Editor’s note: This blog post is adapted from the research article " Demand Planning for the Digital Supply Chain: How to Integrate Human Judgment and Predictive Analytics," published in the Journal of Operations Management. The article's findings have been translated into practical insights and actionable advice for supply chain professionals seeking to improve decision-making, minimize disruptions and ensure a seamless and efficient supply chain operation."

In today's rapidly evolving digital supply chain landscape, accurate demand planning is more critical than ever. The ability to forecast future demand and allocate resources effectively can significantly affect a business's bottom line. While technology has advanced significantly, human judgment remains an invaluable asset in the demand planning process. In this study, authors Rebekah Brau, John Aloysius and Enno Siemsen explored how to tap into both human judgment and predictive analytics in order to optimize demand planning and drive supply chain success.

Despite the rise of artificial intelligence (AI) and automation, human judgment continues to play a crucial role in demand planning. Humans possess unique abilities that complement the strengths of predictive analytics, such as:

• Identifying market trends and disruptions: Human experts can recognize emerging trends and anticipate potential disruptions that may impact demand.
• Incorporating qualitative information: Humans can incorporate qualitative factors, such as customer sentiment and industry news, into demand forecasts.
• Handling uncertainty and ambiguity: Humans excel at navigating uncertainty and making decisions in complex situations.

At the same time, predictive analytics, powered by AI and machine learning, can provide valuable insights into future demand patterns. By analyzing historical data and identifying trends, predictive analytics can help businesses:

• Forecast demand accurately: Predict future demand levels with greater precision.
• Identify potential risks: Anticipate disruptions and challenges that may affect supply chains.
• Optimize resource allocation: Allocate resources more efficiently based on demand forecasts.

Integrating the two

To maximize the benefits of both human judgment and predictive analytics, it's essential to integrate them effectively. To achieve this objective, begin by leveraging human-guided learning. This means allowing people to provide input to the AI model, guiding its learning process and improving forecast accuracy. The Journal of Operations Management study demonstrated that this approach can be particularly effective when people are able to identify special events or anomalies that may influence demand. For instance, in the research, the authors found that human forecasters were better at identifying significant events such as economic downturns, natural disasters or major product launches.

Likewise, be sure to combine expert judgement with model predictions. Enabling people to fine-tune model-generated forecasts creates a more comprehensive and accurate picture of future demand. The research revealed that this approach can help mitigate biases in both human judgment and model predictions. For instance, human forecasters may have a tendency to overestimate or underestimate demand, while AI models may struggle to account for qualitative factors. By combining the two, businesses can achieve a more balanced and accurate forecast.

It’s also important to continuously evaluate and refine your processes. Do this by regularly evaluating the performance of your demand planning process and making adjustments as needed to optimize results. Track key performance indicators such as forecast accuracy, stockout rates and inventory levels to assess the effectiveness of your demand planning process. Review your demand planning process and identify areas where you can make improvements. This may involve adjusting the weight given to human judgment or refining the AI models used. Finally, the study encourages supply chain professionals to keep up to date with the latest advancements in demand planning technology and methodologies. This will help you ensure that your processes remain competitive and effective.

Drive your network forward

In our digital age, effective demand planning requires a purposeful combination of human judgment and predictive analytics. By maximizing the strengths of both, supply chain organizations can harness the power of human judgment and predictive analytics to enhance supply chain resilience, drive business growth and profitability.