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How IBM Puts Watson to Work Optimizing Fulfillment and Protecting Profits

IBM’s artificial intelligence brain Watson jumped into the spotlight with its game-winning turn thoroughly drubbing a pair of Jeopardy! champions at the legendary gameshow, but in the eight years since that history-making moment, the business software company has been putting Watson to work making purpose-built software even smarter.

At NRF last week, IBM announced that it’s employing Watson’s genius in the Order Optimizer component of its order management retail platform. “Matching the supply chain to demand is becoming the heart of customer experience,” Russell Scherwin, CMO of Watson Commerce told Sourcing Journal. Omnichannel has emerged as such a strategic undertaking for retailers, he added, because they realize that differentiating their brands really means building out differentiated fulfillment experience.

Plus, as RSR managing partner Brian Kilcourse added, retailers need to figure out how not to “omnichannel their way into bankruptcy,” speaking to the many costs baked into the new fulfillment-everywhere reality.

IBM’s AI-powered updates to Order Optimizer build on capabilities announced at NRF 2018 that enable retailers to optimize fulfillment decision-making based on factors like weather. Now, Order Optimizer features “the ability for every SKU to understand its own seasonality by location,” Scherwin said.

Most retailers rely on category-level supply and demand curves; being able to predict and anticipate when a product is heading for a markdown or is at risk of going out of stock, enables retailers to plan accordingly and protect profit margins. With intelligence powered by Watson, now the IBM Order Optimizer makes the smartest decision about where to source each item in an order at the greatest profit. The key, Scherwin said, is to sift through troves of historical sales data by node—that is, store or warehouse—to identify patterns and anomalies, which pose the greatest savings opportunities.

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Consider an order for winter attire: heavy jacket, boots, gloves and hat. Everything’s available at the northeastern warehouse closest to the cold-weather customer, so that’s where the order should be sourced from, right? Wrong, said Scherwin; if there’s a jacket in a warm-state node that’s on the verge of getting the half-off treatment, the retailer would profit most by splitting the shipments and delivering the jacket from the south—even with expedited shipping—and summoning the remainder of the items from the northern fulfillment center.

To succeed today retailers must focus on “making more differentiated promises, and keeping them profitably,” Scherwin explained, noting that retailers using Order Optimizer have yielded as much as 8 percent in savings on ship-from-store orders. “Fulfillment is about understanding your customer and how they want to transact with you.”

For years now, retailers have been struggling to achieve the omnichannel dream. “There are a lot of retailers out there doing buy online, pick-up in store and they’re not doing it profitably,” Scherwin noted, “or they haven’t motivated their store associates to do the picking and packing so you’re getting unsatisfied customers.”

As retail’s challenges have shown, omnichannel is difficult to execute seamlessly while minimizing impacts to the bottom line. “Expectations keep rising—it’s an arms race,” Scherwin said of the struggle to keep up with the retail experiences that consumers demand and do it first, better and at a profit.

AI seems to be a top-of-mind topic for retail supply chain stakeholders, according to a new report, “The coming AI revolution in retail and consumer products.” Developed with assistance from the National Retail Federation, IBM’s Institute for Business Value report shows that 85 percent of retail companies participating in the survey have plans to incorporate intelligent automation for supply chain planning into their operations by 2021. That might be because they see these intelligent automation capabilities lifting revenues by as much as 10 percent, the report added.

Kilcourse said he’s not aware of any other solutions on the market that can compete with the revved-up Order Optimizer—but expects there will be as fulfilling non-store orders, which make up around 11 percent of total retail sales, continue to grow. “If you’re not paying attention to this, you ought to be,” he said.

Scherwin, for his part, hopes that 2019 will be the year retailers “put buzzwords to bed and realize their underlying substance,” giving consumers the frictionless experiences they want rather than offering up empty platitudes and promises.