MARCO TEORICO

Retail is an intermediary between the manufacturer and the consumers in a supply chain (Majeed & Rupasinghe 2017). Retail is defined as “sale for final consumption” and excludes sale for further sale or processing (Bhattacharyya 2012). Contemporary retailing is not restricted to selling products and services in various bricks-and-mortar retail outlets, but also through online presence and both (multi-channel, omni-channel) (Majeed & Rupasinghe 2017).

Retail supply chains are extremely intricate due to the array of sales and storage settings, with an unpredictable demand for a vast number of stock keeping units (SKUs) (Popli et al. 2013). A number of specific supply chains at the backend for each category of products, make the right product available at the right place, at the right time, at the right cost to the right customer (Popli et al. 2013). Superior customer orientation and operational efficiencies are necessary to survive in the increasingly competitive retail industry (Hübner et al. 2013) through efficient logistics and order fulfilment (Ellram, La Londe & Weber 1999). E- commerce in the form of e-tailing has exponentially grown to challenge the traditional bricks-and-mortar model, resulting in several retail forms co-existing to provide choices to global consumers (Balazs & Zinkhan 2003). Natural selection theory or “survival of the fittest” vindicates the transformations of the retail landscape (Balazs & Zinkhan 2003), hence progressive technology adoption is crucial (Doms, Jarmin & Klimek 2004).

Due to the dynamic competitive environment in the retail domain with unpredictable consumer behaviour, retail companies are facing various challenges that pose major threats to the prevailing business models (Majeed & Rupasinghe 2017). Therefore, retail experts emphasise the benefits of integrative approaches (Hübner et al. 2013). Connectivity, collaboration and the use of advanced technology are some key areas that retailers must focus on to better manage supply chain intricacy and remain competitive in this digital era (Majeed & Rupasinghe 2017). As retail supply chains are primarily demand driven (van der Vorst et al. 2016), intense ICT-enabled connectivity and coordination within the supply chains are crucial (Aiello et al. 2016). Hence, both scholars and industry practitioners affirm that IoT plays a significant role in the retail space, as IoT can provide more accurate real- time information (Gubbi et al. 2013; Sharma 2014).

64 IoT can help manage retail supply chains by tracking merchandises and entities to orchestrate supply networks in accordance with customer response (Lee & Lee 2015). Integrating with consumers’ mobile phones has become an important aspect of consumer experience, presenting retailers with a novel business concept to market their products (Gehring et al. 2011). Despite the strong interest among major Australian retailers (Wamba & Boeck 2008), there is insufficient insight or guidance for industries to favourably deploy IoT strategies to achieve operational excellence (Hwang, Kim & Rho 2015).

Over 130,000 retail businesses were registered by the end of June 2017 in Australia as classified under Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 Division G: Retail Trade (ABS Counts of Australian Businesses 2017). Retail trade includes units mainly engaged in purchase and/or on-selling, commission-based buying, and commission-based selling of goods, without significant transformation, to the general public (ABS_ANZSIC 2013). Detailed division G classification includes non-store retailers or e- tailers and excludes wholesalers. The revenue of this industry sector is 2017 A$565.1 billion and employs 1,925,676 people (IBIS World 2018). The retail industry accounts for a significant part of Australian economic activity, representing around 4.1% of gross domestic product (GDP) and 10.7% of total employment (Productivity Commission 2011). Retail sector employment and wages are struggling to keep pace with other industries, due to intense competition and low turnover growth compelling operators across the sector to slash expenditures (Delloitte Retail Report 2017). Historically being one of the biggest employment generators across the Australian economy, employment has only grown by 3.7% from 2012 to 2017, roughly around half of the employment growth across all industries at 7.3% (Delloitte Retail Report 2017).

The Australian Industry Report published by the Department of Industry Innovation and Science (2016) calls for growth in labour productivity, energy efficiency and innovations in business processes. The report argues that, by international standards, Australian firms are slow adopters of technology and, on several digital engagement indicators, Australia ranks in the middle among advanced economies, rather than at the forefront. The report reveals that Australia’s productivity has been lagging, while the input cost share of labour in Australian retail is as high as 68.6%. Digital maturity is advocated as a solution. Moreover, using current measures of digital maturity, many Australian businesses lag in sophisticated exploitation of digital technologies, with small and medium-sized enterprises (SMEs) further lagging behind their larger counterparts. However, the report claims that the rapid advances in technology and the use of combinations of new technologies mount a significant

65 challenge in measuring the extent of utilisation of digital technologies in Australian businesses.

Government-commissioned reports highlight that digital technology may perhaps be having a much larger impact on economic growth than estimated. A report commissioned by the UK government (Bean 2016) suggests that the contribution of digital economy is underreported in formal statistics, as conventional measurements of GDP, developed at a time the economy was dominated by goods and services, cannot fully account for the influence of digital technologies. The report asserts that “policy makers need stronger evidence of the link between digitally mature firms and productivity” (Department of Industry Innovation and Science 2016, p. 88). In Australia, a report on “IT use and Australia’s productivity” by the Bureau of Communications Research (2016) reveals that digital technologies are generating different productivity effects across Australian industries. While ICT substitutes unskilled labour, skilled labour can exploit ICT to a positive effect. It claims that, along with the US, Australia was quick to reap benefits from ICT. The report points out that innovative use of ICT playing an important role in Australia’s productivity growth in the 1990s, following a raft of microeconomic reforms. The retail sector was one of the key obvious exploiters. The report also points to international evidence revealing ICT’s productivity gains, although they are not uniformly realised. The report states that ICT progress in new forms, and being more pervasive, possibly opens-up new productivity opportunities but may not show up as they don’t fit the standard measurement techniques. The report argues that technologies such as IoT are a very much a part of the digital transformation; however, measuring the effect of these digital technologies on productivity has become much harder, as they are more sophisticated and pervasive (Bureau of Communications Research 2016).

Industry-commissioned reports also convey similar findings. A report sponsored by Microsoft (Telsyte 2015) is the only source with Australian industry statistics on IoT currently available. The paper indicates that 26% of 306 Australian cross-sector organisations surveyed have deployed IoT, out of which the two-thirds that measured outcomes have managed 28% cost reductions. 27% of surveyed organisations plan to implement IoT within the next two years with cost-cutting and process improvement being the major drivers. The study substantiates that retailers have made the greatest progress via big data solution deployment statistics. Transport & storage services that play a major part in retail supply chains are considered to be early movers. Although the report includes survey data from 37 retail firms, it does not specify IoT deployment in retail explicitly, nor

66 does it look at how IoT blends with business process to impact on SCI for performance gains. However, referring to the same data, an industry website (Inside Retail 2015) claims that half of retail organisations intend to deploy IoT in the next two years. Even though the survey participants ranged across various industries and firm sizes, the paper does not provide a macro view or provide enough evidence to generalise about IoT deployment in Australian retail industry. The report also lacks credibility as the survey objective was to promote Microsoft products. Therefore, methodologically sound empirical evidence on this theme could be of value to the industry as well as to policy makers.

The research report by Roy Morgan (2016) find the value to retailers of properly identifying their customers and the aspiration of consumers to have an increasingly ‘frictionless’ retail experience. With a proactive approach to customer requisites, retailers can thrive in the digital economy by investing in technology to integrate with IoT devices (Dootson 2018). Industry reports suggest that IoT’s potential impact on the Australian economy could reach $120 billion by 2025 (Heydon & Zeichner 2015). The digital disruption of the retail industry is projected to be at one of the highest intensities of all industries by 2020 (Rigby & Tager 2014). Ramoz (2017) report claims that retail is the second highest digitised industry, globally, at 50%, behind media and entertainment. Research by Deloitte signals the rapid growth in digital uptake in Australia, with digital influencing 40% of retail bricks and mortar store visits; 65% of customers using a digital device before shopping and 31% during shopping, using digital devices to research (find, compare) products increasing the conversion of sales by 25%, and overall approximately 21% of consumers believing that digitalisation increases their overall volume of the order (Deloitte Digital Retail 2015). A survey commissioned by Zebra Technologies reveal that 96 % of Australian retailers are prepared to make changes to bring IoT into their operations (Zebra 2015). However, it has been found that many Australian businesses are not capitalising on the full potential of digital technologies, and, therefore, they may be missing out on productivity benefits of digital maturity (Department of Industry Innovation and Science 2016).

In summary, it has been widely corroborated that “the digital retail revolution is here, and Australian retailers who stick to the old ways of doing things will be left behind” (Ramoz 2017). Within this context, empirical research to verify the link between IoT and SCI process to impact on retail performance may provide stronger evidence of IoT’s perceived potency in the industry for academics, practitioners and policy makers alike.

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2.10 Chapter summary

This chapter reviewed the background literature at the intersection of supply chain management and Information Systems (IS) literature with the purpose of exploring how ICT implementation has enabled SCI and its effect on supply chain performance. The review also revealed the potential applications of IoT in general, but its implementation within a supply chain integration context was very limited. Furthermore, it reviewed the organisational capability theory that underpins this study in the context of the Australian retail industry.

This literature review has revealed five main themes.

1. Supply chain performance and firm performance are significantly related to each other.

2. SCI is considered to be an important enabler of supply chain performance. 3. ICT is a digital enabler for effective SCI, which, in turn, improves performance. 4. IoT represents a technological advancement of generic ICT with additional

capabilities, with objects embedded with sensors and softwares having the potential to collect and communicate data over Internet.

5. IoT as a new and disruptive technology has been the foundation for many innovative applications in logistics and supply chain operations reported to have an extensive effect on SCI processes and to impact on performance.

6. However, the literature has not provided enough empirical evidence on the effect of the IoT capability on SCI impacting on supply chain performance.

Scholars argue that there is a void in the literature on the relationship between IoT deployment in supply chain functions and its performance outcomes (Ben-Daya et al. 2017; Mishra et al. 2016; Verdouw et al. 2016). This literature review has further identified the lack of knowledge on IoT-enabled integration as an organisational capability and its impact on supply chain and firm performance. Therefore, this study presents an empirical examination on whether IoT can strengthen SCI to influence performance in the Australian retail industry, to address this identified knowledge gap.

In summary, IoT is a disruptive ICT innovation that can revolutionise supply chains. Although the effect of ICT is theorised for its effect on SCI to improve performance, the effect of neoteric IoT capability has not been empirically verified. Overall, research on achieving SCI via IoT is not evident in the literature. This study draws upon organisational capability theory to consider IoT as a core capability to achieve dynamic integration

68 capability in supply chains, to impact supply chain performance and in turn firm performance. It addresses the call for empirical evidence to verify the effect of IoT, in addition to traditional ICT, in supply chains for greater performance.

Based on the gaps identified in this chapter, the next chapter develops a conceptual framework to represent IoT-enabled SCI and performance, and presents a series of hypotheses on this relationship, supported by the literature.

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Chapter 3

The conceptual framework and hypotheses

3.1 Introduction

Chapter 2 explored the background literature on supply chain management, SCI, ICT and IoT. It identified the attributes of each concept and established the relationship between each as discussed by previous scholars. It was argued that there is a relationship between IoT capability and SCI, impacting supply chain and in turn firm performance. The chapter not only compiled relevant knowledge of each theme and their relationships, but also identified the gaps in the scholarly body of knowledge regarding the performance outcomes of the application of IoT to supply chains in general and its positive effect on SCI specifically, as the important mediation link that enables performance.

The studies have stressed the current role and the potential of IoT capabilities to achieve SCI for performance gains. With the emergence of IoT that can connect anything, anytime, it is timely to uncover whether IoT capabilities can further strengthen SCI for greater performance gains. Although, IoT capability qualify, as an extended ICT capability, no study to date has considered its disruptive effect on SCI. While the researchers have stressed the effect of ICT for SCI, a gap exists in knowledge when it comes to the relationship between IoT and SCI and resulting performance outcomes.

This chapter attempts to explain how IoT, SCI, supply chain performance and firm performance relate in sequence, primarily by drawing on organisational capability theory. Section 3.2 presents the conceptual framework that was adapted from Huo (2012, p. 600) original integration model. Section 3.3 develops hypotheses for this empirical investigation. The chapter concludes with a summary of the conceptual framework and the hypotheses. The below section reports the theoretical underpinning and the detailed process of hypothesis development.