Managing business in multiple channels is a serious matter. The more channels you use, the more important it is to have a tight system that puts every piece in its proper place. Have you taken customer returns into account and optimized your safety stock so you don’t operate at a loss? Does your inventory management software sync orders between physical locations, your website, and your Amazon store? What about receiving in-store orders for online orders or home delivery for items that were not available in your store?
Unfortunately, the average retailer only has a 63% inventory accuracy.
Common Obstacles to Inventory Optimization in Multi-Channel
When a business expands its empire across multiple channels, there are some “growing pains” that are commonly seen. From your supply chain to the return process, these issues can creep up slowly or hit you like a freight train – depending on how fast you’re growing.
Fragmented Supply Chain Operations
This is devastating. Let’s say you have a successful brick-and-mortar location and have just added your online store to the mix. If you haven’t consolidated them into one system, you may face a lack of inventory visibility across channels and fragmented supply chain operations.
It’s easy to miss one or more steps in the supply chain process, such as demand forecasting, allocation, replenishment, supply chain optimization, space planning, and merchandising.
The gap in your supply chain could be the reason for any issues you face during the order fulfillment process – from delivery delays to customers ordering items that are out of stock.
This is especially true in an era where customers hold all the power with their demands for instant quality, putting retailers in a tough spot to deliver the highest value at the lowest cost.
Bloomberg Businessweek states that 73% of companies recognize the importance of supply chain tools when it comes to achieving business goals, but many are still falling short.
As Digitalist Mag puts it: “Traditional supply chain tools cannot keep up with the modern digital business landscape. And they certainly can’t make you competitive.”
Startups will need to be proactive in searching for the right solutions for their brand.
Too Much Money Invested in Safety Stock
In the world of inventory management, safety stock levels are a tricky topic. Depending on the circumstances, stockouts can be a devastating hit to businesses. So it’s natural for companies to put some effort into inventory management.
But how much preparation is too much?
You’ll find many theories on how to determine safety stock levels for various businesses. You’ll also find an equal number of hurdles in planning them, ranging from miscalculations to unexpected spikes and drops in demand and production times.
There’s also the lost revenue from items that didn’t sell alongside their counterparts, which drives companies to numerous strategies to recoup what they can, such as selling them at discounted prices, bundling them with “more relevant” products, donating them, or returning them to the supplier.
For many, finding the perfect balance point for safety stock can be an endless quest.
Learn more: Verec streamlining retail trade
Single Level Inventory Control
Single-level inventory control vs. multi-level inventory control is an important concept to manage as your empire grows across multiple channels.
Simply put, single-level inventory control focuses on managing inventory for a single unit in your supply chain network. Multi-level inventory control and optimization is a holistic approach that focuses on inventory levels across the entire network.
Working
Small companies typically operate on a single-level inventory control model. This is especially true if you have only one distribution center that lives at the heart of your fulfillment system. In this setup, inventory management is linear and complexity is low.
But as you grow, more pieces are added to the puzzle. Once you start adding multiple distribution centers, you may need a centralized or regional distribution center (RDC) that suppliers ship items to, which are then sent to your distribution centers.
Take the example of a large retailer with thousands of locations – they may have 10 RDCs shipping to 50,000 DCs.
For a burgeoning multi-channel company, the single-level inventory control system that has worked smoothly in the past can become a tangled web of threads and quick-fix solutions, hindering inventory visibility and preventing smooth fulfillment across the entire business.
Fragmented Reverse Logistics
Returns are important. They instill trust in your customer that you stand behind your products and are committed to keeping them happy.
Invesp found that approximately 30% of products ordered online are returned, compared to about 9% for purchases in physical stores. If you sell on both channels, you may be interested to know that 62% of surveyed shoppers said they were more likely to order an item online when they had the ability to return the item in-store.
While strong return policies are nearly mandatory in today’s retail landscape, they can impede your inventory management process – and much more so for multi-channel sellers, and particularly for multi-channel sellers who allow returns to a different location than where the purchase was made, such as returning online purchases to a brick-and-mortar store.
There are additional labor costs for your in-house staff or third-party partners to collect, assess, and sort them. They will then need to determine whether to put each item back on the shelf, sell it to a discount retailer, recycle it, or return it to the distribution center for restocking, cleaning, or repackaging.
As returns are a sensitive topic that evolves into a requirement, retailers hesitate to recover these costs by charging for return shipping.
In a survey by DC Velocity, only 30% of retailers said they charged for return shipping to recoup these supply chain costs and charged for processing them. To add insult to injury, fewer than half can even measure the financial impact returns have on their business.
The reality is it’s an inevitable and costly process, so you will need a robust system to reduce the drain on your resources.
Tactics to Solve Optimization Challenges
Let’s call it Newton’s Third Law of E-commerce: for every challenge in inventory optimization, there is a corresponding solution for inventory enhancement. Integrated supply chain
Deloitte reports that 78% of companies with high-performing supply chains experience higher revenue growth than their industry peers.
The key to solving this issue lies in your system – you will want to implement an optimized warehouse management system (WMS) or inventory management system (IMS).
The idea is to have a clear view of inventory across all channels, which you can use as a predictor for future product orders. And when order management and fulfillment processes are synchronized in real-time across channels, each order can run to the nearest distribution center and the most efficient fulfillment entity, whether in-house or third-party.
Learning
From Original Grain, a Shopify Plus client that recognized from the outset that tackling multi-channel challenges would be the backbone of the company. This mindset allowed them to surpass the eight-figure mark within four years, as they sell through multiple channels including physical storefronts, their Shopify Plus store, and Amazon.
Minimizing Safety Stock
If you are losing a lot of money in your safety stock game, recovery comes from calculations and tracking.
Be warned that generally, it can seriously sink you when it comes to the art and science of calculations.
But any formula you ultimately face will take into account demand for
Source: https://www.shopify.com/enterprise/omni-channel-inventory-management
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