As we await the annual resurgence of carols, tinsel and mince pies in shopping aisles across Australia, we are also waiting for Amazon to come to town—and it’s happening much sooner than predicted.
The retail and analytics giant is set to launch ahead of the holiday season, in a move projected to shake the local industry to its core. Although the media is abuzz with advice for retailers on how to confront the Grinch who stole our customers, one advantage up the sleeves of many remains relatively unaddressed—cross channel sales.
Cross channel sales provide an unprecedented opportunity for retailers to service a variety of consumers in a holistic way. It is also something that Amazon Australia, for the time being, does not have.
An increase in online shopping saw retailers reinvent themselves as multi-enterprise commerce machines, offering bricks-and-mortar stores supported by ecommerce options. The problem is that the balance has shifted over the years. Online is no longer a support mechanism to physical stores but rather a more viable purchase option (as seen by Amazon’s staggering success) and today’s consumers use the two functions interchangeably, or at least try to.
Customers want to be able to shop online and return in-store, or browse on your website before heading to a physical location to purchase. To build a profitable business as multi-platform providers, retailers must truly integrate bricks-and-mortar operations with online activity. Keeping online and offline operations in separate silos simply increases the risk of becoming irrelevant.
Rejigging operational systems
In order to target cross channel transactions, Australian retailers must rejig their systems to overcome some fundamental challenges.
Inaccurate demand forecasts
When customers who have shopped online return items at a physical store, demand planners often have no visibility into this event.
Because of this, the retailer’s systems, solely considering online purchases (not the returns in-store), may forecast an inaccurate high demand for the particular product line. As a result, assortment planners may plan to buy more of the line, whereas with returns considered a different line may deserve more to be favoured.
Intricate inventory planning
Sometimes the above situation can play out in reverse, with customers reserving products online before showing up at physical stores to collect the items. This service by the store is still counted as an online sale and unless incentives are in place, store managers may not be happy providing the service and may see it as cannibalisation.
Making matters worse, distribution centres often maintain two separate inventories—one for online and the other for offline sales—without the flexibility to systemically interchange stocks between inventories when required. Inventory turns can suffer as a result. The new multi-channel world needs pre-allocation flexibility between online and offline and between offline stores as well.
Online and offline promotions are often used in silos. In-store customers often discover that the same product they’re looking at is priced lower online, and request a price adjustment to reflect the ecommerce offer.
Many store managers feel the need to comply, showing a price match as the reason code for allowing the transaction. But, in reality, margins are being eroded with in-store inventory being sold at online prices.
When retailers treat their online and offline channels as separate entities but bring these together superficially to quickly solve the problems posed by evolving customer demands, it at best offers brief symptomatic relief. The core of their supply chain remains ill-prepared to adapt to the new realities of omnichannel retailing and leverage the opportunities it has to offer.
Planning, managing and flexibility
If retailers are going to succeed in an omnichannel environment, there has to be a level of synergy applied to all transactions across online and offline.
Retailers have started to use systems that take into account the entire inventory. This is critical to increase visibility of ‘available-to-sell’ stock. With orders that have been placed, orders that are ready for shipment, cancelled orders, orders reserved at the store, and returns called out, the ‘available-to-sell’ inventory can then be published for every online user’s convenience, and distributed order management systems can fulfil the order from the best option or inventory point on the network.
Traditionally, inventory is optimised using better forecasts. But in this new world of distributed order management fulfilling demand from whichever inventory node is suitable at a point in time, how does one forecast demand and therefore optimise inventory at certain points?
The answer is found by breaking the problem into parts: planning inventory ahead of time; managing inventory through distributed order management closer to the instant of demand; and maintaining flexibility in between.
Planning: Demand trends may differ between online and bricks-and-mortar stores and also from region to region. Based on the network layout, demand channels and areas are selected that one should forecast at. This can change as inventory points open up and in the age of ‘buy online, pickup in store’, every new store with enough back room can be a potential inventory point.
Managing: While inventory is stocked based on forecasts, orders start coming in with different shipping options, pick up options and addresses. Distributed order management systems drive order fulfilment to the inventory point most optimal at that point in time.
Flexibility: Between planning and managing lies flexibility. Once sufficient inventory for expected demand is ordered, committing that inventory closer to the demand points is done based on latest sales and orders seen at those demand points. As allocation becomes more real-time, inventory risks reduce.
Obviously, merging online and in-store data sets provides a rich unified source of insights for sales projection without the additional effort of an operations team working to unify and prepare data for sales planning every week. Retailers can then ensure demand supply planning does not itself carry a large lag time of analysis.
Improving demand forecasting is the key to managing retail margins. Visibility of orders placed, orders cancelled and orders shipped leads to an increasingly holistic view of demand and therefore more accurate forecasting. Analytics will always play a foundational role—and Amazon is king when it comes to analytics—so it’s important that retailers adapt or risk being left behind.
Visibility is the key
Technology has enabled a fundamental reinvention of the retail industry by creating an opportunity to engage with customers at various touchpoints. In this new multidimensional approach to selling, visibility is the key. Inventory management will need to take a new dynamic approach to optimise service delivery, while forecasting will need to be cross-platform and aggregate as necessary.
Local retailer Myer is already hopping on board, with its newly-developed stock-picking app called My Picker—a comprehensive warehouse management system. My Picker is revolutionising Myer’s online productivity, warehouse labour efficiency and, crucially, fulfilment times. Thanks to the new technology, Myer customers who place orders before noon can expect afternoon delivery, drastically improving profitability and customer retention.
The new and evolving retail supply chain requires each company to tune into its specific network and customer needs in order to provide differentiated capabilities. Only then will this next generation of supply chain management successfully be omnichannel, and only then can Australian retailers retain their share of Santa’s gift haul.
Harsh Gulati is senior director and regional head at Infosys.
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