It is becoming apparent that fulfilment is the new battleground for retailers in the fight to win over the 'channel-less' customer who is breaking the boundaries and wants to be able to buy anything, anywhere at any time. Customer expectations and behaviour are forcing retailers to adapt accordingly and, more specifically, their supply chains need to become omnichannel to enable a seamless experience across all channels.

Visibility and access to inventory across the retailer's entire estate is one of the fundamental steps to achieving an omnichannel supply chain. It is what can truly set retailers apart, allowing them to take their customer fulfilment to the next level.

According to Retail Systems Research (RSR), one of the top three challenges for retailers trying to deliver an omnichannel supply chain strategy is being able to use their inventory as a shared resource across all channels. The research also found 54% of the market winners see the ideal supply chain as being able to fulfil demand from any channel, out of any distribution centre. Whilst the industry is still getting to grips with developing enterprise inventory capabilities, several retailers began to embrace the idea a couple of years ago. Initial observations of the impact on their businesses are impressive. A classic example is Nordstrom who opened up its store stock to fulfil online out of stocks back in 2009. The department store saw same-store sales (sales at stores that have been open for at least one year) increase an average of 8% in the 11 months post-launch, compared to an average decrease of 11.9% in the 11 months prior to launch. In addition, Nordstrom’s inventory turnover, which measures how quickly a company goes through its inventory in a given year, reached a five-year high going from 4.84 in 2005 to 5.41 in 2009.

UK retailers are catching up as well. One example is Aurora Fashions (Oasis, Warehouse and Coast brands), which recently put in place technology that allows sales assistants to view stock availability across all stores and distribution centres. This enables staff to sell a product even if it is the last remaining item in the estate. During Aurora’s six week pilot, online availability increased by 28%, driving additional sales of over £2.5m and doubling online conversion.

The benefits gained from an enterprise inventory justify the investment required to build the capability:

  • Reduced level of markdown – access to inventory across channels ensures maximum sales at full price and reduces the pool of stock, which may otherwise have had to be marked down;
  • Reduced inventory levels – having to buy less stock while being able to sell more across channels optimises the inventory and improves asset efficiency;
  • Increased sales and conversion rates – removing channel boundaries allows retailers to use other channels’ stock to fulfil demand that might have been lost;
  • Increased customer satisfaction – customer disappointment caused by unavailability of stock is reduced and customers can benefit from more flexible and precise fulfilment promises.

However, the effort, time and investment required to build enterprise inventory capabilities should not be underestimated. Retailers are still experimenting with the concept, gradually scaling it up across their estate and product portfolio. The shift to omnichannel supply chain comes with a change in mindset of both the leadership and staff. It also requires a new approach to business processes and systems, which, for most traditional retailers, have not been set up to fit an omnichannel operating model. As retailers set out on the path to omnichannel inventory, they will need to address several key issues:

  • Finding the right technical solution to meet the requirements of the business is critical and may need significant investment, either into new technology or reworking legacy systems. When defining the IT requirements, it will be important to understand the business case and expected ROI. Some of the areas to consider include existing capabilities for a single view of product and customer orders, integration with order management systems and an ability to systematically manage the in-store inventory;
  • Linking the inventory with the cost  and profitability of fulfilling an order is important as the two will complement each other -  matching supply and demand in the most cost efficient way. For example, marking down a product may be cheaper than seeing through an order where high cost labour may be required;
  • Business limitations that may be driven by factors other than cost need to be thought through in advance, e.g. what are the capacity limits of stores to fulfil online orders?;
  • Training staff and aligning incentives in a way that encourages the right behaviour in the omnichannel business model may easily be overlooked. For example, making sure that store staff feel rewarded for filling online orders.

By enabling enterprise inventory visibility and accessibility, retailers are well positioned on the path to transforming their supply chain to meet the demands of the omnichannel customer. This will allow them to overcome one of the key challenges the industry faces throughout this digital evolution: protect margins and cost efficiency gained over the years while providing a seamless, flexible and reliable service to customers across all channels.

Toby Paxton, multichannel supply chain lead partner at Deloitte UK, writes a monthly supply chain & logistics column for Essential Retail, detailing what retailers must consider in order to build the right supply chain architecture.

http://www.deloitte.com/view/en_GB/uk/industries/consumer-business/index.htm