Digital Disruption In Retail - Deloitte

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Digital disruption in retailFebruary 2020

Digital disruption in retailContentsForeword04Executive summary06Overview of agile retail organisation–Backend08Supply chain09Logistics and warehousing15Finance24Procurement and vendor management27Assortment mix and planning30People31Technology transformation of the physical store34In-store/Physical store transformation35Customer experience, personalisation,and telling stories38Technology driven opportunities for start-ups40Disruption through data unification and marketing42Omnichannel43Marketing and distribution tech45Emergence of digital marketing48Data privacy48Collaboration in the digital age-Retail ecosystem50Way forward58Endnotes60Contacts62Acknowledgements6203

Digital disruption in retailForewordRetailers function in a dynamicenvironment witnessing dramatic shiftson key front-end elements, including thefollowing:Consumer: From the perspective of abrand’s interaction with its consumers,time and distance have been the majordimensions that have been decreased.This led to greater convenience forcustomers. Preference for instantgratification, enhanced shoppingexperience, sustainability, and easyaccess to social media have led to thecreation of new-age consumers who aremore confident and expressive in termsof how they think, feel, and act.Brand: It is not only about maximisingshareholder value alone but also aboutthe impact that retailers have on localcommunities, the environment, and thesocial capital that they build. This signalsthe brand’s commitment to promoteinclusion and celebrate diversity in aworld where trust levels in big businesseshave dropped to a historic low.Product: Return on catchment or pincode is the key driver to defining productassortment at stores. It is no longersufficient to track same store sales onreturn on investments at a store level.Shortening product life cycles andthe dramatic increase in new productlaunches have also created the demandfor agile and dynamic product portfoliorationalisation.Store: A phydigital store is a placewhere the boundaries between thephysical shop and the online websiteblur to provide a seamless experienceto customers. Digital influence factorshave increased across categories andbrands usually struggle in aligning their04digital content, transactions, and aftersales service to keep pace with marketdisruptions.Channel: Direct-to-consumer models,such as exclusive brand outlets (EBOs),are witnessing increased investment frombrands seeking to retain their relevanceamid squeezing margins due to largeformat retail (LFR) and large marketplaces.While the share of multi-brand outlets(MBOs)/general trade continues todeplete, we see an increased focus onbrands increasing their engagement withthe top quartile of MBOs.The resultant changes in businessmodels are visible across the threeareas of demand generation, capture,and fulfilment. There are possibilitiesof dramatically increasing footfall,conversion, average bill value on thefront end; improving merchandising,assortment planning, brandexperience at the store; and drivingbetter availability, demand sensing,and inventory rotation in the supplychain, by deploying asset-light digitaltechnologies using the start-upecosystem. This might result in retailersaccelerating sales at a lower cost toserve to help build more sustainableand profitable business models for thefuture.Anand RamanathanPartner, Consulting

Digital disruption in retailForewordA Definitive Guide to DigitalTransformationTechnology advancement and digitalenablement are transforming theconsumer as well as the market ata rapid pace. Agility in the backendprocesses such as supply chain, finance,procurement and assortment are themeans to remain competent in such ahighly competitive environment.The report ‘Digital Disruption in Retail’sheds light on the various digitaltransformations expected in retail valuechain . It delves into the offline to online( O2O ) as well as online to offline andexplores the new business realitiesthat are emerging with it. These includehyper-personalisation of consumerexperience, value-driven actions, andtechnology-driven process. These serveas a means to gain a competitive-edge ina market driven by constant change anddisruptions.Digital transformation is impactingevery phase of the retail value chain,from sourcing and product developmentto marketing and distribution. Theway forward for the retail sector is tocollaborate and offer integrated solutionsto consumers.This report is aimed at helping readers intheir journey towards integrated retail.The best practices by retailers fromaround the globe will help inspire, learnand grow.Kumar RajagopalanChief Executive Officer - RetailersAssociation of India (RAI)05

Digital disruption in retailExecutive summaryAccess to global markets, preferencefor convenience, and availability ofdiverse choices for consumers have ledto the rapid evolution of retail in India.Further, advancement in technology,higher household income, varied retailchannel options, diverse product variety,personalised service offerings, etc.,have resulted in enhancing consumers’shopping experience. To stay aheadof this rapid evolution, retailers needto consider embracing agility in theirfunctions and operations. Agility inprocesses has the potential to lead tocollaboration among cross-functionalinter-disciplinary members, encouragingiterations for an adaptive best-caseprocess. The concept of agility canbe used across functions to augmentproductivity and efficiency, as well asreduce costs and efforts.ENTWOKRTechnology has been the front runnerin driving businesses, and enhancingconsumer engagement and experience.Apart from understanding consumers’06behavioural insights through advanceddata analytics, emerging technologies,such as internet of things (IoT),augmented reality (AR) and virtual reality(VR), artificial intelligence (AI), bots anddrones, beacons, and cloud platforms,have played a key role in enhancingconsumers’ engagement more than ever.Engaging consumers through immersivetechnologies, bespoke solutions,and custom targeting, is expected tosignificantly increase the probabilityof attracting and retaining new-ageshoppers. Various new solutions arebeing offered by established companiesand start-ups to woo shoppers. However,these strategies require enabling a digitalecosystem to deliver desired outcomes.Through this report on ‘Digital disruptionin retail’, we present the aspects of agilityin retail organisations’ operations. Thereport then delves into the implications oftechnology, leading to disruptions acrossentire retail value chain and transformingconsumers’ shopping journey at eachvalue point, making it more convenient.In the age of digital marketing andomnichannel offerings, inter-functionalnetworking has become a crucial aspect.With the lines blurring between offlinechannel and online channel, the best wayto put a foot forward in the right directionis collaboration between physical spaceand digital space, i.e., ‘phygital’. Such anintegrated model has the potential toensure a seamless shopping experienceto consumers from all forms of strata. Itis also a win-win solution for the physicaland digital players as it supplements themodel’s overall efficacy by combiningcomplimentary advantages ofindividual models.

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Digital disruption in retailOverview of agileretail organisationAs we enter a new decade, retailers musttake stock of their current positioningvis-à-vis the market and the industry. Itis also critical for them to be aware ofcustomers they are serving and manageoperations to meet the rapidly evolvingexpectations.Retailers have been periodically investingtime and resources in technology. Inthe past decade, they have developedadvanced supply chain operations witha far greater reach and a product linetargeting more consumers. However,08with large global retail giants penetratingIndian markets, the competition foracquiring customers has only becomemore intense. Thus, retailers are realisingthe need for constantly innovating. Theavailability of advanced tools is pushingretailers’ limits from fully integratednetworks to procurement networks thatallow them to choose vendors.The digital customer has never had abetter time to shop, with companiesintegrating tech throughout theirsystems.

Digital disruption in retailImpact of disruption on a retail organisationSupply chainShift from traditional supply chain todigital supply networks (DSN)A fast-paced shift is being witnessed inthe way supply chains function. Advancesin computing memory and processingare driving entrepreneurs to developinnovative new digital technologiesand capabilities. These technologies,including sensors, artificial intelligence(AI), machine learning (ML), and cognitivecomputing, create the foundation foranalytics and a conversion between thephysical world and the digital worlds,transforming traditional, linear supplychains into connected, intelligent,scalable, customisable, and nimblesupply networks.These new supply chains, also known asDSNs, are dynamic and integrated. Thesechains address the issue related to thedelayed action-reaction process of thelinear supply chain using real-time data.This enables better informed decisionsand enhanced collaboration across theentire supply network, as well as providegreater transparency.The main characteristics of the DSNinclude always-on agility, connectedcommunity, intelligent optimisation,end-to-end transparency, and holisticdecision-making. Each of thesecharacteristic plays a role in enablingmore informed decisions and canhelp organisations address the centralquestion in their strategic thinking: howto win?Organisations need to consider preparingthemselves to lead by imbibing agilityinto systems, processes, and decisionmaking. Personalisation at scale,leveraging ecosystems, and drivingbusiness-led digital strategies are someof the key themes.The collapse of the linear supply chainNew technologies and tolls have allowed the traditionally linear supply chain to collapseinto an agile interconnected network that unlocks new value across the digitised nodesDevelopPlanSourceMakeDeliverSupportNew value is being created by digitising and connecting the traditional nodesDigitalSynchronised eReduce costsproductsignificantthrough echnologies,withsynchronisation models,advancedanddigital tacticscapabilitiesSmartfactoryUnlock newefficienciesby a more,connected,agile, gh new engagementlevels offromspeed and inspiration toagilityserviceThe birth of the digital supply network (DSN)Innovative and disruptive technologies can enable supply chains to transform intoDSNs, which can serve as a powerful competition weapon.SynchronisedplanningConnectedcustomer ce: olutions/digital-supply-networks.html#09

Digital disruption in retailHow to “Turn-On” your digital supply networkCompanies must choose specific supply chain transformation and execute priority initiatives to meet their competitive objectives.How many supply chains doyou need?Where will you segment bycustomer, product, geography,or channel?What is ourwinningaspiration?Where willwe play?Where will you compete on Speed? Agility? Service? Cost?Quality? Innovation?How will wewin?Whatcapabilitiesmust be inplace?Where do you need totransform your supplychain to meet your strategicbusiness objectives?What initiatives will youdeploy to configure yourdigital supply networks?Whatmanagementsystems arerequired?The digital to physical loop unlocks the valueThe core supply chain issues persist and present opportunities to apply new solutions to unlock unprecedented value01Physical to digitalCapture signals and datafrom the physical worldto create a digital record.Physical03Digital02Digital to physicalDeliver information inautomated and more effectiveways to generate actions andchanges in the physical world.Source: olutions/digital-supply-networks.html#10Digital to digitalExchange and enrich informationusing advances analytics, artificialintelligence, and machine learningto drive meaningful insights.

Digital disruption in retailDigital supply networks (DSNs) characteristicsDSNs share common characteristics that drive differentiated performance and valueEnd-to-endtransparencyThe ability to see across the networkCapability elementsExisting data setsSensorsNew data setsVisualisation“Always-on agility”The ability to proactively operate across thenetworkCapability elementsPredictive alertsAdvanced analyticsEdge computingConnectedenvironmentThe ability to extend into your suppliers andcustomersCapability elementsThird-party data setsReal-time collaboration and live datasharingResourceoptimisationThe ability to identify and use the right worker,human, or machine, for workCapability elementsArtificial intelligenceOptimisation algorithmsUnstructured dataHolistic decisionmakingThe ability to continuously learn and makeoptimal network decisionsCapability elementsMachine learningVoice and thought interactionFoundational elementsCybersecurityData integritySafetyTalentCritical componentsDigital supply networks require an ecosystem of functional and technical resources, tools, and capabilities to deliver results.Function supplychainAdvancedanalyticsInternet ofthings Product development Sensors Simulation Planning Hardware Data science and algorithms Sourcing Machine learning Manufacturing Natural language processing Logistics and distribution Video and spatial analyticsPlatforms and infrastructureTalent SAP/S4 andLeonardo, PTC’s ThingWorx, Future of work AWS, GE Predix, Google Cloud, Robot vs. humanoptimisation Oracle Cloud, Blockchain Co-bots Humans enhancedthrough advancedwearablesSource: olutions/digital-supply-networks.html#11

Digital disruption in retailNew tools and technique enable new solutionsIncreased computing power and a reduction in cost have spurred innovation and an array of new exponential tools andopportunities.Level of enterprise-wide adoptionInternet of thingsCloudIntelligent agentsVisualisationText analyticsBig DataArtificial intelligence andcognitive analyticsIn-memory processingCrowd sourcing andcompetitionCyber securityAdvanced humanComputer interfaceData lakesData warehousingBusiness intelligenceMachine learning andpredictive analysisERP applicationData modellingTable stakesModernisersExponentialsDigital adoption technology onDigital adoption is a transformativeprocess that uses technology solutionsfrom the ground up, starting from aunified pool of data that can be analysedand then used to drive businessdecisions. Starting from the bottom of thepyramid, the process of adopting digitaltechnologies needs to be an ongoing andfocused initiative. It should be a part ofevery business’s long-term strategy. Thisin turn is expected to lead to a gamechanging competitive advantage. Referto the diagram to know the four stagesof digital adoption.Advanced analyticsPredictive analyticsInventory and network optimisationAutomationRobotics and automation, wearable and mobile technology,autonomous vehicles and drones, and 3D printing (additivemanufacturing)Digital connectivityInternet of things, cloud computing and storage, sensors and automatic identification,blockchain, and distributed ledger technologiesSource: 2019 MHI Annual Industry Survey in collaboration with Deloitte12

Digital disruption in retailApplications of emerging technologies and tactics across the supply chainAfter marketsales andserviceAugmentedreality enabledcustomersupportEnd-to-endtransparency tocustomersMake-to-use with3D printingSalesoptimisationInventory-drivendynamic pricingSensor-drivenreplenishmentpushesTarget ncedlogisticsAutomatedlogisticsDirect to userdeliveryDriverless ensorenabled vensourcingAsset sharingBlockchainenabledtransparencyCloud/control toweroptimisationSupplierecosystemRisk preventionand mitigationProactive qualitysensingTrack-and-tracesolutionsProactive risksensingPlanning andinventoryefficiencyAnalytics-drivendemand sensingDynamicinventoryfulfilmentPOS-driven sor-drivenforecastingProductoptimisationData as aproduct orserviceMake-to-use with3D printingUltra-delayeddifferentiationDesign processoptimisationSensor/datadriven designenhancementsOpen innovation/crowdsourcingRapidprototypingSupply chain transformationsSource: edictiveroutingVirtual DesignsimulationSample Tactics13

Digital disruption in retailDigital supply networks can become a major competitive differentiator with the potential to achieve the following results:Increased revenue Reorders and refills: Smart packaging, applications,and data can be combined either automatically or withminimal intervention to push reorders and refills. Marketing effectiveness: Targeted marketing, combinedwith data from inventory and competitive pricing, canfacilitate dynamic discounting. Direct connection to customers: Increased accessto customers can drive sales at the precise point ofconsumption (for example, ordering groceries directlyfrom the refrigerator). Value of data: Gathering, packaging, and selling datafrom existing customer bases can open up new revenuechannels. Speed to market: Effective use of product lifecyclemanagement accelerates every step starting from productdevelopment to delivery, and enables innovative productsto reach customers quickly.Greater asset efficiency Idle assets: The sharing economy can be used for highcost and under-capacity assets. For example, a companythat only operates two shifts per day could sell its thirdshift to another company. Supply chain downtime: Predictive maintenance canmaximise performance and reliability of manufacturingdevices. Idle workforce: Sensor-enabled labour monitoring canoptimise workforce assignments and scheduling.Improved margins Cost of R&D: Rapid prototyping can lower R&D cost. Cost of raw materials: Digital advances can help identifysubstitute materials or connect buyers to alternate lowercost sources. Cost of quality: Increased visibility and monitoringcan decrease cost of quality. For example, sensors canidentify root errors and drive process improvements thatdramatically increase first pass yield. Cost of service: Digitally gathering data from productsand/or users and sending it to remotely located, skilledtechnicians can decrease the costs of service andtransportation of service technicians. Cost of transportation: Automated warehousing robotsand driverless trucks use analytics and dynamic routing toimprove efficiency, and reduce accidents and errors.Meeting shareholder expectations Geographic responsiveness: Increased connectivityenables rapid responses to unexpected issues, such asnatural disasters or supplier shutdowns. Brand responsiveness: Increased insight to customerconcerns or issues enables fast responses to eventssuch as food contamination outbreaks. Proactive risk mitigation: Increased transparencydemands proactive assessment of risks and fastresponse to customer demands. Click-to-ship time: Automated inventory managementcan radically increase supply chain efficiency. Error propagation: Augmented reality can assist inmaintenance, and reducing error propagation and reworkcosts.Source: .pdf14

Digital disruption in retailOne of the largest global personal care companies: Operations 4.0 digital transformation programme with a focus on acustomer-centric supply chainThe company’s supply chain network delivers more than 34 brands producing over 7 billion products a year from 42 factories,using 150 distribution centres, half a million delivery points, and 8 distribution channels in more than 140 countries. Thecompany receives an order every two seconds.In 2014, the company decided to evolve its earlier approach of segmenting by distribution channel. It re-designed supply chaincapabilities and implemented a world-class integrated information system that provided a collaborative compilationof volume forecasts across sales, marketing, supply chain, and finance teams. These forecasts were then shared with thecompany’s factories and distribution centres worldwide.Its operations 4.0 digital transformation programme, which groups together the business of packaging, purchasing,manufacturing, and supply chain, is harnessing new technologies, including IoT, connected objects, AR/VR, and AI, to boostflexibility and efficiency.With a keen focus on the customer, the company senses and uses customer sentiment. It senses consumer preferences tochange and align its portfolio to offer personalised products for purchasing anytime and anywhere. This has pushed thecompany to ensure hyper-connectivity with the final consumer.Example: The company has combined sensors, laser measurement, cameras, and advanced conveyor belts in its newproduction line in one of its plants. The redesigned production line processes dozens of different products simultaneously anddelivers highly personalised products tailored to the individual needs.Strategy: Customer experience is being used as the yardstick for the group’s digital transformation. The company hasset five medium-term priorities for its operations staff: accelerate design, raise the share of connected products, makefactories and production lines agile, emphasise customisation, and turn consumer service into a business driver.Source: News articles, Company website and Annual reportLogistics and warehousingWith hyper personalisation, customersare becoming more demanding andasking for same-day or even same-hourdeliveries. These demands are affectingthe logistics and supply chain function.Meticulous planning and execution areneeded to fulfill these demands. With therapid infusion of new-age technologies,the ability to effortlessly coordinatedelivery locations, time, and returnsmile by mile is no more a novelty, butan expectation. As the online economygrows rapidly, the importance of last-milepackage delivery increases—the final stepin the competitive and costly process ofmoving items to customers’ homes asquickly as possible.2 Delivering products‘right now’ is the expected norm.The three pillars of the future movement-of-goods networksHolisticdecision-makingThe ability to harnessand harmonisetraditional and newdata to continuouslylearn, optimise, andpredictIntelligentautomationThe ability to utilisethe right human ormachine for workConnectedcommunityThe ability tocollaborate andconnect with partnersto see across thenetworkSource: Deloitte analysis15

Digital disruption in retailAlthough in the early stages, we are witnessing progress in the formation of the next-gen global movement-of-goods network.Connected communityThe ability to collaborate andconnect with partners to seeacross the networkHolistic decision-makingThe ability to harness, andharmonise traditional and new datato continuously learn and predictIntelligent automationThe ability to utilise the right humanor machine for the task at hand andautomate digital processesSource: ntelligent-automation.html?id insightsappAs these capabilities advance, weare likely to witness a high degree ofconvergence and movement towardsdata unification across platforms, whichwill communicate seamlessly behindthe scenes. The highly broken globalnetworks of transportation and logisticsproviders, ocean carriers, retailers,and other large shippers are expectedto witness an incremental but fastpaced movement towards integration,intelligence, and automation that canmove more goods more quickly to moreplaces, and with more transparency andefficiency than today.The value of these enabling technologieswill unlock as they converge. For example,16as connected communities grow inparallel with maturing IoT and blockchainstandards, critical supply chain datawill begin to flow more freely acrossthe network (amplifying the power ofcognitive technologies to drive improvedholistic decision-making). In a similarvein, when holistic decision-makingmerges with automation, the power ofautomation will shift from cheaper tosmarter as cognitive technologies andpredictive insights feed into a growingrobotic network (creating intelligentsupply chains that cannot only see intopotential bottlenecks but orchestratearound them).

Digital disruption in retailApplying the three pillarsCore pillars scaleHolisticDecision-MakingGlobal movers explore, pilot, and scale core pillars Broadening ecosystem connectivity to horizontal partners and puretechnology players Driving digital transformation capable of real-time analytics and moreholistic nity Implementing future of work talent models that harmonise machineand humansCore pillars mergeConnectedenvironmentsHolistic decisionmakingAutomationHolistic rated digitalplatforms form newconnective tissue,bond traditional andnew data, and enabledata to flow freelyacross the network–amplifying the powerof cognitive technologyThe value of automationshifts from cheaper tosmarter, as predictiveinsights feed intoa growing roboticnetwork, creating thephysical-to-digitalloop that becomes thebackbone of a higherperforming supply chainEcosystemconnectivity anddata standardisationdrive partner-topartner automationof digital andphysical processesCore pillars unifyReactive supply chains mature to predictive and self-learning,automated networks, with little human intervention. Value creationshifts more heavily to customer experience and personalisation, sintelligent and dynamic first-to-last-mile networks proactively reachcustomers at the right time and placeSource: ntelligent-automation.html?id insightsapp17

Digital disruption in retailFuture of order fulfilment01. AI and ML based fulfilmentsystems: The latest AI and MLplatforms can help retailers acceleratetheir order fulfilment process.These technologies allow retailers toautomatically map demand conditionswith stock availability across stores,warehouses, distribution centres,and even on-road fleet. For example,a US-based footwear manufactureracquired multiple start-ups withanalytics and ML capabilities in thepast 18 months. These acquisitionsare aimed at combining RFIDtechnology with predictive analyticsto accelerate inventory matching andorder fulfilment to meet consumerneeds. By combining investmentsin AI and ML technology solutionsand rewriting sourcing policies,retailers can be at the forefront ofconvenience and provide real-timeproduct availability without having toaccumulate unsold inventory.202. Irreplaceable node in orderfulfilment journey: While retailersare still contemplating their plansfor fulfilment centres and last-miledelivery for convenient orderfulfilment, physical stores play acritical role in the supply chain.Retailers are likely to accelerate theconversion of excess space in theirstores into micro-fulfilment centres,especially in densely populated areas.One likely hurdle in retailers’ planto redeploy an unused store spacecould be redesigning limitationsdue to clauses in existing leasingagreements, thus pushing moreredesigns to owned storefronts.The four key trends in this area that retailers will likely adopt in the short term are given below:Urban fulfilmentInventory strategyFlexible networkData and technologyadoptionIt will give retailers theability to provide same-daydelivery service to theconnected consumer inlarge metropolitan areas.While urban warehousingcomes with a high price tag,use of local, small deliveryvehicles and reductionin distribution spend canresult in a net total costsavings.A competitive supply chainis built on end-to-endvisibility and capability toquickly flex with changingdemand. Optimal quantityand timing of inventoryto align with sales andproduction capacity arekey to enabling smartinventory capabilities andreducing waste.It enables supply chains tomove assets faster thanever. The physical networkneeds to change andevolve to cater to speed asshippers are forced to reevaluate their service-levelexpectations. Retailers withbrick-and-mortar storesare leaning on their “buyonline, pick up in-store”or “store-to-car” deliveryoptions to provide flexibilityand predictability withouthaving to transport thelast mile.It allows retailers totransform their supplychains with unprecedentedvisibility and insightsfrom data. Technologyintegrations should befocused on understandingthe customer journey andproviding a substantiveimprovement.18

Digital disruption in retailReverse logistics life cycleTraditional focus areas result in siloed policies and urnsanalyticsMerchandiseassortmentsand allowancesto addressproduct returnsTime and creditterms offered tocustomers andspecial productrestrictionsMethods offeredto customers tomake returnsin person orthrough the mailStore andwarehouseapplications andtransportation tofinal destinationDetermining ifproducts shouldbe retu

Digital disruption in retail 09 Impact of disruption on a retail organisation Shift from traditional supply chain to digital supply networks (DSN) A fast-paced shift is being witnessed in the way supply chains function. Advances in computing memory and processing are driving entrepreneurs to develop innovative new digital technologies and .