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Crossmark Business Development Manager Patricio Servat won the coveted Joe Berry Award for 2020. His winning essay explored the effects of automation and artificial intelligence on the retail industry. Executive summary Changing consumer behaviour, industry-wide margin pressures and a hypercompetitive market has left retailers exhausting all traditional cost- reduction levers, making automation a requirement, not a choice. The FMCG industry will operate like a well-oiled machine, serving customers better and in more ways than ever before but automation comes with great change to the relationship between retailers, brands and consumers. It opens the door to bringing manufacturing back to life in Australia, one-week lead times from production to delivery, redefining the role of warehouses, creating a new type of engagement between retail staff and consumers’ cars, career retail staff and prestige, and mass reskilling of workforces. Automation means billions of dollars in cost savings for retailers, exponential growth opportunities and the potential to add up to $4 trillion to the Australian economy by 2030.1 The benefits for retail by adopting automation include: • Reduced labour costs and increased productivity. • Increased operational capabilities and flexibility. • Better serve changing customer behaviours and needs. • Improve customer experience and relationships. How well businesses approach, adapt and implement automation will make or break retailers and brands. This essay concludes that in an era of rampant store closures, navigating through the changes that automation brings will be the key to survival and define retail’s future. Introduction There’s a monumental shift approaching our society that will affect almost every aspect of our lives. Reminiscent of the industrial revolution, we are advancing at such an incredible pace that in the near future, our daily lives will change forever. Automation will be the driving force through technologies such as machine learning, artificial intelligence (AI) and advanced robotics. For Australia it presents an opportunity to leverage this inevitable change for its economic and productivity benefits Patricio Servat or be left behind while the rest of the world races past. Critical success factors are public acceptance, Australian- made technological innovation, and the government’s development of infrastructure, policy and legislation. It is estimated that half of the activities in retail can be automated using current, at-scale technology. For Australia, depending on how well it seizes the automation opportunity, it could add up to $4 trillion to the current $1.89 trillion economy by 2030.2 While the potential automation opportunities are limitless, this essay will focus on the key operational areas that will most benefit within retail, including distribution centres, automated transport, and store-level automation, with consideration of the influences of online. Distribution centres Productivity and utilisation are the name of the game when it comes to distribution centres (DCs) driving economic benefits. Retailers are facing ever-increasing labour costs, tighter fair work regulations, and rising real-estate costs. Automation unlocks the possibilities to do more with less, predominantly through advanced robotics and AI. Benefits in DC automation include reduced labour, faster order processing, smarter fulfilment planning, safety benefits, higher storage density, increased processing capacity, faster and more accurate picking, and the ability to run 24/7. Research shows Australia’s online shopping peaks in the evenings3, and is estimated to grow to 15-20 per cent of sales by 2030.4 Being able to process those overnight orders as they happen adds faster delivery and tremendous capacity with workload balancing. Coles and Woolworths are investing more than $1.5 billion on state-of-the-art automated DCs over the next five years.5 These will provide twice the amount of output in half the footprint of a traditional DC.6 Major benefits to their shoppers will be improved on-shelf availability, wider product variety, and tailored store ranges to meet local demographics and changing consumer needs.7 AI will play a vital role here with smarter stock replenishment, and as each store continuously tweaks its range, AI will optimise the layout and flow of a store to maximise sales value. One of the most impressive features is the ability to design store-specific pallet stacks based on the aisle layout and unpacking order, so the pallets can be unloaded from the delivery truck straight to the shop floor. It cuts down labour time in breaking down pallets and minimises disruption in stores, leading to more sales and an improved customer experience.8 One estimate calculates that with this process, a large supermarket would require four fewer people per store back dock – multiply that by the Coles and Woolworths network and that’s 7200 retail staff or more than $160 million per year in labour savings.9 The floor plan and process workflow can be optimised for robot access rather than human ergonomics, safety or speed limitations. All-hours processing and robot speed mean businesses can dispatch more frequently and resupply stores quicker, which poses the opportunity to reduce a store’s holding stock and expand product ranges. Just-in-time inventory provides more flexibility and allows more seasonally and needs-based fulfilment rhythms. There will be a bigger focus on lost- sales minimisation, especially due to true out-of-stock issues, and it will blur the lines between store operations and supply-chain responsibilities. Automated transport Selling products has always been dependent on the ability to move them from point A to point B, whether a merchant ship or Uber delivers it. While the research focus is on retail operations, automated transport will have a significant impact on how customers shop, not to mention potentially decimate the 80 per cent TO PAGE 28 INDUSTRY INSIGHT AUG, 2020 RETAIL WORLD 27