Why Retailers and CPGs Fail to Harness AI Potential

Retailers and CPG companies overlook the potential of Artificial Intelligence (AI) and machine learning (ML) despite strong intentions to invest in predictive and generative AI. Surprisingly, even though 57% of companies plan to embrace this cutting-edge technology within the next 3-5 years, AI and ML are only ranked fifth in importance for technology spend.

Are companies underestimating the power of AI to tackle consumer demand volatility?

The first State of Supply Chain 2024: Retail and CPG Dynamics report by RELEX Solutions uncovers valuable insights into the challenges, strategic investment areas, and opportunities for retailers and CPGs.

Related Article: 5 Benefits of Artificial Intelligence for Supermarkets

Overall, respondents rated rapidly shifting consumer demand volatility (55%), global events and disruptions (50%), and inaccurate sense of customer-specific demand (43%) as the biggest threats to improving supply chain efficiency and accuracy over the next three years.

94% of respondents also said they have been impacted by social media influencing or “de-influencing” over the last 12-24 months – another sign that anticipating and sensing demand surges across all channels will be especially critical to 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 omnichannel 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 due to complex legacy constraints and trade-offs necessary between organizations that remain out of sync.

Key findings include: 

  • 79% of CPGs report that 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% report slow and misaligned planning cycles and levels impact the synchronization of end-to-end value chain planning and execution.
  • Supply variability, including materials shortages and production disruptions, impacts 82% of CPGs’ ability to meet order expectations. 
  • To navigate macroeconomic factors like inflation, CPGs focus on adjusting inventory and production strategies by monitoring demand signals (48%), building safety stock or keeping higher inventory levels (22%), and inventory turnover as part of their inventory and production strategies.  

Retailers and CPGs Need to Transform

“The retail and CPG industries continue to face complex, global challenges that require actionable insights to predict, anticipate, and manage consumer demand accurately,” 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 who can achieve resilience and flexibility, 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,” Brenig-Jones concluded.

RELEX Solutions is a leading provider of unified supply chain and retail planning solutions. The company aligns and optimizes demand, merchandising, supply chain, operations, and production planning across the end-to-end value chain.

Researchscape conducted the RELEX State of Supply Chain report in February 2024, surveying 285 retail, CPG, and wholesale leaders globally.