Artificial intelligence (AI), ChatGPT, and large language models have transcended their portrayal in popular culture, like The Big Bang Theory and Black Mirror, and are now making tangible impacts on our everyday lives. From generating term papers and lines of code to that memo to our boss asking for a raise, to proofreading this article, the power and impact of AI have become pervasive. So much so, that some have called for a pause on the continued usage of AI until we have a better understanding of the repercussions; and while we may not truly understand the long-term impacts, that is another topic for another article.[1] In this article, we will explore some prominent use cases of AI in retail and discuss potential future ramifications:
- Improved customer relationships. Since the dawn of time, retailers have sought to create closer and more meaningful relationships with their end customers. We have all heard of the stories ranging from your friendly Starbucks barista who starts your favorite order once they see you walk into the store to the salesperson at Nordstrom who remembers your birthday and what size shoe you prefer. This type of service often depends on salespeople with a great memory. With the rise of digital technology, retailers were able to lean on the digital breadcrumbs we all produced to create a rich profile of consumers. The rise of AI will turbocharge retailers’ ability to build a richer and deeper profile of consumers. Accessing and processing large amounts of data via AI should be able to uncover insights, patterns and valuable nuggets allowing retailers to better market and service their customers.
- Fulfillment efficiencies. In the retail landscape, it is not the retailers themselves who compete but rather their supply chains. The COVID-19 pandemic emphasized the critical role of supply chains in our economy, with shortages of essential items like toilet paper underscoring the consequences of disruptions. Will AI ensure we avoid another global pandemic? Doubtful. But AI offers supply chain professionals a potential new tool to allow greater efficiencies to be realized across the supply chain. Enhanced insights can empower warehouse operators to better slot and organize inventory within their distribution centers. AI can be used to create better flow and picking patterns throughout the warehouse. Transportation and last mile fulfillment could also benefit from greater insights to improve routing.
- Labor improvements. People remain central to success in the retail industry. Whether it’s store employees, delivery personnel, customer service representatives, or warehouse workers, they are the crucial touchpoints between a brand and its consumer. AI is a tool that can assist retailers in various aspects of managing their workforce, from recruitment and hiring to training and empowerment.[2] Human resources can leverage AI to better identify what skills are needed for specific roles. Using techniques such as semantic search, recruiters can aspire to target the right candidate faster and with more success than ever before. Once the workforce is in place, AI can facilitate retailers to have a better training and retention program in place. The bottom line is that retail HR departments can have access to a powerful data driven tool to create a better working environment.
These types of use cases for AI are becoming more mainstream in retail, and business in general. But what are some future applications retailers need to consider?
- Enhancing demand planning and new product introduction (NPI). The pace of change in retail has only accelerated, a byproduct is the need for retailers from Zara to Marlboro to constantly revamp and expand their product lines. The challenge is how to accurately gauge demand. AI has the potential to be a powerful tool in this endeavor, but should not be seen as a panacea. It should be treated as a complement to retailers’ existing strategies to provide insights and inform demand planning decisions..
- Optimize sourcing strategy. In addition to its applications in fulfillment, AI can be leveraged further up the supply chain to enhance sourcing strategies. Retailers can rely on AI to improve sourcing efficiency, promote sustainability and identify potential disruptions earlier in the supply chain.
AI holds much promise, and some fear, which is fairly common with emerging technology. Retailers need to think about what their AI strategy will resemble over the next few years, identifying the use cases where these tools can be effectively applied. In parallel, retailers need to also consider other aspects like the sustainable impact of relying heavily on digital resources.[3] AI is a tool; a tool is only as good as the operator and how they leverage it.
[1] https://www.nytimes.com/2023/03/29/technology/ai-artificial-intelligence-musk-risks.html
[2] https://www.forbes.com/sites/forbeshumanresourcescouncil/2023/06/01/could-ai-technology-potentially-impact-the-recruitment-landscape-in-the-near-future/?sh=779b679c5886
[3] https://theconversation.com/is-generative-ai-bad-for-the-environment-a-computer-scientist-explains-the-carbon-footprint-of-chatgpt-and-its-cousins-204096
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