The Secret to Mastering Your Omnichannel Strategy: Inventory Management
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As consumer behaviors change, so must retailers. But, one thing remains the same throughout time: inventory is at the center of it all.
We live in a world driven by the omnichannel business model. Online shoppers who don’t want to wait for a shipment can pick their order up in store. Millennials who prefer to shop their favorite retailer straight from an Instagram image can do so. The curious shopper can feel a blanket in the store before purchasing it online.
Some retailers haven’t figured out how to perfectly balance multiple sales channels. You can say that’s due to poor technology implementation or poor profit management. In fact, 55% of companies don’t have a cross-channel strategy in place at all.
Investing in the right software to manage an omnichannel approach is critical. Take advantage of this time to implement the right system. Here’s how you can do it.
What is Omnichannel Inventory Management?
Omnichannel inventory management is the management of all inventory across all the channels you sell on. This includes your brick and mortar store, online store, social media channels, etc.
It sounds simple to provide inventory wherever your customers are, but the majority of work is done on the backend. When you’re considering implementing an omnichannel strategy, here’s some things to think about:
- Do you have a software in place capable of handling enough sales channels?
- Do you have a good sense of what your customers want, when, and where?
- Do you have the reporting or forecasting information to order the appropriate amount of inventory for each channel without risking stock outs or dead stock?
- Are you at the right level of business growth to accommodate this next step?
For example, Target tested a model that houses less inventory in the backroom to make room for more online orders. This new model took more capital investment up front, but in the long run lowered the cost of digital fulfillment. Their stores became the fastest and most efficient fulfillment model.
This kind of shift requires omnichannel inventory management to not only allocate inventory for a new purchase avenue, but to also maintain inventory visibility for its users.
Let’s get into the barriers of omnichannel inventory and how you can overcome them to win big on factors like inventory visibility.
Barriers to Omnichannel Inventory Management
When you break it down, an omnichannel inventory management strategy is difficult because there’s a lot of moving parts. And those parts grow as your business grows. Users have to think about how inventory data and activity will sync together, from the fulfillment stage to the returns stage.
Here are a few common barriers we see.
1. Segmented supply chain processes.
The key to a functioning omnichannel approach is connectivity. Your brick and mortar storefront and online store need to be housed in a single omnichannel inventory management software. If not, users will experience gaps like a lack of inventory visibility.
A gap in your supply chain can lead to a multitude of fulfillment problems, such as customers seeing an incorrect out of stock status to a delivery delay. And because customers drive the trends for instant satisfaction, they can easily end your business, too.
Your supply chain cannot afford to run without a unified software solution.
2. Lack of inventory visibility.
The story remains the same: as your business grows, your inventory channels grow, and as your inventory channels grow, so does the risk of incorrect data.
Aka, you’re losing inventory visibility and fast.
Inventory visibility is arguably the biggest barrier to proper omnichannel inventory management. Without it, you can’t access data for accurate reporting or promise customers items will be back in stock on all platforms.
And when you’re expanding to new channels, inventory visibility is the common denominator. It’s the piece you must have in place inside a centralized system so you never miss a beat between sales platforms.
3. Order accuracy.
First and foremost, order accuracy is only absolute with an automated inventory software in place. Manual spreadsheets or counts by hand will get you anywhere but accurate.
Order accuracy is the difference between a returning customer and a lost customer. An increase in inventory accuracy by as little as 1% is significant. It leads to an increase in on-time order delivery by suppliers, faster “Dock to Stock” cycles, and improved delivery times for customers. It can also reduce holding cost expenses, such as rent or insurance for holding excess stock.
Without order accuracy, your omnichannel business is doomed.
4. Order tracking.
With inventory visibility comes order tracking. You can’t have one without the other.
Good order tracking needs a streamlined process from the moment a purchase order is created, until it’s shipped out (and potentially if it’s returned). So once again, inventory visibility comes into play. Without it, each step of the pick, pack, ship process is prone to error and lack of accountability.
Users of the omnichannel inventory management solution need order tracking to study inventory behavior as it’s happening and after it’s happened in order to make improvements. In doing so, you can make edits that ultimately affect the customer shopping experience for the better and edits that improve the efficiency of your fulfillment process.
5. High inventory storage costs.
Before you create any kind of omnichannel strategy, you must have a plan in place to accommodate for bigger storage space and cost. And most importantly, different storage areas for different channels and the demand planning behind them.
Without smart demand planning, you’re left with potential dead stock lying around taking up space and tying up cash for other areas of business. If you plan ahead you can prepare for peaks and valleys in traffic, negating the need for flash clearance sales to hurry up and sell off stock that will cost you more than it’s worth.
This possibility grows as you add warehouses or distribution centers. Inventory data between all your locations can be shared and viewed inside an omnichannel inventory management system.
The real backbone to an omnichannel approach is an inventory or warehouse management system.
Omnichannel cannot be done manually. With an automated technology solution, every process is streamlined. Order fulfillment is synced across channels at the same time. Inventory data is made available in a robust set of reports so you can make better purchase decisions.
With an inventory management software in place, users can not only reap the benefits of that solution itself, but the software integrations it connects to for the other areas of your business. Imagine housing inventory data, shipping labels, and marketplace channel information in one place, with complete visibility.
Ways to Optimize Omnichannel Inventory Management
Now that we’ve covered the barriers, let’s look at the proactive ways to optimize an omnichannel inventory management strategy.
People want a seamless shopping experience with no gaps in convenience and a great customer service to high-five them along the way. So how do you get there? Utilize an efficient system that moves and maintains inventory easily across channels and accommodates for a better end-user experience.
1. Integrated supply chain.
An omnichannel inventory management software makes it possible to connect different ends of your supply chain. The software you choose should have the capability to integrate with software solutions such as accounting, channel management, and shipping.
When you connect different software into one centralized system, inventory activity and data is clear and pristine. Orders are synced simultaneously across all your sales platforms, triggering the combined integrations of the IMS, ecommerce platform, and channel management solution. They work together to make sure the correct item quantity is listed across sales channels.
2. Maintain true visibility.
More than 30% of businesses have experienced situations where they sell items they showed as in-stock but were not able to be located within the inventory. That’s not a club you want to join.
In order to maintain true visibility, you need to house inventory data between all sales channels inside an inventory management system. Listing quantities are updated in real-time between channels so you know exactly what is sold and where. And more importantly, this feature reduces the risk of out of stock or understocked inventory.
True inventory visibility is what will keep your omnichannel strategy afloat. Don’t allow any inventory data to live outside the centralized software solution. It all needs to live inside the software to create an accurate free flow of information between channels and allow for reporting to be conducted later for even more optimization.
3. Improve your return policies.
Investing in a fair returns policy is as important as investing in a good omnichannel software solution. You have to anticipate customer behavior, their experience, and how it all affects your bottom line.
For example, 41% of customers buy the same item in multiple sizes or colors with the intent to return some or all, according to a study by Return Magic. These kinds of shoppers exhibit this behavior only if they know you have a good return policy in place.
A good return policy can even drive repeat customers. 72% of consumers say they would spend more and purchase more frequently with retailers that make the return experience easy.
It’s on you to accommodate these factors. Unfortunately, returns have a negative impact on your profits. You can force customers to pay the return fee to offset returns costs or take on the cost and have it affect your bottom line.
Neither option is great, and the customer will be upset, but if you make your policies known upfront and provide great customer experience along the way, your company can be protected.
4. Encourage in-store returns.
An option to avoid going bankrupt from online return profit losses is to encourage in-store returns. List it as an option on your website on the returns page with clear directions.
In-store returns are beneficial for three reasons:
- The customer doesn’t have to print a shipping label and take it to a shipping carrier location, which can be time-consuming,
- Gives the customer a chance to find what they’re looking for and potentially purchase additional items, and
- You reap the rewards of an in-store sale and offset the cost of shipping a return.
Even if they don’t end up purchasing a new item in-store, you also now have the opportunity to sell the returned item again in-store. If you didn’t have the option to return in-store, you would have to scan it back into the warehouse and re-list the item online. That adds up in labor costs.
After all, you’re not really running an omnichannel business if you don’t offer a return in-store or BOPIS option.
5. Stock inventory across locations.
As your omnichannel empire grows, the need for opening multiple distribution centers grows.
For example, you may begin with one supplier who ships items to one distribution center (DC). At this point, complexity is low and it’s fairly simple to keep tabs on inventory activity. But as you add more distribution centers, the supplier may now ship to a central or regional distribution center that then goes to your other warehouse.
Again, the best way to support this kind of growth is with a centralized software. An IMS makes it easy to keep track of inventory as it moves across different DCs. Especially if you use a barcode scanning method.
Barcode scanning is done at receiving so that the SKU properties and it’s descriptive components are automatically uploaded inside the software. Barcode scanning gives users visibility into adjusted inventory levels as they occur and their location.
Capabilities like this make the thought of growing stock across different locations more manageable.
6. Create a customer satisfaction contingency plan.
To mitigate as much customer confusion as possible, create a clear and concise shipping and handling and returns and exchanges policy.
As the old saying goes, the customer is always right. Your customer satisfaction contingency plan needs to reflect that, and the bulk of it will come from how you handle shipping and returns.
On the returns page, for example, you can create a chart to show the different shipping methods and their associated fees and delivery dates. This shows shoppers what they can expect upfront. On the returns and exchanges page, outline how each process works by sales channel. List FAQs and a way for customers to easily contact you with questions.
Clear communication is your goal, and it’s what will keep customers coming back. If a product is running low, inform them. If you’ve extended your return date window, let them know in bold writing. Customers are your cheerleaders. Ensure they’re spreading the right message.
Omnichannel: Steps to Get Started with Inventory Management
There’s as much preparation involved in what to consider before implementation as during and after. Business owners have to determine if it’s the right time for a software or if you can sustain the business without a software at all. Hint: to grow an omnichannel business cannot be done without a centralized inventory management solution.
1. Determine where your inventory exists across your network.
Inventory exists in multiple locations as well as in multiple stages in the workflows. Inbound, transfer sales, and multi-location all make it harder to get an aggregated view of your inventory and maintain the visibility to drill down to see specifics.
To make this happen you need to work with your inventory software provider and determine the workflow you will use for this stage of your business. A good framework here is critical and can make the difference in an organization’s ability to make the best strategic decisions.
Then you will need to get an accurate current view of all the different stages and locations inventory currently exists in and sync that data to your system. From then on all updates will either go into or be updated in the system. Now you will have real-time cloud visibility to your inventory, which can also be connected to other systems in your tech stack.
2. Choose how you will source your products.
Any time you are adding SKUs to your catalog you may have to decide if it is best to produce the goods or source it. This will be a different experience for every company and can vary widely by industry.
Generally, the market will dictate this decision. Ideally, you can do some small tests, gauge reaction, and proceed from there with more data. Once you start ordering finished goods or raw materials you will need to start tracking the inventory.
3. Decide if you will implement an inventory management solution.
All businesses can implement an inventory management solution if they are able to make it a priority
This can be hard when you’re already wearing multiple hats. As companies grow they tend to have dedicated roles to operations which can focus more on these types of projects, but if not, dedicating the time can be hard. If this is the case for you, it might be worthwhile to ensure the provider you are going with has the ability to assist you through the implementation process.
Implementation time still requires a good chunk of time. The cool thing is that once it is set up and processes are in place, with reporting for user accountability as an example, it should become a well-oiled machine instead of a time suck.
4. Analyze if your business can continue growth without inventory management.
Will your current processes scale with you? Can they handle twice the capacity? These are questions you can ask yourself to begin thinking about your fulfilment operation’s resilience.
Even if the answer is yes, it’s worthwhile to think about the small problems you encounter and handle manually now. How will those scale as the company grows? What personnel needs will it require and what is the cost tradeoff there?
Once you start analyzing the direct and hidden costs of not implementing a good system it becomes clear quickly that, financially, it is a huge win.
5. Assess different vendors that fit your business needs.
Start out by listing out the main workflows you need to handle. Specifics are great, but thinking and talking in workflows is the best way to convey intent.
This ensures you discuss and cover all the steps from point A to point B of your main workflows. A system launch is not the time to change your processes, but rather to improve your processes. That means considering desired processes and system capabilities, but should not be derived from a “this is how we have always done it” mentality.
Choose a few vendors that you believe are the closest fits and do demos with them. Ask all your questions, see the software, and take your time making the decision. It’s great if you have friends in the industry who can give recommendations. It’s also great to start by looking at what the other vendors in your software stack integrate with as you know it will be easy to set up.
As customers continue to control the method in which they receive goods from retailers, it’s critical that retailers match where those customers are looking. It’s no longer viable to provide one outlet for purchase. In today’s world, an omnichannel approach is imperative for longevity.
With the right software solution and an honest customer service experience, merchants can build an optimized omnichannel inventory management platform built for complete visibility as you grow.
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