Manufacturers produce and retailers sell – at least that is how businesses operated in the past. But today’s digital transformation is starting to blur the boundaries between these traditional roles.
Digital transformation isn’t a “fix it and forget it” kind of project; it’s more of a dynamic, continuous process. This applies to businesses selling B2C as well as B2B. Retailers continues their relentless drive towards digitalization, bringing with it next-generation sales channels with e-commerce platforms and omnichannel infrastructures and pushing the trend towards more product personalization. We need to take a critical look at our traditional production and sales processes and make structures and workflows more flexible so that we can quickly adapt them to future trends and developments.
Given the dynamics and speed of the digital transformation in the retail space, it is clearly the retailers that are raising the bar for manufacturers – putting more and more pressure on them to digitalize production processes and make process streams more efficient and more flexible. Digital interconnectivity creates a “symbiotic relationship” between manufacturers and retailers. To put it in positive terms, networking opens up enormous opportunities for both sides to develop new areas of business: retailers take on the role of manufacturer, and manufacturers try their hand as retailers.
What does this mean in practice? What kind of tangible opportunities are there for manufacturers and retailers? This paradigm shift opens up potential in three main areas: the first is the massive acceleration in time-to-market that comes with digitalizing production processes, the second is automated personalization all the way to extreme individualization of products and production runs, and the third is the possibility of a deeper knowledge transfer.
Many of today’s manufacturers, particularly in the consumer products sector, are no longer confining themselves to the role of pure producer. Readily available e commerce platforms that are networked with production facilities enable manufacturers to pursue new revenue models. We have seen this with retail players like Deichmann, Hugo Boss, LVMH, Gucci, Tom Tailor, Geox, Richemont, Medion or Nespresso; companies that recognize the commercial value of interconnecting production and e-commerce.
By integrating product design and retail sales, these companies can access the entire value chain. Ultimately, end-to-end digitalization and direct links between production and e-commerce is the logical next step resulting from the massive changes we’ve seen in consumer behavior. Consumers are communicating and collecting information more and more through digital channels: they use social media for inspiration, search engines for research and product tests, blog posts and recommendations to shape their opinions.
Increasingly, one aspect of the digital revolution is becoming the key to success: the ability to get up close and personal with consumers and/or users. With e-Commerce and omnichannel retailing, the roles of manufacturer, retailer and end customer are starting to converge. Each can interact and influence the other’s developments. For example, a consumer shares recommendations for a product enhancement or a product line extension online and the company immediately includes it in the planning and production process. Or a manufacturer reaches out to potential consumers and asks them to contribute their ideas on product design. Innovations in handling and usability are so quick to implement that we can create new products or solutions to meet actual demand. All of this is possible if we continue to take a consistent, comprehensive approach to digitalizing and interconnecting manufacturers and retailers – both in the B2C and B2B space.
The digital world is rapidly changing. Innovation cycles are getting shorter, technologies are becoming available at a much faster rate and markets are much more dynamic. A lot of initiatives under the banner “Industry 4.0” are designed to keep pace with these developments. According to the recent multi-client study “Industry 4.0” by the Experton Group, decision-makers in industrial production believe that driving digital transformation in production will help them react faster to market changes and reduce time-to-market, among other things. In short: faster speeds through accelerated processes. If we see a company’s omnichannel infrastructure as its interface with the market, that infrastructure can play a role in recognizing the dynamic changes on the market and transmitting those impulses directly to production lines via the digital network. Changing consumer behavior, rising or falling product demands, new trends, price points and competitors – under certain circumstances these factors demand immediate action from a company. An end-to-end, digital process chain – from the omnichannel platform right through to the smart factory – can boost flexibility, increase corporate momentum and give companies a competitive edge over other market players.
Fast, cross-channel access to information and data, a key feature of the omnichannel approach, is relevant for the B2C and the B2B markets. In each case, target groups expect a company’s brand promises and processes to be consistent and its marketing to be as personalized as possible. Digital networking is the basis for this “seamless experience”.
Today’s consumers want cross-channel, barrier-free shopping and customer services experiences. They want to shop with their smartphones or tablets, on their PCs or in a bricks-and-mortar retail outlet, and they want to find the same processes and product information wherever they shop. They are also looking for a personalized shopping experience with offers tailored specifically for them. Omnichannel commerce can deliver intelligent solution scenarios because they offer companies the ability to centralize customer data and make it available at all points of sale – whether it is an online shop or the POS system in a physical retail outlet.
Case in point: a customer browses different trousers in a fashion retailer’s online shop and saves them on a wish list. At the physical retail outlet, the customer buys a different product and uses a brand loyalty card at checkout. The POS system alerts the checkout staff about the trousers on the wish list and offers the customer a special deal on the items.
Networking digital production processes with omnichannel infrastructures exploits the combined potential of manufacturing and retail, taking personalization to the next level. It enables retailers to manufacture on-demand through fluid digital production streams that go as far as customized configuration of consumer products. For example: a customer order placed online triggers a production process in a smart factory and sets a fully automated process in motion that ends with the delivery of a personalized product by drone to wherever the customer happens to be at that moment.
In the B2B sector, digital interconnectedness opens up potential for a different kind of personalization: companies can access new markets when state-of-the-art, real-time technologies help them make production runs significantly more efficient and more agile. Industrial facilities that were set up for large-batch production can use intelligent digital resource management to become smart factories that produce smaller runs commissioned directly via a B2B e-commerce platform. The end result is more customized, “personalized” manufacturing.
Closing the digital divide between industrial production and retail is about more than just processes: networking promotes knowledge transfer between the two sides. An example of this would be developing user-friendly interfaces for production control systems. Expertise in targeted usability for high-converting online stores can easily be applied to R&D in touchscreens for production lines. Key insights from successful usability engineering in omnichannel commerce can be transferred to Industry 4.0. After all, things like ergonomic design, intuitive usability and efficiency are key for both application areas. This is highlighted in the ISO 9241-11 standard, which defines usability as: “…the extent to which a product can be used by specified users to achieve specified goals with effectiveness, efficiency and satisfaction in a specified context of use.”
One critical area where manufacturers pursuing digital transformation can profit from the expertise of omnichannel retailers is in the transformation process itself. When retailers implement an omnichannel commerce solution, it impacts their entire value chain. Often, digital transformation is a radical process of change that totally transforms the technology as well as the organization of a company. Workflows need to be transparent at all times; both front-line managers and members of staff have to buy into the implementation process. Omnichannel transformation projects that use a process-oriented, prototypical methodology, make project management as agile as possible and adopt a campus approach – involving specialist divisions and IT at an early stage – have stood the test of time. This proven method of managing transformation projects enables companies to do away with prolonged blueprinting and documentation phases: they tackle different project actions in parallel, speed up implementation significantly and drastically reduce turnaround times. The seamless transition from a legacy system to a new, agile process and IT infrastructure has to be the top priority, because omnichannel transformation – essentially rebuilding every business process in a company – can potentially impact sales. The same is true for manufacturers pursuing digital transformation of their industrial processes.