Omnichannel profitability starts with advanced inventory insight

By Georgia Leybourne, senior director international marketing, Manhattan Associates

Not long ago, retailers had a clear differentiation in sales channels. Inventory located in a store was only consumed through that store. And inventory located at a warehouse was only consumed through the catalogue, phone, or perhaps online site associated with that warehouse. In the past, companies sunk significant funds into extra inventory called ‘safety stock’. But the rise of warehouse management solutions, RFID, mechanical automation, and robotics has raised inventory accuracy to 99% and eliminated the need for safety stock.

Georgia Leybourne.

Stores have traditionally been notoriously poor at inventory accuracy. That’s because there are a lot of moving parts. Potentially hundreds of people have access to the items, and they can be moved (or removed) with little obviation. In the past, the chaos of inventory in stores caused inefficiencies, but the effects on customers were limited. If an item they wanted was there, they picked it up. If it wasn’t, then they went in search of it elsewhere. Since they didn’t expect the item would be there, even if they left empty handed they didn’t feel deceived and their experience wasn’t negative.

Changing retail expectations

The retail world has changed significantly in the past five to 10 years. Forbes is reporting that now, 98% of consumers believe purchases, deliveries, and returns should be easily available across multiple channels. According to Aberdeen, companies with omnichannel engagement strategies retain 89% of their customers, compared to just a 33% retention rate for companies without that engagement.

Omnichannel doesn’t always mean profitable 

Modern retailers know they need to move to an omnichannel operations model to compete for the connected consumer. Enabling the store network as a distribution point for inventory should be an advantage against online competitors that have no physical footprint. However, without investment in technology specifically designed for omnichannel, the workarounds required to deliver on the customer promise actually drag margins down.

CNBC and research firm AlixPartners found that when the average apparel retailers provided in-store shopping and delivery, it was quite profitable. When it sold online and delivered from the warehouse, it also did well. However, when it began utilising its network of stores for pickup and distribution, things changed. Inefficiencies, lack of in-store fulfilment tools, and the inability to source inventory from the most profitable location started to erode margins.

Identifying the challenges

So how can we create the same level of accuracy and efficiency with an online order fulfilled at a store as we get with an online order shipped from a distribution centre? The first thing to recognise is that the store is not simply another distribution centre. It is far more complex. Not in automation or mechanics, but in the flow of people, processes, and chaos. When a member of a warehouse fulfilment team is going through the tasks of picking items for shipping, no one ever taps him or her on the shoulder and asks, “Can you help me with something?” But that happens regularly to store associates who have to fill multiple roles at once. 

Global inventory visibility 

Let’s start with the most basic capability retailers need to enable omnichannel operations – global inventory visibility. Consistent inventory accuracy is a major need as retailers begin to expand the number of ship nodes available in their network. By enabling the store to become a point for pickup or shipping, new factors come into play – some of which are pros and others which are cons.

Remember our associate who was picking items for an online order when an in-store customer asked for assistance? From requests from in-store shoppers and dealing with customer issues. We must consider such factors when using stores to source inventory for other channels or stores.

Constrained inventory availability 

The second stage of maturity for an omnichannel retailer is constrained inventory availability. It’s said that you can’t sell what you can’t see. At the same time, with omnichannel fulfilment, you shouldn’t always sell everything you can see. Let’s look at an example: Suppose we have a customer using our website to shop for a navy blue, crew neck sweater. Let’s also suppose he needs gift wrapping and to receive the item the following day. If we show this customer every medium, crew neck sweater in our network, he might go to pick it up in a store that has no gift wrapping. Or, he might buy it from a location that can’t deliver in time. 

The blue sweater is a simple example of how omnichannel enterprises need to be able to create and dynamically deliver the right views to the appropriate channels to ensure positive experiences. 

Real-time inventory sourcing optimisation 

Over 75% of retail CEOs think the next three years are more critical than the past 50 years. They know omnichannel services are needed to compete. But being able to deliver them profitably is what’s needed to survive. Currently, only 10% of industry leaders believe they can make a profit while fulfilling omnichannel demand. The reason is technology. Retailers are trying to deliver very sophisticated capabilities with older solutions. Because the software was never built with omnichannel in mind, it requires a tremendous amount of effort, baling wire, and scotch tape to compensate. And every appeasement and workaround erodes profitability.

While a view of inventory, corrected for needs and capabilities, can help us fulfil promises to the customer, it does not necessarily help us determine the most profitable way to do so. 

With many hundreds of sourcing options available for a retailer, there is no way for a human to determine which one is the most profitable for a given item or order. So how do we decide? Real-time inventory sourcing optimisation automatically considers thousands of potential options and chooses the one that maximises profits.

Consider our earlier example of the blue sweater that needs gift wrapping. We may physically have that item in a store close to the customer, and that store may provide gift wrapping. But what if blue sweaters in that store (or region) are selling at full price, as fast as we can stock them? What if in another region we’re having to mark down blue sweaters because they aren’t selling? Real-time sourcing optimisation can help you make the most profitable decision for that transaction and every other one. 

A solution designed for an omnichannel world

If you want to deliver on your omnichannel promises profitably, Manhattan Associates is pleased to offer Manhattan Active Omni – the most sophisticated and technologically advanced ordering, optimisation, and engagement platform ever created for the retail industry. Cloud-native, 100% constructed with micro-services, and SaaS delivery, Manhattan Active Omni was designed from the ground up with omnichannel in mind. 

It includes Enterprise Inventory for global inventory visibility; Available to Commerce for dynamic views of inventory in real-time; Adaptive Network Fulfilment, providing real-time sourcing optimisation; and integrated Store Inventory and Fulfilment tools – all in a single platform. When you want to profitably take your omnichannel promises to the next level, turn to Manhattan.

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