Inventory management solution
Managing inventory in supermarket chains is inherently complex, with challenges ranging from handling perishables and seasonal items to managing high-end goods. Each product category has its own set of requirements, such as expiration dates, demand spikes, and specific storage conditions. Additionally, thegrowing influence of online salesfurther complicates inventory management. A more dynamic and responsive approach is needed.
Fortunately, AI-powered grocery store inventory management systems are transforming the industry by taking on these challenges with precision and efficiency. Studies have shown that69% of retailers have reported an increase in annual revenueafter adopting AI,and 72% of those already using AI have experienced reduced operating costs.
However, implementing AI in a supermarket or grocery store chain is no small feat. It requires meticulous planning, expert setup, and ongoing management to maximize its potential. In this comprehensive guide, we'll jump right into the fundamentals of AI-powered grocery inventory management,explore the specific challenges it addresses, and offer insights on how to build an effective AI-driven system for 2024.
The challenges faced in grocery inventory management
Providing efficient inventory management is certainly not a walk in the park. Here are the most typical complexities that pop up in thegrocery retail industry.
#1 Managing fresh and ultra-fresh inventory
Fresh products' management often carry a high risk of markdowns and write-offs. To minimize this risk, their replenishment must be synchronized with the moving demand and aligned with diverse critical factors like shelf life, day of the week, suppliers’ conditions, delivery times, etc. That is not easy to do without sophisticated grocery stock management software.
#2 Working with expiration dates
Although all contracts with suppliers usually specify minimum allowable delivery and sales lead times, this information is not always considered when planning inventory for grocery stores, especially when these lead times can vary from delivery to delivery and for different products in the same category. Hence, it's vital to meticulously monitor the expiration dates of products from shelf placement onward, ensuring proper display organization.
#3 Ensuring omnichannel inventory control
The rapid growth of online sales has made operational efficiency a particular challenge for grocery retailers. They must constantly balance the cost of delivering low-value products, which often require shelf life and temperature control, with meeting growing consumer demand for online orders. In this case, flexible forecasting and cost optimization through automation take center stage.
#4 Pronounced seasonality, along with unpredictable demand spikes
Grocery demand forecasting is based on the understanding that specific categories and SKUs may experience varying customer demand throughout the year, forcing timely adjustments to order volumes. We should also not forget about other unpredictable factors affecting demand (weather changes, sporting events, competitors setting up shop nearby, and so on). An ideal grocery store inventory management system must seamlessly adjust to seasonal variations, with experts ready to respond to unforeseen changes and make necessary adjustments at a moment's notice.
#5 Providing substitutes
When a particular product on the shelf is missing, shoppers should be able to quickly pick up another product similar in price and quality. The main trouble here is identifying the right substitutes and forecasting demand while considering the sales of similar products. To do that, there are unique algorithms that help to trace the relationship between substitute goods.
#6 Managing cafes and cooking departments
Retailers are increasingly venturing into culinary and ready-made products or integrating cafes and restaurants into their supermarkets. However, executing this strategy involves a new host of challenges, particularly in managing food waste and accurately forecasting demand since dishes with multiple ingredients mean multiple expiration dates, so the complex analysis must deal with both the demand for final products as well as the expected use of the needed ingredients.
#7 Store-type specific challenges
Facing the above factors is already a tall order, but that's not all. Different types of grocery stores require different approaches to how these grocery stores manage inventory.
Convenience stores
They are usually limited in their ranges. The available areas are small, and there are no or very tiny warehouses attached. When creating andmanaging inventory in convenience stores, it is critical to set up an inventory management system in an "empty warehouse" format and the correctselection of the assortment while managing the marginper shelf meter.
Supermarkets
This type of store considers it essential to ensure both the availability and diverse range of in-demand products. However, high availability often meansexcess inventory, which results in markdowns and write-offs. This also requires simultaneous management of various categories with their own specifics like expiration dates, frequency of deliveries,inventory turnover, seasonality, etc. Juggling inventory of fresh dairy products, expensive high-end whiskey, and Christmas decorations could not be more different.
Hypermarkets
These stores have many departments, categories, suppliers, individual SKUs, frequency, and variety of orders. Therefore,automation and optimizationof inventory management are essential to profitability. Otherwise, they have to hire more staff and spend more on payroll. Covering all the customers' needs in one place can result in dead stock. That is why hypermarkets need to monitor KPIs (inventory turnover, overstocks, etc.) and pay close attention to analytics.
“Many managers believe that it is better to order more than less. This eliminates the problem of lost sales but generates excess inventory,”says one of the leaders ofBee Market."LEAFIO Inventory Optimization sees inventory sales more clearly, doesn’t react to one-off spikes, and warns that inventory should not exceed our requirement.”
How AI is revolutionizing grocery inventory management
Considering all the mentioned intricacies of grocery inventory management, manual operation becomes impractical. The cost of mistakes is too high. Specialized inventory management software offers several advantages to retailers:
Increased operational efficiency
With grocery stock management software, retailers can optimize ordering, stocking, and tracking inventory levels. Automating routine tasks such as replenishment helps reduce manual errors and saves time, allowing staff to focus on more critical aspects of operations.
Optimal inventory levels
Grocery stock management software uses advanced algorithms and analytics to forecast demand, identify trends, and determine optimal inventory levels. By accurately forecasting customer demand and adjusting inventory levels accordingly, retailers can minimize instances of overstocking and understocking.
Increased customer satisfaction
With automated grocery store stock control, customers are more likely to find the items they need. This leads to increased customer satisfaction and loyalty. Moreover, retailers can use data from the software to tailor their product offerings, promotions, and marketing strategies to match customer preferences and demands better.
Key features of AI-driven grocery inventory management software
Ideally, the best inventory management software should address all the challenges we have just outlined. Here’s a list of critical features to consider when selecting inventory management software for grocery stores.
- AI-driven demand forecasting:It helps evaluate sales variability, optimize warehouse load, and improve the accuracy of sales and operational planning, including seasonal forecasts and promotions.
- Automatic replenishment:This feature autonomously manages the ordering process at all levels of the supply chain, eliminating the need for manual intervention.
- Fresh inventory management feature:Advanced algorithms help retailers maintain the optimal inventory level for perishables. This functionality helps to monitor the write-offs closely, find the root causes of wastage, and prevent lost sales.
- Multi-scenario seasonality planning:This module automatically calculates and applies seasonal factors to optimize inventory for grocery stores, taking into account both regular and ad hoc fluctuations in demand.
- Trade promotion managementfunctionality ensures timely preparation for planned promotions, with automatic forecasting and inventory level adjustments based on actual sales figures.
- The assortment rotation functionautomates removing obsolete products and introducing new ones to the assortment range, using historical data to forecast demand for new offerings.
- The BI moduleandvisual dashboards:These functional tools provide valuable insights, facilitating day-to-day inventory management tasks and long-term planning. Best solutions offer comprehensive analytical reports to track inventory and recent trends and identify areas of missed sales and excess inventory to make strategic decisions.
LEAFIO Inventory Optimizationis an AI-powered solution that addresses all aspects of grocery store inventory management, providing seamless integration into business processes. Using proprietary algorithms, this SaaS solution handles various product categories, including perishable and ultra-fresh products, while considering the intricacies of multi-echelon replenishment and optimization.
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Step-by-step guide to implementing AI in grocery inventory management
Implementing AI in grocery inventory management requires a strategic approach to enhance efficiency and accuracy. This step-by-step guide will walk you through the critical phases of integrating AI into your inventory management system for a smooth and successful transition.
Step 1: Assess your current inventory management system
Start by evaluating your existing inventory management processes. Identify the specific challenges your business faces, such as stockouts, overstocking, or inefficiencies in tracking. Understanding these pain points will guide the selection of the right AI solution.
Step 2: Choose the right AI solution
Carefully select the AI software that best suits your business needs. Consider critical factors such as functionality, scalability, integration capabilities with existing systems, security, and the provider's support services. The right solution should address your current challenges and adapt to future growth.
Step 3: Plan and execute implementation
Plan and execute the implementation once you’ve selected the appropriate AI solution. Develop a clear timeline, allocate resources, and ensure your team is well-prepared for the transition. Training and support are crucial to minimize disruption during this phase.
Step 4: Monitor and optimize continuously
Regularly review key performance indicators (KPIs) and analytics to assess the effectiveness of the AI system. Use these insights to adjust strategies and refine processes to keep your inventory management efficient and responsive to changing business needs. Continuous improvement is essential to maximizing the benefits of AI in grocery inventory management.
Tips to improve grocery inventory management here & now
| Step | Description |
|---|---|
| #1 Find a specific approach to planning for ultra-fresh goods | Ultra-fresh goods like store-prepared salads, sandwiches and perishable items like seafood and ground meat are often important differentiators for retail grocers. Nevertheless, their benefits come at the cost of the need for more detailed inventory management. Every replenishment order must be based on an accurate demand forecast, considering many factors applied to the category. |
| #2 Keep track of expiration dates | Grocers usually put the oldest perishable products on the front shelf, but shoppers often reach for fresher items. Grocery store inventory systems help retailers track when products expire and implement strategies to reduce shrinkage. Batch accounting tactics to track which expiring items must get to the shelves and be sold first simply must be used. |
| #3 Consider seasonality and unpredictable demand | Effective inventory management also involves considering unpredictable events, such as celebrity appearances, that require a certain level of safety stock. Predictable events, such as increased demand for salads and beverages in the summer months and increased demand for soups and savory dishes in the winter, are easier to plan. |
| #4 Take into account intra-week demand spikes | Analyzing inventory data at the day level is essential for perishables inventory management. For example, knowing that a given store sells a certain number of pastries on Friday and twice as many in the days before certain holidays is more valuable than knowing the number of weekly sales. Grocers who don't fully capitalize on this granularity of data analysis may lose sales due to out-of-stock items. Conversely, they may waste excessive quantities spoiling due to over-ordering. |
Key takeaways
- AI as a necessity. AI-powered inventory management is essential for handling the challenges of modern grocery retail.
- Strategic implementation. A strategic approach and choosing the right provider is crucial for successfully integrating AI into inventory management.
- Continuous optimization. Regularly monitor and optimize KPIs to keep the AI system effective and responsive.
- Efficiency and cost reduction. AI adoption boosts revenue and reduces operating costs for grocery retailers.
- Future-readiness. Integrating AI now prepares grocery retailers for future challenges and growth opportunities.
Grocery inventory management FAQs
What is grocery inventory management?
Grocery store inventory management is the process of monitoring and controlling the store's inventory to meet customer demand. Any successful retailer has to tackle the following tasks: tracking inventory levels, timely ordering and replenishment of goods, managing theft and shrinkage, and managing suppliers.
What are the main steps of the grocery inventory management process?
The critical steps in grocery inventory management are inventory tracking, demand forecasting, ordering and replenishment, and continuous optimization. Demand forecasting uses historical sales data to predict future needs and set stock levels. Ordering and replenishment ensure timely restocking based on these forecasts. Continuous optimization involves monitoring inventory turnover and storage costs, adjusting strategies, and adopting new tools to improve efficiency.
How do you keep track of grocery inventory?
Inventory for grocery stores is tracked using various methods, including manual counts, barcode scanning, and RFID technology. Inventory management software helps monitor stock levels in real-time, track sales data, and automate reorder processes. Additionally, regular physical inventory audits and cycle counts ensure accuracy and identify discrepancies.
What type of inventory system do grocery stores use?
Grocery stores commonly use a perpetual inventory system, which continuously updates stock levels in real-time. This system relies on point-of-sale (POS) systems and barcode scanning to accurately track sales and inventory movement. Some grocery stores implement periodic inventory counts to reconcile physical inventory with recorded levels, ensuring accuracy and minimizing discrepancies.
What is the best software for grocery stores?
LEAFIO Inventory Optimization is a highly regarded grocery inventory management software. It offers advanced features tailored specifically for the unique challenges of grocery retail, such as managing fresh and ultra-fresh inventory, setting reorder levels, and integrating with all known and custom EPR systems. This cloud AI-powered solution helps streamline inventory management processes, optimize stock levels, and maximize profitability for grocery retailers.
What inventory method do grocery stores use?
The method commonly applied in a grocery management system is the FIFO (First-In, First-Out)inventory method. This approach ensures that older inventory items are sold before newer ones, minimizing the risk of spoilage or obsolescence, especially for perishable goods.
What is the average frequency of manually checking inventory in grocery stores?
Small grocery stores conduct manual inventory checks daily or weekly to ensure accurate stock levels. A retail store with twice as much inventory must have a robust inventory management system to ensure efficient stock tracking. Some larger stores with advanced grocery store management systems may check inventory less frequently, relying more on automated tracking methods.
Have a question?
Have inquiries about retail automation or optimization? Talk to our expert for solutions!
Helen Kom
Inventory Optimization Product Director
