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Consumer brands and retail preparing to overhaul supply chains to counter future disruption

66% of organizations say their supply chain strategy will change significantly in the next three years, as they adapt to the pandemic and embed resiliency into their operations.

According to a report from the Capgemini Research Institute examining the impact of the past year’s disruption on consumer products and retail (CP&R) supply chains, just 23% of consumer product organisations and 28% of retailers believe that their supply chain is agile enough to support evolving business needs.

COVID-19 was a wakeup call for CP&R companies: 85% of consumer products organizations and 88% of retailers say they faced disruption, while 63% of consumer products organizations and 71% of retailers say it took at least three months for their supply chains to recover from the disruptions.

As a result, the report says organisations are realigning their strategies to focus on three critical areas:-

The move to demand sensing

Over two-thirds of organizations (68%) say they faced difficulties in demand planning due to a lack of accurate and up-to-date information on fluctuating customer demand during the pandemic. To improve forecasting, 66% of organizations plan to segment supply chains according to demand patterns, product value and regional dimensions post pandemic, while 54% say they will use analytics/AI-machine learning for demand forecasting to cope with the impact of COVID-19. 

Visibility becomes critical – 75% of consumer product companies faced difficulties when they needed to quickly increase or decrease production capacity due to COVID-19. To create the agility to respond to sudden shifts in demand, manufacturers can identify opportunities to improve visibility, cites the report. This can help deal with the challenge of strategic, tactical, and real-time operational decisions.

Organisations understand the significance of digital investments in improving visibility. 58% of retailers and 61% of consumer product organisations are planning to increase investments in digitisation of supply chains. In particular, 47% of organisations are planning to invest in automation, 42% are planning to invest in robotics and 42% in artificial intelligence. 64% and 63% of organizations are also planning to make extensive use of artificial intelligence and machine learning across transportation and pricing optimization respectively. 

From globalisation to localisation – To prevent future disruption, organisations are recognising the importance of localisation and are actively investing. CP&R organisations are shifting from globalisation to localisation of the supplier and manufacturing base. 72% of consumer product organisations and 58% of retailers say they are actively investing in regionalising or localising their manufacturing base or nearshoring production.

65% of CP&R companies are also investing in regionalising and localising their supplier base, rising to 83% in the UK and 73% in India. In line with these strategies, global suppliers will represent just 25% of retailers’ capacity in three years’ time, down from 36% today. In consumer products, global manufacturers will represent just 17%, down from 26% today.

In line with the move to localisation, dark stores, which have independent operations and are closer to the delivery locations, are becoming an increasingly useful alternative for fulfilling online orders as physical footfall decreases.

Earlier Capgemini research showed that if deliveries from dark stores increase by 50%, profit margins could grow by 7% as a result of lower delivery costs and higher delivery throughput compared to stores (while also not affecting store operations).

“CPGs and retailers recognize the great risk of future disruption, and they have an opportunity to be in front of creating agility and resilience to adapt their supply chain networks,” said Lindsey Mazza, Global Retail Supply Chain Leader at Capgemini. “The pandemic was an accelerated learning event. Organizations realize that new technologies can enable much-needed agility – from improving demand predictions, to boosting fulfilment to quicker, cost-effective last mile deliveries. By investing now, organizations put themselves in good stead to safely support consumers in their time of need – whenever the next industry disruption may be.”

‘Last Mile’ Lessons from Covid-19

By Simon Mardle, Principal at Capgemini Invent

Innovation is regarded as a necessity for businesses to function in unprecedented times, and COVID-19 has presented one such situation. The changing role of technology in our society is a window into the innovation catalysed by pandemic. From enabling remote working to allowing global audiences to attend virtual fundraising concerts from home, examples of innovative technology can be seen across the board. 

As many of us are now restricted to our homes, online shopping and delivery has been the lifeline for many. Innovation is needed to keep up with, and adapt to, the soaring demand for deliveries that the current situation brings, where technology is critical in addressing the last mile delivery challenge. The increased reliance on online shopping has led to supply chains and deliveries, even for retailers with well-established systems, to be tested to the maximum. The fragility of weak links in supply chains are being exposed, while safety and efficiencies are being held more accountable.

With 97% of retailers feeling that their delivery model is not sustainable, organisations need to re-examine the most expensive part of the supply chain. Last-mile delivery can benefit by relying more on technology to reduce errors and cost as well as being safer due to less human contact. 

Looking ahead to the coming months, retailers must re-think or adapt their approach to last mile delivery to ensure demand can be met. Traditional models can only take them so far; they must now become more reliant on digital technologies that reduce error, costs, and tasks that require repetitive human input – not allowing humans to value add. 

Autonomous delivery becoming a reality

Reducing human-to-human contact has become paramount to our current lives, with autonomous delivery offering this opportunity – it is likely autonomous delivery solutions shall come back into the spotlight. 

Unlike many advancements, COVID-19 was not the reason for halting the development of autonomous vehicles. With backlash over airspace restrictions and safety, autonomous vehicles as a last mile delivery solution has been more of a dream rather than a delivery reality.

That is, until now. COVID-19 has provided companies with the opportunity to demonstrate the benefits of autonomous delivery which far outstrips previous hurdles, such as costs and regulation. This includes the world’s first delivery service in Ireland, using drones to distribute medicine to vulnerable people under lockdown. The success of these drones will likely mean a larger roll out throughout Ireland and calls for a realisation that autonomous vehicle delivery is indeed a possibility. 

Recent research from Capgemini indicated that 49% of people are comfortable with self-driving cars running an errand on their behalf. The increased importance of reducing human contact, including lowering the number of people needed to make essential deliveries, has accelerated the need for automated deliveries and beyond. 


Behind the scenes – dark stores

An additional consideration for retailers to look at to improve their delivery capabilities is the introduction of more dark stores.

Dark stores are places where items are picked for delivery either using traditional labour based picking methods or through the use of automated storage and retrieval systems (such as micro-fulfilment) or through a mix of both, they are closed to the public and fulfil online orders only. Delivery time and the packaging process is optimised through purpose-built design, independent operations, and choice of location – usually within densely populated areas requiring shorter travelling distances to customers’ homes.

For same day delivery, the ‘last mile’ stage of the delivery process is one of the most expensive and tricky parts of the operation Dark stores offer retailers the opportunity to optimise the operation and also to team up with specialist delivery companies more simply and effectively. We have seen with Deliveroo’s partnerships with both M&S and Co-op, and Uber in France with Carrefour. 

Pre-COVID 19, one in four retailers used dark stores, however as society looks to resume whilst managing public concerns it would make sense for shops to continue this trend. Sainsbury’s in Blackfriars is one example of a supermarket ‘going dark’, and with limited disruption and contact with in-store customers, dark stores offer a great way for retailers to get to grips with huge consumer demand. 

Automation of supply chains 

As we have seen with autonomous delivery solutions, autonomation of supply chains is an additional component available to retailers. With 77% of shoppers more cautious about cleanliness and health and safety in the post-pandemic era and 62% choosing to actively switch to brands which prioritisation of product safety, automation offers real benefits.

Automation additionally reduces fulfilment errors, such as mislabeling packaging and sending incorrect orders. As well as costing the supplier money – analysis has shown warehouse automation could increase profit margins by a huge 8%, these mistakes also take up time, an ever-precious resource when demand is high.  

Any automated solution must consider how it will cope with demand peaks, either forseen or unforeseen.  For example there may be capacity to set up a temporary manual solution that can be operated alongside the automation to cope with demand beyond it’s design capacity. 

The sudden increase of consumer demand due to COVID-19 in the last few months has exposed vulnerabilities in supply chains. It has been a test like no other and businesses have had to adapt quicker than ever to maintain operational continuity and address unprecedented disruptions. For those organisations which have put money into automating and developing their supply chains, they will see these investments pay off to help meet the ebb and flow of demand with greater ease. With businesses due to reopen in the coming months the impacts of the ‘new normal’ will felt by delivery services across the board – ensuring the last mile is as efficient as possible is an investment worth making.

The importance of demand planning in the digital age

By Jörg Junghanns, Head of Europe – Digital Supply Chain for Business Services at Capgemini

In today’s volatile commercial environment, where customer expectations are at an all-time high, supply chain flexibility has become paramount for any business looking to edge ahead. Recognised as the key enabler of any truly adjustable supply chain, this race for agility is placing increased pressure on businesses to strengthen their demand management capabilities. 

Whilst previously viewed as a reactive process involved in responding to changing market conditions, advances in technology are forcing demand planning to take on a strategic role. No longer seen as just a fulfilment function, demand planning is now expected to be a growth enabler that underscores a business’s ability to drive profits, impress customers and stay ahead of competition. 

So, as the demands of the digital era drives heightened expectations around demand planning, just how can they keep up? Here are three ways demand planners can harness the latest technologies in order to seize their new strategic opportunity…

Dedicating time to decision-making

Through the adoption of AI, traditional and labour-intensive tasks within demand planning can be automated. This is of immense value when it comes to analysing and interpreting data. Not only is AI able to do this more accurately and quickly, but this allows human teams to redirect time previously spent on this task into more strategic business efforts. 

What’s more, AI can give demand planners back precious time previously spent creating short-term demand plans or triggering stock replenishment. With these tasks firmly in the hands of AI, teams can then concentrate on progressing higher-value business objectives that will have a greater impact on the organisation. With AI taking on menial and time-consuming tasks, demand planners can dedicate more hours on investigating how to improve operational efficiency, identifying new ways to increase profits and take on a more holistic role within the business. 

Improving forecasts

By 2020, it’s estimated that 1.7MB of data will be created every second for every person on earth. As this wealth of data grows exponentially, it is becoming increasingly more difficult to detect customer purchasing patterns. Here, AI can be deployed to process this data and excavate subtle patterns that a human might not be able to detect. By aggregating datasets from Customer Relationship Management (CRM), Enterprise Resource Planning (ERP) and IoT systems – and analysing this against external variables and contextual data such as a calendar of events, seasonality and the weather – AI can provide an extremely accurate forecast. 

To take a truly holistic approach, AI forecasts should then be linked through supply and inventory planning in order to automate replenishment triggers, so that organizations consistently have the correct number of products in stock. In turn, this drives sales by improving order fill rates and shelf availability. 

Rapidly responding

Historically, external factors such as natural disasters or shortages of raw materials have seriously impacted demand forecasting, leaving supply chains vulnerable. Instead of using legacy data, AI and machine learning tools use real-time calculations to react to supply chain disruptions. On top of this, automation enables rapid responses to changing consumer demands, leading to boosting profits and enhancing consumer loyalty. 

When it comes to retail, for example, weather can trigger significant fluctuations in consumer demand. Creating rules based on the relationship between demand for a product and elements such as rain, hours of sunshine and temperate can be a laborious task. When these processes are automated, retailers can proactively plan for increases or decreases in local demand. Quicker reactions to external factors such as these can boost the accuracy of demand planning and limit monetary losses.

Conclusion

As a result of growing demands and evolving technologies, the role of the demand planner is rapidly transforming. With many of the operational functions they were once responsible for now automated, their remit has broadened outside of their historically transactional role.

By leveraging AI and automation, demand planners can now be seen as partners to their business, working in real-time and collaboratively with other disciplines in the organization such as production and planning systems, and of course ultimately with customers. 

Carrefour optimises supply chain with Artificial Intelligence

Carrefour has become the first French retailer to use artificial intelligence to optimise inventory management and reduce waste by integrating software developed by SAS into its supply chain.

Drawing on the €2 billion annual investment budget included in the “Carrefour 2022” transformation plan, mainly for IT and digital technology projects, Carrefour Supply Chain ultimately selected the Viya solution.

Following the completion of an 18-month trial, the SAS platform will be used to collect and process data from stores, warehouses and e-commerce websites to better predict demand and refine supplier orders. Carrefour says more intelligent supply chain management will ultimately reduce stock outages and overstocking in stores and warehouses.

The integration represents the first time an AI solution has been integrated into the supply chain for food products – and, shortly, non-food products – in the French retail sector.

SAS Viya provides Carrefour with a multi-channel distribution and inventory optimisation solution to reduce waste and create value. The aim of this far-reaching project is to create a unique online and physical environment in which recognised and loyal customers are guaranteed the most suitable offer anytime and anywhere.

AI will also enable people in new occupations – such as data scientists for data processing and demand planners for business expertise – to work in parallel on forward planning tasks. Optimising the work of the supply and planning teams, the SAS platform can process a variety of data from the Carrefour Supply Chain information system.

It will also make teams more agile by allowing them to integrate new working methods and continuously improve their forecasting processes. The SAS open AI solution will also offer Carrefour experts an opportunity to develop their own bespoke algorithms to meet their specific needs.

“The deployment of the SAS platform will help us turn the corner in optimising our supply chain,” said Franck Noël-Fontana, Forecast Director at Carrefour France. “By freeing up time for teams, artificial intelligence will allow them to focus on developing differentiated forecasting strategies and better meeting customer expectations while reducing waste.”

For its part, SAS will use its technological and business expertise to benefit Carrefour teams, supported by the solutions integration expertise of its long-standing partner Capgemini.

“Beyond the operational benefits of a fluid and efficient supply chain, this project will also improve the Carrefour customer experience,” said Boualem Alouache, Retail Director SAS France. “Based on artificial intelligence and machine learning, this Big Data project will optimise each step in the supply chain and increase customer satisfaction. We are proud to be driving the success of this project, with Capgemini’s support at the integration phase.”

‘Only one in seven’ organisations are able to scale digital supply chain initiatives

A new study from Capgemini has identified a ‘clear gap’ between expectations of what supply chain digitisation can deliver, and the reality of what companies are currently achieving.

While exactly half of the organisations surveyed consider supply chain digitisation to be one of their top three corporate priorities, most are still struggling to get projects beyond the testing stage (86%).

The Capgemini Research Institute surveyed supply chain executives from 1001 organisations across Consumer Products, Retail and Manufacturing industries about their existing digital supply chain initiatives.

Eighty percent reported revenue of more than US$1 billion in FY 2017 and the survey was conducted from April to May 2018.

Key findings from the report include:-

  • Organisations are struggling to move their digital supply chain projects beyond the testing stage: While exactly half of the organizations surveyed consider supply chain digitization to be one of their top three corporate priorities, most are still struggling to get projects beyond the testing stage (86%)
  • Most organizations have spread their investments too thinly and are struggling to scale pilot initiatives: The organizations surveyed have an average of 29 digital supply chain projects at the ideation, proof-of-concept or pilot stage. Just 14% have succeeded in scaling even one of their initiatives to multi-site or full-scale deployment. However, for those that have achieved scale, 94% report that these efforts have led directly to an uplift in revenue.
  • Supply chain projects that lack strategic focus are less likely to be successful: The evidence from those who have moved to implementation suggests that companies are taking on too much, and not focusing enough on strategic priorities. The organizations who successfully scaled initiatives had an average of 6 projects at proof-of-concept stage while those who failed to scale averaged 11 projects.

Simon Mardle, Retail Supply Chain Principal at Capgemini, said: “Our research shows that the UK is starting to realise the value in investing in supply chain digitisation, with 58% of our UK respondents identifying this as one of their top three organisational priorities.

“It is positive to see momentum building in the UK as its understanding of the business values of these type of digital initiatives grows as traditionally, the region has tended to be more risk-averse than its global counterparts when implementing digital initiatives.

“However, in order to convert these significant supply chain opportunities into reality, UK organisations must ensure that their digital projects are bound by strategic focus rather than implementation for implementations sake.”

Blockchain set to ‘supercharge global supply chains’ by 2025

Blockchain could become ubiquitous by 2025, entering mainstream business and underpinning supply chains worldwide, according to a new report from Capgemini.

The study asserts that the distributed ledger technology will dominate manufacturing as well as consumer products and retail industries, ‘ushering in a new era of transparency and trust’.

Currently, just 3% of organisations that are deploying blockchain do so at scale and 10% have a pilot in place, with 87% of respondents reporting to be in the early stages of experimentation with blockchain.

The UK (22%) and France (17%) currently lead the way with at-scale and pilot implementation[1] of blockchain in Europe, while the USA (18%) is a front-runner in terms of funding blockchain initiatives.

These “pacesetters”[2] are optimistic that blockchain will deliver on its potential, with over 60% believing that blockchain is already transforming the way they collaborate with their partners.

The study also found that cost saving (89%), enhanced traceability (81%) and enhanced transparency (79%) are the top three drivers behind current investments in blockchain.

Furthermore, blockchain enables information to be delivered securely, faster and more transparently. The technology can be applied to critical supply chain functions, from tracking production to monitoring food-chains and ensuring regulatory compliance. Enthused by the results they are seeing, the pacesetters identified in the study are set to grow their blockchain investment by 30% in the next three years.

Despite the optimism surrounding blockchain deployments, concerns remain around establishing a clear return-on-investment, and interoperability between partners in a supply chain.

The majority (92%) of pacesetters point to establishing ROI as the greatest challenge to adoption, and 80% cite interoperability with legacy systems as a major operational challenge. Additionally, 82% point to the security of transactions as inhibiting partner adoption of their blockchain applications, undermining blockchain’s status as a secure technology.

Sudhir Pai, Chief Technology Officer for Financial Services at Capgemini, said: “There are some really exciting use cases in the marketplace that are showing the benefits of blockchain for improving the supply chain, but blockchain is not a silver bullet solution for an organisation’s supply chain challenges. Blockchain’s ROI has not yet been quantified, and business models and processes will need to be redesigned for its adoption. Effective partnerships are needed across the supply chain to build an ecosystem-based blockchain strategy, integrated with broader technology deployments, to ensure that it can realise its potential.”

In a previous report[3] conducted earlier this year with Swinburne University of Technology in Australia, Capgemini found that experimentation in blockchain will peak in 2020 as organisations explore proofs of concept and branch out from Fintechs.

According to the report, blockchain transformation will mature in 2025 as organisations undertake enterprise transformation and integration, establishing policies for privacy and data management.

A copy of the report can be downloaded here.