The Whole Foods Deal Shows the Future of Retail Isn’t Online - It’s Automatic

Editor’s Note: Dennis Walsh is president of Redwood Software

Amazon's purchase of Whole Foods has sent fear through the retail industry. The online giant had already gobbled up market share at a time when longstanding players like Sears were shutting doors left and right. Ramping up its position in the groceries space through the Whole Foods purchase made it seem like there was nothing Amazon couldn't do, and the stocks of grocery competitors duly swooned.

It is too simplistic to say that Amazon's advantage is that it is online. Whole Foods, like most other grocery chains, has had an on line service for years. That didn't protect it from middling operational performance and activist shareholders. So why is Amazon on course to be a trillion dollar company, while Whole Foods is exiting the public market for good?

The answer is simple: automation. Modern consumers crave the fast, streamlined and easy experience that comes with shopping online from the comfort of their homes. That means more than simply swapping the cash register for a website, or even a mobile app. It's about using automation to directly integrate the customer experience into the supply chain.

This is a lesson that retailers need to adopt, and fast. Whole Foods is likely to be simply a platform for growth, and inefficiencies in the supply chain and back office won't be options if retailers want to compete.

The new consumer preference

For many retailers, a shiny new online interface seems like a quick fix to reach modern consumers. But the fact is, if the back office and supply chain are not in sync, then the website is a door to nowhere. Take, for example Amazon's one-click purchases. This simple innovation didn't just reduce friction for customers considering a purchase. It allowed the customer to insert themselves directly into the supply chain process. The customer is given total autonomy and jurisdiction over their purchasing-destiny. This process, which once featured many steps, from the warehouse to the truck to the supermarket to your car and then finally, your home, has been modernized and re-structured. Simply taking brick and mortar stores and creating a website to match does not allow for any technological progression.

This automated mindset has allowed Amazon to build durable customer relationships. Areas that were once human intensive have been replaced with automatic systems. This is a factor in the supply chain, with innovations such as automated “pickers” in the warehouses. But it extends also to areas such as returns and customer service, which were once thought of to be inherently manual. Amazon has proved that these functions can be thought of as processes, and so can be integrated directly into the supply chain in a way that is not only functional but an active positive for the consumer experience.

The scope for change in automation is massive, as consumer preferences have shifted towards immediacy and convenience. Supply chains that were once geared towards providing consumers with the right shelf of products to pick from may become geared towards regular deliveries with as little active consumer choice as possible. If consumer desires move in that direction, automated supply chains will be the only viable option.

The systems viewpoint

Amazon, of course, has the advantage of building its supply chain from scratch. Other retailers, by contrast, have long histories, and the legacy systems that go with them. They have to rely on these existing ERP systems, some of which are decades old, in order to keep the business running. Asking a CIO to disrupt a system of record to keep pace with Amazon is a hard sell. But the crunch is coming, and many of these systems will have to evolve if they are to survive. According to a Gartner survey, the demand for RPA (robotic process automation) tools is growing at 20-30% each quarter. The automation of these processes in entirety in turn allows humans to plan ways in which it will better serve the overall company for the future.

None of this is to say that automation is novel in the supply chain, or that automation is always a positive to the business. On the contrary, retailers have always recognized the importance of implementing technology in their supply chain in order to minimize costs. What is different today is that it is possible to automate entire processes and do so at scale. Indeed, it is only by delivering this large-scale automation that potential can be realized, as automating individual tasks without a broader, process-focused strategy can rapidly lead to dysfunction, as time is invested to maintain and harmonize the automation technology.

What about the humans?

At a fundamental level, the Whole Foods transaction shows how technology has shaped the interaction between the supply chain and the customer. Choice for the grocery customer has traditionally been a function of the supply chain – you could only choose from items that were available on the shelf in any given location. That was as true for a high-end Whole Foods shopper as for a budget shopper. Now Amazon is making more and more products available to all.

This, understandably, leads to concern that the human touch will be taken out of grocery entirely, with algorithms dictating all elements of the supply chain. However, the fact is that automating the repetitive parts of the supply chain can provide a greater degree of control to the customer, making it easier to integrate a delivery or return into their daily routine. It should also allow supply chain managers to spend more time thinking about consumer preferences and less about labor intensive manual processes. This could extend to new areas of the business, or how to capture the opportunity in a new product line. In short there is opportunity. The technology is here – now retailers and supply chain managers must show they can let go of the old paradigm.

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