Is this the end of multi-echelon inventory optimization?
“The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.” – Albert Einstein
The emergence of ecommerce has transformed everything about the retail world: How customers search for products. Where they buy. The ways they take delivery. And what their expectations are throughout the entire shopping experience. The explosion of digital sales is only continuing to grow. According to a U.S. Census Bureau report, online commerce in the U.S. has expanded from $230 billion in 2012 to nearly $460 billion in 2017, with even more growth expected in 2018 and every year beyond.
Today, customers demand omnichannel shopping experiences including mobile purchases, buying online and pickup in store, ship to store, ship to home, curbside pickup, returning online purchases in store, two-day shipping, same-day shipping and next-day delivery. In short, consumers expect to be able to buy and return anything, on any channel, on any timeline of their choosing. As a result, retailers have transformed fulfillment capabilities to meet those expectations.
But here’s the key question: Can you successfully implement omnichannel fulfillment and maximize profitably? The answer is yes, maybe. Yes, it can be done. But only by taking a cue from Einstein and changing our thinking about it. The focus also needs to be on the other side of the equation: inventory.
At the outset of ecommerce, retailers had an idea of how much product customers would buy, but had to figure out how they would buy it. For years, most retailers relied on multi-echelon inventory optimization to ensure they streamlined inventory supply across the entire network in order to fully realize sales opportunities. For a while that technology worked really well. Organizations gained alignment of supply and demand across the network, with network inventory transparency and optimization of demand by channel.
Then shopping and shoppers changed. Ecommerce exploded. Fulfillment options expanded. And the shortcomings of multi-echelon inventory optimization began to be exposed. Those solutions weren’t built with today’s retail realities in mind. In today’s anytime, anywhere world, multi-echelon technology offers no insight and gives no consideration to the many unique fulfillment experiences available to shoppers. That’s a problem.
In addition, multi-echelon technology only provides a limited understanding of demand. For example, when someone orders a product online and it’s shipped from a retail store, who gets credit for that demand? Should the demand be realized at the fulfillment location or the demand location? Often the answer depends on both your fulfillment strategy and your inventory strategy. If the store fulfilled the order because the distribution center was out of stock, likely the DC deserves the credit. If the store fulfilled the order because of a strategic decision to leverage the closest store for next day delivery, possibly the store deserves the credit. In each case, the fulfillment experience matters. The inventory strategy matters. Gaining insights into all of them – and adjusting inventory accordingly – is the key to profitability.
It’s an omnichannel world and we’re all operating in it. A lot of work has been put into new fulfillment strategies. However, to gain the most profitability, focus also needs to be on the inventory side of the equation. Multi-echelon inventory management still has value, but it’s not enough. In order to thrive in today’s complicated retail environment, many retailers are turning to Manhattan’s Omnichannel Inventory Optimization (OIO). This first-of-its kind approach takes full advantage of all factors – network inventory, channel demand patterns and omnichannel fulfillment strategies – to better align inventory across the network. The result is lower costs, greater efficiency and a higher return on your inventory assets. OIO rebalances the fulfillment/inventory equation so you can offer the best possible shopper experience at the lowest cost to your business.
A new day in retail has created a whole new set of challenges. You need a new kind of technology to meet them.