Omnichannel retail is certainly where it is at, however it is not without its own challenges which must be overcome for long-term business success. As with any retail company, inventory represents a large amount of tied up cash, or assets as it were, and if mismanaged, this can be a significant area for loss. Therefore, managing omnichannel inventory is extremely important for preserving the bottom line, increasing profits and keeping those shareholders happy. Let us dive in and consider some of the obstacles to flawless omnichannel inventory management.
Each to his own
One of the most common errors in omnichannel retail is treating each component of the supply chain as a single entity. This makes it impossible to have a holistic approach to management where decisions are made for the common good as opposed to being made simply to optimise one area even if this has a detrimental effect on another.
When retailers start out small, they often have a single-tier inventory model where they receive stock into one location, they sell by one location and stock goes out from one location. When they grow, they simply add in locations. If they continue to manage each separately in the same fashion they have always done, they will run into problems. This is often seen in the case of small retailers with a brick and mortar store who add in a webstore or vice versa. Do not be one of the 73% of companies that Bloomberg Businessweek found to be aware of the need for supply chain tools to manage their omnichannel model yet fell far short in actually implementing them to reach their company goals.
You can never be too prepared
Yes, this mantra serves well for many situations, however embracing it too tightly in inventory management can result in too large a safety stock which again can cause major problems for inventory control and the bottom line.
A stockout situation is certainly regrettable and must be avoided to maintain good customer relationships and brand loyalty, however, stocking too much inventory just in case will do just as much, if not more, to derail the company.
Ascertaining the correct safety stock levels is important as each will differ from company to company and product to product based on customer demand and supplier lead times. It is very easy to sway the other way and spend too much time coming up with your ideal formula while ending up in a mess of confusion. So, here is a basic formula to derive appropriate safety net values for most businesses:
Safety stock = (Max Daily Usage x Max Lead Time) – (Average Daily Usage x Average Lead Time)
This formula helps you calculate the amount of stock sold at your busiest time multiplied by the worst-case scenario lead-time (if the supplier shuts down for a period or there is an unforeseen delay in shipping) over and above what you would require on an average basis.
Some companies may fall into the trap of having too much stock when they simply calculate what they would need in the worst-case scenario, not taking into account their average usage.
Spare a thought for returns
30% of online orders are returned and 9% of brick-and-mortar purchases are returned. Those statistics certainly warrant designing a protocol around returns that enables a company to deal with returns appropriately and efficiently without compromising inventory management especially when the purchase and return spans different retail channels.
It is proven that customers feel more assured buying items online when they know they are eligible to return them in-store. However, returning items in-store that have been sold by the webstore certainly creates more labour and room for errors, however if the company has no standard way of managing this, their inventory will be perpetually out-of-control with money lost through time investment and incorrect stock replenishment.
Methods to implement for optimum omnichannel inventory control
Integrate your supply chain
Implement supply chain management software to create a transparent system where you have complete visibility across all your channels. This will help to synchronise orders and fulfilment across all channels so that the closest distribution centre, for example, can be triggered to fulfil an order thereby reducing shipping times and costs.
Reduce safety stock
As we have already identified, too much safety stock can be detrimental to a company’s finances as it represents money that is tied up and sitting in inventory, losing value and incurring costs. Therefore, a way to optimise inventory is to reduce the amount of safety stock held.
Improve the returns process
Returns are an inevitable and an important part of managing inventory, albeit costly and frustrating. Therefore, some ways to reduce the costs, burden and time taken to process returns include streamlining the sorting and repackaging process, creating a standardised returns policy and even enlisting a third-party logistics company to handle them. Of course, accepting returns, refunding or re-issuing items across multiple sites requires a robust inventory management system that can track items whenever they are moved and update stock counts accordingly.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.