Trend Analysis: What is the impact of the digital economy

September 1, 2016

Brian Isard

Over the summer we saw big changes in the front office leadership of one of Canada’s largest retailers because the company wasn’t moving fast enough to meet the challenges of the digital economy. 

Building and implementing a digital strategy is forcing companies around the globe to think long and hard about what they need to do differently in order to stay relevant and compete effectively in the marketplace.

Now I will admit that I don’t know a lot about the digital economy. Sure I have learned to do my banking over the internet but when I buy something I still want to go to a store to check out the quality and see the product before I purchase it but the way people purchase products is rapidly changing.

If you think of how the bank industry looks at the digital economy you can quickly see that when your customers start doing most of the banking over the internet or on their cell phone this is going to have a major impact on your primary distribution channel, which is the size and location of the bank branch.

Recently I had the opportunity to observe how the digital economy plays out for a retailer in the grocery merchandising industry. The digital operating model encompasses a variety of new functions that companies need to incorporate into their business such mobile–based purchasing, omni-channel order fulfillment, app based store delivery services, digital stores with virtual product inventories, virtual store research capability, digital retail coupons payment solutions, capturing point of sale information (POS), increasing concerns over data security and privacy of information for consumers making purchases on-line.

The grocery industry is a large user of wood pallets and this got me wondering how the digital economy is likely to affect the wood packaging industry. The products we manufacturer, whether new or recycled product, ends up being shipped from a manufacturer into some type of distribution network for onward shipment to the consumer. In the wholesale and retail distribution networks one of today’s biggest challenges facing the design and operation of material handling systems is how to handle the omni-channel distribution inside your distribution center. Omni-channel refers to consumers expectations that they can order all products from a retailer online with the option of having the product picked up at their local store or home delivered. A few years ago, supply chains that involved e-commerce systems which sell direct to the consumer only represented 5 % of sales the order processing which could be handled inside the distribution center. But when 25-30% of the volume shipped is required to be filled from inside the distribution it requires some major changes in how order fulfillment is handled. 

The growth in digital economy is forcing big changes on retail supply chains in order to meet rapidly changing consumer expectations. This push will force wholesalers and retailers to look for new solutions from their distribution and logistics systems such as next day delivery and real-time electronic tracking and communications to let the on-line customer know when their order is ready for pick-up or delivery. One of those changes is increasing levels of material handling automation at distribution centers and the need pallets that work well on conveyors.

For companies who act as service providers to the wholesale and retail sectors they should be aware that the digital economy will affect the entire supply chain and our industry in many ways that are yet to be well understood. 

Here is an opportunity for an industry to gather data that will provide long term benefits in securing our markets for the future.

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