AI Helps Retailers Achieve Vendor Order Optimization

Retail buyers must sift through a lot of data and make many decisions when facing the challenge of buying the right amount of merchandise.

Forecasting has become even more of a challenge at this time when supply chain issues have been in the news to the extent that they’ve entered the public consciousness. The historical data that has often been used by retailers isn’t relevant when some had no sales for months due to lockdowns during the pandemic and when 2022 and 2023 are likely to be much different than 2021.

To deal with this and other challenges, a growing number of retailers are using tools with artificial intelligence (AI) to help them decide what to buy and how to buy it.

“From an AI perspective, it’s more predicting what is in the immediate future to read and react quickly and, in certain situations, strategically position inventory in the event we’re predicting there’s going to be a shortage or there’s going to be a potential stockout,” 4R Systems President and CEO Mark Garland told PYMNTS.

Connecting Demand Forecast, Allocation, Replenishment Decisions

On July 13, 4R announced that it had added Vendor Order Optimization (VOO) to its suite of AI-powered inventory and supply chain planning solutions and services.

VOO projects inventory the retailer will need, optimizes orders subject to vendor requirements and delivers prepared orders to the buyer to process.

Different retailers face different challenges in each part of the buying process. Some verticals, such as apparel, might have an 18-month lead time. Others can buy on a more frequent basis.

All retailers must also consider the issue of the inventory carrying costs when they have more inventory in their network and must decide what they need to buy and how they should flow it into their distribution center so that they’ve got inventory when a customer is ready to buy.

Beyond that, there are decisions to be made about product types and allocation. In addition to simply making replenishment decisions, retailers must also decide which items to stock in which stores and which new items to add to which stores. In the luxury retail space, for example, material type and price are two key attributes that determine how a consumer buys.

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After forecasting what they will need to buy, retailers must also optimize their orders in compliance with their agreements with vendors around such things as quantities and lead times.

“It’s that risk and reward: Do I risk creating that additional order because I’ve got a need, but it’s going to put me overstock because I’ve got these rules in with the vendor, versus the potential of stocking out if I don’t place that order,” Garland said. “So, that really connects the store, the distribution point and now the vendor from a vendor optimization perspective.”

Lastly, at the end of the product’s season, there are markdowns. AI can help here too by recommending a markdown approach that will help the retailer exit the season profitably.

When the allocation decision, the replenishment decision and the demand forecast are connected with a single solution, AI can help make these determinations Garland said.

Meeting Clients’ Needs

VOO is the latest major release joining 4R’s suite of products and services. As a software-as-a-service (SaaS) company, the company supplies regular releases and other benefits to keep clients engaged.

It also streamlines payments. For the SaaS, there is an overall proposal, a set term that’s generally two or three years and then there’s an annual automatic renewal. 4R invoices automatically each month for the duration of the term and the clients generally pay via an automatic ACH payment.

With Agile software development, 4R has a new release every six weeks and ensures that every client is on that new release and has access to the new features and functions. For a major release, like the new VOO, there is a separate fee.

“We’re continuously improving and driving development, bringing new capabilities out which keeps them engaged,” Garland said.

The company also has an account management structure and does a value checkpoint with each client every quarter and in an annual review. These are done with not only the user community but also at an executive level.

“We want to make sure that we’re continuing to generate value and learn the initiatives that they’ve got strategically,” Garland said.

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