Traditional trade is one of the biggest benefactors of digital transformation

At a time of blending offline and online, traditional commerce has become one of the biggest beneficiaries of digital transformation. What is also interesting is that it is not only e-Commerce that has contributed to the changes in Polish commerce. Retail chains have also changed, in almost all areas of business.

Previously a pandemic, now a cost-inflation crisis, will they strongly influence Retail companies’ decisions to invest in digitalization, new technologies and solutions that will support cost reduction and efficiency improvements, including process automation along every part of the supply chain?

Such changes started even before the pandemic and the current economic turbulence, but now they are intensifying. We have been working with large and smaller retail chains for more than 18 years, helping to streamline and digitalize processes. Retail chains have long been using AI solutions for demand forecasting and stock planning. These instruments, using advanced statistics and AI algorithms, allow companies to optimize orders, plan the stocking of outlets and build adequate inventories. Advanced TMS systems cooperating with AI solutions plan and optimize transport, and good WMS systems often optimize warehouse operations and even the warehouse layout.

Technologies cooperating in this way, have been used by retailers for many years. Similarly, the electronic exchange of data with trading partners, the use of EDI mechanisms, is the domain of the automotive industry and already mentioned retail.

Furthermore, the specific nature of the operation, such as the handling of a large number of sales documents, logistics documents, etc., has meant that retail chains have always had to deal with large numbers of transactions in IT systems that many other industries have not even dreamed of. For example, the number of receipts and warehouse movement documents in even a medium-sized retail chain results in a number of transactions two or three times higher than in a large manufacturing company. Among other reasons, many ERP providers have failed in their implementations in trading companies because the volume of data handled was beyond the ability of their systems. This situation has forced the search for, and implementation of, new efficient technologies. Currently, this trend has accelerated because, between others, the popularity of e-Commerce channels has increased. And e-Commerce is known to ‘like’ a high degree of automation.

So is transformation the right answer to today’s challenges?

Yes, now even the so far unconvinced are looking for new solutions. However, for some, even very large retail chains, ‘commerce’ is synonymous with selling in a physical store, and e-Commerce is neglected. Today, there is a growing number convinced that the physical shop is only one channel to reach the customer. Mobile apps, the traditional e-shop or the marketplace have become relevant, because this is where many pandemic-limited customers were reaching them. Such a breakthrough can be seen, e.g. in the FMCG sector. Generally, the number of transactions in digital channels is increasing. The role of the retail shop often needs to be redefined. For example, it needs to be well prepared for the additional role of a local order handling center from the digital channel. Efficient in-store picking of online orders also often needs to be improved or implemented. Pick-up points should be organized in such a way that they encourage the customer to make additional “offline” purchases, but so as not to hinder the order pick-up. Changes like this rely heavily on digital transformation, e.g. messages need to be transferred seamlessly between the digital channel and shop staff and tasks need to be well planned. There also needs to be effective forecasting of stock that also takes into account the demand generated in the digital channel, which the physical store needs to accommodate.

Faster transaction processing, better prediction and inference from data – enabled by digital transformation – means lower costs and higher sales, which is critical in the current situation.

In what areas are retail chains pioneering digital transformation?

Again, I will refer to our experience. It shows that, in general, our customers are the forerunners of digital transformation in many areas. Certainly through the application of AI in a variety of fields: from optimizing logistics center operations towards category management to demand forecasting.  The most advanced customers use solutions based on machine learning (ML) to optimize even non-obvious tasks.  For example, the optimized interweaving of stock redeployment tasks associated with optimizing stock on hand (e.g. due to the change of season) between receipt and issue tasks, to reduce unnecessary runs and shorten stock routes. Demand forecasting can also be supported by ML, which gives good results e.g. when having to take into account many external variables, such as promotions or the weather. It also leads to the automation of decisions, e.g. on purchasing to suppliers. We have customers where an algorithm basically determines the purchase volumes and places the orders, and a human being just checks it from time to time. Sometimes digitalization also supports areas that are less obvious to the layman e.g. wealth management. Advanced sales analytics, for example, have always been and still are important, and modern AI can identify – not obvious to humans – customer behavior patterns and connections between sales events. It has always been a large scale of transactions so naturally this forced the digitalization – of course not at every retailer and not always to a similar extent.

As I mentioned earlier, retail is going strongly into e-Commerce sales and sales channel integration, which is also supported by digital transformation. Modern solutions such as BPMS (Business Process Management Suite) or RPA allow for the fast, secure and efficient integration of systems, e.g. a shop in a mobile app, a retail/POS system in a physical shop and a TMS. Thanks to this, the following steps of customer order processing in these systems are triggered automatically and data is transferred between the systems. This reduces the labor-intensive operations and increases the speed of order processing. There is also currently a lot invested in understanding the customer, which also involves AI and its support in tailoring the offer to a specific customer, region, season or event – in both digital and traditional channels. A well-designed tool, working on reliable data, can be very effective in encouraging the customer to make additional purchases and address marketing campaigns much more accurately. All of these systems can now be developed, as long as we have professional support, based on both commercial and very effective Open Source solutions.

What is the relevance of this for employees in the retail sector?

It depends on which group you are asking about. In general, for many employees, robotization/process automation means eliminating or reducing many repetitive and tiring actions. For example, RPA robots complete orders, transfer them from the customer’s system to the supplier’s system, handle correspondence sent to customers and suppliers (categorizing it and forwarding it to the right people) and they even respond to it. But also, especially for those managing different areas, digital transformation means a lot of responsibility. It is necessary to choose the methods, tools and scope. They must prepare the organization for the change and then implement and supervise it. BPMS and RPA automation systems can partly fulfil the above functions, but which one to choose depends on the context. Simply selecting the tasks to be automated so that they have the greatest effect and do no harm is not an easy challenge. AI solutions, e.g. for forecasting, can be provided in commercial as well as Open Source form. Each approach has its advantages and disadvantages. Convincing an organization to trust, like the effect of AI requires good preparation. Also, ensuring in-house competence to develop and maintain AI tools also requires work. The knowledge and experience that you need to have or that you can acquire, for example, from us, is necessary. A badly implemented digital transformation project can be damaging or not provide the required benefits. This is a risk to be calculated and managed. And the scale of problems can be considerable, e.g. poorly prepared demand forecasting can lead to understocking or overstocking, similarly improperly automated processes (nor adequately selected) can deprive an organization of the flexibility to operate where it is needed. Sometimes, defectively implemented error handling in process automation results in no less work, but instead of realizing the process, employees ‘clean up’ after the automation. This is a typical challenge that brings (as always) both – chance and hazard for people involved.

What trends can be observed in Polish Retail, how do we compare to the world?

The main trends from the business side are mainly the continued development of omnichannel and the use of physical shops e.g. the shop as a local ‘warehouse’, allowing the pick up an order within an hour of placing it; the shop as a storage buffer for all or part of the chain; or as a place where you can go if you have a problem with an item – without being forced only to a virtual contact. This makes physical shops an asset again, rather than a burden for the retail chain. There are studies showing virtuality exhaustion. More than 60% (IDC) of the world’s leading companies want to recreate the experience of physical contact with a product. Automation of physical shops is also a major trend. In e-Commerce, same-day delivery is becoming a serious asset – especially in FMCG, the physical shop helps with this. For this reason, companies without physical shops often choose to move towards so-called ‘metaverse’. In many industries, there are plans to develop virtual forms of customer interaction that mimic reality, e.g. popularizing the option to ‘try on’ a product in the virtual world. On the digitalization side, the key will be the further integration of data from various sources and the optimization/automation of order handling, as indicated by 75% (IDC) of companies. This means that companies will deepen the automation of the execution of processes, e.g. order handling or complaints, performed by means of systems such as BPMS and RPA. Integration must become “seamless”, which means that, for example, a customer’s order cannot get stuck at the interface between the e-shop and the warehouse system – it must flow smoothly between them. The BPMS, not a human, should “intelligently” manage the order, including reacting and correctly handling any problems that are revealed, e.g. lack of goods in stock.

Among Polish Retailers, we have different companies at different stages of digital transformation. We have customers who are very advanced and those who are actually beginning their digitization journey. One of our clients has been using a BPMS systems to automate processes for a long time, optimizing shop stocking with shelf and transport accuracy.

We recently finished a project related to the delivery of a system that optimizes the distribution of goods in the warehouse and handles the assignment of tasks to warehouse personnel. This client is now using advanced AI solutions for sales analysis and forecasting, the selection and implementation of which was supported by us.

Another, much smaller client, is currently implementing process automation between e-Commerce, Retail and ERP.

We are also currently supporting one company with an e-Commerce solution and its integration with Retail.

We are also cooperating with a client that has launched a forecasting solution – thanks to AI techniques, it is enabled to base forecasts, not only on historical sales, but also on additional variables.

With another of our clients, we have just developed the concept of an AI-based system to automate the stocking of the store, which will be part of an overall solution that reduces the workload of the facility’s staff. I think that the leaders of the Polish market are not lagging behind global competitors. Smaller players still need substantive support, e.g. in indicating what solutions to apply and how to implement them in order to optimally use their resources.

Author: Bartłomiej Żak – Director of the Product and Service Development Division