Solution Design Mistakes For Inventory Availability That Could Be Costing You Millions
For a retailer who generates $500 million dollars in online sales, where an average of 10% of total online sales are buy-online-pickup-in-store (BOPIS), BOPIS can easily be a $50 million program. With current BOPIS rejection rates around 5%, saving just half of those rejected orders could account for over $1 million dollars in additional sales. As customers are increasingly willing to pick up online orders in a store, the estimated savings will continue to rise. Customers will not only save on shipping costs, but they will also receive their orders quicker.
So what is accounting for the 5% BOPIS rejection rate? The answer is Inventory Accuracy at the stores, but the solution isn’t easy to pull off. The impact is that customer orders are canceled due to missing inventory showing as “available” on the website. Below are 3 key points to consider when building a foundation for real-time inventory management. This leads to improvements in determining inventory eligibility and setting accurate protection levels; ultimately saving lost sales and increasing customer satisfaction.
1) NEAR REAL-TIME INVENTORY IS NECESSARY AS A FOUNDATION
Omni-channel retailers still maturing in their approach often make the mistake of starting with a simple store inventory design, by sending once-a-day feeds to OMS. As a result, inventory is over-protected to compensate, causing less available inventory online. The lack of OMS visibility into the true inventory picture can also lead to shortages for BOPIS orders. Both of these results translate directly to lost sales that can be easily prevented.
Our recommendation is to send inventory deltas to OMS throughout the day, creating a near-real-time inventory picture. First, focus on store sales, then add in damages, receipt of new products, and store returns. The benefits of real-time inventory are significant reductions in short picks and canceled customer orders. In addition, customer experience scores go up, lost sales are avoided, and add-on sales increase.
2) WITH A REAL-TIME VIEW, THEN DECIDE WHAT TO SHOW AS ELIGIBLE INVENTORY
In most leading Order Management Systems, the main function is the ability to create rules to determine inventory eligibility for fulfilling online orders. By having a real-time view into a store’s inventory, retailers can take advantage of eligibility rules to further improve their fulfillment strategy. By thoughtfully creating these rules, a retailer is able to prevent unexpected shortages and provide a better customer experience.
The 3 things to consider when determining eligibility rules are:
|1||The time it takes for a store to receive products and make them accessible for fulfillment||Received items at a store in the back room are usually unavailable to be picked immediately for store fulfilled orders.|
|2||Location of items in the |
store using a planogram
|If items are consistently in-stock and at a consistent location in the store, the result is lower shortage rates and less canceled orders.|
|3||Seasonal items or items newer to the store and not on the planogram||These items are received less often and are shorted more often than non-seasonal items.|
One solution to reduce shorted orders is setting a rule to only make an item eligible X days after it has been received. Stores need enough time to put away the product where it is in pickable state. By over-exposing goods that may still be in a box at the back of the store, you may be inaccurately shorting inventory when you had it all along. This rule must be considered when configuring an OMS system or must be available as a setting in a system outside of OMS.
3) PROTECT THE ELIGIBLE INVENTORY AND PUT IN PROCESS TO OPTIMIZE
Every store manager knows their success is determined by keeping customers satisfied with their shopping experience, but the best ones know the goal is ensuring physical inventory for every product is maintained in the store for walk-in customers. Having products in stock helps to ensure a good customer-brand relationship where a customer is more likely to be a repeat purchaser. If products are out-of-stock, customers are more likely to shop at another store where they are confident they will find what they are looking for.
To ensure inventory is always available at the store, protection levels are set to restrict online sales from wiping out the in-store inventory. When protection levels are set too high BOPIS sales and potential add-on sales are sacrificed. While the foundation to inventory availability is accuracy, a main driver of sales is showing the right inventory availability amount; this is where protection levels play a big part.
ONCE WE HAVE ALL THREE, MONITOR
By implementing a real-time inventory view, you can leverage and benefit from the use of eligibility rules and confidently setting accurate protection levels. With just a few small changes in your inventory approach and the above in mind, you’ll be part of the “Great” solutions!
Cody Schwartz is a Senior Consultant in the Omni-Channel Practice at SCApath and specializes in order management software design and implementations for Omni-Channel Retailers.
Contact us to learn more about how we can help with your ‘Single view of Inventory’ initiatives.