Case study
Walmart Sales Forecasting is a comprehensive approach used by Walmart to predict
future sales and optimise inventory management. Here's a detailed explanation:
Overview
Walmart's sales forecasting approach uses a combination of historical data, seasonal
trends, and external factors to predict future sales. The goal is to accurately forecast
sales to ensure that the right products are stocked in the right quantities, reducing
stock-outs and overstocking.
Data Collection
Walmart collects a vast amount of data from various sources, including:
1. Point of Sale (POS) data: Sales data from every transaction at every store.
2. Inventory data: Current inventory levels, including quantities and locations.
3. Supply chain data: Shipping and receiving data, including lead times and
transportation costs.
4. Weather data: Historical and real-time weather data to account for weather-related
sales fluctuations.
5. Calendar data: Holidays, events, and seasonal trends that impact sales.
6. Customer data: Demographic, behavioural, and transactional data to understand
customer preferences.
Data Analysis
Walmart uses advanced analytics and machine learning algorithms to analyse the
collected data. The analysis involves:
1. Time series analysis: Identifying patterns and trends in historical sales data.
2. Regression analysis: Modeming the relationships between sales and external factors
like weather, holidays, and prices.
3. Machine learning algorithms: Using techniques like neural networks, decision trees,
and clustering to identify complex patterns and relationships.
Forecasting Models
Walmart employs various forecasting models, including:
1. ARIMA (AutoRegressive Integrated Moving Average): A statistical model that accounts
for trends, seasonality, and residuals.
2. Exponential Smoothing (ES): A family of models that weight recent observations more
heavily than older ones.
3. Machine learning models: Such as neural networks, decision trees, and random
forests, which can handle complex relationships and non-linear patterns.
Forecasting Process
The forecasting process involves:
1. Data preparation: Cleaning, transforming, and formatting data for analysis.
2. Model selection: Choosing the best forecasting model based on historical data and
performance metrics.
3. Model estimation: Estimating the parameters of the selected model using historical
data.
4. Forecast generation: Using the estimated model to generate forecasts for future
sales.
5. Model evaluation: Continuously monitoring and evaluating the performance of the
forecasting model.
Benefits
Walmart's sales forecasting approach has several benefits, including:
1. Improved forecast accuracy: By using advanced analytics and machine learning
algorithms, Walmart can improve the accuracy of its sales forecasts.
2. Better inventory management: Accurate sales forecasts enable Walmart to optimise
inventory levels, reducing stock-outs and overstocking.
3. Increased efficiency: Automated forecasting processes reduce manual effort and
improve efficiency.
4. Enhanced customer satisfaction: By ensuring that the right products are stocked in
the right quantities, Walmart can improve customer satisfaction and loyalty.
In conclusion, Walmart's sales forecasting approach is a sophisticated and data-driven
process that leverages advanced analytics and machine learning algorithms to predict
future sales. By analysing historical data, seasonal trends, and external factors,
Walmart can improve forecast accuracy, optimise inventory management, increase
efficiency, and enhance customer satisfaction.
The key takeaways from Walmart's sales forecasting approach are:
1. Data-driven decision-making: Walmart's approach relies heavily on data analysis and
machine learning algorithms to drive forecasting decisions.
2. Integration of external factors: Walmart's approach considers external factors like
weather, holidays, and prices to improve forecast accuracy.
3. Continuous model evaluation: Walmart continuously monitors and evaluates the
performance of its forecasting models to ensure accuracy and efficiency.
Overall, Walmart's sales forecasting approach serves as a best practice for retailers and
organisations seeking to improve their forecasting capabilities and drive business
success.
