The economics of - and business case for - intelligent automation.
By Shawn Harris | November 10, 2020

The Economics of – and Business Case for – Intelligent Automation

Intelligent automation boosts more than efficiency. It creates business opportunities that would otherwise not be possible right now.

This blog post was written collaboratively with Marc Perrella, Solution Lead, SmartSight Intelligent Automation, Zebra Technologies.

Retailers are no stranger to change, especially brick-and-mortar retailers. They have spent the last several years working to remain relevant amidst the rise in e-commerce competition. Enhancing the “offline” in-store customer experience while establishing a sustainable online business has not been easy or economical for most brands. The shift to e-commerce fulfillment models is eroding margins by the minute. Yet, retailers know that if they can’t figure out a way to become relevant in the digital realm, then the consequences of brand erosion will be far greater.

With COVID-19 accelerating consumer adoption of curbside and delivery services, retailers and grocers must find a way to differentiate the customer experience that integrates both brick-and-mortar and e-commerce fulfillment models. Moreover, they must do so without a lag in profitability – or at least without broadening financial deficits beyond recovery potential.

The “Benefit of Bulk” is Bygone

The acceleration of e-commerce adoption has forced brick-and-mortar retailers to use stores as online order fulfillment centers to meet shopper demands for convenience and delivery speed. In the U.S. alone, the percentage of grocery shoppers leveraging buy online, pick up in-store (BOPIS), curbside and delivery to home services was 6.3% in 2019 according to Brick Meets Click and is expected to increase to 15% in 2020 per Winsight Grocery Business research. This is a significant increase, with demand levels of 8.8% originally projected for 2022. Many retailers who thought they had two more years to expand operations have found themselves making necessary changes in less than two months due to COVID-19 impacts. They now must leverage stores’ proximity to shoppers to gain a competitive advantage over traditional e-commerce retailers and retain customers via same day or next day delivery options.

However, the cost of now having to handle individual items versus pallets in the store has become quite significant. It has also become expensive to maintain a wider product assortment and increase store staffing to facilitate omnichannel fulfillment actions. The “labor headwinds” alone of this movement to turn stores into fulfillment centers can eat up 2-3% of a retailer’s profitability, per McKinsey and Co.’s 2020 estimations. Of course, some of that can be recovered by leveraging analytics tools to improve inventory management (1-2% profitability boost) and focusing on ways to improve the in-store customer experience (which has the potential of providing another 1-2% profitability increase).

Yet, much of what goes into the latter can be addressed via intelligent automation which, by McKinsey and Co’s calculations, can potentially add 2-4% to retailers’ profitability on its own due to the considerable productivity gains achieved by removing the mundane tasks from store staff. Such tasks include monitoring shelf inventory, regulatory and promotional pricing and merchandizing shelves per the reference planogram (which may be sub-optimized) and reassigning them to more value-add activities that are proven to increase customer satisfaction such as inventory replenishment and planogram compliance). To be honest, this estimation may be a bit conservative. The economic benefits of intelligent automation are compounding almost daily right now given the number of forced changes that must be executed due to competition and COVID-19 impacts and the more ambitious changes being planned to drive growth in the next wave of retail transformation.

The Three Pillars of Intelligent Automation: Empower (Staff), Expand (Market Share) and Capitalize (on Growth Opportunities)

At the end of the day, the key to retailers’ preservation right now is fulfillment. Can you deliver the right product mix to both online and offline customers at the right price and the right time without overextending already-scarce labor resources? If so, then the subsequent revenue uplift will likely drive profitability.

However, not all retailers are able to quickly see, analyze and act on inventory-related issues that could negatively impact customers’ shopping experience – things that store associates or back-office employees don’t see from their traditional vantage point. It’s hard enough for the human eye – and, by that, I mean busy workers who are distracted by customers, store processes and shift deadlines – to proactively identify out-of-stock or misplaced items in the store, much less verify pricing, promotional and planogram compliance at the necessary cadence. That is why the economic benefits of intelligent automation have become attainable as of late.

The smart and connected enterprise-grade mobile automation available today is autonomous and self-aware and can, therefore, be leveraged in the front of the store to help retailers:

-  Empower staff to better serve more customers without burning out. The e-commerce explosion triggered by COVID-19 has presented both an opportunity and a change for brick-and-mortar retailers. Those who can keep shelves and local warehouses stocked with the right product assortments and quantities to simultaneously fulfill in-store and online shopper orders will see revenue increase. Those who can’t risk an increase in customer “walk outs” and a reduction in revenue. Out-of-stocks are estimated to cost retailers $1 trillion according to IHL Group.

Because it is hard to improve inventory availability without real-time visibility into current levels, retailers need to take a very close look at the immediate benefits they can gain from intelligent automation solutions. Asking staff to manually scan and track inventory, pricing and merchandizing is time consuming and error prone. On the flip side, deploying intelligent automation solutions that can collect and synthesize inventory-related data in real time and then direct staff to take effective corrective actions that drive revenue and customer satisfaction levels higher by reducing the number of out-of-stocks and substitutions.

For example, Zebra SmartSight can determine when something isn’t quite right – such as when an item is out-of-stock or misplaced on a shelf or the price tag is wrong – and then analyze how best to resolve the issue before calling a store associate into action to actually correct the issue.  This automatically protects both margins and retailers’ brand image. By taking mundane tasks off human workers’ task lists and giving them more direct guidance on the best next steps to take, they automatically become more productive, available to customers and satisfied with their jobs.

I remember when Zebra first started researching the business case for intelligent automation, many store associates said one of the things they dislike most about their jobs was trying to chase down missing items. This sentiment was overwhelmingly echoed in our 2020 Shopper Study, with surveyed associates saying their number one frustration was shoppers complaining about out-of-stock items.

Here’s the catch: much of the time, those items aren’t actually out of stock. One Coca-Cola Retailing Research Council study found that 98% of out-of-stocks are caused by the retailer, not customers. In some instances, store staff are not aware items are out of stock and, thus, have yet to re-order the items. In other situations, out-of-stocks result from inaccurate promotion forecasts which, in many cases, can be resolved with in-store inventory. The store staff may have just set up the display incorrectly or in the wrong place and, now, neither the associate nor the shopper knows where that product can be found. Then again, the item might have been misplaced by a shopper who picked it up and then put it back in the wrong place. For example, if there’s only one jar of peanut butter left in the store and a shopper grabbed it and dropped it in the baby food section after deciding he or she no longer wanted it, customers and staff may not be able to track it down easily. Alternatively, there could be a whole case of peanut butter sitting in the stockroom, but associates don’t know that it’s out of stock on the shelf until they complete the scheduled shelf scan, a shopper complains, or they happen to notice when passing by.

However, if an intelligent automation solution such as the Zebra SmartSight EMA50 mobile system was surveying the aisles, it could identify out-of-stock items and then determine the location and quantity of inventory needed to restock the item in its primary shelf location. If it looks like there is peanut butter in the store somewhere, SmartSight will track it down – either by analyzing inventory records to see if stock is available for shelf replenishment or by scanning every shelf on its rounds to locate available items. Once it confirms the best next action, a store associate could be assigned a prioritized task via his or her mobile computer to replenish the shelf using backroom stock or to grab the item from the baby food section and return it to its primary shelf location.

Similarly, a solution such as the SmartSight EMA system will flag planogram non-compliance and pricing errors when making the rounds so that a store associate knows exactly what to fix and how to fix them before they cause customer grief or costly regulatory fines. Others responsible for managing third-party merchandisers can also be alerted so that they can correct identified non-compliance issues during their daily delivery and follow up to ensure it doesn’t happen again. All of this helps to free up store staff so that they can be redeployed to focus on revenue-generating activities such as efficient e-commerce picking, maintaining proper shelf stock quantities or better serving customers.

Of course, something else to consider right now is safety and its correlation with both shopper and employee churn. By sending an intelligent automation platform such as SmartSight out to complete shelf compliance audits, you automatically reduce the number of people on the floor and reduce the number of “close” contacts. You can also reassign time-intensive tasks to intelligent automation solutions to keep workers focused on higher-value tasks that will minimize the overall time that they must spend navigating around or interacting with other people. This helps reduce the stress and costs associated with meeting health and safety protocols, resulting in a more comfortable shopping and productive working environment.

- Expand market share and improve margins. As you may have derived already, intelligent automation also helps reduce the financial ramifications associated with labor churn, lost sales and pricing variations. For example, intelligent automation enables you to prove inventory position for supplier negotiations, monitor replenishment performance and reduce the time store associates must spend monitoring inventory overall. It can also help you identify and address missed revenue on items sitting in the backroom during stockout or see when demand for certain items intensifies or eases so you can fine-tune your forecasts, further optimize your supply chain and adjust planograms accordingly. Of course, I’m sure you’ll appreciate the more-than-marginal financial gains that come with improved pricing, promotion and planogram compliance as well as the top-line revenue that can be generated simply by knowing the right product, assortment and quantities to keep on the shelf to appease a diverse and growing customer base.

Capitalize on opportunities to reinvest in your business. There is clear quantitative and qualitative evidence of the significant impact that intelligent automation can have on retailers of all sizes, and all retailers are trying to gain better control of their variable expenses. But not all retailers’ balance sheets can bear the capital expenditures (capex) required for an on-premise solution. That’s why we’re seeing a great deal of interest in the delivery of subscription-based intelligent automation solution. Leveraging a pre-integrated solution such as the Zebra SmartSight EMA system provides flexibility in the balance sheet, enabling you to gain the economic benefits of intelligent automation faster, without the need to tie up precious capital resources – resources that can be stretched to invest in additional programs to enhance shareholder value. It also allows for rapid deployment so you can immediately start to re-allocate labor resources, identify and correct the root cause of sales losses and begin to generate more revenue through e-commerce in-store sales expansion.  Since subscription models enable you to keep more cash on hand, you will have the means to continuously reinvest in your business as needed to adapt to uncontrollable market dynamics. Alternatively, you could leverage the additional resources to introduce new services or experiences that give you a competitive edge and ultimately grow market share.

Why You Can’t Afford to Wait

Though most retailers have started investing in technology solutions that ease growing e-commerce fulfillment burdens, more aggressive steps must be taken to simultaneously meet consumer (and shareholder) demands without overburdening store associates or diminishing either the physical or digital customer experiences.

Remember: improving store performance requires more than just data. You must have full visibility into what is happening within your stores and, particularly, what’s happening with your inventory. You must also have the means to immediately analyze and act on what you see.

That’s why intelligent automation should no longer be viewed as an “advanced” technology solution. Its operational impact fundamentally transforms the profitability and operations of brick-and-mortar retailers challenged to keep up with exploding in-store and online demand. Solutions such as SmartSight are the means by which inventory availability, pricing integrity and planogram compliance issues can immediately be seen, analyzed and corrected by staff in a highly efficient manner. (Though results will vary by store, we’ve seen intelligent automation save 65 hours of staff labor per store/week*.)

Intelligent automation also shows that retailers are listening to customers and employees. Shoppers will appreciate well-stocked stores and perfect e-commerce order fulfillment. Employees will appreciate the assistance they receive in delivering fast and friendly service to customers.

In other words, investing in intelligent automation is how you invest in your brand and avoid the economic pitfalls of falling behind competitors who have already started investing in and gaining similar benefits from intelligent automation.

By subscribing to intelligent automation “as a service,” you will conserve cash and reap the productivity gains that ultimately help to increase your margins, optimize and retain labor, deliver a differentiated customer experience and empower your store operations to keep pace with the ever-changing dynamics of the retail market, no matter the source or rate of change.


Editor’s Note:

You can learn more about how Zebra SmartSight works and the benefits it can provide to your workforce, customers and bottom line by visiting our website or watching this video:

*Results may vary by store.

Innovative Ideas, Retail,
Shawn J. Harris
Shawn J. Harris

Shawn currently leads go-to-market efforts for Zebra’s SmartSight, as Director of North American Sales. Leveraging Zebra’s over 50 years of experience building purpose-built solutions for retail, SmartSight is Zebra’s inaugural intelligent automation service offering for retail. In this role, Mr. Harris helps Zebra’s retail customers navigate the ever-changing retail landscape and truly digitize their store floors. He provides thought leadership, pragmatic insights and innovative solutions on issues pertaining to the implications of Intelligent Automation and Artificial Intelligence for business strategy, customer experience, inventory visibility and staff productivity.

Mr. Harris’ passion rests in brick-and-mortar and digital retail technology, operations and customer experiences. That has spilled over into supply chain management; he has a strong understanding of the complexity of the timebound matching of supply to demand.

He has been involved with store systems, ecommerce, and order management technologies for over 15 years and has served in various management and consulting roles with tier-one retailers, including TJX Cos, Staples, BJ’s, O’Reilly Auto Parts, and Uniqlo (Fast Retailing). Mr. Harris also founded a luxury menswear brand, which most was known for designing and manufacturing clothing for some of New England’s most regarded corporate executives and professional athletes across the country.

Mr. Harris keeps a keen eye on what’s potentially next, by staying closely involved in the Boston, New York, and Silicon Valley startup communities. He recently served as the program lead for the Startup Leadership Program and has participated in startup programs through XRC Labs, Techstars, MassChallenge and New York Fashion Tech Lab.

Before his career in retail, Mr. Harris helped to start e4eNet as the vice president of global operations. e4eNet was a cloud-based enterprise platform that handled the design for manufacturing process for printed circuit boards (PCBs), e4eNet was ultimately sold to IBM. Prior to e4Enet, Mr. Harris worked for IBM in a number of technical capacities and honorably served in the Army National Guard as an infantryman and armored personnel carrier (APC) driver for eight years. He has a deep curiosity for culture and language. He speaks conversational Japanese, and he has traveled to numerous countries in Europe, Africa, and Asia for business. Mr. Harris earned his MBA from Babson College and a bachelor's degree in management information systems from the University of Massachusetts.

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