Consumers shopping on the web want everything in one place: selection, detailed product descriptions, ratings and reviews, prices and, most notably, guaranteed availability. There are times, however, when it makes sense for a retailer to keep certain products off its website.
Why would an omnichannel merchandiser not want to offer its wares for sale online, where a robust presence can be the key to survival in the age of Amazon? For the obvious reason that fulfillment might exceed any profit that the seller stands to make. But the calculation is more complicated than that.
Here’s the problem: to sell an item on the internet, you have to have it in inventory. And most omnichannel retailers today draw on a common well of stock for all sales channels. So a run on something offered on the website could result in stockouts at the store — unless, of course, the retailer has enough safety stock on hand for all eventualities. But much of the time that means having too much inventory in the pipeline, a definite no-no in the age of lean supply chains. And there go your profits, in a business with perilously thin margins.
The solution lies in what Nick McLean, chief executive officer of OrderDynamics, calls dynamic inventory visibility. It takes into account the fact that offering one’s entire inventory online can damage a seller’s bottom line. Instead, it allows the retailer to create virtual inventory pools, keyed to certain criteria.
Having a broad view of inventory across its entire network allows the retailer to make intelligent decisions about where to source an online order. Shipping from the store, even one that’s close to the buyer, might not be the optimal choice if it results in empty shelves for the in-person shopper. The decision can vary from location to location, based on the retailer’s desire to cater to a narrow group of online buyers.
The first challenge to be overcome, says McLean, lies in unifying the retailer’s entire inventory position. It means being able to view product both in warehouses and retail stores. In the omnichannel era, that goal can be tough to achieve. But the rewards, in the form of more sales opportunities and higher profits, are substantial.
Having achieved a broad view of inventory, the retailer next needs to figure out when and where to deploy it. “As you start to enable these different fulfillment strategies,” McLean says, “you realize that you need different amounts of inventory in different locations.”
The answer is anything but static. It changes from season to season, in line with the retailer’s promotional efforts, and the need to mark down or liquidate older stock.
The key to success in online retailing is speed of fulfillment. The seller must be able to respond to the needs of the moment. Surprises are common, too — what appeared to be 10 items in a particular style turns out to be seven, because one was displayed on a mannequin and two more were lost through theft.
Legacy systems, involving the batch transmission of flat files, can’t keep up with the flurry of changes that characterize a modern-day retail operation. A system that updates every 24 hours is constantly a day out of date.
“Once you start to enable these strategies,” says McLean, “you need end-to-end technological capability that allows you to see inventory changes in real time, with the ability to do regular cycle counts.” Radio frequency identification (RFID) tags are a key element in any system that strives to stay current.
So is the ability to run “what-if” scenarios. A retailer might take historical sales data from the previous six months, then apply it to multiple strategies for exposing inventory, based on a series of varying rules. In the process, it can determine the potential impact on shipping costs and stock position at the event of the period under review. The conclusions can inform future decisions as to which products should be made available online to which buyers, and whether the retailer should ship from stores or draw from stock in the warehouse.
According to McLean, dynamic inventory visibility allows retailers to expand their market reach while protecting margins. They can set rules according to shipping distance, price and margin for any given product. They can apply stock thresholds for regional sales to online shoppers.
The creation of inventory pools is especially valuable where international sales are involved, McLean notes. An intelligent stocking strategy will take into account tariffs imposed by each country, and the logistics of shipping there. Customers will only see the inventory that makes economic sense for the retailer to offer and ship.
The hope for retailers is that they’ll be able to satisfy customer orders while not being stuck with excess inventory at the end of the season. How they manage that changes from moment to moment.
“A good order-management system opens up a whole variety of additional options,” says McLean. “We encourage customers to think about flexibility, so that they can change business rules within minutes.”