How we shop has radically changed over the last ten years. Back then, when you wanted to buy, say, a new TV you waited until Saturday morning, made your way to the high street and bought what they had on offer. Now we scout around the Internet, price check, go to the store to see the ‘real thing’ and then probably come home and order it via the web – where we expect to find an enormous range from which we can chose the exact size, colour and specification we desire.
This is having a major impact on retailers. To remain competitive they are meeting the numerous permutations of customer demand through multiple channels that, in addition to the retail store, include the increasingly important online sales, catalogues, call centres, international operations, franchises and wholesale markets.
But this has often led to duplication that manifests itself in separate pools of inventory and retailers have also tended to silo business functions to deal with each channel. However, many are now learning to manipulate stock and orders across all the channels and fulfil from anywhere in the enterprise to improve customer service and margins.
For example, more retailers are sourcing products globally, which results in longer inventory lead times. If, demand drops off in one channel between the time a purchase order is raised and the inventory arriving, the retailer will want the ability to redirect that inventory to another channel, where demand may be stronger.
A retailer may wish to adopt vendor drop shipment. This will allow it to offer a much broader assortment of goods without the need to invest in inventory by hooking directly into the supplier and seeing their inventory position and then arranging with the supplier to be a shipper on its behalf. However, even though the supplier is providing the fulfilment, the retailer is ultimately responsible for the quality of service to the customer.
In certain retail businesses, particularly those selling higher price items, much of the inventory may be sitting on a retail shelf rather than in a DC, and retailers may want to use this ‘store inventory’ to ship direct orders via another channel. Take multimillion dollar, home-goods retailer Bed Bath & Beyond.
If insufficient inventory is available in one of its three distribution centres, it will route an online order for a product from its range, which spans bedding to coffee makers, to a retail store for shipment. When doing so it takes into consideration labour availability in the store, transportation cost ramifications and the risk of missing an off-the-street sale in the store because the item has gone to another channel. Bed, Bath & Beyond follows the same process for fulfilling special orders captured in the store.
However, with the right management to connect the dots a retailer using retail store inventory to fulfil an online order can reap the dual benefit of avoiding turning away a sale from an online or brick and mortar special order and perhaps also, avoid the marking down of an unsold product in the store two months later.
To deal with these kinds of multichannel nuances, retailers require a solution that sits outside traditional supply chain systems, one that aggregates data and integrates with the full distribution network – including all the warehouses, stores, in-transit inventory and vendors – to provide a consolidated and centralised view of inventory across the network. This will allow a retailer to respond, in a split second to a purchase request.
The software managing this complexity is applied in layers. First it is important to lay a foundation where the retailer gains good visibility of inventory within its own warehouse and distribution operation, through multichannel enabled Warehouse Management Software. This approach allows a multichannel retailer to operate under a single roof rather than in silos – something leading UK department store brand House of Fraser has used to its advantage.
The retailer has consolidated much of its inventory back into its National Distribution Centre (NDC) for fulfilment of orders from its dot.com, stores, and concessions channels. Having a multichannel capability under one roof has given House of Fraser much greater control over its entire network. Previously it was conducting these operations across separate warehouses, involving separate infrastructure, workforce and transport. By deploying IT effectively House of Fraser has been able to appreciate savings from infrastructure as well as through de-duplicating inventory.
Once the foundation is in place you can then introduce an extended enterprise system over the top to gain visibility outside the warehouse to the store network and to the ‘extended network’, including drop ship vendors and third party logistics operated fulfilment facilities. This will enable far clearer decision making, giving the ability to maintain inventory in different areas and locations.
Then comes the order management system to coordinate the process by taking in demand from multiple channels so that it can be optimised across the inventory which could include inventory in the warehouse, retail store, dot.com, inbound or with the suppliers. Importantly, the order management system provides end customers a view of their order regardless of how they’re currently interacting with the retailer, be it in a store, on the website, or on a mobile device. Distributed Order Management systems also enable cross channel processes, such as buy online and pick up or return to store.
However, before anything winds up on any shelf, you first have to generate a channel level forecast that can be aggregated up to the enterprise level in terms of what is the true forecast of net need across channels for the enterprise.
Similarly, within assortment planning, the channels are managed according to their unique characteristics. For example, the website is not simply considered another store in the chain as it has its own drivers of demand such as hit rates and click rates. That said, a consolidated view of the enterprise level is still required so once stores, catalogue, web channels, etc, are planned then an estimate of margin, revenue and profits generated at a category level across the company needs to be generated so that consolidated purchase orders can be placed with suppliers enterprise wide.
As that inventory starts to flow in then the order management solution provides inventory management segmentation to allow that complete consolidated purchase order to be received and put-away without segregating it by channel but retaining ‘virtual pools’ of inventory at the order management layer. So, for example, of 1000 units put-away, 700 are available for the retail replenishment channel and 300 are held off for the direct business over the web. However, rules can be set to allow these divisions to be broken if certain circumstances arise. The big difference though is that it doesn’t require the warehouse to segregate the inventory.
A retailer that integrates effectively with its suppliers can sell a product through a channel without investing in inventory, which is particularly useful in gaining competitive edge through offering a broader product range. Taking the order from any channel, the order management system will push it out to a supplier so that they can actually carry out the fulfilment on the retailer’s behalf or they build up the order to be cross-docked at the retailer’s NDC.
Going multichannel is essential if a retailer wants to draw customers in rather than be marginalised by today’s consumer behavior. Clearly there is complexity involved but this can be managed and levered by the right solutions to provide high customer service levels and maximised margin, irrespective of the channel demand actually comes from.