For most retailers, striking the right balance between in-store and distribution center inventory levels has become a serious headache due to omnichannel requirements and the need to respond to changing customer demands more quickly than ever before. Such challenges are causing organizations to take a closer look at how they manage inventory, especially if they are using multiple platforms to do so. For many, developing a singular view of inventory and improving flexibility across their networks are keys to managing today's increasingly complex supply channel.
"There are two key disruptors when it comes to inventory management," says Michael Salmasi, co-founder of New York City-based Veea, a platform-as-a-service (PaaS) company that provides a suite of technology solutions for business and consumer needs, including retail. "One is omnichannel or cross-channel fulfillment, and the other aspect is that we are living in a more dynamic marketplace. This is having a huge impact on the way inventory is managed. E-commerce and omnichannel [in particular] have become a huge burden for managing supply chains."
Those disruptors are making forecasting more difficult too—and if your forecast isn't right, your inventory won't be right, adds Patty McDonald, global solutions marketing director, Retail Solutions Division, for Dallas-based Symphony Retail AI, which provides artificial intelligence-enabled technology solutions for retailers and consumer packaged goods (CPG) manufacturers. She says many of the problems surrounding forecasting replenishment and inventory management stem from retailers' tendency to have different platforms and point solutions for managing inventory in different channels, which makes it difficult for them to get a clear view of inventory so that they can make good stocking decisions and, ultimately, provide the best possible customer service.
"You can't do [any of] that if you can't see your inventory," McDonald explains. "It seems simple to say that, but a lot of what we see is that customers manage inventory in different systems. ... If your e-commerce orders come into a separate system from your brick-and-mortar stores, how will you effectively manage inventory across channels? If there is not enough inventory in the warehouse, then you must determine priorities. It requires knowing the total picture."
The best way to improve the picture is to make sure there is a common and real-time view for managing inventory and by implementing solutions that promote the fluid flow of information between systems, say technology providers such as McDonald, Salmasi, and others.
What follows are some ways to make that happen.
TACKLE ONE ISSUE AT A TIME
The advent of e-commerce—and along with it, trends such as buy online, pick up in store (BOPIS) and buy online, return in store (BORIS)—has complicated the inventory management process by increasing the number of channels retailers must manage. Organizations trying to get a better handle on the problem often find themselves wondering where to begin: How do I make sure I have enough in-store inventory to meet BOPIS demands? What is the best way to manage BORIS services?
The key is to tackle one issue at a time, says Nick McLean, CEO of OrderDynamics, a provider of cloud-based order management technology solutions based in Richmond Hill, Ontario.
"It's really about thinking through this in a phased approach," says McLean. "That's the primary advice we would have."
Doing so means first taking a step back and considering basic factors such as the type of business you're in, the products you sell, and your physical location and assets. This allows companies to establish better processes that will then allow the implementation of better technology solutions. McLean points to BOPIS services as an example. It's much easier for a big box retailer to set aside the space needed for such services than it is for a smaller retailer located on the second floor of a mall, he reasons. The big box likely has more inventory space to begin with, will find it easier to set aside space for pickup, and may even be able to add ship-from-store capabilities. A smaller retailer may not have the space for such activities at all, finding it necessary to develop creative solutions to the problem—only offering such services at certain outlets, for example, or reconfiguring space to accommodate packing and shipping activities. Both entities must deal with staffing issues—in the form of scheduling and compensation changes—as workers' duties change.
"These are nuances people are [addressing] as they think through omnichannel and the way they [manage inventory]," McLean says. "And there is no way you can implement these changes in one fell swoop."
Charles Dimov, vice president of marketing for OrderDynamics, adds that once those issues are addressed, companies can begin to tackle the inventory visibility piece of the equation. He points to an OrderDynamics customer that made key changes to its inventory strategy after putting the building blocks in place to accommodate combined online/in-store services such as BORIS and BOPIS. Using a single inventory platform, the retailer could see all available inventory across its network and make in-store inventory visible to shoppers online, helping to drive them to its retail outlets to make their purchase, or to pick it up if purchased online. The retailer eventually added a ship-from-store service option as well. Together, these changes allowed the retailer to keep more inventory in the field, closer to customers, and led to the elimination of one of its distribution centers.
"This is a powerful tactic if used correctly," says Dimov, pointing to both the cost savings and improved customer service levels the project yielded. "There are so many opportunities [available to you] when you have a powerful system in place."
GET THE RIGHT TECHNOLOGY
Technology providers point to distributed order management (DOM) systems as tools that can provide the level of visibility retailers and their suppliers need to better manage inventory. These are order management solutions that address a range of functions, including inventory, order routing, analytics, and shipping. Such systems can unify inventory management across all channels; manage order types and channels all in one place; provide real-time visibility of demand to manage vendor, store, and customer orders; and prioritize tasks and optimize inventory performance, according to SymphonyRetailAI. McDonald adds that such systems make order management "simple, automated, and dynamic," allowing retailers to:
- View inventory availability across the supply chain so they can select sources depending on factors that matter most—leadtime, freshness, lower cost, and so forth.
- Split multiple product order fulfillment across locations based on availability.
- Use product returns in one channel for order fulfillment in another.
"It's so important to have a platform and process that support one [view] of inventory and all the challenges that go along with it," McDonald says. "[You also need] something to manage the forecasting and fulfillment that needs to happen for all of that inventory. You really need a single platform that can simplify all that."
Salmasi agrees, emphasizing the difficulty brick-and-mortar retailers face in today's environment compared with their online-only competitors.
"The expectations that come with e-commerce now come with brick-and-mortar stores," he explains. "They now have to do what they do well and what the e-commerce giants do well. They have to manage both pieces."
Such challenges require a more sophisticated approach to managing inventory and to the technologies used to do so. Order management solutions that incorporate analytics and allow the sharing of information between trading partners can provide the visibility and agility required of today's supply channel, technology providers argue.
"There are a lot of demands on retailers and their suppliers for faster, better [service]," Salmasi explains. "Buy online, pick up in store, buy online and have it delivered the next day—those services put tremendous pressure on the supply chain. Even something as simple as free product returns can be complex.
"In order to do it all well, [retailers] need more sophisticated technology solutions than they've had in the past. They need systems that work together."
Gartner, Inc.