Connected technology is once again the key to retail industry success
- Building a digital backbone in retail - Software AG's Andrew Busby outlines the essential components of connectedness when digitizing supply chains, logistics or retail.
Retailers have been at the sharp end of a lot of industry issues in the last few months. In the US alone, shortages of many everyday essential products have caused frustration among consumers, meaning companies have to work even harder to improve customer experience (CX). But this is nothing new, there were shortages at the start of the pandemic and auto manufacturing, for instance, still hasn’t recovered from the chip shortage. With so many shortages, Target’s recent announcement that over-stocking (and therefore discounted prices) would cause it to miss its forecast came as a surprise to many.
The last few years have challenged the resilience and ingenuity of businesses across many industries. Organizations in the retail space, specifically, were forced to respond to the uncertainty by focusing squarely on how best to service their customers. These businesses turned to technology to enable solutions to their most mission-critical challenges, including improving business continuity, ensuring continuous digital transformation and increasing customer happiness. Tractor Supply, for example, rolled out new services for its customers across the US, including curb-side pick-up and app-based ordering, in response to store closures.
These unpredictable times spotlight the friction between the Just-in-Time (JIT) and the Just-in-Case (JIC) approaches. The JIT crowd know that they are keeping maximum flexibility and minimizing liquidity tied up in stock, but can be vulnerable to disruptions in the supply chain and therefore inventory shortages.
The JIC folks know that empty shelves erode consumer confidence and don’t mind tying up more in inventory in order to keep people happy. This crowd will trade having higher margins and operational inflexibility in exchange for customer satisfaction and added stability.
Striking a balance between the two mindsets is key for retailers trying to adapt to the issues faced within the industry today. Operational resilience is the over-arching priority. The more committed a company is to JIT, the less resilient it will be because the stability of its supply chain is further out of its own hands. However, the JIC retailer also limits resilience on the financial side because its margins will be lower. This impacts their ability to invest in innovation, change or people. Somewhere in-between is the key to sustainable margins and fully stocked shelves.
Being more connected in planning and operations
Supply chain planning isn’t anything new but the task is more complex than ever for supply chain planners today. Consumers want to see multiple product SKUs and faster shipping or fulfilment time. Distributed centers of manufacturing, shortages in raw materials and semi-produced products, disruption in labor forces and physical blockages to supply routes have all recently risen and affect the ability to plan. Add to that the macro factors of digitalization, geo-political instability and economic uncertainty and you can appreciate the maze that planners must navigate.
Supply chain delays and manufacturing shortages may be out of retailer’s hands, but they are also not completely helpless. There are ways that they can take control of the situation to create better operational efficiency. The more distributed a network becomes, the more an organization must create connected networks out of all the component parts. The challenge is that the sprawl is often happening quicker than it can be linked up technologically.
This is where being able to plug anything new into an existing process is a huge advantage to any business – especially retailers looking to add new suppliers or partners into their network. This digitization of supply chain enables greater efficiency among moving parts, and gives better analytic insight into where things stand when a delay does occur. But this kind of approach relies on a culture for connectedness to exist throughout the whole network.
Building a culture of connectedness ensures engagement from the key people when digitizing supply chains, logistics or retail. As with any technology project, if the people who are using it don’t want it, it won’t work. We have seen initiatives from companies to move centers of production to either reduce labor cost or shorten distance for transport into the US, minimizing potential physical disruptions. However, simply uprooting these functions is risky. The biggest risk of change is whether these new partners share the same commitment to a digitized supply chain.
Building the digital backbone
Digitizing the supply chain requires a digital backbone that’s built upon three core components: collection, connection and optimization. Collecting all of the relevant data for a process or function from systems, people and devices is clearly the foundation stone. IoT in retail is emerging and could open the door to a range of new data that sharpens the understanding of what’s going on in and around a supply chain.
Any critical data needs to be made usable for anyone who needs it, which is why a flexible integration layer is a key part of the digital backbone. Connecting the applications, the businesses or the APIs that form the network doesn’t deliver the answer, but it gets the mailman on standby. Analytics – especially of the processes themselves, not just data sets – is the important third part of the digital backbone. Revealing hidden processes can provide opportunities to optimize through saved costs, resources or time, or expose and correct vulnerabilities or points of failure.
Big holiday season incoming
Retail expectations are always high as the holiday season approaches, but there is a good chance that this year will make or break relationships between retailers and consumers. Economic uncertainty only compounds those expectations. While we haven’t yet seen the slowdown in spending that indicates a recession, many analysts believe it will come. Every cent a consumer decides to spend will be highly scrutinized and carry greater expectations.
Don’t leave shelves empty of essential products or holiday-related goods the week before Thanksgiving. Don’t’ let consumers worry over not getting their packages delivered in time. The challenges retailers need to overcome are growing every day, and the right technology and a drive to be truly connected will help. The relationships forged or maintained in the next six months, while expectations and worries are high, could determine success for years to come.