Having goods on hand is common sense. The tricky part is knowing how much inventory to have on hand. Stock too much and the goods don’t move fast enough. The price spoils. Have too little and a frustrated shopper will go elsewhere.
Now multiply this headache by the number of channels a shopper can use to purchase goods. Did they purchase in-store or online? Was an online order for in-store pickup or delivery? Did they order on desktop or on mobile?
How do you track all this action to match one good with one order?
Multichannel inventory management is the solution, but it is not the silver bullet. Retailers have to craft a system that works best for them, which should turn confusion into clarity. How a system is structured matters just as much as what system you purchase.
The yin and yang of centralization and distribution
“It really depends on how you exercise the rules of allocation.” said Rob Ogelsby, associate partner at Parker Avery Group. For example, a customer who walks into a store has already invested time in seeking out a specific piece of merchandise.
“The reward should be instant gratification and the ability to walk out of the store with their selection.” he said.
In order to avoid disappointment, retailers must maintain continuous stock, fulfilled from the same central point that also fulfills online orders.
“From my experience, it is best to still forecast by channel – or even by customer.” Ogelsby said. “It is much easier to aggregate these forecasts to a common pool – and make decisions on ‘safety’ once the aggregation is complete.”
Forecasts can be tested and challenged at the channel level, and channel managers can be held accountable for their forecasts, while the firm can leverage the power of the combined forecasts.
“Multichannel is the present and future. It’s a fact of life. In order to simplify the process, it’s imperative that a company take a holistic approach to managing inventory in a common pool across all channels they service,” Ogeslby said. “Once that philosophy is adopted, the inventory management system needs to be configured with the appropriate rules to ensure that inventory is utilized in the most efficient (and profitable) way.”
Know how much you have before you sell it
Traditional retail was all a matter of ordering the right goods at the right time to stock shelves. Steve Izen, co-founder of Orderbot, recalls how this worked “when life was simple.” He started out working for a nine-store apparel chain in Manitoba, Canada.
“Sales were seasonal. You added more blue jeans to the shelves in late summer to satisfy back-to-school demand,” Izen said. “When we moved to the web, seasons melted away,” Izen said. Orders extended into the near-term, flattening out the peaks and filling in the valleys. Every channel tends to consumer inventory at different parts,” Izen said.
Managers handling multiple sales channels need to be wise to this. Thresholds can act as buffers can say you have 50 of some item available, while in truth you may have 100.
Now “manage on-hand, but available,” Izen said. “The Web may require hourly availability, Amazon maybe four times per day, Walmart merely by update. For the 100 items you have, tell the Web you have 100, Amazon 80 and Walmart 50. “At the end of the day, you have to manage the expectations of the customer,” Izen said.
And never say you don’t have the item they want. Which leads to another move one can make online:
“Not selling what you have but selling what you are going to have,” Izen said.
Apple mastered this with its latest iPhone release.
“You can buy it now, but it won’t ship for a few weeks,” Izen said.
This means Apple is literally selling the iPhone as it’s leaving the factory and being put in a container that will travel by ship or plane to its final destination. This is the equivalent of turning a piece of merchandise into a concert ticket.
To manage all this with multichannel inventory systems, Izen recommends never having more than two or three platforms. All data should be in similar format as it enters the IT system to maximize its utility across channels.
“All inputs for sale can be different,” Izen said. But in the end, “an order is an order.”
Inventory = logistics
Shoppers want fast delivery at a reasonable price, and convenient pick-ups and returns.
“It’s a logistical need,” said Rahul Pruthi, product leads or the omnichannel product at BigCommerce.
Retailers have to find the most efficient ways to manage inventory, delivery and in-store space. Walmart announced in early January that it was closing 63 Sam’s Club locations. The buildings remain and can be used to fulfill any online orders being sent to Walmart for in-store pick-ups. Or take Target, which is using its stores to fulfill 70% of online orders through in-store pick-up.
BigCommerce enables retail clients to build their own commercial platforms to back their established brands, drawing data from multiple sources. Inventory forecasting is just a matter of “seeing the trend happening the past and planning for the future,” Pruthi said.
“Make sure the inventory is accurate at all times.” Regardless of whether the order is online or over-the-counter, the account is handled in real time.
One good example here is Macy’s, which uses its system for order routing based on the location of the shopper and the lowest shipping cost. Using the storefront for online fulfillment allows that space to p e r f o rm two missions, ultimately lowering the cost-per-customer.
In the end, it’s a matter of keeping the shopping process aligned with the brand. The retailer already knows about their customers, their shopping habits, pricing, and how seasons “Acting on micro-level KPIs determines what you put out there.” Pruthi said. “Inventory is as accurate as the system you rely on. Technology is the enabler in the background.”
Shopify is another platform vendor offering retailers multichannel inventory management to suit their needs. The system keeps inventory tracking centralized, but allows for fulfillment through multiple channels.
“Customers buy from multiple channels, but inventory could be fulfilled via a merchant’s physical location, retail location, fulfillment warehouse, drop shipper or printing on-demand service.” Daria Kourilina, senior product manager, said.
“For example, part is fulfilled via the merchant’s own location, and the rest of the order is fulfilled through a drop shipper,” she added. “Today, even the most simple merchant may have a complex fulfillment flow. Forecasting fulfillment is a case-by-case basis as it’s really up to the merchant and how they structure their business. Merchants using these third-party sales channels would have to identify a percentage of their inventory for that particular channel.”
Shopify’s approach is to give merchants an “app ecosystem,” allowing them to pick the tools that best enhance operations. One such example is Flow, which allows the user to customize back-end operations, integrating with their existing systems and using their own data.
“Our goal is to make it easier,” Kourilina said. “We gather a lot of data from merchant’s setup, such as shipping rates, proximity of shipping origin to shipping address, where the majority of customers are located, how long it takes to ship, etc., and use that data to provide suggestions and, ultimately, make it easier for merchants to make the right decisions.”