Making the move to omnichannel retail means looking into several factors that are often not a part of running a single-channel business.
Every aspect of your business needs to be up and running across every channel for smooth selling.
Only then can you ensure that your business doesn’t collapse and leave you in losses.
Sure, it’s too much to manage multiple business channels. And naturally, going omnichannel means an increased possibility of problems like:
- Losing sight of your inventory across channels
- Not calculating your inventory often enough
- Using different technology in your online and offline stores
- Assuming that your customers want different experiences across different channels
- Not considering the possibility of cross-channel returns
- Losing focus on customer experience
So, how do you tackle the transition? Start off by prioritizing your inventory above all else.
We bring to you a few tips to help you optimize your inventory management so that you minimize your resource drain while continuing to function efficiently.
Set Up An Integrated Supply Chain
With customers wanting more and better, there is an increasing need for every business to have an online and offline presence. And if you decide to expand to such a setup, your supply chain is bound to be under a lot of pressure, leading to a segmented supply chain.
So, before you look into anything else, you need to reimagine your supply chain so that it works across more than one channel.
The key to developing a robust supply chain for an omnichannel business is to ensure clear visibility of your inventory all the time.
Seek out and adopt a powerful inventory management software, which will track your inventory across all channels in real time. Using such software will help your business tremendously as you can use it to:
- Forecast product demand
- Automate purchase orders
- Streamline order fulfillment across channels – right from inventory management to shipping to order delivery
- Handle returns efficiently
Automating all these processes will enhance your revenue significantly and leave you with time and resources to focus on other aspects of your business.
Keep Just Enough Safety Stock
It’s only right that you keep some excess stock handy in your warehouse to cater to sudden sales spikes and avoid stockouts. But, more often than not, retailers like you are unable to figure how much is too much.
Many often feel that they’d rather hold excess safety stock than deal with a stockout.
However, doing this will dig into your profits over time the same way a stockout would. So, the best way to deal with overstocking and understocking is to stay on top of your inventory by doing your inventory calculations often.
This way, you keep only as much safety stock as you need, avoid stockouts, and don’t lose out on profits.
Remember that, no matter what, you need to know the demand for a product at any given point and the corresponding lead time. This includes sales data for peak business seasons and maximum lead times.
The formula below should work well in most cases as long as you have gathered the data for it correctly.
Inventory calculations 101
Safety stock = (Maximum daily sales * Maximum lead time) – (Average daily sales * average lead time)stock
Now, assume that you are a clothing retailer looking to optimize the stock for your trench coats during the fall. On an average, you probably sell 6 trench coats a day. But, during the fall, you probably sell 12.
Your vendor usually has an 8-day lead time. But you remember that last fall, your vendor took 15 days to send the products across to you due to increased demand. So, considering this, your safety stock should be:
Safety stock = (12*15) – (6*8) = 180 – 48 = 132 trench coats
It’s also important that you calculate you’re optimal reorder point correctly. But because this value is hardly ever the same for an omnichannel business, you’re better off seeking out a good inventory management software.
Such software will track your inventory all the time and automatically reorder for you at the right time.
Switch To Multi-Tier Inventory Optimization
Single-echelon, or single-tier, inventory optimization essentially focuses on managing inventory from one location. You have just one distribution center and manage all your orders from there. This method works great if you have a small business, making inventory management simple enough.
But, when you start expanding, you are bound to require more distribution centers, thus adding levels of complication to inventory management. So, multi-echelon, or multi-tier, inventory optimization (MEIO) is likely to work better for your omnichannel business.
For this, you will need to set up a regional distribution center (RDC) to which your vendors will send inventory. And your other distribution centers will receive inventory from this RDC.
More About MEIO
MEIO essentially allows retailers to stock inventory strategically across all supply chain stages, while accounting for interdependencies between the stages.
Its key feature is that it involves optimizing inventory by considering crucial inventory drivers like frequency of stock replenishment, your strategy for order supply, and your goals for service. It also analyzes any variables that might lead to excess inventory like demand fluctuations, supply challenges, and extended lead times.
In MEIO, any decisions you make regarding the inventory drivers are made at an enterprise level in one optimization exercise instead of multiple optimization attempts for each echelon.
So, it enables centralized demand planning, thus reducing costs across the supply chain and streamlining your operations.
Improve And Optimize Returns
Sure, selling right is important. But a smooth returns process is likely to get your customers to buy from you more often and build loyalty. As many as 92% of shoppers will buy from you again if they find it easy to return products they bought from you.
As an omnichannel retailer, returns can prove to be expensive if you don’t work out the finances right. There are extra labor costs for employees and third-party partners for reshipping the product back to your warehouse or store and deciding the fate of the product.
There’s also the added expense of catering to cross-channel returns – buying online and returning at the store. And the worst part is that many retailers don’t even charge customers shipping charges for returns, thus leading to huge losses.
Make Returns Better
So, how do you tackle returns to make them profitable for you? You come up with an efficient returns process while factoring in all the extra costs.
- Have a repackaging process that is well-organized and cost-effective.
- Consider outsourcing your returns to a third-party logistics (3PL) company. Although this may seem expensive initially, it will certainly save you a lot of time and resources in the long run.
- Make your return policy as flexible and transparent as possible. This ensures that your customers don’t feel cheated at any point and start trusting your brand, leading to loyalty and hence more purchases.
Optimizing inventory management right from the start will help you run your omnichannel business smoothly and prevent unforeseen costs. It will also make your business more efficient and help you serve your customers better. Happier customers mean more sales and hence higher revenue for you.
So, start optimizing your inventory now with a good inventory management system and watch your business grow leaps and bounds!