As generative AI took center stage at the National Retail Federation's 2024 convention (held Jan. 14-16 in Manhattan), SAP announced new AI-driven capabilities to help retailers optimize business processes, for predictive demand planning, predictive replenishment of goods, and order management.

In an uncertain economy, retailers seek a competitive edge, and a growing number of leaders in the industry believe AI will play a critical role in achieving mission-critical objectives. Indeed, analysts at IDC report that the global retail sector currently ranks second (only behind banking) in enterprise spending on AI.

Those investments appear to be paying off. According to Retail Insight Network, companies embracing AI and machine learning (ML) reported 2.3 times the growth in sales—and 2.5 times the profits—in 2023, compared to competitors not implementing these technologies.

This compelling trend was central to SAP's message at NRF this year, with announcements highlighting AI's role in helping retailers deliver better customer experiences, optimize operational efficiencies, and differentiate themselves from industry competitors. Among the newest capabilities announced were:

  • SAP Predictive Demand Planning, a solution to provide retailers with more accurate and longer-range demand forecasts across channels using a self-learning demand model.
  • SAP Predictive Replenishment, which will add store replenishment capabilities in a phased approach to the existing SAP Predictive Replenishment solution.
  • SAP Order Management for Sourcing and Availability, a solution allowing organizations to determine optimal sourcing strategies aligned to their business goals and run simulations to test these strategies before implementation.
  • SAP Order Management Foundation, an order management system that will allow business users to create omnichannel order flows that respond to business events using an intuitive, drag-and-drop workflow automation tool.

ASUG caught up with Sven Denecken, Chief Marketing and Solutions Officer, SAP Industries and CX, to discuss the technology trends currently redefining retail's digital supply chain, enabling data-driven strategies, and facilitating enterprises’ integration initiatives.

This interview has been edited and condensed.

ASUG: SAP had a significant presence at NRF and made several AI-related announcements. What are the most significant trends we can expect to see within the retail industry in 2024?

Sven Denecken: First, I will mention that the retail industry is evolving in every dimension. The biggest trends are occurring in three critical areas:

  • First, digital supply chains are providing a new level of visibility into large global inventory pools.
  • Second, there is a growing realization that retailers must develop comprehensive data-driven strategies to support strategic planning. As a result, we are seeing a significant focus on ensuring that good, clean data is available to meet customer expectations while managing margin pressure.
  • The third trend revolves around building new business models to stay competitive and doing this with partners.

At NRF, we had the opportunity to demonstrate that we are doing a lot within the retail ecosystem, from all that is happening with technology within stores to tailoring products to a segment of one, which allows brands to communicate with customers on their terms.

It's very clear that if retailers do not support new business models that leverage emerging technologies like AI and ML—if they don't redesign their stores and cannot market to a segment of one, [delivering a personalized customer experience]—they will not grow.

ASUG: Tell us more about the new business models that retailers are building and the types of partnerships you are seeing in this space.

Denecken: If you look at the AI-driven retail capabilities we announced at NRF, they are focused on enhancing the customer experience, from planning to personalization.

We are evaluating the technology already in place for supply chain planning and then augmenting these capabilities by integrating AI support. We're looking at order management—the core of many retailers—and exploring how we can add capabilities and context that enhance their value proposition.

We're also looking for ways to integrate today's social media platforms, from TikTok to LinkedIn, to close the loop between online and onsite experiences. These platforms are essential technologies for retailers. We need to think beyond traditional IT and enterprise technologies.

This is where initiatives from companies like Emarsys, an SAP company and customer engagement platform, enable retailers to quickly engage with inbound leads and funnel those down to that segment of one I mentioned earlier.

ASUG: SAP introduced AI capabilities into several of its retail solutions. What benefits will this bring to your customers in retail and other industries?

Denecken: Everyone is, of course, excited about generative AI. SAP has supported artificial intelligence for over a decade, and we currently have working solutions based on automation and AI. We're also exploring the immense opportunities presented by generative AI to change the way business runs.

Within retail, leaders must ensure that AI technology is infused to support business processes and applications from end to end. AI should not be a stand-alone technology that sits aside from the rest of the enterprise computing environment.

A fully integrated approach to AI can power several smart possibilities, such as predicting optimal product assortments, identifying target customers, and defining when they will walk into a store. This will help retailers determine whether they have suitably personalized information across all engagement channels, including social media platforms like LinkedIn.

It will also help retailers enhance the experiences customers have in-store and online. While these channels may be managed differently, decisions optimizing the customer journey should all be based on the same data and insights. Anticipating demand across the retail supply chain is very important. This allows retailers to become more sustainable by minimizing the cost of returns. The more targeted retailers are, the more likely customers are going to be to keep their product and not return it.

AI will help with the challenges we see facing retailers in this area. These challenges include the rising cost of energy and transportation, changing consumer behavior, and sustainability, which is moving to the forefront for many retailers. This is exactly where I think AI will have the biggest impact.

ASUG: Will retail customers see any difference in their business processes, or are these newly announced AI capabilities embedded within their current processes?

Denecken: As part of our strategy, AI is ingrained within our applications. As with any automation, you won’t see it, but you’ll see the outcome. Consider hyper-personalization, where the experience you have with a retailer in-store and online reaches a completely new level of personalization; we're leveraging AI and machine learning to become more adaptive and to deliver those experiences. Customers see the outcome; they don't see technology. We like to say that AI is built into our solutions, not bolted-on. Hyper-personalization works best if it’s inside the system.

SAP Business Technology Platform will enable built-in capabilities, and the ecosystem built on top of SAP BTP will allow customers to integrate with non-SAP solutions. We offer this type of capability with partners like Coveo, experts in retail search. We’re integrating their technology into our platform, which allows them to get much closer to the data. The secret sauce of generative AI is good data.

ASUG: How is SAP enhancing its supply chain solutions to ensure resilience, agility, and sustainability for retailers?

Denecken: We're enhancing three areas: real-time responsiveness, replenishment, and waste and emissions reduction. These are all very important to the supply chain.

We're introducing predictive demand planning within the supply chain with a new dedicated solution, SAP Predictive Demand Planning, integrated into our cloud-based retail portfolio and we have introduced store replenishment capabilities to the SAP Predictive Replenishment solution. Because the solution is based on cloud technologies, these capabilities can sit on top of current systems, regardless of how retail customers run their backend and order management operations.

These capabilities enable real-time responsiveness to improve retailers' collaborative planning across all suppliers and intermediaries, from sourcing to when products get to the retailers' shelves, in a highly tailored manner. This is not a one-size-fits-all solution.

Finally, we must continue to support eliminating waste and reducing emissions. It's essential to ask: How can retailers reduce returns and look at the entire supply chain from a production perspective? AI-enabled insights can provide interesting answers to this question for each retailer based on their unique circumstances.

ASUG: You talked about the importance of creating personalized experiences for retail customers. How does this encourage customer loyalty to brands?

Denecken: If I’m a retailer, the area of utmost importance is customer loyalty, which is on the decline. According to new research released at NRF, one-third of U.S. customers would switch to another brand if they believed it was more sustainability-focused. We know that a fifth of customers are loyal to brands because they see those brands focus on sustainability.

It’s a must-have capability within loyalty programs to include rewards and incentives for the end customer. If customers are going to click, they want to have a personalized experience and they want strong communication, but they most importantly want to be rewarded for continuing to engage with the retailer.

With customer experience and customer loyalty, brands want to stand out, which is why personalized omnichannel engagement is so important.

ASUG: You've mentioned sustainability throughout the conversation. Can you tell us more about how retailers can address sustainability?

Denecken: Climate action is happening. The circular economy is happening. But what does that really mean for our customers? Let me start with an example of the circular economy. Industry leaders are asking tough questions such as:

● How do I engage in responsible design and production?

● How can I leverage tokenization, such as through GreenToken by SAP, to enable traceability?

● How can I utilize “re-commerce?” [selling previously owned items through online marketplaces to buyers who reuse, recycle, or resell them]

These are all elements of sustainability, which SAP supports from a business process perspective. Retailers can differentiate by knowing who their customers are and where they bought products. With this information, retailers are able to make customers specific offers or bring them back into the store to exchange those products for new ones. Retailers are also able to prove whether a product is recycled. Buyers may even be willing to pay a certain premium to know a product will be disposed of properly and not end up dumped somewhere in the world.

These are topics that we are thinking through, from responsible design to traceability for re-commerce. This is all connected to the topic of retail talent. How can we as companies create the next generation of retail personnel? How can we create a value proposition for retail personnel? I see this as connected to sustainability.

People want to work for retailers that think about how to make frontline jobs more engaging, because they generally have happier customers coming into the store and those retailers know who they are, know their buying and technology preferences. I would not underestimate how retailers can nurture their talent, engage with them, and continue to create a strong culture.

ASUG: 2024 is upon us. Tell us about your overall goals for your industry-focused teams.

Denecken: First, our team is pleased to get through the year's first major milestone with our retail announcements and presence at NRF. This is a vital industry that's going through changes.

The insight that AI has introduced to enhance customer experience while streamlining operations to achieve sustainability objectives represents a major step forward in the digital transformation of retail. It reflects the changes that we are seeing across all major industries.

I'm excited. I'm looking forward to supporting our retail and manufacturing customers as well as all the other industries SAP supports. The work we’re pursuing with disruptive technologies like AI and ML has attracted a lot of new, young talent to my organization. It has created momentum that we will carry forward through all of 2024.

Patricia Brown is ASUG's Editorial Director.

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