The emergence of cross-channel sales provides an unprecedented opportunity for apparel retailers to service a variety of consumers in a holistic way. The increase in online shopping saw retailers reinvent themselves into multi-enterprise commerce machines, offering both bricks and mortar stores supported by e-commerce options. The problem, however, is that the balance has significantly shifted over the years. Online is no longer a support mechanism to physical stores, it has become a more viable option to purchase items, and today’s consumers use the two functions interchangeably – or at least try to.
An example of this is when customers shop online but want to return items at a nearby store. Or customers that first browsed online before popping in-store to find items. To build a profitable business as multi-platform providers, retailers must integrate bricks-and-mortar operations with online activity. Keeping online and offline as separate silos increases the risk of becoming irrelevant. A flawed approach to customer strategy, when those customers are keen to shop in multiple ways, across multiple platforms 24 hours a day.
Rejigging operational systems
Retailers are right to target cross-channel transactions, however, in that process they must continue to rejig their systems to overcome some fundamental cross-channel shopping challenges.
Inaccurate Demand Forecasts
When customers, having shopped online, return items of clothing at high street stores, demand planners often have no visibility into this event. Because of this, the retailer’s systems, solely considering online purchases (not the returns in-store), may forecast an inaccurate high demand for the particular line of clothing, and as a result, assortment planners plan to buy more of the line whereas with returns considered, some other line may deserve more to be favoured.
Intricate Inventory Planning
Sometimes, the situation can play out in the reverse. Customers having reserved products online, show up at high street stores to collect items. This service by the store is still counted as an online sale and unless incentives are in place, store managers may not be happy providing the service and may see it as cannibalisation.
Making matters worse, the distribution centres often maintain two separate inventories – one for online and the other for offline sales – without the flexibility to systemically interchange stocks between inventories, when required. Inventory turns can suffer as a result. The new multi-channel world need pre-allocation flexibility between online and offline as indeed between offline stores as well.
Online and offline promotions, and pricing, are often used in silos. Customers once in-store, on discovering that the same product is priced lower online, will often request that a price adjustment be made to reflect the e-commerce price.
Most store managers will feel the need to comply – showing a price match as reason code for allowing the transaction. But, in reality, margins are being eroded with in-store inventory being sold at online prices.
Ultimately, when retailers treat their online and offline channels as separate entities, but bring these together superficially to quickly solve the problems posed by evolving customer demands, it at best offers brief symptomatic relief. The core of their supply chain is still ill-prepared to adapt to the new realities of omnichannel retailing, and leverage the opportunities it has to offer. Retailers today do manage to have a holistic view of transactions across all channels and that is not the real problem. The problem is, how should the retailer bring in such flexibility in their operations that the cross-channel view can indeed translate into cross-channel preparedness. l
Getting to the crux of the matter
If retailers are going to succeed in an omnichannel environment, there has to be a level of synergy applied to all transactions across online and offline.
Retailers have started to use systems that take into account the entire inventory – both online and offline. This is critical to increased visibility into ‘available-to-sell’ stock’. With orders that have been placed, orders that are ready for shipment, cancelled orders, orders reserved at the store, and returns called out, the ‘available-to-sell’ inventory can then be published for every online user’s convenience, and distributed order management systems can fulfil the order from the best option or inventory point on the network. Now traditionally inventory is optimised using better forecasts, but in this new world of distributed order management fulfilling demand from whichever inventory node is suitable at a point in time, how does one forecast demand and therefore optimise inventory at certain points?
The answer is found by breaking the problem into parts. Planning inventory which is done ahead of time and managing / optimising inventory through distributed order management which is done closer to the instant of demand.
Planning: Demand trends may be different online from stores and also from region to region. Based on the network layout, demand channels and areas are selected that one should forecast at. This can change as another inventory point opens up and in the age of buy online pickup in store, every new store with enough back room can be a potential inventory point.
Managing: While inventory is stocked based on forecasts, as orders start coming in with different shipping options, pick up options and addresses, distributed order management systems drive order fulfilment to the inventory point most optimal at that point in time.
Flexibility: Between planning and managing lies flexibility. Once enough inventory to match expected demand is ordered, committing that inventory closer to the demand points is done based on latest sales and orders seen at those demand points. As allocation becomes more real-time, inventory risks reduce.
Obviously, by merging the online and in-store data sets to create one unified data lake that provides a rich source of insights for sales projection – without the additional effort of an operations team working to unify and prepare data for sales planning every week – retailers can ensure demand supply planning does not itself carry a large lag time of analysis.
Finally, improving demand forecasting is key to managing retail margins. Visibility and synchronicity into orders placed, orders cancelled and orders shipped leads to an increasingly holistic view of demand and therefore more accurate forecasting.
By adopting these rules as a strategic approach to multichannel commerce, retailers can optimise inventory for significant savings on inventory costs as well as lost sales for the optimising objective. Amalgamating data also allows promotions across online and in-store entities to be executed in sync with inventory preparedness for demand uplift, leading to better margin management for retailers.
Technology has enabled a fundamental reinvention of the retail industry by creating a compelling opportunity to engage with customers at various touchpoints. In this new multidimensional approach to selling, visibility is key. Inventory management will need to take a new dynamic approach to optimise service delivery, while forecasting will need to be cross platform and aggregate as necessary. The new and evolving retail supply chain requires each company to tune into their specific network and their customer’s needs in order to provide differentiated capabilities. Only then will this next generation of supply chain management successfully be omnichannel.
Subhashis Nath - AVP - Senior Industry Principal, Infosys
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