Is This the End of Multi-Echelon Inventory Optimization?

Transforming the Retail World

“The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.” – Albert Einstein

The emergence of ecommerce has transformed everything about the retail world: How customers search for products. Where they buy. The ways they take delivery. And what their expectations are throughout the entire shopping experience.

The explosion of digital sales is only continuing to grow. According to a U.S. Census Bureau report, online commerce in the U.S. has expanded from $230 billion in 2012 to nearly $460 billion in 2017, with even more growth expected in 2018 and every year beyond.

Source: CBRE Ecommerce retail sales hit $453.5 billion in 2017, as brands invest in omnichannel

Today, customers demand omnichannel shopping experiences including mobile purchases, buying online and pick-up in store, ship to store, ship to home, curbside pickup, returning online purchases in store, two-day shipping, same-day shipping and next-day delivery.

In short, consumers expect to be able to buy and return anything, on any channel, on any timeline of their choosing. As a result, retailers have transformed fulfillment capabilities to meet those expectations.

But here’s the key question: Can you successfully implement omnichannel fulfillment and maximize profitably?

The answer is yes, maybe. Yes, it can be done. But only by taking a cue from Einstein and changing our thinking about it. The focus also needs to be on the other side of the equation: inventory.

Current Technology is Only a Partial Solution

At the outset of ecommerce, retailers had an idea of how much product customers would buy but had to figure out how they would buy it.

For years, most retailers relied on multi-echelon inventory optimization to ensure they streamlined inventory supply across the entire network in order to fully realize sales opportunities.

For a while, that technology worked really well. Organizations gained alignment of supply and demand across the network, with network inventory transparency and optimization of demand by channel.

Then shopping and shoppers changed. Ecommerce exploded. Fulfillment options expanded. And the shortcomings of multi-echelon inventory optimization began to be exposed.

Those solutions weren’t built with today’s retail realities in mind. In today’s anytime, anywhere world, multi-echelon technology offers no insight and gives no consideration to the many unique fulfillment experiences available to shoppers. That’s a problem.

In addition, multi-echelon technology only provides a limited understanding of demand.

For example, when someone orders a product online and it’s shipped from a retail store, who gets credit for that demand? Should the demand be realized at the fulfillment location or the demand location?

Often the answer depends on both your fulfillment strategy and your inventory strategy. If the store fulfilled the order because the distribution center was out of stock, likely the DC deserves the credit. If the store fulfilled the order because of a strategic decision to leverage the closest store for next day delivery, possibly the store deserves the credit.

In each case, the fulfillment experience matters. The inventory strategy matters. Gaining insights into all of them – and adjusting inventory accordingly – is the key to profitability.

A New Solution for Today’s Retail Reality

It’s an omnichannel world and we’re all operating in it. A lot of work has been put into new fulfillment strategies.

However, to gain the most profitability, focus also needs to be on the inventory side of the equation. Multi-echelon inventory management still has value, but it’s not enough.

In order to thrive in today’s complicated retail environment, many retailers are turning to Manhattan’s Omnichannel Inventory Optimization (OIO).

This first-of-its-kind approach takes full advantage of all factors – network inventory, channel demand patterns and omnichannel fulfillment strategies – to better align inventory across the network.

The result is lower costs, greater efficiency and a higher return on your inventory assets. OIO rebalances the fulfillment/inventory equation so you can offer the best possible shopper experience at the lowest cost to your business.

A new day in retail has created a whole new set of challenges. You need a new kind of technology to meet them.

The Evolution of Inventory Optimization

How much inventory is needed to meet our customer service objectives? This is the fundamental question inventory optimization solutions have attempted to answer since the advent of advanced replenishment.

• THEN In the early days, buyers ordered inventory based on their best guess of upcoming demand at a single location. This approach often resulted in the ‘bullwhip effect’, where forecasts distorted - and orders inflated - as they moved up the supply chain. Managing inventory from the bottom up became increasingly costly and ineffective as retail organizations grew.
• NOW In the 2000s, as the retail environment became more complex, the multi-echelon methodology took hold. Replacing traditional systems, multi-echelon solutions enabled a bi-directional, network approach to inventory optimization that continually updates stock at every level in the supply chain, bringing transparency to the process.
• NEXT The next generation of inventory optimization is omnichannel, advancing multi-echelon concepts to fully embrace digital commerce and changing consumer fulfillment preferences. Omnichannel recognizes that inventory is consumed differently today, making it possible for retailers to better compete in the new era.

Download the whitepaper “Enter the Era of Omni Inventory Optimization” and learn how OIO can help ensure your inventory is in the right place at the right time to meet customer demand.