MACHINE LEARNING IN

DEMAND
FORECASTING

BY AJITH RAVINDRAN
B2502
Demand forecasting is the process of estimating the forecast of customer demand by
analyzing historical data. Organizations use demand forecasting methods to avoid
inefficiencies caused by the misalignment of supply and demand across the business
operations.

Problems faced by traditional demand forecasting;

• Forecasting accuracy has typically been hindered by siloed operations, scattered data in
legacy systems, exaggerated or conservative manual adjustments, and misaligned strategic
and tactical planning.
• Moreover, the use of old-fashioned methods such as spreadsheets and a lack of
collaboration among sales, marketing, and planning teams has only added to the complexity.
• Traditional forecasting techniques such as the Naive model, Moving Average model, Holt-
Winters model, and Auto Regressive Integrated Moving Average (ARIMA) model measure
few variables like trends, seasonality, and cycles.
• They fail to account for internal and external factors in the real-world that significantly
impact demand forecasting.
Machine learning (ML) is the study of computer algorithms that improve automatically
through experience. It is seen as a subset of Artificial Intelligence (AI). Machine learning
algorithms build a mathematical model based on sample data, known as training data, in order
to make predictions or decisions without being explicitly programmed to do so

Machine learning solutions for demand forecasting when teamed with statistical methods
is predictive analytics. It allows for not only estimating demand but also for understanding
what drives sales and how customers are likely to behave under certain conditions.
• To help you discover what may happen in the future, predictive analytics software performs
the following set of operations:
• aggregating historical and new data from different sources, including ERP and Customer
Relationship Management (CRM) systems, points of sales (POSs), sensors, customer demand
studies, social media, marketing surveys;
• cleansing data;
• determining which forecasting algorithm fits your product best;
• building predictive models to identify likely outcomes and discover relationships between
various factors; and
• monitoring models to measure their business results and improve prediction accuracy.