The three levels of inventory insight you need to deliver omni-channel profitability

BY Australian Retailers Association
31 March 2019

The world has changed in the past five to ten years, and no industry is more indicative of that change than retail. Forbes reports that 98% of consumers believe that purchases, deliveries and returns should be easily available across multiple channels. According to Aberdeen, companies with omni-channel engagement strategies retain 89% of their customers compared to 33% of those with weak omni-channel engagement.

For most modern retailers, the need to move to an omni-channel operations model is a given in order to compete for the connected consumer. The enablement of the store network as distribution points for inventory should be an advantage against online competitors that have no physical footprint. However, without investment in systems designed for omni-channel from the start, those stores begin to drag margins down instead of raising them up, because of all the appeasements and workarounds required to deliver on the customer promise.

Back when online orders were fulfilled from a warehouse or three, and you trusted the inventory accuracy, it was a simple decision as to which facility to source from. You selected the facility that 1) had available stock, 2) was the closest geographically to the recipient, and 3) had the cheapest parcel agreement for the route needed. As online selling became more complex and inventory levels became more ‘real-time’, advancements like selling against inbound inventory or inventory located at third-party drop shippers became more commonplace.

Global inventory visibility

These capabilities require global inventory visibility, the first level of inventory for a modern retailer. Retailers, distributors and manufacturers have been talking about a global enterprise visibility picture for a long time, and it is the most basic capability retailers need to enable omni-channel operations – but consistent inventory accuracy is a major concern when retailers begin to expand the number of ship nodes available in their network.

When we enable the store to become a point for pickup or shipping, new kinds of constraints come into play. Since stores are not just fulfilling digital orders but are also filling on-demand requests from in-store shoppers, we have to consider that demand when sourcing inventory from that store for other channels or stores.

Constrained inventory availability

If the first stage of maturity for an omni-channel retailer is global inventory visibility, the second is constrained inventory availability.  While you cannot sell what you cannot see, you should not always sell everything you can see.

It is instead necessary to provide a ‘view’ of our global inventory that is filtered, or constrained, by the other requirements in real time to the commerce engine. There could be many of these ‘views’ created and dynamically delivered to the appropriate channel based on customer need, such as an overnight delivery requirement, or a network impact, such as reduced store labour capacity.

But while a view of inventory corrected for needs and capabilities certainly helps with the commitment to the customer and fulfilling that promise, they do not, necessarily help us determine the most profitable way to deliver on that promise.

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Real-time inventory sourcing optimisation

The third phase of inventory maturity for our omni-channel retailer is, perhaps, the most crucial – real time inventory sourcing optimisation. It is important to offer omni-channel services to our customers in order to compete but being able to deliver omni-channel profitably is needed to survive.

There is no way for a human to consider the number of constraints required today to determine the most profitable way to source an item, when hundreds of options are available and many of them are active stores serving a local market. Even after limiting the viewable inventory available to meet the needs of the customer, there may still be dozens or hundreds of options that could meet the customer promise of configuration and delivery or pickup time. Heuristic computer problem solving creates the opportunity to consider thousands of potential options in real time to determine the most profitable option. Real time sourcing optimisation is fast becoming critical for omni-channel merchants who are trying to maximise their margins and deliver on their customer promises.

Raghav Sibal has over a decade of experience within the supply chain industry worldwide and is currently the ANZ Managing Director of leading supply chain optimisation provider, Manhattan Associates. Manhattan Associates is a technology leader in supply chain and omni-channel commerce. Learn more at manh.com/

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ABOUT THE AUTHOR

Australian Retailers Association

Founded in 1903, the Australian Retailers Association (ARA) is Australia’s largest retail association representing Australia’s $310 billion sector, which employs more than 1.2 million people. As the retail industry’s peak representative body, the ARA works to ensure retail success by informing, protecting, advocating, educating and saving money for its 7,500 independent and national retail members throughout Australia. For more information, visit www.retail.org.au or call 1300 368 041.

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