Why Grocers Aren’t Ready for the Next Supply Chain Crisis

05.09.2022 | Mike Troy

Retailers know all too well where and why their supply chains fell short during the pandemic. They also understand how upgrading demand forecasting and replenishment systems is essential to mitigate future supply chain disruptions. However, there is a disconnect between retailers’ knowledge of what went wrong and implementing the advanced technologies required to execute the strategies retailers say are their top focus areas. This gap between strategic focus and enabling technology was a key takeaway from our recent webinar featuring exclusive retailer research conducted by Incisiv and SymphonyAI that explored three main areas:

  1. Top supply chain priorities where retailers plan to focus.
  2. Key areas with the greatest opportunity to improve.
  3. Top impediments to achieving areas #1 and #2.

The webinar with Progressive Grocer titled, “The New Rules of Grocery Demand Forecasting,” explored strategies in light of the highly dynamic demand environment that existed throughout the pandemic and persists today.

Turbulent Times and the Case for AI

Challenges grocers faced the past two years highlighted many operational deficiencies and opportunities for improvement. One key area is the need to leverage advanced technologies such as artificial intelligence and machine learning to bolster supply chain performance.

“There is an absolute belief that using AI and machine learning technologies can help us do better,” Gaurav Pant, Chief Insights Officer with Incisiv, said during the webinar. He highlighted two curious data points from the research that represent a key challenge for the industry. On one hand, 88% of those surveyed said they believe there is value in using AI. However, only 6% described themselves as having adopted AI. “The fact that retailers can react quicker and aren’t dependent on human-centric decisions or human biases is a huge factor in why people see value in AI and ML.”

Pant was joined during the webinar by Troy Prothero, Senior Vice President of Product Management Supply Chain Solutions at SymphonyAI, and the pair shared additional insights from the research and implications for grocers, including:

  • Supply chain scenario planning is top of mind with grocers, identified by 88% of those surveyed as an area where they will focus to improve supply chain performance.
  • Data-driven demand forecasting (82%) and replenishment planning and allocation systems (71%) also were cited as top areas of focus.
  • Ironically, AI and ML technologies, which are enablers of retailers’ highest-ranked focus areas, garnered a 35% response rate as an area of focus to improve supply chain performance.
  • More accurate demand forecasts and contingency planning for alternate sources of supply are the top two areas where 88% of retailers said they have the greatest opportunity to improve. A close third at 86% was on-time, in-full deliveries to stores.
  • Integrating data from multiple sources is holding retailers back from implementing AI/ML strategies. With a 92% response rate, data integration was easily the top impediment identified by grocers.

Other impediments to action cited by retailers included a focus on other near-term priorities (85%) and poor data quality (79%), according to Pant. While there are many conflicting priorities in retail, and budget matters are always an issue (56% cited budget as slowing adoption), data is at the core of everything in retail and growing in importance.

“The new normal seems to be even more chaos, uncertainty, and complexity. Navigating that is going to require supply chain resilience,” Pant said. “The element of driving demand forecasting, and execution and speed of response, is a critical factor in making that happen.”

Forecasting and replenishment has always been a critical focus within supply chain and retailers and CPG companies are doubling down on that area, according to Prothero with SymphonyAI.

“Because our world has been so rocked by the disruptions from COVID-19, we’re all anxious for better solutions to bring sense to the chaos and avoid that kind of disruption going forward,” Prothero said. “Forecasting and replenishment are the core of what we see retailers primarily focused on in terms of enhancing and transforming their supply chain capabilities.”

Ready For What’s Next

After two years of pandemic-induced stress testing, retailers don’t feel great about their supply chains. Only 14% believe their overall supply chain performance was better than competitors in that period. About two-thirds of respondents believe they were on part with competitors, an understandable view considering supply chain difficulties were widespread. A bigger concern is 22% of respondents believe they lagged competitors.

This lack of enthusiasm stems from many in the supply chain world being caught flat-footed by the pandemic and failing to anticipate changes in product demand and velocity, according to Prothero. As a result, there’s much more emphasis on predictability, on scenario planning, on what-if analysis and proactive planning for certain types of events, he added.

“That way, when events transpire, we’re well-positioned to execute a plan that will keep us supported from a supply chain standpoint, as opposed to having to experience them and then figure them out in real time,” Prothero said. “This is a big area of focus for my team. We want to understand how we produce a better forecast based on current data, but also create better capabilities around probabilistic forecasting that gives us a range of possible outcomes that we can apply to different scenarios that then drive various replenishment scenarios.”

Being Less Wrong

On the issue of the gap between AI’s adoption rate and retailers’ widespread understanding of benefits, Prothero said one issue is fear and uncertainty. AI can be scary because it is a specialized knowledge domain and skillset, but retailers don’t have to develop sophisticated AI capabilities on their own.

“There are solutions out there now that package AI capabilities into very high-quality forecasting and replenishment and other supply chain-related solutions,” Prothero said. “You can take advantage of the capabilities and the value of AI without having to take on that burden of figuring out what that program is, scaling it up, finding the right skill sets and profiles to bring into your company.”

Doing so greatly improves a retailer’s odds of creating more accurate demand forecasts and making more precise replenishment decisions, if systems are fed a diet of clean data integrated from multiple sources. Even then, the goal isn’t perfection, but rather being less wrong or more right than competitors.

“A perfect forecast is a terrific goal, but I’m not sure any of us think realistically we’re ever going to get there,” Prothero said during the webinar. “That said, can we make significant, even dramatic, improvements by leveraging these new types of technologies? Yes. And it can have a meaningful impact on overall supply chain performance and efficiency costs.”

Lastly, with inflation a top concern of every retailer, Prothero and Pant agreed its effect on demand is another component of scenario planning where the use of AI leads to better decisions.

Inflation and the impact on consumer spending throw another wrench into forecasting and replenishment activities. Both of those areas will be affected by a downturn in consumer spending, so we should pay close attention and prepare accordingly,” Prothero said.

Pant added that the demand equation is something people should be paying close attention to, “because if it vanishes, even if you have a couple of quarters of downward GDP growth, then that’s going to have severe impacts.”

You can see the webinar replay, including responses to attendees’ questions, at your convenience by clicking HERE!

Want to learn more about the research and better understand where your organization ranks in AI adoption? Connect with a solution consultant.

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