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09/02/2014

Think Inventory Visibility Is Your Differentiator? Think Again

Inventory visibility is critical to cross-channel flexibility, but a tiered approach to store fulfillment is the brains behind doing it profitably.
 
Visibility-enabled cross-channel activity has been going on for years. In stores, associates are leveraging enterprise-wide inventory visibility to apply the "endless aisle" concept, thus saving sales and maintaining customer service when items are out-of-stock. Likewise, retailers are beginning to make in-store inventory available to online commerce in the event of e-commerce DC stock-outs, going so far as to pick-and-ship web orders from stores.
 
However, anytime, anywhere, any place inventory visibility is potentially problematic. It's an enabler of careless profit margin waste. It's ruined many merchandisers' floor sets and sent buyers into tailspins of sourcing and allocation unpredictability. As Uncle Ben told Peter Parker (and with apologies to Voltaire), "with great power comes great responsibility." In unskilled hands, the power of inventory visibility can destroy your best-laid plans.
 
Historically, as retailers consolidated and created visibility into siloed data, many rushed to "turn on" a facade of omnichannel fulfillment. Doing so is akin to breaking ground on a new home simply because you have access to the materials needed. You can take an inventory of every nail, stud and shingle necessary for construction, but without a building plan, where do you start and how much trial-and-error are you willing to expose yourself to during and after construction?
 
The Brains Behind Tiered Store Fulfillment
Store fulfillment is a trending means of fulfilling omnichannel orders for good reason. When used strategically, store fulfillment enables innovative selling strategies to drive higher online conversions and greater store inventory turns. But all stores are not created equal, which begs a host of questions for retailers: From which stores to fulfill, when, and in what order? To maintain profits and the customer experience, store fulfillment requires detailed and ongoing consideration, including:
  • Inventory: What's my current and future inventory position at the source of order fulfillment?
  • Labor: Do I have the labor skills and volume necessary to fulfill orders from this store without compromising in-store service?
  • Technology and Space: Does this store possess the technology infrastructure (WiFi, mobile devices, shipping label creation) and space necessary for fulfillment?
  • Local Demand: Will fulfilling from this store jeopardize my ability to capitalize on foot traffic demand? Conversely, will it enable me to move slow inventory and avert markdowns at this location?
  • Speed of Fulfillment: Can I meet customers' fulfillment speed expectations if shipping from this store? Does this store have dock door access for parcel carriers?
  • Fulfillment Cost: What's the opportunity cost in terms of the relationship between labor and customer service? Would it make sense to divert the order to a store with lower traffic volume, or one that's fully staffed, but where traffic is impacted by a weather anomaly?
 
The interplay among these variables is dynamic. Store count fluctuations, pricing, promotion strategies, seasonality, labor skills, and weather are among the constantly changing conditions that require ongoing calibration. We call this calibrated approach tiered store fulfillment, and when applied, it often proves the error of seemingly obvious store-level omni-channel fulfillment decisions. It distinguishes which store the associate is likely to fulfill the order from which store the item should be fulfilled from to preserve margins.
 
For instance, inventory visibility enables a store associate to ascertain that the item a customer desires is available in a store just 50 miles away. But it doesn't alert the associate to the fact that the item has enjoyed hot, full-price sales in that store, or that the item has fallen below presentation stock thresholds.
 
Through supply chain and store operations collaboration, a tiered store fulfillment approach allows retailers to categorize and prioritize stores and DCs that fulfill cross-channel orders using store-specific thresholds for space, inventory, labor, technology, cost and time variables. It allows the flexibility to automate changes within these predefined thresholds to protect in-store stock positioning and customer experiences when necessary, and to encourage the cross-channel movement of excess merchandise when the opportunity presents itself. Tiered store fulfillment enables retailers to differentiate between inventory visibility and availability, a distinction with profitable customer experience implications.
 
David Landau is vice president product management at Manhattan Associates, a provider of supply chain software that helps to optimize the supply chains of more than 1,200 global customers, from planning through execution.