Applying Machine Learning in Retail Demand Prediction—A Comparison of Tree-Based Ensembles and Long Short-Term Memory-Based Deep Learning

Abstract

In the realm of retail supply chain management, accurate forecasting is paramount for informed decision making, as it directly impacts business operations and profitability. This study delves into the application of tree-based ensemble forecasting, specifically using extra tree Regressors (ETRs) and long short-term memory (LSTM) networks. Utilizing over six years of historical demand data from a prominent retail entity, the dataset encompasses daily demand metrics for more than 330 products, totaling 5.2 million records. Additionally, external variables, such as meteorological and COVID-19-related data, are integrated into the analysis. Our evaluation, spanning three perishable product categories, reveals that the ETR model outperforms LSTM in metrics including MAPE, MAE, RMSE, and R2. This disparity in performance is particularly pronounced for fresh meat products, whereas it is marginal for fruit products. These ETR results were evaluated alongside three other tree-based ensemble methods, namely XGBoost, Random Forest Regression (RFR), and Gradient Boosting Regression (GBR). The comparable performance across these four tree-based ensemble techniques serves to reinforce their comparative analysis with LSTM-based deep learning models. Our findings pave the way for future studies to assess the comparative efficacy of tree-based ensembles and deep learning techniques across varying forecasting horizons, such as short-, medium-, and long-term predictions.