Harald Dutzler, Benedikt Schmaus, Stefan Schrauf, Dr. Axel Nitschke, Dr.-Ing. Peter Hochrainer
October 24, 2016
Retail and consumer goods (R&C) companies are in the midst of a transformation unlike any before in their history. Although there have been times of disruption and competitive fervor in the past, today’s R&C environment is marked by huge changes in technology, consumer preferences, sales channels, marketing approaches, barriers to entry, and supply chain and logistics strategies. No company in this sector can afford to ignore these massive shifts.
Indeed, it all fits under the umbrella of Industry 4.0 — and there are several steps that R&C companies must consider when they confront the new landscape. In recent years, retail and consumer goods companies focused primarily on digitizing their customer interface. Now, the digital integration of the end-to-end value chain becomes a strategic priority. This includes digitization of product and service offerings; developing innovative digital business models; digitization and integration of supply chains; and adopting data and analytics as a core capability. Implementation involves more than just designing a new strategy; corporate culture, management approaches, role of IT, and innovation engines must be reexamined and often revamped.
Industry 4.0 is a natural outgrowth of the third industrial revolution, which fully transformed the nature of commerce in the second half of the 20th century with an array of computerization and IT advances. It was a period of big changes for retail and consumer goods companies, marked by the emergence of credit cards, back-office and warehouse automation, just-in-time supply chains, and the first online business models.
For R&C companies, Industry 4.0 promises to have an even more encompassing impact. As customer expectations change, retail and consumer goods companies must begin to embrace the growing digitization and interconnection of products, business models, and value chains — all of which will allow them to be agile and responsive to consumer needs, maximize revenue, and reduce costs and inventory.
The Industry 4.0 digital revolution is mobilizing a new type of R&C consumer, who wants a seamless, fast, efficient shopping experience and who is looking for products that are more personalized than ever before. For retailers, these preferences can be addressed through multichannel offerings, a combination of an online and physical outlet shopping experience with channels that consumers can switch between with ease, depending on their schedule or preferences on any given day. In a multichannel environment, enhanced product tracking and transparency lead to improved consumer services.
Established R&C companies that are slow to embrace Industry 4.0 face a growing number of new, more digitally inclined competitors — and not all of them are pure-play online firms. It’s critical that incumbent companies take this threat seriously and begin to develop their own unique business models with multiple channels and end-to-end technology or they will find themselves falling behind in revenue, customer, and earnings growth.
By digitizing the supply chain, R&C companies can connect all supply, logistics, and distribution platforms to create a “single version of the truth” — that is, one set of data to be used for integrated planning and execution across the organization and its partners. This essential facet of Industry 4.0 improves communication and efficiency throughout the supply chain’s critical areas of impact.
Integrated planning and execution platforms connect all parts of the value chain
Benefits of this system:
One of the most important tools for an R&C company’s digitized supply chain is end-to-end RFID tracking. The primary benefits of an RFID system are the breadth of information available — everything from physical composition to manufacturing status to serial numbers — and the delivery process and availability transparency it offers. Importantly, RFID data can be linked directly or indirectly into back-end enterprise resource planning (ERP), engagement management systems (EMS), or customer relationship management (CRM). Through those systems, RFID plays a pivotal role in supporting operations, customer interactions and networking, and strategic analysis and planning.
In an Industry 4.0 environment, R&C companies must put sufficient resources into developing adaptable distribution networks that make products available to consumers when they want them and offer maximum flexibility in last-mile delivery options. In considering fresh, nimbler distribution models, R&C companies should weigh the value of innovative ideas — such as crowdsourced distribution networks — that are changing the look of logistics.
For R&C companies, the challenges of Industry 4.0 are significant. Multichannel offerings will require advanced realtime in-store inventory management capabilities and end-to-end transparency on product availability, along with the reduction of safety stock. Seamless channel integration will depend on convenient and cost-efficient last-mile delivery, and real-time information and predictive analytics will elevate planning and allocation to the next level. Successful companies will see this transformative period as an opportunity to both grow revenue and profits in the short term and redesign their organizations for the next industrial revolution in the long term.