Digital value chain in retail: How retailers can create a more holistic view of digital

I remember having a conversation with a group of peers at the National Retail Federation’s annual conference early in the 2000s. The dot-com bubble had recently burst, and someone in the group said something to the effect of “We sure dodged a bullet with this e-commerce thing, didn’t we?” There were some nods of agreement, but I pressed with “What do you mean?” I remember the ensuing discussion to this day with some key takeaways. First, these startups didn’t fail, they were solving logistics and merchandising challenges that had plagued retail for years, and that tech isn’t going away. Second, they’re doing things with data and analytics that we could only dream of.

I don’t share these stories to fault any of these retailer and technology experts. These were, and still are, some of the sharpest minds in technology I’ve had the opportunity to meet. I do think that these stories can serve as a cautionary tale, and a guide in many ways, for what’s happening in retail right now. We’re at a tipping point for digital transformation in retail, and I think those who will thrive can take the following three lessons from the story described above.

Digital is transforming every step of a retailer’s journey from containers on boats to the last mile

When I first meet with clients, more often than not they begin by explaining to me that their retail footprint is different from any other retailer. To some degree they're right – whether it’s a big box DIY vendor, fashion retailer or convenience store, they each have a unique brand promise that they’ve built their business around. At the same time, though, they all have the same basic pillars: retailers have to buy a product from a supplier who ships it to them and then they must find the best way to sell it back to their customers. Then, in many cases, retailers need to manage reverse logistics when their customers seek to return a product.

The dot-com bubble forced retailers to rethink the ways to optimize those pillars. In the supplier to retailer relationship, for instance, paper purchase orders and bills of lading were replaced by electronic data interchange, which in turn is being replaced by APIs. The basic relationship stays the same, but the means of sharing information along the supply chain has changed - providing much more insight and access to a host of previously unreachable suppliers, in real, or near-real time. The way that goods are distributed has evolved as well: having better tracking and visibility opens up greater efficiencies and new logistics models from RFID tracking to warehouse automation. And finally, of course, there’s the last mile. Consumers have come to expect that they can get the products they want, whenever and wherever they want it, whether that’s in-store, curbside, or delivered within hours of order.

While this has created an opportunity for retailers to build intricate ecosystems of partners along their value chain, most are still constrained by their existing infrastructures: stores, aging IT systems and a workforce resistant to change. This leads many of these retailers stuck with debt – technical and otherwise. Successful retailers are able to reimagine each step of their supply chain – finding the right partners to help modernize their technology, processes and use of data.

Integrating and understanding your data

Retailers continue to evolve, sharing more and more information at every step of their merchandise’s journey. This has created a wealth of data. What separates leading retailers from those that struggle is the ability to leverage that data for insight and automation.

Just as the complexity of a retailer’s supply chain continues to fragment and grow exponentially, the supporting IT systems increase in complexity too. Marketing and Supply Chain have implemented their own shadow IT projects. Distribution has its own set of metrics and dashboards. Merchandising is using custom APIs with suppliers. None of these systems speak to each other. If this sounds familiar, you’re not alone. One of the most common challenges we help clients tackle is finding better ways to leverage data across their organization.

Having a cohesive data strategy and governance model in place is the first place to start. It’s crucial to accurately report on all aspects of the business, whether it's operational in store, on the supply chain, or providing visibility to your partners outside of the four walls and really understanding how your business is operating. Moreover, it’s crucial to align all the disparate systems – whether they’re in your data center, in the cloud or with your partners – in order to create this unified view.

Not only does that allow you to drive efficiencies and reduce costs, it also allows you to deliver your brand promise to your customer. With a strong data strategy and governance model in place, retailers are able to give customers better insight into availability – from a package being two minutes away all the way back to availability from the original manufacturers and suppliers. Marrying up merchandise, pricing, logistics and customer data also allows retailers to anticipate and create experiences that delight customers - improving loyalty and increasing spend.

Bringing it all together

While modernizing and integrating all aspects of your enterprise from logistics to data is a north star to which most retailers are pointing, these are only a portion of the puzzle. True transformation can only happen when both the IT and business side of your organization sit together in the same room (well, metaphorically as many of us are still socially distancing) to create a more holistic view of the business.

It’s not just an IT stack, nor is it a supply chain – it’s both of these things working together to create a more holistic view of their business – or what we’re starting to see be viewed as the digital value chain. This digital value chain is a convergence of business and IT supply chains to connect employees, suppliers, partners and customers holistically and end-to-end to deliver value.

Leaders in retail who adopt this approach have been able to weather the storm of the pandemic better than those who haven’t. In one example, I’ve seen clients who have been able to use this holistic approach to pivot, transforming hundreds of convenience stores into curbside pickup locations in a matter of weeks. How? By reimagining their entire supply chain from source to last-mile delivery. They had an integrated view of their data (using an ecosystem of legacy and modern systems and partners). Most importantly, though, leadership was able to work together across IT and business to reimagine what the future of retail could be.