It is not too bold to predict that the Internet of Things (IoT) will have a similarly disruptive effect on our lives as the Internet has today. Based on Machine-to-Machine-Communication (M2M), ever more objects such as buildings, clothing, food – even plants and animals – will be digitally connected to provide information about themselves and their environment. In about four years, there will be 50 billion things with an IP address. McKinsey recently calculated that the global economic value of the IoT will be $11 trillion by 2025. This represents about 11 percent of global economic output, with two thirds of it generated for business-to-business (B2B) applications. The potential in retailing is $410-1200 billion per year. But despite all the potential, one challenge remains: the rise of the IoT generates so many potential opportunities that it is easy to get lost in all the noise. As a retailer or someone working closely with the retail industry, you might wonder: is there a success formula that will allow my business to truly stand out from the crowd?
For inspiration, look to the ‘backend’ of the retail world, as two-thirds of IoT optimizations are predicted to happen in the B2B environment: in production, logistics and storage. In the logistical environment, manufacturers have already started embracing radio frequency identification (RFID), an early technology related to today’s IoT definition, to optimize warehouse processes by having two devices communicate directly to each other. Take Daisy, the largest sour cream manufacturer in the US, which is currently using Fujitsu’s iMotion technology to RFID-enable finished goods handling from manufacture through cold storage and shipping. The company achieved increased inventory turnover through improved physical inventory management and better operational efficiency through optimization of shipment handling. RFID technology also holds huge optimization potential for retailers. On the one hand, it can help automate one of retail’s biggest pain points, inventory management, and consequently slash out-of-stock scenarios.
With the capabilities of modern IoT, retailers now have an even more powerful technology at their disposal. Already today, solutions such as the Fujitsu Retail Engagement Analytics suite are providing a more scientific rationale for store management through real-life insights for optimizing store layout, merchandising distribution, and the presence of staff. The lines between process-optimization and customer-facing benefits are already blurring as retailers are starting to tap into the disruptive potential of customer-facing, human-centric value added services that connect the IoT with the real world of potential customers.
If there is such a thing as a success formula for retailers, it might look similar to this:
People + Objects + Processes + Context = Relevance
Some of the M2M-enabled objects on products and goods retailers sell today are designed to stay connected throughout their full life cycle: during their development, distribution, sale, usage by the consumer, and right up to their disposal. Let’s take the example of products that report independently when and to what extent they need to be serviced. From a customer-centric – or in Fujitsu terminology, a human-centric – perspective, this is the very essence of a highly relevant context for a customer interaction. At the same time, it is the entry point for high-margin business for many brands: after-sales and maintenance. But it might also be an opportunity for retailers to offer product replacements – at a time, when consumers might be highly receptive to such offers.
Or think of fast-moving consumer goods. Today, for the retailer, the job is done when the customer has paid at the checkout. Tomorrow, the IoT will create a new loop of information and touch points of purchase and consumption. The way consumers use products and the time of re-purchase will become more transparent by the IoT – and new players are already experimenting with new replenishment options. Just think of subscription-based e-commerce models with orders triggered by IoT-enabled devices; or the idea of providing wifi-enabled buttons that might shortcut the replenishment of a common household good and route the consumer to pre-defined supplier – by simply adding an extra layer of convenience and being available the very moment a product runs out at the customer’s home.
For retailers able to bundle the operational complexities of operational processes behind a convenient service and combine them with the new levels of intelligence IoT can provide, there is a real chance to claim land in the retail world of the future.
 Inventory turnover is the number of times that your inventory cycles or turns over per year. For calculation, a frequently used method is to divide the Annual Cost of Sales by the Average Inventory Level. Example: Cost of Sales = $36,000,000. Average Inventory = $6,000,000 Therefore: $36,000,000 / $6,000,000 = 6 Inventory Turns”