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Retailing has always required a combination of art and science, with the ultimate goal of matching supply with demand. Nowadays, however, that objective seems more elusive than ever before. The age of the omnichannel has saddled retailers with a whole new set of challenges. They're required to fulfill traditional store orders, customarily shipped in bulk, as well as individual items for online buyers. Delivery can be to a store’s backroom, the consumer’s home or office, or strategically located locker. In this interview, conducted at Logility Connections 2015 in San Diego, Calif., Miller talks about how far retailers have come in their pursuit of supply chains that can expertly manage all channel requirements, while minimizing costs and avoiding excess inventory.
Q: What are some of the big issues in the retail world today?
A: Miller: The hot topics are accuracy, integration and efficiency.
Q: Let’s take those one at a time. Accuracy of what?
A: Miller: Accuracy of the merchandise plan, of forecast projections, of being able to support multiple channels out of one inventory pool, and at SKU/store level. It’s very important to be able to take care of each specific store’s requirements.
Q: In addition to knowing where demand’s coming from, and where inventory is being stored.
A: Miller: An item moves out of the store. Is that because the customer went to the store, shopping for an impulse buy? Because it wasn’t available at another store? Or because it was an internet order, and the store was told to deliver it to the customer? Those are all different kinds of demand.
Q: Is it feasible for retailers today to have multiple pools of inventory serving individual channels, or do they have one pool, with the challenge of serving the omnichannel from that one location?
A: Miller: Retailers in general are trying to get to that one pool. There are several barriers to that. Many of our retailers have set up separate silos to support e-commerce or catalog orders. It’s very difficult with those organizational silos to view the corporation in an integrated way. Companies are realizing that, and are moving toward integration, as well as a common inventory pool.
Q: Doesn’t that entail destruction of those organization silos? And are companies succeeding in this effort?
A: Miller: It does. I think we have a long way to go. There are some very large retailers who are still viewing inventory to support e-commerce on a separate basis. I don’t even want to see what retail is doing; I don’t care to know what they’re doing in catalog. There are still some big players out there doing that.
Q: There still have to be separate forecasts for different types of demand. You can’t have one number that somehow rolls in both internet and brick-and-mortar orders, can you?
A: Miller: We’re seeing more and more of that – attempts to independently plan, then aggregate up to the corporate view, to see the total corporate requirement of any level in the merchandise structure.
Q: We’re also hearing a lot about how retailers are using their shelves as pick points for inventory. They’re no longer drawing from a warehouse or even the back room. Is that a challenge for your customers?
A: Miller: It’s becoming more of a challenge. It certainly has been something that several studies have indicated is a very cost-effective way to serve that customer. I think that’s become an accelerating trend.
Q: Just how deep does the need for integration go?
A: Miller: It’s not just about integrating planning across the omnichannel. Within the merchandise process, there typically is a financial corporate plan that is used to control the buying activity. As new stores open or as competitive markets shift, it’s important that store plans and those total corporate plans are in synch. When we know the store projections, we need to develop assortment plans, to tailor individual items and styles to that particular store. When the merchandise arrives, we need to be able to ship it out to the stores in line with very rapid shifts in demand. Stores might be in very different situations from when we wrote the purchase order three months ago. So we need to integrate that whole allocation, the assortment plan, the store plan and the merchandise plan in the brick-and-mortar world.
Q: To what extent are retailers actually doing this?
A: Miller: We have several retailers that are starting to do that. We have seen in the past some best-of-breed solutions that attack each of those individual areas. In my view, it’s important to have the ability to tie them all together seamlessly, so that a change in the store level projection can be rippled up and impact the open to buy for a particular class or department. We’re making progress there.
Q: What’s happening now that causes you to be optimistic about companies’ ability to fulfill these goals?
A: Miller: Clearly some systems capability, from the ability to store data and track SKU-day-store, to be able to keep tremendous amounts of history at that level within the I.T. operation. That was very costly to do in prior years. There are new tools out there that reflect the ability to view this whole process seamlessly.
Q: What about “big data”? It’s certainly lies behind what you’re saying – there’s more data available than ever before. Does the data exist because the solutions are now out there, or have the solutions arisen to address the data?
A: Miller: I think both kind of came along together.
Q: What do you mean when you talk about the need for efficiency?
A: Miller: The processes that I was just talking about. Probably half of retailers are still using spreadsheets. When you rely on them, you’re dependent on an immense amount of labor to grab the data, copy and paste it, audit it, and correct the errors, which are pronounced when you’re in a spreadsheet world.
A lot of people in the merchandising organization are spending time pushing data around, without being able to leverage their merchandising expertise. During a retailer’s normal week of operation, there are many decisions that can be made. But they’re not made once; they’re made several times. We need to put together automated workflows, so that the system can handle the data to get to the desired answer. We’re seeing more and more automation of business processes being supported by applications, which enable a much more efficient organization. We don’t need as many hours to support that business process. When it comes to the folks who are driving the boat now, we’re not dependent on their spreadsheet expertise, we’re dependent on their merchandise expertise. We’ve elevated that position in the organization.
Automation has reached a point in some retail organizations where you can define what process you’d like to use pre-season, how you want to respond when things change in season, and how you want to get to a minimum markdown situation at the end of the season. We’re not there yet, but theoretically you could get to a point where the retailer could say, that’s how I want spring of 2017 to work – I’m going to Aruba.
Q: Talking about seasons, they are so much shorter than they used to be. You have to do this whole routine again and again, much more frequently than before. So take a quick look into your crystal ball, five or 10 years from now. How do you see the retail landscape changing?
A: Miller: Much more of a focus on time to deliver the product to the customer, whether that’s through an e-commerce order or someone who’s just opened a catalog. We hear talk of these flying things dropping stuff onto my doorstep. I don’t know if I’ll see that, but I do see retailers trying to take that order as soon as it happens, update the data in line with what’s going on at that inventory location, and generate a logistics network – whether it involves dropping the shipment at a dropbox, or a customer walking in to pick it up. It will be all about getting it into the customer’s hands ASAP. The system will react not just to weekly or daily trends, but to real-time trends. Retailers will be able to pick up another day, or even half a week, in reacting to what will be even more dramatic instability in demand patterns.
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