Why Is Omnichannel Inventory Management Vital for Mixed-Model Retailers?
Last updated on May 17th, 2022 at 04:48 pm
If you’re a mixed-model retailer who dropships in addition to maintaining internal inventory, you know that inventory management is one of the hardest things to accomplish. This is especially true when selling on multiple channels to meet and exceed rising customer expectations.
Your customers don’t care how you manage your inventory. All they want is to purchase products that are high-quality, sold at a reasonable price, and delivered on time.
Our world is increasingly favoring the omnichannel business model. Millennials and Gen Z consumers who prefer to shop on Instagram can do so, while online shoppers who prefer not to wait for a shipment can pick their order up in-store. An unsure consumer can stop by a store to test a pillow before purchasing it online.
Many retailers don’t know how to balance all of these channels perfectly. Usually, this is due to poor profit management or technology implementation. In fact, over half of companies don’t have an omnichannel strategy in place at all.
As you consider an omnichannel approach, investing in the right software for omnichannel inventory management is vital. Keep reading to learn more about optimizing inventory management and how to implement the right software solution for your business.
What Is Omnichannel Inventory Management?
Before you can understand omnichannel inventory management, we must discuss omnichannel retail first.
“Multichannel” is a term that has existed in retail for several years now, but “omnichannel” is the new standard for the most successful retailers. You may sell products on multiple channels in a multichannel business model, but you don’t sync data between them. This causes a disconnected customer experience.
However, in an omnichannel business model, all channels are available to the customer, and data synchronizes seamlessly between them—providing the best customer experience.
Managing inventory across multiple sales channels is considered omnichannel inventory management. These sales channels include online stores, brick-and-mortar stores, social media channels, and more.
You must provide inventory where your customers are. Sounds simple, right?
Well, a majority of this work is done on the backend, so it takes careful consideration and the right tools to get it right. While considering omnichannel strategies, think about:
- Do you have a good sense of what your customers want—and when and where they want it?
- Do you have software in place capable of managing multiple sales channels?
- Do you have adequate reporting or forecasting ability so you can order the correct amount of stock for each channel without risking dead stock or stockouts?
- Are you at the right point in your business to take the next step?
Take Target, for example. They tested a business model that allowed them to house less inventory in the backroom to free up space for online orders. While their upfront investment was more, they lowered their digital fulfillment costs in the long run. Their stores became faster and more efficient at fulfilling orders.
Common Inventory Management Challenges for Retailers
Many businesses experience growing pains as they expand to an omnichannel model. From your supply chain to your reverse logistics, these issues can either manifest slowly or hit you like a freight train, depending on how quickly you grow.
Let’s look at some challenges related to managing omnichannel inventory and how you can overcome them to master essential factors such as inventory availability and seamless integration.
Supply Chain Gaps and Lack of Visibility
Segmented supply chain processes are detrimental to a functioning omnichannel approach. Your online store and brick-and-mortar storefront should be housed in a single software solution. If not, you’ll experience supply chain gaps that lead to a lack of visibility.
Supply chain gaps can point to many distribution and fulfillment issues, such as presenting customers with an incorrect “out of stock” status or delivery delays. This is even more true in a time where customers demand instant quality and hold all of the power, which pushes suppliers to deliver top value at the lowest costs.
Traditional supply chain tools can’t keep pace with the current digital commercial landscape—let alone keep you competitive. Your businesses’ supply chain can’t afford to operate without unifying software. As your business expands, your inventory channels grow. As this happens, the risk of incorrect data grows as well. Basically, you lose inventory visibility—and fast.
Inventory visibility may be the single most significant obstacle to proper omnichannel inventory management. Without visibility, you can’t report accurately or promise customers that back-ordered items will soon be in stock on all platforms.
When you’re expanding your business to new platforms and channels, inventory visibility becomes the common denominator. It’s vital to have a centralized system in place to never miss a beat between platforms.
Limited Order and Tracking Accuracy
Absolute order accuracy is only possible when utilizing automated inventory software. Counts by hand or manual spreadsheets will get you nowhere.
Order accuracy is the difference between a loyal customer and a lost one. Even a 1% increase in accuracy is significant if it leads to faster stock cycles, on-time order delivery by your suppliers, and improved delivery times for customers. It can also reduce expenses related to holding costs, such as insurance for holding excess stock or rent.
Alongside order accuracy, you must have accurate order tracking—and you can’t have precise order tracking without inventory invisibility. Catching on yet?
Proper order tracking requires a streamlined process from when you create a PO until the product is shipped (and potentially returned). Without 100% visibility into your inventory, each step of the pick, pack, and ship process is error-prone—and there’s no accountability.
To improve your fulfillment process, you need an omnichannel inventory management tool to study inventory behavior as it’s happening and after. With the correct data, you can make adjustments that will ultimately improve your fulfillment process’s overall efficiency and the customer shopping experience.
High Inventory Storage Costs
Before dipping your toes into an omnichannel strategy, you must plan for how you’ll support more storage space and, in return, cost. You’ll also need to account for which storage areas will serve which channels and focus on the demand planning behind them.
Without intelligent demand planning, you could end up with dead stock lying around your warehouse. Not only does inventory that won’t turnover take up valuable space, but it also ties up cash that you could use in other areas of your business. By planning ahead, you can more adequately prepare for potential peaks and valleys in traffic, which negates the need for sudden clearance sales to sell off stock that will end up costing you more than it’s worth.
The foundation of any successful omnichannel approach is an automated inventory or warehouse management system.
You just can’t do omnichannel manually. You can’t. Through automation, each step in your workflow is streamlined. Inventory availability and profitability data are available so that you can make better purchase and fulfillment decisions. Order distribution and fulfillment are simultaneously synchronized across sales channels.
With robust software in place, you’ll not only reap the benefits of that tool but the software integrations available for other areas of your business.
Optimizing Omnichannel Inventory Management
Conventional distribution methods can no longer satisfy multichannel demands. Not only do manual processes not allow access to real-time data, but they are also time-consuming and error-prone. Today’s retailers need to deliver accurate, fast service and a true omnichannel experience that synchronizes sales and inventory data across all channels for high visibility.
Let’s look at a few ways you can optimize omnichannel inventory management for your business.
Ideally, your inventory management solution integrates with the different players in your supply chain. The platform you choose must integrate with other software solutions, including channel management, shipping, and accounting tools.
By connecting your software to a centralized system, you can clearly see all inventory activity. As orders are synced between platforms, integrations are triggered and work together to ensure the correct item quantity is displayed across your sales channels.
Seamless integration provides true visibly.
Research shows that retailers miss out on nearly $1 trillion in sales due to stockouts. You don’t want to be a part of that club.
To achieve proper visibility, you need all of your inventory data in one place. Automation software can ensure that all of your data between sales channels is refreshed in real-time—so you know what is sold and where to decrease the chance of out-of-stock inventory.
This is what keeps an omnichannel business strategy afloat. Do your best not to store any inventory data on its own. All of the information you can get your hands on must live inside your software to create a flow of information between channels. This integration allows for accurate reporting down the road, which leads to even more optimization.
Improved Return Processes
If you’re investing in a good omnichannel software or tool, you should also look at your return policies. To do this successfully, you must anticipate customer behavior and experience—and how these affect your bottom line.
Return rates are higher than you think, with 89% of consumers reporting that they’ve returned an online purchase in the last three years. In fact, 41% say they buy the same product in multiple sizes and colors, planning to return some or all of the items. However, most customers will only shop this way if you have a good returns policy in place.
Of course, returns harm your bottom line, but they’re inevitable. You can take on the cost of returns or have your customers pay a return fee, but neither option is optimal. Your policies must be easily visible to encourage a better customer experience while protecting your company at the same time.
Grow Stock Across Different Locations
As you expand to an omnichannel retail model, you’ll need multiple distribution centers.
For example, when you have one vendor shipping into one center, it’s fairly simple to maintain inventory visibility. However, when you add distribution centers, you may want that vendor to ship to a central location where stock is then distributed to other warehouses.
The best way to manage these growing pains is through centralized software. An inventory management system enables you to effortlessly move inventory across distribution centers.
Customer Satisfaction Contingency Plan
To lessen the risk of customer confusion, make sure your shipping and handling and returns policies are clear and concise, as well as in front of your customer when they’re making a purchase.
72% of consumers report that they’re willing to spend more money with merchants that offer a simple returns process. Therefore a solid return policy can actually encourage repeat business!
Whether you like it or not, the cliche is true—the customer is always right. You need a customer satisfaction contingency plan that reflects this, and most of it will stem from your shipping and returns processes.
On your website’s return policy page, for example, you can share a chart that outlines the different shipping methods and their associated delivery dates and fees. Shoppers know exactly what to expect up front. Then, outline your policies for each sales channel and end with frequently asked questions and relevant contact information, in case customers need to contact your support team.
If a product is almost out of stock, inform your customers. If your return date window is reduced, make it clear in bold writing. Clear and concise communication will create a loyal customer base. They can become your cheerleaders if you give them the information and resources to do so.
Optimizing Omnichannel Inventory Management
So now that you know how essential inventory management is to omnichannel retail, how do you know which tools and software to implement? There’s just as much work in researching the right solution as there is during and after implementation.
It’s time to determine whether you can sustain your business without inventory management software and if it’s the right time to add a new platform to the mix. Really, though, if an omnichannel business is your goal, you can’t achieve true success without a centralized inventory management platform.
Determine Where Your Inventory Currently Exists
First, look at where your current inventory exists. Inventory can live in multiple locations, as well as in several workflow stages. Transfer sales, inbound shipments, and multiple storage locations make it difficult to get an aggregated view of your product inventory and maintain this visibility.
To drill down and get a better idea of where your inventory exists, work with your inventory management software provider to determine the process you will implement for this stage of your workflow. A good foundation here can make a difference in your ability to make better strategic decisions for your business.
Next, you’ll need to look at all of the different stages and locations your inventory lives in to sync that data to a new system. Once this connection is made, all inventory updates will funnel into your new system, so you have real-time visibility of your inventory. You can then integrate this platform with other systems in your tech stack if needed.
Decide How to Source Products
If you’re adding products to your catalog, will you source them or produce them yourself? This decision will be unique to your business and varies extensively by industry. In most cases, the market dictates this for you. In an ideal scenario, you have the time to perform small tests to assess consumers’ reactions and can proceed from there with your data.
Once you begin ordering raw materials or finished goods, you’ll need to immediately begin tracking your inventory.
Consider Inventory Management Solutions
It’s possible for any business to implement an inventory management platform if they prioritize it. However, this isn’t easy if you’re already wearing multiple hats.
As most businesses grow, they can dedicate roles to specific operations, which allows key individuals to focus more on these types of projects. Without this, dedicating the time to implementing a new solution can be difficult. If this is the boat you’re in, ensure that the solution you choose has a team that can assist you through the implementation process.
Regardless, implementation can and will take time. Once you have everything in place, though, your system should become an efficient, well-oiled machine.
Analyze Your Current Processes
It’s time to think about your business and fulfillment operation’s resilience. Can your current inventory management processes scale with your business? What happens when you’re working with twice the inventory capacity?
No matter which stage your business is in, it’s a good idea to think about the tasks you handle manually. How will those evolve as your business grows? Will you be faced with new personnel needs—and how much will that cost down the road?
When considering the cost of any solution, analyze both the direct and hidden costs of not implementing anything at all. It will quickly become clear that financially, investing in the right software is a huge win.
Better Omnichannel Inventory Management With Automation Software
As a mixed-model retailer, it’s now vital to provide your customers with products where they’re already looking. A single outlet is no longer viable—an omnichannel approach is imperative for business longevity.
Omnichannel inventory management prevents issues associated with having too much or too little inventory, builds brand recognition, keeps customer satisfaction high, and generates more revenue. Unfortunately, many modern retailers still struggle to bring their multiple channels together and generate a profit, especially as customer expectations and demands rise.
No matter which set of platforms you sell on, you need to control inventory to keep ahead in this intensely competitive environment. Poor inventory management can ruin your ecommerce business—if not now, then it will down the road.
With the right software, you can create an optimized omnichannel inventory management strategy built for visibility as your business grows. Talk with an expert to learn how Flxpoint can help.