Article

Preparing Your Network for Omni Fulfillment: A Responsible Approach to Omni Inventory Optimization

By Scott Fenwick,
Preparing Your Network for Omni Fulfillment: A Responsible Approach to Omni Inventory Optimization

So you’re ready to roll out your consumer fulfillment strategy, what’s next? What steps should you take to meet what you expect will be great demand for new fulfillment experiences by your shoppers, increasing your sales and boosting customer loyalty—all while keeping the cost of inventory as low as possible?

When retailers introduce a new fulfillment option, they add complexity into the process of inventory optimization, impacting demand and supply in often unanticipated ways—and putting the success of the initiative at risk if not managed right. For example, to implement buy-online-pickup-in-store without refactoring how inventory is distributed across the network, the organization faces two potential scenarios:

  1. There’s not going to be enough supply to satisfy the new experience, which means inventory meant for walk-in customers will need to be pulled, sacrificing in-store availability and possibly sales.
  2. There’s going to be too much inventory across the network. Manual attempts to override current inventory solutions (which are not engineered to handle the granularity of connected commerce) to accommodate the fulfillment program often results in excess supply that needs to be moved or marked down—both costly alternatives.

Omnichannel fulfillment initiatives are successful when the network is fully prepared and this includes getting your inventory strategy right as well. Getting inventory ready involves applying insights to achieve an optimal (and responsible) mix of inventory that both meets service goals and keeps costs in line.

How to get started

If the time’s right to launch buy-online-pickup-in-store (or another fulfillment experience), the initial assumption should be that it’s likely additional inventory will be required in stores to meet the needs of consumers who participate. It’s also possible that less inventory will be required in your e-commerce DC because of the shift in demand to store as a result of the added experience.

As you ready to pilot the program, your priorities are to ensure stores have adequate supply to fulfill online orders while making sure that demand is credited to the appropriate locations per your inventory strategy. Balancing supply and demand in the context of a brand new fulfillment program—without a quantified perspective of its potential performance—requires you to model the impact of the experience, weighing the trade-offs between inventory and customer satisfaction.

Analyzing the expected impact on network inventory; developing baseline expectations, and applying intelligence is not unlike what retailers do when launching a promotion. While introducing a fulfillment experience is far more involved than managing a promotional event, there’s a corollary that retailers understand. The difference is the additional dimension involved—and that’s a complexity most inventory optimization solutions can’t accommodate today.

A new consumer experience—where demand location and fulfillment location are different—requires modeling prospective demand lift and demand shift. See our article covering Omni-Demand Lift and Shift here. Factoring in both variables gives retailers full visibility into the impact of the program and allows them to keep supply levels optimized in an omni environment. While this capability is necessary to optimally roll out fulfillment experiences, it’s not inherent in today’s inventory optimization tools.

As when a new product is launched, adding a new fulfillment experience requires analysts to estimate impact up front. In the case of the fulfillment experience, perhaps they expect to see a 10% lift in demand from new shoppers and a 2% shift to the new experience from existing loyal customers. This initial input provides the basis for subsequent modeling needed to more precisely pinpoint impact both in the retail stores and distribution centers going forward.

As the program rolls out, real adoption must be monitored and adjustments made based on actual results. Maybe the initial assumption was too aggressive, or not aggressive enough. Using traditional inventory optimization solutions, the analyst manually tweaks the assumption based on real consumption, in the attempt to reach optimal balance—a hands-on process that’s time-consuming, involves guesswork and isn’t definitive. With a solution designed to handle an omni environment, retailers are able to iteratively factor in every consideration in real-time to keep the supply/demand balance in check.

How to do it well

To accurately weigh the trade-offs between inventory investments and potential adoption of the new fulfillment experience requires a combination of expertise and technology.

  1. The right people. The analysts involved must have knowledge of network demand, channel demand influences and be in-tune with the business’ omnichannel strategies in order to facilitate the process of adjusting inventory in a way that ultimately enforces profitability goals. They also need a certain level of curiosity and creativity to properly craft a successful inventory plan.
  2. The right tools. Preparing the network inventory in a financially responsible way requires the sophistication to extrapolate changes in demand into changes in future inventory investments. That insight, coupled with a highly visual way to explore the data at any level of detail and by any dimension of the business, enables the analyst to understand what the impact is for the program they’re about to implement and how that relates to other programs already in place.

Ultimately, an Omni Inventory Optimization solution, which advances multi-echelon concepts to consider multi-channel realities, is required.

Inventory optimization professionals, armed with tools that give them the ability to fully understand the impact of fulfillment experiences on inventory strategy, can get the answers they need to make a pilot successful—and then expand it across the network:

  • What’s the net effect of on-hand inventory over time?
  • How much will on-hand inventory change as compared to other programs in place?
  • What’s the impact of on-hand inventory by product category?
  • Which brands produce the greatest delta?

Slicing and dicing the data different ways gives retailers a way to look at information, and make sense of it, from multiple angles. They’re able to derive insights quickly, adjust them as needed, and revise continually to make the pilot successful.

Doing more with less

Adding consumer experiences isn’t about pushing more inventory across the network. It’s about delivering memorable shopper experiences while optimizing inventory investments accordingly. Modeling is an exercise in determining how sales can be maximized with the least amount of supply.

While it may be necessary to increase inventory across stores to be able to offer buy-online-pickup-in-store and other options, there may be opportunity to pull supply out of the DC at the same time. Maintaining a balance that benefits everyone—keeping customers happy, costs low and the business profitable—is the ultimate goal.

For more information on how Omni Inventory Optimization enables retailers to forecast channel demand patterns and implement omni-fulfillment strategies to align inventory across the network and improve total return, download our whitepaper. Enter the Era of Omni Inventory Optimization: Why Multi-Echelon is No Longer Enough.

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