Today’s retail customer utilizes technology that has drastically advanced their expectations. For grocery, modernizing through automation is the optimal way to meet them. Advances in microfulfillment allow you to embrace affordable, user-friendly systems that respond to modern shopper demands while greatly improving the end experience for customers. Cuhaci & Peterson Architects PULSE Integration and KPS Global are teaming up to provide powerful end-to-end solutions to reimagine grocery for a brighter future — starting now.
PULSE Integration has been featured as a top material handling system solution provider for 2021 by Logistics Tech Outlook Magazine.
Logistic Tech Outlook provides an annual listing of 10 companies that are at the forefront of providing material handling system solutions and transforming businesses. The magazine is read by over 68,000 subscribers who are key decision-makers in the logistics sector.
The magazine also features contributory articles from senior management executives from distribution, warehousing, manufacturing, supply chain experts, logistics professionals, and other technology decision makers on how material handling solutions improved operational performance in their organizations.
Prior to Covid-19, most retailers were operating with the same business models that they had used for years. When Covid-19 hit, many retailers were identified as being nonessential, resulting in their stores being shut down for long periods of time. The only retailers allowed to remain open were those deemed essential — grocery stores and pharmacies, for example.
Being listed as a nonessential retailer resulted in lost sales and furloughing thousands of employees. As 2020 progressed, retailers focused on implementing strategies for social distancing and increased cleaning practices inside their stores. Many consumers avoided shopping in nonessential retail stores that sold apparel, shoes and other items found in department stores, and instead focused on essential items like groceries and food.
As retailers enter 2021, essential and nonessential retailers will be faced with the need to evaluate their strategies. This is easier said than done for most retailers. Nonessential retailers will need an actionable vision that will set them apart from their competitors while attracting customers to shop in their stores. These same retailers will also have to determine if stores are strategic to their operating models or if moving to an online model is the better strategy.
An unknown for retailers is what will happen in the year ahead. Will Americans embrace getting vaccinated and will Covid-19 be in the rearview mirror by the end of 2021? Or do we have more hurdles ahead with the virus?
Retailers can’t operate based on assumptions. They must operate based on the needs of their customers and company. What’s certain is that the strategies used by retailers in 2021 must be an improvement over the strategies used in 2020.
The Science Of Strategy
In my consulting practice, most retailers that contract my services are focused on improving the strategy they were using to compete in the market. I enjoy working with retailers, but on the topic of strategy, I find it necessary to spend an exorbitant amount of time understanding who within a company came up with the current strategy and their motivation for doing so.
I continue to be amazed at the number of CEOs and other senior executives that identify the strategies they want to use based on “gut feel” vs. science. In some cases, retailers operate without a strategy.
To simplify the understanding of strategy, I leverage several methodologies that I learned from Capgemini and Deloitte. In addition, I utilize game theory, which is referred to as the science of strategy. When used correctly, game theory is ideal for comparing and analyzing what strategies will achieve the desired outcome for a retailer.
What I like most about game theory is that it provides an opportunity for executives to better understand the impacts of their decisions on their companies and, most often overlooked, their competitors.
For example, I’ve worked with retailers that prefer to minimize markdowns on the products they sell in their retail stores. However, increased competition reduced sales leading to a rash decision to markdown items by as much as 25%. Executives believed the decision would increase the number of customers in the stores to take advantage of the bargains.
The opposite happened. Customers chose to bypass the retailer altogether and instead go shopping at everyday low-price leaders or discounters that carried similar products. Reducing prices by only 25% failed to attract bargain hunters because those shoppers could find bigger savings elsewhere.
Strategy is among the most difficult challenges faced by retailers, and it’s about to become even more difficult.
Learning How To Think Big
When I worked at Amazon, leading the expansion of AmazonFresh and Pantry, a phrase we used frequently in the company was “think big.” Jeff Bezos challenged everyone who worked for Amazon to come up with ideas that would delight customers and, in turn, create an increased advantage for the company.
Thinking big was part of the culture at Amazon.
Most retailers, however, don’t think big and it’s not part of their culture.
A technique I use to teach retailers to think big is to review a series of examples that question the status quo within retail. These examples showcase the value of questioning the status quo and challenging a company’s culture to embrace big ideas and change. Each contains the name of a well-known retailer (or another company) along with a recommendation to acquire a company, merge with a company or make some other type of “big move”:
• Amazon acquires Target, Kohl’s or Shopify.
• Shopify acquires Instacart.
• Kroger and Target merge.
• Facebook acquires Instacart or Target.
• Walmart acquires TikTok or Instacart.
• FedEx and Walmart partner and acquire Shopify.
• Tesla acquires Jeep.
• Instacart opens automated micro-fulfillment centers and becomes an online grocery retailer.
• Google acquires eBay, Instacart or Shopify.
Game theory comes in when challenging and discussing the value of each example and identifying which recommendation would generate the best results.
The size of your retail business doesn’t matter. This exercise is helpful to understand the impact that big strategic moves can have on your company. By applying game theory, you can learn how to answer the who, what, when, where and why of each recommendation.
After this exercise, thinking strategically about the moves your company can make becomes easier — at least that’s what I’ve found in my work with my clients.
2021 is going to be another difficult year for many retailers. Learning how to think big is a must. The future of many companies will depend on it.
However, for every retailer that has made the decision to enter into an agreement with a micro-fulfillment company to install its technology, there are dozens of retailers still stuck on answering the questions: How do we choose the right solution? How do we know what’s best for us?
A mistake that I continue to see made by certain retailers is that they select a micro-fulfillment solution without first having a micro-fulfillment strategy. Bad idea.
I have personally provided consulting to several retailers that selected and installed micro-fulfillment solutions only to discover that no value of any kind was derived in doing so. I was contracted to assess the current state of their operations and identify the optimal future-state strategy, and in each case, the failure on the part of the retailers to identify the optimal strategy created a situation whereby the micro-fulfillment technology provided no value. The situation could have easily been avoided by following an effective methodology and by working with a consulting company.
Precision Distribution Consulting (PDC) is one of the few consulting firms skilled in analyzing the value of micro-fulfillment solutions to a retailer and then identifying the optimal strategy for introducing micro-fulfillment solutions into the retailer’s ecosystem of stores. Kearney, Capgemini, Accenture and Deloitte also provide consulting services related to micro-fulfillment, as do McKinsey, The Boston Consulting Group and Bain & Company. (I do not have business relationships with these companies, but I am a former consultant for Capgemini and Deloitte).
The methodologies utilized by these consulting companies vary, but some critical elements include:
• Assessing each micro-fulfillment solution and selecting the best solution based on the requirements of the retailer.
• Building a current-state supply chain and logistics network model.
• Conducting scenario analysis to evaluate the impact of introducing micro-fulfillment technology into the retail network.
• Assessing changes required to manage inventory replenishment to each micro-fulfillment solution.
• Performing a “what if?” analysis to identify the total number of micro-fulfillment centers and automated dark stores a retailer should install within its retail ecosystem.
• Identifying the optimal future-state supply chain model to maximize the value of each micro-fulfillment center within the network.
• Building a business case outlining savings across labor and increased productivity to justify the investment in micro-fulfillment.
As a consultant, I’ve found determining the optimal strategy is the first step in every project that I lead. However, Covid-19, the growth of Amazon, changing consumer behavior away from stores to e-commerce and increased retail bankruptcies has resulted in many retail executives wanting to move fast into micro-fulfillment. I disagree with such an approach.
When confronted with an executive pushing to select and install a micro-fulfillment solution without first understanding the optimal strategy, I remind them of the exchange between Alice and the Cheshire Cat from Alice in Wonderland:
“Would you tell me, please, which way I ought to go from here?” asked Alice.
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where,” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“… so long as I get somewhere,” Alice added.
“Oh, you’re sure to do that,” said the Cat. “If you only walk long enough.”
Without a strategy, retailers have movement within their supply chains and operations but nothing more. Many people are in motion installing the selected micro-fulfillment solution, but the movement gets them nowhere, and the micro-fulfillment solution adds no value.
Selecting The Optimal Micro-Fulfillment Solution
Once a retailer has identified the optimal micro-fulfillment strategy to meet its needs, the next step in the process is evaluating the different micro-fulfillment solutions available on the market.
The company I work for, PULSE Integration, has a business relationship with the micro-fulfillment company AutoStore. However, the purpose of this section isn’t to discuss AutoStore; it is to provide an overview of the leading micro-fulfillment solutions on the market and the key questions to consider during the selection process.
Whenever a retailer enters into an agreement with any micro-fulfillment company, the entire micro-fulfillment industry wins. I believe José Vicente Aguerrevere, Max Pedró and Rafael Pieretti V, founders of the company Takeoff, deserve credit for creating the modern-day micro-fulfillment industry. Other leading micro-fulfillment companies include Alert Innovation, Attabotics, Exotec, Dematic, Fabric and Tompkins Robotics.
Innovation is becoming increasingly important in the micro-fulfillment industry. For example, Takeoff is transitioning from a micro-fulfillment company to a software company capable of licensing its technology platform to retailers and micro-fulfillment companies to run all front-end and back-end operations related to online grocery ordering, fulfillment and operations.
At a high level, micro-fulfillment solutions are designed to do one thing: automate the process of fulfilling online grocery and e-commerce orders. Micro-fulfillment solutions are either shuttle-based or cube-based. There are positives and negatives of each.
A micro-fulfillment center can be installed inside every store to fulfill the curbside and online orders for a single store only. Micro-fulfillment centers can also be installed inside select store locations to fulfill curbside and online orders for many stores — a hub-and-spoke model. Again, there are pros and cons of each.
Retailers must first identify which model they prefer because that will determine the number of micro-fulfillment centers required to meet the demand for groceries from their customers. The model determines the strategy. My advice to all retailers is to assign someone from within their company who is experienced in micro-fulfillment to fairly evaluate all micro-fulfillment options or to partner with a third party that can lead the process.
There is no one-size-fits-all approach when selecting a micro-fulfillment solution.