The retail supply chain is poised to undergo a transformation based on new technologies that will make data easier to collect (IoT), easier to interpret (AI) and easier to share (collaboration platforms). Online giants like Amazon and Alibaba have built their success, in part, due to their mastery of supply chain data.
In this report, we seek to analyse the readiness of Australian retailers, transport/logistics companies and manufacturers to participate and compete in the world of data-driven supply chains.
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The supply chain is vital to the retail industry as it represents both a large cost and a source of competitive advantage. Supply chain costs have been calculated by the Reserve Bank to represent 40% of retail selling prices so controlling these costs can have a significant effect on both retail prices and profitability. In other cases supply chains can be used to create a competitive advantage by delivering goods to the right place more quickly than rivals, thereby serving customers better.
The concept of supply chain management (SCM) is that more value can be created by managing a supply chain holistically than by managing its separate parts independently. At the core of SCM is the theory of collaborative advantagewhich says when two or more organisations pool resources and skills, incremental value can be created. Studies have shown supply chain collaboration (SCC) delivers benefits such as risk reduction, cost reduction, access to complementary resources, improved productivity, increased competitive advantage and increased profitability over time.
Today, supply chain collaboration as we know it is about to enter a new era driven by technology. The ability to capture supply chain data will rise exponentially with 5.5 billion smartphones and 20 billion IoT (Internet of Things) devices in the market by 2020. This means it will be possible to collect data not just on sales and production schedules between retailer and manufacturer, but also on the location and condition of goods throughout the supply chain, consumer and team member movements (both in and outside stores), stock levels in consumers’ fridges and appliances, the availability of consumers to receive a delivery, and much more.
Data storage is already being transformed through the increasing capacity, flexibility and decreasing cost of cloud computing.
New technologies like blockchain and data exchanges – will mean information can be shared by all parties, not just point-to-point collaborators. Data analysis will also be transformed as autonomous or semi-autonomous platforms allow businesses to discover deeper insights, make predictions, or generate recommendations in virtual real-time. Most of all, high-speed data networks will enable collaboration to take place at a pace that allows timely business decisions.
As well as technological disruption, retailers face competitive disruption from online retailers like Amazon and Alibaba who are already masters of supply chain data. Both collect every customer click and use it to predict buying patterns, optimise the placement of inventory in the network and maximise both the speed and efficiency of delivery.
"5G" is actually an umbrella term for the next major wave of cellular network technology.
5G will be a combination of transformational technologies that will address specific use cases. Whilst 1G, 2G, 3G and 4G were primarily about voice and then data, 5G will be about connecting everything with minimal delay, faster speeds and at larger scale with billions of devices (via the Internet of Things).
It's important to understand that the journey from 4G to 5G will not be a step change. Rather, many features that will eventually be collectively standardised as "5G" will be incorporated into forthcoming releases of 4G LTE standards and will progressively be deployed by carriers such as Telstra alongside 5G deployments.
There will be three major benefits to 5G:
For mobile broadband services, 5G will approximately halve latency, which will greatly improve the responsiveness of internet applications. For mission-critical IoT applications, 5G will provide very low latencies at very high reliability, which will enable brand new industrial automation applications.
5G will provide significantly faster data speeds and greater capacity, eventually providing ten times the speeds and capacity of 4G.
4G technologies are today facilitating IoT sensor networks at scale, but 5G will increase scale to support billions of devices without human intervention.
5G will enable the new technologies that improve efficiency, speed and reliability through a number of features:
Australia Post has been around for 209 years, but the last seven have seen some of the biggest changes in its history, with the number of parcels they deliver overtaking letters for the first time. There is no doubt this has been driven by Australia’s growing appetite for online shopping – up a whopping 19.2% last year alone. For the company, this new e-commerce world is presenting both enormous opportunities – and challenges – as they move from their traditional business model towards an omnichannel, on-demand future.
The customer’s mobile number is one simple data set that is proving very powerful, connecting into all the organisation’s internal data sets and systems. By having access to that data and knowing where an item is in the supply chain, the company allows their customers to say, 'I want this item delivered here now, but in ten minutes time I want to change my preference,' and the supply chain has the flexibility and fluidity to keep up.
Australia Post’s biggest challenge now is how best to use data to drive change and improve collaboration. The recent launch of the Shipster platform is a prime example.
In our research, we sought to explore the phenomena of data-driven supply chains and investigate three key questions:
We hypothesised that for data-driven supply chains to be adopted three conditions must exist i.e. management must believe in the benefits, the key technology pillars must be adopted and there must be collaborative relationships between supply chain partners.
To discover our key findings, keep reading on. Or, you can access the full downloadable report for an in-depth explanation of our research framework, methodology and results.
Supply chain organisations have inherently different business drivers but the competencies of retailers, logistics companies and manufacturers are complementary. They are all in the business of combining to get goods and information from point of production to point of consumption and sometimes back again.
Collaboration relies on a coalition of the willing but if one party takes the lion's share of the spoils the coalition won't be willing for long. For data-driven supply chains to be adopted, it's important the benefits of collaboration are shared equitably and not just realised by one party (usually the retailer).
Discover the new technologies helping businesses collaborate in the retail supply chain
Oil only became useful when we gained the ability to refine it. Once refined oil did indeed transform every industry especially by facilitating the development of the motor car and the aeroplane.
Likewise, data has been with us since retail began but has only become useful since we have been able to capture, store, analyse and share it with others.
Our respondents said: data is easy to collect but hard to manage, there are problems making it compatible across different apps, the tools to analyse it are in some cases immature, and the problems multiply when we attempt to share it across multiple platforms in the cloud.
To be useful data needs to be accessible and useable. To this end we are seeing retail enterprise systems being rewritten from the ground up with exposed APIs, the emergence of data exchanges that facilitate the sharing of data between multiple supply chain players, as well as the use of blockchain technology that helps verify hand-offs between supply chain actors. These developments hold the promise of overcoming current concerns with technology, making data useful and assisting in the adoption of data-driven supply chains.
Data is an intangible or operant resource, but when deployed in the supply chain it can be used to replace inventory, fixed assets, labour even physical locations through better sensing of and responding to demand. Data is therefore potentially as valuable as any of the tangible assets on a balance sheet and needs to be protected accordingly.
The Australian government conservatively estimated the cost of ransomware to the Australian economy to be approximately A$1 billion per year. It’s therefore not surprising that supply chain actors cite security as their number one barrier to adopting a data-driven supply chain. To remove this barrier, supply chain businesses should consult a trusted partner in cyber security to ensure shared data is protected and the benefits of data-driven collaboration are not lost.
The transition to data-driven supply chains requires the traditional skills of supply chain professionals, but it also needs mathematicians who can interrogate the data and build the algorithms that turn supply chain data into useful business information. These skills are in short supply in the retail supply chain. Online retailers like Amazon have long recognised the benefit of PhD data scientists in their businesses. Traditional retail companies now also need to fill this skills gap.
Forming closer ties with universities who have pipelines of PhD students and have post-doctoral students as potential project resources may be a logical first step. The University of Sydney Business School collaborates with local and international industries for research in three interrelated areas:
SMEs see more benefit in a data-driven approach than their enterprise counterparts, but are less advanced in deployment. DDSCs represent a threat to SMEs as they are less likely to have the necessary resources to deploy. This puts SMEs at risk of becoming relegated to low-value, old world, transactional relationships with their customers and suppliers. To remain relevant SMEs must look for allies in the technology sector who can provide them access to data-driven supply chain data, analytic capability and collaboration platforms as a service.
Network design has always been part of supply chain management. Placing retail stores, distribution centres and other resources in optimal proximity to customers can be a key source of efficiency and agility in the supply chain.
The problem with network design data is that it traditionally consists of a series of historical snapshots – sometimes up to five years old – and normally requires the services of a demographer as an interpreter. Now, the smartphone can provide more dynamic and contemporary inputs to network design.
By understanding the movement patterns of smartphones in a market and linking them to ‘Helix Personas’ Telstra’s Location Insights service can provide not only demographic, but also behavioural and psychographic profiles of customers as they move in a geography, in virtual real-time. It can also give a true assessment of the efficacy of infrastructure and the true reach of trade areas. Given the high term costs of five-year leases for both retail and industrial premises, this is valuable data.
"Our ambition in Telstra is to help our customers become digital enterprises by translating data into insights that empower outcomes."
Executive Director of Global Products, Telstra.
The organisations that will thrive in the era of the data-driven supply chain will be those that can most effectively manage their data supply chain and can effectively collaborate with their supply chain partners around that data.
Machine Learning algorithms take in large amounts of data from which humans manually select relevant features that the algorithms then use as a basis to learn how to create predictive models.
Deep Learning removes the need for humans to manual identify relevant features. Instead, deep learning algorithms construct an ‘artificial neural network’ (based on one model of how the human brain may work) to autonomously learn which features are needed to make more accurate predictions or more useful insights.
Conversational commerce Devices such as Amazon’s Echo, Google’s Home and Apple’s HomePod and platforms such as Facebook chatbots allow human interaction with services by natural language.
The emergence of new technologies to capture, analyse and collaborate with data promises a new era of supply chain management, but our research shows there are some barriers to be overcome.
To unlock the promise of a data-driven future, supply chain actors need to align objectives with partners, find a way to secure the data they share, find new skills to make data useful and win the familiar organisational arguments around investment priority. The world will not wait. Already we can see online retailers like Amazon, Alibaba and OTTO using supply chain data to gain significant advantages over their rivals, and traditional retailers like Walmart and Target USA are catching up.
In the end, it may be traditional retailers with their established networks of stores and distribution centres, ability to collect online and offline data on consumers, analyse markets using movement data from smartphones and a customer base willing to do some of the last mile work of the supply chain that have the most to gain. What can be said with more certainty is that the big gains in retail have and always will come from taking share from competitors or operating more efficiently. The data-driven supply chain promises both.
Want to learn more? Read the full report