Think Tank: Inventory Management Key to Omnichannel Success
Tobin Moore, chief executive officer of Optoro, discusses aspects of managing inventory in a consumer-centric market.
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Though these omnichannel tactics are still in their relative infancy, data already shows that omnichannel shoppers are incredibly valuable to companies. According to IDC, consumers who shop both online and in store have a 30 percent higher lifetime value than those who shop using only one channel. Pharmaceutical giant Walgreens recently released an app to create a seamless customer experience online and in store, and found their omnichannel customers spend 3 to 5 times more than store-only customers.
But omnichannel makes for incredibly complex logistics, and many retailers are facing challenges even while these models are still in their relative infancy. Retailers looking to remain competitive as the industry evolves will need advanced systems to manage both their inventory and the supply chain overall.
While the omnichannel buzzword has been floating around the industry for some time now, retailers are only beginning to find ways to bring the in-store and online experiences closer together. Many brands such as Starbucks and REI offer mobile apps that allow consumers to shop online remotely and use for reference in store. More recently, retailers have begun offering consumers the option to buy online and pick-up in store — according to NRF data, 28 percent of retailers now offer this option, up more than 20 percent in less than a year.
Both of these tactics make a significant impact on the consumer experience, but their effectiveness is dependent on inventory accuracy. For example, if a customer finds an item online and wants to make their final purchase in store, the retailer must be able to accurately report locations in which the item is available. Target, one of the few retailers whose first quarter earnings exceeded expectations, is finding success offering online purchasing as well as in-store pickup. The company credits this success to investments in managing inventory. The ability to know a product’s location and availability allows Target to accurately report to customers which items are available for pickup in store and at what time.
Faster Delivery, More Sales
Inventory accuracy is particularly valuable when delivering items to customers. Take Amazon, for example, which is experimenting with offering same-day delivery in various metro areas. To know which items are available for delivery, Amazon must know the exact location of every product, the same way Target relies on this type of accuracy when offering in-store pickup. Both companies have invested in the RFID Lab at Auburn University — a program dedicated to investigating the ways radio frequency identification might improve retail. According to Dave Clark, Amazon’s senior vice president of Worldwide Operations and Customer service, the company’s goal is to speed up deliveries, lower costs and increase selection. According to RFID consultant Bill Hardgrave (who is also dean of Harbert College of Business at Auburn University), retail clients who use RFID tracking see inventory accuracy levels over 95 percent. What’s more, those same clients see a boost in their sales up to 30 percent.
As the demand for same-day delivery continues to rise, retailers will need to know the location of their inventory to find the fastest, most efficient way to get it to customers. For example, if a customer purchases a shirt online in Connecticut, it might be better to ship the item that’s in-stock at a location in New York rather than from the warehouse in Utah. In fact, discount shopping site Jet.com competes with Amazon on the premise that better shipping logistics can streamline processes for retailers and lower costs for consumers. The company operates on a platform that allows them to fill orders based on customer proximity. Jet.com launched in July of 2015 and has already raised $570 million in funding.
One way to achieve inventory accuracy and make delivery times faster is to anticipate demand. The rise of omnichannel commerce has made this a challenge by complicating inventory planning. A study released in early April surveyed 24 senior retail supply chain executives, the majority of whom acknowledge that they struggle to anticipate consumer demand. Many retailers also report finding it difficult to strike the right balance of inventory between their warehouses and bricks-and-mortar locations.
Predictive analytics has the potential to mitigate this issue. Predictive analytics engines process millions of data points to identify patterns and produce insights. When applied to retail inventory, retailers can expect to see trends in consumer purchasing behavior that can help them predict demand and plan their inventory production accordingly, avoiding excess.
Omnichannel Depends on Inventory Management — at All Stages
Implementing any one of these technologies for an improved omnichannel strategy requires a holistic inventory management system. According to supply chain analyst Will O’Brien, inventory visibility all stages of the supply chain, even in transit, are essential. Yet today most companies follow Amazon’s lead and invest all their energy into the front-end; only one-third of companies link their inventory management strategies to reverse logistics operations.
To stay relevant and keep up with customer expectations, retailers will need to invest in supply chain logistics from end to end. Advanced inventory management systems — equipped with technologies like RFID — for both forward and reverse logistics will help retailers to track and accurately report inventory status. While these improvements require an up-front investment, they will have a direct, positive impact on the bottom line: making internal processes more cost-effective, as well as improving customer satisfaction and overall sales.