What are the common problems encountered by retailers trying to manage inventory across many different sales channels and how can integration help?
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Mastering multichannel stock control is a battle that many retailers are fighting very hard to win.
Managing stock allocation across web, store, catalogue, mobile and kiosk is notoriously difficult, but getting it wrong has sizeable repercussions - insufficient stock and leads to disappointed customers; unsold stock and you have an irate commercial team.
Increasing numbers of retailers are announcing plans to integrate their back office systems to accommodate efficient multichannel supply. Computer and video games giant Game is investing £15m this year to build a truly multichannel operation. Group chief executive Ian Shepherd says the aim is to “deliver a step change in Game’s online revenues” and that “seamless multichannel integration” in the next three years will make this happen.
Retailers in all sectors are thinking in this way, says Ali Athar, chief executive of supply chain solutions provider Itim. “If you don’t allocate effectively, what happens if on the first day the web channel consumes most of the stock and there is none left for the stores? The stores would consider it a disaster, because they have lost the opportunity for cross-selling or up-selling to a customer who would have walked into a store.” On the other hand, well-managed multichannel retailing can reduce markdowns, mainly because you can potentially clear slow moving stock from stores via the website. Ultimately, systems that provide real-time sales and stock visibility across all points of sale so that allocation can move seamlessly between channels is critical to multichannel success.
Manhattan Associates senior director of product management Brian Kinsella says retailers’ multichannel problems started because the internet’s potential wasn’t fully understood a decade ago. Retailers grew their online businesses as a separate entity, “not wanting to mess up their existing supply chain systems”. Today, the web is responsible for as much as 15% to 20% of sales. “Everyone is clamouring to streamline and integrate processes, desperate for more visibility and efficiency around stock control,” he says. At the same time many retailers are reluctant to rip out and replace existing supply chain systems that cost millions. “For inventory visibility it is possible to build a central point for inventory management, pulling in all the stock data to a central place,” says Kinsella. “This allows you to see exactly where sales are going, and where product is across the whole network.”
Torex product manager Roy Patrick says, typically, retailers will now consider integrating different channels when non-store sales hit about 10% of revenue if the cost of not doing so becomes significant. He points out that satisfied cross-channel customers are significantly more profitable than those who shop through a single channel. “Retailers should realise they are limiting their potential to serve these lucrative customers through a silo channel model,” he says.
Integration is key
Cross-channel integration means connecting different admin interfaces into one central system, so that all stock is sold, and reporting done, via one user interface. Included in the cross-channel ethos is the ability to sell from one integrated stock control system. “This means that every sale, in whatever channel, reduces one stock level in a single database, meaning there is no chance of overselling products,” says David Mackley, managing director of retail solutions supplier Intelligent Retail. “This is the only way to sensibly manage a multichannel selling business.”
In many ways SMEs are in a better position to set up integrated multichannel systems because they don’t have vast legacy systems and have less of a change management issue when adopting an integrated system. He thinks the huge multichannel players are at a disadvantage. “They are having to bolt on modules to their
existing systems to achieve the same kind of cross-channel visibility. Sorting out the cross-channel inventory issue can be a complete nightmare, and for the largest companies it takes years and years of investment.”
Leigh Chadwick, director at Cornwall-based fashion brand Seasalt, says the company benefits from having visibility across three channels - retail (with nine stores), wholesale and internet. “Stock allocation is a dynamic process and the key to maximising profitability is having the right management information at the right time, and, of course, an excellent buying and merchandising team to make the right decisions.” Chadwick says managing stock between channels is challenging; last year like-for-like retail sales were 15% up on the previous year, internet sales grew nearly 100%, and wholesale sales were up by more than a third.
The need for speed?
Speed is crucial, but retailers wanting to leave behind the slow-moving silo model can risk deploying systems that don’t fit with their existing supply chain IT systems. Patrick says: “Until now, many larger retailers have attempted to provide the multichannel experience through complex point-to-point integration, which relies on manual processes and batched data that does not give a real-time view of stock. A common side-effect is that applications are deployed into a channel that is not appropriate and there are operational issues in making them fit.”
Cross-channel solutions claim to overcome these issues. Torex’s Channel Hub provides retailers with a ‘best in class’ unified customer order, fulfilment and delivery service - whether ordering through a kiosk, on the web, at a retail point of sale or even using a mobile device. “Implementing a system like this means that each sales channel inherits cross-channel visibility and order management while tapping into the same fulfilment capacity and capability, maximising the ability to fulfil all demands for products, wherever they are stocked,” says Patrick.
Kinsella says retailers that have the systems capability to maximise sales through the multichannel model have a distinct advantage over a growing band of pure-play specialists. “The beauty of operating stores and a website is that you can offer click-and-collect or ‘order in store’, maximising sales by making the most of the different customer touch-points - something online-only players can’t do,” he says. “There are great opportunities, but you need the technology and processes in place to underpin that kind of multichannel service.”
The business benefits of integrating customer data from all these channels are clear: with a holistic view ofaccurate and up-to-date information about their entire stock position, retailers are in a much better position to oversee stock fulfilment of customer orders from the store, warehouse or supplier and build their entire model around customer convenience and lowest cost of fulfilment. Moreover, the operational efficiency that comes with more efficient stock management and order processing will also result in significant cost reductions. The incentives are endless.
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Urban Outfitters’ multichannel strategy
Urban Outfitters operates retail stores, websites and catalogues, and also has an extensive wholesale division supplying 1,000 stores worldwide. Executive director of logistics Ken McKinney says that with continued growth and increasing sales straining the retailer’s network, it transformed its supply chain with a long-term solution to support operations across all channels. “We needed the capacity to handle high volumes, increase efficiency, improve supply chain visibility and obtain meaningful performance measures,” he says.
Last year the company transferred the fulfilment and call centre activities of its direct and wholesale channels to a US facility in Trenton, South Carolina, and implemented Manhattan Associates’ Warehouse Management solution (WMS) from the Manhattan SCOPE® Distribution Management solution suite to optimise its distribution network. “We achieved increased productivity and supply chain visibility along with improved collaboration with trading partners and product flow,” says McKinney.
Since implementation, Urban Outfitters has experienced 35% reduction in total labour, 80% reduction in the processes required for managing invoices, 66% reduction in the time goods take to come in and leave the warehouse and a 60% rise in put-away efficiency (goods being loaded into storage bays in the warehouse).