Revolutionizing retail operations with AI

For retail, 2024 is the year of "total experience" — the effective use of artificial intelligence (AI) to inform every aspect of retail operations. The potential results are remarkable: AI can help retailers stand out, keep customers coming back and stay ahead of changing expectations.

In practice, however, creating the total experience combines three key components: streamlined operations, data-driven decision-making and enhanced customer interactions. First up? Improved operations with Dynamics 365.

Current challenges in retail operations

According to recent survey data, inflation costs and supply chain issues top the list of challenges for retail companies. Inventory management is also a key concern. If businesses can't accurately monitor and manage inventory levels, they may inadvertently sell products they don't have in stock. Here's a quick overview of these challenges and their potential impacts.

First is inflation — 54% of retail businesses say this is their biggest challenge. Given that the average net profit margin for retail is just 5.05%, there's little room for error when it comes to rising costs.

Supply chain challenges are next on the list at 23%. Common obstacles to success include inconsistent supply schedules, the rising costs of materials and the quality of goods produced. For example, if businesses can't rely on suppliers to deliver new stock on time, they can't rely on these products for revenue.

This dovetails with the final concern: inventory management. Here, accuracy is key — if businesses don't know what they have in stock and where it's located, they can't confidently sell products to customers. On average, inventory accuracy sits between 60% and 65%, putting retailers at risk of making product promises they can't keep.

How Microsoft Dynamics Commerce can help

Implementing Dynamics 365 can help streamline four key operations: inventory management, supply chain optimization, product recommendations and content creation.

Inventory management

The complex nature of inventory management — from tracking current stock levels to predicting future demand — can be simplified with AI.

Dynamics 365 Demand Forecasting uses Azure Machine Learning to analyze past purchasing data, seasonal trends and emerging market signals to predict future demand with high accuracy. This predictive capability allows retailers to maintain optimal stock levels, reducing both overstock and stockouts.

For retail associates, Demand Forecasting means they can assure customers about product availability, suggest timely promotions and manage store layouts more efficiently.

Supply chain optimization

AI's impact also extends to supply chain optimization. Dynamics 365 can evaluate supplier performance, shipping times and cost variables, offering recommendations to streamline the supply chain. The solution can identify the most reliable suppliers and optimal logistics paths, which, in turn, reduces the risk of delays.

Product recommendation

At the point of sale, whether online or in-store, AI enhances the customer interface. It provides retail associates with real-time suggestions based on the customer's browsing and purchase history, enabling personalized recommendations that resonate with the customer's unique preferences. This level of customization not only elevates the customer's experience but also boosts sales and customer satisfaction.

Content creation

Using the new AI product enrichment features in Microsoft Dynamics Commerce, brand managers can quickly and easily generate compelling product and web page descriptive content that saves time, boosts basket sizes for web orders and improves conversion rates.

Three tips for effective dynamics deployment

Microsoft Dynamics 365 offers AI tools that can help retail businesses revolutionize operations — with the right approach. Here are three tips for effective deployment:

1. Consider current systems

Before implementing Dynamics 365, companies should assess their current infrastructure. For example, if retailers are still primarily running legacy tools with minimal connection to the cloud, consider creating a road map to implement Dynamics in phases. This helps enable the greatest benefits with the least disruption and future phasing impact.

2. Set measurable goals

Once the stage is set for deployment, businesses should define measurable goals. This could be a specific increase in inventory accuracy or a conversion boost tied to improved product content. Put simply, measurable goals provide measurable benefits.

3. Start small

The increasingly broad nature of AI tools makes it possible for retailers to spend big but see only minimal results. As a result, retailers should focus on use cases that could benefit most from generative AI technologies.

Where possible, start with secure and predefined applications (such as Microsoft’s Copilot for Sales and/or Service), which incorporate AI directly into existing processes that can optimize both employee and customer experiences.

To reduce the risk of overspending and underperforming, retailers should start small. Pick a specific process and a specific outcome, and apply AI to this purpose. If successful, expand.

Delivering dynamic outcomes

Microsoft Dynamics 365 can help give retailers the edge. And with processes streamlined and optimized, retail companies are ready for part two of the total experience: Personalization.

Check out the second piece in our Microsoft Dynamics Commerce series to explore the potential of retail personalization.

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The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.