The Omnichannel Inventory Challenge


The customer experience imperative

To compete in the era of anytime-anywhere commerce, retailers must provide an immersive customer experience.

Offering personalization, flexibility and choice is essential to meet increasingly high customer expectations. And expectations matter, because – if you can meet them – customers are likely to spend more (up to 140%!) after a positive experience [Deloitte].

The COVID-19 pandemic has brought to attention the necessity to adopt a customer-centric approach, due to the massive rise of e-commerce. According to McKinsey, in 2020 e-commerce increased rapidly from 13 to 17% of total retail sales. And the shift towards e-commerce seems here to stay: the percentage of global online shoppers is expected to remain 6-13 percentage points above pre COVID-19 levels [McKinsey].

To respond to this acceleration of e-commerce and ensure customer satisfaction, retailers have started adopting new fulfillment models and offering more delivery/pickup options, such as home delivery, Click&Collect and drive thru models. The adoption of store-based pickup offerings, influenced by the pandemic, is only continuing to grow: in fact, 60% of consumers plan to continue to use these options even after the end of the pandemic. [McKinsey]

But closing the gap between customer expectations and actual experience is not always easy – retailers are now realizing that they need to ditch siloed selling channels for this model to work. There’s no doubt about it: building an integrated and flexible omnichannel retail ecosystem is necessary to offer a connected and customized customer journey. But how?

What is omnichannel logistics?

Omnichannel logistics synchronizes inventory, logistics, and distribution to meet consumer demand and offer a seamless shopping experience across in-store and online touchpoints, leveraging supply chain and inventory visibility strategies.
In a traditional, multi-channel retail system, an online customer would have to wait for their order to be dispatched from the warehouse for home delivery.

In an omnichannel logistics model, channels and inventory are integrated, in order to streamline the fulfillment and delivery process. That means a store location carrying the product and in close proximity to the customer, can directly fulfill and ship the order or offer different pickup options (BOPIS, smart lockers, curbside pickups and totems, to name a few). In this model, stores of any kind, from grocery to apparel and home goods stores, can be repurposed as local fulfillment centers.

This is possible thanks to a dynamic fulfillment model which, unlike the traditional linear model that sees the product go in one direction (from warehouse to end customer), allows for more flexible management of orders and inventory, which optimizes time and logistics costs, while ensuring prompt and flexible deliveries to the final customers.

Dynamic fulfillment: what are the fundamental ingredients?

It’s easier said than done: the omnichannel model comes with challenges. While dynamic fulfillment seems to be the secret to respond quickly to customer demand, manage order fluctuations and improve supply chain resilience, warehousing and fulfillment services must be supported by a connected logistics network and, especially, a solid digital infrastructure.

As a business expands, it’s crucial that all sales channels work with a single integrated inventory view, to provide real-time information on “available-to-promise” inventory and on inventory for future demand. This can be realized by a real-time visibility system.

With visibility systems information can freely flow across channels and networks, providing an always updated inventory view for all locations: how? By processing events like stock movements and customer orders in real-time, the system can compute the availability of a specific SKU at any given moment. Visibility systems are also fundamental to promote collaboration amongst the partners in the retail ecosystems and to quickly identify, communicate and react to any issue or change.

A dynamic Order Management System (OMS) is another key piece of this puzzle. This system supports the allocation of orders to different preparation centers (warehouses, stores and dark stores), managing shipping, sales, and order transfers. The system takes into account different business requirements and parameters: available stock, delivery method, preparation time, zones of delivery and more, to select the optimal fulfillment location.

Secondly, for dynamic fulfillment to work, every location must manage its inventory effectively, starting from the warehouse. For retailers, having an efficient Warehouse Management System (WMS) in place is vital: not only for overseeing general warehouse operations, but also to report SKU counts and order statuses in real-time, to help synchronize inventory across different channels as previously described.

The same applies to brick and mortar stores, which retailers can leverage as local fulfillment centers. These additional operations however need to be effectively integrated into the store environment and here is where dedicated in-store logistics systems come to play. They are essential for inventory management processes, such as POS integration, cycle-counting, and inter-store transfers, and for order fulfillment processes, through efficient picking, packing and dispatch processes.

Finally, another option available to the retailer is to forgo maintaining inventory altogether, by adopting a dropshipping model. Through a dropshipping model, the retailer can transfer customer orders to the supplier (either the manufacturer, another retailer, or a wholesaler) who then ships directly to the customer. This comes with many benefits for the retailer. Due to the improved collaboration and integration between retailers and suppliers, the dropshipping system monitors orders in real-time and improves inventory management. The retailer also has the possibility to offer a broader range of products on their e-commerce platform, without the additional costs (since the suppliers handle the goods).

How to shift to a fully-fledged omnichannel strategy?

In order to leverage an omnichannel model, retailers need to build a unified ecosystem of partners and suppliers, which needs, even before an omnichannel strategy, a strong digital logistics backbone.

To boost collaboration between these different actors, the adoption of a real-time visibility platform is vital to gain the single inventory view needed for dynamic fulfillment and to have updated information on each preparation center. Transparency is key: information must be unstuck from information silos and flow freely. These digital solutions for the management and the preparation of online orders must also be adopted by fulfillment centers, especially brick and mortar stores, which often are not designed with omnichannel purposes in mind.

A digital transformation process encompassing the entire retail ecosystem is key to omnichannel success. Only agile and scalable supply chain solutions that bring inventory closer to the customers, can ensure the resilience and elasticity essential to respond quickly to the increasingly complex retail market environment and customer demands.
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