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The case for a more integrated Omni-channel System Landscape

By . 15 May 2016 . in Uncategorized

Over the past decade, leading retailers have become increasingly more focused on their customers’ desire to see available store inventory. A 2015 Forrester research report quantifies it, showing that an overwhelming 89% of consumers expect this visibility when purchasing on their website. This functionality on a retailer’s website is critical to both drive foot-traffic to the store, and specifically to enable Buy Online Pickup In-Store (BOPIS) order fulfillment flows. To facilitate the cross-channel sale, retailers have responded in the last five years with heavy investments of money and human capital to update their Order Management Systems to track the order creation from the digital channel to the ultimate fulfillment by the stores, but there is still work to be done from a technology and process standpoint for many retailers just starting to enable their Omni-Channel strategy.

The case for a more integrated Omni-channel System Landscape

The critical integrations and functionality needed for Store Inventory Management (SIM) & Point of Sales (POS) systems to feed the Order Management System (OMS) an accurate view of network inventory are often rigid and not easily changed by an organization’s IT team. Brian Kilcourse and Paula Rosenblum of Retail Systems Research (RSR), in their annual 2015 Omni-Channel 2015 Benchmark, note that:

“Retail Winners are much more keenly aware that the IT portfolio in general was not designed with the customer dimension in mind (most legacy retail software is overtly product oriented), and that store systems in particular will be too difficult to adapt to an omni-channel mode of operation.”

Their report mentions specifically that 43% of retailers surveyed deemed “winners” still say that their store systems are ‘too difficult to change and adapt to an omni-channel strategy’, while 40% ‘don’t feel their Inventory & Order Management Systems integrate well across all channels’.

Why it’s historically been hard to integrate

During my career designing and implementing Omnichannel solutions, one of the main issues that my clients experienced was the requirement to increase the frequency of the POS feeds to the OMS system, via the Store Inventory Management system. Most of my customers had decade-old POS technology which only synchronized the day’s transactions (sales, receipts and returns) to external systems once a day. The issue this causes is that the inventory picture,  leveraged by OMS to make decisions around order fulfillment, is ‘stale’ and does not reflect real-time inventory positions in the stores.

To counteract this, OMS providers have allowed retailers to interface or configure a ‘safety stock’ level for each SKU-Store combination to protect the allocation decision against changes in inventory due to sales and inventory shrinkage, however this is a double-edged sword for most retailers. The reason is that it precludes the sale of the protected inventory, while at the same time protecting the company against scenarios where inventory was said to be committed to a customer, but in reality it could not be located or serviced in the store.

The balance of protection is a hard lesson to learn for many retailers. The complexity arises because each company has their own requirements based on their store format, frequency of store replenishments, and sku-assortment; all of which vary by concept and geography of their stores.

The second primary reason is that legacy store inventory management systems being integrated to the OMS do not track store inventory by location. This has led to increased fulfillment cost for Omnichannel strategies, because Orders get sent to a store for inventory that cannot be sold to the customer (e.g. damaged inventory not classified as “un-sellable” and accessories/mannequin inventory shows as “able to sell”). Leading software providers now offer a framework for retailers to track inventory between the backroom and the sales floor, but because the initiating system views all inventory in one bucket, the functionality cannot be leverage to give an optimized pick-path approach.

THE NEED FOR MORE TIGHTLY INTEGRATED SYSTEMS

As retailers assess their upgrade options for a new OMS to deliver a single view of inventory to offer to customers, it will be equally important to consider how the store inventory systems tracks and updates that inventory picture. Without synergy between the two systems, the OMS could be making a less than optimal decision based on outdated data, and the repercussions affect the bottom-line, and more importantly, affect the customer experience by negatively reflecting on the brand’s ability to honor committed inventory. With so much on the line, retailers will definitely need to focus on this critical area to enable their successful Omni-Channel initiatives.