Retail is undergoing a digital revamp like no other, as customers become the new king in the age of digital commerce. Retailers need to focus on building authenticity and trust - as they look at enhancing the customer experience.

At the recent SMU Retail Centre of Excellence (RCoE) Asia Retail Leaders Conference 2021, Shantanu Bhattacharya, SMU Professor of Operations Management, shed light on the impact of digitalisation on the retail supply chain.

The pandemic has been a global source of disruption in retail but there have already been sources of disruption for many years. For example, consumer demand has been evolving from one period to the next, from every good being customised in the 19th century to the standardisation of products in the 20th century — when Henry Ford pioneered the moving assembly line for the mass production of an entire vehicle. Now, customers are moving away from the product acquisition and product ownership model to a service experience model, says Prof Shantanu. As such, servitisation — whereby industries use their products to sell “outcome as a service” rather than a one-off sale, such as a manufacturing business that offers additional services like maintenance to supplement their traditional products — will reshape retail dramatically over the next few years.

“One of the changes we see in retail in the 21st century is going back from make-to-stock to make-to-order — we see a move towards personalisation,” notes Prof Shantanu.

“Technology is indeed enabling this personalisation, but personalisation is just one aspect of the supply chain impact of retail. A big impact of the supply chain going forward into the next decade or two would be the issue of digitalisation.”

An optimal supply chain is “lean”, such that the goods or products are supplied to the end customer in the most efficient manner possible. Such a strategy minimises cost by reducing inventories or overstocks that are not needed for an extended period. This helps companies avoid massive storage fees from warehouse space use as well as reduced transportation costs.

Italian fashion brand Benetton has largely been hailed as the precursor to fast fashion, and re-designed the supply chain model by responding quickly to the fickle and unpredictable tastes of shoppers. The family-owned group leveraged its heritage as an Italian company by focusing on Italian design, cutting and technical treatments of its fabrics while allowing for stitching and the final assembly of products in Asia — where labour is more affordable.

“In fashion, your selling cycle is six months,” shares Prof Shantanu.

“The Bennettons and Marks & Spencers of the world have the same conundrum: You have to start a year in advance with a forecast, and forecasts in the fashion sector are notoriously unpredictable.”

Production based on such standardised approaches usually resulted in a supply and demand discrepancy, whereby particular styles and colourways sell quickly while others end up as excess inventory.

To address this problem, Benetton designed the greige fabric — a fabric that hasn't been bleached or dyed — and introduced a dyeing department in major markets, alongside a rudimentary electronic data interchange link between its stores and the dyeing department. Rather than relying on flimsy forecasts, the production team monitored the sales of styles in stores, and manufactured products to meet demand. Through these changes, Benetton created the world's first Triple-A Supply Chain, one that is agile, adaptable and aligned.

Today, brands can cater to customers’ predilection for personalisation, by allowing for customisation of products through their digital channels. Supply chains have to shift towards an even more flexible model, through smaller production sites that can adapt quickly to customer demand, or by working with local vendors for cost-savings instead of mass production across the globe.

Prof Shantanu also observes that 3D printing technology could be a gamechanger in accelerating this personalisation trend, possibly upending traditional retail in the process. One could buy a design online and print it on a 3D printer in hours. For example, instead of purchasing customised medical prosthetics from a devices company, doctors may be able to upload their patient’s data to create a 3D-printed custom device.

Digitalisation also has an impact on logistics. For example, dynamic routing is a system that allows delivery schedules to be revised and updated in real-time, thanks to a comprehensive network of algorithms, blockchain technology and artificial intelligence that takes into account demand, weather and traffic conditions, vehicle capacity and other considerations. It offers greater flexibility to more efficiently manage fleets, thereby bringing down costs and ensuring packages reach customers on time.

“From our perspective, we see the world of supply chains being profoundly impacted over the next few years,” adds Prof Shantanu.

“And we think that retail and supply chain have a very symbiotic relationship. Retail can enable these changes in the supply chain and vice versa. All we need is for retail to look at more robust business models to expand its horizons as customers change.”