Celonis - ‘We need to look at retail processes as a whole and bridge the silos’
Celonis’ Head of Solution Engineering for Retail and CPG explains how process mining can help retailers get a better grip on their margins, ROI and supply chain decisions.
Whilst many industries have faced increased volatility in recent years, it’s fair to say that retail has been at the forefront of a lot of disruption - impacted by geopolitical factors, the COVID-19 pandemic, supply chain disasters and now the macroeconomic headwinds. The challenges are wide-ranging and well documented on diginomica, but include everything from the shift away from just in time supply chains, to inflationary pressures, as well as the need to balance both online and brick-and-mortar channels.
With this context in mind, I thought it may be useful to sit down with Celonis’ Head of Solution Engineering for Retail and CPG, to get an understanding of what trends the vendor is seeing amongst its customer base, as well as what impact process mining has on addressing some of these issues. Celonis’ technology helps organizations map their processes and uses AI tools to offer recommendations for fixes, with the aim of streamlining how an organization runs.
The key takeaway from the conversation with Justin Grochoski is that often retailers don’t understand the impact of how changing a process in the short term could impact their ROI, but also how processes in finance or supply chain impact one another. Celonis argues that retailers should be thinking about their processes as a whole, in order to maximize returns and deliver a better experience for customers.
But first, commenting on the challenges facing retailers and CPG customers at the moment, Grochoski said that the primary concern is getting to grips with supply chains following the COVID-19 pandemic. He explained:
There are a couple of things that are hammering retailers, and to some extent impacting CPG companies as well. One is just a glut of inventory, right? And it's not just inventory, but it's the wrong inventory. They've got seasonality problems where because of supply chain issues, have have got goods arriving too late to hit the seasonal demand that was there for them, so they end up having to liquidate a lot of that.
And then the other piece is the economic environment is causing refunds. So we see a lot of companies that we work with coming to us and saying: refunds is a process, it is a long winding process - from somebody deciding they want to bring something back to the store that they may have purchased online, which has its own issues, all the way through to: now what do I do with that thing? Do I dispose of it? Do I return to it? The sort of reverse supply chain issue within that.
So, we not only have the ongoing perturbations of supply chain issues still coming out of COVID as things peak and dip and peak and dip, in terms of ability to execute against orders, but then we also have the reverse supply chain issue too.
However, in addition to this, compared to pre-2019 when retailers were laser-focused on the environment and sustainability, they’re now having to balance this with cost factors. Grochoski added:
What we saw prior to COVID was a heavy focus on sustainability. So it was not about the dollar, it was about how do we make the supply chain, the store itself, more sustainable and reduce our carbon footprint? And what we saw during COVID was just the scramble of can we get goods to the shelf? Can we even open our stores?
The perturbations afterwards were focused on that. And now sustainability is, to some extent, taking a backseat again in pursuit of cost. And so while a lot of companies have appointed sustainability officers, we have this push and pull between our margins decreasing, partially because we have execution issues. So you have that push and pull between sustainability - are we affecting our supply chain optimally from a sustainability perspective - or is it from a cost perspective?
The value of understanding process relationships
On the topic of process mining in retail, Grochoski said that the adoption of the technology is relatively new in the sector. He provided an example of a retailer using promotions and not understanding how process changes can lead to underwhelming results for implementing an offer to customers. Grochoski explained:
You've got a company selling candy bars, for instance. It's a seasonal item and they decide that they want to change their promotions, change how the end caps are positioned, they want to move to the center of the aisle, they want to change the discounts and they want to modify the product mix within it. They plan that promotion six months in advance, and then it gets down to within the 14 day window before they actually execute in the store…and they're still changing it.
What we see is that the retailer has issues executing. People think promotions are simple but they're really not - you have materials that need to be delivered, you have in store setup, you have the promotional materials, you have the flyers, the website placements, the app advertisements etc. And then you have the actual system changes that reflect getting a discount on this stuff through a shipment scan or a scan through a point of sale system.
So we see promotions that are planned to return an ROI of tens of thousands of dollars in terms of incremental sales. And an overall profit increase through additional items sold, even though the margin gets smaller. But we literally see some of these that drive an ROI for the retailer in the hundreds of dollars. That’s it. And that’s because of all those changes.
Grochoski said that by giving the retailer the information about how all of these process changes affect order management, replenishment, supply, they can see that there’s a merchandising process, a finance process, a supply chain execution process, a transportation planning process that all run in parallel - and will have an impact. He argued that the use of process mining enables retailers to see where these process gaps and silos exist in order to make better decisions. Grochoski said:
You may decide to cancel the promotion early. Or not make a certain change. And that could be our recommendation: don't make the change! We can see from the plans that are set up and those pillars, don't make the change because it's going to impact your ability to execute. You're going to end up with a lot of stock, you're gonna end up with an inventory glut a week later, when you don't need it anymore.
I think that's one of the biggest things with process mining and process monitoring, being able to look across those silos and make predictions about when people are making adverse decisions that are going to affect the business overall.
Getting the full picture
Celonis’ recent release of Process Sphere, which goes beyond understanding single processes and uses object-centric process mining to understand the relationships between different processes is making this easier. Grochoski said that the way retailers do this today is building models for each process and then using a multi-event log that shows the cross-process impact of different steps. Process Sphere, however, lets organizations run the correlation engine against every step of all processes, instead of having to isolate the pick which steps are important. Grochoski said:
It levels-up our ability to find those nuggets, or those hidden issues, in a process. It’s a way for us to scale it up and do it better.
One of the interesting results that Grochoski has seen across Celonis’ customer base is how retailers can deliver better results when they align different functions, such as finance and supply chain - rather than dealing with them in isolation. This is something that was hard to recognize previously, he added. Grochoski said:
I think one of the interesting unique correlations that’s been driven out through looking at the accounts that we work with, is that doing supply chain in isolation isn't as effective as doing supply chain with finance. I'll give you an example of how this works.
If you think of an inbound supply chain for retail, it's an order, right? It's an order that’s placed to go to a warehouse. And that goes all the way down to a receipt, so that you actually receive the goods to the warehouse. And on the finance side, you have the same order as the starting point. And then it goes all the way down to an invoice and a payment.
So there's these two processes in supply chain and finance sort of running in parallel. When you map both of them, you can quickly see the hard dollars that are driven out of supply chain optimization.
For instance, Grochoski said, companies have been able to look at the impact of decisions around less-than-truckload (LTL) and full-truckload (FTL) on accounts payable (AP). He explained:
So, for example, we'll do one use case, and do LTL consolidation and FTLs. We will take 10% of their LTLs and consolidate them. The strange thing that comes out of the other side of it is when you start to look in aggregate at the AP processes, you'll see that their detention charges have decreased overall. Well that's interesting. Why? These are completely separate things.
Detention is when a trailer gets held too long at a yard and the driver is made to stay there longer. Why are those charges decreasing? It's because we reduced the number of appointments at the dock. That's the correlation. Sure, the truck takes a little longer to unload, but that's less time than two trucks pulling up to unload the same goods. So, the yard is a little less full, it's a little less busy, there's a little more time and so we see the impact on the AP side with paying less on detention charges.
And it's really hard to correlate those two, unless you're running both of those two processes through Celonis.