Retailers’ Supply Chains Follow Suit with Industry Transformation

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Retailers’ Supply Chains Follow Suit with Industry Transformation

By Jenny McTaggart - 03/05/2016

As long as supermarkets sell bread and butter, they’ll have a physical supply chain to contend with. But as the “digital age” comes into further maturity — complete with online ordering, mobile communications, cloud computing, and even drones that can be used to deliver products — food retailers can’t afford not to be thinking about their digital supply chains, too.

With the lines between the digital and physical worlds blurring, retailers’ supply chains will need to look a lot different from how they look in 2016. Stamford, Conn.-based technology research and advisory firm Gartner Inc. predicts that by 2018, 50 percent of chief supply chain officers in $1 billion-plus global companies will design and manage supply chains that support digital business. While the average grocer isn’t that big, there’s no doubt that their supply chains will need to be rewired as well.

At least one major retailer is already rethinking its supply chain, with digital technology weighing heavily in its decision-making. At the beginning of the year, Bentonville, Ark.-based Wal-Mart Stores Inc. unveiled plans to close 269 stores while also merging its two tech groups: the group that operates from its headquarters and focuses on systems for its stores, and San Bruno, Calif-based Walmart Labs, which facilitates e-commerce development.

The merged unit, called Walmart Technology, should help Walmart further grow its annual $13 billion e-commerce business, including a recently launched click-and-collect service.

“Our customers don’t think of these as different experiences,” noted Neil Ashe, head of Walmart’s e-commerce division, in an internal memo cited by published reports.

This realization — that consumers expect a seamless experience regardless of whether they’re in a physical or virtual store — will no doubt continue to drive changes in other retailers’ supply chains.

Faster and Smarter

So how might the new, digitally enhanced supply chains look for traditional grocers? One major difference is that they’ll need to be exponentially faster, according to Mike Griswold, research VP in Gartner’s consumer value chain team.

“Retailers need to focus their efforts on speed,” he advises. “They need to consider the physical assets they have and look at how to move things faster, how to respond to customers’ needs faster and how to deliver a better experience faster.”

To help them do that, retailers will need to have real-time visibility of not only their point-of-sale information, but also their perpetual inventory, explains Griswold. Today, fewer than 10 percent of the top 20 North American food retailers are fully connected in this way, he estimates.

“A lot of retailers already have the real-time point-of-sale data, and they’re able to look at it every 15 minutes, which is nice. But if you can’t respond to that, it’s a waste of time,” he continues. “If they can couple getting the POS data every 15 minutes while also refreshing balance-on-hand information every 15 minutes, then they’ll have a much clearer picture of which products are in which stores.”

That breadth of data will help retailers manage their supply chains in the physical stores while also responding to online orders, which may well need to be picked in their stores.

Taking it a step further, the data might be connected to workforce and task management applications, notes Griswold. “You can tie the information into associates’ mobile devices to let them know more product needs to be pulled from the back,” he says.

On the consumer-facing front, retailers will also need to figure out how best to bring their shopping experience to mobile phones, observes Griswold. That means considering at least three operating systems (Windows, Android and Apple), and thinking about fitting information into a smaller footprint.

Tech Development

Many tech companies are working on supply chain solutions of the future, to ensure that retailers and their partners will have the tools needed to compete in an increasingly wired world.

One such firm, Plantation, Fla.-based Chetu, sees a lot of potential around data and analytics, including predictive analytics.

“Forecasting modules are important to all businesses, but to grocers or convenience store owners, having the foresight to predict future trends based on existing sales is critical,” notes Prem Khatri, Chetu’s AVP of operations for retail and supply chain.

As for the online business, mobile apps show the most promise for consumers, according to Ryley Fitzsimmons, Chetu’s national account manager for grocery. “This type of app allows consumers to create running grocery lists through the week. When they need to resupply groceries, they can place an order, pay and request pickup/delivery times, completely changing the end point in the grocery supply chain,” he says.

Another tech company, Dayton, Ohio-based Teradata, has been directly involved in helping one of its retailer partners gain speed and efficiency throughout the supply chain. Teradata worked with a supercenter operator to turn its demand forecasting into a 7.5-hour/one-night process, as opposed to a 26-hour/two-day process.

“This improvement has helped the retailer get the right products onto the shelves at the right times to satisfy consumer demand,” explains Tim JW Simmons, Teradata’s general sales manager, North America, demand chain solutions and services.

‘Fail Fast’

In addition to being faster, digitally enhanced retail supply chains will require a different employee skill set, including people who aren’t afraid to come up with new ideas, according to Gartner’s Griswold.

However, since a culture of experimentation hasn’t exactly been the norm at supermarket companies, this may be a major challenge for the industry, he notes.

Gartner will further explore this idea, which is part of what it calls a “bimodal supply chain,” at its upcoming Supply Chain Conference, May 17–19 in Phoenix.

“Folks will need two sets of skills, or two types of thinking, in their supply chains,” explains Griswold. “They need what we call ‘mode one’ — which is basically the operations side of the business. But they also need ‘mode two,’ which is really where the innovation happens.”

Mode-two thinking will require what Gartner refers to as “fail fast.” “People need to come up with innovative ideas, but not every idea is going to work,” notes Griswold. “Companies will have to try a lot of new things, but they won’t want to penalize people for ideas that don’t work, as long as the ideas were well thought out and had a good premise. That mindset around failing being OK is very counterintuitive for a lot of food retailers.”

Walmart has already demonstrated mode-two thinking by not only merging its technology functions, but also experimenting with drones to see how the futuristic flying devices can facilitate product delivery. Walmart follows in the footsteps of Amazon, the Seattle-based online retailer that continues to encroach on the grocery business by offering online ordering and home delivery.

As Griswold sees it, drone technology shows the most promise in rural areas, where the nearest Walmart might be at least 10 miles away. But he says supermarkets shouldn’t be quick to shrug off the potential of this technology.

“Instead of thinking in extremes about how drones might not work, think about where the technology could work … and most importantly, how it can bring value to the consumer,” he advises.

Another recent example of mode-two thinking comes from Keasbey, N.J.-based supermarket cooperative Wakefern Food Corp. Its ShopRite banner is involved in a new initiative that will allow customers to shop from their home kitchens using a “smart fridge” called Family Hub.

It’s this type of openness that will help supermarkets build a supply chain that sustains not only the physical world — which is still very much the mainstay of the business — but also the digital world, which only will continue to grow.

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