predictions or come to logical conclusions.

Retailers can merge in-store inventory models with AI management tools to overhaul their current systems. They can get enough products in to give customers AI-backed style recommendations for a more personalized shopping experience. Plus, AI-backed fulfillment will help ship clothing to customers' doorsteps. This method will reduce the amount of manual labor necessary while still providing that personalized experience.

It also has the potential to be a cost-effective option. Every week, retailers in the United States lose $1.4 billion in sales on average — $82 billion yearly — because of empty shelves. A customer can only make a purchase when there’s something to buy. Using AI, businesses could monitor how much stock is moving in the store and react accordingly. It can also reflect favorably on the storage and distribution processes.

How Retailers Can Optimize With AI

While various technologies can improve efficiency or increase savings, not all are capable of decision-making and analysis. Retailers can use AI to optimize inventory management because it can make data-driven choices without human input. It can monitor stock in real-time and adjust its actions based on trends and consumer behavior.

It’s much more scalable than alternatives, so decision-makers can adapt it as their business needs change. It’s also usually affordable, which lets them test the AI’s limitations and abilities before fully implementing it. It can be beneficial to have an intelligent tool for decision-making and analysis.

For example, AI can improve demand forecasting by predicting fluctuations in demand. As a result of this unique insight, retailers stay informed and can keep stock at appropriate levels. Although people can technically make similar projections, analyzing enough data to reach a similarly accurate conclusion would likely take them much longer.

Understocking can also be an issue. AI can connect consumer demand to inventory to mitigate it, allowing companies to maintain enough products. It can analyze purchasing behavior and identify patterns in locations and demographics. Predicting the constant changes in supply and demand and reacting with proper distribution methods is necessary.

How Does AI Inventory Management Work?

Retailers looking to use AI inventory management have multiple options. It has applications on the sales floor, warehouses and even logistics management. The entire process is very involved, so there are many areas where it could improve efficiency.

1. Sales Floor

Retailers can use AI to track market conditions and competitor pricing, then adjust in-store prices to reflect their findings. In addition, the algorithm can optimize sales using discounts or promotions targeting specific demographics.

Consumer data drives marketing and sales for many companies. The point of using it to manage inventory is to streamline workflows and make data-driven decisions. An algorithm isn’t as intelligent as a human, but it can provide insight based on statistics and consumer behavior. Since it can gather and analyze information much faster than humans, it can handle large workloads.

Regarding predictive analysis, it could track trends and collect consumer data to predict shifts in the market. It lets the retailer know what is currently and soon-to-be popular so they can update stock to align with purchasing behavior. As a result, they typically need to use fewer resources to track and manage operations.

2. Warehouse

Warehouse inventory management often involves monitoring how and when stock moves. Algorithms can provide the most efficient route between products to optimize picking activity at distribution centers. It can also make minor changes in real time to account for employees straying from their paths. Since it tracks their movement, it can constantly reflect accurate counts.

For many retail businesses, warehouse optimization relies on making omnichannel models more efficient. The pandemic made companies recognize the value of integrating e-commerce. While providing products online and in-store can maximize profits, balancing the data from each transaction and making real-time stock adjustments can be tedious.

On top of considering fulfillment for each, the online options must accurately reflect what’s available in the warehouse. AI can accurately count stock using sensors, and provide updates when retailers need to order or move products.

3. Logistics

Supply chain monitoring is a crucial part of inventory management. The process is typically tedious because retailers must forecast demand and consider factors that may slow transportation. An algorithm can track weather patterns, historical shipping data and stock levels in real time to automate it.

It can make predictions to inform businesses of potential concerns, streamlining the process. It also can monitor products as they move to ensure an accurate reflection of when they will arrive. Automating fulfillment and transportation can be beneficial. In fact, retailers can triple the accuracy and efficiency of moving stock with AI integration.

AI Can Optimize Inventory Management

Depending on its use, AI inventory management in the retail industry could be innovative. Businesses can make data-driven decisions to maintain stock, track orders and oversee distribution. It’s no cure-all for overstocking or predictive market analysis, but it can be an incredibly useful tool.

Emily Newton is a seasoned industrial writer who explores the impact of technology in the industrial sector. She has over six years of experience providing insights on manufacturing and supply chain automation.