Forecasting Supply Chain Demand Using Machine Learning Algorithms

Abstract

Managing supply chains in today’s complex, dynamic, and uncertain environment is one of the key challenges affecting the success of the businesses. One of the crucial determinants of effective supply chain management is the ability to recognize customer demand patterns and react accordingly to the changes in face of intense competition. Thus the ability to adequately predict demand by the participants in a supply chain is vital to the survival of businesses. Demand prediction is aggravated by the fact that communication patterns between participants that emerge in a supply chain tend to distort the original consumer’s demand and create high levels of noise. Distortion and noise negatively impact forecast quality of the participants. This work investigates the applicability of machine learning (ML) techniques and compares their performances with the more traditional methods in order to improve demand forecast accuracy in supply chains. To this end we used two data sets from particular companies (chocolate manufacturer and toner cartridge manufacturer), as well as data from the Statistics Canada manufacturing survey. A representative set of traditional and ML-based forecasting techniques have been applied to the demand data and the accuracy of the methods was compared. As a group, Machine Learning techniques outperformed traditional techniques in terms of overall average, but not in terms of overall ranking. We also found that a support vector machine (SVM) trained on multiple demand series produced the most accurate forecasts.