This is Part 1 of the Retail TouchPoints “Inventory Strategies Report,” a two-part feature highlighting best practices and technologies that help retailers improve their inventory management processes. This section will spotlight how retailers are revamping their supply chains, inventory allocation and distribution centers to enable an omnichannel retail experience. Part 2 of the Inventory Strategies Report will be published in the September 25 newsletter.
Today’s consumers are demanding a consistent omnichannel retail experience. They’re browsing and buying in brick-and-mortar stores, via mobile devices, on e-Commerce web sites, and sharing their favorite items across social networks. As a result, these savvy shoppers are expecting the same prices, products and offers regardless of the channel being used.
Retailers are beginning to recognize this new imperative for consistent brand experiences, according to Retail Systems Research (RSR). The RSR study, titled: Omni-Channel 2012: Cross-Channel Comes of Age, revealed that merchants deem the following to be “very important:”
- Empowering consumers to purchase, take delivery or return a product through the channels of their choice (79%);
- Allowing inventory allocated for one channel to be used for fulfillment within another channel (67%); and
- Leveraging product knowledge/information assets across channels (66%).
The growing focus on online and offline data integration ― as well as enabling flexible, multichannel purchasing and delivery options ― all are part of a single goal: To understand and deliver upon consumers’ more complex paths to purchase.
The key to receiving these detailed insights relies on the ability to obtain real-time vision into product availability and item movement across channels, Deena Amato-McCoy, Research Analyst for the retail and banking practice at Aberdeen Group, told Retail TouchPoints.
“Consumers’ paths to purchase is most definitely an omnichannel experience,” Amato-McCoy said. “Today it’s a path in which consumers start online, eventually end up in-store to touch or test a product, and maybe use their mobile or smart device in locations to read customer reviews on a particular item before pulling the trigger on a brick-and-mortar purchase via traditional POS, at a web-based store-level kiosk or on their own smart device.”
Inventory consistency and flexible purchasing and delivery options, according to Amato-McCoy, allow retailers to make the sale even if items are unavailable in stores and ensure top-notch customer experiences.
“If shoppers can’t purchase an item in-store because it’s out of stock, they always have the option to hit ‘buy’ on their personal smart device, at a store-level kiosk or proprietary handheld device,” Amato-McCoy said. “However, the only way this can happen is with an open, flexible platform that integrates every channel so that all files, from inventory to CRM, loyalty and pricing, can all operate seamlessly and harmoniously.”
Executing A Winning Omnichannel Strategy
As merchants embrace the business-wide benefits of moving to omnichannel retail, there are numerous challenges that arise during execution. According to the RSR report, titled: Executing on the Promise: Retail Fulfillment 2012, the top business challenges of supply chain execution are as follows:
- Consumers expect retailers to provide a more seamless omnichannel experience (64%);
- Consumer demand is erratic and difficult to predict (50%);
- Digital channel growth outpaces store growth, putting new pressures on the supply chain (50%); and
- Competitive pressures drive retailers to create shorter customer order-to-delivery cycles (46%).
“The primary issue behind omnichannel retail is that a shopper doesn’t see a retailer as an online store or brick-and-mortar location; they see only one company,” said Frank Riso, Senior Director of Retail and Hospitality Lead, Motorola Solutions. “The challenge for retailers is to ensure that wherever customers buy a product, the price is the same, the service is the same, and if it needs to be returned, the process isn’t long and convoluted.”
Conquering Big Data: The Foundation For Successful Inventory Strategies
A best-in-class omnichannel experience means different things to retailers across markets, according to RSR. Retailers must understand their target audiences, and the channels these consumers use to research, consider and complete purchases most frequently. This involves the collection and analysis of what the industry is calling “Big Data,” and in doing so, merchants can deliver upon their designated “brand promises.”
The Omni-Channel 2012: Cross-Channel Comes of Age, report stated: “Consumers investigate, select, pay for, and fulfill their purchases differently depending on the lifestyle need being addressed. To prioritize the organizational and system changes needed to fulfill your brand promise, first consolidate all your customer information into a single instance that can be analyzed, and shopping patterns can be identified.”
Nikki Baird, Managing Partner of RSR added that while disconnected inventory is a daunting hurdle for retailers, obtaining a single and comprehensive view of customers is more vital to understanding preferences, wants and needs. Once retailers tackle this area, supply chain remodeling and execution can follow shortly.
“The store is still a black hole when it comes to customer behavior, with new sources of data being created everyday — from Pinterest to retailers’ own social communities,” Baird said. “All of that has to come together if retailers truly want to develop an understanding of their customers’ paths to purchase. Without that understanding, any effort on supply chain or any other area of the business is a stab in the dark.”
The Big Data conundrum also is reflected in retailers’ ability not only to compile unstructured data found across social networks, but also analyze it consistently and determine the overall influence on inventory strategies, according to Kathy Beck, Senior Director of Product Marketing for Revionics.
“Retailers must first make sense of structured data such as information on performance, markets, competitors, vendors, marketing calendars and loyalty program information,” Beck explained. “Retailers still are struggling with leveraging this structured data, let alone determining how to create actionable insights from the unstructured formats and knowing how much weight to place on its importance when making assortment and pricing decisions.”
Integration And Flexibility Remain Top Inhibitors
Currently there are a number of inhibitors preventing a more strategic approach to omnichannel supply chain execution, according to the RSR report, titled: Executing on the Promise: Retail Fulfillment 2012.
Overall, streamlining and integrating information is an ongoing issue. Most Retail Winners (60%) indicated that inventory and order management systems are not integrated across channels, while most organizations (60%) claimed their systems and processes are too channel specific. Moreover, half of respondents reported that their supply chain is not designated for omnichannel fulfillment.
“E-Commerce sites began as singular projects allowing retailers to have an ‘online’ presence, keep pace with the market and showcase a brand,” Scott Welty, VP of Retail Industry Strategy for JDA Software, told Retail TouchPoints. “These disparate processes, policies, people, facilities and inventories now need to be seamlessly woven into the fabric of the entire company.” This continues to be a tall order for retailers, as inventory constraints often are isolated, Welty explained. “Consolidation will require tremendous business process changes,” he said,” as well as cultural shifts that lead to end-to-end change management.”
While average retailers are struggling to utilize alternative methods to purchase and allocate merchandise across channels, Retail Winners are taking more chances to exceed their competition, according to Baird.
“Retail Winners are willing to tolerate overall increases in inventory in order to better leverage all inventory locations as part of fulfillment,” Baird said. “Most retailers are worried that fulfilling from non-traditional inventory locations ― such as drop-shipping from vendors, using e-Commerce inventory to fulfill to stores, or having stores meet online demand ― is not as cost effective as the channel-specific fulfillment processes they’ve used for the last 10 to 15 years. However, Winners recognize the opportunities to differentiate by making those non-traditional fulfillment points more efficient, even if that means more inventory.”
Supporting this point, the Retail Fulfillment 2012 report from RSR compared how Retail Winners purchase and allocate inventory versus their peers. Key insights included:
- Merchandise is purchased centrally and allocated across channels. Channels are responsible for maintaining their own inventory (43% Winners vs.12% others);
- Each channel purchases and maintains its own inventory (36% Winners vs. 12% others); and
- Merchandise is purchased and maintained centrally: items are pulled from one channel to fulfill unexpected demand in another channel (21% Winners vs. 76% others).
“We’re now seeing retailers take a step back and really consider the future of their supply chains,” Baird said. “Whatever decisions they make, it’s going to take a long time to see those moves come to fruition; A distribution center is not built in a day.”
Future Investments For Transforming Inventory Strategies
Retailers must implement new strategies to ensure all inventory, product data and other vital information is transparent across channels, especially as the number of online transactions continues to grow.
According to the 2012 Omni-Channel Retail Experience report from Aberdeen Group, only 26% of retailers currently share fulfillment planning and execution data across channels. However, 70% of merchants plan to adopt this capability within the by 2014.
Making data available across channels will allow the retailer to share demand planning, inventory levels, order fulfillment, procurement and logistics information with all relevant stakeholders,” the Aberdeen report indicated. The goal is “to ensure proper inventory allocation for stores, warehouses and distribution centers.” Additionally by sharing this information in real time, retailers successfully will see inventory levels, and provide alternative means of fulfillment if the store is currently out of stock.
Moreover, only 35% of retail respondents currently share order management information across channels, according to Aberdeen, while 57% plan to implement this process. Relaying order management will empower organizations to keep pace with all customer orders, product information, stock levels and fulfillment, ensuring better visibility across channels.
“The shopping experience must be a single stream of consciousness and not multiple channels operating in silos,” Welty said. “Inventory visibility at and in every channel will be key to fulfilling customers’ expectations.”
However, there has to be an enterprise-wide commitment to eliminating company silos and creating a central understanding of strategic objectives, including competitive positioning and brand image.
“The barriers and silos that currently exist within an organization and across channels must be broken down, whether they exist between the supply chain and the demand chain; merchandising and marketing; or between online and in-store,” Beck said. “This will require a single source of data, an integrated demand forecast and a clear definition of strategies and goals available to all stakeholders and channels across the retail organization. For optimal success, an organization should share common objectives that enable them to thrive and grow.”