The best approach to build a model that predicts how much inventory the logistics team should order each month is to use a time series forecasting model to predict each item’s monthly sales. This approach can capture the temporal patterns and trends in the sales data, such as seasonality, cyclicality, and autocorrelation. It can also account for the variability and uncertainty in the demand, and provide confidence intervals and error metrics for the predictions. By using a time series forecasting model, you can provide the logistics team with accurate and reliable estimates of the future sales for each item, which can help them optimize the inventory levels and avoid overstocking or understocking. You can use various methods and tools to build a time series forecasting model, such as ARIMA, LSTM, Prophet, or BigQuery ML.
The other options are not optimal for the following reasons:
A. Using a clustering algorithm to group popular items together is not a good approach, as it does not provide any quantitative or temporal information about the sales or the inventory. It only provides a qualitative and static categorization of the items based on their similarity or dissimilarity. Moreover, clustering is an unsupervised learning technique, which does not use any target variable or feedback to guide the learning process. This can result in arbitrary and inconsistent clusters, which may not reflect the true demand or preferences of the customers.
B. Using a regression model to predict how much additional inventory should be purchased each month is not a good approach, as it does not account for the individual differences and dynamics of each item. It only provides a single aggregated value for the whole inventory, which can be misleading and inaccurate. Moreover, a regression model is not well-suited for handling time series data, as it assumes that the data points are independent and identically distributed, which is not the case for sales data. A regression model can also suffer from overfitting or underfitting, depending on the choice and complexity of the features and the model.
D. Using a classification model to classify inventory levels as UNDER_STOCKED, OVER_STOCKED, and CORRECTLY_STOCKED is not a good approach, as it does not provide any numerical or predictive information about the sales or the inventory. It only provides a discrete and subjective label for the inventory levels, which can be vague and ambiguous. Moreover, a classification model is not well-suited for handling time series data, as it assumes that the data points are independent and identically distributed, which is not the case for sales data. A classification model can also suffer from class imbalance, misclassification, or overfitting, depending on the choice and complexity of the features, the model, and the threshold.
References:
Professional ML Engineer Exam Guide
Preparing for Google Cloud Certification: Machine Learning Engineer Professional Certificate
Google Cloud launches machine learning engineer certification
Time Series Forecasting: Principles and Practice
BigQuery ML: Time series analysis
