Cloud Computing and Machine

Learning for Retail Professionals White Paper Report

This report will explain machine learning and how it is being implemented
through cloud computing along with the practical applications of machine
learning in retail. Written for the owner or manager of a small retail
establishment, this report will provide the information necessary to make an
informed decision on whether or not to begin a machine learning process at
their establishment.

By Team 02: Tyler George, Hudson Huth, Garrett Snyder

Introduction
Machine learning, a form of data processing that utilizes artificial intelligence, is currently
being deployed in fields ranging from research to retail. Walgreens has used machine learning
to track customer needs through facial recognition, and Amazon is using machine learning to
improve recommendations, a tactic that is now
driving sales (Randolph 2017).

Figure 1 shows examples of machine learning

software being deployed in drones, iPhones, medical
software, and in image and facial recognition. Every
day, the applications of this powerful analytical tool
grow as computer scientists and statisticians expand
their horizons and business needs change.

At one time, machine learning was considered only a

laboratory curiosity; however, thanks to the advent of
cloud technology, this data processing software can
be accessed by anyone with the knowledge and will to
implement it. Cloud services and machine learning
have already been implemented in many retail
environments with great success, such as at
Walgreens or Amazon. While both of these examples
come from extremely large retailers, cloud computing
companies, such as Microsoft’s Azure suite, offer their
own services to the public.

This white paper is written for professionals at small

retail establishments who seek information on the
Figure 1: Applications of Machine Learning
emerging technology of machine learning. The report from Jordan & Mitchell 2015
explores the cloud infrastructure, the mechanics of
machine learning, and the applications of machine learning in a retail environment. In order to
narrow the expansive field of cloud computing, we will investigate Microsoft’s cloud service,
Azure, as our primary example.

What is Cloud Computing?

Eliminating the need for complex in-house computing infrastructure, cloud computing allows
for the connection of devices through internet-based sharing and storage of information. In
this sense, the cloud refers to the computing platforms which make the distribution and access
of information through various devices possible. Most commonly utilized by small businesses is
the public cloud, which is operated and maintained by a third party, and enables a business to
implement particular services and applications through pay-per-use subscriptions. Using public
Cloud Computing and Machine Learning ENGL 421-002

clouds gives a small retail owner the potential to cut costs by paying for they use such as CPU,
storage, or bandwidth (Attaran & Woods, 2018).

According to IBM Global Retail (2010) four cloud types exist: Business Process as a Service
(BPaaS), Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a
Service (IaaS).

 BPaaS allows a business to outsource certain processes and applications to a third party
who conducts the computing process, and relays the new information back to the
subscriber. This includes checking a customer's credit before allowing the transaction
to be completed.
 SaaS allows for a subscribing patron to access software through a network which is
available to numerous devices aimed at providing increased accessibility, whether at a
single or various locations.
 PaaS allows for development, implementation, or testing of applications which can be
molded to their business, without having to bear the cost of hosting and maintaining
the hardware and software necessary for operation.
 IaaS provides the ability for out-of-house storage of data, as well as access to servers
and hardware that is necessary for business operations that utilize cloud computing.

Figure 2. Services in a cloud computing architecture from IBM Global Retail, 2010

Available Cloud Computing Services: Microsoft Azure

Azure is a cloud computing product offered by Microsoft, which offers a wide range of services,
from analytics to data cataloging. It providing subscribers the ability to have a technologically
advanced workplace without the hassle of creating or maintaining the cloud servers. Microsoft
Azure’s services can be categorized within BPaaS and SaaS.

Machine Learning: An Overview

Machine learning can be defined as a computer system that improves through experience. In
the same way that humans can see trends in the world around us, a machine learning process
can see trends in data sets. As the computer views more data sets, it can begin to detect

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patterns. Then, by applying statistical techniques the machine learning process can make its
own interpretations about the data (Jordan & Mitchell 2015). As the computer revisits the same
type of problem, these interpretations become more refined and the machine learning process
does exactly what its title suggests, learns.

As an example, managing inventory is an important task at any retailer. In order to make sure
that stocks are being kept at a desirable level, managers must keep track of SKU numbers,
daily deliveries, physical inventory, and expired goods. During this process, a lot of inventory
data is collected and with it the opportunity to perform inventory analytics.

To analyze all of the store data is a daunting task. Many stores choose to hire consulting firms
to handle their data and provide insight. Professional analytics can provide a great deal of
insight for the store, such as improving how a team performs item replenishment.

A human user can organize this information in excel or a similar program, but finding patterns,
especially over the course of months or years, can take more than just a careful eye. Machine
learning can serve to uncover these hidden patterns in data. Moreover, a machine learning
process differentiates itself from other analytic tools because it can learn from its own results,
improving its decision making based on how well it has performed in the past.

Machine Learning through Microsoft Azure Platform

A typical machine learning process is demanding on a computer and requires specific hardware
beyond what a standard consumer may have access to. However, the resource is still available
by utilizing cloud computing services offered by Microsoft Azure. The computation necessary
for the machine learning process will be done in a Microsoft data center, the controls and
results of that computation can then be accessed externally from the user’s personal
computer. By utilizing cloud computing in this way, the power of machine learning can be
accessed by any party with the desire to do so, not just those with access to the hardware.

Major Components of the Machine Learning Process

There are three integral components, illustrated in figure 3, to the machine learning process:
the raw data, a learning algorithm, and a model.

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Figure 3: The Machine Learning Process from Chappell, 2015

Major Components of the Machine Learning Process: Raw Data

Raw data is obtained before starting the machine learning process. This is the data, such as
inventory information, that is going to be analyzed by the machine learning process. After this
data is uploaded, it will be arranged into a useable format through preprocessing modules.
After this process is completed—it may take a few iterations—the data is ready to be examined
by the machine learning process.

Major Components of the Machine Learning Process: Learning Algorithm

Next, a learning algorithm is applied to the data. This is the most important step in the
machine learning process and there are a variety of algorithms that can be used to different
ends. However, all algorithms contain three basic components, Representation, Evaluation,
and Optimization (Domingos 2012).

 Representation refers to a language that the computer can understand. By

understanding the data, the computer is able to learn from it.
 Evaluation is how the data is scored. There must be a metric by which the computer can
determine what is correct and incorrect.
 Optimization is determining what the “best” data is. The computer takes the scores it
gave each data point and compares them to each other.

Furthermore, there are two classifications for learning algorithms, supervised and
unsupervised. If the user knows what final values they are looking for, the algorithm is
considered supervised; the process will stop when these values are found. If the user does not
know what final value they are looking for, the algorithm is considered unsupervised; the
process will stop when the user considers the values “good enough”. A vast majority of
machine learning programs use supervised learning (Walker 2018).

Major Components of the Machine Learning Process: Model

Finally, a model is used to analyze the results of the learning algorithm and determine how to
apply it. A model is a framework that the machine learning process uses for evaluating the
organized data (Chapell 2015). A number of candidate models are generated from the machine
learning process and are used to test how well the algorithm has solved the problem. If one of

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these candidate model matches a predetermined target values then that model is deployed—
the solution that the machine learning process found is used.

Applications of Machine Learning in Retail

The applications of machine learning are continuing to grow as the software learns and is
developed for other purposes. The main use of machine learning is for data analytics. It can
automatically identify common patterns and trends that the normal person would usually have
trouble recognizing (Lund, Worldwide Consumer Goode, Microsoft, 2017). This section will
cover the three main uses of machine learning in a retail environment.

Applications of Machine Learning in Retail: Item Replenishment and Inventory Management

Ordering the right amount of an item to keep in inventory and on store shelves can be done
using machine learning. The process is automated with machine learning so that it no longer
needs to be done manually. It uses an algorithm that uses many different parameters to
determine how much of an item to order. The algorithm takes into account factors that not
only include purchase history but also takes in account supply-chain constraints with deliveries
(Glatzel, Hopkins, Lane, Weiss, 2016). Other features include the environment, such as the day
of the week, the weather, and even the stock market (Snyder, 2018). This allows retailers to
have an ideal number of an item in stock so as to reduce waste and keep customers satisfied
with its availability. It will also optimize delivery so that there is little time that a store goes
without a product and considers the shelf life of fresh foods so they are only sitting in the store
for a short amount of time. Table 1 shows a clip of data that machine learning would look at to
make replenishment decisions.

Table 1: Typical Data Chart Used by Machine Learning to Make Decisions from Snyder 2018

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Applications of Machine Learning in Retail: Anticipating Customer Needs

Machine learning can be used to anticipate what customers want, maybe before they even
know that they want it. This is similar to how Netflix recommends shows or how Facebook
shows advertisements that may be relevant to the user. Netflix looks at the shows that you
have watched in the past and recommends other shows based on your history. The same can
be done in the retail environment with machine learning. It can predict what you will buy based
on many different factors, including the following:

 Historical sales data

 Advertising campaigns
 Store-opening times
 Local weather
 Public holidays (Glatzel, Hopkins, Lane, Weiss, 2016)

With this information, retailers can create assortments that best reflect customer needs, such
as making a display of an item towards the front of the store. Coupons and offers can also be
sent out to customers that are predicted to buy an item with a discount. Retailers can also start
to set prices and availability for these products.

Applications of Machine Learning in Retail: Optimized Pricing

Algorithms in machine learning can be used to help optimize the pricing of items. They can
determine the effect on demand when a price change is made. With pricing always changing
due to seasonality, supply, and demand, it can be used to determine the right price for the
right time (Valentine 2017). It also looks at the subtler impacts on prices with how a price
change of one item could affect the sales of another item. The decrease in price of tortilla chips
could increase the sales of salsa, so the algorithm can optimize the price of one or both items
while taking that into account. Retailers can take advantage of this so that there will be a
steady demand for items year-round.

Conclusion
This report has provided information regarding machine learning and its deployment as a
cloud service. It is our intent that retailers utilize this information to make an informed decision
on implementing cloud computing in their establishment. Through cloud computing,
platforms like Microsoft Azure offer a machine learning service that small retail owners can use
in their businesses. By looking at raw data, machine learning uses algorithms to create models
that retailers can use to make decisions. Many applications of machine learning can be utilized
to give insight into areas such as inventory management and replenishment, anticipating
customer needs, and optimizing pricing.

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