In omnichannel and ecommerce companies, inventory management, including tracking and reserving inventory for orders, is crucial for maximizing sales and improving customer satisfaction. If you can’t give customers accurate product availability, status, immediate delivery and store pickup, you’ll probably lose the sale and the relationship.
Inventory management systems and processes are dispersed throughout the business. It’s also difficult to analyze how to improve accuracy and timeliness. Without a total replacement, how can you incrementally improve systems and processes?
We will outline a 6-step process for assessing your inventory systems and developing an action plan for improvement.
1. Assemble Your Team
Make the project team company-wide including:
- Study groups of merchants and inventory control
- Warehouse personnel that can contribute inventory knowledge in receiving, cycle counting, order fulfillment and returns processes
- Store personnel picking customer orders
- Ecommerce analysts that work with inventory status
- IT personnel that know these systems and can estimate desired systems changes
- A senior management sponsor who can help elevate the priorities and solutions
2. Assess the Objective
Assess how the inventory management processes and systems can be improved in terms of accuracy, timeliness and higher order fill rates to maximize sales and customer service. To achieve this look at all these systems and supporting processes including:
- Merchandise planning
- Purchasing and purchase orders
- In transit to DC and ASNs
- Receiving, checking and put-away of stock
- Customer order fill at store level
- Customer order fulfillment and relieving inventory in the DC
- Allocation and reservation of items to an order in the network
- Returns processing and disposition as saleable
- Inventory adjustments
3. What’s the Big Picture?
Start out collecting metrics that give you a picture of inventory accuracy. Data sets include order fill rates, formal inventory results company-wide (shrinkage and overage) and assessment of store-level and DC accuracy of on-hand data at the SKU level.
Include interviews with team members regarding the metrics and processes to identify where to look for the problem areas. A few of the major problems we see in consulting with ecommerce and omnichannel companies:
- Lack of accurate SKU delivery dates on purchase orders
- Inventory inaccuracy and inability to assign items to customer orders when color and size quantities are small. Each store often has limited quantities
- DC inventory inaccuracy resulting in warehouse “cannot finds” or back orders
- In a multi-warehouse network, business rules which prevent filling orders without multiple shipments or customer service involvement
- Failure to streamline planning and ordering processes to shipping locations
4. Document Inventory Processes
One of the most effective things you can do is create flow diagrams and high-level documentation illustrating current inventory processes. Because of the interaction of systems and processes, these diagrams can help isolate where potential data flow problems and timing differences arise. Create both current state and future state illustrations. Use a documentation or collaboration tool to create diagrams and corresponding descriptions.
Often in inventory environments there is a master inventory file and one or more inventory subsystems with different functions. For example, an inventory file may be passed every 10 minutes to an ecommerce site. This would be considered a “slave” to the master item file. You will find other inventory-related files for special functions. All of these need to be understood in the discovery process.
One of the key things to understand is, are there processes that temporarily hold inventory for an order? When is inventory allocated to an order? When is inventory on hand actually decremented from the inventory files?
5. Integrate with All Inventory-Related Systems
One of the overall objectives is to create a single version of the truth. In older systems that are not truly integrated, you may find different data values for key items such as SKU sales and on-hand, on order.
Batch-based environments in older systems need to be eliminated if possible with online processes that improve inventory timeliness and visibility (e.g. arriving SKU inventory to DCs and stores or returns processed).
6. Develop An Action Plan
Every company’s assessment will be different. It’s important to prioritize the changes and estimate the effort and benefits. Low-hanging fruit is important. However, there are often changes that have to be made first in order to implement the most critical updates.
While these assessments require a lot of effort across departments, improved inventory management, including higher accuracy and availability, are critical to improving both sales and the customer experience while remaining competitive.