Reference guide to build inventory management and forecasting solutions on AWS

Inventory management is a critical function for any business that deals with physical products. The primary challenge businesses face with inventory management is balancing the cost of holding inventory with the need to ensure that products are available when customers demand them.

The consequences of poor inventory management can be severe. Overstocking can lead to increased holding costs and waste, while understocking can result in lost sales, reduced customer satisfaction, and damage to the business’s reputation. Inefficient inventory management can also tie up valuable resources, including capital and warehouse space, and can impact profitability.

Forecasting is another critical component of effective inventory management. Accurately predicting demand for products allows businesses to optimize inventory levels, minimize stockouts, and reduce holding costs. However, forecasting can be a complex process, and inaccurate predictions can lead to missed opportunities and lost revenue.

To address these challenges, businesses need an inventory management and forecasting solution that can provide real-time insights into inventory levels, demand trends, and customer behavior. Such a solution should use the latest technologies, including Internet of Things (IoT) sensors, cloud computing, and machine learning (ML), to provide accurate, timely, and actionable data. By implementing such a solution, businesses can improve their inventory management processes, reduce holding costs, increase revenue, and enhance customer satisfaction.

In this post, we discuss how to streamline inventory management forecasting systems with AWS managed analytics, AI/ML, and database services.

Solution overview

In today’s highly competitive business landscape, it’s essential for retailers to optimize their inventory management processes to maximize profitability and improve customer satisfaction. With the proliferation of IoT devices and the abundance of data generated by them, it has become possible to collect real-time data on inventory levels, customer behavior, and other key metrics.

To take advantage of this data and build an effective inventory management and forecasting solution, retailers can use a range of AWS services. By collecting data from store sensors using AWS IoT Core, ingesting it using AWS Lambda to Amazon Aurora Serverless, and transforming it using AWS Glue from a database to an Amazon Simple Storage Service (Amazon S3) data lake, retailers can gain deep insights into their inventory and customer behavior.

With Amazon Athena, retailers can analyze this data to identify trends, patterns, and anomalies, and use Amazon ElastiCache for customer-facing applications with reduced latency. Additionally, by building a point of sales application on Amazon QuickSight, retailers can embed customer 360 views into the application to provide personalized shopping experiences and drive customer loyalty.

Finally, we can use Amazon SageMaker to build forecasting models that can predict inventory demand and optimize stock levels.

With these AWS services, retailers can build an end-to-end inventory management and forecasting solution that provides real-time insights into inventory levels and customer behavior, enabling them to make informed decisions that drive business growth and customer satisfaction.

The following diagram illustrates a sample architecture.

With the appropriate AWS services, your inventory management and forecasting system can have optimized collection, storage, processing, and analysis of data from multiple sources. The solution includes the following components.

Data ingestion and storage

Retail businesses have event-driven data that requires action from downstream processes. It’s critical for an inventory management application to handle the data ingestion and storage for changing demands.

The data ingestion process is typically triggered by an event such as an order being placed, kicking off the inventory management workflow, which requires actions from backend services. Developers are responsible for the operational overhead of trying to maintain the data ingestion load from an event driven-application.

The volume and velocity of data can change in the retail industry each day. Events like Black Friday or a new campaign can create volatile demand in what is required to process and store the inventory data. Serverless services designed to scale to businesses’ needs help reduce the architectural and operational challenges that are driven from high-demand retail applications.

Understanding the scaling challenges that occur when inventory demand spikes, we can deploy Lambda, a serverless, event-driven compute service, to trigger the data ingestion process. As inventory events occur like purchases or returns, Lambda automatically scales compute resources to meet the volume of incoming data.

After Lambda responds to the inventory action request, the updated data is stored in Aurora Serverless. Aurora Serverless is a serverless relational database that is designed to scale to the application’s needs. When peak loads hit during events like Black Friday, Aurora Serverless deploys only the database capacity necessary to meet the workload.

Inventory management applications have ever-changing demands. Deploying serverless services to handle the ingestion and storage of data will not only optimize cost but also reduce the operational overhead for developers, freeing up bandwidth for other critical business needs.

Data performance

Customer-facing applications require low latency to maintain positive user experiences with microsecond response times. ElastiCache, a fully managed, in-memory database, delivers high-performance data retrieval to users.

In-memory caching provided by ElastiCache is used to improve latency and throughput for read-heavy applications that online retailers experience. By storing critical pieces of data in-memory like commonly accessed product information, the application performance improves. Product information is an ideal candidate for a cached store due to data staying relatively the same.

Functionality is often added to retail applications to retrieve trending products. Trending products can be cycled through the cache dependent on customer access patterns. ElastiCache manages the real-time application data caching, allowing your customers to experience microsecond response times while supporting high-throughput handling of hundreds of millions of operations per second.

Data transformation

Data transformation is essential in inventory management and forecasting solutions for both data analysis around sales and inventory, as well as ML for forecasting. This is because raw data from various sources can contain inconsistencies, errors, and missing values that may distort the analysis and forecast results.

In the inventory management and forecasting solution, AWS Glue is recommended for data transformation. The tool addresses issues such as cleaning, restructuring, and consolidating data into a standard format that can be easily analyzed. As a result of the transformation, businesses can obtain a more precise understanding of inventory, sales trends, and customer behavior, influencing data-driven decisions to optimize inventory management and sales strategies. Furthermore, high-quality data is crucial for ML algorithms to make accurate forecasts.

By transforming data, organizations can enhance the accuracy and dependability of their forecasting models, ultimately leading to improved inventory management and cost savings.

Data analysis

Data analysis has become increasingly important for businesses because it allows leaders to make informed operational decisions. However, analyzing large volumes of data can be a time-consuming and resource-intensive task. This is where Athena come in. With Athena, businesses can easily query historical sales and inventory data stored in S3 data lakes and combine it with real-time transactional data from Aurora Serverless databases.

The federated capabilities of Athena allow businesses to generate insights by combining datasets without the need to build ETL (extract, transform, and load) pipelines, saving time and resources. This enables businesses to quickly gain a comprehensive understanding of their inventory and sales trends, which can be used to optimize inventory management and forecasting, ultimately improving operations and increasing profitability.

With Athena’s ease of use and powerful capabilities, businesses can quickly analyze their data and gain valuable insights, driving growth and success without the need for complex ETL pipelines.

Forecasting

Inventory forecasting is an important aspect of inventory management for businesses that deal with physical products. Accurately predicting demand for products can help optimize inventory levels, reduce costs, and improve customer satisfaction. ML can help simplify and improve inventory forecasting by making more accurate predictions based on historical data.

SageMaker is a powerful ML platform that you can use to build, train, and deploy ML models for a wide range of applications, including inventory forecasting. In this solution, we use SageMaker to build and train an ML model for inventory forecasting, covering the basic concepts of ML, the data preparation process, model training and evaluation, and deploying the model for use in a production environment.

The solution also introduces the concept of hierarchical forecasting, which involves generating coherent forecasts that maintain the relationships within the hierarchy or reconciling incoherent forecasts. The workshop provides a step-by-step process for using the training capabilities of SageMaker to carry out hierarchical forecasting using synthetic retail data and the scikit-hts package. The FBProphet model was used along with bottom-up and top-down hierarchical aggregation and disaggregation methods. We used Amazon SageMaker Experiments to train multiple models, and the best model was picked out of the four trained models.

Although the approach was demonstrated on a synthetic retail dataset, you can use the provided code with any time series dataset that exhibits a similar hierarchical structure.

Security and authentication

The solution takes advantage of the scalability, reliability, and security of AWS services to provide a comprehensive inventory management and forecasting solution that can help businesses optimize their inventory levels, reduce holding costs, increase revenue, and enhance customer satisfaction. By incorporating user authentication with Amazon Cognito and Amazon API Gateway, the solution ensures that the system is secure and accessible only by authorized users.

Next steps

The next step to build an inventory management and forecasting solution on AWS would be to go through the Inventory Management workshop. In the workshop, you will get hands-on with AWS managed analytics, AI/ML, and database services to dive deep into an end-to-end inventory management solution. By the end of the workshop, you will have gone through the configuration and deployment of the critical pieces that make up an inventory management system.

Conclusion

In conclusion, building an inventory management and forecasting solution on AWS can help businesses optimize their inventory levels, reduce holding costs, increase revenue, and enhance customer satisfaction. With AWS services like IoT Core, Lambda, Aurora Serverless, AWS Glue, Athena, ElastiCache, QuickSight, SageMaker, and Amazon Cognito, businesses can use scalable, reliable, and secure technologies to collect, store, process, and analyze data from various sources.

The end-to-end solution is designed for individuals in various roles, such as business users, data engineers, data scientists, and data analysts, who are responsible for comprehending, creating, and overseeing processes related to retail inventory forecasting. Overall, an inventory management and forecasting solution on AWS can provide businesses with the insights and tools they need to make data-driven decisions and stay competitive in a constantly evolving retail landscape.

About the Authors

Jason D’Alba is an AWS Solutions Architect leader focused on databases and enterprise applications, helping customers architect highly available and scalable solutions.

Navnit Shukla is an AWS Specialist Solution Architect, Analytics, and is passionate about helping customers uncover insights from their data. He has been building solutions to help organizations make data-driven decisions.

Vetri Natarajan is a Specialist Solutions Architect for Amazon QuickSight. Vetri has 15 years of experience implementing enterprise business intelligence (BI) solutions and greenfield data products. Vetri specializes in integration of BI solutions with business applications and enable data-driven decisions.

Sindhura Palakodety is a Solutions Architect at AWS. She is passionate about helping customers build enterprise-scale Well-Architected solutions on the AWS platform and specializes in Data Analytics domain.