Customer satisfaction and service are likely key performance indicators for your omni-channel retail organization. As a transportation leader, that means you are helping to ensure the right product reaches the right consumer through the right channel, at the right time and cost – which is, of course, a lot easier said than done.
When it comes to optimizing inventory across channels, success starts with the right approach. Below are some key considerations and guidelines as you develop and refine your omni-channel strategy.
Consider Personnel Functions & Staffing Levels
As a retailer, you must define and understand how to leverage inventory throughout your entire supply chain, from where you allocate it and under what predefined rules. For example, will you move more volume using ship from store or ship from your distribution center (DC)? As you build out a ship from store strategy, keep in mind that store operations associates cannot function in the same way as warehouse associates. Store personnel have established duties that extend beyond order fulfillment, not the least of which includes delivering exceptional service to customers who are physically in the store. Thus, store associates cannot be inundated with orders from other channels.
Your order management system needs to be flexible enough that you can set (and change) parameters for the maximum number of orders per day dropped to a given store. This limit will vary depending on staffing levels and store operational hours. For example, fewer online orders should be sent for fulfillment from a store during peak in-store traffic days, such as weekends and holidays. Also consider what type of products you are shipping and what days of the week you are willing to ship a certain category. You may strategically decide to refrain from shipping general apparel from the store during the weekends when there is high store volume, but determine that store associates should still pick and fulfill general merchandize or specialty items on clearance. You will need the right order routing and allocation engine to support your strategy.
We are seeing most companies developing an 80/20 sourcing model, with 80% of orders being sourced from the DC and 20% from the store. However, this number changes dramatically during the holidays, with far fewer orders being sourced from the store.
Consider Types of Inventory
Inventory accuracy matters. For apparel retailers, in-store fulfillment levels are dramatically lower. Most stores only carry one unit of a given item/size/color. When you factor in average store level inventory accuracy at the UPC level, there is high probability the order fulfillment will fail at the store, known as “failed to fulfill, “even though inventory is allocated with the assumption of complete accuracy at the store. In this instance, first allocate to your DC, then to a single store, with the goal of fulfilling the inventory from one inventory source. This will reduce your transportation expense by preventing order splits.
Consider Inventory Positioning
Review demand patterns to best position inventory to meet the needs of your customer. Inventory should be examined by category, store and price. What merchandise is being featured through promotions and where and when is demand anticipated?
Transportation Cost
Transportation also factors into inventory allocation. In-store pick up does not increase a retailer’s transportation costs, whereas shipping from store or DC usually will. If merchandise is available at both the DC and the store, which facility is in closer proximity to the customer to reduce shipping costs? If shipping from store is more cost-effective, how do transportation savings weigh against the added labor costs associated with fulfillment from the store?
Retailers should also determine guidelines for what happens when an entire order cannot be sourced from a single location. Sourcing from multiple locations means splitting freight, which drives up cost, causing retailers to subsidize added freight costs and lose margin on the sale (or even lose money overall). In these instances, a balanced approach between sourcing inventory from multiple locations across DCs and stores should be used.
Conclusion
There is not a “right” or one-size-fits-all answer for developing a strategic omni-channel approach. Start by asking not only what you need to achieve with your working capital, but also what are the factors most important to your customer – product availability, price, free shipping, or same day delivery? The answer to these questions will inform your strategy and lead you toward the optimal omni-channel fulfillment path for your organization.
When it comes to optimizing inventory across channels, success starts with the right approach. Below are some key considerations and guidelines as you develop and refine your omni-channel strategy.
Consider Personnel Functions & Staffing Levels
As a retailer, you must define and understand how to leverage inventory throughout your entire supply chain, from where you allocate it and under what predefined rules. For example, will you move more volume using ship from store or ship from your distribution center (DC)? As you build out a ship from store strategy, keep in mind that store operations associates cannot function in the same way as warehouse associates. Store personnel have established duties that extend beyond order fulfillment, not the least of which includes delivering exceptional service to customers who are physically in the store. Thus, store associates cannot be inundated with orders from other channels.
Your order management system needs to be flexible enough that you can set (and change) parameters for the maximum number of orders per day dropped to a given store. This limit will vary depending on staffing levels and store operational hours. For example, fewer online orders should be sent for fulfillment from a store during peak in-store traffic days, such as weekends and holidays. Also consider what type of products you are shipping and what days of the week you are willing to ship a certain category. You may strategically decide to refrain from shipping general apparel from the store during the weekends when there is high store volume, but determine that store associates should still pick and fulfill general merchandize or specialty items on clearance. You will need the right order routing and allocation engine to support your strategy.
We are seeing most companies developing an 80/20 sourcing model, with 80% of orders being sourced from the DC and 20% from the store. However, this number changes dramatically during the holidays, with far fewer orders being sourced from the store.
Consider Types of Inventory
Inventory accuracy matters. For apparel retailers, in-store fulfillment levels are dramatically lower. Most stores only carry one unit of a given item/size/color. When you factor in average store level inventory accuracy at the UPC level, there is high probability the order fulfillment will fail at the store, known as “failed to fulfill, “even though inventory is allocated with the assumption of complete accuracy at the store. In this instance, first allocate to your DC, then to a single store, with the goal of fulfilling the inventory from one inventory source. This will reduce your transportation expense by preventing order splits.
Consider Inventory Positioning
Review demand patterns to best position inventory to meet the needs of your customer. Inventory should be examined by category, store and price. What merchandise is being featured through promotions and where and when is demand anticipated?
Transportation Cost
Transportation also factors into inventory allocation. In-store pick up does not increase a retailer’s transportation costs, whereas shipping from store or DC usually will. If merchandise is available at both the DC and the store, which facility is in closer proximity to the customer to reduce shipping costs? If shipping from store is more cost-effective, how do transportation savings weigh against the added labor costs associated with fulfillment from the store?
Retailers should also determine guidelines for what happens when an entire order cannot be sourced from a single location. Sourcing from multiple locations means splitting freight, which drives up cost, causing retailers to subsidize added freight costs and lose margin on the sale (or even lose money overall). In these instances, a balanced approach between sourcing inventory from multiple locations across DCs and stores should be used.
Conclusion
There is not a “right” or one-size-fits-all answer for developing a strategic omni-channel approach. Start by asking not only what you need to achieve with your working capital, but also what are the factors most important to your customer – product availability, price, free shipping, or same day delivery? The answer to these questions will inform your strategy and lead you toward the optimal omni-channel fulfillment path for your organization.
