Why The Retail Supply Chain Demands Digital Transformation

Digital transformation is at the top of the agenda for many retailers; however, this is only the beginning of the retail industry’s efforts to embrace digital change. According to a 2018 report by SAP, only 22% of retailers investing in digital transformation were within the planning stage, and 55% were still running pilot schemes. Evidently, there was still a long way to go, as only 3% of retail businesses had completed digital transformation projects.

Consumer demand has shifted, with fast-changing preferences seeing consumers demanding the products they want, when they want and where they want them. Today’s consumer lives in an ‘always-on’ world, driven by connected technologies centered around convenience. The retail sector has been slow to keep pace with this changing consumer demand, and unless it can accelerate the pace of digital transformation, the gulf between consumer demand and satisfaction will only grow wider, placing customer loyalty at risk.

Digital Transformation of The Supply Chain

Attempting to digitally transform without a robust infrastructure in place is a virtually impossible task. Recently, a major U.S. retailer faced escalating complaints from customers who could not find the items they wanted because they were frequently out of stock; this was due to the retailer’s supply chain not being reliable enough to keep pace with what customers wanted.

In response, the management team decided to invest in the digital transformation of its supply chain, to shorten replenishment times, optimize deliveries, and ultimately be able to match supply with demand. Shortly after doing so, they were able to reduce retail cycle times by 20%, leading to increased sales. In future, they anticipate even better results, and the ability to achieve a 60% total reduction in retail cycle time.

However, this is just one example of how digital transformation, particularly of the supply chain, can help retailers meet the challenging demands of today’s consumer, generating business growth and success. The findings of significant research institutes also support this fact. Bain & Company found that retailers that integrate digital technologies into their supply chain rapidly improve service levels while cutting costs by up to 30%. McKinsey discovered that companies that strongly digitize their supply chain could expect to boost their annual growth of earnings before interest and taxes by 3.2% — the most substantial increase from digitizing any business area — and the annual revenue growth by 2.3%.

What Digital Transformation Demands

The business case for retailers to digitally transform their supply chain is compelling. The reason digital transformation can generate such impressive business results is that it provides retailers with the following game-changing capabilities:

• Real time visibility across the supply network, allowing retailers to view the live status of products no matter where they are along the critical path, e.g. in production, in transit or in inventory; allowing data-driven decision making with certainty and ensuring the timely delivery of products.
• Automation of time-consuming manual data entry, e.g. keying in data on bookings, purchase orders or sailing schedules. Automated operations streamline the workflow of supply chain managers, saving them hours of time and allowing them to focus on more value-added tasks, such as negotiating better vendor prices or implementing growth strategies.
• Enhanced collaboration with all relevant stakeholders sees logistics providers, factories, global teams and departments all on one platform, enabling information to be shared quickly and easily, rather than being spread out across multiple sources such as spreadsheets or emails.
• AI and ML capabilities enable businesses to predict what customers want before they even want them, and make supply chain optimizations to synchronize supply with predicted demand, with little or no need for human intervention. AI and ML will power ‘cognitive’ supply chains, the final phase of digital transformation. Reaching cognitive functionality will take time and requires digitization as the first step (e.g. the points mentioned above such as automating manual processes).

These features increase efficiency and speed to market, and allow retail companies to satisfy their consumers with timely deliveries.