The past few years of turmoil in the retail sector have challenged many professionals. The so-called “retail apocalypse” was deepened by the pandemic, then came inventory overload and inflation. Retailers could be excused for describing their feelings with some of the lyrics from Willie Nelson’s famous song “Crazy.” The lyrics read: “Worry, why do I let myself worry? Wondering what in the world did I do?” Many retailers have turned to artificial intelligence (AI) to address their fears and lessen their worries. In doing so, it appears they are not so crazy. Journalist Yana Ihnatchyck explains, “Leveraging the latest technology has become more critical than ever in today’s fast-paced and competitive retail environment. Big Data Analytics and AI are at the forefront of this technological revolution, offering unprecedented opportunities for retailer agencies and agents to optimize their operations and enhance customer experience.”[1]
How AI Benefits the Retail Supply Chain
How often have you heard someone say, “Don’t bring me problems, bring me solutions?” According to Richard Kestenbaum, a Partner at Triangle Capital LLC, that’s exactly what AI can do for retailers. He explains, “AI finds problems and figures out how to solve them. It shows management what’s really happening and it implements solutions. It exposes the reality of a situation so that it can be improved. It sets up corrective actions automatically to reach its goals without any human involvement.”[2] That explanation might be a bit hyperbolic; however, AI is advancing rapidly to address many of challenges that have plagued retail supply chains over the past few years. For example, business journalist Liz Young reports, “Retailers are turning to new technology and greater use of data across their supply chains in an effort to fix forecasting tools that were effectively splintered during the Covid-19 pandemic.”[3] Ihnatchyck suggests five other ways AI can benefit retail supply chains. They are:
• Driving Innovation with Data Analytics. According to Ihnatchyck, “AI and Big Data Analytics are rapidly changing the retail landscape, allowing businesses to make data-driven decisions to gain a competitive edge. By analyzing vast amounts of data, retailers can uncover hidden patterns, trends, and insights that can inform their strategies and improve their operations. Big data analytics in the retail industry plays a crucial role in driving innovation, efficiency, and overall business growth.” Solutions, like the Enterra Revenue Growth Intelligence System™ (ERGIS™), can help enterprises find opportunities in today’s everchanging retail landscape.
• Improving Customer Experience. Ihnatchyck explains, “One of the most significant benefits of big data analytics in retail is its ability to personalize marketing and promotions, leading to a more tailored and engaging customer experience.” The Enterra Global Insights and Decision Superiority System™ (EGIDS™) can help business leaders rapidly explore a multitude of options and scenarios resulting in much more effective trade promotion campaigns.
• Transforming Inventory Management. Young observes, “[In recent years, retailers have experienced] product shortages and overstuffed inventories in rapidly changing consumer markets. Now, even with those strains largely receding, companies are looking for better ways to manage the flow of goods on the fly and make sure they have merchandise where it needs to be to boost sales and maintain margins.” Ihnatchyck adds, “Inventory management is a critical aspect of retail operations, and big data analytics in the retail market offers valuable insights for optimizing inventory levels. Predictive analytics enables retailers to forecast demand accurately, ensuring they maintain optimal stock levels to meet customer needs while minimizing costs associated with excess inventory or stockouts.”
• Improving Sustainability Efforts. Scot Case, Vice President of corporate social responsibility and sustainability at National Retail Federation, writes, “The future of retail supply chains is becoming clear, and that future will require retailers to have better visibility into the sustainability of their supply chains. As retailers race to meet consumer and investor demands for more sustainable products, they are learning that their most significant business opportunities and risks originate deep within supply chains.”[4] Today’s supply chains are so complex only AI-powered solutions can analyze all the data necessary to monitor end-to-end supply chain visibility. Ihnatchyck adds, “AI and big data analytics in retail contribute to reducing waste and improving sustainability. For instance, AI algorithms can help identify perishable products nearing their expiration date, prompting retailers to take action, such as offering discounts or donating items to food banks. … AI and big data analytics can enhance transparency and traceability in the supply chain, providing retailers with greater visibility into the origins of their products, and ensuring ethical and sustainable sourcing practices.”
• Enhancing Supply Chain Management. Retailers are constantly looking for ways to optimize their operations. Young reports, “Retailers are shedding warehouse space and paring back their logistics networks now that the disruptions that slowed supply chains during the Covid-19 pandemic have largely receded and consumer spending patterns are shifting toward services.”[5] According to Ihnatchyck, AI is helping in this effort. She explains, “AI and big data analytics are revolutionizing supply chain management in the retail industry, driving efficiency and cost savings. AI-powered route optimization helps retailers and logistics providers determine the most efficient delivery routes, minimizing fuel consumption and reducing overall transportation costs.”
• Automating In-Store Workflow. According to Ihnatchyck, “In addition to optimizing inventory and supply chain management, AI and big data analytics in retail also contribute to streamlining store operations. AI-driven pricing strategies, such as dynamic pricing, enable retailers to adjust prices in real time based on factors like demand, competition, and seasonality. … Employee scheduling and workforce management are other areas where AI can have a significant impact. By analyzing historical data and considering factors such as foot traffic, sales, and employee performance, AI algorithms can create optimal schedules that ensure adequate staffing during peak hours while minimizing labor costs.”
Areas of Concern
Although the benefits of big data and AI in the retail supply chain are significant, AI solutions can also raise concerns. Those concerns involve the relentlessness of machine learning algorithms — especially on the customer-facing side of the supply chain. Kestenbaum explains, “When AI software is given a goal, it maximizes all the variables to reach the goal. … Because it’s early, now is the time for the industry to talk about the risk in AI and to act as one for everyone’s long-term benefit.” He adds, “Most consumers encounter big companies primarily when they shop, retail is their touchpoint for how they experience large enterprises. And it’s there where harm can begin. … If we don’t start now to establish broad-based guiderails for how AI will operate and what its priorities will be, no one can predict what kind of reality will be created by the software.”
The supplier-facing side of the supply also faces challenges. Jeffrey J. Engle, President of Conquest Cyber, explains, “The recent and still ongoing digital transformation of procurement, along with a steadily increasing number of bad actors, cyberattacks have been and will continue to be the dominant threat facing the industry in the coming years. As a chain is only as strong as its weakest link, the increased sharing of information and data between vendors creates a large threat surface and leaves many vulnerable for attack. … While safeguards should be in place for prevention, accepting their inevitability allows you to be the one with the upper hand when under attack. By creating plans and establishing decision matrices, you can ensure your supply chain withstands any number of incidents.”[6]
There are no silver-bullet solutions to all the challenges facing the retail sector. Nevertheless, digitalization, big data analytics, and AI solutions are helping address many of them. Like the rest of the world, the retail sector will continue to change and a modernized supply chain can help retailers keep up with those changes.
Footnotes
[1] Yana Ihnatchyck, “AI and Big Data Analytics in Retail Industry,” Data Science Central, 26 May 2023.
[2] Richard Kestenbaum, “The Opportunity and the Danger of Artificial Intelligence in Retail,” Forbes, 19 January 2022.
[3] Liz Young, “Retailers Are Trying to Fix Their Supply-Chain Forecasts,” The Wall Street Journal, 16 June 2023.
[4] Scot Case, “Seeing the future of retail supply chains,” National Retail Federation, 11 July 2022.
[5] Liz Young, “Retailers Are Shrinking Logistics Operations in a Changing Consumer Market,” The Wall Street Journal, 5 June 2023.
[6] Jeffrey J. Engle, “How to Defend the Retail Supply Chain,” Supply & Demand Chain Executive, 10 March 2023.
