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The promise and payoff of automation for bricks and mortar retailers

Research conducted by Blue Yonder – A JDA Company, discovered 96 percent of bricks and mortar retailers in major markets internationally rely on manual processes for their pricing and replenishment strategies. Daniel Kohut from JDA explores what Australian retailers can learn from these insights.

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With the enormous progress retail has enjoyed in automation and machine learning (ML) technology, it may seem like manual processes are now a relic of the past. Surprisingly, this isn’t the case. In a recent study undertaken by Blue Yonder it was discovered that in the UK, Germany and the US, 96 percent of bricks and mortar retailers still rely on manual processes for pricing and replenishment, despite recognising the benefits that greater automation could bring. According to the survey, 53 percent of retailers admit that there is room for improvement in their replenishment process, while 54 percent say the same for their pricing strategy.

In Australia, the perspectives and approaches of retailers mirror these findings. A good example of this is fresh and ultra-fresh products in grocery. The entire process from sourcing, through to distribution, pricing and replenishment is largely manual in Australia. This leads to a mismatch between supply and demand, generating inefficiencies, a huge amount of waste and lost revenue.

So, how can automation improve pricing and replenishment strategies for bricks and mortar retailers?

Responding to real-time and instantaneous events

Traditionally forecasting and planning has relied on historical data. What was the demand for the product this time last year? What was the optimal price of the product in this same period? Obviously historical data has value, but it doesn’t account for the complex and rapidly changing current environment. Consumer expectations aren’t just changing one year to the next, but one day to the next. Real-time events like weather or geopolitical changes also impact consumer preferences.

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Where artificial intelligence (AI) and ML transform the process is through combining real-time and historical data so retailers can gain insights and make more informed and accurate decisions. Automation will take into account a series of macro and micro real-time events which can impact consumer preferences. For example, with millennials transacting or making purchasing decisions through social media more and more, their preferences are evolving rapidly based on their online experience. Bricks and mortar retailers need to respond to instantaneous events and automation enables this.

The unique challenges for Australian retailers

The Australian market is quite distinct from Europe or the US. With many retailers importing the majority or all products from overseas, they don’t have the agility to respond quickly to demand. Predicting demand accurately to ensure that the right amount of stock is imported and stored locally is crucial.

Another factor is the fast-changing expectations and lifestyles of Australian consumers. Most consumers no longer have the luxury or time to do a longer shop. According to shopping basket analysis, people are shopping more frequently and buying less each time. There is a shift from frozen or long-life products to fresh. There is also a shift to more disposable items, such as disposable fashion. Rather than investing in an item to be worn for a year or more, people are purchasing clothes more frequently which has adjusted pricing expectations. All of this means that retailers need to react quickly to keep up with customer expectations and demand. This is where automation can make a big difference.

What does the future hold?

With retailers on the hunt for a point of differentiation, many are exploring unique models which will put greater pressure on pricing, replenishment and supply chains. For example, in the UK some fashion retailers are offering “try before you buy”, enabling the customer to order say three sizes and return two free of charge. This is a great value-add for the customer but puts an enormous and in some cases impossible strain on supply chains – especially those that predominantly rely on manual processes. To meet customer expectations now and into the future, automation will be necessary to quickly respond to demand, reduce inefficiencies and waste, and maintain margin. The retailers that don’t invest in automation will be left behind.

Daniel Kohut is Senior Alliances Solutions Director at JDA Software Asia Pacific