Driven by the disruptive events of the past year, retailers have had to fundamentally reassess how they do business, resulting in pushing digital transformation forward at previously unknown speeds. The importance of technology to the industry has also been accentuated, thereby accelerating digitization driving retailers to adopt technologies across the business – customer experience, operations, people, and finance with a two-fold focus on attracting and retaining customers and optimizing costs.

Algorithmic retailing gets a push as it encompasses the combined power of advanced analytics and artificial intelligence to transform retailing as we know it. Retailers have been using various advanced analytics technologies and are beginning to leverage machine learning algorithms, smart data discovery, context-aware computing, and deep learning technologies.

We’re witnessing the process of retail decision-making as well as the mindset of retailers experiencing a drastic change. On the back of this trend, algorithmic merchandising is experiencing a spike in adoption for retailers want to build business resilience while being customer-centric in their approach.

According to Gartner’s Hype Cycle for Retail Technologies, 2021, “Algorithmic retailing connects big data to results, navigating a journey from descriptive to prescriptive analytics. This journey includes the identification of data sources, use of automation and advanced analytics, and application of algorithms and artificial intelligence that will lead to highly repeatable and tenable business processes. It is the use of mathematical algorithms, data discovery, advanced analytic capabilities, and AI, combined with automation, to drive effective decision making.”

Merchandising forms a key part of Algorithmic Retailing and will enable retailers to attain higher sales and margins. The technology seamlessly supports complex analytics that customer-centricity requires, enabling smarter decisions at any level of the retail organization.

Let’s dwell on how algorithmic merchandising can have a huge impact during the different stages of seasonal or cyclical retail businesses.

During this crucial planning stage, retailers perform a lot of demand forecasting which consequently drives the allocation, production, and sales plans. During this phase, analytics systems are used to forecast how products will fare in the market. Retailers have never completely relied on or trusted the data-driven demand forecasting model as they know that there are multiple other variables that affect demand. Even if analytical tools are used, a lot of gut and experience-based micro-decisions are made to generate demand forecasts. For instance, in fashion retail, new products are designed every season based on several factors like style, fabric, color, cuts, patterns, fit, finish, and texture that eventually influence shopping decisions.

In such a scenario, AI and machine-powered analytics systems offer greater control over the use of these variables in modeling demand and therefore promise higher accuracy on the demand forecast. AI-augmented analytics takes into consideration the business context, real-time data, external influencers like weather, promotions, social media reviews, the performance of similar products, and a lot more to forecast demand.

Accurate demand forecasting in turn determines how well the inventory gets managed, how the pricing decisions get made, what kind of customer-engagement strategies get implemented, and much more.

During this phase, the retailer’s focus is to execute according to the sales plan and generate maximum profits from the inventory. Inability to closely monitor how products are selling across the stores and controlling their inventory movement to match the plan typically results in out-of-stock situations or excess stocks that must be heavily marked down and cleared off at the end of the season.

With thousands of products and styles moving across hundreds of stores, businesses today rely on algorithmic processes. These can detect patterns and bring to light the under-performing products that need a temporary price reduction tactic early in the season to maximize their revenue during the rest of the season.

These algorithmic anomalies also uncover other opportunities in the business, like changing store merchandising or running behaviorally targeted campaigns to lift sales. In this phase, retailers can leverage algorithmic retailing for inventory optimization, price recommendation, assortment tuning, new product sales optimization, customer-centric offer recommendations, personalized promotions, and a lot more. All these results in optimized sales and profits.

After the season is over, products that have not sold well despite in-season optimization efforts have to be marked down in a specific promotional/clearance window. AI and machine learning techniques are useful in processing answers to questions like – “What percentage of markdown price is ideal for each product to clear off its inventory?” Or “Which products have the most chances of a sale in which store locations?”

Algorithmic markdown analytics continuously optimizes markdown price for the highest return on inventory in each store cluster and store location. It analyzes which products need to be discounted, what should be the amount of the discount, the price elasticity, competition from other retailers, ongoing promotions, other marketing techniques, shelf placements, and so on.

AI-augmented algorithms can build several decision trees at the same time on a variety of sub-groups and then combine them all to present a predictive solution. They can also interface with pricing systems to automatically (or through a workflow) implement recommended price changes across the store network, thereby making it easier to implement the pricing decisions.

Realizing the disruptive power of these technologies, ADA Global has been focusing heavily on AI and machine learning techniques to automate data management, algorithm processing, and insight generation in order to improve analytics consumption across the retail organization. We apply these technologies in retail merchandising applications to automatically sense the merchandising user’s decision context, machine-generate insights, make AI-augmented recommendations, and execute the decisions.

Our AI-powered analytics platform also offers a conversational analytics interface that allows users to talk to the system in the natural language. Users can not only run descriptive analytics uses cases, but also complex predictive and prescriptive ones. For these reasons, ADA Global’s AI-powered retail and merchandising solutions have found special mention in categories including, “AI in Retail”, “Algorithmic Retailing” and “Retail assortment management applications”, in Gartner’s Hype Cycle for Retail Technologies, 2021.

Write to us to understand how our customer-centric Merchandising Analytics Solution leverages the power of AI to offer superior business outcomes.

Across the world, we are seeing the issues in a fragile supply chain being exposed, specifically in Grocery & Pharmacy segments as they fall into the essential category and seek faster replenishments.

Today’s crisis scenario has resulted in 40% of retailer members of the National Retail Federation to say that they are experiencing supply chain disruptions due to the coronavirus, with an additional 26% expecting to experience disruptions.

Grocery retailers have in the past few decades, made their supply chains lean, in a model similar to the automobile industry. As a result, grocery retailers have been minimizing inventory, and delivering “just-in-time” products to shelves, as soon as a product is purchased.

The advantages of adopting this were lower inventory carrying costs, minimal product handling and the need for less storage space. But the downside, being experienced by the world today is that unforeseen surges leave stores in a quandary as inventory is not readily available.

Supply chain resilience requires retailers to invest in technologies that offer greater clarity into understanding what goes on within the supply chain. Additionally, retailers such as grocers or pharmacy need to have contingency plans to anticipate shortages created by demand surges or supply disruptions.

Today’s supply chain challenges are multiple according to a Digital Commerce 360 survey of over 300 retailers in mid-March. Supply chain communication topped the list (48%) of actions they’re taking as a result of the coronavirus. Others are contingency planning (34%), hoping to minimize disruptions (32%), monitoring the coronavirus situation in China (23%) and working with their partners to mitigate supply chain risks (22%).

More recently many of the larger retailers have been investing more in supply chain technology in order to reduce forecasting errors, track assets accurately and improve order accuracy.

A report by GEODIS found that only 6% of companies surveyed worldwide had achieved full visibility into the companies that make up the sub-tiers of their supply chain. The complexity we have today makes mapping simultaneously more costly and time-consuming, though it is increasing its importance and beneficial insights.

Let’s look at some of the ways, technology is helping retailers overcome the supply chain gaps during the COVID-19 crisis.

Better collaboration with vendors through connected systems can lead to an overall improvement in supply chain resilience. Supply chain collaboration platforms can make it easy to reduce the time spent shipping, receiving, tracking, and compiling order data. When combined with collaborative features and analytics, retailers will find it easier to optimize supply chain efficiencies while mitigating risks.

Real-time data is helping retailers manage their supply chain decisions and be able to focus on the movement of essentials. A survey conducted by the Retail Systems Research in March 2020 amongst qualified retail respondents showcases that 76% of retail winners believe that real-time visibility remains an underlying driver of supply chain performance.

Real-time information can be shared by integrating suppliers on a web-based portal. By using a platform to offer end-to-end visibility, all the stakeholders in the supply chain can have the visibility of on-hand inventory and of changes in product demand.

To be able to handle the shortage situation, retailers today have been seeking out more suppliers. But traditionally on-boarding new suppliers and products is a time-consuming process.

Increased global disruption often demands faster decision making. To solve this issue, technology can help create centralized, web-enabled repositories of suppliers, which retailers can access. Suppliers who are up and running can list their catalogues, allowing retailers to locate and identify which suppliers they can work with faster.

The Retail Systems Research reports that the top opportunity for retail success is to improve their forecasting capabilities, along with improving compliance from suppliers. Intelligent search tools and regulatory compliance can be pre-checked when the supplier lists themselves, saving tremendous time and duplication of effort by every retailer the supplier connects with.

A report by McKinsey predicts that automation could accelerate the productivity of the global economy by between 0.8% and 1.4% of global GDP annually. In other words, supply chain automation is both cost-effective and leads to higher profitability.

Enabling integrated systems can offer retailers the ability to assess and automate which key supply chain processes can be automated. With the right supply chain solution, retailers can enable a seamless operation, which then helps automate activities such as inventory replenishment.

The World Trade Organization expects that global trading will fall by between 13% and 32% during 2020, and almost all regions will experience double-digit declines in trade volumes this year due to the pandemic.

The ability to adapt responsively to this reverberating disruption in the supply chain operations will truly separate the winners from the losers during the COVID-19 crisis. Whether grocers and pharmacy companies use this crisis as a wake-up call, remains to be seen.

While the COVID pandemic has amplified the many challenges that plague the Supply chain across industries, it has also brought to light the resilience and innovation to help alleviate some of these.

Retailers across segment were most hit, but they also had to bounce back the fastest and continue to serve the community. One such company is Prince retail, which recently celebrated its 30th anniversary during April this year. Present mostly in semi- urban and rural areas across all major islands and regions in the Philippines.

We had a chance to interact with Rina Janine Sy Go, Supply chain director at Prince retail on how they have been rethinking their supply chain approach in the face of this crisis.

The COVID-19 situation has largely impacted the entire grocery industry when the demand for food and basic commodities increased and supply could not cope up with the demand. Due to panic buying that followed once the lockdown was announced, we were grossly unprepared to handle the demand and the immediate restrictions that were imposed overnight.

Even today, we are largely struggling with our supply chain as vendors are battling with the non-availability of stock due to restrictions in the mobility of their workforce and scarcity of raw materials. Our workforce is faced with challenges while working in our stores and distribution centres. Even our order to payment processes to support the stores were not equipped to support the immediate work from home requirement. It was like fast-tracking our 2-year roadmap for digital transformation strategies to 2 days.

Currently, we are still struggling with the entire operations while trying to sustain availability in our stores. Although it was through this crisis that we really saw the impact we have on the communities we serve. Since our stores are mostly located in rural and far-flung provinces, we were literally the only source of supply that had relatively complete and stable stocks that could feed these communities who were unable to travel to the closest urban cities due to mobility restrictions.

It truly made our mission of “Serving the underserved” very evident.

At Prince retail, we believe in being proactive and wear our customers hat and come up with solutions which serve their needs. However, this pandemic is unprecedented and needed out of the box thinking from day 1. Our immediate response was to map the entire supply chain process from order to payment as this was the process and functionality that needed to be available during lockdown.

Together with our leaders in IT, HR, Logistics, and the functional teams, we had to ensure all these processes continue to be available during work from home, so we came up with ad-hoc solutions.

By contacting our telco provider, procuring as many laptops as we could and finding creative ways to get connectivity to the homes of our teams.

We also had our company bus pick-up and drop-off select employees who had no means of transportation.

The store operations team did the mapping of the workforce homes so they could still be available in the stores and if they could not, we find back-up workforce and set up staff houses for employees in critical roles.

It was basically a series of quick and iterative decision-making sessions between key leaders in the organization to set up the whole thing overnight. It involved a lot of cooperation, quick thinking, creative planning, and flexibility from everyone involved.

With finite resources coupled with restrictions, innovation was the only rescue. We streamlined the SKU’s and vendors so we would prioritize our ordering to cope with the new way of working during lockdown, all this while supporting over 60 stores across the country in remote areas. We could not continue with all the business as usual SKU’s and focused only on the ones driving high demand.

We set up communication lines and chat groups for each team involved to ensure the right problems were being addressed immediately – and connected straight to the top management. We also set up new store processes to deliver directly to our customers who would SMS, email, use Facebook messenger or call in with their orders.

We grouped the deliveries by zone depending on their residential areas to streamline deliveries. This was something that we had never done before but we set up this entire process of working from delivery to payment in just 2 days.

We had to think of making our existing processes flexible and adjust to working in these new conditions so we can continue to serve the community.

As Mr. Winston Churchill said once “Never let a good crisis go to waste”, retailers across the globe will use this crisis as a learning to prepare better for future. Retailers should be able to have more flexibility, mobility and redundant resources that can enable the entire supply chain and payment workforce to work from home or remotely, rather than being entirely dependent on the head office physical structure. This was our major learning and pain point.

Digital transformation should have been now rather than later. Retailers should also have higher inventory covers of basic commodities which worked for us because historically, we always carry large inventories of these goods due to the remote locations of our stores and this actually worked to our advantage when we were hit by the crisis.

Retailers should also be ready with an e-commerce strategy and we were lucky since we were already doing pilot runs of a B2B application in 1 store, that we are currently fast-tracking now to allow B2C as well (doing data cleansing, application preparation, technical fixes), and a quick roll out to stores once the crisis is over.

These are some consumer behaviours that will change for good especially in the Philippines and with our market in the lower socio – economic bracket. We see a shift in demand for bigger packs and more savings rather than the traditional sachet economy due to reduced frequency of purchase. We also are seeing the acceptance of digital processes for ordering, getting information, and servicing, which means more digital marketing for us as well. We also forecast a bigger importance on health and sanitation. These are SKU’s which were previously not a priority especially for our market. There are also changes in how consumers will be choosing their products, brands they pick based on whatever is available at the store level, and preference for more value for money products with a global recession already underway.

In March 2020, the Institute for Supply Management (ISM) conducted a survey that focused on the impact of coronavirus disease (COVID-19) on supply chains. Nearly 75% percent of companies reported supply chain disruptions.

The unprecedented outbreak has caused many businesses to experience multiple challenges including shifting customer demand, transport restrictions, shortages, and more.

According to Food Navigator, Nestlé CEO Mark Schneider warns that the business must ‘get ready for the storm’ as supply chain challenges are expected to intensify.

Let’s take a look at some of the new challenges that COVID-19 has placed on retail supply chains:

Collaboration and communication can enable transparency and faster responses to operational decisions on both sides. But retailers have often lacked the data and supplier collaboration platform needed to centrally manage operations of both the supplier and the retailer.

The COVID-19 crisis has shoved into the spotlight the traditional paper-and-time intensive activities associated with Supply chain. Digital collaboration is the need of the hour as retailers explore the possibilities of collaboration across every aspect of the supply chain collaboration process.

Sharing of information across the supply chain is key to avoiding potential demand-supply issues. Grocery retailers in particular, during the COVID-19 crisis need visibility across the supply chain to better address issues like OOS (Out Of Stock) and surplus stock of non-essentials.

Information needs to be shared with all supply chain stakeholders for logistic decisions to be made that help businesses to operate more efficiently. Yet, according to Supply Chain Digital visibility is a central challenge for supply chain managers today, with 94% of companies admitting that they don’t have full visibility into their supply chains.

To mitigate these issues in the short-term, supply chain leaders are working to create transparency and rapid response capabilities. One of the ways to do this is to use a technology platform that brings suppliers and manufacturers together for visible collaboration.

During this crisis situation (or any crisis situation for that matter) it is not unusual for consumers to panic hoard essential commodities. This results in a stress on retailers like grocers and pharmaceutical companies to manage an unexpected spike in product demand.

A Nielsen data report indicates that sales of oat milk, surgical masks, first-aid kits and other non-perishables spiked late in February 2020 in response to coronavirus fears.

On the flip side, non-essential items pile up, as there are no takers. Retailers today are struggling to know their current inventory optimization supply, and be able to replenish demand essentials without sustaining losses.

Many retailers are managing this by ramping up warehouse and distribution numbers, while others are using warehouse management technology to assess inventory, predict peaks and coordinate employee shifts to keep supply moving. Retailers are also being pushed into moving inventory and resources to new channels. Because of today’s social distancing norms, there’s been a growth in ecommerce orders, and retailers are moving inventory by making it available online for purchase and working with distribution channels for fulfilment.

RIS News reports that Amazon Fresh and Whole Foods Market have increased order capacity by more than 60% due to COVID-19. The number of Whole Foods Market grocery pickup sites has grown to over 150 in the past few weeks, up from around 80 stores. Additionally, Amazon’s store in Woodland Hills, is now serving as a temporary online-only store that’s focused exclusively on fulfilling grocery delivery orders.

Pharmaceutical companies in particular are currently facing a crisis in their supply chain, as a majority of active pharmaceutical ingredients are developed In India and China.

According to Thomas Derry, CEO of ISM, “Organizations who diversified their supplier base after experiencing tariff impacts, are potentially better equipped to address the effects of COVID-19 on their supply chains.”

While some pharmaceuticals often have a redundancy in drug supply of such drugs, companies which contract with multiple supplier collaboration system can prevent disruptions from causing shortages.

Any technology platform that can help retailers stay on top of their supply chain activities, relies heavily on standardised data to collaborate and communicate effectively. However, for most retailers, data is still siloed and not standardised for sharing on collaborative platforms.

Yet the use of information technology to share data between supply chain partners is crucial for agility. For retailers to be able to survive amidst chaotic demands, information sharing between and within the supply chain players is a critical requirement towards replenishment optimization supplier-retail relationships.

Shifting from a traditional supply chain to an end-to-end information management, can help retailers respond faster, reduce redundancy and maintain automatic store replenishment efficiency.