Opinion

How supply chain control towers will transform Indian retailing

Vikram Murthi | Updated on September 08, 2021

The online model will soon dominate the Indian retail market   -  istock.com/Andrzej Rostek

The numbers crunched by control towers can address sales weaknesses, reduce stockouts, leveraged excess stocks and adjusted purchase orders

The emergence of the fast-growing organised retail formats has transformed the face of retailing in India. The online grocery market in India has seen more than 70 per cent growth in the past one and a half years.

BigBasket, a unicorn in the field, and Grofers, soon to be unicorn, with many other players in the online grocery market have seen 76 per cent year-on-year sales in 2020. Other players competing in the pie include Amazon, Supermarket, Paytm Mall, Dunzo, Swiggy, Instamart.

As India’s grocery market continues to grow, Indian Retailers will have to continue to address the key dynamics of increased demand volatility and the channel shift towards online groceries, which have created a number of challenges, including ensuring product availability for high customer service and executing on strategies to manage risks due to demand surges and supplier disruptions.

Three drivers

In particular, the Indian grocery retail landscape is being challenged with three fundamental drivers:

(a) A significant shift in channel preferences with the need to support online ordering without any geographical constraints.

(b) The changing consumer preferences with the move towards fresh, natural/organic/healthy foods and locally sourced products but at the same time looking for value.

(c) Increasing demand of superior consumer experiences demanding an agile supply chain which is highly responsive to changing consumer needs, while also maintaining margins, service, and efficiencies with optimal planning of inventory, sourcing, transportation, and fulfilment.

These transformational shifts in consumer behaviour create unprecedented levels of variability, uncertainty, and complexity in supply chains. Retailers are being forced to challenge the status quo and step up their supply chain competencies to successfully transform their businesses. There is a realisation that to run an exceptional supply chain, it takes a commitment to leverage data and advanced analytics to make smart, fact-based decisions, while continuously evolving product offerings, supply chain strategies, and execution capabilities.

Retailers have realised that they need to upend their traditional operating model with a digital operating model so that they can quickly analyse, optimise, and evaluate complex decisions before taking action. Getting to this new operating model is a transformational journey that has great promise in delivering greater confidence and control over business outcomes.

The supply chain problem

Retailers constantly face operational issues during execution, no matter how well they plan assortment availability across channels, forecast demand using sales or shipment history, and carefully procure and place inventory. Any variety of factors could lead to inventory issues like out-of-stocks or dissatisfied customers, including promotional campaigns not driving sales, changes in consumer behaviour, disruptions in supplier material availability, and transportation bottlenecks.

Retailers increasingly struggle with getting the insights they need to answer these questions during planning as well as execution. This is costing them hundreds of crores in value leakage — in terms of lost sales, consumer dissatisfaction, increased supply chain costs, excess inventory, and lower organisation productivity. Not to mention the adverse impact on the planet due to poor utilization of scarce resources by retailer’s global supply chains.

The role of supply chain control towers

As the great boxer Mike Tyson said, “Everybody has a plan till they get punched in the mouth”. The planning organisation may have the best laid plans, but just the sheer volatility in the operational environment requires continuous course corrections, with scenario planning and evaluation of various competing alternatives.

Many retailers are now looking at Control Towers to address a multitude of supply chain blind spots including unexpected supply shortages, network bottlenecks, response to disruptions and big changes in what consumers are purchasing and where they are purchasing. Control Towers support retailers in sensing demand fluctuations as well as supply disruptions in real time, translating that into various risks — the risk of poor customer service or the risk of lower revenues or the risk of lower margins due to expensive course corrections. The most advanced Control Towers diagnose the root causes of supply chain failures and prescribe a number of corrective actions along with their costs and tradeoffs.

From determining delivery dates, managing inventory, to routing orders to reach the customer as promised, Control Towers help aggregate all the valuable information and make the same available to staff across all levels, thereby facilitating end-to-end control of the supply chain.

The emerging best practice is to deploy cognitive control towers that are both analytical and operational. They not only provide end-to-end visibility from consumer purchase to supplier shipments, but also provide recommendations on what to do that addresses issues and enables users to choose from various options and act on them.

The three Ws

These control towers address the 3Ws of decision making:

(a) What happened? ML techniques provide Diagnostic capabilities and can identify the root causes for fulfillment failure. There could be one cause or a chain of root causes that lead to service failure — items not in store and must be procured from a regional DC with inadequate lead times, workforce unavailable for BOPIS orders, missing items at pick locations, limited pickup window duration for customers, supply disruptions at import DCs, excess number/variety of items in the order or inadequate retail store space.

(b) What is likely to happen? The Predictive capabilities of ML are ideal in understanding the effects of forward-looking drivers of demand to forecast a demand surge in a specific region, perhaps due to local events, social media buzz, unusual weather or competitor supply disruptions.

(c) What actions need to be taken? AI/ML can provide Prescriptive recommendations with an action or a sequence of actions to various roles in the supply chain so that fulfillment execution is ensured.

In summary, supply chain control towers can power retailers by helping them avoid a lot of blood, sweat and Excel that is devoted to the root cause analysis of operational failures. Monday mornings could be driven by knowledge and insights from a Cognitive Control Tower.

By the time the teams arrive in their offices, the Control Tower has done all that number-crunching, highlighted exceptions and served up recommendations to address sales weaknesses, reduce stockouts, leveraged excess stocks and adjusted purchase orders. Instead of Monday morning debates over conflicting numbers and pointing fingers, retailers get action-oriented recommendations to move forward immediately, and more time to focus on making decisions to delight the consumer.

The writer is Vice-President, Industry Strategy, o9 Solutions

Published on September 08, 2021

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