Whether it’s climate change, political tensions or the cataclysmic and continuing effects of Covid-19, the world landscape is rapidly changing in front of our eyes. This has driven major changes in the world of retail.
Where retail success used to orbit around operational excellence and delivering at the lowest cost, there is a new gravitational pull entering the retail atmosphere: agility. In an ever-changing business environment, retailers must be flexible at all times and able to adapt, not just to an increasingly volatile world but also to changing consumer demands. Consumers have a plethora of choices, and they shun what they perceive as “a sea of sameness”. They are also becoming more aware of environmental wastefulness (particularly apparent in apparel). Consumers demand relevant solutions to their lifestyle needs.
If retailers are truly to make this change, they must let go of what they once considered to be normal and embrace the ‘new normal’, or perhaps it is more appropriate to call it the ‘never normal’.
Excess stock, an inability to meet fluctuating demand and failure to adapt to a new way of operating are all very costly repercussions of supply chain disruptions. The latest, and arguably most impactful of these disruptions has, of course, been Covid-19.
The global pandemic and its resulting lockdown protocols have had a huge impact on almost every industry, with retailers some of the worst affected. For an industry where demand is both highly volatile and often seasonal, any disruptions to the supply chain can have huge business ramifications.
As a result of Covid-19 and its various disruptions, retailers across the entire industry have been faced with significant challenges. These have varied depending on the area of expertise. For example, when stockpiling was rife at the beginning of lockdown, grocers were unable to adapt to such a rapid increase in demand. This is despite the fact that they had the supply available in warehouses. They simply couldn’t get the supplies into the stores fast enough. As a result, there was a lack of availability for products such as toilet paper and hand sanitizer in the short term. Meanwhile, due to the global nature of its supply chain, the fast fashion industry had significant stock arrive, but a downward trend in demand has led to a huge surplus of stock which could prove difficult to sell moving forward and could end up, in the worst case scenario, being written off completely.
While the worst of the first wave of Covid-19 seems to have passed, with the very real prospect of a second and third wave, along with other disruptions such as the UK’s exit from the EU, tensions with China and who knows what else the future may have in store, retailers must not be lulled into a false sense of security and must act on the harsh lessons they have learned. In this never normal world we inhabit, disruptions lurk at every corner and they can take both unexpected and, yes that word again, unprecedented forms. So, how can retailers navigate these turbulent times and ensure, no matter what, they’re always coming out on top?
The key to overcoming any disruption, particularly within the supply chain, is preparation: having the ability to react quickly and effectively. Fifty six per cent of ‘retail winners’, classified as those achieving over average sales growth, are able to do exactly this. Specifically, they have the right technology in place. Increasingly, forward thinking retailers are building ‘digital twins’ of their physical supply chains to model a range of scenarios and build contingency plans for severe disruptions.
Integrating this technology into their planning not only ensures that they can weather disruptions such as Covid-19 and trade wars, but that they can gain a competitive advantage in the process. Of all the retail underperformers, or those who achieve below average sales growth, only 31% leverage technology such as AI and ML. As a result, when disruptions wreak havoc on the supply chain, retailers with greater flexibility are using it as an opportunity to increase their market share.
When we look at the statistics of what retail winners are doing compared to those who are falling by the wayside, there is a clear differentiation. Those that embrace the never normal and who tackle it with technology are winning, while those clinging to an old normal risk being left behind.
While in many instances it is still humans who make the final decisions, to react to disruptions as quickly as possible they need the most accurate insights and need them quickly. The volume of data which must be analysed to uncover these insights is simply impossible for the human mind to process in any kind of a timely manner.
Instead, retailers should look towards AI-powered technology in key areas like demand forecast modelling, improving omnichannel efficiency and sourcing based on total landed cost, built on top of a digital twin. This allows companies to create a digital version of their supply chain, which they can effectively use as a sandbox to stress test various supply chain strategies that drive robust contingency plans.
Due to Covid-19 impacts, China’s largest retailer JD.com had to deal with shutdowns in the worst affected areas like Wuhan, which were in strict lockdown. JD Logistics had to find a way around Wuhan using some of their key logistical hubs. Using their digital twin with AI-based recommendations, they were able to understand the impact of bottlenecks, and with an end-to-end view of their supply chain, re-route inventory to avoid this area. This allowed them to continue operating as close to full capacity as was physically possible at the time.
In this fast-moving world where one day the disruptions are caused by entire cities and countries going into lockdown and the next by a knee-jerk political decision, it is vital that retailers be able to react to anything that is thrown their way. Implementing technology such as AI and ML (machine learning) into their contingency planning gives them the best chance of doing so. It is not a coincidence that the majority of successful retailers are already leveraging this type of technology today.
Vikram Murthi is vice president, industry strategy at Llamasoft