Spurred on by unpredictable market trends, changing customer behaviours, and the rise of e-commerce, businesses are having to redefine their operations. One industry in particular feeling the weight of this change is retail.
Research from the PWC Global Consumer Insights Survey shows that 28% of South African in-store shoppers are bothered by stock shortages while 30% of online shoppers take issue with product availability.
It has therefore become critical for retailers to use an agile and responsive supply chain to stay competitive.
“Agility and responsiveness provide two ways to manage inventory. In a world that has become more unpredictable, complex, and ambiguous, being able to respond to unexpected changes is critical for success,” says Jasper Zeelenberg, founder of Retailisation.
Retailisation delivers supply chain synchronisation via a combination of software and consultancy. The company uses digital twin technology and proprietary algorithms to detect and remove constraints to flow and sustain profitable supply chain decisions that are injected into the customer’s execution systems via a (SaaS) subscription model.
Zeelenberg stresses that today’s retail is less about prediction and more about rapid response to shifts in both supply and demand. This shift is even more prominent in South Africa due to factors such as load shedding and the rapid changes in consumer trends driven by social media.
Echoing this sentiment, Peter Ludi, MD of Solutions at redPanda Software, points out that South African consumer buying behaviour has changed significantly over the last decade. “Consumers used to be very brand loyal. Now, they shop for specific categories at specific retailers,” he states. This shift, coupled with the increased blending of online and in-store shopping behaviours, means retailers worldwide are struggling to adapt.
The challenge of overproduction
Despite being in a period of change and uncertainty, the retail sector continues to produce 40% more than what supply chains consume, leading to significant waste. “We need a more holistic metric to manage this process efficiently. Retailers need to respond properly and in-time to avoid this generation of waste,” Zeelenberg emphasises, suggesting that a circular economy approach could help reduce this waste significantly.
Ludi agrees, noting that a circular economy can also potentially create opportunities for cross-vertical industries, such as repurposing bicycle seats into suitcases. He highlights that the diverse nature of South Africa’s market, characterised by large territory sizes and complex infrastructure, can be leveraged for such innovative approaches.
Capitalising on market opportunities
Both Zeelenberg and Ludi believe that businesses can still find opportunities. As an example, Ludi mentions petrol stations with convenience stores who are taking the market from more conventional retailers by targeting time-restricted customers on their way home. He says: “Petrol stations have generators unlike many other convenience stores. This is an opportunity for one retailer to take from another if they maintain stock levels and be as responsive as possible to the ecosystem of challenges.”
Zeelenberg, too, emphasises that retailers should never waste resources, especially when a consumer is ready to buy. He underlines that the focus has now shifted from the supply side to the demand side — the consumer. “Wherever there is an opportunity to shorten lead time, the waste will be reduced,” he asserts.
An example of this can be found in Northern European multi-brand fashion group DK Company. As the company was embracing digital transformation it struggled with elements such as how to automate replenishment, reduce overstock and improve inadequate sales numbers, and improve data and intelligence. Adopting a data-driven supply chain solution within five weeks enabled the group to reduce the number of stockouts to a fraction of previous levels with the test stores reporting an average of 0.2 zero stock days as opposed to the 3.1 zero stock days of the control stores.
In addition, lost sales in test stores also decreased by more than 84% because the right products were available at the right time, all the time. Sales per stockkeeping unit increased by more than 38% in only three months with the company selling 66% more in the test stores than in the control stores.
Improving responsiveness
With the shift from supply-focused to demand-driven retail, advanced technology can play a crucial role in improving responsiveness. Zeelenberg explains that simulations and digital twins can help retailers visualise the impact of potential changes before they are implemented. “This is a new way of validating changes,” he says.
Ludi agrees, stating: “Today, everyone has order management solutions running in the background of transactional systems. Complex consumption landscapes mean that we cannot rely on basic algorithms anymore.”
Retailers must increase their ability to respond to market changes.
Zeelenberg sums it up: “Retail is all about the decisions being made. Teams and individuals must be measured on compliance. We need to increase our ability to respond to a situation.”