Grocery: Why Mrs. Jones Should Be Running Your Supply Chain

By SAP Guest, Published on March 21, 2014

by Randy Evins, Retail Industry Principal, SAP

Mrs. Jones needs to do some grocery shopping. And she has the potential to be a loyal and profitable customer. But if she’s not actually running your supply chain, you’re missing theopportunity to win her business—and the business of every prospective customer.

The world of grocery is changing rapidly. Customers demand more personalized service and have higher expectations for their experience with your brand. New competitors are emerging, with the entire industry watching nervously as behemoths like Amazon begin to experiment with grocery home delivery.

Meanwhile, the market is rebounding. But with their razor-thin margins, grocery chains struggle just to keep up, never mind move ahead.

If you don’t have visibility of each individual shopper, if you can’t deliver personalized service, if you can’t see demand and manage inventory in real time—in other words, if Mrs. Jones isn’t running your supply chain—then you’re falling behind.

The grocer’s dilemma

Grocery chains have long applied forecasting methods at the warehouse level, the store level, the register level. And those techniques are well-understood and fairly functional.

But they don’t provide visibility of the individual customer. That’s because the technology hasn’t existed—and scaled—to see Mrs. Jones in the act of shopping at Store No. 52 in real time. And Mrs. Jones’ invisibility means you can’t optimally capture demand signals and manage your supply chain. So the only way you can protect against an out-of-stock situation is to carry too much inventory. And that costs money.

But if you can forecast at the individual customer level—if you can allow Mrs. Jones to run your supply chain—then you can maintain the inventory that corresponds exactly with what your actual customers will buy. That means you always have the right products to meet customer needs. And you can achieve the cost savings and competitive advantage of a smaller inventory.

Not only that, but you can run your business better. Because you can forecast your sales, your profitability, and your entire operations with greater accuracy and effectiveness.

What you need to succeed

Grocers increasingly understand the importance of Mrs. Jones. And they recognize they can’t pull this off with their existing technology. The good news is that technology now exists to serve a market of one, to provide personalized customer service that starts with a mobile device, continues throughout the shopping experience, and ends with home delivery.

One piece of that technology is a repository of customer activity. It’s a single place for capturing and analyzing all information relevant to each individual customer. That includes who Mrs. Jones is, where and when she shops, what she buys, and what else she might buy. It’s combined with data such as what’s on promotion, what’s in inventory, and what external factors could affect supply and demand.

Another piece of that technology is in-memory computing, in which all that data can be managed an analyzed at dramatically faster speeds than was ever before possible. That allows you to create a unified, real-time demand forecast. You can then feed that forecast into your promotions, assortment, pricing, replenishment, and other core applications.

Ultimately, that means your entire operation will begin at the customer and flow back through your store, your transportation, your warehouse, your sourcing, and so on. You end up with a Mrs. Jones-centric business, from merchandising to special offers to supply logistics.

Ka-ching!

Of course, if you ask your IT department why they aren’t already using this technology, they’ll tell you it’s because they haven’t had any budget for the past 20 years. Yes, sophisticated new technology involves some capital investment. And grocery chains are cash-lean operations.

But compare the cost of a technology investment to the opportunity cost of continuing with old approaches. As one example, let’s say you’re already running a multi-channel operation, with 99 percent of your sales in the store and 1 percent online. And let’s say a better understanding of customer demand allows you to make more individualized offers and drive online sales up to 10 percent.

That 9 percent increase represents tremendous cost savings. Because it costs substantially less to serve those customers online rather than in your store. And you can save significant dollars through digital, mobile, and social-media marketing. That ka-ching! you hear isn’t the price tag of your new technology. It’s the payoff of more efficient supply-chain operations, higher sales, and greater profitability.

It’s the sound of Mrs. Jones running your supply chain.