Back-Office Transformation Holds the Key to Front-Office Success for Brick and Mortar Retailers

Customer-centric retail strategies typically aim to reduce in-store friction and offer more engaging and tailored experiences that will drive traffic to stores and improve retention rates. However, by focusing almost entirely on the store itself, retailers are in danger of having a blinkered view of retail; this can downplay the importance of supply chain operations in maintaining customer loyalty. Ironically, this attitude is preventing many brick-and-mortar stores from satisfying their customers to the best of their ability, despite their store-centric approach.

In retail today, more and more customers are demanding tailored products and experiences. Consumer tastes are changing daily as social media shapes everyday life for increasingly cash-rich millennials and Generation Z. Ethically minded shoppers are shaping retail through their morally conscious buying decisions. These are just some of the problems which retailers have been struggling to address but which operational technologies outside of the store can solve.

There are signs that retailers are beginning to leverage agile supply chain transformations in order to deliver a better customer experience. Recently in London, at Retail Week’s “Tech.” show, it was clear that retailers are now seriously looking at ways to bring visibility, efficiency, and intelligence to unseen back-office processes. Back-office use cases for technologies such as Artificial Intelligence (AI), Radio-Frequency Identification (RFID), blockchain, and robotics are starting to gain traction within a market that for so long has looked at customer centricity as purely a front-office consideration

Product development processes are transforming as innovation continues to occur in manufacturing (e.g., 3D printing and Computer-Aided Manufacturing/Computer-Aided Design [CAM/CAD]) and as consumer demand forecasting becomes increasingly accurate thanks to more sophisticated AI engines. This will be game changing for those retailers who can dynamically respond to real-time product demand while maintaining lean inventories. Personalizing products will also become realistic and cost-effective. However, being able to respond rapidly to on-demand consumer trends requires end-to-end communication along the supply chain. This means effectively integrating in-store intelligence (such as customer analytics, merchandise planning, and localized trends) with manufacturing processes and distribution channels to create a constant feedback loop which responds to real-time demand. For most retailers, closing the loop among retail operations, supply chain, and manufacturing remains a distant possibility.

What is likely to occur is a new wave of back-office retail innovation which focuses on making the supply chain a fully connected and dynamic set of processes that facilitates end-to-end communication in both directions. The software environment is a major component in making this happen. Enterprise Resource Planning (ERP) providers such as Infor have acknowledged this need by being early adopters of cloud- and microservice-based architectures that allow for a more agile, scalable, and integrated set of capabilities along the supply chain and in the store.

But retailers looking to transform the supply chain need to look beyond simply improving integration and communication. Customers will also benefit from more intelligent and transparent back-office operations. Most major retailers are therefore exploring or implementing AI use cases at some level in the supply chain. The next step for AI is to go from simply driving efficiencies to becoming a core value center that is integral to the success of in-store retail operations. Using customer data to influence procurement with machine learning, for example, is gaining attention from physical retailers. The recent acquisition of Blue Yonder by JDA (a major supply chain technology firm serving large retailers) is a prime example of how AI is linking in-store performance with supply chain processes. The continued integration of AI features into ERP software (through internal and external integrations) will also continue to transform back-office processes.

But AI is only as powerful as the data allows it to be. Retailers will therefore benefit from digitizing touchpoints and generating data at all stages along the product life cycle, as they have already been doing for customers in the store. RFID, for example, has proved to be a highly effective way of providing end-to-end visibility and generating a wealth of data on which AI algorithms can feed to deliver further operational efficiency and insight, all while improving the in-store customer experience. For example, tracking products more efficiently and accurately will prevent shrinkage in the supply chain and decrease the time from production to shelf—meaning that stores will remain well stocked for consumers, and waste is reduced.

Digitizing the product life cycle also increases the number of compelling use cases for blockchain in retail operations, many of which will have a tangible effect on the customer experience. If a digital transaction can be recorded at every step, distributed ledgers can independently verify and record when goods change hands, providing trust and transparency across the entire supply chain. This allows retailers to prove the claims they make about ethical sourcing and shipping and could eventually be a disadvantage for those retailers who cannot do this. Retailers can also use blockchain to verify the authenticity of products as they progress along the supply chain—an issue which affects the selling of high-value branded goods due to the threat of counterfeit products—not to mention that a better understanding of blockchain among retailers may indirectly lead to more consumer-facing use cases such as loyalty scheme management, cryptocurrency acceptance, and simplified product warranty verification. This demonstrates how revolutionizing the supply chain can have beneficial domino effects for wider digital innovation.

There are countless ways a more agile and responsive supply chain can benefit the customer. But talking about transformational change and implementing it are two entirely different things. Retailers must now put the steps in place which will enable two-way communication to occur between the front office (in store) and the back office (supply chain and operations). However, if retailers view these changes as merely a cost-saving exercise, they will fail to benefit from these lasting changes that fundamentally transform the entire retail value chain. Instead, physical stores must see how supply chain excellence affects the customer at the store level. Projects which have this target in mind will surely be more successful at securing budgets and delivering long-term change.

Physical retailers seem to have simply accepted their inability to compete with the likes of Amazon on pricing and logistics capability—meaning the in-store customer experience is their go-to differentiator. However, by seriously examining how a revolutionized closed-loop supply chain can bring more compelling products into the store, a retailer competing with the endless aisles of pure play e-commerce providers will become a real possibility.

Brick-and-mortar retailers must also realize that they can press home an advantage unavailable to pure-play online stores. Physical shops can execute omnichannel experiences in a variety of ways. By using stores as distribution centers and as retail outlets, store owners with a more distributed regional presence can gain a serious advantage over e-commerce retailers due to the lower last-mile delivery costs. With robust inventory management and supply chain strategies which support ship-from-store models, brick-and-mortar retailers can fight back in a meaningful way.

Ultimately, back-office functions must be viewed as integral elements in the delivery of a market-leading customer experience. The retailers who understand this and act immediately to make it happen are more likely to achieve long-term success in an increasingly fierce and perilous retail market that is being disrupted from above and below.