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Why Retailers Can’t Afford to View 2020 as an Anomaly

For nearly a year now, retailers have had to manage an endless barrage of e-commerce orders at a rate they had never expected to handle so quickly. And adaptation remains daunting—as recently as last month, 56 percent of retailers said that fulfilling growing online demand is their top business challenge, according to a Retail Systems Research (RSR) survey.

According to the survey of 160 retailers, another 52 percent have trouble with keeping forecasts in sync with changing demand. The fact that long-established and highly efficient trade routes were completely shut down for months on end—coupled with a full upending of worker and product safety protocols—only compounded these problems.

To boot, retailers that were adding more SKUs online to match increasing e-commerce demand already had a tough time differentiating for localization, as the processes and systems that supported the old model focused on scale do not adequately support this new model, which involves getting more of the right products to the right demographic of consumers.

Since it has become more difficult to “delight” shoppers in their path to purchase, retailers can’t afford to think of 2020 as an anomaly, RSR warned.

Retail’s winners and losers address demand, inventory very differently

The gap between retail’s winners and losers always comes down to how they approach handling these challenges, especially in this new era. To address the problem of excess demand, 76 percent of “retail winners” said strategically placing inventory throughout the supply chain to better fulfill customer needs is a top opportunity for the industry. However, only 29 percent of the others felt this inventory placement was a necessity.

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These retail winners, which are defined by RSR as seeing more than 4.5 percent year-over-year annual sales growth for the three years preceding 2020, understand the importance of having inventory exactly where it needs to be and when it needs to be there.

Gaps like this exist across numerous approaches, with 50 percent of winners seeing the reduction of waste and inventory shrink within the supply chain as an opportunity to meet demand channels, compared to only 27 percent of others that feel the same.

Unsurprisingly, when retailers want to act on these opportunities, the winners have a better sense of what processes hold the most value to align supply with demand. Seventy-seven percent of retail winners place significant value on producing highly accurate and granular forecasts at the SKU, channel or day level, compared with only 51 percent of everyone else.

No challenge has proven more vexing to retailers than being able to expose—in real time and with a high degree of accuracy—available-to-sell inventory to either consumers in the digital domain or to employees anywhere within the enterprise. Up to 83 percent of retailers highly value near-real-time inventory visibility throughout the supply chain, compared with only 62 percent of others.

“With uncertainty being the only certainty heading retailers’ way in the coming years, it’s not going to be enough to just know what inventory is on hand: the means to forecast what inventory will be needed have completely changed,” the report recommended. “The past can no longer serve as a predictor for what inventory a retailer will need, and therefore anticipating these changes requires all new types of intelligence and technology. This is no time to sit and wait.”

Enough talk—upgrade your technology systems

An even wider gulf between the haves and have-nots stems from the value placed in proactively identifying and resolving capacity bottlenecks in inbound goods flows, warehouses, transportation, picking/outbound or stores. Sixty-four percent of winners prioritize being proactive, while only 38 percent of the others do.

At least half of retailers are self-aware enough to understand that their own systems are still to blame for the inability to both keep up with online demands and predict changing habits. Up to 46 percent of merchants say legacy technologies cannot support the agility they need in a changing world, while an equal percentage pointed to their reporting systems as inadequate and antiquated.

“While panic is never a good idea, our recommendation is to do just what retail winners have shown us throughout: triage decisions in a collaborative—albeit it expeditious—manner,” the report said. “Prioritize those projects which help your brand get closest to the new buy from anywhere/deliver/any way standards that customers have established, and ensure there are metrics in place to help you ‘fail fast’ (enabling you to move on to things that grow) or help grow the brand.”

As a result of the positioning, retailers are reaching for new tools, such as artificial intelligence. It appears there’s still a shortage of affordable data scientists who can help retailers build the models required to understand demand better. Only 44 percent of winners say they have scientists who are competent with mathematical data analysis and modeling tools, and that number drops all the way down to 11 percent for the rest.

Of the average-to-lagging retailers, 27 percent said they at least committed budget to developing in-house data science strategies, while another 27 percent were in the stage of discussing the need to develop that expertise without deciding a direction.

RSR has pointed out that while retail itself has always been a people-intensive business, the survey respondents are leaning toward using technology both to enable and optimize some processes, and to optimize human resources as well. More than half (55 percent) of retailers that have implemented—and are satisfied with—technologies including warehouse automation, machine learning in demand forecasting and AI for capacity optimization, have improved forecast accuracy (both short term and long term).