Project Description

In the world of omnichannel and ubiquitous mobile devices, coupled with a highly disruptive social and economic environment, it has become necessary to handle the needs of customers from all angles. However, not every business faces the same problems within their specific supply chain. It is with this in mind that retailers need to focus on omnichannel inventory optimization.

Omnichannel inventory optimization is carrying a level of inventory that reduces the possibility of an out-of-stock situation, while at the same time ensuring the carrying cost of inventory does not hurt the bottom line. In the simplest of terms, omnichannel inventory optimization means balancing demand and supply across all channels.

Retailers continue to face inventory challenges such as:

  • High inventory storage costs
  • Inability to fill orders on time
  • Significant margin loss on markdowns
  • Inefficient fulfillment processes
  • No visibility to inventory levels across channels

 

Balancing and optimizing inventory across the distribution network can address these difficulties and more. Part of the discussion must include where inventory is at any given moment. This requires a robust system and full integration to give an accurate snapshot based on the many different systems traditionally used within a retail enterprise.

Consider store inventory, distribution inventory, and inventory in-transit (by truck, boat, or air). In an ideal situation, inventory in the supply chain is fed into a supply chain visibility tool and is then available for end users to make proper decisions, as well as to optimize fulfillment.

In this viewpoint, Parker Avery addresses these topics with detail around how integration and visibility of a retailer’s inventory supply can meet the demand from all channels.

Inventory Visibility

Inventory across a supply chain network changes rapidly throughout any given day. This includes inventory in distribution centers (DCs), stores, in-transit to the DC or stores, and on-order to be delivered to a DC or store. A common problem among retailers is determining exactly how much inventory resides in each area in a timely manner. If these numbers are available and accurate, it is much easier to match the demand with the true supply levels to fulfill customer orders.

Real-time inventory levels are a goal every retailer should try to achieve. An inventory management system needs to be in place and accurately utilized for proper data tracking. A good system aids in lowering operational costs over the supply chain network. This is achieved by reducing or eliminating lost sales due to inaccurate stock levels, inventory write-offs, and shrinkage.

However, getting real-time visibility is a difficult task for any company because inventory levels are constantly changing due to customer purchases and replenishment activities occurring within all stores and facilities. In most retail enterprises today, a mere glimpse of what the inventory levels are at any point in time is the best anyone can ask for.

In today’s quickly changing technology environment, many new systems are now available to view inventory by location. These systems are usually order management systems with access to information about inventory available in the store, distribution centers, purchase orders, purchase requests, and other demand in real time. Based on this data, the software can provide employees with an accurate number on each SKU’s available to promise (ATP). This ATP number can also take into account the date the customer needs the product delivered.

Demand Across Channels

The need for agility in the retail marketplace has become an expectation. Customers expect to be able to purchase products in-store, online, and with their mobile devices. Further, they expect a variety of fulfillment methods (buy online pickup in store, same day home delivery, etc.) to accommodate their needs. The expectation that the item is available for delivery to the customer’s location, to a local store (i.e., ship to store) or for pick up in store within a reasonable timeframe is established based on these purchasing methods.

There are many options for retailers to deplete specific inventory levels and maintain margins without losing profit to markdowns. The challenge becomes fitting the appropriate supply to meet the daily demands of the customer, while balancing labor costs and operational needs. When inventory is available in real-time, companies can choose the least costly and most efficient option to fulfill the order while maintaining the highest profit levels.

When store employees are given proper tools such as workstation computers or mobile devices with applications that enable them to view real or near-time inventory levels, they are equipped to help the customer purchase the product for delivery to their home, pickup in another store, or let them know when the product will be available in their desired store. This not only puts the employee in the driver’s seat on how to best fill the order, but also helps the retailer keep the sale and increases customer satisfaction. With a store-level holistic view of the company’s inventory, there is now a mechanism in place to ensure customers have a higher level of confidence about the retailer’s ability to satisfy their needs. This confidence increases the likelihood of customers returning to the same retailer’s store for their future purchases versus a competitor’s store.

Omnichannel inventory optimization and demand considerations should include online, mobile, catalog, and direct to customer behaviors. Some questions to consider here:

  • Is the supply considered based on the delivery location?
  • Does the company break up demand or supply by regions?
  • Are internet and catalog considered one bucket of demand (direct to consumer)?

Based on the answers, demand can be fulfilled from the proper locations based on inventory supply visibility and therefore better enable the agility of the company.

Brand Management and Pricing

As part of omnichannel inventory optimization, the ability to price items more profitably across the network becomes more apparent. Visibility of accurate inventory levels in stores, DCs, and in-transit enables employees and customers to decide the best place to purchase or fulfill an item. This increased visibility raises additional considerations:

  • Should a company price and size items differently online versus in store?
  • Should the same item be priced differently between regions?
  • What type of shipping options and pricing should be offered?
  • What are the sales tax implications?

This is where the world of brand management across the enterprise takes flight.  A good way to handle brand management is based on the lifecycle of the product, with different considerations at the beginning of the season, throughout, and at the end of the season. Price continuity in the beginning of a product’s lifecycles is typically much more appealing to a customer than at the end of life for an item. When an item is first available or put on sale (not clearance), customers typically expect to find their desired color, size, and other options of that product in any channel at the same starting or promotional price. If the item is on clearance, customers are looking for the lowest available price in hopes their desired options are available, but with the understanding that the product may have sold out already.

Consideration of pricing across channels to maintain brand image is important. With the availability of mobile devices and a myriad of price-comparison applications, consumers can now easily compare pricing across different retailers. Not managing to customer expectations can be costly for companies, and omnichannel inventory optimization can be key in keeping prices and inventory levels manageable across the network.

Next Steps

Now, look at the inventory model in your company. Is it at a place where inventory is optimized? What type of initiatives would it take to get this off the ground? Start first by looking at what business problems a solid approach to omnichannel inventory optimization would help alleviate. Once the problems are identified, consider what balancing and optimizing inventory across the supply chain network would entail:

  • How accurate is inventory in the stores and DCs?
  • How often is inventory in transit?
  • How often are turns within DCs?
  • Are protocols in place to monitor inventory levels?

Omnichannel inventory optimization can help reduce the number of items going on markdown, help in-store employees track down items more efficiently for customers, and manage costs across the network.

Final Word

Omnichannel inventory optimization is an ever-evolving practice that most retailers are striving to achieve. It is increasingly imperative in today’s dynamic and disruptive world. With customer expectations for product availability at the store, online, or via catalog and fulfilled in a variety of methods, the tasks of tracking and managing inventory location, customer activity, and pricing can be daunting. New business processes, supported by technology investments have become a necessity for many retailers aiming to achieve the most balanced blend of supply, demand, and pricing. The solution and investment that is right for your company must begin with prioritizing the problems that need to be solved.

When implemented and used correctly, there are a number of technologies available to enable omnichannel inventory optimization capabilities. Such capabilities include:

  • Helping employees provide accurate inventory levels, availability dates, pricing and location of the inventory in real-time
  • Providing customers accurate inventory visibility as well as purchasing and fulfillment options for their desired products
  • Better management of inventory across channels allowing for lower inventory levels and cost reductions

All of these factors can help retailers realize improved customer satisfaction and revenues, more empowered employees, and a stronger bottom line.

About Parker Avery

The Parker Avery Group is a leading retail and consumer goods consulting firm that specializes in transforming organizations and optimizing operational execution through the development of competitive strategies, business process design, deep analytics expertise, change management leadership, and implementation of solutions that enable key capabilities.

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