The Digital Link


Most of the talk about digital technology at retail these days is centered on consumers. Who will buy the new Apple Watch, and how might shoppers use it? Are online ordering and home delivery requirements for 21st-century food retailing? How should supermarkets market to mobile users at the point of sale?

While retailers should certainly take a closer look at these and other consumer trends, they would also be wise to investigate how digital innovation can not only serve their wired customers, but also help to streamline the new supply chain of the digital era, retail analysts tell Progressive Grocer.

“Shoppers have become digitally connected with the supply chain for the first time, and the effects are already profound,” notes James Naylor, senior knowledge expert in McKinsey & Co.’s European retail practice. “It offers the potential for new operating models for marketing and distribution, as well as an explosion in analytic possibility.”

In a paper published last year by New York-based McKinsey, the authors surmised, “To stay competitive, companies must stop experimenting with digital and commit to transforming themselves into full digital businesses.”

For food retailers, supply chain management is at the heart of that business.

In its report, McKinsey outlined seven traits that successful digital enterprises share, and one trait speaks directly to the grocery industry’s squeezed profit margins: “Follow the money.” The authors note that while many organizations are focusing their digital investments on customer-facing solutions, they can extract as much value, if not more, from investing in back-office functions that drive operational efficiencies.

Indeed, the retail world appears to be on the brink of a digital evolution in terms of operations, and supply chain efficiency is one of the critical areas that will be affected. Of course, grocers will and should be cautious about jumping on any killer app that has yet to prove itself. But that shouldn’t stop them from putting on a set of digital lenses, so to speak, as they plan their future strategies.

Several experts who spoke with PG had slightly different takes on how exactly digital technology will impact the future of the business, but all agreed that while the need for transformation is evident, there will likely be no sole magic bullet that the industry can rally around — at least for now.

Instead, they see a focus on multiple tools that can advance supply chain efficiencies for suppliers, distributors and retailers — such as data visibility, consumer analytics and 3D visualization, among others.

Beyond the UPC Code

In the past half-century of retailing, the evolution of the UPC code was perhaps the most innovative widespread technology to impact the grocery industry’s supply chain, notes Peter Wietfeldt, a partner in London-based PricewaterhouseCooper’s retail advisory practice.

“UPC is probably the best example of the industry rallying around a technology,” he observes. “Everyone agreed to use it. But there really has to be a vertical alignment across the supply chain to have a new technology become universal.”

While he isn’t seeing any mass adoption of supply chain technology right now, Wietfeldt is excited about what may be coming down the pipeline. “If we close our eyes and picture what will be going on 20 years from now, you certainly have to think that there will be some type of digital technology at play,” he says.

RFID technology definitely showed a lot of promise, especially back in 2003, when Bentonville, Ark.-based Walmart committed to having all of its suppliers apply RFID tags to pallets and cases of goods sent to its distribution centers. But because of the high cost of implementation, the technology was perhaps a bit ahead of its time — at least in the grocery industry. Still, some observers say that the technology is becoming more cost-effective and could be more widely adopted in the near future, especially considering its potential for tracking items to better address food safety and security concerns.

High-value nonfood retailers have already found RFID to meet their return on investment, notes Wietfeldt, but that’s because the products cost a lot and require a higher level of security in stores.

“Some people think that visual technology — visual readers — is the next wave, since it’s easier to print information, but the industry is still a long way from having that as a standard,” he says.

Impact of Industry Consolidation

Some supermarket chains have more recently focused on gaining efficiencies through supply chain consolidation, either through M&A activity or through outsourcing the supply chain, according to Jean-Michel Fally, principal of New York-based Deloitte Consulting. “This helps remaining supply chains gain volume and velocity, and better leverage existing digital technologies,” he says.

Some supermarket operators are cautiously beginning to leverage digital technology to address dot-com orders, pickup points and home deliveries, observes Fally. Meanwhile, some of the larger chains are focused on improving cross-functional execution with merchandising and store/dot-com operations.

Fally also points to 3D visualization and analytical tools, which can help merchants communicate their plans to operations and supply teams, and make problem solving faster and more cost-effective.

“Retailers are looking at better collaborating with their suppliers and other partners to optimize the end-to-end supply chain from factory to store shelf,” says Fally. “Shared digital analytic platforms can help retailers and suppliers get the metric and data visibility to solve supply chain problems more efficiently. These technologies will allow a new level of transparency into measurement, flow and execution — finally, the supply chain visibility long awaited by professionals.”

Augmented reality, a technology that provides a live direct or indirect view of a physical, real-world environment whose elements are supplemented by computer-generated sensory input such as sound, video, graphics or DPS data, is a futuristic tool with exciting possibilities, according to Fally. The solution “will … help merchants see execution issues visually through operators’ glasses and problem-solve together, or help warehouse associates share quality control issues with suppliers and retailers.”

3D printing, meanwhile, could have a “profound impact” on supply chains, he notes. “For example, for general merchandise manufacturers, hard-to-source parts could be printed on demand in metal, ceramic or composite materials in the warehouse, using blueprints at the touch of a button, finally allowing just-in-time inventories.”

Need for Speed

As McKinsey’s Naylor sees it, most savvy food retailers are on board with new technology that can improve the supply chain, or any area of the business for that matter. (In PCs 2015 Annual Report of the Grocery Industry, technology spending jumped to No. 4 on the Operational Factors index, indicating that more retailers expect to boost their tech investment this year.)

“Grocery retailers have had mission-critical IT systems for decades to run their distribution and payment systems,” notes Naylor. “The tougher question is how rapidly they can bring digital capabilities to bear upon the rest of their business — customer-facing omni-channel, analytics-driven merchandising and loyalty, and new performance management systems.”

Consumers’ ongoing adaption of mobile applications ups the game, he adds. “The move to mobile is pretty much inexorable. What makes this even more challenging for retailers is that shoppers are not going to see mobile presence as a point of distinction. They’ve gone straight to regarding omnichannel fluency as a hygiene factor,” he points out.

“This is starting to put enormous pressure on retailers,” continues Naylor, “not so much to develop mobile sites and apps, but to overhaul their entire ERP systems so they can show live data across multiple online points of access, use common product information databases to support them, and offer online ordering and fulfillment to all their customers. Equally, it means the capacity for online growth is extraordinarily quick.”

“Shoppers have become digitally connected with the supply chain for the first time, and the effects are already profound.”
—James Naylor, McKinsey & Co.

“Shared digital analytic platforms can help retailers and suppliers get the metric and data visibility to solve supply chain problems more efficiently.”
—Jean-Michel Fally, Deloitte Consulting

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