Inventory planning is complicated by the interaction of multiple channels
Key takeaways
Despite the challenges, inventory pooling can yield significant benefits
There are five key considerations when inventory planning for multiple channels
The interaction of multiple channels makes inventory planning complicated, but significant benefits can be enjoyed by inventory pooling and proper operational policies. The size of the omnichannel inventory benefit increases the more stores are in the pool relative to the size of the online business. Below are five things to consider when planning inventory in an omnichannel business. Each element has an impact on the omnichannel inventory benefit.
No. 1. Sales channel vs. fulfillment location
When forecasting inventory, it’s more important for retailers to look at where a sale is fulfilled than where the sale occurred. Although a sale may originate online, having the inventory in a store closest to the customer is what will drive a shorter shipping time. As channels align and online sales are fulfilled more often from a physical store, the overall product demand can be pooled from a larger geographic area. Historical models will need to be re-evaluated to consider these growing impacts.
No. 2. Channel sales credit and pick priority in store
Store sales teams that are not credited for sales that occur online but that are fulfilled in the store may make less desirable operational decisions. This can include saving popular inventory for walk-in customers and reducing the pick priority of online orders. However, store teams that are incentivized to handle online orders will more likely cooperate, even if a significant source of sales for a store, district or region is weighted toward online.
No. 3. Impact of returns from other channels
Big benefits accrue for cross channel returns but can distort inventory numbers as the percentage of returns versus sales is likely to be higher than normal. Inventory can get trapped in stores as it works through this process and can impact GMROI calculations. This can lead to lower replenishment and lower future allocations. Having the capability to distinguish returned inventory from available inventory and also the percentage of returned inventory that ends up resaleable can help manage this impact.
No. 4. Holding times for BOPIS
Some retailers offer extended hold times for “buy online, pick-up in store” (BOPIS) orders. But that can skew sales and inventory numbers since there typically isn’t any charge for the order until that order is picked up. This can result in a higher inventory level as items are reserved but not sold. Understanding the percentage of BOPIS orders completed by time segment can help with inventory planning. In other words, some percentage of the reserved orders is available for sale and could be considered against making additional allocations.
No. 5. System-wide safety stock level impacts
Each node in a network of inventory holding locations has an inventory policy that includes an expected service level that is supported by safety stock. When multiple nodes are pooled together to fulfill demand, the service level can remain the same as before but require a lower safety stock level. Studies have shown that omnichannel fulfillment in this manner can actually drive safety stock negative provided the number of stores in the fleet are sufficient to absorb the needs of online orders.
What happens next?
Omnichannel has several benefits to inventory including higher service levels, shorter shipping times and lower safety stocks. However, to achieve these benefits, it is important to consider the cross-channel flow and commitment of your inventory when making planning decisions.
Connect with our team for help with omnichannel inventory planning or with developing a business case for unified commerce.
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