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How AI can be the secret sauce to your risk management strategy
Sarvarth Misra |
August 18, 2023 |

 18,494 total views

With the arrival of 2023, change is on the horizon. The economic forecast calls for continued uncertainty across much of the world, creating persistent challenges while surfacing opportunities for businesses that harness the chance to drive effective transformation.

As inflation increases costs, consumers will continue to reduce household spending, and supply chains will continue to experience upheaval. Therefore, retailers must rely on digital tools to help manage and optimize their operations impacted by inflation. Following are some predictions help retailers and consumer packaged goods (CPG) producers achieve a competitive advantage.

Hyper-personalization is key

In 2023, clean data — that is, data that’s complete, de-duplicated, and accurate – will become an absolute necessity. As consumers grow increasingly selective about where and how they shop, it will be critical for retailers to draw on clean data that will help target customers accurately. Ultimately, clean data will provide the highest quality information to guide decision-making.

According to a recent McKinsey report, 71% of customers expect personalized experiences from all the companies they encounter. Even more telling, 76% of customers become frustrated when their interactions aren’t personalized, turning current customers into disgruntled consumers searching for new options.

Consumers are just the tip of the iceberg for retailers when thinking about hyper-personalization. In most cases, a single retailer has hundreds, if not thousands, of suppliers, with a contract specific to each relationship. Without full visibility into structured, connected, and on-demand data in contracts, retailers will struggle to use clean data to maximize their profits.

Failure to produce clean contract data can inhibit the ability of a retailer to personalize and quickly communicate with suppliers, adding unnecessary constraints when fulfilling commitments, updating agreements and identifying what they’re entitled to when market conditions change.

Hyper-personalization is key for both consumers and suppliers. It impacts  a retailer’s ability to create and maintain brand loyalty, while determining the business’s ability to partner with suppliers effectively. Both will be necessary for gaining a competitive advantage in 2023, yet impossible without capturing clean data from contracts and integrating it across all areas of the business.

Consolidation will drive recovery

With inflation and supply chain disruptions continuing to impact retailers, increased retailer consolidation through mergers and acquisitions is a likely outcome for 2023.

To better weather economic uncertainty, organizations will be forced to merge to remain competitive, or acquire to build out their portfolios. The ultimate goals are to improve the ability to compete, achieve greater scale and access more operational resources, of which clean consumer data is a valuable example.

Increased mergers and acquisitions are another reason retailers should focus on digital transformation efforts, especially those that help organizations gain control and visibility of their contracts. Numerous contract-related questions arise during mergers and acquisitions. Target companies must respond to a large volume of due diligence on material contracts involving customers, vendors and suppliers. Even simple questions about contract expiry dates or identifying the most recent version of an executed contract can delay the transaction or affect the purchase price.

Retailers will need to rely heavily on contract data to support merger and acquisition decisions, optimize the process and mitigate the impact of unknown risks.

Supply chain disruptions will persist, but savings are also coming 

The global supply chain will see ongoing turmoil in 2023. Armed conflict, a dearth of raw materials, and rising energy costs are only a few factors contributing to continued supply chain disruptions across the U.S. and worldwide.

But the overwhelming demand for shipping and delivery — and the commensurate steep rise in cost — is beginning to level off. Carrier rates will likely continue to fall in 2023, giving retailers and CPG companies more breathing room. Now is the time for retailers to look through their contracts and across their supply chains to find savings by negotiating costs while improving efficiency.

This requires clean and structured contract data, providing insight into contractual language and helping to shield the business from inflationary surges and price increases. However, this data must be integrated into the appropriate teams. While clean contract data can provide insights into how supply chain disruptions may impact things like purchase prices, it will remain unutilized if procurement teams are unaware of what they may be entitled to.

Reverse logistics will pose a challenge

E-commerce revenue is expected to hit $1.111 trillion in the U.S. in 2023, climbing to $1.281 trillion in 2024.

Naturally, as sales increase (both online and brick and mortar), so do the number of returns. In 2020, returns sat at 10.6% of online purchases; in 2021, they rose to 16.6% and are still climbing, while the average rate of return for online purchases is 18.1% much higher than the 8%-10% return rate in brick-and-mortar stores. Returns are usually higher in sectors where item fit is an issue (for example, auto parts or apparel) and tend to surge during the holiday season.

As consumers increase the number of goods they buy online, so do the number of serial returners — people who deliberately overbuy, knowing they intend to return at least part of the purchase. This can cost retailers up to 21% of the order’s original value in the form of lost products, shipping and labor hours. It can also mean a lot of stock on their hands.

Retailers should begin exploring various options to combat increasing returns and realize savings, all of which are found within their contracts. They must ask the question: Can our suppliers help to manage or even offset the costs of returns or unsold goods? Typically, the answer is yes, but many times retailers fail to identify these opportunities as their procurement teams often execute these contracts and store them away, failing to unearth any data within.

Clean and connected contract data is necessary for retailers to understand how their suppliers can help with reverse logistics. Access to, and knowledge of, clean data allow retailers to explore their options, while having that data structured appropriately and connected throughout the business. They allow teams to answer questions surrounding returns and overhead. For example, can returned products go back to the supplier? Are retailers entitled to a pre-determined percentage of savings for returned or unsold products?

The answers to these questions can help to soften the impact to profit. One of the easiest ways for retailers to uncover clean data from their contracts is through contract lifecycle management (CLM), which that turns contract data into insights that not only help to increase revenue, reduce costs, improve compliance and eliminate risk, but also allow retailers to manage reverse logistics processes with ease. For example, retailers can use clean data from contracts to prepare for reverse logistics ahead of time, rather than react to surging returns and excess inventory.

The reality for retailers is that they must react to rather than control a constantly changing market landscape, by staying agile and deriving the full value of contracts with clean data. A global supply chain is subject to international forces beyond any company, sector or government’s control, and increasing product returns, mergers and acquisitions remain an ever-present concern. The coming year is likely to be rife with serious challenges for retailers and CPGs. However, if approached and properly prepared for through increased contract control and visibility leading to clean contract data, these challenges can enable opportunities to create a true competitive advantage.

Author: Sarvarth Misra

 

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