It sounds like a sci-fi trilogy: Past, present, and future merge to provide a single, optimal inventory experience. Multichannel merchants manage inventory seamlessly throughout major business processes and across channels in order to find the perfect balance between customer service and profitability.
Few merchants today would claim to have reached this level of inventory management, as developing such a strategy can be complex. But there are compelling economic reasons to try.
In most multichannel companies, inventory is the largest dollar asset on the balance sheet, which means that how well you plan, forecast, and manage inventory will to a large degree determine your profitability. Inaccurate forecasting ultimately produces backorders, and backorders can result in dissatisfied current customers; they can also turn away potential new customers.
Although the cost of poor inventory management doesn't have a separate line on a company's P&L statement, it can be steep. According to our proprietary studies with dozens of companies, the true cost of a backordered unit of merchandise runs from $7 to $12. For a company processing 200,000 orders a year, with an average of two items per order and a 20% backorder rate, the operations cost to the company could run as high as $480,000. This does not include costs related to prospecting, expediting backorders by inventory control, returns because of late shipments, lost margin, additional air freight, and customer ill will or losing the customer all together.
Faulty planning and forecasting can also produce overstocks that must be liquidated, at a loss of as much as 4%-10% of merchandise margin (between initial purchase margin and maintained margin), depending on the product category.
Direct marketers are well aware that they need to resolve inventory issues across channels. In a recent AMR Research survey of retailers' plans for upgrading their multichannel systems, 22% of the respondents cited Web-enabled inventory management and visibility as a key strategy they will be working on in the next 12 months. The AMR report, “Technology Trends in Inventory for Retailers and CP Manufacturers,” went on to say, “The lack of data consolidation for inventory and order management further illustrates retailers' immature inventory management and order processes.” The report also lists customer loyalty and multichannel customer order fulfillment among the top five concerns of respondents.
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