Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
If there was any part of the supply chain that you could assume is "done," it would be warehouse design — talk about a well-understood problem with some fairly straightforward math and modeling required to solve the problem.
So why did a presentation by Fortna, a supply chain design and implementation firm, on the current state of warehouse design at the recent Manhattan Associates’ Momentum conference in Las Vegas draw a standing-room only crowd? Because omni-channel changes everything.
In talking with Fortna executives after the presentation, we came to the conclusion that distribution network redesign these days is an exercise in optimization where 99 percent of the constraints we used to use in planning out a distribution network design have been blown up. In trying to address the shift in product distribution brought about by either enabling cross-channel fulfillment or more holistically trying to make every piece of inventory available to be sold in any channel, retailers have to almost literally start with a blank piece of paper. Everything that they knew about slow movers vs. fast movers, dedicated e-commerce and retail distribution vs. mixed fulfillment — it’s been thrown out the window by the shopper.
![[Image: Manhattan Associates]](/public/images/discussions/16833/manhattan-associates-still.jpg)
From a merchandising standpoint, the whole planning process is facing an overhaul. By opening up inventory across all channels, retailers are starting to get a much better understanding of the real "depth of demand." And when they start tracking — really tracking — the missed opportunities that occur because of mismatched demand and supply, they find that they’re missing way more than they thought they were. It impacts both overall buy as well as where to place that buy to best meet demand. And it definitely means a return to the arm-wrestling that occurs between planning bigots and execution bigots.
Right now, in retailers that have virtual pools of inventory available to every channel, execution is saving planning’s bacon — the misses are bigger than they realized, and it’s only by being able to tap other channels’ inventory that retailers are able to close the gaps. Will planning get smart enough to incorporate these misses to plan better next time? Or should they even bother? If they get close, execution can take it the rest of the way.
Let the arm-wrestling begin!
BrainTrust
Discussion Questions
Where should retailers invest to make the most of omni-channel inventory? What challenges do omni-channel inventory demands present for merchandising?
Poll
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Within the world of retail we all know that there is no single right answer to this question. Each retailer needs to take a close look at their current inventory management and planning processes and then look into how they can address the problems. The last SCM wave of change was about getting solid, integrated SCM platforms in place. This time, and why the room was full at said event, retailers are looking for ideas on how to deal with their unique situations. Multi-channel retailing is not the only driver of this change. SCM is also on the front burner because it is a place where costs and excesses can be trimmed and thus net-margins improved.
2014 will be a year of interesting SCM stories…and many full rooms of more and more retailers AND wholesalers looking for more ideas on how to solve their problems.
Tom…on the forklift with my Google glasses….
Admittedly, supply chain, warehouse design, etc. is just not in my skill set. Yet I do want to offer a brief comment on the initial thought that people might consider warehouse design “done.”
Thinking that there is a final endgame in any dimension, that something can go no further, can no longer be improved, that there are no more possibilities…is the signal for pending doom. Nothing is ever “done!”
One of the most limiting and too often used phrases (next to “thinking outside the box”) is “You can’t reinvent the wheel.” Truth is, yes you can. History is replete with people loudly claiming that something has gone as far as it can, that everything has been invented that can be invented, that 640k is all the data storage we will ever need, etc.
Life and work is about seeing possibilities…and they are infinite.
As to the first question, it all depends on the retailer, what they are selling, and the size and scope of the so-called “omni-channel” demand.
That’s three too many variables for a quick, pat answer.
As to the second one assumes that demand—and therefore inventory supply—may be a tad more variable in the “omni-channel” world, but shoppers being creatures of habit, I’d like to see some data to prove that.
There is no doubt in my mind that brick and mortar retailers that venture into other channels need every aspect of their distribution system to be reviewed. For supermarket retailers that have struggled for years with the debate over how much slow moving inventory they should actually carry in their physical stores, with the online channel available to them, they can modify their distribution process to make some of these slow movers, “online” only.
For those retailers that currently have a robust business in both bricks and mortar and online, their systems need to be “hyper communicative” in order to make sure that their combined inventory is accounted for in a comprehensive manner, thus mitigating out of stocks, or over stocks.
While this new distribution approach will not come without pain and expense, ultimately it should pay significant dividends to those that emerge with thoughtful, efficient omni-channel systems.
Retailers need to know exactly what inventory is where in real time, so investment to make that happen is essential. Until that happens, retailers will not know where the mismatch between inventory and demand is, so they can not do anything to resolve the problem.
The challenges are several: identifying the same consumer across every technology, keeping track of who orders what from which device, determining who wants what product delivered where, and which inventory should be used to satisfy the request. From the consumer’s perspective, this should be seamless: one company should be able to fulfill a request for a product regardless of what device is used for the order, where the product is, and where the consumer wants it delivered.
Inventory visibility and strategy for offering expanded product assortment across all channels presents a top challenge for retailers that want to be leaders in their category.
Warehousing alone is too expensive and risky, so retailers need to have a strategy for managing and scaling distributed supply (vendor managed supply). This includes how to deal with RMA and ensuring rapid fulfillment, so the complete customer experience is the same whether the consumer orders an item that is in a warehouse owned by the retailer, the retailer’s store, or a vendor’s warehouse/3PL.
Two factors are driving the omni-channel distribution center issue. First, most DCs are either piece or case pick. Most retailers set up separate case pick facilities for the piece pick resulting in duplicate inventory. Second is the shipping mode of parcel—less than truckload and full truckload. Putting a piece pick on a store truckload delivery results in extra labor and frequent errors. Pallet rack selection for piece picks results in higher labor cost and slower production.
In a recent warehouse design, I used case-flow-rack zones for piece picks reducing the pick labor while keeping the inventory nearby for case picks. The most important point is to understand the DC customer’s needs and work back.
Like others have said, it’s going to be fun watching where this goes and the many different approaches that retailers will come up with.
The only clear thing is that handling omnichannel demands must begin with clear visibility of inventory across all channels. Next is, knowing the buying habits and locations of customers. From there, let the games begin!
Retailers and CPGs need to learn from the best (… and if you don’t know who they are, you probably have bigger fish to fry!) and leverage the key aspects of those best practices in their own supply networks. I feel there is still a long way to go, throughout the US and especially in emerging markets globally, around omni-channel inventory management. In this evolving world, change is accelerating, so I really hesitate to suggest that any aspect will ever be close to “done.”
Merchandising need not be the “art” that so many merchants have made it over the years. Omni-channel merchandising has so many tools of which people can take advantage. The challenge continues to be “DATA”. Really big data. However, we are seeing some great merchants managing that data , too!
There is no “one-size fits all” answer here. As long as the retailers can financially justify the movement of inventory and fulfillment across channels with a positive net contribution to the brand. This could mean investing in inventory visibility systems (stores, DC, drop ship, etc…), using stores as fulfillment centers, etc… But it does not stop just at fulfillment; the retailer should be able to track the return, exchanges and other actions made on the transaction post-sale.
Did we just open up a can of worms? Its not just about omni-channel inventory, but it has an impact on the “day in the life of a retailer” (including merchandising). And, top it off with the “organizational impact” needed to make omni-channeling a success.
First things first: Supply problems are seldom about having too much of something. Instead, the main problems come from not having enough. Out-of-stocks, misunderstood demand, etc. Most retailers would rather have too much of something than too little (except live bunny pet stores, where “too much” inventory can quickly become TOO MUCH!).
With that in mind, it occurs to me that, unlike assertions by others, the channel through which a customer shops is irrelevant. The first order of inventory business is to simply make sure you have enough stuff, regardless of the way in which it was ordered and delivered. That’s when accurate inventory tracking is most important, including velocity predictions and just-in-time replenishment. This is where attention should be directed first, saving analysis of purchase channels for later.
People in the enterprise ecosystem should rejoice! ‘Nice to haves’ are looking more and more like ‘need to haves’! I agree with your comment regarding the blank sheet of paper; the core design that was the basis for the current generation of retail systems and the core business problems have changed enough to fill the room. That was a good data point. Do the incumbents have enough lock-in to own the next cycle?